M/s. DEWAS SUNRAYS EDUCATION SOCIETY, Dewas v. The CIT, Ujjain

ITA 475/IND/2014 | misc
Pronouncement Date: 29-09-2016 | Result: Allowed

Appeal Details

RSA Number 47522714 RSA 2014
Assessee PAN AAAAC4091Q
Bench Indore
Appeal Number ITA 475/IND/2014
Duration Of Justice 2 year(s) 3 month(s) 4 day(s)
Appellant M/s. DEWAS SUNRAYS EDUCATION SOCIETY, Dewas
Respondent The CIT, Ujjain
Appeal Type Income Tax Appeal
Pronouncement Date 29-09-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 29-09-2016
Date Of Final Hearing 29-09-2016
Next Hearing Date 29-09-2016
Assessment Year misc
Appeal Filed On 24-06-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE .. .. % BEFORE SHRI D.T. GARASIA JUDICIAL MEMBER AND SHRI O.P. MEENA ACCOUNTANT MEMBER DEWAS SUNRAYS EDUCATION SOCIETY DEWAS .. ./ PAN: AAAAC4091Q VS. CIT UJJAIN / APPELLANT / RESPONDENT / APPELLANT BY SHRI S.S.DESHPANDE C. A. / RESPONDENT BY SHRI LALCHAND CIT DR DATE OF HEARING 29.09.2016 DATE OF PRONOUNCEMENT 29.09.2016 / O R D E R PER O.P. MEENA ACCOUTANT MEMEBR. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME-TAX UJJAIN [HEREINAFTER REFERRED TO AS THE CIT] DATED 30.04.2014. .. . / I.T.A. NO. 475/IND/2014 %' ' / ASSESSMENT YEAR: - I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 2 OF 12 2. GROUNDS NO. 1 TO 4 RELATE TO REJECTING THE CLAIM OF APPLICATION FILED U/S 12A/12AA. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SOCIETY CONSTITUTED AND REGISTERED UN DER THE PROVISIONS OF M.P. SOCIETIES REGISTRATION ACT. THE SOCIETY CONSTITUTED AS AN EDUCATIONAL INSTITUTION SOLELY FO R EDUCATIONAL PURPOSE AND NOT FOR THE PURPOSE OF PROF IT. THE SOCIETY HAS FILED AN APPLICATION FOR APPROVAL U/S 1 0(23)(VI) OF THE INCOME-TAX ACT 1961 BEFORE THE LD. CCIT INDO RE. 4. THE LD. CCIT VIDE ORDER DATED 22 ND MARCH 2010 HAS REJECTED THE SAID APPLICATION ON THE GROUND THAT TH E SOCIETY IS NOT QUALIFIED FOR GETTING EXEMPTION U/S 10(23)(VI). THE APPLICATION WAS REJECTED ON THE GROUND THAT CERTAIN ADVANCES HAVE BEEN MADE BY THE SOCIETY TO SMT. ANURADHA ARO RA AND SHRI CHARANJEET ARORA WHO ARE OFFICE BEARERS OF THE SOCIETY. 5. DURING THE COURSE OF PROCEEDINGS BEFORE THE LD. CCI T IT WAS SUBMITTED THAT THE SOCIETY WAS RUNNING A SCHOO L IN THE NAME OF CENTRAL INDIA ACADEMY FOR THE CLASSES FROM NURSERY TO CLASS XII. IT WAS FURTHER SEEN FROM THE RECORD THAT FOR THE YEAR I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 3 OF 12 2009-10. THE APPLICANT SOCIETY HAD APPLIED FOR REGI STRATION U/S 12A OF THE ACT. SUCH APPLICATION WAS REJECTED VI DE ORDER DATED 30.09.2010. THEREFORE THE APPLICANT WAS ASKED TO EXPLAIN AS TO WHY THE APPLICATION SHOULD NOT BE REJE CTED IN VIEW OF THE FACTS REMAINING THE SAME IN THIS YEAR AL SO. THE APPLICANT HAS FILED HIS REPLY WHICH IS DULY CONSIDER ED BY THE LD. CIT. IT WAS OBSERVED THAT IT IS APPARENT THAT TH ERE IS NO CHANGE IN THE FACTS AS COMPARED TO EARLIER YEARS EX CEPT IN THE FACT THAT INTEREST FREE ADVANCES MADE BY THE APPLI CANT TO THE TWO TRUSTEES HAVE BEEN RECEIVED BACK. AS ALREADY POI NTED OUT VIDE ORDER DATED 30.09.2010 THAT THE LAND AND BUILD ING ON WHICH SCHOOL IS BEING RUN ARE IN THE NAME OF TRUSTEE S AND HAVE BEEN SUBSTANTIALLY FINANCED BY THE SCHOOL TO B EGIN WITH BY INTEREST FREE ADVANCES. THUS AN UNDUE ADVANTAGE WAS DERIVED BY THE TRUSTEES FROM THE ACTIVITY OF RUNNI NG THE EDUCATIONAL INSTITUTION. THOUGH INTEREST FREE ADVAN CES HAVE BEEN RETURNED BACK THE UNDUE ADVANTAGE IS STILL BE ING DERIVED BY THE TRUSTEES BY WAY OF RENT AND PLUS THE CLAUSE I N THE RENT AGREEMENT THAT ENTIRE MAINTENANCE COST WILL BE THAT OF THE I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 4 OF 12 SCHOOL. PERUSAL OF THE INCOME & EXPENDITURE ACCOUNT SHOWED THAT AFTER SALARIES RENT AND MAINTENANCE ARE THE MA JOR OUTGOINGS. RENT AGREEMENT ALSO HAS AN YEARLY 15% INCREMENTAL CLAUSE. THE EDUCATIONAL INSTITUTE HAS THUS BECOME AN ACTIVITY OF GENERATING PROFITS FOR THE TR USTEES AND THE AMASSING OF WEALTH. THE INSTITUTE HAS ALSO NO IM MOVABLE ASSETS OF ITS OWN AND HAS THUS BECOME A CLOSELY CONT ROLLED COMMERCIAL ESTABLISHMENT GENERATING INCOME/PROFITS FOR ITS TRUSTEES. THEREFORE THE LD. CIT HELD THAT THERE IS NO CHANGE IN FACTUAL MATRIX FROM THE EARLIER ORDER DATED 30.09.2 010. THERE IS NO REASON TO DEVIATE FROM THE VIEW TAKEN EARLIER. ACCORDINGLY IT CANNOT BE HELD AS CHARITABLE ORGANI ZATION. HENCE APPLICATION FILED U/S 12A/12AA ON 25.10.2013 WAS REJECTED. 6. AGGRIEVED WITH THE ORDER THE ASSESSEE HAS FILED THI S APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CONTENTION OF THE LD. CCIT THAT ADVANCES WERE GIVEN FOR THE PURCHASE OF LAND IS TOTALLY INCORRECT. FURTHER IT WAS OBSERVED I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 5 OF 12 BY THE LD. CCIT THAT THE SAID FUND WAS UTILIZED FOR CONSTRUCTION OF BUILDING WHICH HAS BEEN SUBSEQUENTLY LET OUT TO THE SOCIETY FOR AN ANNUAL RENT OF RS. 6 LAKHS. T HEREFORE THE LD. CCIT HAS CONCLUDED THAT THE ABOVE TWO PERSONS HA VE DERIVED A DIRECT BENEFIT FROM SOCIETYS FUND. IT WAS SUBMITTED THAT THE FORMATION OF THE SOCIETY OUT OF EIGHT FOU NDER MEMBERS THERE WERE ONLY THREE MEMBERS OF ARORA FAMI LY IN THE SOCIETY AND OTHERS WERE OUTSIDERS. SHRI CHARANJEET ARORA WAS ONE OF THE FOUNDER MEMBERS. MRS. ANURADHA ARORA W/ O SHRI CHARANJEET ARORA BECAME THE MEMBER OF SOCIETY SUBSE QUENTLY. TO START THE SCHOOL FOR IMPARTING EDUCATION THE SO CIETY REQUESTED MRS. ANURADHA ARORA W/O SHRI CHARANJEET A RORA TO MAKE AVAILABLE TWO ACRES OF LAND ALONGWITH SOME CONST RUCTION SO AS TO START THE SCHOOL. THIS LAND WAS PURCHASED B Y HER OUT OF HER OWN RESOURCES AND WITHOUT ANY FINANCIAL ASSIST ANCES FROM THE SOCIETY. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ALSO FILED A COPY OF RESOLUTION PASSED BY THE SOCIETY FOR REQUESTING MRS. ARORA TO MAKE AVAILABLE HER LAN D WITH BUILDING TO THE SOCIETY FOR RUNNING THE SCHOOL WHIC H IS PLACED I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 6 OF 12 AT PAGE 76 OF THE PAPER BOOK. AN AGREEMENT FOR LETT ING OUT PREMISES OF THE SCHOOL RUN BY THE SOCIETY IS PLACE D AT PAGE 76 OF THE PAPER BOOK. THUS THE LD. AUTHORIZED REPRESE NTATIVE OF THE ASSESSEE SUBMITTED THAT THE SOCIETY HAS BEEN RU NNING THE SCHOOL UNDER THE NAME AND STYLE OF CENTRAL INDIA AC ADEMY RIGHT FROM JULY 1997. THE SCHOOL IS BEING RUN IN TH E PROPERTY CONSTRUCTED ON THE ABOVE LAND BELONGING TO MRS. AR ORA WHO HAD AGREED TO LET OUT THE PROPERTY FOR RUNNING THE SCHOOL. IT WAS FURTHER CONTENDED THAT NO ADVANCE EITHER FOR PUR CHASE OF THE LAND OR FOR CONSTRUCTION OF THE PROPERTY THEREO N WAS GIVEN BY THE SOCIETY TO MRS. ARORA AND THE ENTIRE INVEST MENT HAS BEEN MADE BY MRS. ARORA OUT OF HER OWN RESOURCES. TH IS FACT HAS BEEN DISCLOSED BY HER IN HER INCOME TAX RETURN FOR THE RELEVANT YEAR. MRS. ARORA HAS DISCLOSED RENT RECEIV ED BY HER FORM THE SOCIETY IN ALL THESE YEARS WHICH HAVE BEEN ACCEPTED AND ASSESSED IN HER HANDS. THEREFORE IT WAS SUBMITT ED THAT THE EXEMPTION MADE BY LD. CCIT WHILE REJECTING THE APPLICATION U/S 10(23C)(VI) IS CLEARLY ERRONEOUS. IT WAS FURTHER SUBMITTED THAT WITH THE PASSAGE OF TIME THE SCHOOL STARTED MA KING ITS I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 7 OF 12 PROGRESS AND WHEN THE SCHOOL STARTED GETTING PUBLIC RECOGNITION AS A GOOD EDUCATIONAL INSTITUTION THE SOCIETY FELT THE NEED OF EXPANDING ITS SCHOOL ACTIVITIES. SINCE THE SCHOOL NEEDED THE ADDITIONAL PLACE IT REQUESTED MRS. AROR A TO PROVIDE ADDITIONAL CONSTRUCTED AREA ON THE LAND WHICH WAS DU LY PROVIDED BY HER BY PUTTING ADDITIONAL CONSTRUCTION OUT OF HER OWN RESOURCES AS A CONSEQUENCE OF WHICH THE RENT WAS INCREASED W.E.F. 01.04.19999 TO RS. 96 000/- PER ANN UM AGAINST ORIGINAL RENT OF RS. 36 000/- P.A. THE SOCI ETY FURTHER NEEDED NEXT PHASE OF EXPANSION FOR WHICH A RESOLUTIO N WAS PASSED ON 12.10.2001 REQUESTING MRS. ARORA TO PROV IDE HER PROPERTY TO THE SOCIETY FOR RUNNING THE SCHOOL SINC E 1007 TO CONSTRUCT AND PROVIDE ADDITIONAL SPACE TO THE SCHOO L. HOWEVER MRS. ARORA EXPRESSED HER INABILITY TO INVEST MORE F UND DUE TO SHORTAGE OF FUND. THE SOCIETY THEREFORE FOR THE F IRST TIME IN ALL THESE YEARS AGREED TO PROVIDE HER ADVANCE OF RS. 20 LAKHS FOR CONSTRUCTING ADDITIONAL SPACE TO BE LET OUT TO SOCI ETY FOR ITS ACTIVITIES OF SCHOOL. THE TOTAL AREA AFTER EXPANSIO N WAS 13 500 SQ.FT. AND THE SOCIETY HAS STARTED PAYING THE RENT @ RS. I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 8 OF 12 50 000/- PER MONTH W.E.F. 01.04.2005. THE TOTAL AR EA OF THE LAND PROVIDED BY MRS. ARORA IS TWO ACRES. LOOKING TO THE HIGHER INDEXED COST THE RATE WOULD NOT HAVE LESS THAN RS. 8/- PER SQ.FT. IN THE YEAR 2005 WHEREAS THE SOCIETY AGREED TO PAY THE RENT OF ABOUT RS. 3.50 PER SQ.FT. WHICH IS MUCH LOW ER THAN THE MARKET RENT. APART FROM ADVANCE OF RS. 17.50 LAKHS RECEIVED FROM THE SCHOOL FOR MAKING ADDITIONAL CONSTRUCTION MRS. ARORA HAS FURTHER BORROWED FUNDS FROM BANK WHICH WAS ALSO O N RECORD AND THE SAME IS DULY REFLECTED IN INCOME TAX RETURN. IT WAS SUBMITTED THAT IN THE YEAR 2004-05 THE SOCIETY HAS GIVEN AN ADVANCE OF RS. 10 LAKHS TO MR. CHARANJEET ARORA FOR ADDITIONAL CONSTRUCTION ON THE LAND AND MR. ARORA H AS BORROWED RS. 50 LAKHS FROM UNION BANK OF INDIA. IT IS WORTHWHILE TO MENTION THAT MR. ARORA RETURNED THIS AD VANCE AMOUNT OF RS. 10 LAKHS IN THE YEAR 2008-09 TO THE S OCIETY. SUBSEQUENTLY AN APPLICATION U/S 12A/12AA WAS MADE WHICH WAS REJECTED ON 30.09.2010 ON THE GROUND THAT THE AS SESSEE IS PAYING THE RENT TO THE OFFICE BEARERS AND HAS ALSO PAID AN ADVANCE OF RS. 17 50 000/- AND AS SUCH THE REVENUE OF THE I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 9 OF 12 SCHOOL WERE UTILIZED FOR THE BENEFIT OF THE OFFICE BEARERS. SUBSEQUENTLY AFTER THE REPAYMENT OF THE ADVANCE AG AIN AN APPLICATION U/S 12A/12AA WAS MADE ON 25.10.2013. HOW EVER THE LD. CIT REMARKED THAT THERE IS NO MATERIAL ON R ECORD TO SHOW THAT THERE IS ANY CHANGE IN THE FACTS AS COMPAR ED TO THE EARLIER YEARS. HE HAS SIMPLY REMARKED THAT THE RENT HAD BEEN PAID AT A HIGHER RATE AND AS SUCH THE BENEFIT TO TH E OFFICER BEARERS HAS BEEN GIVEN TO THE SOCIETY. HE FURTHER R EMARKED THAT AN EDUCATIONAL INSTITUTION HAD BECOME AN ACTIV ITY OF GENERATING PROFIT FOR THE TRUSTEES AND AMASSING OF WEALTH. IT WAS SUBMITTED THAT THE VALUERS REPORT HAS GIVEN THE FAIR RENT OF RS. 28.40 LAKHS PER YEAR WHEREAS THE ASSESSEE IS PAYING THE RENT MUCH LESS THAN THIS FIGURE. THE ASSESSEE IS IM PARTING EDUCATION WITH A CHARITABLE OBJECT IN VIEW OF SECTION 2(15) OF THE ACT AND THE JUDGMENT OF THE HON'BLE SUPREME COU RT IN THE CASE OF QUEENS EDUCATION SOCIETY 12 STD 440. 8. THE LD. SR. DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDERS OF THE LD. CIT/LD. CCIT. HOWEVER IT WAS SU BMITTED THAT THERE IS NO OBJECTION IF THE MATTER IS RESTORE D TO THE LD. CIT I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 10 OF 12 FOR EXAMINATION WHETHER THERE IS CHANGE IN THE FACTS AS COMPARED TO EARLIER APPLICATION REJECTED DATED 30.0 9.2010. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEE N THAT THE SOCIETY HAS GIVEN ADVANCE TO MRS. ARORA AN AMOUNT O F RS. 17.50 LAKHS AND RS. 10 LAKHS TO MR.CHARANJEET ARORA AS INTEREST FREE ADVANCE. IT IS SEEN THAT THE TRUSTEES HAVE CLAIMED THAT MRS. ARORA HAS PROVIDED THE LAND AND BUILDING TO THE SOCIETY SINCE ITS REGISTRATION. SINCE THE SOCIETY H AS NEEDED MORE SPACE SHE FURTHER CONSTRUCTED BUILDING FOR TH E PURPOSE OF SOCIETY. ACCORDINGLY THE RENT WAS INCREASED FROM TIME TO TIME. HOWEVER THE LD. CIT HAS REJECTED THE APPLIC ATION U/S 12A/12AA ON THE GROUND THAT THE SOCIETY HAS BEEN PA YING UNREASONABLE RENT TO THE TRUSTEES. THE LD. CIT HAS ALSO REMARKED THAT THERE IS NO CHANGE IN FACTS AS COMPAR ED TO THE APPLICATION REJECTED ON 30.09.2010. HOWEVER IT IS THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AMOUNT OF ADVANCE GIVEN BY THE SOCIETY TO THE TRUSTEES HA S BEEN RETURNED BACK TO THE SOCIETY. IT WAS SUBMITTED THAT MR. ARORA I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 11 OF 12 HAS RETURNED THE ADVANCE AMOUNT OF RS. 10 LAKHS IN THE YEAR 2008-09 AS WELL AS MRS. ARORA HAS ALSO RETURNED BAC K THE AMOUNT OF RS. 17.50 LAKHS. AS SUCH APPLICATION MAD E ON 25.10.2013 IS AFTER THE RETURNING THE ADVANCES TAKE N BY THE TRUSTEES. THEREFORE THERE IS MATERIAL CHANGE IN TH E FACTS AS COMPARED TO EARLIER YEARS. FURTHER IT IS ALSO CONT ENTION OF THE APPLICANT THAT THE SOCIETY NEEDED EXPANSION OF SCHO OL AND ACCORDINGLY ADDITIONAL BUILDING WAS ALSO CONSTRUCTE D. THEREFORE THE RENT WAS INCREASED WHICH CLAIMED TO BE REASONABLE. SINCE THESE ASPECTS HAVE NOT BEEN CONSI DERED AND EXAMINED BY THE LD. CIT WE ARE THEREFORE OF THE CONSIDERED OPINION THAT THE MATTER IS REFERRED BACK TO THE FI LE OF LD. CIT FOR HIS EXAMINATION AND DECIDING THE MATTER AFRESH AFTER CONSIDERING THE RELEVANT FACTS. THE APPLICANT IS AL SO DIRECTED TO PROVIDE DETAILS OF THE ADVANCES RETURNED BACK TO TH E SOCIETY AND HOW THE RENT IS REASONABLE WITH SUPPORTING EVIDEN CES. ACCORDINGLY THE MATTER IS RESTORED FOR FRESH ADJUD ICATION BY THE LD. COMMISSIONER OF INCOME-TAX. I.T.A.NO. 475/IND/2014 DEWAS SUNRAYS EDUCATION SOCIETY DEWAS PAGE 12 OF 12 10. IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON THE 29 TH SEPTEMBER 2016. SD/- (..) (D.T.GARASIA) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER * / DATED : 29 TH SEPTEMBER 2016. CPU*