2017 (11) TMI 638 - ITAT DELHI

Denying the benefit of exemption u/s. 11 and 12 - appellant had made payment to specified persons within the meaning of Sec. 13(3) in violation of Sec. 13(1)(c) - payment of salary to Mrs. Malvika Rai - Held that:- Mrs. Malvika Rai is related to the Trustee and is being given a hefty salary of ₹ 16,20,000/- p.m. despite the fact that she is just a graduate and the assessee had not furnished any details as to how the educational qualification of Mrs. Malvika Rai is commensurate with the salary which she is drawing. Thus the Ld. CIT(A) was correct in upholding the action of the AO in invoking the provision of section 13 and denying the benefit of exemption u/s. 11 & 12 of the Act, which does not need any interference on our part, hence, we uphold the same and reject the grounds raised by the assessee.

Treating the scholarship given to Ms. Aarti Rai, as being in violation of provisions of section 13(1)(C) - Held that:- The assessee has failed to furnish the names of other students who had been sent abroad to pursue higher studies on scholarship being awarded by the trust. No such resolution of the trust has also been placed either before AO as well as Ld. CIT(A). It is futile exercise on the part of the assessee to justify the benefit given to the persons specified u/s. 13. If the conscience of the assessee was clear then why it had not disclosed this fact in the audit report. Hence, there is a clear cut violation of the provisions of section 13 and accordingly, AO as well as Ld. CIT(A) has rightly denied the benefit of section 11. We note that scholarship given to Ms. Aarti Rai has been incurred in foreign currency and has been paid in UK i.e. to say the application of money has taken place outside India. For claiming exemption u/s. 11 the application of funds has to take place within India. Otherwise the approval of the Board is required which can grant exemption on the facts of each case. Thus in any case this income has not been applied in India and therefore not exempt. Further the trust is also hit by the provision of Section 13(1)(c). In view of the above, we are of the considered view that action of the Ld. CIT(A) in upholding the action of the AO in treating the scholarship given to Ms. Aarti Rai, as being in violation of provisions of section 13(1)(c) of the Act is correct one and the same does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) and reject the ground raised by the assessee.

Assessee exists for the sole purpose of profit making and not for the purpose of charity - Held that:- Supreme Court in TMA Pai Foundation case [2002 (10) TMI 739 - SUPREME COURT] held that every institution is free to advise its own fee structure subject to the limitation that there can be no profiteering and no capitation fee charged directly or indirectly, or in any form. The Court further held that no profiteering does not imply that the institutions cannot have reasonable surplus for future sustenance and expansion of the institute. It was held that upto 15% of profit could be considered as reasonable and legitimate. Thus, the Hon’ble Supreme Court of India has observed that the profit rate upto 15% is reasonable for charitable organization. However, in this case it was observed that the profit rate is varying between 44.6% for the assessment year 2006-07 and 48.43% for the assessment year 2007-08. From this it goes to show that the organization is existing for the purpose of profit and not for charitable activities and therefore, the Ld. CIT(A) has rightly upheld the action of the AO by observing that assessee exists for the sole purpose of profit making and not for the purpose of charity, which does not need any interference on our part, hence, we uphold the same and reject the ground raised by the assessee.

Addition of refundable security deposit of the students - Held that:- It is true that the liability to refund the money does not cease and it is obligatory on the part of the assessee to return the money which is lying with it in the form of security deposit, hence, the same cannot be regarded as income of the assessee. But the fact remains that this attitude of the assessee in not returning the security deposit of former students goes to show that it is running the school/ institute on commercial principles. As a charitable institution the assessee should return the money suo-moto after adjusting the dues, but the assessee is not carrying out this exercise and retaining the fund over and above the fees which is due from the students. This again goes to show that the assessee is running the institute from a commercial angle, hence, it is also a ground for rejecting the benefit of section 11 of the Act. Addition of ₹ 34,41,987/- out of refundable security deposit of the students confirmed

Adhoc addition of 50% of repairs and car maintenance expenses - no log book was maintained by the assessee - Held that:- We find that AO observed that assessee is maintaining luxury cars like Toyoto Camry, Hyundai Sonata and Honda Accord and has claimed expenses of ₹ 14,18,836/-. No log book was maintained, which establish that the said cars were being used by the trustees for their own benefit, hence, 50% of such expenditure was rightly upheld by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground raised by the assessee.

Disallowing scholarship expenses paid to Ms. Aarti Rai - Held that:- We find that this expenditure cannot be regarded as an expenditure incurred to run the business nor can the same be allowed as discussed in preceding paras in the case of Trust, hence, the addition of ₹ 13,35,905/- was rightly upheld by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and accordingly, reject the ground raised by the assessee.

Affirming disallowance on account of donation paid - Held that:- We find that since the assessee has already been disallowed the benefit of section 11 and the income has to be computed as business income therefore the donation of ₹ 37,900/- cannot be regarded as business expenditure and the action of the Ld. CIT(A) is a correct one and therefore, we uphold the same and reject the ground raised by the assessee.