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TMI Blog2015 (3) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... 13(3) in violation of condition laid down u/s 13(1)(c) & 13(2)(c). 3. For this and such other grounds as may be urged at the time of the hearing, the order of the Id. CIT(A), Pune may be vacated and that of the AO be restored. 4. The appellant craves leave to add., amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble Bombay High Court. 3. The issue which arises for our consideration is whether the assessee trust has violated the condition of Sec. 13(1)(c) r.w.s. 13(2)(c) of the Income-tax Act and hence, not eligible to the benefit of exemption of Sec. 11 & 12 of the Income-tax Act. We may prefer here to cull out the facts from the order of the Ld. CIT(A) for the A.Y. 2008-09. The facts which revealed from the record are as under. The assessee is stated to be a society registered both under the Bombay Public Trust Act 1860 and also with the Charity Commissioner of Pune. Besides, the trust has also been granted registration u/s. 12AA of the Income-tax Act by the CIT-II, Pune. The society runs various educational institutions under its aegis. The assessee has filed the return of income for the A.Y. 2008-09 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per on which the advertisement should appear, separate charges for drafting, designing and any kind of art work in respect of the Newspapers but it directly showed the area that was supposed to be occupied by the said News in the particular Newspaper. The bill then showed the rate adopted for the particular Newspaper and discount on the gross total bill granted by M/s. SBC to the assessee which is uniformly granted at 2% of the gross amount. On the contrary, analysis of the bills issued by SBC to its other clients showed that while other details were similarly placed, the discounts in their cases have been granted ranging from 10% to 13%. One of such bills obtained by the Assessing Officer pertaining to Sadhana Centre for Management and Leadership Development is made part of the assessment order by the Assessing Officer as attachment-II. It was observed by the Assessing Officer that the above analysis clearly showed that while there was no difference between the bills issued to M/s. SBC to the appellant society and other clients with regard to the charges and services rendered, the variation was only with respect to the quantum of discount granted which was 2% in case of assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e like that presented by the assessee, M/s. SBC could have reduced the discount in respect of advertisements where rebate on card rates were received and could have granted discount @ 10% and above in respect of advertisement costs in other Newspapers. Noting that the position is not like that, the Assessing Officer sought to emphasize that the contention of the assessee was clearly an afterthought and not supported by evidences. On the card rates, the Assessing Officer mentioned that such rates are not fixed and are subject to variations and it is always not that the customers have to pay according to the card rates only. However, according to the Assessing Officer, charges have been paid according to card rates in most of the instances in the assessee's case. 3.5 The Assessing Officer has further observed that as revealed from a letter addressed to the assessee by Anand Bazar Patrika (ABP Ltd.), Mumbai, copy of which was furnished before the Assessing Officer during the assessment proceedings, the said party had conveyed the then existing rates to the assessee. It was noticed by the Assessing Officer that said communication indicated that the said party was directly dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98. The main object of the society is spreading and promoting education and the Society runs eight educational institutions. The society releases advertisements for publishing in the print media through M/s Sri Balaji Creativities (SBC) for all the institutions run by the society. Out of the total advertisement expenditure of Rs. 3,78,38,4699/- incurred by the appellant during the year, an amount of Rs. 3,76,37,138/- was paid to SBC for the ads released through SBC. During the year, 101 advertisements were released through SBC on different occasions like admissions, calling applications for faculty positions, said to be mandatory under both AICTE & UGC rules, highlighting achievements of the institutions on special occasions. The twin objectives behind releasing advertisement are stated to be (a) to get quality students from different parts of the country and (b) to create Sri Balaji brand so as to attract the best recruiters for campus placements. The case of the Assessing Officer is that the amount paid by the appellant by way of advertising charges to SBC during the previous year, which is a person referred to in section 13(3), is in excess of what may be reasonably paid for suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section.......... (c) if any amount is paid by way of salary, allowance' or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services;.......... (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;] 13(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely,- (a) the author of (the trust or the founder of the institution; (b) any person who .has made a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Remainder advertising: Remainder advertising (also known as remnant or last minute advertising) refers to the advertising space that a media company is not able to sell. Depending on the medium, it could be ad space or time. Often it can be bought at a steep discount. Advertising time and space is a perishable commodity arid if it is not sold, it is lost However, instead of taking a loss for unsold ad space, media outlets will often take far less than their usual charges to unload their remnant space. In such situations, advertisers can buy expensive media for less charge than normal. (iii) Run of Paper (ROP): ROP usually means advertisement can appear in any location within the newspaper and the position of an advertisement is determined at the publisher's discretion. 5.2 The facts of the present case are now examined vis-a-vis the provisions of sec. 13 of the I T Act as extracted above and also keeping in mind the nature of advertising business. The provisions of sec. 13(l)(c) read with sec. 13(2)(c) are applicable if the payment made to SBC for the services is excessive or unreasonable having regard to reasonable payment for such services, A payment for certain ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be seen from the Annexure, as against the total card rates of Rs. 4,45,27,496/- for advertisements inserted on behalf of appellant, M/s SBC charged the appellant Rs. 3,75,58,331/- for the services rendered to the appellant, which effectively works out to 15.65 % discount on the card rates. These details in Annexure "A" were also furnished in the course of the assessment proceedings. It is true that in some cases, gross billing is the same as card rates and even in such cases, SBC allowed only 2% discount on the card rates, which possibly prompted the AO to hold that amount paid by the appellant by way of advertising charges to SBC during the year was in excess of what may be reasonably paid for such services. But, as mentioned earlier, spaces made available by the media are in the nature of 'perishable' commodities and rebates on card rates offered by publishers depend on several factors like demand and supply on a particular day, the number, size, page of advertisements and the advertising agencies succeed in getting discount for their advertisements on some days and no discount at all on other days. Similarly, the discounts offered by' advertising agencies to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant on the card rates during the year, the A.O. has observed that the society has paid Rs. 30,14,735/- excess to SBC based on his arithmetical calculations of difference between 2% and 10%. If payments made to SBC are more than the card rates of the newspapers/publishers or SBC has not granted rebate at all on the card rates in case of all ads published during the year for the appellant, then possibly one can draw the inference that the payment is in excess of what may be reasonably paid for such services. But, in none of the cases, the amount charged by SBC exceeds the card rates and on the contrary SBC grated overall rebate of more than 15% on card rates to the appellant during the year. 5.3 It is also noticed from the details furnished by the appellant that SBC has not granted discounts uniformly ranging from 10% to 13% to all its clients and there are clients who have been granted discounts at 5% or 8%. For instance, in the case of Trinity Auto Components, discount is granted at 7.50% in some bills and in case of its clients, Sandvik Asia and Delcom Software India Pvt. Ltd, no discount is granted on ad charges (Copies of relevant' {Bill No. 728, 738 & 883 are attached to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other publishers for insertion of advertisements. In fact, the voluminous data filed by the appellant in the form release orders, bills raised by publishers on SBC for advertisements released on behalf of the appellant during the year clearly indicate that the appellant was releasing its advertisements through SBC and not dealing with the publishers directly. 5.5 The Assessing Officer also observed that the submissions of the appellant filed during the assessment proceedings are silent on the strictly comparable bills, which are appended to the assessment order, where there was no difference among the gross rates charged to the appellant society and to other customers by SBC and the difference is only in respect of discount allowed by SBC. But, the appellant now explained that the clarifications thereon were missed out in the submissions made on 24.12.2010 through an oversight and in a hurry to meet the deadline of time barring assessment. In the present proceeding, the appellant furnished copy of relevant newspaper clipping, card rates, release orders for ads, bills raised by publishers on SBC and bills in turn raised by SBC on the appellant and the other party. On perusal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he material placed on record also indicates that the SBC has rendered various other services in addition to publication of advertisements in newspapers/magazines. In the initial years, SBC was only conceptualizing, writing the contents and creating the artwork for the advertisements being released by the appellant as is evident from bills of M/s. Sead Advertising Pvt. Ltd, copy of which is enclosed to the order as Annexure 'E', where the agency has clearly mentioned in their invoices that separate bills for certain amount: would be raised by SBC for creative work. It would appear that in 2003, SBC registered itself with the leading newspapers and thus became eligible to release advertisements directly to the publishers and the appellants started releasing their advertisements through SBC, effectively since January 2004. Since then, SBC does not charge the appellant for the other services provided in the form of conceptualization, copy-writing, designing the art work and all that goes into an effective advertisement, media publicity services etc. However, SBC charges others for the artwork and copywriting services ias is evident from representative copies of the bills furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied or used or diverted for the benefit of the person referred to section 13(3) in violation of condition laid down under sec. 13(l)(c) and sec. 13(2)(c) and withdrawing the exemption claimed under sec. 11. Accordingly, the Assessing Officer is directed to grant the benefit of exemption under sec. 11 to the appellant in respect of its surplus income generated during the year." Now, the Revenue is in appeal before us. 5. We have heard the rival submissions of the parties and perused the record. The main plank of the argument of the Ld. DR is that M/s. Sri Balaji Creativities (SBC) is the child of the trustees of the assessee trust and the advertisement expenditure which is the major part of total expenditure has been diverted to the M/s. SBC and thereby the trustees have diverted the profit of the assessee trust for their personal benefits. He referred to Sec. 13(1)(c) of the Act and submits that it is not necessary that the benefit should be directly diverted but it can be by implication or by in direct way. He referred to assessment order and submits that the Assessing Officer has brought on record the data in respect of card rates of the advertisement and has established that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in some corporate clients like M/s. Sandvik Asia, Dina Institute of Hotel Management discount to the extent of 10% of the bills was granted but at same time to many other clients M/s. SBC has not granted the discount at all. He submits that even for the sake of argument if we look into the matter that the assessee trust has diverted its profit for the benefit of the trustees but the fact remains that the assessee trust is enjoying the registration u/s. 12AA of the Act and otherwise also its income is exempt u/s. 11 & 12 of the Income-tax Act where as the profit earned by M/s. SBC is taxable. He submits that M/s. SBC has actually charged much less than the card rates by obtaining rebates from the Newspapers. He pleaded for confirming the order of the Ld. CIT(A). 7. During the course of hearing the Bench has given the directions to the assessee to file the sample bills of the Newspaper publications raised on M/s. SBC in respect of advertisements of the related parties i.e. the assessee trust and non-related parties to demonstrate that the difference in the card rate of advertisement as claimed in the chart filed in the compilation at Page No. 9 of the P/B. In compliance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 11 & 12 of the Act. We, accordingly, confirm the order of the Ld. CIT(A) and dismiss the grounds taken by the Revenue. 8. Now, we take up the appeal for the A.Y. 2009-10. The Revenue has filed the following revised/concise grounds which are verbatim as taken in the A.Y. 2008-09. 1. The ld. CIT(A) erred on the facts and on circumstances of the case and in law, in holding that the expenditure on advertisement was a legitimate expenditure incurred for the purpose of pursuing the objects of the society. 2. The ld. CIT(A) erred on the facts and on circumstances of the case and in law, in holding that the funds of the society are not applied or used or diverted for the benefit of the person referred to section 13(3) in violation of condition laid down u/s 13(1)(c) & 13(2)(c). 3. For this and such other grounds as may be urged at the time of the hearing, the order of the Id. CIT(A), Pune may be vacated and that of the AO be restored. 4. The appellant craves leave to add., amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble Bombay High Court. 9. In this year the issue arising for adjudication is identica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years after the trust was formed. iii. Payments by the trust to the said firm M/s Sri Balaji Creativities form more than 80% of the turnover of the said firm. iv. M/s Sri Balaji Creativities has granted discount at the rate of 7.4 to 12% to its other customers and the discount granted to the assessee firm is only at the rate of 2% even though the payments by assessee constitute more than 80% of the turnover of M/s Sri Balaji Creativities. v. The contention of assessee that it has paid advertisement charges to the newspapers lesser than the card rates is misplaced as the facts brought on record indicate otherwise. vi. Thus assessee has paid the amounts out of resources of trust for services rendered by M/s Sri Balaji Creativities in excess of what may reasonably have been paid for such services. The amounts paid in excess in such a way are worked out at Rs. 40, 61,204/-. 10. The Assessing Officer, accordingly, declined to given the benefit of exemption to the assessee u/s. 11 & 12 of the Income-tax Act and completed the assessment treating the assessee on AOP. The Assessing Officer also referred to Sec. 40A(2) of the Act and observed that the assessee society has made payment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 248/- psc 4. Rates on RO and charged by the paper (Raipur) Rs. 176- psc 1. Rate charged by SBC to the client (Indore) Rs. 347/- psc 2. Rate charged by SBC to the client (Raipur) Rs. 212/-psc The advertising charges are normally fixed as per the card rates provided by the publishers from time to time for insertion of ads in different pages. However, the publishers as well advertising agencies allow rebate on card rates depending on the demand for ads on a particular page, in a particular edition and on a particular day. 6.2 In the course of the present proceedings, the appellant furnished copies of the bills raised by publishers on SBC for insertion of advertisement on behalf of the appellant, relevant card rates, copies of bills raised by M/s SBC on the appellant, discount on gross billing allowed by SBC, which are annexed to the order as Annexure "A". As could be seen from the Annexure, as against the total card rates of Rs. 14,85,55,701/- for advertisements inserted on behalf of appellant, M/s SBC charged the appellant Rs. 6,98,48,962/- for the services rendered to the appellant, which effectively works out to 52.98% discount on the card rates. These details in Annexure " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l on page 5. i. Card rates: Rs.8,940/- basic for 2-5 insertions Rs.1,020/- Premium for page 5 Total Rs. 9,960/- ii. Thus, cost of each advertisement (insertion) Rs. 19,50,000/- Cost of four insertions Rs. 6,88,03,680/- Gross amount charged by TOI on SBC Rs. 1,62,77,682/- iii. Gross billings by SBC on the society (Rs.41,25,803/- X 4) Rs. 1,65,03,212/- iv. Total Rebate passed on by SBC Rs. 5,23,00,468/- (Copies of relevant Bill No. 1144, 1145, 1146 & 1147 are enclosed to the appellate order as Annexure - B-1 & B-4) Similarly, reference may also be drawn to the other instances (as detailed in Annexure 'A' appended to the order), where substantial benefit has been passed on to the appellant by SBC on card rates:- S. No. Bill No. Bill Date Publication Details Page No. Size (sq. cm) Total Rate Card Gross Billing SBC Gross Billing Savings to SBS 1 1107 08/11/08 TOI (P) 7 1727 1,230 21,24,210 2,41,780 18,82,430 2 1108 08/11/08 TOI (P) 7 1727 1,230 21,24,210 2,41,780 18,82,430 3 1139 02/01/09 HT (All) 5 1726 5,600 96,65,600 31,93,100 64,72,500 4 1148 03/01/09 Deccan Chronocile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents released in Deccan Chronicle (All editions) in a span of a month's time:- i. SCMLD Bill No. 1081 Advertisement on 25.02.2009, Size 128 sq. cm. Card rate Rs.2,135/- per sq. cm. Hence, for 128 sq. cm. Rs.2,73,280/- Actual charged by DC on SBC Rs.2,18,624/- Actual charged by SBC to client Rs.2,73,280/- Rebate passed on to the client Rs. NIL Discount allowed at 10% on the card rate of Rs. 2,73,280/- ii. Balaji Institute of Modern Management: Bill No. 1148 Advertisement on 04.01.2009, Size 1693 sq. cm. (full page) Card rate: Basic Rs.2,135/- per sq. cm. Premium for Page 5 Rs.1,190/- -do- Total Rs.3,325/- -do- Hence, for 1693 sq. cm. Rs.56,29,890/- Actual charged by DC on SBC Rs.19,99,718/- Actual charged by SBC to client Rs.21,68,989/- Rebate passed on to the client Rs.34,60,901/- Discount allowed at 2% on the rebated card rate of Rs. 21,68,989/- (Copies of relevant Bill No. 1081, 1100, 1168 & 1148 are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls (page 6), has stated that the rate charged to the appellant society by SBC was Rs. 5,600/- as against the actual amount charged of Rs. 3,500/- for insertion of advertisement in Hindusthan Times. Similarly, it is stated that in case of insertion of advt. in Dainik Bhaskar, the amount shown in case of the appellant society was Rs. 3,098/- as against the actual amount charged of Rs. 2,729/-. Copies of the relevant comparable bills were also produced for verification. From a perusal of the copy of these bills furnished by the appellant (attached as Annexure E), it is noted that the appellant has released the advertisement in Hindustan Times (All) on page 3 (premium page) for which the applicable card rates are Rs. 5,600/- (Rs. 3500+ premium @ 60%). The billing done by SBC is at the basic rate of Rs. 3,500/-. The A.O. has however mentioned the card rates applicable in the analysis and not the actual amounts charged by SBC. Sadhana Center for Management and leadership development has been charged the total of card rates applicable for 'any' page in different editions and released on different dates, which is Rs. 4,725/- (Attachment-II to the assessment order). The same has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity services etc. However, SBC charges others for the artwork and copywriting services as is evident from representative copies of the bills furnished by the appellant, copy of one bill is enclosed to the order as Annexure 'F'. If the overall discount offered by SBC to the appellant at more than 52% of card rates and the other services rendered by SBC to the appellant are considered, it is difficult to hold that payments made by the appellant to SBC are not commensurate or reasonable with the services rendered by SBC to the appellant. To sum up - While holding that the funds of the appellant are diverted to interested person, the Assessing Officer has not taken into consideration the rebate of Rs. 7,72,81,250/- that was passed on to the appellant by SBC against card rates of advertisement, which works out to discount of 52.02% on the card rates. The AO considered only the discount of 2% against the reduced amount of Rs. 7,12,74,451/- and observed that the funds of the appellant society are used or applied for the benefit of interested person or diverted to the interested person. - There is no evidence brought on record by the Assessing Officer to show that the payments made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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