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2012 (2) TMI 599 - ITAT DELHI

2012 (2) TMI 599 - ITAT DELHI - TMI - ITA NO. 2849(Del)2010 - Dated:- 10-2-2012 - SHRI A.D. JAIN AND SHRI A.N. PAHUJA Appellant by: Shri Ajay Vohra & Ms. Shikha Sharma, Adv. Respondent by: Shri Rohit Garg, Sr. DR ORDER PER A.D. JAIN, J.M. This is assessee s appeal against the order dated 07.05.2010 passed by the DIT(Exemptions), New Delhi, u/s 80G (5)(vi) of the Income Tax Act read with Rule 11 AA of the I.T. Rules. The following grounds have been taken:- 1. The order of rejection of applica .....

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ust are not charitable within the provisions of Section 2(15) of the Income Tax Act, 1961 and also that the Trust does not satisfy the conditions laid out u/s 80G(5) of the Income Tax Act, 1961 are contrary to facts and law and therefore, the rejection of application for renewal of exemption u/s 80 G of the Income Tax Act, 1961 of the Trust is arbitrary and unlawful and therefore, is liable to be quashed and the renewal of exemption be granted to the Trust u/s 80G of the Income Tax Act, 1961. 2. .....

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her Education Foundation, R-90, Greater Kailash-1, New Delhi-110048. Sir, Subject:- Renewal for exemption u/s 80G of the I.T. Act,1961- Regarding- ……………………………… Please refer to your application in form No. 10G filed on 5.11.2009 for renewal of exemption u/s 80G. In this regard, I am directed to request you to produce the following documents:- 1. Please file a copy of Form No. 10B for F.Y. 2006-07, 2007-08 and 2008 .....

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en paid to Career Launcher(India)Ltd. and Career Launcher Education Infrastructure & Services Ltd. You are required to justify the payments made to those parties. Please also give details as to the other parties to whom Licence Fees has been sold by these two parties. 4. It is seen that payment of service tax has been allowed to CL(I)Ltd. on Licence fee whereas no such amount has been paid to CLEIS Ltd. on similar payment. Please explain with supporting evidence. 5. It is seen the depreciati .....

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. In response, the assessee filed its income and expenditure account for the period ending 31.3.2009. Further, letters dated 5.3.2010 and 13.4.2010 were filed, furnishing the information called for by the DIT(E). 5. By virtue of the impugned order, the ld. DIT(E) rejected the application filed by the assessee. The ld. DIT(E), while doing so, observed, inter alia, that the examination of the agreement, between CLEIS and the assessee (CLEF) revealed that certain clauses therein showed that the ass .....

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of both the parties to this Agreement were specified persons ; that the Agreement for fresh Infrastructure entered into by the assessee with CLEIS showed that the licensor had given licence to the licencee to run and manage a business school in the name of Indus World Business School at Noida; that as per the clauses of this Agreement, the Chairman and Vice Chairman of the Governing Body of the assessee Trust were the nominees of the licensor and the main activities were to be dealt with by the .....

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beneficiaries of the income of the Trust and they came under the category of specified persons ; that the assessee was running MBA courses in its Business School, charging huge amounts of ₹ 8 to 10 lakhs annually as fees, etc., from students; that the Institution was not recognized by any Government Authorities, but was being run from F.Y. 2007-08; that without such recognition, the School was not authorized to take fees/charges from students; that these illegal activities were against the .....

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cause it was charging fee and its receipts, exceeding ₹ 10 lakhs, were not eligible for exemption u/s 11 of the Act; that the assessee s accounts showed that it had been generating huge systematic profits year after year; that so, the ratio of the Hon ble Uttarakhand High Court in CIT, Haldwani v.M/s. Queen Educational Society, Nainital and St.Paul Senior Secondary School, Kathgodam, Nainital , was squarely applicable; that the assessee had violated the provisions of section 13 of the Act .....

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of the ld. DIT(E), the learned counsel for the assessee has contended by virtue of his oral agreement as well as written submissions, that the assessee is a Trust incorporated vide trust deed dated 20.04.2006 for pursuing the main object of establishing, running and managing schools/colleges to provide education of all types. The assessee is also running a business school in the name of Indus World School of Business at Greater Noida; that the assessee is registered under section 12A vide order .....

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ly held that the activities of the assessee are not charitable in nature and therefore, the assessee is not entitled to grant of approval under section 80G(vi) of the Act; that the aforesaid action of the DIT(E) is, patently erroneous, since Section 11 of the Act exempts income of a person derived from property held under trust wholly for charitable or religious purpose; and that in order to claim exemption under the said section, the assessee has to get itself registered under section 12A by fo .....

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herefore, the motive of the assessee was but profit motive; that as such, there was no element of charity involved; that Nikhil Mahajan and Gautam Puri, the two Directors of CLEIS were undisputedly specified persons as defined by section 13(3) of the Act; that besides, the Trade Mark Licensing Agreement between the assessee and Career Launcher (India)Ltd. was a revocable Agreement, the signatories were of such specified persons , i.e., Nikhil Mahajan and Gautam Puri; that even the Agreement for .....

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ees, who stood proved to be the main beneficiaries of the income of the Trust; that in the Business School run by the assessee Trust, huge sums, amounting to ₹ 8 to ₹ 10 lakhs were being charged annually as fees etc., from students; that this, despite the fact that the said School had not been accorded any legal authorization by any Government Authority and so, it was debarred from charging such heavy fees, due to which, the fee charged was unauthorised and illegal; that in the face .....

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ly; that the activities of the assessee fall within the expression General Public Utility , the proviso to section 2(15) of the Act is directly attracted, since the receipts of the assessee by way of fee charged, are of more than ₹ 10 lakhs and the exemption u/s 11 of the Act is not available to such receipts; that the ld. DIT(E) has also rightly held the ratio in M/s. Queen Educational Society, Nainital (supra), to be directly applicable, since huge systematic profits were being generated .....

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der under appeal. 8. We have heard the parties and have perused the material on record. The issue is as to whether the application filed by the assessee for renewal of grant of exemption u/s 80 G of the Act has rightly been rejected by the ld. DIT(E). 9. At the outset, it would be appropriate to reiterate here the Aims and Objects of the assessee Trust:- 4..AIMS & OBJECTS:- That the objects for which this trust is established are: 4a.1 To establish, open, develop, run, support, maintain scho .....

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iffusion of knowledge amongst the public in general. 4a.3 To do or cause to do such acts & deeds to promote education by establishing, maintain and run studentships, scholarships and render other kind of aid to students including supply of books, stipends, transporation facilities and other incentives to study for needy children, without any distinction as to caste, colour, race, creed or sex. 4a.4 To promote, establish, support, maintain or grant aid etc. to institutions for the promotion o .....

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erly, yearly or otherwise under the suitable name and take the subscription etc. in such journal and souvenir. 4a.7 To run, maintain and establish Sports academics for the students of the school run by it and others. (b) General 4b.1 To acquire and take over all or any part of movable or immovable properties of any similar Trust, society or institution or any one else whosoever may be for the purpose of the Trust and to maintain such assets. 4b.2 To raise funds, trough grants, aids, donations, s .....

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rust keeping in view of the aims and objects of the Trust. 4b.5 To invest funds and help investment of any funds in the modes of investments from time to time which is in terms of Income tax Act 1961 or any other law for the time being in force and subsequent amendments thereof from time to time. 4b.6 To assist and cooperate the Trust/Associations/Organizations etc. whose aims are same like this Trust apart from. 4b.7 To establish and manage branches and centers of trust in other parts of the co .....

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i.e., Schools/Colleges and Training and not only centres to impart education to all kinds and to make available and proper financial assistance to schools and colleges for advancement of education and research and for dispersal of knowledge amongst the public. A copy of the Trust Deed dated 20.4.06 of the assessee Trust has been placed at pages 49 to 63 of the Assessee s Paper Book ( APB for short). As pointed out by the learned counsel for the assessee, Article 13.3 thereof stipulates that - 1 .....

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A of the Act. The said clause is reproduced hereunder: 18. Application of Funds It is expressly declared that no part of the Trust property or its income or any accretion thereto shall be applied for any purpose outside India or for any purpose which is not a charitable purpose in law, and all provisions hereof shall be construed accordingly. On the dissolution of the Trust all the funds of the trust along with all the assets and liabilities shall be transferred to any other trust with similar o .....

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12. Then, Article 18 (at APB 62) of the Trust Deed prescribes the application of the funds of the Trust, declaring that no part of the Trust profit or its income or any accretion thereto shall be applied for any purpose outside India or for any purpose which is not a charitable purpose in law. As such, the income/funds or any part thereof have been forbidden from being distributed as profit amongst the members of the Trust. Article 18 further provides that in the event of dissolution of the Tru .....

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d counsel for the assessee has maintained that once registration u/s 12A of the Act stands granted, the charitable character of the activities of the Trust cannot be challenged/doubted. In this regard, reliance has been placed on ACIT v. Surat State Gymkhana , 170 Taxmann 612(SC), holding that the AO, in the assessment proceedings, is not entitled to hold the objects of the assessee to be not charitable in nature, once registration granted u/s 12A of the Act does not stand withdrawn. 15. It is s .....

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entirety, as the assessee was legally obliged to do, to be applied solely for the primary objects of the Trust and for no other purposes. Therefore, the properties held by the Trust were held only for charitable purposes. The ld. DIT(E) has remained oblivious of this position while passing the impugned order. He failed to consider that the only object of the assessee was that of imparting education by way of basic professional, technical and vocational training to the general public. So as to f .....

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Development (NIRD), for skill development of Rural Youth, and running and managing a Business School under the name of Indus World Business School at Greater Noida and thereby improving upon the educational/management skills of the students. The assessee Trust entered into an Agreement dated 1.2.08 (copy at APB 13 to 29) with Career Launcher Education Infrastructure And Services Ltd. ( CLEIS for short). It was as per the said Agreement that the assessee was granted a nonexclusive licence for the .....

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e said Agreement. These services are as follows:- Annexure A Service to be offered by CL for carrying on Activities( Services ) 1) Business Development Services: Database Services: Database of more than 40 K prospective students for Post Graduate Program, who have prepared with CL for their undergraduate entrance tests. Database of more than 5K prospective students for its BBA examination, who have prepared with CL for their undergraduate entrance tests. Sharing database, which was collected at .....

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g advertising agency for creating brand strategy and continuously improving on the same. Creating Brand collateral in terms of advertisement creative on various media such as print, TV etc. Advertising and PR related services: Engaging media agency for selection of best media vehicle and execution of media plan. Engaging PR agency for implementing effective PR. Creating effective regular sales related collateral in terms of posters, banners, print ad creative, and TV commercials. 4). Content Ser .....

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CLEF of packages related to payroll, attendance, scheduling and faculty logins Usage by CLEF of SIS module, a web bassed learning management services module. 8) Legal services: Services related to legal compliances 9) Any other service: CL shall provide any other service, not provided in this Agreement but desired by CLEF for the Business School on payment of fee and charges to be mutually decided between CL and CLEF. 16. As evident, these services were for the effective running and management .....

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appreciate these facts and has gone wrong in observing that the assessee s intention was solely to engage in commercial and business activities so as to earn profit and that the assessee s activities were against the Aims and Objects for which public charitable trusts are created. The ld. DIT(E) further erred in observing that it was evident from the Agreement for Infrastructure between the assessee and CLEIS that the entire affairs of the assessee Trust had been so arranged between the licensor .....

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School from its students, alleging that such fee was heavy fee and as the Institute was not recognized by any Government Authority, the charging of such heavy fee was illegal. In this regard, it is seen that the assessee Trust continues to enjoy registration u/s 12A of the Act. Though in the impugned order, in para 15, the ld. DIT(E) has, inter alia, observed that ………………..In fact, after revealing all facts as above, the assessee s Trust does not even qu .....

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s withdrawn, to hold that the objects of the Trust are not charitable in nature. 18. In Sonepat Hindu Educational Charitable Society v. CIT , 278 ITR 262(P&H), it was held, inter alia, that the registration of an Institution u/s 12A of the Act is sufficient proof of the fact that the Trust or Institution concerned is created or established for charitable or religious purposes. 19. In Gaur Brahmin Vidya Pracharini Sabha v. CIT , 34 SOT 371(Del), held that all conditions laid down in Section 8 .....

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T (supra), vide our order dated 27.5.2011 (copy at APB 103 to 107) passed in ITA No. 1928(Del)2010, it has been held that at the time of grant of registration u/s 12A or approval u/s 80G(5) of the Act, the AO s exercise to be carried out while making assessment, cannot be done, and that the matter can be reviewed only if the registration granted to the assessee is withdrawn. 21. In ITO v. Mrs. Dwarika Prasad Trust , 30 ITD 84 (Del)(TM), it has been held, inter alia, that grant of registration u/ .....

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statutory conditions laid down in sections 11 to 13 are fulfilled by the assessee; and that the AO had no jurisdiction to reject the claim of exemption u/s 11 of the Act by looking into the objects of the Association and holding them to be non-charitable in nature. 23. The following are the other decisions to the same effect:- 1. DCIT v. Rajneesh Foundation , 280 ITR 553(Bom); 2. « N.N. Desai Charitable Trust v. CIT », : 246 ITR 452 (Guj.) ; 3. Orpat Charitable Trusts v. CIT ,: 256 .....

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he ld. DIT(E) placed reliance on the decision of the Hon ble Supreme Court in Lok Shikshana Trust v. CIT (supra). However, we are unable to gather as to how that decision is detrimental to the facts of the present assessee. Therein, the facts were entirely different. The assessee in that case was publishing and supplying news paper and it was on the basis of this that the claim of the assessee was not approved, holding that education must involve systematic instruction, schooling or training and .....

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of the Trust under the expression General Public Utility as contained in section 2(15) of the Act and has held that since the assessee Trust is charging fee from its students, the proviso to section 2(15) gets attracted and the assessee Trust ceases to be charitable. However, it is seen that the proviso to section 2(15) of the Act is applicable only to those Institutions/Trusts, whose main object is that of advancement of any other object of public utility. The assessee Trust, on the other hand .....

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DIT(E) regarding charging of fee by the school cannot be made the basis of holding that the activity was a commercial one. In this regard, reliance has rightly been placed by the assessee on the following case laws:- 1. CIT vs. Krishi Utpadan Mandi Samiti, Purvao , 186 Taxman 460 (All.); 2. ICAI Accounting Research Foundation v. DGIT(E) & Ors. , 321 ITR 73 (Del.); 3. Gaur Brahmin Vidya Pracharini Sabha vs. CIT , ITA No. 1905/Del/2009: 34 SOT 371 (Del.) affirmed by the Punjab and Haryana Hig .....

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of any consequence. Firstly, the learned counsel for the assessee has invited our attention to the Audited Annual Accounts for the said period, showing that no profits were earned in the said period. Rather, the assessee had incurred deficits which are tabulated as under:- Financial Year Deficit (in Rs.) 2006-07 18,66,158.00 2007-08 1,19,33,876.08 2008-09 3,59,63,000.77 29. Moreover, this issue cannot prejudice the case of the assessee even as an aside, since it is the objects of the Trust and n .....

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reliance has been correctly placed on the following case laws:- 2. Sole Trustee, Loka Sikhshana Trust's case [1975] 101 ITR 234(SC); 3. American Hotel Lodging Association Education Institute v. CBDT , 301 ITR 86 (SC); 4. CIT v. Andhra Pradesh State Road Transport Corporation , 159 ITR 1 (SC); 5. CIT V. Bar Council of Maharasthra , 130 ITR 28 (SC); 6. Thiagarajar Charities V. Addl. CIT , 225 ITR 1010, 1026 (SC); 7. Samaritan Society vs. CIT , 225 ITR 652 ( SC ); 8. Aditanar Educational Instit .....

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rrent profit of the assessee had not been appreciated by the Tribunal and deduction u/s 10(23 C) of the Act had wrongly been allowed. Herein, however, there is no issue of exemption u/s 10 (23 C) of the Act. Rather, it is u/s 80G of the Act that the exemption was granted to the assessee and the assessee seeks continuation of such exemption. 31. Queen Educational Society (supra), then, has been dissented by the Hon ble Punjab & Haryana High Court in Pinegrove International Charitable Trust v. .....

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