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2012 (2) TMI 599

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..... 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. At the outset, the learned counsel for the assessee states at the bar that ground No.1 is not pressed. Rejected as not pressed. 3. Apropos ground No.2, the facts are that the assessee filed an application dated 5.11.09 in form No.10 G, seeking renewal of exemption u/s 80G of the Income Tax Act. The DIT(Exemptions) issued a show cause notice to the assessee. The said show cause notice, as reproduced at pages 2 and 3 of the impugned order, reads as follows:- To The Principal Officer, Career Launcher 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 re .....

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..... le trust are created; that the two Directors of CLEIS came under the category of the specified persons within the meaning of section 13(3) of the Act; that the Trade Mark Licensing Agreement entered into by the assessee with Career Launcher (India)Ltd. was a revocable agreement; that the signatories 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 Governing Body and the Bank Collection Accounts were to be operated by the said Chairman or the Vice Chairman of the Governing Body, who were none other than the nominees of the licensor; that this proved that the entire affairs had been arranged between the licensor and the licencee to deviate the funds of the assessee and to get the income of the assessee exempted under the Income Tax provis .....

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..... 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 dated 23.05.2006. The assessee was also granted approval under section 80G of the Act for the period from 23.11.2005 to 31.12.2007 vide order dated 23.05.2006; that the assessee filed an application in Form No.10G on 05.11.2009, before the DIT (Exemptions) seeking renewal of approval under section 80G(vi) of the Act; that in the impugned order dated 07.05.2010 passed by the DIT(E) under section 80G(vi) of the Act, the DIT(E) rejected the application filed by the assessee.. The DIT(E) has primarily 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 und .....

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..... ees, Loka Shikshana Trust v. CIT (supra); that further-more, undisputedly, at best, accepting for the sake of argument only; 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 by the assessee repeatedly year after year; that the assessee had also contravened the provisions of section 13 of the Act; that as such, the order passed by the ld. DIT(E), being a well versed, reasoned elaborate order, calls for no interference at our hands; that the grievance sought to be raised by the assessee, per contra, is not sustainable in face of the specific findings of fact recorded by the ld. DIT(E); and that therefore, the appeal of the assessee be dismissed while upholding the order under appeal. 8. We have heard the parties and have perused the mater .....

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..... 4b.2 To raise funds, trough grants, aids, donations, subscriptions, sponsorship, presents, rent, gifts and loans or any assistance in other form etc. for the fulfillment of aims objects of the Trust. 4b.3 To receive financial and non financial assistance from any Government and Non Government organizations, International agencies/organization, Banks and other legal entities or individuals, as permitted by rules of the Government of India. 4b.4 To manage, sell, transfer, pledge, dispose of or deal with movable and immovable properties of the Trust 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 country. 4b.8 All the activities of the Trust shall be non- profitable. 4b.9 To do and cause to do all such acts, deeds and take s .....

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..... Deed. 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 Trust, all its funds along with its assets and liabilities shall be transferred to any other Trust with similar object approved u/s 12A of the I.T. Act. 13. It was on the basis of the above, that registration u/s 12A of the Act was granted to the assessee vide order dated 23.5.2006. Also, vide order dated 23.5.06, approval u/s 80 G of the Act was accorded to the assessee Trust for the period from 23.11.05 to 31.12.07. 14. Apropos the objections raised by the DIT(E) in the impugned order, the learned 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. .....

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..... for running and managing the Business School, by CLEIS. Another agreement, a Collaboration Agreement dated 1.11.07 (copy at APB 39 to 48) was entered into by the assessee Trust with Career Launcher India Limited or CLIL . The assessee paid Infrastructure Fee to CLIL in lieu of services rendered by CLIL. These services were the services enumerated in Annexure A (copy at APB 47 to 48 to the said Collaboration Agreement) to the 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 CL for its own marketing activities (in excess of 1.2 lakhs) who are actively looking for MBA and BBA as their career options. This database gets built up round the year due to ongoing sales promotion activities by a sales force of more than 150 pers .....

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..... on 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 and the licencee, as to deviate the funds of the assessee Trust and to get the income of the assessee exempted under the Income Tax provisions, whereas the main beneficiaries of the income were the two main trustees, i.e., Nikhil Mahajan and Gautam Puri, who were specified persons within the meaning of section 13(3) of the Act. 17. It remains undisputed that the assessee has been providing formal education in Indus World Business School. The ld. DIT(E) has questioned the charging of fees by the 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 Ac .....

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..... ption u/s 11 of the Act. 22. In Stock Exchange, Ahmedabad v. ACIT , 74 ITD 1(Ahd), it has been held, inter alia, that once an Institution has been registered u/s 12A, it is for the AO to find out whether the income of the Institution has been applied for the objects of the Institution and the 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 ITR 690 (Guj.); 4. Umaid Charitable Trust vs. Union of India Ors , 307 ITR 226 (Raj); 5. ITO v Trilok Tirath Vidyavati Chuttani Charitable Trust , 90 ITD 569 (Chd); 6. Ananda Marga Pracharaka Sangha v. CIT ,: 218 ITR 254 (Cal) . 24. In view of the above, the observations of the ld. DIT(E) are not sustainable. 25. Apropos the objection of the ld. DIT(E) that the activities of the .....

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..... , 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 High Court in 15 Taxmann 250. 4. CIT v. Pulikkal Medical Foundation (P.) Ltd. , [1994] 210 ITR 299 Ker.); 5. Indo American Society vs. ADIT , 96 ITD 61 (Mum.); 6. ITO vs Kaushalya Medical Foundation , (2009) 31 SOT 119 (Mum.); 7. CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (No.1) , 186 ITR 728 (All.); 8. Hiralal Bhagwati vs. CIT , 246 ITR 188 (Guj.); 28. The objection of the ld. DIT(E) regarding the assessee having earned huge surplus in assessment years 2007-08 to 2009-2010 is also not 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 .....

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..... ITR 121(Bom), wherein Pinegrove International Charitable Trust (supra) was followed. 32. The objection of the ld. DIT(E) regarding the alleged violation of the provisions of section 13(3) of the Act by the assessee also holds no water. The ld. DIT(E) has failed to consider that what is material in this regard is that if the payment made was commensurate with the nature of the services rendered by specified person , the charitable nature of the Trust cannot be doubted, which proposition also finds support from ADIT v. Manav Bharti Child and Child Psychology , 20 SOT 517(Del), wherein it has been held, in the context of Sections 11/12 of the Act, inter alia, that in the Act, there is no prohibition to remunerate the interested person, that such remuneration should be commensurate with the services rendered by them and if it is so found, it cannot be said that the provisions of Section 13(1)(c) of the Act are attracted. The decision of the Hon ble Delhi High Court in the case of Parivar Seva Sansthan , 254 ITR 268(Del) is also to the same effect. The ld. DIT(E) does not question the payments made by the assessee to either CLEIS or CLIL as not being at arm s length and the onl .....

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