TMI Blog2017 (2) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in the circumstances of the case and in law, the worthy CIT (Exemption), Jaipur, has grossly erred in rejecting the application in form No. 10A filed on 31/3/2015 for seeking registration under Section 12AA of the Income Tax Act, 1961 and erred in holding that the activities of the society are not for charitable purpose as defined u/s 2(15) of Income Tax Act. 2. That the order of the worthy CIT (Exemption), Jaipur rejecting the application of assessee seeking registration of society U/s 12AA of Income Tax Act is arbitrary, whimsical, capricious, perverse and against the law and facts of the case. The order of the CIT-Exemption, Jaipur in this regard deserves to be set aside and direction be given for grant of registration to the Society u/s 12AA of Income Tax Act. 2.1 Brief facts of the case are that the assessee filed the application on 31-03-2015 in Form No. 10A seeking registration u/s 12AA of the Income Tax Act, 1961. To this effect, the ld. CIT (Exemptions) issued letter/ Notice No. 1824 dated 31-03-2015 at the assessee's address requiring the assessee to submit certain documents/ explanation by 13-04- 2015 alongwith original Trust Deed/ MOA for verifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Point Ltd. for providing certain services related to education and administration of the School. Therefore, the ld. CIT (Exemptions) vide letter No. 2444 dated 24-09-2015 required the assessee society to file certain information which was submitted by the assessee vide letter dated 28-09-2015 and 8-05- 2015 to the ld. CIT (Exemptions) and the same is available at page 3 and 4 of ld. CIT (Exemptions) order. The ld. CIT (Exemptions) after taking into consideration the reply of the assessee society noticed that the assessee society had taken land on lease from M/s. Gopi Bai Foundation Trust on lease rent of ₹ 25,000/- per month which pertained to Gopi Bai Foundation Trust, Kota and there is no change of the ownership. It is further noted that on this leased land, M/s. Career Point Ltd. had constructed a building investing huge amount. The justification for constructing a building on land belonging to other trust goes beyond understanding. As per ld. CIT (Exemptions), no business undertaking will invest huge amount without protection of title unless some benefits are ensured. It is further noted that a building constructed by M/s. Career Point Ltd. had been taken on lease by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt training). He further held that the assessee society was paying fees to Career Point Limited as under:- Services Agreed Rate in Rupees Specialized Training (class-X) 20,000 per student Specialized Training (class-XII) 24,000 per student Specialized Training (Faculty) 1,50,000 per batch All other services On mutual agreement basis. The ld CIT(E) observed that all the education as well as administrative activities had been run by the Career Point Ltd., a public Ltd. company, which has expertise in coaching to the students for preparing for various competitive examinations like Engineer, Medical etc.. M/s Career Point Ltd. is a profit making company where profit is distributed to the shareholders. For a charitable Trust, all the profits generated, should be used towards object of the society and no profit should be distributed to any of stake holders, but in the assessee s case, whole fund has been diverted to M/s Career Point Ltd., and basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vered in Charitable Purpose. The definition of Charitable Purpose under Section 2(15) of the Act includes: (a) Relief of the poor (b) Education (c) Medical relief, and (d) Advancement of any other object of general public utility. Since the society is engaged in the education activity which covered in Charitable Purpose . The only activity carried out by the society in previous years was running of school which was mainly run and managed by fees receipt from students. Thus there is no doubt that the activities of the society are in the nature of Charitable activities covered in the definition 2(15) of the Income Tax Act. This issue is not in dispute as the CIT(E) also admits that the assessee society is running a school which is providing the education to students as per rules regulations of government. The Group summary of Gross Receipts in the books of account of assessee showing class wise breakup of fees for FY 2012- 13, FY 2013-14 and FY 2014-15 is at PB pg 136-138 (Vol-II). This conclusively proves that the assessee is not carrying out any activities other than normal schooling. 2) The only reason for not considering the activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d infrastructure for construction of building but it was requiring the building for expansion of its school, therefore it approached to M/s Career Point Limited for construction of building in lieu of rent and M/s Career Point Limited agreed to construct the building. Further, the construction of the building by M/s Career Point Ltd is not in dispute and let out of the building to the assessee is also not in dispute. Why M/s Career Point Ltd agreed to construct the building on the lands owned by other is purely decision of M/s Career Point Ltd and the assessee is nothing to do in this regard. Further the assessment of M/s Career Points Ltd for AY 2012-13 and AY 2013-14 were completed u/s 143(3) and the AO of M/s Career Point Ltd has not objected over the construction of building by M/s Career Point Ltd. The copy of assessment orders of M/s Career Point Ltd is at PB pg 145-152. ii) It is admitted fact that the assessee society is not owing its own building and for expansion of its schooling activities the assessee society requiring the building. Therefore the assessee has taken the land on lease, on which the school building is being run, from Gopi Bai Foundation Trust, Kota f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission was also granted by the Charity Commissioner. The Bank had offered loan at the interest rate of ı 12.50% per annum which would also require giving securities and executing documents. As against this the trustees offered unsecured loan at the interest rate of ı 9% per annum. Here again, the CIT (Appeals) discarded such comparison by contending that the trustees themselves would have fetched lower fixed deposit rate from the Bank. 12. For multiple reasons, this was not a correct approach. First, we are trying to ascertain whether the trust was paying the interest at the rate higher than the market rate. What the trustees could have got from the Bank was not correct comparison. Secondly, the trustees were offering unsecured loan, which with inherent risks, invites higher interest than the bank loans. Last but not the least, if the trustees had parked their money in the Bank fixed deposits, the liquidities and security of such investment would be much higher than lending substantial amount to the trust without a collateral security. 13. Section 13(1)(c) of the Act does not prohibit normal transactions between the trust and the persons referred to in sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and after taking the building on rent there was drastically increase in fees receipts and its actual and effective outcome came in FY 2014-15. The ld. CIT (Exemption) compared the receipts of FY 2013-14 only to justify the rent payment as excessive. He not considered the receipts of FY 2014-15. iv) The ld. CIT (Exemption) has held that the under the scheme of payment of rent the major part of cost of construction invested by M/s Career Point Limited is recovered from the applicant society in the form of rent. In this regard this is to submit that the total investment in construction of school building by Career Point Ltd was over 10 Crores (PB pg 143) and if this amount would have been invested by the assessee society in construction of building by taking the funds from market and if the reasonable cost of interest on finance is assumed @ 12% then the assessee society would have to pay interest of 1.47 crores PA against which the rent payment in FY 2013-14 was ₹ 72,00,000/- (@ ₹ 6,00,000/- PM) and in FY 2014-15 ₹ 27,00,000/- (@ 6,00,000/- PM for first three month and @ 1,00,000/- PM for rest of year). Thus the assessee society paid very nominal rent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity in totality. 4) Regarding objection of the CIT (Exemption) on payment made to M/s Career Point Limited against service charges against various services we may submit as under: - i) In para 9 of the order CIT (Exemption) has held that the society has handed over almost all the activities of education to M/s Career Point Limited by entering into another agreement dated 01.04.2013 (Copy at PB Page 85 to 105). He further held that as per this agreement the applicant has handed over the complete management of the school to the company M/s Career Point Ltd. In this regard this is to submit that the assessee society not handed over the management of the school to this company. The management of the society is with the executive body listed at PB pg 69. The findings of ld CIT(E) is not based on inquiry, evidence but on surmises and conjectures. The management of the society and Career Point Ltd is separate and no intermixing, inter lacing affairs are there. The society entered into agreement with this company for only for providing certain specified services, as listed in Annexure-A of the agreement (Copy at PB Page 103 to 104) and mention in page 6 to 7 of the order and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver payment made to this company is taxable in the hands of this company. 6) The ld. CIT (Exemption) further perversely held that in the present situation the society in collaboration with M/s Career Point Limited has created a scheme where only the name of the society is being used and the funds of the society is reaching in the hands of M/s Career Point Limited and the same will be distributed as profit to the share holders of the company. In this regard this is to submit that the ld. CIT (Exemption) failed to appreciate the facts that the appellant paid the rent and service charges to M/s Career Point Ltd against the building occupied by it and services obtained by it and that too at fair market value. This is not a case where the tax free funds are passed on in the hands of M/s Career Point Limited. Whatever payment made to this company has been subject to tax and this cannot be said to be part of diversion of tax free funds from one hand to another hands. 7) The ld CIT has unjustified in rejecting the application filed by the assessee in violation of the plain and simple procedures laid down in section 12AA. At the time of considering the application for grant of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial available on the record. The assessee had filed application in Form No. 10A alongwith required details. The society is registered from 7 ITA No. 709/JP/2014 Career Point Education Society Vs. CIT 1998 under the Societies Registration Act. The copy of the society are charitable and activity are genuine. At the time of registration of Trust/Institution, the ld CIT is to be judged the object of the Trust, which should be charitable in nature as the assessee is imparting the education programme through college and school education programme and he also provided various charitable services to the society as per object of the Trust. The case laws relied by the assessee are squarely applicable in the case of the assessee, accordingly, order of the ld CIT is set aside the directed to grant registration from the financial year 2012-13 as per application filed in the Form 10A. 8) Additional documents and grounds taken by ld CIT (DR) During the course of last hearing of the case, the ld CIT DR has filed printouts taken from http://www.cpgurukul.com which were additional documents and also raised certain additional oral grounds. In this regard, we submit as under:- 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly evident from the affiliation granted on 9.4.2012 by the Board of Intermediation, A.P. Therefore, there cannot be any doubt that the assessee is running an educational institution which is as per the objects of the society. 13. It may be a fact that in addition to the general curriculum of intermediate course, assessee is also giving training/preparing students for various entrance examinations like EAMCET, IIT, AIEEE etc. However, that cannot take us away from the fact that the basic object of the assessee is imparting of education which the assessee in fact is carrying on. The other activities like preparing students for EAMCET, IIT, AIEEE entrance examinations is only ancillary to the main objects. That being the case, it cannot be said that the assessee is not imparting education. The term education in our view would mean training and developing the skill, knowledge, mind and character of students which the assessee is actually carrying on. 8.3) As regard to printout taken from site of Gurukul.com we submit that Gurukul is a name of campus where the assessee provides the schooling and Career Point Ltd provides the hostel and Coaching. The assessee and M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above society had filed application in Form No 10A u/s 12A(1)(a) of Income Tax Act on 31-03-2015 (Copy at PB Page 1 to 8) for seeking registration u/s 12AA(1) of Income Tax Act. However, the ld. CIT (Exemptions) rejected the application of the assessee society vide order dated 29.09.2015 by observing at para No. 12 at pages 9 to 10 of his order as under:- From the discussions made in preceding paragraphs it can be seen that M/s Career Point Limited has constructed the school building and is practically running the school by entering into agreement with the society. In other word the fee received by the society is passed through to M/s Career Point Limited either in the form of rent or in the form of service providing fees. If a society wants to do a charitable activity it should be in a fair manner. All the profit generated by charitable activity should be used towards the object of the society and no profit should be distributed to any of the stake holders. In the present situation the society in collaboration with M/s Career Point Limited has created a scheme where only the name of the society is being used and the funds of the society is reaching in the hands of M/s Care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further noted that the ld. CIT(E) had rejected the registration of assessee society u/s 12AA of the Act on the ground that the assessee society was paying rent to Gopal Bai Foundation Trust, Kota (leased land) and rent to M/s. Career Point Ltd. (on leased bulding) for running the education institution. It is noted that the assessee trust had required the land as well as building to provide the education for students. It is further noted that if any unreasonable rent/ fee is being paid by the assessee then it can be examined by the Assessing Officer at the time of assessment. The ld. AR during the course of prayed that the institution is running classes from 6th to 12th standards and providing education to them. Thus the objects of the trust are charitable and there is no reason before the ld. CIT(E) that activities carryout by the assessee are not genuine. On perusal of the order of the ld. CIT(Exemptions), it is also observed that he has not given any finding about the object of the society whether any aims and objects are not charitable in nature. It is noted that Hon'ble Allahabad High Court in the case of Fifth General Education Society vs. CIT , 185 ITR 634 had also opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused the material available on the record. The assessee had filed application in Form No. 10A alongwith required details. The society is registered from 1998 under the Societies Registration Act. The copy of the society are charitable and activity are genuine. At the time of registration of trust/ institution, the ld. CIT is to be judged the object of the trust which should be charitable in nature as the assessee is imparting the education programme through college and school education programme and he also provided various charitable services to the society as per object of the trust. The case laws relied by the assessee are squarely applicable in the case of the assessee, accordingly order of the ld. CIT(A) is set aside and directed to grant registration from the financial year 2012-12 as per application filed in form 10A. 6. In the result, the assessee's appeal is allowed. It is noteworthy to mention that the registration u/s 12AA and the assessment are separate proceedings. At the stage of registration u/s 12AA only object and genuineness of the trust can be examined and not the activities as well as application of the funds of the assessee trust. This view ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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