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TMI Blog2017 (2) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... pur 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 verification. While considering the case of the assessee, the ld. CIT (Exemptions) required to examine the following issues for registration u/s 12AA of the Act. (i) Objects of the trust / society (ii) Genuineness of the activities It is noted from the order of the ld. CIT (Exemptions) that as per the rules the certified copy of instrument establishing the society/ Trust were to be verified with originals and the assessee was required to file the copy of accounts for last three years or less as the case may be. As per rule, ld. CIT (Exemptions) has been empowered to call for such documents/ or information from the trust / society in order to satisfy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reer 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 the assessee society by paying rent of Rs. 6.00 lacs per month during the F.Y. 2013-14 for 1,00,000 sq. ft @ Rs. 6/- per sq.ft per month. Under this scheme, major part of cost of construction invested by M/s. Career Point Ltd. was being recovered from the assessee society in the form of rent. The ld. CIT (Exemptions) further analyzed the income and expenditure account for the year ended on 31-03-2014 at page 4 of his order and observed that the assessee had total receipt of Rs. 81.39 lacs from fees and the assessee society was paying rent of Rs. 75.00 lacs. Thus the income and expenditure account is showing net deficit of Rs. 75.46 lacs. Hence, the society had taken a space for so called the charitable activities beyond its financial capacities. While examining the nature of ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purpose of charitable activity would itself be lost. It is against the basic norms of Section 2(15) of the Act and such activities cannot be held as genuine charitable activities. Therefore, ld. CIT (Exemptions) rejected the assessee's application for registration u/s 12AA of the Act by observing as under:- ''12. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is not carrying out any activities other than normal schooling. 2) The only reason for not considering the activities of the society as charitable because of high payment to M/s Career Point Limited by way of rent of building and in the form of service providing fees. In this regard first of all this is to submit that M/s Career Point Limited is not an person covered u/s 13(3) of Income Tax Act, 1961 for assessee trust and this company is no way related to assessee trust. This fact was brought in knowledge of ld. CIT (Exemption) vide letter dated 28.09.2015 (Copy at PB Page 122 to 123). None of the directors and shareholders of this company are interested in the assessee trust and none of the members/office bearers of the assessee society are no way associated with this company. Therefore the assessee society and M/s Career Point Ltd cannot be treated a group concerns without having any controlling interest in management of each other. 3) Regarding objection of the CIT (Exemption) on payment made to M/s Career Point Limited against building taken on rent we may submit as under: - i) The building which was taken on rent by the assessee society was constructed by M/s Care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has taken the land on lease, on which the school building is being run, from Gopi Bai Foundation Trust, Kota for lease rent of Rs. 25,000/- P.M. The building on leased land was constructed by Career Point Limited and in FY 2013-14 and 1,00,000 sq. feet constructed area was taken on rent from Career Point Ltd for a rent of Rs. 6 per sq. feet per month i.e. Rs. 6,00,000/- per month. In FY 2014-15 (from July 2014) the part of building was vacant by the assessee as the entire building could not be utilized by the assessee society as per its plans and expectations. Out of total constructed area of 1,00,000 sq. feet only 20,000 sq. feet constructed area was retained by the assessee thus the rent of building also modify accordingly from July-2014. The Career Point Ltd and Gopi Bai Foundation Trust are not related person for the assessee and whatever the rent was paid was based on fair market value of the rent. The ld CIT(E) has not cited any comparable case showing the lesser amount of the rent. In this regard, the findings of Hon'ble Gujrat High Court in the case of Shree Kamdar Education Trust vs ITO (Copy at PB pg 171-176) is very relevant reproduced as under:- "10. We may deal wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not prohibit normal transactions between the trust and the persons referred to in sub-section (3) of the Act. What is relevant is the use or application of any part of the income of the trust directly or indirectly for the benefits of any such person referred to in subsection (3). Mere payment of lease rent or interest on borrowed funds, without there being any element of such payments being excessive or unreasonable compared to the normal rates prevailing, would not fall within the mischief of section 13(1)(c)." iii) The society was running school since a long time in RBSE Board, and has decided to get affiliation from CBSE Board to start school in CBSE board, The CBSE board has its own Guidelines, rules and regulation to run a school in their board which also include minimum prescribed infrastructure requirement, to meet this requirement the assessee society taken building and land on lease, and this rental was not associated or had any link with receipts as generally happened that rent does not have any rational with the revenue. While developing the infrastructure further projections can only be keep in mind and no one can surely guess it will achieve such projections. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus this is not a case where the assessee society has diversified its income to M/s Career Point Ltd in the shape of rent but it is the case where assessee obtained the building of M/s Career Point Ltd for very nominal financial cost in the shape of rent. v) The ld. CIT (Exemption) has held that the against the fess receipt of Rs. 81,39,100/- the society is paying Rs. 75,00,000/- as rent. Thus the society has taken a space for so called the charitable activities beyond its financial capacity. In this regard this is to submit that the figures given by CIT (Exemption) are of FY 2013-14. In FY 2014-15 the total fees receipts were of Rs. 3,10,17,129/- while rent payment to M/s Career Point Ltd was Rs. 27,00,000/- only. Further the payment of rent does not depend on the income inflow of one or two years but the same depends on the future expansion plans. No one can achieve the targets in one or two years. All the decisions are taken considering the future projections and plans. The ld CIT(E) held that the assessee did not require such big space but at the same time he overlooked the requirements and guidelines of CBSE which prescribes minimum requirement of land and building for gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee society, the management of the school was with assessee society and entire activities of the school were being governed by the assessee society. There was payment of only Rs. 6,00,000/- to M/s Career Point Ltd against the auxiliary Educational Services out of total expenses of Rs. 1,58,22,404/- in Financial Year 2013-14. ii) The agreement was made with the Career Point Ltd because the assessee society was new in the CBSE schooling and it was not having required trained team to run the school according to standards of CBSE. The assessee society took certain specialized services by outsourcing. The whole intention was to provide the excellence services in the line of education. iii) The ld. CIT (Exemption) has perversely held that under the present agreement M/s Career Point Limited has practically taken over whole of running of the school and the society is simply acting as a facilitator to allow the M/s Career Point Ltd to run such activity. The ld. CIT (Exemption) failed to appreciate the fact that the payment to this company was made against the particular services and at fair market value. In this regard, the findings of Hon'ble Gujrat High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Trust and genuineness of the activities of the Trust. In this regard the reliance is placed on the decision of Hon'ble Rajasthan High Court in the case of CIT vs Vijay Vargiya Vani Charitable Trust (2014) 369 ITR 0360 (Raj) PB pg 153-159. The relevant findings are as under:- "8. In our view, the object of section 12AA is to examine the genuineness of the objects of the trust but not the income of the trust for charitable or religious purpose. The Commissioner cannot sit in the chair of the Assessing Officer to look into the amount spent on charitable activities at the time of creation of the trust. The stage for reviewing the application of income has not arrived at when such trust or institution files application for registration of the trust/society." The Allahabad High Court in the case of Fifth Generation Education Society ((185 ITR 634), PB pg157-159) also had opined on the issue. The Court, while considering the provisions of registration of trust/institution u/s. 12A of the Act relating to assessment years prior to Finance (No. 2) Act, 1996, held that at the time of considering the application for grant of registration u/s. 12A, the CIT was not required to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be rejected in limine. 8.2 Ld CIT-DR argued that the appellant is dummy school and running coaching classes for imparting ITI Coaching. The ld CIT(E) has examined the records of the assessee and no where he made such findings. However, the ld CIT-DR argued this additional ground for rejection of application u/s 12AA. In this regard, we deny the allegation. The allegation is on surmises, conjectures and without making any proper inquiry. The appellant has filed Group Summary of Gross receipts showing receipt of class wise fees for FY 2012-13. FY 2013-14 and FY 2014-15 at PB pg 136-138. Your honor would find that the entire fees is against normal schooling and the appellant is not carrying out any coaching activities. The appellant is affiliated with CBSE and CBSE is monitoring the activities of the assessee by regular inspections. Further, the examinations are also conducted by CBSE . In this regard, it is useful to refer the following findings of Hon'ble ITAT Visakhapatnam Bench in the case of R.K. Educational Society Vs CIT(V) in ITA No 369/Vizag/2012 order dated 04/03/15 PB pg 177-188. "11. A plain reading of the aforesaid provision will make it clear that the expression " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained by misrepresentation of facts:- In this regard we submit as under:- (i) The ld CIT-DR alleged that the appellant has obtained affiliation from CBSE by misrepresenting the facts. First of all this has no bearing with the object and genuineness of the society. If CBSE finds that the appellant has misrepresented the facts for obtaining the affiliation from CBSE, it would cancel the affiliation. But in fact, the affiliation is still going on. (ii) The appellant has not misrepresented the facts as may be seen from the followings:- (a) Play Ground 32000 Sq Mt. This land belongs to Gopi Bai Foundation Trust and Career Point Infra Ltd, and they have granted no objection to assessee to use this land for playground for children. Copy of NOC with papers showing ownership of land is at PB pg 139-142. (b) Gopi Bai Foundation Trust was granted lease to assessee on 21/01/13 whereas the application for affiliation was filed on 29/06/12. In this regard we submit that the lease was w.e.f. 01/03/12 as per clause 3 of lease agreement (PB pg 111). There was oral agreement and the formal lease deed was executed on 21/01/13. Therefore, the land was taken on lease on 01/03/12 and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly has no impact in deciding the charitable nature of the activities because as discussed in the preceding paragraphs, the funds of the society are being diverted and distributed to the shareholders of the company i.e. M/s Career Point Limited, which is against the basic norms of section 2(15) of the IT Act, 1961 and such activity cannot be held as genuine charitable activity.'' It is further noted form the available records that J.B.S. Shikshan Sanstha was formed under the Societies Registration Act. J.B.S. Shikshan Sanstha was incorporated on 16.01.2001 and the Sanstha is registered with Registrar of Society w.e.f. 16.01.2001 (Copy of registration certificate at PB Page 15). The main object of the society as per object clause of registration deed (Copy at PB Page 16 to 38) is to provide education and to achieve its object. The Society is running a School naming "JBS Children Paradise School" which is affiliation by CBSE. The copy of affiliation letter of CBSE is at PB Page 65 to 68. The affiliation was granted to society vide letter dated 14.05.2013 for the period from 01.04.2013 to 31.03.2016. The other objects of the society are also for advancement of benefit of general pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the requirement of Section 12A r.w.rule 17A, and Form 10A was properly filled alongwith the determination whether the objects of the trust were charitable or not. It is also observed that Hon'ble Delhi High Court in the case of Director of Income Tax vs. Foundation of Ophthalmic and Optometry Research Education Centre (2013) 355 ITR 361 held as under:- ''The Director of Income-tax (Exemption) refused to grant registration to the assessee on the ground that no charitable activity had in fact taken place since the assessee society was a newly established one. The Tribunal held that non-commencement of charitable activity had no justification in rejecting the claim of the assessee. On appeal : Held, dismissing the appeal, that under section 12AA of the Income-tax Act, 1961, there are no restrictions of the kind which the Revenue was reading into in this case. In other words, the statute does not prohibit or enjoin the Commissioner from registering a trust solely based on its objects, without any activity, in the case of a newly registered trust. The statute does not prescribe a waiting period, for a trust to qualify itself for registration. If the Revenue's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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