9911796707
TMI Blog2019 (8) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... er order dated 23/05/2006 is withdrawn with effect from assessment year 2009 - 10. Assessee has raised following grounds of appeal in ITA NO. 4760/Del/2015 filed u/s 12AA:- "1. That proceedings initiated for withdrawal u/s 12AA(3) initiated on 13.05.2010 could not be carried on without any limitation of time and had to be concluded within time as provided under law or within a reasonable period of time and therefore, order framed on 19.05.2015 after a period of almost 5 years from its initiation is unlawful and therefore, is liable to be quashed. 2. Withdrawal of registration granted u/s 12A to appellant trust by CIT(Exemptions), New Delhi vide her order dated 19.05.2015 issued u/s 12AA(3) w.e.f. A.Y. 2009-10 is contrary to facts and law and therefore, order is liable to be cancelled or quashed." 3. Brief fact shows that assessee is a trust registered on 20/4/2006 and registered u/s 12 A of The Act as per certificate issued dated 23/5/2006. It had also approval u/s 80 G (5) for period 23/11/2005 to 31/12/2007 per order dated 23/5 /2006. Assessee made an application on 5/11/2009 for seeking renewal approval u/s 80 G (v) of the Act. It was rejected by The Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified persons. 4. The learned Commissioner of Income Tax (Exemption) was not satisfied with explanation of assessee. He analyzed financial statement of assessee for financial year 2007 - 08 and 2008 - 09 and held that that activity of assessee is generating of income through admission fees, sale of books etc., and meting regular expenditure. However, for financial year 2007 - 08, assessee has made a payment for infrastructure fee and license fee as per agreement with carrier launcher education foundation and carrier launcher (India) Ltd a sum of Rs. 1 crore and also paid license fees to 2 organizations namely carrier launcher (India) Ltd for trademark and carrier launcher education infrastructure and services Ltd for education soft skills of INR 8727000/- and INR 7,500,000 respectively. On questioned, assessee submitted that infrastructure fee of Rs. 1 crore paid to M/s carrier launcher India Ltd is a concern covered under provisions of clause (c) of subsection 3 of section 13 of income tax act. Further justification of payment, assessee submitted that that company is having a land of 5 acres at Greater Noida wherein it is constructing a building and part of building shall be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its activities as per its objects and is no longer charitable in nature. With respect to order of coordinate bench passed in proceedings for granting of recognition u/s 80 G of income tax act, where assessee has contested that same order cannot be basis for cancellation of registration u/s 12 AA (3) of income tax act, he held that such order has not been accepted by Department and revenue is in appeal before honourable High Court. He further mentioned that decision of coordinate bench has been challenged on several counts and he mentioned each of them and stated that coordinate bench has not appreciated fact that advantage has been given to trustees in conduct of activities of trust. He further referred to amendment made under provisions of section 12 AA (3) and (4) which are introduced with effect from 1/10/2014 and referred to explanatory memorandum of those amendments. Thereafter he held that there is a violation of provisions of section 13 (1) by assessee trust and further applicant itself has requested for cancellation of registration, he held that it is a fit case for cancellation of registration with effect from year of violation assessment year 2009 - 10. He further dealt w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timately on 19/05/2015 registration granted to assessee was withdrawn. Therefore, the order passed by the learned adjudicating authority after the considerably long time is not valid. To support his proposition the learned authorised representative relied upon the decision of the honourable Delhi High Court in 305 ITR 137 CIT vs NHK Japan broadcasting Corp. 7. Against this, the learned departmental representative submitted that delay in adjudicating the whole issue is resting on the shoulder of the assessee. He referred to page number 1 of the order of the CIT - exemption wherein he has mentioned the complete chronology of events wherein the delay is solely rests on the shoulder of the assessee. He further referred to para number 2.2 to show that as per letter dated 23/4/2014 the assessee himself kept on requesting the adjudicating authority to postpone the hearing in the matter. He further submitted that assessee has failed to reply the show cause notices in time and now assessee is taking cover under the pretext of crossing of the time limit by the adjudicating authority in passing the order. 8. We have carefully considered the rival contentions and perused the facts stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order and therefore it deserves to be quashed. 9. For the proposition the assessee has strongly relied on the decision of the honourable Delhi High Court in case of NHK Japan broadcasting Corp in 305 ITR 137. On careful consideration of the facts before the honourable Delhi High Court, it is apparent that there was a delay in initiation of the proceedings. However, in the present case the initiation of the proceedings was immediate on adjudicating authority incoming to know that assessee is carrying on certain object, which is not educational, and further there are payments to the specified persons, which deserves the cancellation of registration. Further, on the issue of initiation the provisions of section 201 of the act at that time did not prescribe any limitation period for declaring the assessee as an assessee in default. Such is not the case before us. Further, in the present case also there is no grievance of the assessee that initiation of proceedings for withdrawal of registration of the trust is after inordinate delay. The grievance is that it continued for a long period. Therefore, the reliance placed by the assessee on the decision of the honourable Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of income tax 99 taxmann.com 273 wherein it has been held that withdrawal can be made from retrospective date if the evidences and material has been found about the non-genuineness of the activities of the trust. It was further submitted that since in the case of the assessee there are specific material and evidences to show that the assessee's activities from assessment year 2009 - 10 onwards has been on genuine and therefore cancellation order of approval should be done from assessment year 2009 - 10 onwards. Therefore, the learned DR vehemently stated that that issue is squarely covered on this issue in favour of the revenue. 12. We have carefully considered the rival contention and perused the order of the learned CIT exemption, which was passed on 19/05/2015 cancelling the registration u/s 12 AA of the act of the assessee with effect from assessment year 2009 - 10. The provisions of subsection for of section 12 AA has been inserted with effect from 01/10/2014. This sub-section (4) in section 12AA provides with effect from October 1, 2014 that where a trust or an institution has been granted registration, and subsequently it is noticed that its activities are being carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not genuine or not being carried out in accordance with the object of the trust or institution. This cannot be regarded as a retrospective alteration of the law. Similarly, in the present case the amendment made with effect from 01/10/2014 empowers Commissioner to cancel the registration of the trust on violation of certain provisions of the law. Therefore, the argument of the assessee that the order passed by the learned CIT exemption is contrary to law is devoid of any merit. 13. Coming to 2nd limb of the argument of the ground number 2 that order withdrawing the registration u/s 12 AA has been passed on the issue raised in order passed by CIT for not granting approval u/s 80 G of the act. The issues raised for not granting registration u/s 80 G were that the payments were made to person specified u/s 13 (3) of the act and the assessee is hit by the proviso to section 2 (15) of the act. The argument of the assessee is that all these issues are covered by the judgment of the coordinate bench in case of the appellant wherein these issues have been decided in favour of the assessee. Therefore, it was contended that when the original issues on which the process of cancellation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee u/s 12 A of the act. To support this finding the coordinate bench referred to the decision of the honourable Supreme Court in case of assistant Commissioner of income tax vs Surat state Gymkhana 170 taxman 612 (SC) where the issue was with respect to the assessment proceedings. However, we are here to find out whether independently the registration granted to the assessee trust can be withdrawn or not. Circular No 1/2015 Provides the methodology of cancellation of the registration with effect from 1/10/2014 as under:- Finance (No. 2) Act, 2014 - Circular No. 1/2015, dated 21-1-2015 9. Cancellation of registration of the trust or institution in certain cases 9.1. The provisions of section 12AA of the Income-tax Act, before amendment by the Act, provided that the registration once granted to a trust or institution shall remain in force until it is cancelled by the Commissioner. The Commissioner could cancel the registration under two circumstances: (a) the activities of a trust or institution are not genuine, or; (b) the activities are not being carried out in accordance with the objects of the trust or institution. 9.1.1 The Commissioner was empowered to canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, CBDT also issued another circular on 27/5/2016 where the activity of the trust is held to be at the object of general public utility and it crosses the specified threshold limit in one particular year, the circular is important in the present case because as per para number 4 of the order of the adjudicating authority the revenue has taken a stand for assessment year 2010 - 11 onwards that the activity of the assessee has been held to be in the nature of general public utility and the proviso to section 2 (15) has been involved for denying the exemption u/s 11. The circular provides as s under :- :- CIRCULAR NO.21/2016 [F.NO.197/17/2016-ITA-I], DATED 27-5-2016 Sections 11 and 12 of the Income-tax Act, 1961 ('Act') exempt income of charitable trusts or institutions, if such income is applied for charitable purpose and such institution is registered under section 12AA of the Act. 2. Section 2(15) of the Act provides definition of "charitable purpose". It includes "advancement of any other object of general public utility" provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc. for financial consideration. The 2nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act. 5. With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted u/s 12AA may lead to a charitable institution getting hit by sub-section (3) of section 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of taxliability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA (3) and 12AA (4) after careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of Rs. 4 7164812/-, out of which the assessee has paid expenses to specified persons of Rs. 66990800/-. Further for financial year 2011 - 12 relevant to assessment year 2012 - 13, out of the total income earned of INR 3 9430640/- the assessee has made payment to specified person of INR 7 8657639. These facts in figure are also to be correlated with the ultimate result that the assessee trust has surrendered its registration u/s 12 A of the income tax act on its own. Further, the learned CIT exemption has noted that the assessee has paid a sum of Rs. one crore is infrastructure fee to Messer's career launcher India Ltd and also license fee to 2 different organizations namely carrier launcher India Ltd for trademark and carrier launcher education infrastructure and services Ltd for education soft skills amounting to INR 8 727000/- and INR 7 500000/- respectively. For all these three transactions, the assessee has not stated before the CIT exemption that how these sums have been paid to specified persons and what is the market rate of the services. Naturally, it is for the assessee to benchmark that there is no benefit to the specified persons and therefore assessee is eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified persons to the assessee and whether any benefit has accrued to the specified persons are not within 3 months from the date of this order and the learned CIT exemption is also directed to preferably dispose of the matter of the cancellation of the registration within 2 months after the assessee submits the complete detail. 18. Accordingly, appeal of the assessee in ITA number 4760/del/2015 is partly allowed for statistical purposes. 19. Now we come to the appeals for assessment year 2010 - 11. The assessee has filed appeal in ITA number 2371/del/2015 and the learned assessing officer has filed the appeal in ITA number 3660/del/2015 against the order of the Commissioner of income tax (appeals) - 40, New Delhi dated 16/3/2015. 20. The assessee raised following grounds of appeal in ITA No. 2371/Del/2015 for Assessment Year 2010-11:- "1. Disallowance by Commissioner of Income Tax (Appeals) of expenses or payments of Rs. 32,54,467/- @ 25% of total expenses or payments of Rs. 1,30,17,870/- made to related concerns is arbitrary, without any finding ofAssessing Officer or of Commissioner of Income Tax (Appeals) that expenses or payments made to related concerns are in excess of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketing services private limited of INR 8 20974/- in form of mobilization expenditure and INR 8 33405/- as recruitment expenses. Further, the directors of that company are also trustee in this appellant trust. Further, the recipient of the above sum is a subsidiary of CL Educate Ltd. Therefore the learned AO asked that the company and its directors are covered under the provisions of section 13 (3) of the income tax act and the above payment has been made and thereafter the total income of the assessee is Rs. to 6559831/- only. Assessee was directed to justify the above payment with sufficient detailed and reasonableness for making the above payment. It was further noted by the AO that the payments are in violation of the provisions of section 13 (1) (c) of the act. Therefore, the assessee was directed to show cause as to why the benefit of exemption u/s 11 and 12 of the act should not be denied. The AO further noted that assessee is running a business school, which is neither recognized and not affiliated, to any appropriate authority and assessee is charging use fees for rendering of the services and all the activities are being running on commercial line and no charity is under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to its own related concerns which are basically private limited companies like CL educate Ltd, carrier launcher education and infrastructure and services Ltd and Kestone integrated marketing services private limited wide the order of the AO. After considering all the facts and circumstances of the case, I am of the view that the assessee is eligible for exemption u/s 11 (1) has mischief of proviso to section 2 (15) is not applicable and accordingly the AO is directed to allow the exemption u/s 11 (1) but the expenses of payments related concerns are on the higher side as the entire expenditure has been disallowed and accordingly the addition of the disallowance to the extent of the estimated expenditure at the rate of 25% i.e. INR 3 25 1st 467/- is confirmed and the balance addition of INR 9 763403/- (INR 1 3017870/- -INR 3 254467/-) is deleted." 23. Thus the assessee is agreed with the order of the learned assessing officer in confirming the disallowance to the extent of 25% of those expenditure and the learned assessing officer is aggrieved with the order of the learned CIT - A in deleting the disallowance of INR 9 763403/- and allowing the exemption u/s 11 (1) of the act to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the related parties. As the issue of registration to the assessee has been set aside to the file of the learned CIT - exemption, in all fairness, both the appeals of the assessee as well as the revenue should also go back to the assessing officer with a direction to decide the issue about the taxability in the hands of the assessee after the fate of registration to the assessee u/s 12 A of the income tax act. 28. In view of this, we set aside both the appeals back to the file of the learned assessing officer accordingly. Hence, appeals of the assessee as well as of the revenue are allowed for statistical purposes. 29. Now we come to the appeal of the assessment year 2011 - 12. The assessee has filed appeal in ITA number 1997/del/2016 and the learned assessing officer has filed appeal in ITA number 3307/del/2016 against the order of the Commissioner of income tax (appeals) - 40, New Delhi dated 10/3/2016. 30. The assessee raised following grounds of appeal in ITA No. 1997/Del/2016 for Assessment Year 2011-12:- "1. Disallowance by Commissioner of Income Tax (Appeals) of expenses or payments of Rs. 1,67,47,700/- @ 25% of total expenses or payments of Rs. 6,69,90,800/- made t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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