TMI Blog2019 (9) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... n the parties and the activity carried out by the assessee are to earn the profit from the activity and then transfer the same in the ratio as per the agreement to the other parties. The other entities are undisputed existed solely for the commercial activity and for earning the profit and not invested in the assessee for any charitable purpose. Thus the sharing of the profit or income under the agreement and 80% of the income is going to the commercial entities clearly established the intention of the parties in this arrangements being for profit are not solely for providing education - there is no intention of generating any income to be applied for education purposes and to meet the requirement of future expenses, modernization or to provide latest facility or infrastructure to the student. The income generated from the activity of running the school is substantially going in the hand of the commercial entities under these agreements. Hence assessee is not existed solely for education purpose and consequently the benefit of Section 10(23C)(iiiad) of the Act is otherwise not available to the assessee - Decided in favour of revenue - ITA No. 1063/JP/2018 - - - Dated:- 8-8-2019 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation U/s 12AA of the Act vide application dated 22.06.2011 which was rejected by the ld. CIT(E) on the ground that the assessee society had not commenced its activity of imparting education during the financial year 2010-11. Subsequently the Tribunal vide order dated 20.05.2013 directed the ld. CIT(A) to reconsider the application of the assessee society however, till the date no order has been passed by the ld. CIT(A) U/s 12AA of the Act. The assessee filed its return of income for the year under consideration declaring the total income at Nil after claiming the exemption U/s 11 of the Act. During the scrutiny assessment the AO has made addition of ₹ 8,13,29,766/- on account of transfer rights and after giving benefit of expenses at ₹ 1,11,33,258/- a total income of the assessee was computed at ₹ 7,14,56,68/-. The AO denied the benefit of Section 11 of the Act as the registration U/s 12AA of the Act was not granted to the assessee. The AO also rejected the claim of exemption U/s 10(23C)(iiiad) of the Act. The assessee filed the appeal before the ld. CIT(A) and contended that the assessee society is existed solely for the education and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted parties by creating through some trust therefore, the SEBI has also ordered for forensic audited of THEAL. He has contended that the assessee is also paying interest to the THEAL as stated in para 4.3.1 of the ld. CIT(A). Thus, the ld. DR has submitted that the AO has rightly made the addition and treating the said amount of ₹ 8,13,29,766/- received from THEAL as part of the gross receipt of the schools. Therefore, when the gross receipt is more than ₹ 1 crore the provisions U/s 10(23C)(iiiad) are not applicable in the case of the assessee. 4. On the other hand, the ld. AR has submitted that the AO has treated the security deposit made by THEAL as income of the assessee whereas the said deposit is refundable at the end of the tenure by the agreement or termination of the agreement. The ld. AR has further contended that the agreement with THEAL was entered into for the services to be provided by the THEAL in running of the schools including management, curriculum and other accessories. Thus, this arrangement is made to mobilize the fund to run the international standard schools. The payment of security to Arihant Enterprises and Unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not recorded in the books of the assessee and it was noticed while preparing the accounts of the subsequent year. This receipt of ₹ 2 crores was then treated as income in reassessment proceedings which has not been challenged by the assessee society. The ld. AR has referred to the various clauses of the agreement and submitted that security deposit is refundable on termination of agreement and therefore, the same cannot be treated as income. In support of his contention, he has relied upon the following decisions:- 1. Siddheshwar Sahakari Sakhar Karkhana Ltd. vs. CIT 270 ITR 1 (SC). 2. High Range Foods (P.) Ltd. vs. DCIT 15 taxmann.com 332 (Cochin) 3. Pr. CIT vs. Gulmohar Green Golf Country Club Ltd. 77 taxmann.com 68 (Gujarat). Thus, he has contended that each and every receipt cannot be treated as income. Deposit received by the assessee as security under the agreement which is liable to be refunded on termination of the agreement cannot be characterized as income of the assessee. The ld. AR has submitted that the AO as denied the exempts U/s 10(23C)(iiiad) of the Act due to monitory limit of more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,89,946/-. The relevant computation made by the AO as under:- In view of foregoing discussion in Section-II the institute wise income of the assessee society are:- Tree House High School for Boys Income shown in I/E a/c of the School ₹ 9,96,370/- Add, receipts as shown in balance sheet On account of transfer rights ₹ 1,18,23,250/- Total ₹ 1,28,19,620/- Tree House High School for Girls Income shown in I/E a/c of the School ₹ 2,63,810- Add, receipts as shown in balance sheet On account of transfer rights ₹ 6,95,06,516/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts for the year under consideration breaches the limit provided U/s 10(23C)(iiiad) of the act and therefore, the said benefit of provisions of Section 10(23C)(iiiad) would not available to the assesse. Accordingly to that extent we set aside the order of the ld. CIT(A) and restore the order of the Assessing Officer for denying the claim of exemption U/s 10(23C)(iiiad) of the Act. 5.1 As regards treating the receipt of ₹ 8.13,29,766/- from THEAL it is pertinent to note that the entire arrangement between the assessee society and THEAL is in the nature of joint venture for 30 years. The agreement in question is irrevocable as the parties to the agreement have no right to terminate the agreement accept fulfillment of terms and conditions as provided under clause 7.1 to 7.5 which reads as under:- 7.1 Either party ( the Terminating party ) shall be entitled to terminate this agreement if: (ii) the other party ( Defaulting party ) shall neglect or fall to perform any of its obligations or conditions undertaken under this agreement or under the agreement, or (ii) if any of the statement/s as contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of any academic year of the school termination of the agreement shall become effective and taken effect only at the end of the academic year during which the right of termination is exercised, with a view that there shall not be any disruption of the education of the students of school in the middle of an academic year. Therefore, only on default on the part of a party the agreement cannot be terminated and not on will by giving a notice to other party. In substance the THEAL has made an investment more than ₹ 8 crores and in return was entitled to 50% of the gross receipts from running of the schools. Therefore, this arrangement is not to provide the facility of running of the schools but it is for sharing the profit of the income from activity of running the school. Similarly the assessee has taken the school buildings on lease with the conditions that the minimum 30% of the receipt will be paid for each schools as rent to the parties from whom the schools were taken on lease. There is a further rider in payment of rent in case of 30% of receipt is less than ₹ 6 lacs Per Annum, the minimum will be paid as rent. Thus, it is clear that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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