TMI Blog2021 (6) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year under consideration. Hence, the objection of the ld CIT(E) that the objects contain other irrelevant activities (though factually it is not) deserve to be dismissed in limine Assessee trust had derived surplus in its income and expenditure account - What is to be seen is the computation of income which are applicable to charitable trusts which works completely on a different principle wherein even the amounts invested in fixed assets are allowed as application of income. This has been conveniently ignored by the ld. CIT(E) while arriving at the conclusion that assessee has earned surplus. If the said investment made in fixed assets are considered as an application of income excluding depreciation thereon, we find that for the A.Y.2019-20, the assessee had only incurred a deficit . Hence the observation of the ld CIT(E) that the assessee trust had made surplus during the A.Y. 2019-20 and thereby existing for profit, is factually incorrect. Hence there is no question of any surplus earned by the assessee, as per the computation of income asper the provisions applicable to charitable trusts for the A.Y.2019-20. Even otherwise, we find that the surplus in the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of rejection of application u/s.10(23C)(vi) of the Act passed by the ld. Commissioner of Income Tax (Exemptions) hereinafter referred to as ld. CIT(E) vide his proceedings in ITBA/EXM/S/EXM15-2020-21/1031924389(1) dated 30/03/2021 2. We have heard rival submissions and perused the materials available on record. The assessee is an education society running educational institution by the name Daffodils High Public School for standard I to X with affiliation to CISCE at Bhandup, Mumbai. The Assessee society was formed through Memorandum of Association of society dated 31/03/1978 and is duly registered under Societies Registration Act, 1860 under Registration No.BOM-205/78 dated 25/05/1978. The assessee is also registered as a Public Charitable Trust under Bombay Public Trust Act, 1950 since 24/10/1978. As per the predominant objects in the Memorandum of Association and Rules and Regulations of the society, the assessee society has been established solely for the purpose of education. The objects of the assessee society as per the Memorandum of Association dated 31/03/1978 are as under:- a) To encourage and spread education among all people irrespective of caste, creed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... school should have a minimum of 2000 sq.mtrs of land, suitable building constructed on part of the land and proper play ground on the remaining land with adequate facilities as prescribed from time to time by the Council. 2.2. Yet another pre-requisite mentioned in the Rules and Regulations of seeking affiliation with CISCE was that of the land title document should be in the name of society / trust / company / school. In the case of ownership, the land title documents should be the sale deed, conveyance deed and gift deed duly registered before the Registration authority concerned. In case of lease, the lease deed of the land / building should be duly registered before the concerned registration authority and should be for a minimum effective term of five years, with an appropriate renewal clause up to minimum of 30 years. Accordingly, in order to fulfil the requirements prescribed by CISCE in its affiliation rules and in view of the fact that assessee society did not have enough resources to purchase the land on its own to the extent of minimum of 2000 sq.mtrs, had resorted to take the land belonging to that trustees of the trust, on lease. Vide lease deed dated 31/03/2017, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para a to para e as reproduced supra comprise only for the purpose of education. The objects mentioned in para f to k in the Memorandum of Association are only incidental objects for the attainment of the main objects i.e. existing solely for the purpose of education. It would be highly impossible to run the school without having any immovable property either on its own or by taking it on lease. Hence, one of the objects which is provided in the Memorandum of Association for purchasing the immovable property either for acquiring the immovable property either by purchase or on lease is only an enabling position for the attainment of the main object of running a school on the said land. The said objects that are enumerated in para g to k again are only incidental to the attainment of the main object of educational purpose. Hence, we summarily dismiss the first ground of rejection of the ld. CIT(E) for denying exemption u/s. 10(23C)(vi) of the Act as it is without any basis. 2.7. We have perused the income and expenditure account together with the audited financial statements for the year ended 31/03/2016 to 31/03/2019 of the assessee trust. From the perusal of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st vs. CCIT reported in 327 ITR 121 (Bom). b) Decision of Hon ble Madras High Court in the case of PKD Trust vs. ITO reported in 311 CTR 657. c) Hon ble Supreme Court in the case of Queens Educational Society vs. CIT reported in 372 ITR 699 (SC) d) Decision of the Hon ble Supreme Court in the case of Vishvesvaraya Tech University vs. ACIT reported in 384 ITR 37. e) Decision of Hon ble Supreme Court in the case of CCIT vs. St. Peters Educational Society reported in 385 ITR 66. 3.1. Moreover, the Hon ble Supreme Court in the case of American Hotel and Lodging Association Educational Institute vs. CBDT reported in 301 ITR 86 held that on the issue of deciding whether an institution is existing for profit or not, the mere excess of income over expenditure cannot be decisive. An institution cannot be considered to be existing for profit, if some surplus is generated over its expenditure. It is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit. Even otherwise, we find that the CBDT vide its Circular No.14/2015 dated 17/08/2015 had issued clarification on certain issues rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessee trust has paid lease rent of ₹ 24 lakhs to Shri Amarjit Singh Nandrajog and Shri Charanjit Singh Nandrajog (being trustees of the trust) for lease of the land on which assessee s school is functioning. We find that the ld. CIT(E) mentioned the brief history with regard to how the title of the said land passed to Shri Amarjit Singh Nandrajog and Shri Charanjit Singh Nandrajog and their eventual continuation of the lease to the assessee trust for a period of 60 years. It would be pertinent to reproduce the same as under:- 10. History of Assessee s own case: The applicant society was formed in the year 1978 but the educational activity started from the year 1979 at Bhandup LBS Road when the trustees were Late Smt. Rampyari Pratap Singh wife of Sardar Pratap Singh, Late Mr. Jaidev Singh Nandrajog and Late Mr. Tara Singh Nandrajog. The trust started educational instituteion on the present premises at Shivaji Talav, Bhandup West, Mumbai 400 078 in the year 1988. 10.1. Sardar Pratap Singh was owner of the land on which the school building was constructed. Sardar Pratap Singh expired on 20.11.1973 leaving behind Sardar Jaidev Singh Nandrajog and Sardar Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is clear from the lease agreement that the rights of the society in the lane, on which its building is constructed, have been compromised in the lease agreement. The income of the society has been used to pay rent to the members which was not payable earlier. There appears to be contravention of provisions of section 13(1)(c) of the income Tax Act in this regards as the persons to whom rent has been paid are trustees / members of the society. The school building was there before the lease agreement. There is change in the activity of the society from F.Y.2016-17 onwards. From the details of expenses given in Table 2 of para 9.4 it can be seen that the advertisement expenses increased from ₹ 6,141 in F.Y.2015-16 to ₹ 1,75,173 in F.Y.2018-19. Further promotion expenses of ₹ 1,29,800 have been incurred in the year under consideration which was never incurred in earlier years. This shows that there is change in the manner in which the society is being run now. The society had applied for exemption u/s.10(23C)(vi) for the F.Y.2017-18 / A.Y.2018-19 however it later withdrew its application. Therefore, the F.Y.2018-19/A.Y.2019-20 is the first year in which applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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