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TMI Blog2021 (9) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier filed an application for registration u/s 12AA of the Income Tax Act 1961 however, the said application was rejected by CIT(E). Feeling aggrieved by the rejection of the application u/s 12AA, Appellant filed an appeal before the Income Tax Appellate Tribunal. The said appeal of the Appellant was dismissed by the Tribunal by passing the following order. "2. We have heard both the parties and perused the relevant records available with us, especially the impugned order passed by learned CIT, Bathinda, and the documentary evidence produced by the assessee in the shape of paper book and our findings are as under: I.T.A. No. 26(Asr)/2011 I. The assessee-society filed an application for registration under Section 12AA of the Act on 28.05.2010. Learned CIT, Bathinda, called the assessee to verify the genuineness of the activities of the assessee-trust on 01.07.2010 along with complete set of books of account and other relevant documents for the last three years but none attended in response to the said notice. Learned CIT, Bathinda, re-fixed the case for hearing on 02.08.2010 and again none attended the proceedings on the said date. The case of the assessee was again re-fixed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee-society failed to attend the proceedings and produce the necessary evidence as required by learned CIT, Bathinda. V. Keeping in view the provisions of Section 12AA of the Act, the Commissioner, on receipt of application for registration of a trust or institution shall call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary. After satisfying himself about the objects of the trust or institution and the genuineness of its activities, he shall pass an order in writing registering the trust or institution and if he is not satisfied then he can pass an order in writing refusing to register the trust or institution after giving reasonable opportunity of being heard to the applicant-society. VI. In the present case also, as mentioned above, learned CIT, Bathinda, has given sufficient opportunity to the assessee for producing the evidence for substantiating its claim but the assessee failed to do so. In the absence of any evidence as required by learned CIT, Bathinda, how the authority can sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the CIT(E) in the order itself has mention the objects of the assessee in para 2 in the following manner. 8. The ld. AR had submitted that the assessee is running the school in the name of Oxbridge World School and is affiliated to CBSE. It was submitted that the assessee has furnished the details the certificate granted to the society by the CBSE alongwith the application for approval with the CIT(E). The letter affiliation granted by the CBSE is placed at page 15 of paper book. 9. The ld. AR had submitted that the CIT(E) has wrongly rejected the application for approval on the 3 grounds namely, 1) that the appellant has taken unsecured loan from the president and members of the society to whom the Appellant is paying the interest @ 9% and 12%, 2 ) the appellant had acquired the buses and the surplus fund generated was utilized to generating the additional source of income in the shape of transportation fee. And 3) the appellant is paying meagre amount of salary to the teachers in violation of the 6th pay commission and thus compromising the educational of the school. 10. The ld. AR had 11. Feeling aggrieved by the order passed by the CIT(E) the assessee Appellant is an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as raised from any Financial Institution, the rate of interest in those years was much more than 14% and also required security, whereas these loans are unsecured loans. (ii) Secondly, the Ld. CIT has observed in para 8 that society has been acquiring buses: It is respectfully submitted that no doubt, that appellant society has been investing money in purchasing buses, which are also being exclusively used for purpose of running school. The strength of student in financial year 2014-15 was 634 and the number of villages catered to were 66. A list showing names of villages, number of students and distance of village from school is enclosed, just to demonstrate that it was only for purpose of providing education and running school that buses were used. This also did not confer any personal benefit to the members of the trust. (iii) Thirdly, the Ld. CIT has observed that teachers were employed and were paid meagre salaries: It is respectfully submitted that merely because the teachers were paid meagre salaries cannot be ground for rejecting the claim of the appellant society for registration u/s 10(23C)(vi). The Income and Expenditure account filed at page 18 of the Paper Book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singh Monga, President Rs. 48,041/- Rs. 52,741/- Rs. 57,013/- Sh. Desa singh Monga, Chief Patron Rs. 1,14,840/- Rs. 1,24,466/- Rs. 1,34,548/- Smt. Prem Rani, Exec. Member Rs. 71,865/- Rs. 79,626/- Rs. 88,226/- The above shows the benefits are being provided to the members having substantial interest in the society, in the form of payment of interests @ 9% p.a. to first three and @ 12% p.a. to Smt. Prem Rani on loans received, which is in violation to section 13(l)(c) of the Income tax Act, 1961. 8. The quantitative extract of Gross receipt, Net Surplus and addition made to Van, Bus etc. for F.Y. 2012-13 to F.Y. 2014-15 is as under, as revealed by the financial statement submitted by the applicant:- F.Y. Gross receipt Net Surplus plus Depreciation claimed Addition in Van/ Buses etc. 2012-13 98,04,703/- 34,65,687/- 18,47,434/- 2013-14 98,52,930/- 31,89,167/- 56,42,062/- 2014-15 1,31,02,919/- 40,48,288/- 33,79,092/- The extract above shows that the net surplus together with depreciation claimed and additions made towards acquiring Van/ Buses etc. amounts to 54.18%, 89.62% and 56.68% of the Gross receipts for the F.Y. 2012-13, F.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority." 16. From the bare reading of the provision, it is abundantly clear that if any educational institution solely exists for educational purposes and not for profit, then the approval under section 10(23C) (vi) may be granted. 17. In the present case, the objects of the assessee clearly shows that the assessee was formed for the purpose of imparting education only. Further the affiliation with the central board of secondary education also shows that the assessee continues to impart the education in accordance with the systematics schematic scheme of the board of secondary education to the students. The educational activities of the assessee have not been denied by the CIT exemption while passing the impugned order. The CIT exemption however, as mentioned hereinabove had rejected the application of the approval on 3 grounds mentioned hereinabove. 18. The first ground of rejecting the application was that the assessee has taken the unsecured loan from the president, executive member and chief patron of the society and is paying the interest @ 9% to thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shape of transportation fees. 23. The assessee had filed the income and expenditure account for all the three years and in the income the assessee has shown the fees of Rs. 13093505/- for the year ending upto 31.03.2015 and the said fees, have been utizlied for various purposes mentioned in the income and expenditure. The CIT(E) had calculated the net surplus plus depreciation in the table for an amount of Rs. 40,48,288/- by including the depreciation of Rs. 38,11,488/- and surplus of Rs. 23,6800/-. In our opinion the assessee is entitled to the claim of depreciation on the fixed assets and was not restricted to only to the buses but was also relatable to the other fix assets as per schedule 5 of the balance sheet. However, nonetheless the facts remains the assessee was only having of actual surplus of Rs. 2,36,800/- (after claiming depreciation). In our view, no fault can be found in the computation of the assessee. In our view, none of the head mentioned by the assessee on the expenditure side shows the utilization of the fund for any purpose other than education. 24. In our considered opinion generation of surplus fund by the educational institution is not a taboo. The Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emics but it should also take care of sports, scientific temperament, psycological development character building, nationalism, civic sense etc. In our view in the absence of necessary transport facility, the students will not be able to attend school regularly and punctually. Therefore, the provision for transportation is sine qua non and is integral part of imparting education. In view of the above, the objection of the CIT(E) is devoid of any merit. 26. The last objection raised by the CIT(E) was that the assessee is not paying the sufficient salary to the teachers and thereby violating the CBSE guidelines by not paying the 6th pay commission salary. 27. In our considered opinion the scope and ambit of the verification u/s 10(23C) (vi) was only to verify whether the assessee was established / running solely for the purpose of education or not. Once the CBSE grant affiliation to the assessee, then it is for the CBSE to ensure compliance of the terms and condition of attached with the affiliation. Undoubtedly, the assessee was into imparting of solely for education purposes and this aspect has not been denied by the CIT(E). In our considered opinion payment of the salary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to ensure that the assessee is primarily into charitable activities as defined undersection 2(15) of the Act and for those purposes, Commissioner exemption should make enquiries only. The Commissioner exemption should not use this opportunity to extend its authority beyond Income Tax Act i.e in the sphere of the other authorities under different laws or sitting in judgment against permission/ approval given under different laws, as a super Cop . As in our opinion it is for the other authorities to examine whether the assessee is subjected to provision of law and is required to comply the relevant provision of law. The Authorities created under various ACTS should function within their respective domain and should not encroach or interfere in other areas, this is necessary for smooth functioning of various organs of state. Though Section 12AA of Act has been widely worded "any other law" however the same has been given restricted or narrowed by the other words used in the section namely " as are material for the purpose of achieving its objects ". Therefore before embarking upon any enquiry by the Commissioner exemption, it is sine qua non(essential) to inform the assessee as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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