TMI Blog2022 (4) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 19 crore in cash by Maheshwari brothers to Shri R. K Verma as well as share investment of ₹ 8 crores by Maheshwari brothers in R. C. Jain Invest Finance Pvt. Ltd were all made in lieu of the deal between the Maheshwari brothers and Shri RK Verma for transfer of administrative control and management rights of Disha Delphi School from Shri RK Verma to the Maheshwari brothers and Allen Group. Therefore, the claim made by the ld. AR that the assessee-society is not connected in any way to these payments are completely opposite to the actual scenario. AR has also claimed that the Maheshwari brothers are just mere members of the assessee-society and the office bearers of the society have not changed even after the deal between Maheshwari brothers and RK Verma. With this argument, the ld. A/R is attempting to hide the true picture behind nomenclatures and designations. Irrespective of what designation is bestowed upon the Maheshwari brothers, it is undisputed fact that as on date, the administrative control and management of Disha Delphi School vests solely with the Maheshwari brothers and the Allen Group. This fact was not disputed anywhere by the A/R in his submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... craves to alter, amend and modify any ground of appeal. 3. Necessary cost be awarded to the assessee. 4. The brief facts of the case are that the assessee society was constituted on 20.09.2002 with the objectives of providing education medical facilities without any profit motive. It is registered under Societies Registration Act XXI of 1860and also registered u/s 12AA of the Act vide order no. 1094 dated 27.10.2008.In pursuance to these objects, the assessee is presently running a school in the name of Disha Delphi Public School (DDPS) at Kota. Disha Delphi Public School run by the assessee society is affiliated with CBSE. A search was conducted on the Allen Group, Kota on 02.02.2017. During the course of search documents relating to payment made by Sh. Govind Maheswari others to Sh. R.K. Verma for acquiring management and administrative rights in the assessee society and thereby acquiring management and administrative control over DDPS were found and seized from Shri Lalit Maheshwari, CFO key person of Allen Group. Shri Lalit Maheshwari in his statement admitted that these documents relate to a deal entered between Maheshwari brothers (i.e., Shri Govind Maheshwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it approached the Maheshwari brothers to become members of the assessee and help it to run the school efficiently. Thus, loan of ₹ 46 crores was given by the Maheshwari brothers at interest rate of 9% p.a. which was used to repay loan taken by the assessee from PNB others at higher rate of interest. Further, since Shri R.K. Verma was in financial hardship, Maheshwari brothers in order to help him invested ₹ 8 crores in M/s R.C. Jain Invest Finance Pvt. Ltd. and also provided him fund of ₹ 19 crores. Thus, the amount so provided by Maheshwari brothers to Sh. R.K Jain is no way connected with the affairs of assessee society. The Ld. PCIT, however, did not accept the contention of assessee by giving the following reasons:- i) Shri R.K. Verma has admitted on oath that the payment of ₹ 46 crores in cheque and ₹ 19 crores in cash by Maheshwari brothers and investment of ₹ 8 crores in R.C. Jain Invest Finance Pvt. Ltd. were all made in lieu of the deal between them for transfer of the administrative control and management rights of DDPS to Maheshwari brothers and Allen Group. ii) The claim of the assessee that Maheshwari brothers are mere m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thers and Sh. R.K. Verma for transfer of administrative control and management rights of DDPS from Sh. R.K. Verma to Maheshwari brother and Allen group with the intention that school becomes subservient to the coaching institute of Allen group. In this connection it may be noted that sections 12AA(3) and 12AA(4) apply only when any of the following condition mentioned therein is satisfied:- (i) The activities of the trust or institution are not genuine (ii) The activities are not carried out in accordance with its object (iii) There is operation of section 13(1) meaning thereby that income does not ensures for the benefit of general public and is for benefit of particular religious community or caste or the income or property is applied for benefit of specified persons or funds are invested in violation of section 11(5). 2. In the present case, none of the conditions mentioned in section 12AA(3)/ 12AA(4) is violated as is evident from the following:- (i) There is no dispute that Disha Delphi Public School is run by Disha Delphi Education Society which is registered under the Societies Registration Act XXI of 1860. The affairs of the society are managed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income or property of the society is used or applied directly or indirectly for the benefit of Maheshwari brothers. (iv) So far as clause (4) of Memorandum of Association of the society is concerned (PB 3), it only provides that all income/ properties shall be solely utilised for its object, no profit shall be paid in any manner whatsoever to the members of the society and no members shall have any personal claim on any properties of the societies or make any profit by virtue of his membership. On providing funds by Maheshwari brothers to Shri R.K. Verma or by making investment in shares of R.C. Jain Invest Finance Pvt. Ltd., no income/ property of the society has been utilised in any manner whatsoever by the members of the society nor any members have made any profit by virtue of his membership. Further, as per section 12AA(3) registration can be withdrawn only when the activities of the trust are not genuine or not carried out in accordance with its object. There is no allegation against the society that its activities are not genuine or not carried out in accordance with its object in as much as the objectives of the society is to run the school which is being run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee society, Maheshwari Brothers and Allen group are making huge profit from their coaching business as because of this there is increase in enrolment of coaching classes. No material is brought on record by the Ld. PCIT in support of this allegation. M/s Allen Career Institute is otherwise providing coaching to more than 1.25 lakhs of students and has filed the return declaring income ranging between ₹ 63.35 cr. to ₹ 110.98 cr. in AY 2014-15 to 2017-18 and therefore, by no stretch of imagination it can be presumed that by becoming members of society, Maheshwari brothers received any benefit from the assessee society. 7. It is submitted that due to active participation of Mahcshwari brothers in the society, the CBSE affiliated the school for providing the education upto Sr. Secondary level and the total strength of the students in the school which was around 600 at that point of time increased to 2500 students at present and the losses have also substantially reduced as can be seen from the table: FY Gross Receipt Deficit as per Income Expenditure A/c % of Deficit to Gross Receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Medical Council of India, State of Karnataka and all other statutory authorities. Therefore, it cannot be said that the Trust is not genuine. Admittedly, the students are being admitted every year. Students are studying in all courses. Thus the object of the constitution of the Trust namely imparting of education is going on uninterruptedly. Therefore, it cannot be said that the activities of the Trust are not being carried out in accordance with the objects of the Trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are misappropriating the funds of the Trust the registration of the Trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11 of the Income Tax Act, but that is not a ground for cancelation of registration itself That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue. There is no merit in this appeal. In view of above, it is incorrect on part of Ld. PCIT to allege that activities of assessee are not genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Govind Maheshwari admitted that the incriminating document seized from premises of Shri Lalit Maheshwari pertains to the deal of Disha Delphi Education Society through Shri Ajay Jain. He stated that ₹ 46 Crore (i.e. ₹ 11.50 crores by each brother) were paid by cheque for obtaining membership in assessee-society and these funds were used by the assessee-society to repay its existing bank loan. Also in terms of present deal, ₹ 8 crore (i.e. ₹ 2 Crores by each brother) were paid by cheque for acquiring shareholding in R. C. Jain Invest Finance Pvt Ltd. 6. Evidence was gathered during search that each brother had extended loan of ₹ 9.37 crores to the assessee-society in three tranches viz. ₹ 5 crores was extended on 21.02.2015, ₹ 4.37 crores was extended on 03.03.2015. Balance amount was extended by the brothers to the assessee-society in F.Y. 2015-16. Therefore, the irregularities in functioning of assessee-society began in F.Y. 2014-15 inasmuch as the assessee-society accepted huge loan from Maheshwari brothers as quid-pro-quo for handing over the management and control of the Disha Delphi School to the Maheshwari Brothers. The rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In fact, M/s Allen Career Institute did not have administrative control over any other school before Disha Delphi School. With a view to increase enrolment in their coaching classes, the Allen Group found it to be a good business deal to pay exorbitant sums of money to acquire control over Disha Delphi School. The only reason why Allen Group has paid huge amount of money to RK Verma including cash from unaccounted sources was because acquiring control over Disha Delphi School was essential for them to expand their coaching business and thereby derive huge profits from the same. 10. By making huge payment, both in cheque and cash, to acquire membership in assessee-society and control over Disha Delphi School, the Maheshwari brothers and Allen Group are making huge profits from their coaching business. Therefore, it is clear that the Maheshwari brothers are deriving profit by virtue of their membership in the assessee-society which is in contravention of clause 4 of the Memorandum of Association of the assessee-society reproduced above. 11. In light of the above discussion, the activities of the assessee-society are not being carried out in accordance with the objects of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol over Disha Delphi School, this school which is the property of the assessee-society is being used or applied directly for the benefit of the Maheshwari brothers as well as M/s Allen Career Institute. Therefore, as per the provision of Section 13(1)(c)(ii), nothing contained in Section 11 or Section 12 shall operate so as to exclude the total income of the assessee-society. For ready reference, the provisions of this sub-section are reproduced as under: 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) .. (b) (bb) [***] (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notice was issued vide No. Pr.CIT(Central)/Tech/JPR/2017-18/3304 dated 19.02.2019 seeking an explanation from the assessee as to why its registration u/s 12A should not be cancelled u/s 12AA(3) and 12AA(4). In response, a letter dated 11.03.2019 was received from Shri PC Parwal CA of M/s Kalani Company and A/R of the assessee. 16. In his submission, the MR has mentioned that the assessee-society was running into losses and therefore, Shri RK Verma approached the Maheshwari brothers to become member of the assessee-society and help the assessee-society to run the school efficiently. Thereafter, the Maheshwari brothers had extended loan to assessee-society at 9% interest rate and this loan was used to pay-back loan taken from Punjab National Bank at higher interest rate at 16%. 17. Insofar as the payments by cheque and cash to Shri RK Verma and investment in shares of R. C. Jain Invest Finance Pvt Ltd are concerned, the A/R of the assessee-society has attempted to distance the assessee-society from these transactions by claiming that they are independent transactions between the Maheshwari brothers and Shri RK Verma, and the assessee-society is in no way connecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to notice. I am also satisfied that the activities of the assessee-society arc being carried out in a manner that provisions of Sections 11 12 do not apply to exclude the income of the assessee-society due to operation of Section 13(1). Accordingly, the registration of the assessee-society u/s 12A is hereby cancelled by invoking section 12AA(4) with effect from 01.10.2014 i.e. viz. the date from which this sub-section has come into force. 9. We observed from perusal of the record that during the course of search, statement of Shri Lalit Maheshwari, who is the CFO Key person in Allen Group, was recorded on oath wherein he clearly admitted that the documents seized from his possession during the course of search were written by him and they were related to a transaction/deal entered into by Shri Govind Maheshwari, Shri Rajesh Maheshwari, Shri Naveen Maheshwari Shri Brajesh Maheshwari of the Allen Group and Shri RK. Verma (key person of Resonance Coaching Classes, Kota) for transfer of administrative control and management of Disha Delphi Public School for which one CA Shri Ajay Jain acted as mediator. We also observed that the evidences recovered during search and statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of Disha Delphi School to them. He also admitted that as part of the deal, they advanced loans to the assessee-society and also invested in shares of RC Jain Invest Finance Pvt. Ltd at premium. The relevant part of statement recorded from Shri RK Verma on 09.09.2017 during course of search in the cases of Resonance Group. 11. We further observed from perusal of the record that after acquiring management rights and administrative control over Disha Delphi School, the Allen Group has made this school subservient to their coaching programme inasmuch as that most of the students who attend coaching classes at M/s Allen Career Institute are enrolled with Disha Delphi School for the purposes of completing their secondary / senior secondary education. Due to the fact that the control of the school vests solely with the Allen Group, students who are enrolled for coaching with M/s Allen Career Institute find it convenient to manage the requirements of attendance and other school requirements if they are enrolled with Disha Delphi School. In fact, M/s Allen Career Institute did not have administrative control over any other school before Disha Delphi School. With a view to increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. From the above facts and circumstances, it is evident that Maheshwari brothers have taken management control over Disha Delphi School, this school which is the property of the assessee-society is being used or applied directly for the benefit of the Maheshwari brothers as well as M/s Allen Career Institute. Therefore, as per the provision of Section 13(1)(c)(ii), nothing contained in Section 11 or Section 12 shall operate so as to exclude the total income of the assessee-society. For ready reference, the provisions of this sub-section are reproduced as under: 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) .. (b) (bb) [***] (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a have admitted on oath that the payment of ₹ 46 crore in cheque and ₹ 19 crore in cash by Maheshwari brothers to Shri R. K Verma as well as share investment of ₹ 8 crores by Maheshwari brothers in R. C. Jain Invest Finance Pvt. Ltd were all made in lieu of the deal between the Maheshwari brothers and Shri RK Verma for transfer of administrative control and management rights of Disha Delphi School from Shri RK Verma to the Maheshwari brothers and Allen Group. Therefore, the claim made by the ld. AR that the assessee-society is not connected in any way to these payments are completely opposite to the actual scenario. 13. The ld. AR has also claimed that the Maheshwari brothers are just mere members of the assessee-society and the office bearers of the society have not changed even after the deal between Maheshwari brothers and RK Verma. With this argument, the ld. A/R is attempting to hide the true picture behind nomenclatures and designations. Irrespective of what designation is bestowed upon the Maheshwari brothers, it is undisputed fact that as on date, the administrative control and management of Disha Delphi School vests solely with the Maheshwari brother ..... X X X X Extracts X X X X X X X X Extracts X X X X
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