Commissioner Of Income Tax v. Divine Shiksha Samiti

---1--- HIGH COURT OF MADHYA PRADESH : JABALPUR (Coram:Hon'ble Shri Justice Ajay Kumar Mittal, Chief JusticeHon'ble Shri Justice Vijay Kumar Shukla, Judge) I.T.A No.64/2019 Commissioner of Income Tax …..............Appellant Vs. Divine Shiksha Samiti …........ Respondent --------------------------------------------------------------------------------------------- Appearance: Shri Sanjay Lal, Advocate for the appellant/Department. --------------------------------------------------------------------------------------------- O R D E R (Oral)(6.1.2020) Per : Ajay Kumar Mittal, Chief Justice Challenge in this appeal filed under Section 260-A of the IncomeTax Act, 1961 (for short “the Act”) is to an order dated 5.10.2018 passed bythe Income Tax Appellate Tribunal, Indore in ITA No.1034/Ind/2016whereby the appeal filed by the assessee was allowed and the order passedby the CIT(E), Bhopal was set aside. 2.The appellant has claimed the following substantial question of law for determination by this Court:- “Whether, on the facts & circumstances of the case, theITAT is correct in directing the Ld. CIT(E) to grant theregistration u/s 12AA of that Act irrespective of thefindings by the CIT(E) that the society exists for thepurpose of profit of the office bearers not for charitablepurpose thus attracts proviso to section 13 (1) (c) of theI.T. Act ?” 3.Brief facts of the case are that the respondent-Divine Shiksha Samiti(for short “the assessee Society”) applied for registration under Section12AA of the Act before the Commissioner of Income Tax, Bhopal(hereinafter referred to as “the CIT”). The CIT refused to grant registrationon the ground that the assessee Society is in existence for the purposes ofprofit of the office bearers and not for charitable purposes. Against the saidorder of rejection, the assessee Society filed an appeal before the Income TaxAppellate Tribunal, Indore Bench, Indore. The Tribunal after hearing both theparties and referring to the judicial pronouncements set aside the order of theCIT and allowed the appeal filed by the assessee Society. It was observedthat there was no doubt about the genuineness of the objects of the societyfor grant of registration under Section 12AA of the Act. Feeling aggrieved bythe said order of learned Tribunal this appeal has been filed. 4.Learned counsel for the appellant has argued that under theprovisions of Section 12AA of the Act, the CIT shall call for the documentsor information from the trust or institution as it thinks necessary for thepurpose of satisfying itself about the genuineness of activities of the trust orinstitution and make necessary inquiries as may be deemed fit in this regard.It is submitted that the CIT can examine the application of income derived bythe assessee Society whether it is applied for its objects or elsewhere. TheCIT after noticing the clear deviance in payment by way of rent to the officebearers of the Society had rightly come to the conclusion that there isdiversion of income of the assessee Society for providing undue benefit to itsoffice bearers. It is further argued that the learned Tribunal has erred in recording the finding that while considering the application for registration ofassessee Society, only the object of the assessee Society is required to beseen. Contending thus, it is prayed that this appeal may be allowed and theorder passed by the Tribunal may be set aside. 5.We have heard learned counsel for the appellant/Department andfind no force in the arguments advanced by him. recording the finding that while considering the application for registration ofassessee Society, only the object of the assessee Society is required to beseen. Contending thus, it is prayed that this appeal may be allowed and theorder passed by the Tribunal may be set aside. 5.We have heard learned counsel for the appellant/Department andfind no force in the arguments advanced by him. 6.In the case in hand, the assessee Society applied for registrationunder Section 12AA of the Act before the CIT, Bhopal which was rejectedmainly on the ground that the payment of the rent of the premises to relatedparties is not on pro rata basis though the premises are adjoining and the rentwas being paid only to the office bearers of the Society. The rent agreementwith the office bearers of the assessee Society do not provide for expenses onmaintenance and taxes to be borne by the assessee Society, though theassessee Society had incurred the expenses amounting to Rs.7,89,850/- forthe year 2014-15 and, therefore, it could be said that the funds of the assesseewere being diverted for personal purpose of office bearers and families. Onthe aforesaid premises, the CIT, Bhopal came to the conclusion that theassessee Society is for the purpose of profit of the office bearers and not forcharitable purposes. The assessee had furnished its explanation/informationregarding the land area of the building, rental received per month, built uparea, number of rooms etc. before the Tribunal controverting each reasonadopted by CIT, Bhopal to deny registration to the assessee. It would be apt to notice the detail explanation tendered by the assessee before the Tribunalwhich is in following terms:- “That on the facts and circumstances of the case, the learned CIT(Exemption) erred and was not justified in refusing the registration u/s12AA of the Income Tax Act. (Exemption) erred and was not justified in refusing the registration u/s12AA of the Income Tax Act. Your Honors , It is respectfully submitted as under :- a.The main objective of the society is to spread education. Forfulfilling the objectives society is running a Senior Secondary Schoolaffiliated to M.P. Board, under the name and style of ST Mary's HigherSecondary School at Sehore. b.Regarding the observation of Learned CIT (Exemption) about thepayment of rent to related parties is not on pro rata basis though thepremises are adjoining it is submitted that the observation is not correct.It is submitted that there is no such irregularity and the rent paid is mostreasonable. It is also well within the fair rental value as assessed by theoffice of PWD Sehore. Copy enclosed at P.B. Page no.58 to 63 Tofurther explain we have compiled all the details in a tabular formatwhich explains the total area of land, built up area, open land, rent asper agreement and fair rental value as per PWD Norms as under :- S.Name ofLand AreaPlot AreaPlot area andNo. ofOpen landOpenMonthlyMonthlyRemarksNo.land lordandconstructionrooms(Asland/playrent as perrent as perconstructionthereonmentionedgroundagreementPWDthereon (Sq.(Sq.Ft.)in the(ActuallyagreementFt.)order) as perregistry)1.Lissi2500012000Built up area15-2051130000/-73845/-In rentBabu(0.5713467 (4489 (25000-agreement it isacre)per floor *3 in4489)clearly3 floors)mentioned thatthere is an openland & also aplay ground2.Babu35000-Built up area7-3200015000/-19800/-In rentAntony(0.753000 in(35000-agreement it isacre)ground floor3000)clearlymentioned thatthere is an openland.3.Manish270103500Built up area30235102351031500/-56500/-In rentTiwari(0.6210500 (3500(27010-agreement, it isacre)per floor *3 in3500)clearly3 floors)mentioned thatthere is an openland & also aplay ground Your Honors, as seen from above there is no disproportionate rent.It appears that the Learned CIT (Exemption) has taken criteria ofnumbers of rooms only disregarding built up area and open land. In anycase the rent paid is well within the fair rental value as assessed by theoffice of PWD. Copy enclosed at PB Page No.58 to 63 Specificobservations on the rent paid are as under :- i. Lissy Babu :- In the premises of Lissy babu, there was open land forplayground which has also been mentioned in rent agreement. Thelearned CIT (Exemption) totally ignored the area of open land. Theopen land area was 20511 sqft. Copy of Rent agreement and saleded are enclosed as per PB Page No.31 to 42 ii. Babu Antony :- In the premises of Babu Antony, there was open land forplayground. The learned CIT (Exemption) totally ignored the areaof open land. The open land are was 32000 sqft. Further no built uparea has been mentioned whereas built up area is 3000 Sq. Ft. onground floor. Copy of Rent Agreement and sale deed are enclosedas per PB Page No.43 to 49 iii. Manish Tiwari :- In the premises of Manish Tiwari it was mentioned in rentagreement that 3 Floors has been constructed on Plot of 3500 sqft.The Total built up area for all the 3 floors comes to 10500 sqft. Thelearned CIT (Exemption) has taken built up area as 3500 sqftinstead of 10500 sqft. Copy of Rent agreement and sale deed areenclosed as per PB Page No.50 to 57 c.Regarding the observation of Learned CIT (Exemption) about theassessee has incurred and borne repair and maintenance expenses(Rs.789850/- for the year 2014-15) and funds are being diverted fropersonal purpose of office bearers/families and therefore, it can be saidthat the society exists for the purpose of profit of the office bearers, it issubmitted as under :- In Rent Agreement it is clearly mentioned that the premises shallbe kept clean and white wash of the building shall be done by thetenant. Hence at the ousted, it is submitted that the observation ofThe learned CIT (Exemption) that the expenses on maintenance and taxes are not to be born by the assessee is totally factually incorrect.Relevant clause no. are summarized as under :- Hence, as seen from the clause of rent agreement, it is theresponsibility of the tenant will keep the premises neat and cleanand expenses for white wash and repairs shall also be incurred bythe tenant. It is further submitted that no taxes have been paid by theassessee but the same have only been paid by the landlord. In view of above, it is submitted that the observation thatassessee incurred Rs.7,89,850/- in FY 2014-15 for these expensesand diverted for personal purposes of office bearers and families isfactually incorrect. Further amount of Rs.7,89,850/- has not been fully incurred forbuilding repairs but it is incurred on cleaning charges, sanitationcharges, white wash charges, repair to furniture and fixtures, repairof Lab equipments, projectors, sports equipments, office equipmentsand computers. Copy of ledger account to explain, is enclosed as perP.B. Page No.64 to 74 Summary of repair and maintenance expensesof Rs.7,89,850/- is as under :- I.T.A No.64/2019 ---7---Expenses on whitewash ofRs.1,75,780/-Building about 26700 sq. ft. builtup areaExpenses on Maintenance ofRs.18,800/-playgroundExpenses on Maintenance ofRs.12,200/-Sports EquipmentsExpenses on Maintenance ofRs.15,300/-office EquipmentsExpenses for water tankerRs.53,760/-General Repair and MaintenanceRs.32,515/-TotalRs.7,89,850/-xxxxxxxxxxxx ” After noticing the aforesaid, the Tribunal concluded that the issueregarding payment of rent to the members could be examined at the time ofthe assessment proceedings. I.T.A No.64/2019 ---7---Expenses on whitewash ofRs.1,75,780/-Building about 26700 sq. ft. builtup areaExpenses on Maintenance ofRs.18,800/-playgroundExpenses on Maintenance ofRs.12,200/-Sports EquipmentsExpenses on Maintenance ofRs.15,300/-office EquipmentsExpenses for water tankerRs.53,760/-General Repair and MaintenanceRs.32,515/-TotalRs.7,89,850/-xxxxxxxxxxxx ” After noticing the aforesaid, the Tribunal concluded that the issueregarding payment of rent to the members could be examined at the time ofthe assessment proceedings. 7.Further, the Tribunal noticed that Section 12AA of the Act nowhereprovides that CIT (Exemption) while considering the application forregistration is also required to examine whether the income derived by theTrust is being spent for charitable purposes or the Trust is earning profit. Ithad taken note of the decisions in the cases of CIT Vs. DPR CharitableTrust - (2011) 16 DTR 410, Vidyadayani Shiksha Samiti Vs. CIT(Exemption) – ITA No.309/Del/2016, DIT Vs. Venkatesh EducationSociety, High Court of Karnataka (2012) 82 CCH 309, Fifth GenerationEducation Society Vs. CIT, High Court of Allahabad – 87 CIR (All) 169and some other decisions holding the field and observed as under:- “5.In view of the above decision coupled with the factthat there is no doubt about the genuineness of the objects,we direct the Ld. CIT to grant registration u/s 12AA of thethat there is no doubt about the genuineness of the objects,we direct the Ld. CIT to grant registration u/s 12AA of the ---8--- Act to the assessee society. Further, it is clarified thatrevenue would be at liberty to examine the issue of rentpaid to the members that whether it is reasonable or not,during the assessment proceedings, if any. Grounds raisedby the assessee are allowed.” 8.After examining the factual matrix and appreciating the legalposition as noticed hereinbefore, we find that the learned Tribunal has rightlycome to the conclusion that the genuineness of the objects of the assesseeSociety could not be doubted and has rightly directed the CIT, Bhopal togrant registration to the Society. 9.Learned counsel for the appellant failed to point out any illegality orperversity in the findings arrived at by the learned Tribunal warrantinginterference by this Court in exercise of power under Section 260-A of theAct. No substantial question of law arises for consideration in this appeal. 10.Accordingly, this appeal stands dismissed. (Ajay Kumar Mittal) (Vijay Kumar Shukla) Chief Justice Judge AnchalDigitally signed by ANCHAL KHARE Date: 2020.02.01 12:15:50 +05'30'Digitally signed by ANCHAL KHARE Date: 2020.02.01 12:15:50 +05'30'