TaxTMI 
TaxTMI 
2015 (3) TMI 493
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.... the benefit of the person referred to section 13(3) in violation of condition laid down u/s 13(1)(c) & 13(2)(c). 3. For this and such other grounds as may be urged at the time of the hearing, the order of the Id. CIT(A), Pune may be vacated and that of the AO be restored. 4. The appellant craves leave to add., amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble Bombay High Court. 3. The issue which arises for our consideration is whether the assessee trust has violated the condition of Sec. 13(1)(c) r.w.s. 13(2)(c) of the Income-tax Act and hence, not eligible to the benefit of exemption of Sec. 11 & 12 of the Income-tax Act. We may prefer here to cull out the facts from the order of the Ld. CIT(A) for the A.Y. 2008-09. The facts which revealed from the record are as under. The assessee is stated to be a society registered both under the Bombay Public Trust Act 1860 and also with the Charity Commissioner of Pune. Besides, the trust has also been granted registration u/s. 12AA of the Income-tax Act by the CIT-II, Pune. The society runs various educational institutions under its aegis. The assessee ....
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.... as Attachment-I, showed that the said bill does not contain details such as the number of page of the Newspaper on which the advertisement should appear, separate charges for drafting, designing and any kind of art work in respect of the Newspapers but it directly showed the area that was supposed to be occupied by the said News in the particular Newspaper. The bill then showed the rate adopted for the particular Newspaper and discount on the gross total bill granted by M/s. SBC to the assessee which is uniformly granted at 2% of the gross amount. On the contrary, analysis of the bills issued by SBC to its other clients showed that while other details were similarly placed, the discounts in their cases have been granted ranging from 10% to 13%. One of such bills obtained by the Assessing Officer pertaining to Sadhana Centre for Management and Leadership Development is made part of the assessment order by the Assessing Officer as attachment-II. It was observed by the Assessing Officer that the above analysis clearly showed that while there was no difference between the bills issued to M/s. SBC to the appellant society and other clients with regard to the charges and services render....
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....apers too in which the advertisements were placed. It is emphasized by the Assessing Officer that if the facts are like that presented by the assessee, M/s. SBC could have reduced the discount in respect of advertisements where rebate on card rates were received and could have granted discount @ 10% and above in respect of advertisement costs in other Newspapers. Noting that the position is not like that, the Assessing Officer sought to emphasize that the contention of the assessee was clearly an afterthought and not supported by evidences. On the card rates, the Assessing Officer mentioned that such rates are not fixed and are subject to variations and it is always not that the customers have to pay according to the card rates only. However, according to the Assessing Officer, charges have been paid according to card rates in most of the instances in the assessee's case. 3.5 The Assessing Officer has further observed that as revealed from a letter addressed to the assessee by Anand Bazar Patrika (ABP Ltd.), Mumbai, copy of which was furnished before the Assessing Officer during the assessment proceedings, the said party had conveyed the then existing rates to the assessee. It w....
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.... that the appellant society was registered under sec. 12A of the I.T. Act vide order of the CIT-II, Pune dated 23/12/1998. The main object of the society is spreading and promoting education and the Society runs eight educational institutions. The society releases advertisements for publishing in the print media through M/s Sri Balaji Creativities (SBC) for all the institutions run by the society. Out of the total advertisement expenditure of Rs. 3,78,38,4699/- incurred by the appellant during the year, an amount of Rs. 3,76,37,138/- was paid to SBC for the ads released through SBC. During the year, 101 advertisements were released through SBC on different occasions like admissions, calling applications for faculty positions, said to be mandatory under both AICTE & UGC rules, highlighting achievements of the institutions on special occasions. The twin objectives behind releasing advertisement are stated to be (a) to get quality students from different parts of the country and (b) to create Sri Balaji brand so as to attract the best recruiters for campus placements. The case of the Assessing Officer is that the amount paid by the appellant by way of advertising charges to SBC during....
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....f any person referred to in sub-section (3) : (2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section.......... (c) if any amount is paid by way of salary, allowance' or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services;.......... (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;] 13(3) The persons referred to in clause (c) of sub-section (1) and s....
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....fees: and artwork requirements. Rate cards help the advertiser understand what types of ad sizes, discounts and other advertising the; publication has to offer. (ii) Remainder advertising: Remainder advertising (also known as remnant or last minute advertising) refers to the advertising space that a media company is not able to sell. Depending on the medium, it could be ad space or time. Often it can be bought at a steep discount. Advertising time and space is a perishable commodity arid if it is not sold, it is lost However, instead of taking a loss for unsold ad space, media outlets will often take far less than their usual charges to unload their remnant space. In such situations, advertisers can buy expensive media for less charge than normal. (iii) Run of Paper (ROP): ROP usually means advertisement can appear in any location within the newspaper and the position of an advertisement is determined at the publisher's discretion. 5.2 The facts of the present case are now examined vis-a-vis the provisions of sec. 13 of the I T Act as extracted above and also keeping in mind the nature of advertising business. The provisions of sec. 13(l)(c) read with sec. 13(2)(....
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....ehalf of the appellant, relevant card rates, copies of bills raised by M/s SBC on the appellant, discount on gross billing allowed by SBC, which are annexed to the order as Annexure "A". As could be seen from the Annexure, as against the total card rates of Rs. 4,45,27,496/- for advertisements inserted on behalf of appellant, M/s SBC charged the appellant Rs. 3,75,58,331/- for the services rendered to the appellant, which effectively works out to 15.65 % discount on the card rates. These details in Annexure "A" were also furnished in the course of the assessment proceedings. It is true that in some cases, gross billing is the same as card rates and even in such cases, SBC allowed only 2% discount on the card rates, which possibly prompted the AO to hold that amount paid by the appellant by way of advertising charges to SBC during the year was in excess of what may be reasonably paid for such services. But, as mentioned earlier, spaces made available by the media are in the nature of 'perishable' commodities and rebates on card rates offered by publishers depend on several factors like demand and supply on a particular day, the number, size, page of advertisements and the ad....
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....nbsp; Actual gross charged in the bill Rs.4,43,520/- Rebate on card rates Rs.11,58,080/- (Copies of relevant Bill No. 823 & 971 are enclosed to the appellate order as Annexure - B-1 & B-2) As against the total discount of Rs. 69,69,041/- availed by the appellant on the card rates during the year, the A.O. has observed that the society has paid Rs. 30,14,735/- excess to SBC based on his arithmetical calculations of difference between 2% and 10%. If payments made to SBC are more than the card rates of the newspapers/publishers or SBC has not granted rebate at all on the card rates in case of all ads published during the year for the appellant, then possibly one can draw the inference that the payment is in excess of what may be reasonably paid for such services. But, in none of the cases, the amount charged by SBC exceeds the card rates and on the contrary SBC grated overall rebate of more than 15% on card rates to the appellant during the year. 5.3 It is also noticed from the details furnished by the appellant that SBC has not granted discounts uniformly ranging from 10% to 13% to all its clients and there are clients who ....
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....ategory of advertisements in 2007-08 as the data was not readily available with the appellant. Based on this solitary instance of getting the details directly from one publisher so as to expedite the time barring assessment proceedings, one cannot draw general inference that the appellant was dealing directly with ABP and other publishers for insertion of advertisements. In fact, the voluminous data filed by the appellant in the form release orders, bills raised by publishers on SBC for advertisements released on behalf of the appellant during the year clearly indicate that the appellant was releasing its advertisements through SBC and not dealing with the publishers directly. 5.5 The Assessing Officer also observed that the submissions of the appellant filed during the assessment proceedings are silent on the strictly comparable bills, which are appended to the assessment order, where there was no difference among the gross rates charged to the appellant society and to other customers by SBC and the difference is only in respect of discount allowed by SBC. But, the appellant now explained that the clarifications thereon were missed out in the submissions made on 24.12.2010 thro....
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....ia. In the case of the appellant, in none of the cases, the amount charged by SBC exceeds the card rates. On the contrary, if the overall position of the amount charged by SBC for ads for the whole year is considered, the discount allowed on card rates works out to more than 15% of the gross bill amount. 5.6 Further, the material placed on record also indicates that the SBC has rendered various other services in addition to publication of advertisements in newspapers/magazines. In the initial years, SBC was only conceptualizing, writing the contents and creating the artwork for the advertisements being released by the appellant as is evident from bills of M/s. Sead Advertising Pvt. Ltd, copy of which is enclosed to the order as Annexure 'E', where the agency has clearly mentioned in their invoices that separate bills for certain amount: would be raised by SBC for creative work. It would appear that in 2003, SBC registered itself with the leading newspapers and thus became eligible to release advertisements directly to the publishers and the appellants started releasing their advertisements through SBC, effectively since January 2004. Since then, SBC does not charge the a....
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....e conspectus of the case, I am of the considered opinion that amount paid by the appellant to SBC by way of advertisement charges during the year cannot be said to be in excess of what may be reasonably paid for such services. In such a situation, the Assessing Officer is not justified in holding that the funds of the society are applied or used or diverted for the benefit of the person referred to section 13(3) in violation of condition laid down under sec. 13(l)(c) and sec. 13(2)(c) and withdrawing the exemption claimed under sec. 11. Accordingly, the Assessing Officer is directed to grant the benefit of exemption under sec. 11 to the appellant in respect of its surplus income generated during the year." Now, the Revenue is in appeal before us. 5. We have heard the rival submissions of the parties and perused the record. The main plank of the argument of the Ld. DR is that M/s. Sri Balaji Creativities (SBC) is the child of the trustees of the assessee trust and the advertisement expenditure which is the major part of total expenditure has been diverted to the M/s. SBC and thereby the trustees have diverted the profit of the assessee trust for their personal benefits. He ref....
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....sing agency which is not disputed. He argues that the assessee trust was given the more benefit by way of discount and not at 2% as misunderstood by the Assessing Officer. He submits that the observation of the Assessing Officer is that the M/s. SBC granted discount between 7.4% and 12% to all its client is factually wrong. He pointed out that in some corporate clients like M/s. Sandvik Asia, Dina Institute of Hotel Management discount to the extent of 10% of the bills was granted but at same time to many other clients M/s. SBC has not granted the discount at all. He submits that even for the sake of argument if we look into the matter that the assessee trust has diverted its profit for the benefit of the trustees but the fact remains that the assessee trust is enjoying the registration u/s. 12AA of the Act and otherwise also its income is exempt u/s. 11 & 12 of the Income-tax Act where as the profit earned by M/s. SBC is taxable. He submits that M/s. SBC has actually charged much less than the card rates by obtaining rebates from the Newspapers. He pleaded for confirming the order of the Ld. CIT(A). 7. During the course of hearing the Bench has given the directions to the asses....
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.....e. non-related parties to whom no discount or reduction in the card rates are given. Considering the totality of the evidence before us, we concur with the finding of the Ld. CIT(A) that by giving the advertisement work to M/s. SBC, the assessee trust has not violated the conditions of Sec. 13(1)(c) to deprive to get the benefit of exemption u/s. 11 & 12 of the Act. We, accordingly, confirm the order of the Ld. CIT(A) and dismiss the grounds taken by the Revenue. 8. Now, we take up the appeal for the A.Y. 2009-10. The Revenue has filed the following revised/concise grounds which are verbatim as taken in the A.Y. 2008-09. 1. The ld. CIT(A) erred on the facts and on circumstances of the case and in law, in holding that the expenditure on advertisement was a legitimate expenditure incurred for the purpose of pursuing the objects of the society. 2. The ld. CIT(A) erred on the facts and on circumstances of the case and in law, in holding that the funds of the society are not applied or used or diverted for the benefit of the person referred to section 13(3) in violation of condition laid down u/s 13(1)(c) & 13(2)(c). 3. For this and such other grounds as may be urged at the....
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.... substantial interest and the firm is wholly owned by three of them. Thus the firm is a person as defined in section 13(3) (e) of the Act. ii. The assessee trust has spent an amount of Rs. 8,54,02,576/- for the purposes of advertisement out of which an amount of Rs. 7,38,40,074/- was given to the said firm. The said firm was formed on 28.12.2002 i.e. four years after the trust was formed. iii. Payments by the trust to the said firm M/s Sri Balaji Creativities form more than 80% of the turnover of the said firm. iv. M/s Sri Balaji Creativities has granted discount at the rate of 7.4 to 12% to its other customers and the discount granted to the assessee firm is only at the rate of 2% even though the payments by assessee constitute more than 80% of the turnover of M/s Sri Balaji Creativities. v. The contention of assessee that it has paid advertisement charges to the newspapers lesser than the card rates is misplaced as the facts brought on record indicate otherwise. vi. Thus assessee has paid the amounts out of resources of trust for services rendered by M/s Sri Balaji Creativities in excess of what may reasonably have been paid for such services. The amounts paid in e....
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.... raised by SBC on Dina Institute of Hotel Management, the amount charged for advertisement is as follows: Item No. 1 and 2. 3. Dainik Bhaskar (Indore) on 26.12.2007 size 120 sq.cm 4. Dainik Bhaskar (Raipur) on 18.12.2007 size 80 sq.cm 1. The corresponding RO No (Indore) 1583 2. The corresponding RO No (Raipur) 1584 3. Rates on RO and charged by the paper (Indore) Rs. 248/- psc 4. Rates on RO and charged by the paper (Raipur) Rs. 176- psc 1. Rate charged by SBC to the client (Indore) Rs. 347/- psc 2. Rate charged by SBC to the client (Raipur) Rs. 212/-psc The advertising charges are normally fixed as per the card rates provided by the publishers from time to time for insertion of ads in different pages. However, the publishers as well advertising agencies allow rebate on card rates depending on the demand for ads on a particular page, in a particular edition and on a particular day. 6.2 In the course of the present proceedings, the appellant furnished copies of the bills raised by publishers on SBC for insertion of advertisement on behalf of the appellant, relevant card rates, copies of bills raised by M/s SBC on the appellant, discount on gross bill....
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.... rates in 25 cases during the year. In this context, it may be relevant to refer to the following instances (items 34 to 37 of Annexure A), where substantial benefits were passed on to the appellant on premium page insertions (for four different institutes of the appellant) in all India editions of Times of India, full page (1727 sq. cm), in colour on 4th, 8th, 17th and 19th January, 2009, all on page 5. i. Card rates: Rs.8,940/- basic for 2-5 insertions Rs.1,020/- Premium for page 5 Total Rs. 9,960/- ii. Thus, cost of each advertisement (insertion) Rs. 19,50,000/- Cost of four insertions Rs. 6,88,03,680/- Gross amount charged by TOI on SBC Rs. 1,62,77,682/- iii. Gross billings by SBC on the society (Rs.41,25,803/- X 4) Rs. 1,65,03,212/- iv. Total Rebate passed on by SBC Rs. 5,23,00,468/- (Copies of relevant Bill No. 1144, 1145, 1146 & 1147 are enclosed to the appellate order as Annexure - B-1 & B-4) Similarly, reference may also be drawn to the other instances (as detailed in Annexure 'A' appended to the order), where substantial benefit has been passed on to the appe....
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....No. 1100 Advertisement on 28.10.2008, Size 480 sq. cm. Card rate: Basic Rs.8,435/- per sq. cm. Premium for Page 3 Rs.1,830/- -do- Total Rs.10,265/- -do- Hence, for 480 sq. cm. Rs.49,27,200/- Actual charged by TOI on SBC Rs.35,78,480/- Actual charged by SBC to client Rs.37,99,200/- Rebate passed on to the client Rs.11,28,000/- Discount allowed at 2% on the rebated card rate of Rs. 37,99,200/- Similarly, it is also worth referring to the Advertisements released in Deccan Chronicle (All editions) in a span of a month's time:- i. SCMLD Bill No. 1081 Advertisement on 25.02.2009, Size 128 sq. cm. Card rate Rs.2,135/- per sq. cm. Hence, for 128 sq. cm. Rs.2,73,280/- Actual charged by DC on SBC Rs.2,18,624/- Actual charged by SBC to client Rs.2,73,280/- Rebate passed on to the client Rs. NIL....
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....t her view, brought out at page No.6 of the assessment order, a comparative analysis of bills raised by SBC in the case of Sadhana Centre for Management and Leadership Development and billing made in the case of the appellant. By the said analysis, the Assessing Officer has sought to emphasize that while higher discount rate was being passed on to other clients, there was no difference between the charges and services rendered by SBC to the appellant and the other clients. In this context, as already mentioned hereinbefore, it has been brought to the notice of this office by the appellant during the appellate proceedings that there were factual inaccuracies in the analysis carried out by the Assessing Officer inasmuch as in the assessment order, the Assessing Officer, while making comparison of the bills (page 6), has stated that the rate charged to the appellant society by SBC was Rs. 5,600/- as against the actual amount charged of Rs. 3,500/- for insertion of advertisement in Hindusthan Times. Similarly, it is stated that in case of insertion of advt. in Dainik Bhaskar, the amount shown in case of the appellant society was Rs. 3,098/- as against the actual amount charged of Rs. 2....
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.... the advertisements being released by the appellant as is evident from bills of M/s. Sead Advertising Pvt. Ltd, copy of which is enclosed to the appellate order for the preceding year i.e. A.Y. 2008-09, where the agency has clearly mentioned in their invoices that separate bills for certain amount: would be raised by SBC for creative work. It would appear that in 2003, SBC registered itself with the leading newspapers and thus became eligible to release advertisements directly to the publishers and the appellants started releasing their advertisements through SBC, effectively since January 2004. Since then, SBC does not charge the appellant for the other services provided in the form of conceptualization, copy-writing, designing the art work and all that goes into an effective advertisement, media publicity services etc. However, SBC charges others for the artwork and copywriting services as is evident from representative copies of the bills furnished by the appellant, copy of one bill is enclosed to the order as Annexure 'F'. If the overall discount offered by SBC to the appellant at more than 52% of card rates and the other services rendered by SBC to the appellant are considered....