TaxTMI 
TaxTMI 
2019 (9) TMI 722
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....epayable liability instead of receipts in lieu of surrendering exclusive rights ignoring the fact mentioned by the AO that there was no recovery clause mentioned in agreement date 28.03.2011 held between the assessee society and THEAL that the sum is refundable to the THEAL. 3. On the facts and the circumstances of the case and in law the ld. CIT(A) has erred in holding the amount received from THEAL as security deposit instead of Business Commercial Receipts (BCR) without appreciating the detailed reasoning given by the AO in respect of BCR in assessment order. 4. On the facts and the circumstances of the case and in law the ld. CIT(A) has erred in allowing exemption U/s 10(23C)(iiiad) ignoring the fact that the assessee exceeds prescribed limit for gross receipts of 1 crore during the year under consideration. 5. Any other question of law as deemed fit in the facts and circumstances of the case may also be framed before the Hon'ble Tribunal in the interest of justice." 2. The assessee is a society and running two schools in the name Tree House High School for Girls and Tree House High School for Boys both in Jaipur. The assessee society applied for registration U/s 12AA of....
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....d United Developers. Thus the assessee is not existed solely for the education but the sole purpose is to earn the profit through these activities for these three other entities. The DR has further contended that the payment of 50% of the gross receipt to THEAL and 30% of the gross receipt to Arihant Enterprises and United Developers is nothing but for sharing the income of the assessee with these business entities and therefore, the assessee is not solely existed for the education. The entire arrangement is to carry out these activities for transferring the profit to these entities. The ld. DR has referred to the SEBI orders dated 07.03.2018 and 16.11.2018 whereby THEAL along with Director/promoter of Shri Rajesh Bhatia, Shri Vishal Shah and Shri Hinten Trivedi were restrained from accessing scrutiny market and also prohibited there from buying selling or otherwise dealing in security any manner either directly and indirectly. The SEBI found that these persons involved the activity of purchase and sale of security in violation of the SEBI Rules. They were also found involved in some dubious transactions with related parties by creating through some trust therefore, the SEBI has al....
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....lopers namely Arihant Enterprises and United Developers on lease and agreed to pay the rent not less than 30% of the gross receipt of each school. The payment to the THEAL is also a sum equal to 50% of gross average fee per child. The ld. AR has submitted that the facilitation agreement with respect to provide service to the assessee and is not an agreement for transfer of exclusive right and therefore, the AO has failed to appreciate the correct facts by treating the security deposit as income of the assessee for transfer of exclusive right. The assessee has shown this amount in the balance sheet as liability therefore, this cannot be treated as income of the assessee for the year under consideration. Thus the ld. AR has submitted that the security deposit was only to ensure the due performance of facilitation of services which is not transferred of right. The ld. AR has further pointed that in the year under consideration the assessee society has received a sum of Rs. 2 crores for transfer of business commercial rights however, due to some clerical error the same was not recorded in the books of the assessee and it was noticed while preparing the accounts of the subsequent year. ....
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....f Rs. 8.25 crores received by the assessee from THEAL was used in furnishing the deposit under the lease agreement to the tune of Rs. 7 crores which including Rs. 5 crores to Arihant Enterprises and Rs. 2 crores to United Developers. Thus the said amount of Rs. 8.25 crores received by the assessee from THEAL was used for making the deposit with the landlord from whom the schools were taken on lease. The Assessing Officer in the assessment order denied the contention of the assessee that the amount received from THEAL is loan and held that the assessee received this amount under the agreement and against the transfer of specific rights in favour of THEAL. Accordingly, the AO treated the said receipt as part of the revenue received by the assessee during the year from two schools namely Tree House High School for Girls and Tree House High School for Boys both in Jaipur and computed gross receipt total income of the assessee at Rs. 8,25,89,946/-. The relevant computation made by the AO as under:- "In view of foregoing discussion in Section-II the institute wise income of the assessee society are:- Tree House High School for Boys Income shown in I/E a/c of the School Rs. ....
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....re, the said benefit of provisions of Section 10(23C)(iiiad) would not available to the assesse. Accordingly to that extent we set aside the order of the ld. CIT(A) and restore the order of the Assessing Officer for denying the claim of exemption U/s 10(23C)(iiiad) of the Act. 5.1 As regards treating the receipt of Rs. 8.13,29,766/- from THEAL it is pertinent to note that the entire arrangement between the assessee society and THEAL is in the nature of joint venture for 30 years. The agreement in question is irrevocable as the parties to the agreement have no right to terminate the agreement accept fulfillment of terms and conditions as provided under clause 7.1 to 7.5 which reads as under:- "7.1 Either party ("the Terminating party") shall be entitled to terminate this agreement if: (ii) the other party ("Defaulting party") shall neglect or fall to perform any of its obligations or conditions undertaken under this agreement or under the agreement, or (ii) if any of the statement/s as contained in this Agreement or the Agreement and Attributable to the Defaulting party is/are false, misleading or untrue in any manner whatsoever; Ant the Defaulting party fails to remedy suc....
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....Therefore, only on default on the part of a party the agreement cannot be terminated and not on will by giving a notice to other party. In substance the THEAL has made an investment more than Rs. 8 crores and in return was entitled to 50% of the gross receipts from running of the schools. Therefore, this arrangement is not to provide the facility of running of the schools but it is for sharing the profit of the income from activity of running the school. Similarly the assessee has taken the school buildings on lease with the conditions that the minimum 30% of the receipt will be paid for each schools as rent to the parties from whom the schools were taken on lease. There is a further rider in payment of rent in case of 30% of receipt is less than Rs. 6 lacs Per Annum, the minimum will be paid as rent. Thus, it is clear that the assessee is not existed solely for education purpose but for the purpose of profit. The pre dominate purpose is to run the schools in the capacity of intermediary and to serve the commercial interests of THEAL under the arrangements vide agreement dated 20.03.2011. Similarly the rent payable to the Arihant Enterprises and United Developers is also in the nat....