TaxTMI 
TaxTMI 
2021 (9) TMI 1472
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....bject ions against the said appeals. It was common ground that the issues involved in both the appeals were common. They were therefore heard together and are being disposed off by this consolidated order for the sake of convenience. 2. We shall be dealing with the appeal of the Revenue in ITA No.339/Chd/2020 relating to assessment year 2015- 16 and our decision rendered therein shall apply mutatis mutandis to the other appeal of the Revenue in ITA No.340/Chd/2020 relating to assessment year 2016-17 also. 3. The effective grounds of appeal raised read as under: "ii. That the Ld.CIT(A) couldn't consider the fact that assessee was dummy face for diverting of receipts to M/s G.D. Goenka Pvt. Ltd. By paying 10% of receipts and fixed payment in the name of royalty. iii. That the Ld.CIT(A) couldn't consider that the payments being made to M/s G.D. Goenka have no relevance with promotion/ imparting of education (the specific object of the assessee trust) and that such payments only show the commercial intention of the assessee trust and is purely diversion of huge receipts/funds. iv. That the Ld.ClT(A) erred in approving the contention of the assessee that no addition h....
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....t . Ltd. in the form of Royalty. He further found that the assessee had set apart its profits of the year, remaining unutilized upto the statutorily required limit for its stated charitable objective of imparting education, for no specific purpose, which was not in accordance with the requirements of law. Accordingly for the a forestated reasons he held that the assessee was not entitled to claim exempt ion u/s 11 of the Act and denied the same to the assessee subjecting the surplus earned by the assessee during the impugned year of Rs.2,46,45,118/-to tax as an AOP. The Ld.CIT(A) has summarized the findings of the AO as above in para 3 of its order as under: "3. I have considered the facts of the case and the above said written submissions filed by the Authorized Representative of the appellant. After reading the assessment order, it is observed that the Assessing Officer has based his decision to deny exemption to the appellant trust on the following three grounds:- * That the assessee is doing commercial activities in the garb of running educational institution in the name of G.D. Goenka School, Jammu which is violation of section 11 r.w.s. 2(15) of the Income Tax Act, 1961.....
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....ial of exemption to the appellant trust and treatment of the same as AOP for taxation purposes. Regarding the above said first observation of the AO, I find that the amounts collected under various heads are all incidental to the purpose for which the trust exists. Further, the reasonableness of amounts collected under various heads leading to generation of huge surplus in case of the appellant are beyond the ambit of the taxation authorities so far as concluding whether the trust is sticking to its core objectives or is following commercial model in view of the following judgements:- (i) Decision of Supreme Court of India in the case of Chief Commissioner of Income Tax vs. St. Peter's Educational Society reported in [2016] 385 ITR 66 (SC) wherein it was held as under:- "Where an educational institution carries on the activity of education primarily for educating persons the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for education purpose and becomes an institution for the purpose of making profit." (ii} CBDT Circular No. 14/2015 dated 17-08-2015 in which the Board has clarified that merely generation of surplus out of t....
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....surplus for capital investment is no ground to deny exemption to the appellant trust in so far the Assessing Officer could not point out any instance where the capital investment had been made for objectives other than those of the appellant trust. Further, the Hon'ble High Court of Delhi has in the case of DIT (Exemption) Vs. Delhi Public School Society [2018] 92 taxmann.com 132 (Delhi) held the following:- "where assessee society was set up with object of imparting education and it had entered into franchise agreements with satellite schools and also used gains arising out of these agreements in form of franchisee fees for furtherance of educational purposes, it fulfilled requirements to qualify for exemption under section 10(23C)(vi)." The department filed appeal against the said order before the Supreme Court of India and the department SLP was dismissed by their Lordships reported in [2018] 100 taxmann.com 80 (SC). No instance of generated surplus being used for objectives other than those of the appellant has been commented upon by the A.O. in his assessment order. I am in agreement with the Ld. Authorized Representative that the A.O. did not appreciate that the pro....
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....edings which is not the case as apparent from the assessment order. 3.5 As discussed above, all the observations made by the Assessing Officer in the assessment order to deny exemption to the appellant assessee trust are either contrary to the decisions of higher judicial authorities or do not hold substance in the considered opinion of the undersigned. Further, all other conditions laid down in the Act are satisfied by the appellant to be treated as trust, therefore, the A.O. is directed to allow claim of exemption u/s 11 of the Act to the appellant. The grounds no. 1 to 9, 11 and 13 are answered in affirmative and therefore, allowed." 5. Before us the Ld. DR relied upon the order of the AO, pointing out from para 5 of the order the tabulated figures of fees collected in various modes showing the huge quantum so collected on non educational heads like admission and registration fees, insurance claim refund, interest charges, penalty charges, etc. He also referred to a chart at para 5.2 of AO's order wherein the surplus earned was tabulated pointing out therefrom that the assessee had been generating surplus to the extent of 30% in the impugned assessment year and also the pre....
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....urt in the case of Pinegrove International Charitable Trust Vs. Union of India & Others, 230 CTR 477 (P&H) , all to the effect that mere generation of surplus would not lead to the conclusion that the assessee does not exist solely for educational purpose. Ld.DR was unable to controvert the same before us .we therefore do not find any infirmity in the findings of the Ld.CIT(A) in this regard also. 9. As far the next aspect regarding the payment of royalty to M/s G.D. Goenka Pvt . Ltd. , the Ld.CIT(A) has pointed out that the said finding has no relevance because there is nothing to demonstrate any direct or indirect relation of the assessee with M/s G.D. Goenka Pvt . Ltd, that both the entities are at arms' length and the royalty is being paid to them for the usage of their brand name. The Ld. DR has been unable to controvert the aforesaid findings of the Ld.CIT(A) . The Revenue has been unable to make out a case of there being any relationship between the assessee and M/s G.D. Goenka Pvt . Ltd. Also perusal of the MOU signed by the assessee with M/s G.D. Goenka Pvt . Ltd. , reproduced at page Nos. 16 to 18 of assessment order, reveals that as per the said agreement M/s G.D. Goenk....
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....n Bansal was not genuine and not allowable expenditure u/s 13(1) (C) r.w.s. 13(3) of the Act since the assessee had failed to justify the transact ion and also the reasonableness of the transact ion. He held that it was clear from the facts that the assessee had been providing undue benefit to a member and accordingly, he invoked the provisions of sect ion 13(1) (c) r.w.s. 13(3) of the Act,adding the rent so paid amounting to Rs. 12,35,434/- to the income of the assessee. 13. The Ld.CIT(A) deleted the addition made and his findings with regard to the same are at para 3.6 to 3.8 of the order as under: "3.6. The grounds no, 14, 15 and 16 agitate the addition of Rs.12,35,434/- u/s 13(l)(c) r.w.s. 13(3) of the Income Tax Act, 1961. The appellant contends that on 05/02/2010 the land measuring 46 Kanals 10 marlas was leased out by Rahul Bansal to Om Parkash Bansal Charitable Society. Copy of lease deed was submitted as Page No.87 to 90 of the paperbook. Similarly Shri Dewan Chand Bansal vide lease deed dated 05/02/2010 also leased out his land measuring 30 Kanals 17 marlas to Om Parkash Bansal Charitable Society, copy of lease deed submitted as Page No.82 to 86 of the paper-book. Ther....
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....id order was to be dismissed." The Apex Court made these observations while dismissing departmental SLP filed against the order of the Hon'ble Gujarat High Court reported at [2018] 100 taxmann.com 508 (Guj.). The High Court has observed as under:- "2. The multiple questions relate to different disallowances made for the benefit under section 11 with the aid of section 13(3) of the Income Tax Act, 1961, The principal issue however concerns the rent paid by the assessee to the trustees or to the-- where the karta was the trustee of the respondent-trust. Assessing Officer was of the opinion that payment of such rent would fall foul of section 13(l)(c) of the Act and resultantly, in view of sub-section (3) of section 13, income of the trust would not qualify for exemption. The Assessing Officer therefore, disallowed such exemption for the rest of the income of the trust also. 3. We would first address the question of payment of rent to the trustees or their HUF. Respondent-assessee is a trust running a school at Gandhinagar, For the period relevant to the assessment year 2010-11, the assessee had paid a rent of Rs. 1.98 crores for land and building which was used for the pu....
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....ere made belonged to Sh. Dewan Chand Bansal and that he was having lease agreement with the assessee as ill founded. The evidences furnished before me clearly establish the ownership of the land for which rental payments were made by the appellant being with Smt. Suman Bansal who was having a valid lease agreement with the appellant during the year under consideration. Further, in absence of any proof that the land leased out by Smt. Suman Bansal was utilized by the appellant trust for purposes other than education and the rental payments being consistent with the past history of the case and reasonable for such huge chunk of land in a capital city like Jammu, I find the addition of Rs.12,35,434/-made u/s 13(l)(c) r.w.s. 13(3) of the Income Tax Act, 1961 unreasonable and unjustified. The A.O. is directed to delete the above said addition. The grounds no. 14, 15 and 16 are, therefore, allowed." 14. We have gone through the order of the Ld.CIT(A) . The factual findings of the Ld.CIT(A) that the ownership of Smt .Suman Bansal of the land leased to the assessee was established by documentary evidences, has not been controverted before us. Therefore, the findings of the AO that there ....