I.T.A No.64/2019 1 HIGH COURT OF MADHYA PRADESH : JABALPUR (Coram: Hon'ble Shri Justice Ajay Kumar Mittal, Chief Justice Hon'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 appellant/Department. ORDER (Oral) (6.1.2020) Per : Ajay Kumar Mittal, Chief Justice Challenge in this appeal filed under Section 260-A of Income Tax Act, 1961 (for short Act) is to order dated 5.10.2018 passed by Income Tax Appellate Tribunal, Indore in ITA No.1034/Ind/2016 whereby appeal filed by assessee was allowed and order passed by CIT(E), Bhopal was set aside. 2. appellant has claimed following substantial question of law for determination by this Court:- Whether, on facts & circumstances of case, ITAT is correct in directing Ld. CIT(E) to grant registration u/s 12AA of that Act irrespective of findings by CIT(E) that society exists for purpose of profit of office bearers not for charitable purpose thus attracts proviso to section 13(1)(c) of I.T. Act ? I.T.A No.64/2019 2 3. Brief facts of case are that respondent-Divine Shiksha Samiti (for short assessee Society) applied for registration under Section 12AA of Act before Commissioner of Income Tax, Bhopal (hereinafter referred to as CIT). CIT refused to grant registration on ground that assessee Society is in existence for purposes of profit of office bearers and not for charitable purposes. Against said order of rejection, assessee Society filed appeal before Income Tax Appellate Tribunal, Indore Bench, Indore. Tribunal after hearing both parties and referring to judicial pronouncements set aside order of CIT and allowed appeal filed by assessee Society. It was observed that there was no doubt about genuineness of objects of society for grant of registration under Section 12AA of Act. Feeling aggrieved by said order of learned Tribunal this appeal has been filed. 4. Learned counsel for appellant has argued that under provisions of Section 12AA of Act, CIT shall call for documents or information from trust or institution as it thinks necessary for purpose of satisfying itself about genuineness of activities of trust or institution and make necessary inquiries as may be deemed fit in this regard. It is submitted that CIT can examine application of income derived by assessee Society whether it is applied for its objects or elsewhere. CIT after noticing clear deviance in payment by way of rent to office bearers of Society had rightly come to conclusion that there is diversion of income of assessee Society for providing undue benefit to its office bearers. It is further argued that learned Tribunal has erred in I.T.A No.64/2019 3 recording finding that while considering application for registration of assessee Society, only object of assessee Society is required to be seen. Contending thus, it is prayed that this appeal may be allowed and order passed by Tribunal may be set aside. 5. We have heard learned counsel for appellant/Department and find no force in arguments advanced by him. 6. In case in hand, assessee Society applied for registration under Section 12AA of Act before CIT, Bhopal which was rejected mainly on ground that payment of rent of premises to related parties is not on pro rata basis though premises are adjoining and rent was being paid only to office bearers of Society. rent agreement with office bearers of assessee Society do not provide for expenses on maintenance and taxes to be borne by assessee Society, though assessee Society had incurred expenses amounting to Rs.7,89,850/- for year 2014-15 and, therefore, it could be said that funds of assessee were being diverted for personal purpose of office bearers and families. On aforesaid premises, CIT, Bhopal came to conclusion that assessee Society is for purpose of profit of office bearers and not for charitable purposes. assessee had furnished its explanation/information regarding land area of building, rental received per month, built up area, number of rooms etc. before Tribunal controverting each reason adopted by CIT, Bhopal to deny registration to assessee. It would be apt I.T.A No.64/2019 4 to notice detail explanation tendered by assessee before Tribunal which is in following terms:- That on facts and circumstances of case, learned CIT (Exemption) erred and was not justified in refusing registration u/s 12AA of Income Tax Act. Your Honors , It is respectfully submitted as under :- a. main objective of society is to spread education. For fulfilling objectives society is running Senior Secondary School affiliated to M.P. Board, under name and style of ST Mary's Higher Secondary School at Sehore. b. Regarding observation of Learned CIT (Exemption) about payment of rent to related parties is not on pro rata basis though premises are adjoining it is submitted that observation is not correct. It is submitted that there is no such irregularity and rent paid is most reasonable. It is also well within fair rental value as assessed by office of PWD Sehore. Copy enclosed at P.B. Page no.58 to 63 To further explain we have compiled all details in tabular format which explains total area of land, built up area, open land, rent as per agreement and fair rental value as per PWD Norms as under :- S. Name of Land Area Plot Area Plot area and No. of Open land Open Monthly Monthly Remarks No. land lord and construction rooms (As land/play rent as per rent as per construction thereon mentioned ground agreement PWD thereon (Sq. (Sq.Ft.) in (Actually agreement Ft.) order) as per registry) 1. Lissi 25000 12000 Built up area 15 - 20511 30000/- 73845/- In rent Babu (0.57 13467 (4489 (25000- agreement it is acre) per floor *3 in 4489) clearly 3 floors) mentioned that there is open land & also play ground 2. Babu 35000 - Built up area 7 - 32000 15000/- 19800/- In rent Antony (0.75 3000 in (35000- agreement it is acre) ground floor 3000) clearly mentioned that there is open land. 3. Manish 27010 3500 Built up area 30 23510 23510 31500/- 56500/- In rent Tiwari (0.62 10500 (3500 (27010- agreement, it is acre) per floor 3 in 3500) clearly 3 floors) mentioned that there is open land & also play ground I.T.A No.64/2019 5 Your Honors, as seen from above there is no disproportionate rent. It appears that Learned CIT (Exemption) has taken criteria of numbers of rooms only disregarding built up area and open land. In any case rent paid is well within fair rental value as assessed by office of PWD. Copy enclosed at PB Page No.58 to 63 Specific observations on rent paid are as under :- i. Lissy Babu :- In premises of Lissy babu, there was open land for playground which has also been mentioned in rent agreement. learned CIT (Exemption) totally ignored area of open land. open land area was 20511 sqft. Copy of Rent agreement and sale ded are enclosed as per PB Page No.31 to 42 ii. Babu Antony :- In premises of Babu Antony, there was open land for playground. learned CIT (Exemption) totally ignored area of open land. open land are was 32000 sqft. Further no built up area has been mentioned whereas built up area is 3000 Sq. Ft. on ground floor. Copy of Rent Agreement and sale deed are enclosed as per PB Page No.43 to 49 iii. Manish Tiwari :- In premises of Manish Tiwari it was mentioned in rent agreement that 3 Floors has been constructed on Plot of 3500 sqft. Total built up area for all 3 floors comes to 10500 sqft. learned CIT (Exemption) has taken built up area as 3500 sqft instead of 10500 sqft. Copy of Rent agreement and sale deed are enclosed as per PB Page No.50 to 57 c. Regarding observation of Learned CIT (Exemption) about assessee has incurred and borne repair and maintenance expenses (Rs.789850/- for year 2014-15) and funds are being diverted fro personal purpose of office bearers/families and therefore, it can be said that society exists for purpose of profit of office bearers, it is submitted as under :- In Rent Agreement it is clearly mentioned that premises shall be kept clean and white wash of building shall be done by tenant. Hence at ousted, it is submitted that observation of learned CIT (Exemption) that expenses on maintenance and I.T.A No.64/2019 6 taxes are not to be born by assessee is totally factually incorrect. Relevant clause no. are summarized as under :- S. Landlord Name Clause No. of PB Page No. No. relevant Rent Agreement 1 Lissi Babu Antony (7) 31 to 36 2 Babu Antony (6) 43 to 44 3 Manish Tiwari (6) 50 to 52 Hence, as seen from clause of rent agreement, it is responsibility of tenant will keep premises neat and clean and expenses for white wash and repairs shall also be incurred by tenant. It is further submitted that no taxes have been paid by assessee but same have only been paid by landlord. In view of above, it is submitted that observation that assessee incurred Rs.7,89,850/- in FY 2014-15 for these expenses and diverted for personal purposes of office bearers and families is factually incorrect. Further amount of Rs.7,89,850/- has not been fully incurred for building repairs but it is incurred on cleaning charges, sanitation charges, white wash charges, repair to furniture and fixtures, repair of Lab equipments, projectors, sports equipments, office equipments and computers. Copy of ledger account to explain, is enclosed as per P.B. Page No.64 to 74 Summary of repair and maintenance expenses of Rs.7,89,850/- is as under :- Heads Amount Repair and Maintenance for Rs.79,133/- Furniture Repair and Maintenance for Rs.44,743/- Computer Repair and Maintenance for Lab Rs.24,800/- Equipment Repair and Maintenance for Rs.98,320/- electricity Repair and Maintenance for Rs.41,600/- Sanitation (Plumbing etc) Expenses on Maintenance of Rs.61,200/- garden Expenses on Maintenance of Rs.1,31,699/- Cleanliness I.T.A No.64/2019 7 Expenses on whitewash of Rs.1,75,780/- Building about 26700 sq. ft. built up area Expenses on Maintenance of Rs.18,800/- playground Expenses on Maintenance of Rs.12,200/- Sports Equipments Expenses on Maintenance of Rs.15,300/- office Equipments Expenses for water tanker Rs.53,760/- General Repair and Maintenance Rs.32,515/- Total Rs.7,89,850/- After noticing aforesaid, Tribunal concluded that issue regarding payment of rent to members could be examined at time of assessment proceedings. 7. Further, Tribunal noticed that Section 12AA of Act nowhere provides that CIT (Exemption) while considering application for registration is also required to examine whether income derived by Trust is being spent for charitable purposes or Trust is earning profit. It had taken note of decisions in cases of CIT Vs. DPR Charitable Trust - (2011) 16 DTR 410, Vidyadayani Shiksha Samiti Vs. CIT (Exemption) ITA No.309/Del/2016, DIT Vs. Venkatesh Education Society, High Court of Karnataka (2012) 82 CCH 309, Fifth Generation Education Society Vs. CIT, High Court of Allahabad 87 CIR (All) 169 and some other decisions holding field and observed as under:- 5. In view of above decision coupled with fact that there is no doubt about genuineness of objects, we direct Ld. CIT to grant registration u/s 12AA of I.T.A No.64/2019 8 Act to assessee society. Further, it is clarified that revenue would be at liberty to examine issue of rent paid to members that whether it is reasonable or not, during assessment proceedings, if any. Grounds raised by assessee are allowed. 8. After examining factual matrix and appreciating legal position as noticed hereinbefore, we find that learned Tribunal has rightly come to conclusion that genuineness of objects of assessee Society could not be doubted and has rightly directed CIT, Bhopal to grant registration to Society. 9. Learned counsel for appellant failed to point out any illegality or perversity in findings arrived at by learned Tribunal warranting interference by this Court in exercise of power under Section 260-A of Act. 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 Anchal Digitally signed by ANCHAL KHARE Date: 2020.02.01 12:15:50 +05'30' Commissioner of Income-tax v. Divine Shiksha Samiti