Income Tax Appellate Tribunal - Ahmedabad
Indus University,, Ahmedabad vs The Dit(Exemp.), Ahmedabad on 20 February, 2018
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ, अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD - "C" BENCH
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
ITA.No.2934/Ahd/2014
नधा रण वष /Asstt.Year : -
Indus University ACIT, Cir.5(3)
A-1, Sky Lark Apartments Vs Ahmedabad.
Satellite Road
Satellite
Ahmedabad 380 015.
PAN : AAALI 0222 L
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri S.N. Divetia, with
Shri P.D. Shah, AR
Revenue by : Ms. Aparna Agrawal, CIT-DR
ु वाई क तार ख/ Date
सन of Hearing : 25/01/2018
घोषणा क तार ख / Date of Pronouncement: 20/02/2018
आदे श/O RDER
PER RAJPAL YADAV, JUDICIAL MEMBER:
Assessee is in appeal before the Tribunal against order of ld.DIT(Exemptions), Ahmedabad, dated 29.09.2014 passed under section 12AA of the Income Tax Act, 1961.
2. Though the assessee has taken three grounds of appeal along with sub- grounds, but its grievance revolves around a single issue viz. the ITA No.2934/Ahd/2014 2 ld.DIT(Exemption) has erred in not granting registration under section 12AA of the Income Tax Act, 1961.
3. Brief facts of the case are that the assessee is a private university engaged in imparting education. It was approved by virtue of Official Gazette on 11.4.2012 of Government of Gujarat and established as university under Gujarat Private University Act, 2009 ("GPUA" for short) vide Government notification dated 28.1.2014. The assessee-university has applied for grant of registration under section 12AA of the Act vide application dated 29.3.2014 in form no.10A. On receipt of application the ld.DIT(E) called for necessary details. After an inquiry, ld.DIT(E) has observed that section 10 of GPUA authorises Govt. of Gujarat to establish institutions specified in column 2 of Schedule as a "Private University" of sponsoring body. Thus, in view of notification, institution "Indus University" Ahmedabad was established as private university under "GPUA" and sponsoring body as a Bhandari Charitable Trust ("BCT" for short). According to the ld.DIT(E) notification of Govt. of Gujarat simply declared institution, "Indus University" as a private university. He also observed that "GPUA" does not ensure that institution is non-profit organization. Hence, he called for further details, and thereafter examined various provisions of GPUA. The ld.DIT has assigned four reasons for not granting assessee registration under section 12AA of the Act. We deem it appropriate to take note of these four reasons, which read as under:
"i) With respect to the control it is seen from clause 2 of Chapter 3;
namely "Officers of Indus University" and read with Chapter 4 "Authorities of Indus University" that Board of Governance as well as Board of Management is entirely controlled by Sponsoring Body namely Bhandari Charitable Trust. Board of Governance consists of Chairman who is Patron (President), Alternate Chairman who is Associate Patron and the Vice ITA No.2934/Ahd/2014 3 Chairman, Executive President who is also a Provost, Executive Vice President who is Additional Provost, 4 persons to be nominated by the Sponsor, 2 Deans to be nominated by Executive President with prior approval of Patron etc. and Board of Management similarly consists of Chairman who is Patron, Co-Chairman who is Associate Patron, Vice Chairman who is Executive President, two members of Board of Governance nominated by Sponsoring Body, other two members to be nominated by Sponsoring Body, 3 members from faculty members to be nominated by Sponsoring Body etc. Further the Patron (President) is nominated by Sponsoring Body, Associate Patron is nominated by Sponsoring Body, Executive President (Provost) is appointed by Patron who is nominated by Sponsoring Body, Executive Vice President ( Addl. Provost) is appointed by Patron who is nominated by the Sponsoring Body, Registrar appointed by the Patron with the approval of the Sponsoring Body. This shows that the University is not independent but is fully controlled by the Sponsoring Body Trust which has been denied exemption u/s 12. If the University is not an independent body, its existence as a legal juridical person gets compromised.
ii) With respect to the funds, it is seen that there is complete inter-
mingling of funds also. The Balance Sheet as on 31/3/2013 of the Indus University shows unsecured loans of Rs.3.15 crore from Bhandari Charitable Trust, the Sponsoring Body which from the Balance Sheet appears to have invested in fixed assets etc. of 4.05 crores. However, perusal of the fixed asset schedule shows that its fixed assets comprise of papers, furniture and fixtures, books, office equipments, scientific instruments, software and various other fixed assets to the tune of Rs.4.10 crores which were transferred from Sponsor Trust i.e. Bhandari Charitable Trust. The Auditors' Report annexed to the final accounts shows that Bhandari Charitable Trust was already carrying on educational activities since 2006 in the name of Indus Institute of Technhnology and Engineering and on formation of Indus University, all educational activities have been taken over by the University. Further the significant accounting policies of the Audit Report show that borrowing cost includes interest which the University is giving interest on the unsecured loans. The combined reading of Income-Expenditure Account and Balance Sheet does not make it clear as to whether the unsecured loan is ITA No.2934/Ahd/2014 4 part of the fixed assets transferred or it is a separate entity but it appears that it should be a part of the transferred assets. It is also not clear as to the value at which these assets have been transferred because the Sponsoring Body was running the college since 2006 and all these assets by now must be highly depreciated assets.
iii) It is very pertinent to note that on winding up of University i.e. on dissolution of the University, assets of the University will go back to the Sponsoring Body i.e. Bhandari Charitable Trust. In fact section 41(1) of the Gujarat Private Universities Act says thai Sponsoring Body can dissolve itself and section 42(1) of the Gujarat private Universities Act says that Sponsoring Body can dissolve the University, hence the University is totally dependent upon the wishes of the Sponsoring Body and whenever the Sponsoring Body wants, the University can be dissolved. Further, sub-section 2 of section 42 of the Cujarat Private Universities Act says that on dissolution of the University, all the assets and liabilities of the University shall vest in the Sponsoring Body in the manner as may be prescribed. This means all the assets which are purchased/acquired by the University through its income which would be exempt u/s 10(23C)(vi) will go back to the Sponsoring Body and this is against the spirit of Charitable Trust whereupon dissolution, no assets are allowed to go back to the founder, trustees or donors etc. In the present case, the entire assets will go back to Bhandari Charitable Trust, the Sponsoring Body. Bhandari Charitable Trust is no more charitable as it does not have any charitable activity in the F.Y.2012-13 and 2013-14 as no evidence of any such activity was given by Bhandari Charitable Trust. Bhandari Charitable Trust has also been denied registration vide order dated 29/09/2014.
iv) Further, perusal of the bank statement shows that for the F.Y.2012-13, the Axis Bank shows payment of Rs.25 lacs on 7/9/2012, Rs.22 lacs on 12/9/2012, Rs.15 lacs on 26 or 27/9/2012, Rs.1.5 lac on 5/10/2012, Rs.6 lacs on 9/11/2012 to Bhandari Charitable Trust and Rs.4 lacs on 9/11/2012, Rs.63 lacs on 17/1/2013, Rs.60 lacs on 14/2/2013 and Rs.62 lacs on 13/3/2013 to Indus University. Further perusal of another bank Account No.029976200000433 of IIDFC Bank shows that an amount of Rs.31 lacs on 1/8/2012 was paid to Bhandari ITA No.2934/Ahd/2014 5 Charitable Trust. This account also shows that for every salary payment of Indus University, funds have been received from Bhandari Charitable Trust and then payments have been made. Further perusal of this account shows that an amount of Rs.34 lacs on 12/9/2012, Rs.ll lacs on 15/9/2012 was paid to Bhandari Charitable Trust. This clearly shows that entire funds are inter- mingled. It is simply not that in the times of need, the University is taking funds but it is also giving huge amounts of funds to Bhandari Charitable Trust. The funds of University should totally be independent but here it seems that between the University and Bhandari Charitable Trust, there are constant fund transfers like current account. This is serious issue in the light of the fact that the control of the University is fully with Bhandari Charitable Trust as stated above."
4. We have heard Shri Divetia for the appellant and ld.CIT-DR for the Revenue. While impugning order of the ld.DIT(E), Shri Divetia took us through various provisions of "GPUA" and pointed out that the ld.DIT(E) failed to comprehend complete scheme of establishment of a private unvieristy. He also pointed out that under similar circumstances registration to Rai University, Saroda Post, Dholka, Ahmedabad was denied by the DIT, but on appeal, it was allowed by the Tribunal. He placed on record copy of Tribunal's order in ITA No.1246/Ahd/2014. The Tribunal vide its order dated 10.6.2015 allowed appeal of the assessee and directed the DIT(E) to grant registration to the assessee-university. According to Shri Divetia, conditions enumerated by the ld.DIT(E) in the present case were identical in that case.
5. On the other hand, the ld.CIT-DR contended that in the case of Rai University its sponsoring body was enjoying registration under section 12AA of the Act, whereas in the case of the assessee "BCT" was not having registration under section 12AA. This sponsoring body could dissolve the university and nowhere it was provided that what will happen to the assets of ITA No.2934/Ahd/2014 6 assessee on dissolution of the University as well as trust. Thus, the ld.DIT has rightly rejected grant of registration to the assessee.
6. We have duly considered rival contentions and gone through the record carefully. Section 2(15) and 12AA have direct bearing on the controversy. Therefore, we deem it appropriate to take note of relevant part of the provisions, which reads as under:
Section 2(15) "charitable purpose" includes relief of the poor, education, [yoga,] medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility [Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless--
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]] x x x x x Section 12AA 12AA. (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) [or clause (ab)] of sub-section (1)] of section 12A, shall--ITA No.2934/Ahd/2014 7
(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and
(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he--
(i) shall pass an order in writing registering the trust or institution;
(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant :
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard."
xx xx xx xx xx
7. A perusal of section 2(15) of the Income Tax Act would indicate that it provides meaning of expression "charitable purpose" and in that stride, the activity performed by an assessee for falling in the ambit of "charitable purpose" have been dividend in two category. The first category is relief to poor, education, yoga, medical relief .... which are per se for charitable purpose and second category is advancement of any other object of general public utility. In the case of second category proviso to this section is attracted. This proviso contemplates that if an assessee is doing advancement of any other objects of general public utility, then it is to be seen whether such objects of general public utility are being carried out in the nature of trade, commerce or business. If it is being carried out in this manner, then proviso to section 2(15) would be applicable on such institutions. It is pertinent to observe that the assessee is a University and does not engage in advancement of any general public utility. Thus, in the case of assessee proviso is not applicable. Its activities fall within the meaning of expression "charitable purpose" provided in section 2(15) of the Act, because, it is solely engaged in imparting education. A bare perusal of section 12AA would indicate that ITA No.2934/Ahd/2014 8 when any trust or institution would apply for grant of registration under section 12AA then the ld.Commssioner shall call for such documents or information from trust or institution as they may be necessary to satisfy himself about the genuineness of activities of trust or institution and may also make such inquiry as he may deem necessary in this behalf. If the ld.DIT(E) is satisfied about the objects of the trust or institution and genuineness of activities, he shall pass an order in writing registering the trust or institution.
If he has not satisfied then he would reject registration application. Thus, we have to evaluate whether reasons assigned by the ld.DIT(E) are sufficient to demonstrate doubt on the genuineness of assessee's objects. Let us take into consideration four reasons assigned by the ld.DIT(E) for refusing the registration. The first reasons assigned by the ld.DIT(E) is that the university is not independent but is fully controlled by sponsoring body trust which has been denied exemption under section 12A and if it is not an independent body, its existence as a legal juristic person gets compromised. To our mind, the ld.DIT(E) failed to appreciate provisions of Gujarat Private University Act, 2009. He made reference to clause 2 of Chapter 3 of such Act but read the scheme of the Act in a selective manner. There is no dispute that in furtherance of objects contemplated under "GPUA", the assessee-university has been established. According to sub-section (4) of "GPUA", objects of the university established would be to create, organize, preserve and disseminate knowledge in the fields of science, technology, humanities, social science, education, management, commerce, law etc. It means before approving its first statute and establishing assessee as a private university, screening body have visualized objects of the assessee-university and only thereafter approval was granted. As far as reference made by the ld.DIT with regard to clause 2 of Chapter 3 is concerned, the ld.DIT has observed that Board of Governance as well as Board of Management is entirely controlled by sponsoring body ITA No.2934/Ahd/2014 9 viz. Bhandari Charitable trust. However, in section 13 of "GPUA" it has been provided that officers of university viz. President, Provost, Rgistrar, Chief Finance and Accounts Officers and such other officer as may be declared by the statute to be the officers of the assessee-university. President shall be appointed by the sponsoring body in consultation with State Government for a period of three years by following such procedures and on such terms and conditions as may be prescribed by the statute. The president shall preside at the meeting of the governing body. Thus, in the Act a mechanism has been provided that there will be search committee and it will be searching eminent personalities and professionals to be appointed by the Board of management. At every stage there would be a consultation with the State Government. Apart from the above, it is pertinent to observe that how this aspect is relevant to test genuineness of objects of the university. Objects of the university are to impart education. Whether such education is being imparted in a controlled manner, financially or administratively, then those objects would not change. If some actions at the end of the assessee are being taken against the provisions of Income Tax Act and then section 13 etc. are already there to keep a check of misuse of powers.
8. Next reasons assigned by the ld.DIT is that university has shown unsecured loan of Rs.3.15 crores from Bhandari Charitable Trust. Again, it is not a relevant factor to determine genuineness of objects. All financial affairs if misused can be considered at the time of assessment proceedings with the help of section 13. Similarly, in reason no.4, the ld.DIT made reference to various bank statements in order to demonstrate as to how funds have been paid to "BCT" or by the "BCT" to university. As observed earlier section 13 of the Income Tax Act contemplates that if certain issues falling within the ambit of this section are available in case of a charitable institution, then benefit of section 11 will not available. For example, if some undue benefit is ITA No.2934/Ahd/2014 10 being advanced to person, who is closely associated with the management or institution, then, the AO could always determine fair market value of the services by such person and restrict benefit to him in accordance with market price. Balance if any will be taxable. In the present case, even if the assessee has taken funds from "BCT" it will not be affect its objects, if it has extended some undue benefits to "BCT" then safeguards are already there under section 13 of the Income tax Act. Registration cannot be rejected at the threshold only under an anticipation that something could be controlled either by the "BCT" or some undue benefit would be given to "BCT". These are concerns which can always be looked into at the time of assessment proceedings.
9. Third reason given by the ld.DIT(E) is that sections 41 and 42 of the Gujarat Private University Act authorise sponsoring body to dissolve university and on such dissolution assets could be taken by sponsoring body. Since "BCT" was not having registration under section 12 then assets could be manipulated. We are of the view that this apprehension is totally misplaced and against scheme of assessment of charitable institution provided in sections 11 to 13 of the Income Tax Act, though safeguards have already provided in sections 41 and 42 of "GPUA". Let us take note of these provisions which reads as under:
"CHAPTER IX WINDING UP OF UNIVERSITY 41 (1) If the sponsoring body proposes to dissolve itself according to the provisions of law governing its constitution or incorporation, it shall give at least six months prior notice to the State Government.
(2) The State Government shall, on receipt of such notice make such arrangements as may be necessary, for the administration of the University from the date of dissolution of the sponsoring body till the completion of syllabus by the last batch of students admitted to the University and may also cause the functioning of the University to ITA No.2934/Ahd/2014 11 continue by appointing an administrator in place of the sponsoring body, who shall be entrusted with the powers, duties and functions of the Sponsoring Body as prescribed under this Act,
42. (1) The Sponsoring Body who intends to dissolve the University shall give a notice to that effect in the prescribed manner to the State Government. The State Government, after due consideration, may dissolve the University in the manner as may be prescribed;
Provided that the dissolution of the University shall have effect only after the last batches of students of the regular courses have completed their courses and they have been awarded degrees, diplomas or, as the case may be, awards.
(2) On the dissolution of the University all the assets and liabilities of the University shall vest in the Sponsoring Body in the manner as may be prescribed, (3) Where the State Government decides under sub-section (1) to dissolve the University, it may vest the powers of the Governing Body in the prescribed manner to other societies having similar objects till the dissolution of the University takes effect under the proviso to sub- section (1)."
10. Apart from above, if a charitable institution enjoying benefit under section 12A is being dissolved then either those assets would be given to other institutions being charitable trust and enjoying benefit under section 12A, In case the assets are being parted with either individual entity or institution, who are not having charitable objects or registration under section 12A, then under the scheme of the Act it will first suffer tax, only thereafter, it will vest in such individual or entity. This is not a valid reason for rejecting registration under section 12A. The ITAT in the case of Rai University (supra) has observed that at the time of registration, ld.DIT(E) has to satisfy with regard to genuineness of the activities of the trust, and not anything else. The finding recorded in para-9 in that case is worth to note. It reads as under:
ITA No.2934/Ahd/2014 12"9. In the instant case, in case of dissolution of University, property would go to sponsoring body that itself is registered under section 12AA of the Act, subjected to the relevant provisions of the Act. Undisputedly, the education is included into the definition of charitable purpose as per Section 2(15) of the Act. It is settled position of law that at the time of registration u/s 12AA of the Act, the DIT(E) has to satisfy with regard to the genuineness of activities of the Trust. In our considered view, the DIT(E) ought to have given specific finding with regard to genuineness of the activities of the University. The DIT(E) has rejected the application on the ground that in case of dissolution there is no safeguard to the properties created by the University. There is no finding that the University is not imparting education, or otherwise imparting of such education on the basis of commercial consideration. It is pointed out by the Id. Counsel for the assessee that as per the Gujarat Government Gazette Notification under the provisions of the Gujarat Private Universities Act, 2009, the University cannot run commercially. The Id. DR could not controvert the contention of the Id. Counsel for the assessee that under the identical facts other Universities have been granted registration u/s 12AA by the Revenue. Under these facts, we are of the view that the Id. DIT(E) was not justified in declining the registration to the assessee u/s.!2AA of the Income-tax Act, 1961. Moreover, the assessee has placed reliance on various judicial pronouncements. The Id. DIT(E) has not adverted on the submission of the assessee that the case of the assessee is also covered by the judgment of Hon'ble High Court of Punjab and Haryana in the case of CIT vs. O.P. Jindal Global University (supra), wherein the Hon'ble High Court has held as under:-
"13. In ITA No.701 0/2010 titled CIT v. Surya Educational & Charitbale Trust [2011] 203 Taxrnan 53/15 taxrnann.com 123 (Pun] & Har.) it has been held by this court that at the stage of registration under Section 12AA of the Act, the extent and nature of activities are not required to be examined. That question is required to be examined in assessment proceedings. The Court observed as under:
"Therefore, the object of Section 12AA of the Act, is to examine the genuineness of the objects of the Trust, but not the income of the Trust for charitable or religious purposes. The stage of application of income is yet to arrive i.e. when such Trust or Institution files its return. Therefore, we find that the judgment referred to by the learned counsel for the appellant are not ITA No.2934/Ahd/2014 13 applicable to the facts of the present case arising out of the question of registration of the Trust and not of assessment."
14. The issue has been examined that at the stage of registration and for exemption under Section 80G of the Act, the stated object of the trust is required to be examined. Whether the funds are properly applied or not, can be examined by the Assessing Officer at the time of framing the assessment."
Therefore, we hereby set aside the order of the DIT(E) and direct him to grant the registration to the assessee-University. Thus, the assessee's appeal is allowed."
11. Taking into consideration all these facts and circumstances, we allow this appeal of the assessee and set aside the impugned order. We direct the ld.DIT(E) to grant registration to the assessee-university under section 12AA of the Income Tax Act, 1961.
12. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 20th February, 2018 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER