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Hence, it is clear that the assessee has made payment for purchase of land by its sister concern Adarsh Gyan Society. The assessee has only presented a purported agreement to sale which is illegal. In this case, the assessee has, by making payment on behalf of Adarsh Gyan Society, used part of its income for the direct benefit of its sister concern Adarsh Gyan Society and has therefore violated provisions of Section 13(1)(c) and consequently, Section 11 and 12 will not be applicable in the case of the assessee.
52. In light of above factual matrix, as far as proximate and immediate benefit of such payment of Rs 6.73 Crores is concerned, it is the assessee society which is benefitted whereby it has built a school building wherein it is carrying on its educational activities. At the same time, it cannot be ruled out that Adarsh Gyan Vidhalaya Samiti is not benefitted by such payment by the assessee society on its behalf to Rajasthan Housing Board. Had the assessee society not stepped-in and made the payment to Rajasthan Housing Board, Adarsh Gyan Vidhalaya Samiti was likely to default on its payments as per stipulated time frame and in all likelihood, the allotment of the plot of land would have got terminated. Therefore, till the time the approval of Rajasthan Housing Board is not received for transfer in favour of the assessee society, the plot of land stand in name of the Adarsh Gyan Vidhalaya Samiti and conveyance deed has not been executed in favour of the assessee society. At the same time, such right over the land is not an absolute right as the same is subject to the terms of "agreement to sell" entered into with the assessee society and at least to the extent of payment made by the assessee society to the tune of Rs 6.73 Crores, the latter can enforce its right over such land in priority to any third party.
53. Having said that, the question that arises for consideration is whether by entering into the subject transaction, the assessee society has violated the provisions of section 13(1)(c) read with section 13(3) of the Act as invoked by the ld Pr.CIT.
54. As per ld Pr. CIT, Adarsh Gyan Vidyalya society and the assessee society have three common members/trustees and therefore, M/s Adarsh Gyan Vidyalya Society is a related entity within the meaning of section 13(3) of the Act and society funds have been used for the benefit of Adarsh Gyan Vidhalaya Society in violation of the provisions of section 13(1)(c) of the Act. The argument of the assessee society is that no evidence has been placed on record by the Revenue with regard to any direct or indirect benefit flowing to the trustees/members of the Society which might bring it within the ambit of section 13(1) r.w.s.13(3) of the Act and further, the matter does not fall within any of the clauses or sub-clauses of section 13(3) of the Act.
(c), (cc) and (d) has a substantial interest. If we were to read the said clause
(e) in the context of present facts, it means Adarsh Gyan Vidyalya society, being a concern in which members/trustees of the assessee society have a substantial interest. The term "substantial interest in a concern" has been defined in Explanation 3 to mean..."
"56. That is, members and trustees of the assessee society either individually or collectively are entitled at any time during the previous year, to not less than twenty per cent of the profits of such concern i.e, Adarsh Gyan Vidyalya Society. In the present case, the case of the Revenue is that there are three common members/trustees in both the societies and therefore, these are related entities and are covered by provisions of section 13(3) of the Act. On perusal of records, we find that there are fifteen members in the executive committee of Saint Wilfred Education Society and equally number of members in the executive committee of Adarsh Gyan Vidyalya Society. The President of the assessee society is holding the post of Secretary in Adarsh Gyan Vidyalya Society. Further, two members who are educationist and doctor by profession are common in both the societies. However, merely having common members in both the societies are not sufficient to hold the societies as related entities within the meaning of section 13(3) of the Act. What has to be proved is that these common members hold substantial interest in the related entity in their own right either individually or collectively and that too, by entitlement to not less than 20% of profits in such related entity. However, there is nothing on record either in the impugned order of the ld Pr.CIT or brought to our notice during the course of hearing by the ld CIT DR that these common members are entitlement to any profits and that too, exceeding the prescribed threshold in Adarsh Gyan Vidyalya Society. Per contra, the ld AR submitted that Adarsh Gyan Vidyalya Society is an old society registered under the Rajasthan Societies Registration Act in year 1961-62 vide registration no. 03/1961-62 and by virtue of being a registered society, it cannot transfer any surplus to its members and such surplus, if any has to be deployed in the society and even in the event of winding up, the assets and funds of the ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur society have to be transferred to any other registered society with similar objects. In light of the same, we don't find any legal basis to hold that Adarsh Gyan Vidyalya Society is a related entity within the meaning of section 13(3) of the Act. In absence thereof, even where it is held that some benefit has flown to Adarsh Gyan Vidyalya Society, the provisions of section 13(1)(c) are not attracted in the instant case.