Withdrawal of 10(23C) approval quashed; exemption denial limited to specific violations, not entire entity

ORDER

Gagan Goyal, Accountant Member.- This is an appeal filed by the assessee against the order of Ld. CIT (Exemption), Jaipur dated 02.09.2025 withdrawing approval granted u/s 10(23C)(vi)of the Income Tax Act, 1961.The assessee has raised the following grounds of appeal:-

2. The Ld. AR for the assessee further submitted that assessee has filed an additional ground of appeal under Rule 11 of the Income Tax (Appellate Tribunal) Rules and it is purely legal issue and the same is reproduced below:

“For that the impugned order dated 02.09.2025 is passed beyond the “specified date”, as per 15^th proviso to Section 10(23C)(vi) of the Act (as amended vide Finance Act, 2022 w.e.f. 01.04.2022) which in the present case expired on 31.12.2023 (being 6 months from end of quarter in which first notice is issued by PCIT/ CIT).”

3. The assessee is before us in the second round of litigation. The brief facts of the case are thatthe assessee is an educational society running schools across Rajasthan, Delhi and Uttar Pradesh by the name of “Central Academy”. The assessee was granted approval u/s 10(23C)(vi) of the Act by CCIT, Jaipur, vide notification No. No. 20/2010-11 dated 27-12-2010 for AY 2011-12 and onwards.

4. Subsequently, during the assessment for AY 2013-14, the Assessing officer vide letter dated 28.03.2016 proposed withdrawal of exemption under Section 10(23C)(vi) of the IT Act. After review, the CIT (Exemptions), Jaipur passed the order dated 03.01.2017 withdrawing approval granted u/s 10(23C)(vi) of the Act, from AY 2013-14 onwards citing violation of prescribed conditions under the said provision.

5. Aggrieved by the order of Ld. CIT (Exemption), assessee preferred appeal before the ITAT Jaipur. The ITAT vide appeal no. 152/JP/2017 dated 29.05.2017 set aside the matter to the files of ld. CIT (Exemption) for afresh examination of the issues in question in light of the discussion made in the order after providing reasonable opportunity to the assessee. The findings and directions of the coordinate Bench in the earlier round of litigation in Scholars Education Trust v. CIT (Exemption) [IT Appeal No. 152(JPR) of 2017, dated 29-5-2017] read as under:-

“4.10. In light of above discussions, we find that there is not sufficient material that is brought on record to take a definitive view in the matter on withdrawal of approval granted to the assessee u/s 10(23C)(vi) of the Act. The matter is accordingly set-aside to the file of the Ld. CIT(E) to examine the same a fresh in light of above discussions after providing reasonable opportunity to the assessee society.”

6. Further in the sequence of events, the assessee approached the Hon’ble High Court of Rajasthan in DB Civil Writ Petition No. 4673 of 2023 on 18.03.2023 seeking relief against unlawful demand recovery by the Ld. ACIT (Exemptions), Jaipur pursuant to completion of regular assessment for AY 2013-14vide order dated 03.03.2017 passed u/s 143(3) of the Act assessing income at Rs. 18,95,60,860/- on the basis of withdrawal order dated 03.01.2017 passed by the CIT (Exemptions), Jaipur u/s 10(23C)(vi) of the Act.

7. As observed from record of proceedings, the first show cause was issued on 18.04.2023 by the CIT (Exemptions), Jaipur, in compliance to the remand directions of ITAT Jaipur, in the first round of litigation.

8. Meanwhile, the final order was passed by the Hon’ble High Court on 23.05.2025 in DBCWP No. 4673/2023 giving the following directions to the CIT (Exemptions), Jaipur:-

“3. Without commenting upon merits of the case, this petition is disposed of with direction to respondent No.2 to complete the proceedings in pursuance to the order of the tribunal within three months from the date of receipt of certified copy of this order.

4. In order to avoid further delay and complication, let the petitioner through representative appear in the office of respondent No.2 on 30.05.2025 at 11:00 AM.”

9. Thereafter, a subsequent show cause notice dated 02.06.2025 was issued by the CIT (Exemptions), Jaipur requiring the assessee to comply with the information/ details sought vide therein, in addition to compliance of previously issued notice dated 18.04.2023 and reminder letter dated 27.03.2025 in the set aside proceedings. The records show that replies have been filed by the assessee in response to the notices issued by the CIT (Exemptions), Jaipur from time to time.

10. However, the CIT (Exemptions), Jaipur being not satisfied with the replies of the assessee, has again withdrawn the approval granted u/s 10(23C)(vi) of the Act for the reason that the assessee applied its income for the personal benefit of trustees and their relatives in garb of rent paid, travel expenses and purchase of flat vide the impugned order dated 02.09.2025 being the subject matter of appeal. Further for the reason that the assessee did not make investments as prescribed, and has provided loans and advances to third parties violating the specified modes of investment, which is necessary for the assessee society. The operative part of the conclusions drawn by the CIT (Exemption), Jaipur in his second order dated 02.09.2025, withdrawing approval granted u/s 10(23C)(vi) of the Act, is as under:-

“10. Conclusion:-

Considering the above facts and discussion, it is held that the trust has carried out itsactivities in the manner which has resulted into undue benefit to the trustees and theirfamily members. The action of the trustees of renting out own residential properties,in which they are residing, on rent to the trust and taking back the same as rent freeaccommodation, cannot be held charitable in any manner. Such arrangements ofpermanent siphoning of trust fund to trustees are not permissible in case of charitableorganization. Such rent payment is neither the application of fund nor as per theobjects of the trust. This has caused grave violation of sub clause (a) of 3rd Proviso ofsection 10(23C) of the IT Act. The trustees and family members are also found to bebooking their personal expenses / expenses related to family members into trustbooks. Trust is also purchasing luxurious flat for the benefit of the trustees and givingadvances without any reciprocal benefit. This is also causing benefit to the trusteesas well as violation of clause (b) of 3rd Proviso of section 10(23C) of the Act as thefunds are not invested into prescribed modes.

In view of the above discussion, it is held that the approval u/s 10(23C)(vi) granted tothe assessee trust is liable to be withdrawn by exercising the powers given tocompetent authority under proviso 13 of section10(23C)(vi) r.w. sub-clause (a) and (b) of 3rd proviso of section 10(23C)(vi) of the IT Act, 1961. In the case of theassessee it was found that several specified violations as referred in Explanation 2 of15 proviso to section 10(23C) has occurred which have been discussed inparagraphs above. The reference has been made by the Assessing Officer from hisobservations during the assessment proceedings u/s 143(3) of the IT Act, 1961 torescind the notification issued u/s 10(23C)(vi) of the Act. The enquiries and proceedings in this respect have now been concluded as per the directions of the ITAT and Hon’ble High Court of Rajasthan. The case of the assessee is found fit forthe withdrawal of the approval granted earlier u/s 10(23C)(vi). Therefore, the approval under sub-clause (vi) of clause (23C) of section 10 of the Income Tax Act,1961 read with Rule 2CA of Income Tax Rule, 1962, which was accorded by the Chief Commissioner of Income-tax, Jaipur vide Notification No. 20/10-11 dated27.12.2010 is hereby withdrawn from the AY 2013-14 onwards. The Assessing Officer is therefore take necessary action to complete the assessment proceedings which were kept in abeyance as per provisions of clause (iia) of Explanation 1 tosection 153 of the IT Act, 1961.”

11. Aggrieved by the second withdrawal of approval order of the Ld. CIT (Exemption), Jaipur the assessee preferred the present appeal before us on the grounds mentioned hereinabove.

12. All the grounds raised by the assessee are inter-related and inter-connected and relates to challenging the order of Ld. CIT (Exemption), Jaipur in withdrawing approval granted under Section 10(23C)(vi) of the Act. Therefore, for the sake of convenience, we dispose off all the grounds through a consolidated order.

13. We are apprised by both parties that the basis for withdrawal of exemption is in accordance to the directions provided by this bench in the first round of litigation. In view of the above, we consider it apposite to discuss the issues raised by the Ld. CIT(E) in conformity with the ITAT directions, basis which approval u/s 10(23C)(vi) of the Act has been withdrawn and the submission of the assessee in that regard:-

(i)(a) Rent paid to Trustees namely, Mr. Sangam Mishra and Ms. Lily Mishra for the property 219/5, Sardarpura, Udaipur

Directions of the ITAT in first round: The operative part of discussion on this issue has been dealt in paras 4.1 to 4.3 of the ITAT order dated 29.05.2017, which has been reproduced as under:

“4.1 In our view, in respect of this property at Sardarpura, there are two transactions which are under consideration before us. First is the transaction relating to the subject property taken on rent by the assessee society from the trustees. The question is whether there is any bar in the law which prohibits such transactions at first place saying that there cannot be any transactions between the assessee society and the trustees. In our mind, there is no such bar. At the same time, given that such transactions are with the persons who are themselves managing the affairs of the assessee society, there should be an element of reasonableness and fairness in such transactions. Since ld CIT(E) has invoked the provisions of section 13 to refer to the trustees as interested persons, it would equally be relevant to refer to various situations and the related transactions which have been envisaged in section 13(2) to define the transactions entered into with related persons and how the same would be construed as providing benefit tothe interested persons. Clause (b) of section 13(2) envisages a situation where any land, building or other property of the trust or institution is made available for the use of the interested person without charging adequate rent or other compensation. The emphasis is therefore on charging of adequate rent or compensation and so long as the same is adequate, the transaction would be in compliance with the said provisions. The reverse of such a transaction are the facts in the instant case. The building of the trustees are provided to the assessee trust for an annual rent of Rs 7,08,000. What therefore has to be examined is whether the rent of Rs 7,08,000, paid by the assessee society is reasonable or not. The test of reasonableness has been tried to be satisfied by the assessee society with help of report of a registered valuer determining the fair rental value of the property. There is no finding given by ld CIT(E) regarding reliability of such valuation report and whether the same is acceptable or not and the basis for deviation, if any. In any case, even where the Revenue has some prima facie concern regarding the reliability of the valuation report, it can get the rent valuation carried out through its Valuation officers which has not happened in the instant case. In the interest of justice and fairness, we therefore deem it fit to set-aside the matter to the file of the ld CIT(E) to examine the valuation report submitted by the assessee society and to carry out independent valuation through its valuation officer with an appropriate opportunity to the assessee society.

4.2 Now coming to second and related transaction. It relates to provision of rent free accommodation of the same property by the assessee society to its trustee Shri Sangam Misra.All the law requires is that the activities of the assessee society and the income from carrying on such activities should be applied wholly and exclusively to the objects for which it is established and approved. So, as part of carrying out its activities, where the assessee society deem it fit to take certain premises on rent and provide it by way of rent free accommodation to its trustee Shri Sangam Mishra who is managing the whole of the affairs of the assessee society running 12 schools at various places with student strength of over 22000, in our view, the assessee society is well within its rights to, provide such an accommodation to the said trustee for smooth and efficient discharge of his official functions as well as to provide residential accommodation. In this regard, we again refer to clause (c) of section 13(2) of the Act which provides that if any amount is paid by way of salary, allowance or otherwise during the previous year out of the resources of the trust or institution for services rendered by an interested person to such trust or institution and the amount so paid is not in excess of what may be reasonably paid for such services, the same shall be held in compliance with the said provisions. The emphasis, therefore, is on provision of services by the interested person to the trust and the salary and allowances/perks should be paid/provided which is commensurate to provisions of such services. In the instant case, there is no dispute that Shri Sangam Mishra is managing the affairs of the assessee society and where the assessee society has decided to, provide him a rent free accommodation in lieu of such services, no fault can be found in such a decision which is anyway best left to the assessee society.

4.3 Now, coming to a related issue regarding extent of such property which has been provided as rent free accommodation to the trustee Shri Sangam Mishra and to what extent, it has been utilised by the school for its activities, there are claims and counterclaims, which we have noted above and are not reproduced for sake of brevity, regarding the floors and open/parking area which are occupied for residence purposes and for school purposes. The ld CIT(E) has based his findings on report of an inspector of ACIT(E) who has conducted the spot enquiry. During the course of hearing, the Bench specifically asked both the parties to produce such report for verification but the same was not available on record and hence, couldn’t be produced for our verification. In such circumstances, we are constrained to remand the matter to the file of the ld CIT(E) to examine the matter a fresh and also to consider the contentions of the assessee society regarding the actual usage of the said property and the attached open area”

14. The building of the trustees (Sh. Sangam Mishra and Smt. Lily (Lakshyajaya) Mishra is provided to the assessee Society for an annual rent of Rs. 7,08,000/-.Here it is noted that it was never the case of the Department to dispute the value of the rent paid to the trustees (Sangam Mishra and Lily Mishra) on account of the property taken from them on rent by the assessee society. The actual contention of the Department is the use of the property taken on rent by the society from the trustees and again providing them the same property as rent free accommodation, thereby benefiting them and acting beyond the objects of the society in a non charitable manner. On this issue the CIT(E), Jaipur in his order dated 03.01.2017 has referred to the Inspector’s report dated 21.12.2015 after on spot enquiry of the premise, whereby it is stated”Duplex luxurious bungalow used for residential purpose of Sh. Sangam Mishra and Smt. Lakshyajaya Mishra and their family withseparate entrance as well as entrance from school. Only basement of buildingused for computer lab of school”.

15. The Assessee claims that this property is also used as transit offices for the faculty, visitors and trustees whenever required. However, no evidence for this claim has been brought on record. The assessee Society has failed in discharging its duty to ensure that the Society funds/property held under the trust are not misused for the benefit of the trustee or others. The property located at 219/5, Sardarpura, Udaipur, owned by the trustees Mr. Sangam Mishra and Mrs. Lily Mishra, has been given on rent to the trust by the trustee themselves. This property has subsequently been provided to them as rent-free accommodation by the assessee society. As a result, the trustees have derived undue personal benefit from the Society. Furthermore, the property is not being fully utilized for the objectives or benefit of the Society. This arrangement made for diverting or siphoning Society funds for personal gain, in violation of the principles governing charitable Society. It has never been the case of the department that the rent paid by the assessee society to the trustees was excessive in terms of fair market value. In fact, the case of the department is about the use of the property taken on rent by the assessee society from the trustees and allowing the Societies to use it as their residence for personal purposes. The assessee society fails to submit any documents which are approved by the governing body to allow such payments of rent to the trustees and further allowing the property to be used for personal purpose by the same trustees.

16. Further, as per report of Inspector of ACIT(E), Jaipur, it is found that only part of the property is being used for trust purpose, but most of the part of building is being used for the personal benefit of trustee taking undue advantage of rent-free accommodation for personal use of the property. The properties where the spot enquiries were conducted also reflected the name of Sh. Sangam Mishra as if it was his personal property.

17. Per contra, the ld. AR submitted that the reasons given by the ld. CIT(E) for alleging that undue benefit is provided to the trustees is only on surmises and conjectures and as per his subjective satisfaction without appreciating the explanation given by the assessee as to how the same is for the object of the trust.

18. It is submitted that the same are residential properties and are used for the activity of the trust (such as transit offices for the faculty, visitors, and trustees whenever required and therefore no undue benefit is passed on to the trustee, as being alleged.)Finding of the concerned inspector that the property is used by trustees and their family is patently perverse and based on no evidence whatsoever as established via failure to cite or refer to any evidence in support of said perverse conclusion. The sum of Rs. 7.08 Lakhs disclosed as rent received by the trustee; Sri Sangam Mishra is further established as being within fair value as per Valuation Report (both totalling to Rs. 9.14 Lakhs)and the rent so paid by the Assessee-trust is clearly reasonable as supported by Valuation Report, hence, no adverse inference is called for. It is settled law that mere factum of payment of rent for use of residential accommodation of a trustee cannot be considered as a ground for withdrawal of registration u/s. 10(23C)(vi) of the Act vide St. Peters Education Society v. PCIT 225 DTR (Chd. Trib) 185, as the same is in due furtherance of the Assessee-trust’s educational objectives and in pursuance of his services to theAssessee-trust.

19. Furthermore, it is submitted that the Rental income so earned by the trustee was duly offered to tax by him in his ITR, and hence cannot be stated to be a violation in the hands or the trust. That without prejudice, even if it is assumed but not admitted the same is not proper, any adverse inference can only be drawn in the case of the trustee- Sh.Sangam Mishra and not the Assessee-trust.

20. In this regard it is submitted that the minutes are not recorded in practice as the same is not required by any law to be maintained in cases of charitable societies, same also cannot form any legal basis for denial of exemption u/s.10(23C)(vi) of the Act, since there is no such statutory requirement in existence under the Act. The ld. CIT(E) has perversely concluded that the properties of Sardarpura, Udaipur are used for personal purposes and hence it is a violation of prescribed modes of investment as per sec 11(5) of the Act. It is submitted that these properties are owned by trustees and are taken on rentby the Assessee-trust for the purpose of the trust. There is nowhere a finding that the rent paid by the Assessee trust is in excess of the Fair market Value (FMV) or in any way violates Section 13 of the Act.

(i) (b) Rent paid for property 12/492-493, Indira Nagar, Lucknow

Directions of the ITAT in first round: The operative part of discussion on this issue has been dealt in para 4.4 of the ITAT order dated 29.05.2017, which has been reproduced as under:

“4.4 The next issue is regarding rent payment in respect of property at 12/493, Indira Nagar, Sector 9, lucknow, the assessee society has paid rent of Rs. 3,99,600/- to Ms. Priyakanksha Mishra, daughter of Sh. Sangam Mishra, who is the trustee of the assessee trust. The question for consideration is whether the property has been taken on rent for the purposes of the assessee trust and secondly, whether rent payment is commensurate with the rent prevailing in the market for the similar property. In this regard, the ld AR has submitted that this premise is used for providing residence facility to one office staff Mr. Vinay Pathak and used for stay of trustees/ principals and other senior staff members when they visit Lucknow for monitoring the activities of the school, thus, saving the cost that would have been incurred had they stayed in the hotel. Per contra, as per ld CIT(E), no supporting documentary evidence has been furnished for the use of the said property for the purposes of objects of the assessee society. In respect of quantum of rent paid, the ld AR has submitted that a lease deed dated 19.10.2012 was executed whereby the fair rental value of the premises was determined from the registered valuer at Rs. 38,500/- per month against which assessee has paid rent at the rate of Rs. 33,300/- per month in the financial year 2012-13. As per ld CIT(E), the valuation report is not reliable as the same is undated. In our view, where the Revenue has some prima facie concern regarding the reliability of the valuation report, it can get the rent valuation carried out through its own valuation officers which has not happened in the instant case. In absence of sufficient material on record, we deem it fit to set-aside the matter to the file of the ld CIT(E) to examine the same a fresh taking into consideration the valuation report submitted by the assessee society and to carry out independent valuation through its valuation officers with an appropriate opportunity to the assessee society. The assessee shall be at liberty, to support its contentions by bringing appropriate evidence on record, to the satisfaction of the ld CIT(E).”

21. This property is a bungalow on the two plots 12/492 & 12/493 actually situated in Sector 12, Indira Nagar, Lucknow and is opposite to the Central Academy School which falls in Sector-9, Indira Nagar, Lucknow. The assessee society has paid rent of Rs. 3,99,600/- to Ms. Priyankansha Mishra D/o Sh. Sangam Mishra for this property. The assessee trust has not furnished the requisite evidence/documents to substantiate it’s contention. Further, assessee has claimed that the property was provided as rent free accommodation to few staff members from whom affidavits were obtained.

22. Based on physical verification/report of Inspector, it is noted that the property12/493 & 12/492, Indira Nagar, Sector 12, Lucknow is actually one premise (both are one premise, not separate) in which two plots are merged and made into one and constructed a two-storey lavish bungalow on the said plots. Further, it is also observed that the premise is not being used for rent purpose. It was neither given as Rent free accommodation to Vinay Pathak, Sh. Ghanshyam Mishra & his family or Dhirendra Nath Tripathi & his family or any other staff member nor it is being used as guest house. Thus, the contention of the assessee regarding the use of the property is found not to be true. On the contrary, it is observed that the property shown in the name of Miss Priyankansha Mishra whereas the said property is actually used by Sh. Sangam Mishra, the trustee of M/s Scholar Education Trust of India for personal purpose. Thus, the rent is paid to the daughter of the trustee and the benefit in form of the use of the property is given to the trustee Sangam Mishra without charging any fees/rent from him. Thus, the fund of the assessee trust is being misused and this expense on rent cannot be treated as for the sole purpose of education. Based on above, it is evident that the activity of the assessee is not being carried out in accordance with certain conditions subject to which the approval wasgiven to the assessee u/s 10(23C)(vi).

23. This premise is owned by Ms. Priyakansha Mishra, daughter of Shri Sangam Mishra, trustee. On this plot, a building is constructed comprising of ground floor and first floor having constructed area of 1754 sq. ft. This property is in front of Indira Nagar, Lucknow school of the assessee (as also recorded by the Inspector’s 2^nd report dated 05.08.2025). This premise is used for providing residence facility to one office staff Mr. Vinay Pathak and used for stay of trustees/ principals and other senior staff members when they visit Lucknow for monitoring the activities of the school, thus saving the cost that would have been incurred had they stayed in the hotel. Thereafter two staff namely Ghanshyam Mishra & Dhirendra Nath Tripathi started residing in the premises. Affidavit of Shri Ghanshyam Mishra and Dhirendra Nath Tripathi declaring that both are employees of the school run by the assessee trust and that assessee trust has provided first floor of premise situated at 12/493, Indira Nagar as rent free accommodation to them since last 8 years. This affidavit is filed in course of assessment proceeding for AY 2018-19. No addition in respect of this property was made in any previous and subsequent assessment years.

24. This property was taken on rent by the assessee w.e.f. 01.04.2009 at a monthly rent of Rs. 25,000/- with increase of rent at the rate of 10% per year. Accordingly, the rent was paid to her from financial year 2009-10 and onward. Thereafter, a lease deed dated 19.10.2012 was executed to be effective from 01.04.2012 whereby the fair rental value of the premises was determined from the registered valuer at Rs.38,500/- per month against which assessee has paid rent at the rate of Rs.33,300/- per month in the financial year 2012-13. In the withdrawal order it was observed that the Valuation report is undated, which is ex facie incorrect. In the valuation report dated 10/04/2012,Shri Ajay Kumar Srivastava i.e. registered valuer has specifically mentioned that the property was inspected by him on 06.03.2012 to assess the rental value as on 10.04.2012.

25. From the above, it is clear that rent paid to Priyakansha Mishra, daughter of trustee for their property is also used for activity of the trust and in pursuit of its objects is reasonable and therefore no undue benefit is passed on to the trustee. It is further submitted that the assessee has not claimed any lodging or boarding expenses of trustees with regard to their visits in Lucknow to further establish the bona fides of the assessee.

(ii) Travelling Expenses to Aryan Mishra

Directions of the ITAT in first round: The operative part of discussion on this issue has been dealt in para 4.6 of the ITAT order dated 29.05.2017, which has been reproduced as under:

“4.6 Regarding travel expenditure of Aaryan Mishra, the assessee society has contended that he is grandson of the uncle of Dr. Sangam Mishra and he does not fall in the definition of relative u/s 2(41) & 13(3) of the Act. It was further contended that he was sent to Lucknow for participation in cultural programme of the Indira Nagar School, Lucknow. Per contra, the ld CIT(E) has observed that he is son of Shri Sangam Mishra and the assessee society has not furnished any documentary evidence to substantiate its claim and detailed reasons of journey, supporting documents of journey etc. In view of such counter- claims and in absence of sufficient material on record, the matter is setaside to the file to ld CIT(E) to examine the same a fresh after providing reasonable opportunity to the assessee.”

26. Next issue is for the travel expenses borne by the assessee society of Mr. Aryan Mishra as to whether the said expenses have been incurred for the purposes of object of the Society or personal benefit of them who are related to the trustees of the assessee society. Sh. Aryan Mishra is definitely a descendant of the brother of the trustee. In any case, he is undisputedly a family member of Sh. Sangam Mishra. He is also not an employee of the assessee Society. Therefore, he cannot be assigned any official task of the assessee Society. The assessee Society failed to explain in what capacity Mr. Aryan Mishra was associated with Society.

27. The assessee claiming to be working for charitable purpose and not for the purpose of profit making must justify any expense small or big with documentary evidences as to how, the expense was prudent and necessary for the work of the assessee society. Thus, this expense on Aryan Mishra is established to be not for the charitable purpose and is for the benefit of the family member of trustee Shri Sangam Mishra.

28. The reimbursement of Rs.18,429/- as travel expenses incurred by Mr. Aaryan Mishra, for the purposes of the Assessee-Society is a Bonafide expense incurred and in furtherance charitable and educational purposes of the Society.

29. Pertinently, Mr. Aaryan Mishra is ex-facie not a relative (asdefined under Section 2(41) of the Act) of any trustee of the Assessee Society as it is undisputed that he is not the husband, wife, brother, sister, or lineal ascendant/ descendant of any trustee of the Assessee-Society. It is clarified that he is the grandson of the uncle of the trustee and not the trustee, as incorrectly referred to by the Ld. CIT(E). Accordingly, the subject expenses incurred are not only bonafide but also do not contravene the provisions of Section 13(3)(d)of the Act. Thus, the above facts abundantly make it clear that the said person-Aryan Mishra is not related to the trustee as per Section 2(41) of the Act and hence there is no violation of Section 13(3) of the Act.

(iii) Funds not kept in the form or modes specified in Section 11 (5) of the Act Directions of the ITAT in first round: The operative part of discussion on this issue has been dealt in para 4.7 to 4.9 of the ITAT order dated 29.05.2017, which has been reproduced as under:-

“4.7 Regarding advance of Rs 3,54,80,000 made to Saluja Construction Pvt Ltd, it is not disputed that the said advance was towards purchase of a flat at Safdarjung Enclave, New Delhi and a sale deed has since been executed in the name of the assessee trust on 20.11.2013. The investment of Rs 3,54,80,000 is thus made in the purchase of said flat during the year under consideration. The Id AR submitted that investment in an immovable property is one of the prescribed modes of investment of funds in compliance with the 3rd proviso of section 10(23C)(vi) read with section 11(5)(x) of the Act and the subject investment in purchase of a flat at Safdarjung Enclave, New Delhi is thus in compliance with the said provisions. We have no hesitation in agreeing to the said contention of the ld AR. However, the question that remains is whether the said investment in purchase of a flat at Safdarjung Enclave, New Delhi was for the purposes of objects of the trust for imparting education or for the personal use/benefit of the trustees. There should be a reasonable nexus between the objects of the imparting education and the said investment as well as its ultimate utilisation. Where the investment in immovable property is envisaged initially for the purposes of the assessee trust and later on, it is found that the immovable property is made available and utilised for personal use/benefit of the trustees without charging adequate rent and other related compensation, it would still be a case where the property of the assessee trust is used and applied for benefit of the trustees. As per the ld CIT(E), going by the specifications of the flat, it indicates that the flat has been purchased for personal use of trustees and not for the use of staff as no trust will invest such a high amount of Rs. 3,80,00,000/- for a flat with such luxury facilities for the staff purpose only. Per contra, the ld AR contended that this flat is used as guest house of the society and various staff members & trustee whenever visit Delhi for CBSE work, training programme, conferences & other allied work stay in the flat. Besides this, two staff members for certain regulatory work are sitting at this office. During the course of hearing the ld CIT(DR) drawn our reference to the balance sheet of the assessee trust as on 31.3.2014 available as APB 108 and submitted that the assessee trust already has an existing flat (No. 4/149) at the same location ie, at Safdarjung Enclave and assessee trust has not demonstrated the necessity of buying another flat (No. 4/150) adjacent to the said flat. It is thus a fact that there are two adjacent flats in the name of the assessee trust in the same locality in New Delhi. There are claims and counter-claims regarding the purpose and utilisation of the said flats. However, what we find that these are mere contentions without any demonstrable evidence on record to support the case of either of the parties. In absence of sufficient material, we deem it fit to remand this matter to the file of the ld CIT(E) to examine the same a fresh in light of above discussions and by bringing on record appropriate evidence. The assessee shall be at liberty, to support its contentions by bringing appropriate evidence on record, to the satisfaction of the ld CIT(E).

4.8 Regarding advance of Rs 35,00,000 given to Salasar Overseas Pvt Ltd, the assessee trust has submitted that the said advance was given in the year 2005 towards purchase of 5044 sq. yd. land at Narayan Vihar, Ajmer Road, Jaipur to set up a school at Jaipur. Provisional allotment letter was issued on 26.03.2011 having Plot No. GH-1 & GH- 2 in the name of assessee trust. This advance is transferred to the land account in the Balance Sheet for year ending 31.03.2014. At present the scheme is under development by the developer and after completion of the same, the assessee in planning to bring a school at this place. Per contra, the Ld. CIT(E) has observed that from the provisional allotment letter dated 26.03.2011, it is not verifiable that the said investment was made for the objects of the trust. Further, the ld CIT(E) observed that the scheme under which subject land falls was originally nijikhatedari scheme of agricultural land and without converting the status of plot so purchased from agricultural to institutional, the property cannot be used for the objects of the trust. In our view, these are valid observations which have been raised by the ld CIT(E) and the same should be looked into. From perusal of the provisional allotment letters dated 26.03.2011 in respect of Plot No. GH- 1 & GH-2 and the provisional site plan available at APB 75-91, it is not clear that the said plots are for the purpose of setting up any education school/institution and earmarked for such purposes. The ld AR has submitted that scheme under which the subject plots have been provisionally allotted to the assessee trust is already approved by JDA. The said approval granted by the JDA will actually help determine whether such plots are earmarked for education purposes but the said approval is not on record. The matter therefore need further examination and the same is also set-aside to the file of the ld CIT(E) to examine the same a fresh in light of above discussions and by bringing on record appropriate evidence. The assessee shall be at liberty, to support its contentions by bringing the approval granted by the JDA to the scheme under which the plots have been provisionally allotted and other appropriate evidence on record, to the satisfaction of the ld CIT(E).

4.9 Now coming to matter relating to advance of Rs 30 lacs given to Shalu Constructions in the year 2009-2010 towards purchase of flat at New Delhi. It was submitted by ld AR that because of delay, the builder did not give the flat in time and therefore, the society purchased the flat from another firm M/s Saluja Construction Pvt. Ltd and the society is negotiating with the builder for refund of amount. The ld CIT(E) has observed that the assessee has not furnished any evidence regarding original agreement with the said firm for purchase of the flat or with regard to the cancellation of the said agreement and recovery of the said advance. In our view, these are relevant observations of the ld CIT(E) to determine the purpose for which the advance was originally given. Since we have setaside the other matters as discussed above, the assessee is granted one more opportunity to bring on record relevant evidence in support of its contentions. The matter is accordingly set-aside to the file of the ld CIT(E) to examine the same a fresh in light of above discussions.”

30. Advance of 3,54,80,000/- was made to M/s Saluja Construction Pvt. Ltd. towards purchase of flat at Safdarjung Enclave, New Delhi and a sale deed has since been executed in the name of the assessee trust on 20.11.2013.The assessee referred that these are investments made u/s11(5). However, section 11(5) becomes applicable when the accumulated money referred in section 11(2)(b) is set aside for the purpose of investments/deposits. The contention of the assessee that the investments have been made as per the objects of the assessee society is factually incorrect and misleading. As regards, the investment for the flats in Safdarjung Enclave, New Delhi, it is established that the same is not for the sole educational purpose of the assessee and cannot be construed as charitable purpose as the same property has been used by the trustee Shri Sangam Mishra for his personal benefit.

31. The investment in this property and the use of this property is not as per the objects of the society and are not at all related to educational purpose of the society. The contention of the assessee that the investment in the property is in the name of assessee trust and are part of the expansion activities of the society. It is established that the property at Safdarjung Enclave was used for personal benefit of Shri Sangam Mishra & Family. The assessee failed to establish with documentary evidence that it was to be used as a Guest House. On the contrary, the on spot enquiry revealed that the earlier property/ Residential Flat B-4/150-1, Safdarjung Enclave, New Delhi has been interconnected with the new property B-4/149 in the same building without obtaining required approvals. The property was never rented out nor ever used as guest house.

32. Based on above, it is not established that the assessee trust is operating its activities solely for the educational purposes and not for purposes of profit.

33. As regards the investment of 35 lacs with Salasar Overseas, the CIT(E) in his order dated 03.01.2017 has observed that from the provisional allotment letter dated26.03.2011, it is not verifiable that the said investment was made for the objects of the trust. From perusal of the provisional allotment letters dated 26.03.2011 in respect of Plot No. GH-1 & GH-2 and the provisional site plan available at APB 75-91, it is not clear that the said plots are for the purpose of setting up any education school/institution and earmarked for such purposes.

34. The assessee has failed to produce the approval of JDA for the commercial/institutional use of the property even during the set aside proceedings. Therefore, assessee failed to produce Attested copies of minutes for purchase of above-said land, Jaipur Development Authority approval regarding the use of said land where it had been earmarked for institutional purposes and transaction entries in bank account specifying the payments made for the purchase of plot. It is therefore, it is not established that the assessee trust acted solely for the educational purposes and not for purposes of profit. Thus, this application cannot be held to the for the charitable purpose.

35. Assessee claims it as an advance for land and has not provided copy of agreements for purchase of land and subsequent agreements for cancellation of the deal thereof. Providing of loans to3rd parties with or without interest is beyond the objects of the assessee trust and in no way can be treated as invested for the sole purpose of education which is essential condition for the grant of approval u/s 10(23C)(vi) of the Act.

36. The judgment relied by the assessee in the case of St. Peters Education Society (supra) is distinguishable on facts. In that case, there was no proposal received from the Assessing Officer for rescinding of the approval under 10(23C)(vi). In the present case under consideration assessing officer during the assessment proceedings has noted gross violations by the society for thepersonal benefit of the trustee and his family thus had requested for the withdrawal of approval to the CIT(E).It is therefore, it is not established that the assessee trust acted solely for the educational purposes and not for purposes of profit. Thus, this a prefect case for the withdrawal of approval u/s 10(23C)(vi) of the IT Act, 1961.

37. Investments are made in pursuance to the charitable objects of the Assessee-trust. The said investments are done as valid application of income within the frame work of Section 11(l) of the Act towards the objects of the Assessee-trust. Furthermore, no doubt is raised on the documentary evidences provided which establish that the said investments are owned in the name of the Assessee-trust and are part and parcel of the necessary expansion activity to provide better education to the masses as per its charitable and educational goals.

38. In this respect, reliance is placed on CIT (Exemption) v. Managing Committee, Arya High School (P&H HC); [SLP dismissed CIT (Exemption) v. Managing Committee, Arya High School, Mausa, Punjab  (SC)] wherein it has been held that Purchase of land/buildings for expansion of school treated as proper application and that department cannot doubt such investments when they further educational purposes and no profit diversion is shown. Further reliance is placed on a recent decision of the Hon’ble Jurisdictional Rajasthan High Court in Chandigarh Manav Vikas Trust v. Chief Commissioner of Income Tax, 2024: RJJD:10456-DB], wherein it has been held that mere generation and application of surplus cannot be considered as ground to deny the exemptions u/s 10(23C)(vi) of the Act.

39. That therefore, without considering the overall activities of the Assessee trust, the Department cannot cherry pick expenses/investments incurred in due course of charitable activities and proceed to cancel the registration of the Assessee on said basis under Section 10(23C)(vi) of the Act; it stands established that the Assessee has not provided any benefit to the trustee nor the funds of the Assessee, been diverted for personal benefit or trustees or any third person and all investments made by the Assessee satisfy the modes specified u/s. 11(5) or the Act. It is an admitted fact not disputed by Ld. CIT(E), that these properties are owned by Trust and the investment is in permissible mode as defined in Section11(5). Inspector’s report on Page 12 categorically states that these properties remain vacant and there are 2 caretakers who maintain the property on behalf of the trust, and the property is used by the Trustees whenever they visit Delhi because it is not in doubt that the Trust is having schools in Delhi and the entire NCR. There is no provision in law which prohibits a trust in buying a property out of trust funds and use it for the purposes of visits of the trustees and who are full time trustees of the Assessee and have no source of income whatsoever. When this is not in doubt that the trust runs around 12 schools and the Trustees are full time monitoring the activities and have no other income apart from salary for Trust, how it can be assumed that the Assessee is in violation of conditions of Section 10(23C)(vi) of the Act.

40. It would not be out of place to mention that there is no finding in any proceedings that the Trust is not imparting education and that the Department has conveniently ignored that more than 85% of the gross receipts are being used for educational purposes which is not in doubt nor there is any iota of evidence to the contrary.

41. We have given a careful consideration to the above factual matrix, the contentions raised by both the parties and pursued the material available on record. Firstly, regarding rent payment in respect of property 219/5, Sardarpura Udaipur we find that this bench in the first round of proceedings has already considered the aspect of rent free accommodation provided by assessee society to trustees to be not barred by the statute, provided that the transaction satisfies the test of reasonableness. We also observe that the Ld. CIT(E) has in the impugned order admitted that the excessiveness in terms of FMV was never the case of the Department, rather the utilisation of property taken on rent by assessee society from trustees and allowing the same to be used for personal purposes by the same trustees.

42. Even on the issue of utilization of said property, we find that this bench has given a finding in favor of the assessee as reproduced above, taking into consideration the fact that Mr. Sangam Mishra and Ms. Lily Mishra are on a fulltime basis involved in managing the overall affairs of the assessee society in running multiple branches spread across various states and that such rent free accommodation is being provided to Mr. Sangam Mishra and Ms. Lily Mishra in the capacity of managing trustee and trustee respectively, in lieu of such services which cannot be faulted with and that the decision is at best left to the assessee society.

43. As regards the issue of extent of utilization remanded by this bench in the first round, we find that the Delhi High Court in case of CIT(E) v. Hamdard Laboratories (India): (Delhi)on similar facts held that no undue benefits were passed to specified persons u/s 13(3) of the Act, when properties were given to trustees as part of their employment with the assessee society, as under:-

“48. The CIT(A) found merit in respondent/assessee’s claim that its case is not covered under Section 13(2) read with Section 13(3) of the IT Act as no undue benefits were passed on to the specified persons under Section 13(3) of the IT Act. CIT(A) stated that the facts as mentioned, make it clear that the trust is not providing any benefit to the trustees and there is no violation of Section 13(2) of the IT Act, in this regard. It noted the submission of the respondent/assessee that trustees are functioning in a dual capacity, i.e. as trustees and also as employees and their educational, technical qualifications and experience help the respondent/assessee in achieving a good turnover over a period of time. The respondent/assessee also submitted that the properties shown by the appellant in the screenshot were furnished or semi-furnished and were either independent houses or independent floors with covered area much larger than the covered area of the property at 25 Kautilya Marg and the comparison was not justified.

49. Respondent/Assessee further contended that the family members of the erstwhile Chief Mutawalli, late Abdul Mueed Sahib, occupied a part of the premises at 25 Kautilya Marg, i.e. ground floor, with a covered area of 401.12 sq.mt. free of rent, entirely on compassionate grounds. As regards property at 13 Rajdoot Marg, the respondent/assessee submitted that it is not owned by the respondent/assessee, but by Hamdard National Foundation (HNF), which leased it out to the respondent/assessee since 2007, and part of it is occupied by Mr. Abdul Majeed since 2010-2011, as per the terms of his employment with the respondent/assessee since 1995.”

44. The contention of the Ld. CIT(E) that undue personal benefit has been passed from the income of the assessee society to the trustees has to be seen in light of the fact that the accommodation is provided at reasonable rent which is lower than market rates, to the managing trustee and trustee of the assessee society for ensuring smooth and efficient discharge of his official functions as well as to ensure a proper residential accommodation.

45. Even if the case of the Revenue is qua violation in terms of Section 13(1) rws 13(3) of the Act, the same cannot form basis for withdrawal of exemption/ approval granted to a charitable trust/ society. Reliance in this regard is placed on the decision of the Chandigarh Bench of the Tribunal in case of ACIT (E) v. K.C. Social Welfare Trust (Chandigarh – Trib.). Relevant extracts have been reproduced as under:-

“9. We have duly considered the rival contentions and gone through the record carefully. The basic issue is, whether surplus funds of a charitable institution can be used for the purpose of other than objectives of the Trust. We are of the view that surplus funds of a charitable Institution who enjoys benefit of Section 11 and12, are not akin to surplus funds of a business house because for a business entity, after payment of taxes onits own income, it is its discretion where to use that funds. It can donate, it can gift, it can give loan withoutcharging interest, because Income Tax Department can never persuade any assessee to earn income or anotional income out of those surplus funds, but this principle is not applicable on the funds of a charitableInstitution. The Trust is not enjoying those funds as its own funds. It is being held in a fiduciary capicity. Inother words, in a representative capacity of charitable Institution. Thus, funds can never be used for any otherpurpose except for charitable activity. If it is surplus, accumulated after achieving the objects of the Society,then it is to be accumulated under Section 11(5) in a prescribed mode and if not applied in future years, it hasto suffer tax. There is no concept of surplus fund with a charitable Institution because charitable Institutionenjoys exemption on all those incomes which are applied for its objectives. Therefore, it is an incorrect standof the assessee. However, we find that a careful perusal of Section 13(1)(d), 13(1)(c), 13(2) and 13(3), it will reveal that the status of the Institution cannot be changed from ‘charitable’ to ‘non charitable’ Institution if a minor violation is there. Sub-clause (3) of Section 13 would provide that if undue benefit is being provided to any Institution or individual because of its proximity with the Management, then that undue benefit is to be brought to tax but Section 11 and 12 would not be denied to the overall Society/Institution. Therefore, the ld. CIT(A) has erred in not analytically examining the issue and the AO has erred in denying the exemption as a whole to the assessee. He ought to have examined more analytically what is the objective of making advance to any related person and then he ought to have worked out for any interest income can be allocated/assumed on such investment. It is also pertinent to note that AO cannot make addition of surplus over expenditure inthe Society. He has to grant benefit under Section 11 and 12. The only exception is disallowance of anyamount which was unduly extended by the assessee to the persons mentioned in clause 13(3).Therefore, wedeem it appropriate to set aside both the orders and relegate both the issues to the file of AO for freshadjudication. The observations made by us will not impair or injure the case of the AO. They will not causeany prejudice to the defence/explanation of the assessee. The observations are only with regard to bring thepointed issue at home. The AO will be at liberty to decide afresh in accordance with law.”

46. The aforesaid view has also been upheld by coordinate benches of the Tribunal in the following cases:

47. To the above effect, we hold in respect of issues regarding rent payment to Ms. Priyakansha Mishra (daughter of trustee) in respect of property at 12/493 Indira Nagar, Lucknow and travelling expenses of Mr. Aryan Mishra, the denial of exemption if any, was to be limited to the extent of amounts diverted towards violation u/s 13(1) of the Act for the personal benefit of trustee/ family member of trustee and shall not result in the overall withdrawal of approval granted to the assessee u/s 10(23C) of the Act.

48. As regards rent payment to Ms. Priyakansha Mishra, we also observe that the CIT(E) is not disputing the reasonableness of expenditure which is in accordance with the valuation report provided by the assessee and is forming part of records. With respect to the aforesaid expenditure incurred in furtherance of society objects, we concur with the submissions of the assessee that the said premises being opposite to the Lucknow branch of the school serves a crucial purpose of being a transit office, accommodation facility to staff members guest house etc., which is a common practice followed by schools having multiple branches. Further we find that the argument of the assessee is supported by affidavits of staff members who have been residing at the said premises which is unrebutted by the CIT(E) by conducting further inquiries therefrom. Even the pictures shared in the inspectors field inquiry report support the case of the assessee, whereby we find that the name plate bears ‘ACADEMY HOUSE’ above the same of the trustee which would have to be inferred to be in the capacity of the trustee of the assessee society. On the contrary, we find no evidence placed on record by the CIT(E) establishing the utilization of the said property in the personal capacity of Mr. Sangam Mishra as alleged, refuting the cogent material placed on record by the assessee.

49. Regarding the travel expense of Mr. Aryan Mishra, we find that this bench has taken note of the fact that he is the grandson of the uncle of Mr. Sangam Mishra and hence does not qualify to be a relative in terms of Section 2(41) read with Section 13(3) of the Act. We find that the assessee society which is having educational objects is well within its rights to bear the cost of lodging/ boarding of meritorious children to participate in cultural events for the overall skill development of the children, which is in furtherance of the objects of the assessee society. We fail to concur with the view of the CIT(E) in withdrawing exemption for such reason. Accordingly, the impugned order passed by the CIT(E), Jaipur in respect of the above findings is perverse and contrary to the applicable provisions of the Act.

50. In this regard, the Ld. AR points out that the alleged violations seen collectively are much less than 15% of the gross receipts allowed to be accumulated in terms of 3^rd proviso to Section 10(23C)(vi) of the Act. The Ld. AR submits that the said accumulation is unfettered and not subject to any restrictions under the provisions governing exemption available to a charitable trust/ society u/s 10 and 11 of the Act.

51. The Ld. AR places reliance on the decision of the coordinate bench in case of Jaipur Stock Exchange Ltd v. ITO [2006] 6 SOT 811 (Jaipur), wherein it is held that there is no requirement under the Act for investment of accumulation of income in specified modes to the extent of 25 per cent of such income under section 11(1)(a) of the Act :

“5.We heard the rival submissions and perused the materials available onrecord. The ld. AR argued that 25 per cent of income under section 11(1)(a)is not required to be invested in the forms or modes specified insub-section 5 of section 11 of the Act. The ld. AR has relied upon variousjudgments.We are of the view that as per section 11(2) it is only 75 percent of the income referred to section 11(1)(a)or section 11(1)(b) readwithExplanationto that sub-sectionis not applied or is not deemed to havebeen applied tocharitableor religious purposes in India during theprevious year but isaccumulated or set apart subject to the compliance ofconditions as referred in section 11(2)(a)and section 11(2)(b) ofthe Act. Inour opinion,therefore, there is no requirement under the Act forinvestment of accumulation of income in specified modes to the extent of25 per cent of suchincome under section 11(1)(a)of the Act. This viewfinds support in the decision ofS.RM.M.CT.M. TiruppaniTrustv.CIT (Inv.)[1998]230 ITR6361(SC) and the relevant para of this decision at page 642reads as under :

52. The Ld. AR further places reliance on the decision of the Rajkot Bench of the Tribunal in case of Kandla Dock Labour Board v. ITO  (Rajkot) /ITA No. 54/RJT/2009, relevant extracts of which have been reproduced as under:

“15. Thus, it is clear that income earned by the trust during the previous year are given exemption from income-tax to the extent of that part of the income which is actually spent for charitable or religious purposes plus accumulated income not exceeding 25% of the income. Clause (a) of Section 11(1) of the Act permits automatic accumulation of income up to 25% without any pre-condition set. Once the operation of Sec.11(1)(a) exhausted, then follows sub-section (2) of Section 11 of the Act, which deals with the question of investment of the balance of accumulated income over and above 25% accumulated income which has still not qualified for exemption under clause (a) of sub-section 11(1) of the Act. That balance accumulated income can also qualify for exemption fromincome-tax meaning thereby the ceiling or the limit of exemption of accumulatedincome from income-tax as imposed by clause (a) of sub-section (1) of section11 would get lifted if the additional accumulated income beyond 25% as the casemay be, is invested as laid down by section 11(2) after following the procedurelaid down therein. Therefore, sub-section (2) will operate for the entire balance ofthe previous year which has not got the benefit of tax exemption under clause (a)of subsection (1) of section-11 of the Act. It has to be kept in view that out of the accumulated income of the previous year, 25% of the total income is given exemption from income-tax by clause (a) of sub section (1) of section 11 itself. That exemption is unfettered and not subject to any conditions. Section 11(2)does not operate to whittle down or to cut across the exemption provisioncontained in section 11(1)(a) so far as such accumulated income does notexceed 25% of the income accumulated in the previous year. It has also to beappreciated that sub-section (2) of section 11 does not contain any non obstanteclause like “notwithstanding the provisions of sub-section (1)”. Consequently itmust be held that after section11(1)(a) has had its full force and if still anyaccumulated income of the previous year is left to be dealt with and to beconsidered for the purpose of income-tax exemption, sub-section (2) of section11 can be pressed into service and if it is complied with, then such additionalaccumulated income beyond 25% will also be eligible for exemption fromincome-tax on compliance with the conditions laid down by sub-section (2) ofsection-11 of the Act. The relevant portion of the calculation of A.O. isreproduced at para 3 of this order.

16. A charitable or religious trust have to apply 75% of income for the object of the trust so as to qualify for exemption u/s 11 of the Act. Income not exceeding 25% of income is allowed to be accumulated under this section 11(1)(a) of the Act. This accumulation is automatic and does not call for any statutory stipulation. Explanation to section 11(1) provides deemed application of theincome. The said explanation deals with a situation where income applied tocharitable or religious purpose falls short of 75% of the income for the reasonthat the income was not received during that year or for any other reason, the trust have to exercise in writing for accumulation in accordance with Explanation to section 11(1) of the Act.

53. We observe the underlying principle emanating from the judicial precedents above that an absolute and unconditional exemption has been granted to trusts for accumulation of funds upto 15% of income u/s 11(1)(a) of the Act vis-a-vis satisfaction of special conditions provided u/s 11(2) of the Act to claim exemption of trust funds (up to 85%). The conditions applicable towards claiming benefit of exemption of trust funds u/s 11(2) of the Act cannot be stretched and applied with respect to application of funds automatically/ absolutely allowed exemption by virtue of ad-hoc exemption u/s 11(1)(a) of the Act.

54. The Ld. CIT(E) erred to correctly apply the legal position elucidated above to the facts of the assessee while withdrawing approval u/s 10(23C)(vi) of the Act, where alleged mis application of trust funds was much lesser that 15% of gross receipts for AY 2013-14, application of which was otherwise unconditionally/ absolutely allowed to the assessee.

55. Regarding the issue of investments made in M/s. Saluja Construction (Rs. 3,54,80,000/-), M/s. Salasar Overseas (P) Ltd. (Rs. 35,00,000/-) and the advances to M/s. Shalu Construction (Rs. 30,00,000/-), we find that the coordinate bench in first round of proceedings has accepted the same to be within the prescribed modes of investment as per Section 11(5) of the Act. As regards the aforesaid being in furtherance to the charitable objects of the assessee, the Ld. AR submits that above said investments in real estate transactions were made by the assessee as part and parcel of its valid application of income within Section 11(1) of the Act, towards its charitable and educational purposes and hence cannot be doubted to be as a valid mode of investment as per Section 11(5)(x) of the Act.

56. Per Contra, the Ld. CIT DR submitted that the Ld. CIT(E) was justified in observing that Society is purchasing luxurious flat for the benefit of the trustee and giving advances without any reciprocal benefit hence, resulting in violation of clause (b) of 3rd proviso of Section 10(23) of Act as the fund are not invested into prescribed modes.

57. Regarding the next issue of advance to Saluja Construction of Rs. 3,54,80,000/- we find that this bench in the first round of appeal has affirmed the same to be well within the permissible mode of investment prescribed vide Section 11(5)(x) of the Act which is accepted by both parties.

58. Now regarding the nexus of making such investment to the objects of the assessee society, we have the following undisputed facts placed before us:-

59. On giving a thoughtful consideration to the factual position emerging from the above, we find that the sole premise of drawing adverse finding qua investment in residential flat being located in a posh society of Delhi, to have been utilized only for the personal purposes of the trustee and his family is short sighted and lacks merit.

60. We hold that the assessee society as a matter of practice invests its surplus towards acquisition of fixed assets which is as per the prescribed modes of investment. Further to carry out the objects of the assessee society in a smooth and efficient manner, the assessee society has also invested in residential properties out of the above.

61. The word “immovable property” by natural reading, will include any type of land, residential or commercial property or any other form of property, which can be termed as immovable property as defined in the Transfer of Property Act. Thus, the society/ management is allowed to invest its surplus in immovable property, including residential property. Thus, there cannot be a bar on management of Society to invest its surplus funds in acquisition of a residential property as the law does not mandate any extra bar.

62. Regarding the advance to Salasar Overseas we observe on perusal of the application form and provisional allotment letter that the same has been made in furtherance towards the payment for school land by the assessee society. Furthermore, regarding the nature of scheme, we find that the project is towards development of a township comprising of Niji Khatedari Scheme, residential scheme, commercial complex in Narayan Vihar, and not merely a residential complex as alleged by the CIT(E).

63. Regarding the advance to Shalu Construction, we find that the same stands being refunded to the assessee society, thereby not warranting any further discussion regarding the nature of investment of the same.

64. In totality of the above discussion, we find ourselves unable to agree with the version put forth by the Ld. CIT DR. There is ample evidence to establish, and a clear lack of any contrary material on record, that the assessee is a public charitable trust set up towards fulfilment of the objects of the trust/ society. That the activities of the assessee Society in furtherance of educational purposes is not in dispute/ accepted by the CIT(E) vide the impugned order also.

65. Accordingly, once an asset (movable/ immovable) becomes the property of the assessee society, it continues to remain its property the benefit wherefrom does not pass/ revoked by the trustee(s) and continues to remain with the society. The trust property is separate from the trustee property and cannot interchangeably stated to be the same. It is seen from the order of the Ld. CIT(E) that adverse inference is drawn solely on the basis that factum of ownership of the flat at Safdarjung Enclave is not proved. However, the same appears to be baseless insofar as the Deed dated 20.11.2013 is placed on record that shows to the contrary, and no rebuttal is forthcoming regarding the same.

66. In this regard, the Ld. AR places reliance on the case of ADIT (E) v. Abul Kalam Azad Islamic Awakening- (Delhi), whereby it has been held that it is the Assessee society that would decide the preferred mode of investment and that the Department may not dictate said choice by putting itself in the chair of the assessee:-

“2. The entire case of the revenue was that since the assessee, in the assessment year 2005-2006, had invested in commercial property at Bangalore and it was not for a charitable purpose and further that in the said property no educational activity was carried out which was the object of the assessee. The respondent/assessee had contended that it was permissible for it to invest in immovable property in terms of section 11(5) of the said Act. It was also contended that though the investment was in commercial property, the income generatedfrom it was appliedfor charitable purposes. Therefore, the registration under section 12A of the said Act could not have been cancelled. The Tribunal accepted the pleas raised by the assessee and allowed its appeal. The Tribunal observed as under:-

“7. We have heard rival contentions and gone through the relevant material available on record. Relevant provisions of Section 11, read as under :

“Income from property held for charitable or religious purpose.

11 (2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with,, namely:

(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely :-

(x) Investment in immovable property.

7.1. Plain reading of provisions of sec. 11 (2)(b) lay down that 85% of the income is to be applied to charitable purposes or set apart and the moneys accumulated or set apart can be invested or deposited in the forms or modes specified in sub-sec. (5).

7.2. Clause (x) of Sub sec. (5) to sec. 11 prescribes one of the modes of investment as “investment in immovable property”. Thus, the surplus income can be applied to investment in immovable, property. The charitable, purposes will include the educational activities and acquiring the income yielding assets to, promote the educational objects of the Society. Consequently, combined reading of these provisions make it clear that the assessee can set apart or invest its income in an “immovable property”. The word “immovable property” by natural reading, will include any type of land, residential or commercial property or any other form of property, which can be termed as immovable property as defined in the Transfer of Property Act. Thus, the society/ management is allowed to invest its surplus in immovable property, including commercial property. Thus, there cannot be a bar on management of Society to invest its surplus funds in acquisition of a commercial, property as the law does not mandate any extra bar.

7.3. Coming to the other aspect that because the assessee is not carrying out any educational activity in this commercial property, therefore, the investment becomes for non-charitable purposes and the assessee has endeavored to enter into business operations. In our view the assessee’s charitable objects include spreading education and opening of schools; investment even in commercial property assets remains charitable purposes so long as the income generated by it is applied to charitable objects. It has not been demonstrated that the assessee applied rent received from these properties to any non- charitable purposes. Besides, it has not been demonstrated that the assessee’s intention was to enter in business of purchase and sale of commercial property inasmuch as we are in year 2012, the property was purchased in FY 2004-05 and the Trust still retains this property. In these circumstances, we are unable to hold that the assessee’s investment can be heldnon-charitable in nature.”

(underlining added)

3. We are of the view that the Tribunal had correctly appreciated the law and has come to the conclusion that the respondent assessee was entitled under Section 11(5)(x) to invest in immovable, property out of the funds which were surplus with it. The Tribunal has also concluded that there was no evidence on the part of the department that the assessee had applied the rent receivedfrom the commercial property for non-charitable purpose. That being the case, the registration under Section 12 A could not have been cancelled. We do not find any substantial question of law which arises for our consideration. “

(Emphasis Supplied)

67. We may refer to a decision of this Tribunal in the case of St. Wilfred Educational Society v. PCIT (Central) (Jaipur – Trib.)/[2019] 176 ITD 675 (Jaipur – Trib.) whereby this bench has observed:-

“57. Further, we note that the Id Pr.CIT has raised an apprehension at the time of issuance of show-cause that the payment to Rajasthan Housing Board on behalf of Adarsh Gyan Vidyalya Society is neither a loan nor a donation but appears to be an investment not allowable u/s 11(5) of the Act and thereafter, towards the end of his order while giving his concluding findings has held that the payment made is in contravention of section 11(5) r/w section 13(1)(c) of the Act. However, how the payment is in contravention of section 11(5) has not been spelt out in his order. If we look at the provisions of section 11(5), in clause (x), it provides for investment in immoveable, property as one of the, permissible mode of investment of amount of income which is accumulated or set-apart for being not included in the total income of the person in receipt of income. In the instant case, the assessee society having entered into an agreement to sell with Adarsh Gyan Vidyalya Society and having paid a substantial amount in consideration for purchase of land and in possession of the said land has clearly made an investment in an immoveable property though the same is subject to approval of Rajasthan Housing Board and signing of the final conveyance deed. Accordingly, in light of above discussions and in the entirety of facts and circumstances of the case, the payment to Rajasthan Housing Board is not in contravention of section 11(5) r/w section 13(1)(c) of the Act. There fore, the findings of the Id Pr CIT cannot be sustained and cannot be made a basis to hold that the assessee society is not carrying out its activities as per its ob jects and the exemption granted under section 12AA should be withdrawn.

(Emphasis Supplied)

68. Furthermore, we may gainfully refer to the judgment in DCIT v. Jaymahakali Shikshan Sanstha  (Nagpur – Trib.), whereby the Nagpur Bench of this Tribunal has held as under:-

“21. Ground no.4, relates to denial of exemption under section 11 of the Act. We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. The facts of the case reveal that the assessee trust had advanced certain amount to related concern of M/s. Vedsiddha Products Pvt Ltd, for purchase of land for further development of the assessee trust. However, the assessee trust was not able to purchase the property due to encroachment. We have already opined that the impugned document in the absence of any corroborative evidence is not worthy of making an addition. However, even otherwise there is no there is no violation of provisions of section 13(1)(c) and section 13(1)(d) of the Act, as the said provisions are attracted in relation to trustees of the trust. The aforesaid property transaction is with the third party. The fact that M/s. Harmony Homes, have given a property advance is apparent from the balance sheet of the assessee trust, therefore it is also not in violation of any provisions of section 11(5). The opinion of the Assessing Officer is that the trust has invested in the modes other than the one provided under section 11(5) is not tenable as the assessee trust have invested in the purchase of property, wherein the assessee trust has advanced the said amount for purchase of property. The assessee also submitted agreement to sale before authorities below. The said investment in immovable property is allowable as per section 11(5)(x) of the Act. Even otherwise also, if the view of the Assessing Officer is considered that the trust has given loan to the M/s. Harmony Homes (third party) and has received interest on same. Question of investment does not arise when loan has been provided which has been admitted by Department also and hence there is no breach of provisions of investment under section 11(5) of the Act.

22. Accordingly, nothing merits in the Revenue’s submission that entire exemption under section 11 of the Act should be revoked. Accordingly, we direct the Assessing Officer to grant exemption under section 11 of the Act to the assessee trust as already directed by the learned CIT(A). Keeping in view the overall facts and circumstances of the case, ground no.4, raised by the Revenue is dismissed. ” (Emphasis Supplied)

69. That therefore, without considering the overall activities of the Assessee Society, the Department cannot cherry pick expenses/investments incurred in due course of charitable activities and proceed to cancel the registration of the Assessee on said basis under Section 10(23C)(vi) of the Act; it stands established that the Assessee has not provided any benefit to the trustee nor the funds of the Assessee, been diverted for personal benefit of trustees or any third person and all investments made by the Assessee satisfy the modes specified u/s. 11(5) of the Act.

70. Having already adjudicated upon the factual aspects and merits of the case, we refrain from dealing with the legal issues as raised in the present case and accordingly said grounds are not commented upon and left open.

71. In light of the above discussion, we hereby set aside the impugned order dated 02.09.2025 passed by the Ld. CIT(Exemptions), Jaipur withdrawing approval granted to the assessee in terms of Section 10(23C)(vi) of the Act and direct restoration of registration with effect from AY 2013-14 and onwards.

In the result, appeal of the assessee is allowed.