2012 (12) TMI 1022 - AT - Income Tax

Tribunal rules ETF taxable in individual's hands, Society entitled to benefits, revenue appeals dismissed

M.J. Balachander Versus Dy. Commissioner of Income Tax, Central Circle 1 (2), Bangalore And Asst. Commissioner of Income Tax, Central Circle 1 (2), Bangalore Versus M.J. Balachander And Assistant Commissioner of Income Tax, Central Circle 1 (2), Bangalore Versus Venkatesha Education Society And Vice Versa

M.J. Balachander Versus Dy. Commissioner of Income Tax, Central Circle 1 (2), Bangalore And Asst. Commissioner of Income Tax, Central Circle 1 (2), ... Issues Involved:1. Whether Extra Tuition Fee (ETF) should be assessed in the hands of the Society or MJB.2. The quantum of ETF that should be taxed.3. The applicability of Section 11 benefits to the Society.4. Disallowance of depreciation claimed by the Society.Detailed Analysis:1. Whether Extra Tuition Fee (ETF) should be assessed in the hands of the Society or MJB:The primary issue was whether the ETF collected should be assessed as income in the hands of the Society or MJB. The Society argued that ETF was collected by MJB without its knowledge or authority. MJB accepted this stance, stating that he collected the ETF independently. The CIT(A) agreed with this position, noting that MJB managed the admission process and collected ETF autonomously. The tribunal found no evidence in seized documents indicating the Society's involvement in ETF collection. The tribunal concluded that ETF was collected by MJB independently and not by the Society, thus upholding the CIT(A)'s decision.2. The Quantum of ETF that should be taxed:The tribunal had to determine the amount of ETF to be taxed. MJB claimed that 50% of the ETF collected was refunded to students who did not take admission. The CIT(A) accepted that ETF was refundable but estimated that 60% of the ETF should be taxed, allowing for a 40% refund. The tribunal reviewed the evidence and circumstances, including the fact that only 9% of the total ETF collections were found as assets during the search. The tribunal decided that it would be fair to estimate that 45% of the ETF was refunded, and thus, 55% of the ETF should be taxed in MJB's hands.3. The Applicability of Section 11 Benefits to the Society:The AO denied the Society the benefits of Section 11 on the grounds that the Society collected capitation fees. However, since the tribunal found that the Society did not collect ETF, it ruled that the Society should not be denied the benefits of Section 11. The tribunal directed that the Society is entitled to the benefits of Section 11.4. Disallowance of Depreciation Claimed by the Society:The revenue argued that since the Society had already claimed the cost of assets as an application of income under Section 11, allowing depreciation would result in a double benefit. The tribunal referred to several high court decisions, including the Bombay High Court's decision in CIT v. Institute of Banking, which allowed depreciation even when the cost of assets was treated as an application of income. The tribunal followed the preponderance of judicial opinion and held that depreciation should be allowed, dismissing the revenue's appeal on this issue.Conclusion:The tribunal concluded that ETF should be assessed in MJB's hands and not the Society's. It determined that 55% of the ETF should be taxed. The Society was entitled to the benefits of Section 11, and the depreciation claimed by the Society should be allowed. The appeals by the revenue were dismissed, and the appeals by MJB were partly allowed.