2019 (6) TMI 1745 - AT - Income Tax

Deemed university relieved from state fee fixation; additions for excess fees, expenses and anonymous donations deleted under Sec.11 and Sec.115BBC

Dy. C.I.T. (Exemption), Lucknow Versus Shri Ramswaroop Charitable Trust

ITAT LUCKNOW upholds the CIT(A)'s findings and dismisses the Revenue's appeal. The Tribunal affirmed that the institution is a deemed university under the ... Exemption under section 11 - alleged to be excess fees/capitation fall - charged extra fees from the students in excess of the stipulated fees approved by the statutory body - Disallowance on account of personal expenses - Administrative expenses - Interest on term loan - construction of building - Addition on account of anonymous donations as the assessee could not establish the identity and capability/financial status of the donors. HELD THAT:- Issue involved in the present appeal is duly covered in favour of the assessee in assessee’s own case for the assessment year 2013-14 by the order of this Bench of the Tribunal in I.T.A. [2019 (3) TMI 1930 - ITAT LUCKNOW] held that CIT (A) held that assessee is a deemed university to which special ordinance of U.P. Government 04.07.2012 was applicable and after becoming deemed university the provision of fee fixation committee of State Government is not applicable. Clause 29 of Extra Ordinarily Gazette of U.P. State Government clearly defines that ordinance shall be made by the Executive Council for the purpose of fee to be charged for courses being studied in the university and for admission to the examination degrees, diploma and certificate of the university. The ld. CIT (A) has appreciated the entire facts and has given a categorical finding that the assessee was a deemed university established by Special Ordinance of U.P. Government dated 04.07.2012. Respectfully following the aforesaid findings of the Tribunal in assessee’s own case, we do not find any infirmity in the order of learned CIT (A) and delete the addition made by the Assessing Officer. Disallowance on account of personal expenses - books, vouchers and ledgers are maintained and no specific defect or unverifiable voucher is pointed out by the Assessing Officer - HELD THAT:- The issue involved in the present appeal is duly covered in favour of the assessee in assessee’s own case for the assessment year 2013-14 by the order of this Bench of the Tribunal in I.T.A. [2019 (3) TMI 1930 - ITAT LUCKNOW] held that - 'assessee had placed on record complete list of personal expenses and copy of which is also placed at P.B. Pages 135 to 147 and therefore, there was no justification of the Assessing Officer to make the addition and therefore, the ld. CIT (A) has rightly deleted the same.' Respectfully following the aforesaid findings of the Tribunal in assessee’s own case, we do not find any infirmity in the order of learned CIT (A) and delete the addition made by the Assessing Officer. Addition of Administrative expenses - CIT (A) has deleted ignoring the fact that the assessee could not substantiate the increase in expenditure and did not furnish any justification and explanation in this regard during the assessment proceedings - HELD THAT:- Issue involved in the present appeal is duly covered in favour of the assessee in assessee’s own case for the assessment year 2013-14 by the order of this Bench of the Tribunal [2019 (3) TMI 1930 - ITAT LUCKNOW] held that - 'we find that the assessee had filed complete details of vouchers and books of accounts, which was not rejected by the Assessing Officer and he arbitrarily disallowed 25% of the expenditure without observing that TDS was duly deducted on some of the expenses wherever it was applicable.' No infirmity in the order of learned CIT (A) and delete the addition made by the Assessing Officer. Interest on term loan - construction of building - HELD THAT:- Issue involved in the present appeal is duly covered in favour of the assessee in assessee’s own case for the assessment year 2013-14 by the order of this Bench of the Tribunal [2019 (3) TMI 1930 - ITAT LUCKNOW] held that - 'expenditure was not allowable as revenue expenditure even then the same was allowable as utilization as capital expenditure is also allowed for the purpose of calculating exemption u/s 11 of the Act. The entire capital as well as revenue expenditure has to be taken into account as utilization of funds. ld. CIT (A) has rightly deleted the addition.' No infirmity in the order of learned CIT (A) and delete the addition made by the Assessing Officer. Addition on account of anonymous donations as the assessee could not establish the identity and capability/financial status of the donors - HELD THAT:- Issue involved in the present appeal is duly covered in favour of the assessee in assessee’s own case for the assessment year 2013-14 by the order of this Bench of the Tribunal [2019 (3) TMI 1930 - ITAT LUCKNOW] held that - ''as per sub Section (3) of 115BBC, ‘anonymous donation’ mean voluntary contribution where a person receiving such contribution does not maintain a record of identity indicating the name and address of the person making such contribution. In view of these facts, we find that only requirement u/s 115BBC of the Act is the name and address of the donor has to be maintained which the assessee had maintained. We further find that the assessee had declared entire receipt of donations in the total income as is apparent for computation placed at page 43 which had already been made part of this order and had utilized the entire amount for charitable purposes as the total application of funds is more than fee receipt and voluntarily contribution. The ld. CIT (A) has rightly allowed relief to the assessee.' No infirmity in the order of learned CIT (A) and delete the addition made by the Assessing Officer. Appeal of the Revenue stands dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts alleged to be excess fees/capitation fall outside exemption under section 11 where the institution is a deemed university empowered to fix fees by statutory ordinance. 2. Whether ad hoc disallowance of personal expenses is sustainable where books, vouchers and ledgers are maintained and no specific defect or unverifiable voucher is pointed out by the Assessing Officer. 3. Whether ad hoc disallowance of administrative expenses (including advertisement) is sustainable in absence of specific findings questioning genuineness or relevance to charitable activity. 4. Whether interest on term loan used for construction of buildings (claimed in Income & Expenditure account and on which depreciation is claimed) can be disallowed as capital expenditure for the purpose of exemption under section 11. 5. Whether donations are to be treated as anonymous under section 115BBC (and/or cash credit under section 68) where the recipient trust has maintained name and address of donors and has disclosed and applied the donations for charitable purposes. ISSUE-WISE DETAILED ANALYSIS - 1. Fee charged in excess / capitation and applicability of section 11 Legal framework: Exemption under section 11 depends on application of income to charitable purposes; regulatory control over fee fixation by statutory fee committees may bear on characterisation of receipts but does not automatically negate charitable application. Ordinance empowering a deemed university to fix fee affects applicable regulatory regime. Precedent treatment: The Tribunal in the assessee's own earlier year decision (bench precedent) and judicial authorities (including decisions relied on) were followed to hold that once an institution is a deemed university empowered by ordinance to fix fees, state fee-fixation rules do not automatically apply; and mere charging of higher fees does not establish profit motive without evidence. Interpretation and reasoning: The Court accepted the Commissioner(A)'s factual finding that the institution was a deemed university under a special ordinance and that fee fixation by its executive council/fee fixation committee governed the fees charged. The Assessing Officer failed to prove profiteering or misuse of funds and did not identify specific transactions showing non-application to charitable purpose. Ratio vs. Obiter: Ratio - Where a trust/institution is lawfully empowered to fix fees under a statutory ordinance and maintains records showing fees fixed by its own committee, mere excess vis-à-vis state norms does not deprive it of section 11 benefit absent evidence of profit motive or diversion. Obiter - General observations about comparisons to state fee schedules. Conclusion: Addition for alleged capitation/extra fee was rightly deleted; benefit of section 11 sustained. ISSUE-WISE DETAILED ANALYSIS - 2. Ad hoc disallowance of personal expenses Legal framework: Assessment adjustments under Income-tax law require specific basis; ad hoc disallowances are impermissible where books/vouchers are maintained and no specific unreliability is demonstrated. Judicial guidance requires AO to identify particular defects before making percentage disallowances. Precedent treatment: Tribunal relied on multiple prior ITAT decisions (Lucknow and other benches) and Supreme Court authority cited (J.J. Enterprises v. CIT) - followed and applied to disallow AO's ad hoc 10% disallowance where no specific vouchers were pinpointed and auditors had not qualified accounts. Interpretation and reasoning: The Assessing Officer increased personal expense disallowance merely because expenses rose; did not point to specific unverifiable vouchers or reject books of account. The appellant produced ledger copies and comparative ratios showing expenses were not disproportionate; AO's general suspicion insufficient. Ratio vs. Obiter: Ratio - Ad hoc percentage additions disallowing expenses are not sustainable without identification of specific unverifiable items or rejection of books; mere increase in expenses by itself is insufficient. Obiter - Remarks on application of restored registration under section 12A to the effect that additions may amount to application of income. Conclusion: Deletion of ad hoc disallowance of personal expenses upheld. ISSUE-WISE DETAILED ANALYSIS - 3. Ad hoc disallowance of administrative expenses (including advertisement) Legal framework: Same principles as issue 2 apply; AO must establish non-genuineness or irrelevance of expenditure to charitable purpose and specify defects before making ad hoc disallowance. Precedent treatment: Identical line of ITAT authorities and higher court dicta applied and followed - decisions holding that vague observations or self-made vouchers are insufficient to sustain disallowance. Interpretation and reasoning: The Assessing Officer disallowed 25% and struck off advertisement expenses because they were not claimed in previous year; however the assessee produced detailed ledgers, vouchers and TDS evidence. AO failed to identify any particular entry as unverifiable or unrelated to education; mere year-on-year increase does not justify blanket disallowance. Ratio vs. Obiter: Ratio - Blanket ad hoc disallowance of administrative or advertisement expenses is unsustainable where proper books and vouchers are produced and AO does not point to specific non-genuine items. Obiter - Observations on TDS deduction and auditor reports reinforcing genuineness. Conclusion: Deletion of ad hoc disallowance of administrative expenses confirmed. ISSUE-WISE DETAILED ANALYSIS - 4. Interest on term loan: capital vs revenue application under section 11 Legal framework: Interest may be capitalized where incurred for construction of an asset; for a charitable trust claiming exemption under section 11, both capital and revenue application of funds are relevant for calculating application of income - application includes utilization for capital assets used for charitable purposes. Precedent treatment: The Tribunal's earlier decision in the same assessee's case was followed: where interest relates to construction of building put to use and depreciation is claimed, the interest can be capitalized and still treated as application of income for section 11 purposes. Reliance was placed on Tribunal precedents that capital expenditure, when applied for charitable purposes, can be considered in application calculations. Interpretation and reasoning: The Assessing Officer treated interest as disallowable capital expenditure; however the assessee produced ledgers showing term loan utilized for academic/administrative block construction, capitalized in books, and depreciation claimed. Even if treated as capital, such application counts towards charitable application under section 11; AO did not demonstrate misuse or non-application. Ratio vs. Obiter: Ratio - Interest on term loans used to construct assets put to use and capitalized, with depreciation claimed, cannot be disallowed for section 11 purposes; capital application is relevant to exemption computation. Obiter - Remarks on interplay between capitalization, depreciation and income application. Conclusion: Addition disallowing interest on term loan deleted; interest treated as applied for charitable purpose. ISSUE-WISE DETAILED ANALYSIS - 5. Anonymous donations under section 115BBC and application of section 68 Legal framework: Section 115BBC taxes anonymous donations where recipient does not maintain record of donor identity (name and address and other particulars as prescribed). Section 68 treats unexplained cash credits; but where donations are disclosed as income and applied for charitable purposes, section 68 is inapplicable absent evidence of fictitious donors or unaccounted money. Precedent treatment: Tribunal and High Court authorities (including decisions cited from Delhi and Allahabad High Courts and ITAT precedents) were followed - requirement under section 115BBC(3) is maintenance of name and address; if maintained, donations are not anonymous. Authorities hold that full disclosure and application for charitable purpose preclude invocation of section 68. Interpretation and reasoning: The assessee had furnished names and addresses, bank records, ledgers and evidence of application of donations. AO did not doubt identity or genuineness. Given statutory definition and absence of prescribed additional particulars, maintaining names and addresses satisfied section 115BBC; section 68 could not be invoked where donations were disclosed as income and applied charitably. Ratio vs. Obiter: Ratio - Donations cannot be treated as anonymous under section 115BBC where the recipient maintains the name and address of donors; where donations are disclosed as income and applied for charitable purposes, section 68 is not applicable to treat them as unexplained cash credits. Obiter - Remarks on investigatory standards required to impugn donor identity/capacity. Conclusion: Addition on account of anonymous donations (and related section 68 treatment) deleted. OVERALL CONCLUSION The Tribunal upheld the Commissioner(A)'s deletions in respect of all material additions (grounds 1-5), primarily on the basis that (a) factual findings about deemed-university status and fee fixation were unassailable, (b) ad hoc disallowances lacked pinpointing of defects and were contrary to binding precedents, (c) interest on capitalized construction expenditure counts as application for charitable purposes, and (d) maintained donor identity precluded classification as anonymous donations and invocation of section 68. The Revenue's appeal was dismissed.