TaxTMI 
TaxTMI 
2014 (2) TMI 305
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.... the managing trustee admitted the receipt of unaccounted money outside the books of account. Apart from that unaccounted receipts were said to be deposited in Palluruthy Mandalam Service Co-operative Bank in her name and her husband. According to the ld.DR, the assessee has collected development fund during the admission of the students over and above the prescribed fees. The development fund collected, though routed through intermediary society by the name "Sabarigiri School Society, was managed by Mrs. Sula Jayakumar. According to the ld.DR, no books of account were maintained for collection of the development fund. However, it is entered in a note book. According to the ld.DR, the assessee trust claimed before the assessing officer that the trust existed solely for the educational purpose, therefore, it was eligible for exemption u/s 10(22) of the Act as it was then in existence. The seized material found during the course of search operation shows excess collection over and above the fees in the name of development fund. The funds so collected were not accounted in the books of account of the trust. The collection of the funds in the name of the trust was admittedly deposited ....
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....ated as unaccounted income of the trust and it cannot be considered to be the money received from the teachers, who were seeking appointments in the High School. 5. Referring to the next addition made by the assessing officer, the ld.DR pointed out that seized material 'AM-127' shows the receipt of monthly fee, term fee, etc. Verification of books of account shows that the monthly fee, term fee, etc. was completely omitted to be accounted for in the cash book. An explanation was called for from the assessee with regard to omission to account the monthly fees and term fees in the cash book. After the search, the assessee filed the return of income, that too, after issuing notice u/s 158BD of the Act. Since this money would not have been disclosed to the department, but for the search, according to the DR, this unaccounted monthly fees and term fees have to be treated as undisclosed income of the trust. However, on appeal, the CIT(A) deleted the addition on the ground that the Madhya Pradesh High Court in CIT vs Nitin Munje (2003) 185 CTR (MP) 255 declined to admit the appeal filed by the department against the decision of the Indore Bench of this Tribunal wherein it was held that w....
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....ppeal is with regard to levy of surcharge under Proviso to section 113 of the Act. According to the ld.DR, surcharge could be levied even though the amendment was carried out in the later years in view of the judgment of the Apex Court in the case of CIT vs Suresh N Gupta (2008) 297 ITR 322 (SC). 9. On the contrary, Shri CBM Warrier, the ld.representative for the assessee submitted that the assessee is an educational trust, therefore, eligible for exemption u/s 10(22) of the Act as it was existed then. According to the ld.representative, an educational trust was not required to file return of income till 01-04-2006. Therefore, for the year under consideration, the assessee is not expected to file the return of income. Referring to provisions of section 10(22) of the Act as it existed then, the ld.representative submitted that the entire income of the assessee is exempt from taxation. Therefore, according to the ld.representative, the CIT(A) has rightly allowed the claim of the assessee. 10. Referring to the addition made by the assessing officer, the ld.representative submitted that the development funds were received by another society, viz. Parent Teacher Association and then i....
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....hool Trust and not in the hands of the assessee trust. 15. Referring to the addition of Rs.6,47,000 the ld.representative submitted that the assessee has filed confirmation letter before the Commissioner of Income-tax (Appeals), who directed the assessing officer to verify the confirmation letter. Therefore, there is no infirmity in the order of the CIT(A). The ld.representative for the assessee further submitted that no part of the income was used for a purpose other than educational purpose. The entire receipt of money was used for educational purpose only and not for anything else. Therefore, according to the ld.representative, the entire income of the assessee is eligible for exemption u/s 10(22) of the Act as it was in existence at the relevant point of time. 16. We have considered the rival submissions on either side. The first question arises for consideration is whether the assessee is entitled for exemption u/s 10(22) and 10(23C) of the Act as it was in existence at the relevant point of time. Section 10(22) has been omitted with effect from 01-04-1999 by Finance (No.2) Act, 1998 and this section has been re- enacted in section 10(23C). We are concerned with block period....
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.... Court found that the use of the expression "profit motive" is not intended that profit must in fact be earned. The Apex court found that it pretexts a motive. Therefore, wherever, there is a motive to earn money, the Apex court found that such trust exists only for the purpose of profit. Hence, the trust cannot be said to be existing not for the purpose of profit. Such trust cannot be considered to be a charitable trust. In fact, the Apex Court has observed as follows at pages 255 & 256 of the ITR: "............. As a rule, if the terms of the trust permit its operation "for profit", they become, prima facie, evidence of a purpose falling outside charity. They would indicate the object of profit making unless and until it is shown that terms of the trust compel the trustee to utilize the profits of business also for charity. This means that the test introduced by the amendment is : Does the purpose of a trust restrict spending the income of a profitable activity exclusively or primarily upon what is "charity" in law? If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter t....
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....ssee trust has not included this Rs.5 lakhs in the undisclosed income. The assessing officer, by virtue of the direction of the CIT(A) included this amount of Rs.5 lakhs as undisclosed income in the hands of the trust. However, the CIT(A) found that the deposits were made from corpus fund for making infrastructure for the higher secondary school. The CIT(A) has not taken any pain to verify the source of the so-called corpus fund. However, the CIT(A) says that the assessee has explained the fixed deposit receipts. From the order of the CIT(A) it is not known what was the explanation offered by the assessee and under what circumstances, the CIT(A) accepted the explanation of the assessee is not known. The fact remains is that the assessee trust is not eligible for exemption either u/s 10(22) or u/s 10(23C) of the Act. The assessee trust is also not registered u/s 12A of the Act, and therefore, not eligible for exemption u/s 11 of the Act; hence, the income of the assessee trust has to be computed on commercial principles. Since the source of the so-called corpus fund was not explained by the assessee, this Tribunal is of the considered opinion that the CIT(A) committed an error in sa....
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....r, the books of account are maintained in the regular course of activity and the entries were found in such books of account, the income arising out of such transaction has to be excluded in case the due date of filing of the return has not ended. In this case, the receipt, viz. monthly fee and term fee was not recorded in the books of account maintained in the regular course of activities, this Tribunal is of the considered opinion that merely because the time limit for filing the return of income has not expired, the receipt which was not entered in the books of account cannot be excluded. Therefore, the CIT(A) is not justified in deleting the addition made by the assessing officer. This Tribunal is of the considered opinion that the judgment of the Madhya Pradesh High Court in Nitin Munje (2003) 185 CTR (MP) 255 is not applicable to the facts of the present case. Accordingly, the order of the CIT(A) is set aside and that of the assessing officer is restored. 22. The next ground of appeal is with regard to addition of Rs. 16,27,738 on sale of books and Rs. 3,61,040 being the disallowance u/s 40A(3) of the Act. The only contention of the assessee is that Sabarigiri School Society....
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....s of the transaction and creditworthiness of the creditor. Without doing so, the CIT(A) simply set aside the matter to the file of the assessing officer. This Tribunal is of the considered opinion that since the assessee has filed the confirmation letter it needs to be examined. Accordingly, in exercise of the powers of this Tribunal, the issue of addition of Rs.6,47,000 is remitted back to the file of the assessing officer. The assessing officer shall examine the issue after examining the confirmation letter and other documents filed by the assessee and thereafter decide the issue in accordance with law after giving opportunity of hearing to the assessee. 24. The next issue is with regard to levy of surcharge u/s 113 of the Act. The Apex Court in the case of Suresh N Gupta (supra) found that surcharge can be levied even before the amendment of section 113 of the Act in view of the Finance Act passed by the Parliament in the respective assessment year. Therefore, the CIT(A) is not justified in deleting the surcharge levied by the assessing officer. Accordingly, the order of the CIT(A) is set aside and that of the assessing officer is restored. 25. Now coming to the cross objectio....