TaxTMI 
TaxTMI 
2014 (3) TMI 760
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.... section 12A of the Act on 28.05.1976. In respect of the assessment year 2006-07, it filed a return of income declaring Rs.Nil as its income. On 31.10.2006 this return was processed under Section 143(1). Subsequently a scrutiny of the return was initiated and notices under Sections 142(1) and 143(2) were issued. A sum of Rs.8,60,1600/- was shown by the assessee as the proceeds of the sale of assets, being land. It appears that M/s. Ansal Properties and Industries Ltd. (APIL) owned certain plots of land earmarked for schools, dispensaries, etc. The assessee in furtherance of its objects to open a school, entered into agreements with APIL on 18.03.2004 and 14.03.2004 for purchase of the land situated at Palam Vihar, New Delhi. In these agreements the assessee paid 95% of the price of the land to APIL and simultaneously obtained possession of the plots. It would appear that one of the conditions of the agreement was that in case the allotment of plots is cancelled later, the assessee will be liable for cancellation charges of 10% of the cost of plots. The advance paid by the assessee was recorded in books of accounts for the financial year 2004-05 and the amount so advanced was added ....
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.... are made with a specific direction that they shall form part of the corpus of the trust. The effect of Section 12(1) is that non-corpus donations which are treated as income derived from property held under trust will have to be subjected to the provisions of Section 13. Corpus donations, however, will not be treated as income derived from property held under trust and, therefore, the provisions of Section 13 will not be attracted. Having regard to the relevance of the corpus donations in the assessment of a trust, the assessing officer issued notice under Section 131 and got the statement of Jagjit Singh recorded by the Additional Director of Income Tax (Exemptions). It would appear that Jagjit Singh stated that he had some disputes with regard to the clearance of title to the land with DLF and in order to resolve the dispute, DLF was directed to pay Rs.1.5 crores to the assessee. He would, however, appear to have stated that there was no specific direction given by him that the donation would be a corpus donation. The assessing officer, on the basis of the statement of Jagjit Singh, invoked the provisions of Section 68 of the Act and added the amount of Rs.1.5 crores as the asse....
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....ed the copy of the receipt issued by the assessee, the PAN number and copy of the bank certificate confirming the payment made to the assessee. The assessing officer rejected the evidence on the ground that the donor never filed any return of income and did not submit its audited balance sheet as on 31.03.2006. Moreover, the assessee did not produce the Director of the donor company despite specific direction in this Court by the assessing officer. As regards the corpus donation from Sun System Institute of Information Technology the assessing officer took steps to verify the same and issued a letter under Section 133(6) calling for information but there was no compliance. He, therefore, added both the corpus donations under Section 68. The assessing officer also disallowed depreciation on certain assets on the ground that the cost of those assets was allowed as application of the income of the trust for charitable purposes and allowance of depreciation of those assets would amount to double allowance which is not permissible. 8. There was an appeal to the CIT (Appeals) in which the assessee challenged the findings recorded by the assessing officer. As regards the violation of the....
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.... and similar to the objects of the assessee trust. The assessee provided the funds to the aforesaid society for the purpose of meeting the expenditure required for establishing the private university. These funds were utilised by Charanjiv Educational Society for purchase of land, contribution to the endowment fund, etc. The society received permission from the Chhattisgarh government and also made the required payments in order to establish the private university. However, in the year 2005 the Supreme Court struck down Sections 5 and 6 of Chhattisgarh Niji Khsetra Vishwavidalaya Regulatory Commission (Sthapana Aur Viniyaman) Adhiniyam, 2002 as a result of which the Chhattisgarh government by letter dated June, 2006 informed the society that the project could not be fulfilled and returned the deposit of Rs.2 crores by account payee cheque which in turn was returned by the society to the assessee trust. The other amounts advanced by the assessee to the society were also returned as and when they were received back by the society. The establishment, legal and other expenses incurred by the society were to be made good by the assessee on closure of operations by the society in 2008 pu....
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....ow the decision taken by his predecessor in respect of the disallowance of the exemption under Section 11 on the ground of violation of Section 13(1)(c)(ii) read with Section 13(3). According to him, both in respect of the advances made to APIL and the debit balances in the account of Charanjiv Educational Society, there was a violation of the above statutory provisions disentitling the assessee from the benefit of exemption under Section 11. The addition made under Section 68 of the Act on account of corpus donations received from M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. and Sun System Institute of Information Technology were also confirmed. 14. The matter reached the Income Tax Appellate Tribunal in cross appeals for the assessment year 2006-07. In the assessee's appeal the challenge was to the addition of Rs.1.50 crores and Rs.25 lakhs made under Section 68 and the addition of the development fund charges of Rs.59,58,384/- which represented the corpus of the trust which was obliged to be spent on the objects of the trust. In the appeal by the revenue, the decision of the CIT (Appeals) that there was no violation of the provisions of Section 13(1)(c)(ii) read with Section....
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.... the year or difference in nomenclature cannot make a transaction colourable, which otherwise has corroborative evidence. (d) From APIL copy of account in the assesses books it clearly emerges that more often than not APIL had credit balance, thus it has been providing monetary support to trust now and then. Therefore, a presumption cannot be drawn that APIL diverted the funds without proper justification for its use. (e) Assessee debited 95% advance to asset acquisition a/c itself indicate that because of substantial advance and possession it treated the plots as its assets. Treatment of these amounts as advances in APIL books, does not militate against assessee's method of accounting. Both maintain independent accounts; assessee under Trust regulations and APIL under normal Company Law and commercial principles, method of accounting and revenue recognition principles. Therefore, the alleged variation in categorization of accounting in two different set of books will not convert valid transactions into colourable transactions. (f) So far we have been unable to find any motivation on the part of APIL to clandestinely divert Trust Funds for its personal use. Before the agreements....
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....e for the benefit of Section 11(1)(d) since no question has been raised before us by the revenue on this point. 17. The Tribunal's finding in the assessee's appeal with respect to the addition made under Section 68 is that the assessee has successfully demonstrated the identity of the donors, the source of the payment, the PAN numbers, original confirmation, etc. and in the light of the documentary evidence, which were not pursued by the assessing officer by making further inquiries, and, therefore, the assessee has discharged the onus of establishing the identity and creditworthiness of the donors as also the genuineness of the donations. The additions of Rs.1.50 crores and Rs.25 lakhs were accordingly deleted. As regards the assessee's ground claiming allowance of depreciation in computing the real income for the purpose of determining the application of income despite the investment in the assets having been allowed as application of income, the Tribunal, purporting to follow a judgment of this Court in DIT vs. Vishwa Jagrati Mission in ITA No.140/2012 dated 29.03.2012 [since reported in (2013) 262 CTR (Del) 558], held that in the light of this judgment the assessee was entitle....
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....tute of Information Technology respectively by invoking Section 68 of the Act? 21. We may first take up the fundamental question as to whether the assessee was ineligible for the exemption under Section 11 on the ground that there was contravention of the provisions of Section 13(1)(c)(ii) read with Section 13(3) of the Act. It is necessary to briefly notice the statutory provisions in this regard. Section 11 exempts any income derived from property held under trust wholly for charitable or religious purposes to the extent to which it is applied to such purposes in India, to the extent of 85% of such income. Charitable purposes are defined in Section 2(15). There is no dispute that the objects pursued by the assessee fall within the said definition. Even if the objects of a trust satisfies the definition of "charitable purpose" as per Section 2(15), it does not automatically confer exemption to the trust; it has to further get itself registered under Section 12A. This condition is also satisfied in the present case since the assessee was registered under Section 12A on 28.05.1976. There are further conditions for being eligible to the exemption. Section 13(1) enumerates instances ....
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....o have changed its stand. In this letter it was admitted that though no registered deeds were executed but possession of the plots were given to the assessee in the financial year 2003-04. The attention of the assessing officer was drawn to the clauses 16 and 20 of the agreements dated 18.03.2004 and 24.03.2004 which stipulated that on receipt of 95% of the amount, physical possession of the plots was handed over to the assessee by APIL. It was explained that these clauses were unfortunately overlooked by the assessee and the attention of the assessing officer was not drawn to that in the earlier letter. The assessee also enclosed copies of its letter dated 31.3.2005 to APIL and the reply of APIL dated 21.04.2005. It is significant that these letters had not been filed with the assessing officer along with the assessee's earlier letter. The assessing officer dealt with the assessee's submissions in both the letters and noted that there was a significant change in the assessee's stand vis-a-vis taking over possession of the land. He issued summons to APIL under Section 131 of the Act in response to which APIL submitted that no income from the transaction was shown in its return for ....
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....l are perverse and have been recorded by taking into account irrelevant considerations and by ignoring relevant material. We are inclined to agree. The statutory provisions which we have referred to have to be applied stringently by having regard to their object, viz., to prevent misuse of the exemption provision. It is difficult to see how the assessee-trust can advance about 95% of the price of the land allegedly purchased by it for its objects and not insist on the lands being conveyed to it within reasonable time or within the time which it normally takes. If the trust is quite serious about pursuing its objects of running schools/ dispensaries, it should have insisted on conveyance of the lands within a reasonable period of time or at least stipulated for interest or adequate compensation or damages in case of failure to honour the alleged agreements. Counsel for the assessee pointed out that no advances were given in the previous year relevant to the assessment year 2006-07 and that they were all given in the earlier years and were only refunded in the accounting year ended on 31.03.2006. This argument is bereft of any merit and in fact reinforces the contention of the revenu....
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....ct will have to be noted and appreciated keeping in view the whole perspective and not in isolation. Even if the agreements were cancelled on 21.04.2005, there is no explanation why further amounts of Rs.80 lakhs and Rs.75 lakhs were advanced to APIL on 29.11.2005 and 13.12.2005 respectively. These amounts also did not bear any interest nor was any security taken. 25. Counsel for the assessee would, however, contend that the chart set out in the order of the Tribunal would show that the account between the assessee and the APIL is a running account and if the entries are taken as a whole it would be seen that it is APIL which is funding the assessee and not the other way round. It was again submitted that in the 12 month period ended on 31.03.2006, no monies flowed out from the assessee to any prohibited person. This latter submission has already been dealt with by us supra. As to the contention that it is only a running account between the assessee and the APIL, we are unable to give effect to the submission since Section 13(1)(c)(ii) read with Section 13(2) does not appear to make any distinction between a running account where there is inter-flow of funds and a case of pure adv....
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....e counsel for the revenue that the findings of the CIT (Appeals) (for the assessment year 2006-07) and the Tribunal are superficial and have not taken note of the normal course of human conduct and probabilities. A little probing or scratching of the surface was all that was required on the part of the Tribunal to find out the truth about the claim of the assessee. The Tribunal has chosen, erroneously - this we say with respect - to ignore the normal course of human conduct and probabilities of the case and has preferred to be led simply by the documentation presented by the assessee. Each and every objection taken by the assessing officer has been attempted to be explained away by the assessee and the Tribunal overlooked that the facts have to be looked at cumulatively and as a whole; it failed to realise that and the real transaction between the assessee and APIL is not just an aggregate of the several component parts thereof; the authenticity of the transaction has to be examined by keeping in view the conspectus of the facts without missing the woods for the trees. 27. In the aforesaid view of the matter, we hold that the findings of the Tribunal on this aspect cannot be uphel....
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....rores was payable to him by DLF in a tripartite dispute between him, APIL and DLF out of which a sum of Rs.1.5 crores was paid by DLF directly to the assessee as corpus donation of Jagjit Singh. The Tribunal has held that it is not possible to view the transaction with suspicion merely because some other entity, which owes money to Jagjit Singh, had made the donation on behalf of Jagjit Singh in discharge of the debt to Jagjit Singh. It has also observed that Jagjit Singh was not cross-examined by the assessee on the statement said to have been made by him before another income tax authority in some other proceedings denying the making of the donation. The Tribunal has also found that the money has actually been given to the trust which has also used it. In these circumstances the Tribunal deleted the condition. The findings recorded by the Tribunal cannot be said to be perverse. Similarly in respect of the donation received from Piyush Jain, the Tribunal has noticed that the assessee was able to establish the identity of the donor and the source of the payment which was through account payee cheque, and give the PAN number and bank details. These details were not inquired into by ....
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....on for depreciation on the very same assets was held allowable under general principles of taxation, as it would amount to double deduction. The judgment of this Court in DIT vs. Vishwajagrati Mission reinforces the principle that if the cost of the asset has been allowed as deduction by way of application of income then depreciation on the same asset cannot be allowed in the computation of the income of the trust. The distinction has not been kept in view by the Tribunal which seems to have erroneously relied on the judgment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has already been allowed as application of income. We accordingly hold that the Tribunal was not justified in directing the allowance of depreciation in respect of such assets. 31. In ITA No.322/2013, which relate to the assessment year 2007-08 the issues are consequential. In that year the assessing officer denied exemption to the trust under Section 11 on the ground that there was a violation of Section 13(1)(c)(ii) read with Section 13(3) arising out of the advances given to APIL and Charanjiv Educational Society. His attention would appear to have been drawn to ....