TaxTMI 
TaxTMI 
2017 (3) TMI 79
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....30-06-2000 disclosing NIL income. According to the assessee the income of the trust is exempt u/s.10(23C)(vi) of the I.T Act, 1961. In the return of income, the assessee has shown income from other sources of Rs. 17,97,33,097/-. The trust is also registered u/s.12AA(1) of the I.T. Act, 1961. It was claimed that the entire income from other sources of Rs. 17,97,33,097/- which are the gross receipts of the trust for the impugned assessment year is exempt u/s.11 of the I.T. Act. 3. The Assessing Officer observed that there was a search u/s.132 of the I.T. Act, 1961 in the case of two of the trustees namely Shri Vishwanath D. Karad and Shri Bhaskar E. Avhad. Survey action u/s.133A of the I.T. Act was conducted in the case of the trust on 20-07- 2005. During the course of search at the residence of Shri Vishwanath D. Karad, jewellery worth Rs. 4,49,562/- and certain documents were seized. Similarly, in the case of Shri B.E. Avhad jewellery worth Rs. 41,01,317/- and cash of Rs. 28,49,350/- and certain documents were seized. Action u/s.133A of the I.T. Act, 1961 was again taken in the case of the Trust on 26-08-2005 during which cash of Rs. 8 lakhs and an incriminating document indicat....
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....hem to get deduction u/s.80G were issued. (b) In the case of Bansidhar D. Patil, Shirpur a donation of Rs. 15,00,000/- was received for the admission of Vaibhav Patil and 14 receipts in different names were issued, entitling different donors to get deduction u/s.80G of the I.T .Act, 1961. 6. There were instance of donations below Rs. 10,000/- in cash in the name of various far off out station donors such as from Delhi, Kanpur, Loni, Hyderabad etc. within a span of couple of days which was most improbable. These are as per Annexures III,, IV and V, and VI to the order u/s.12AA(3) dtd.31-10-2007 passed by the CIT (C), Pune which are annexed. 7. Majority of the donations credited to the corpus of the Trust and claimed to be eligible for exemption u/s.11 of the I.T. Act, 1961 were not voluntary. 8. An instance was detected wherein the assessee Trust paid money to the tune of over Rs. 69,50,000/- in cash for the purchase of property at Kelgaon over and above the purchase consideration stated in the registration deed thereby evading both the income tax and stamp duty. 9. There were instances wherein either receipt for cash donation was not given or the receipt was given fo....
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....u/s.10(23C)(vi) vide its order dated 09-03-2004 was not aware of the true affairs of the trust. Therefore, the facts that came to the notice of the Department during post search/survey probe were reported to the DGIT (Investigation), Pune. The DGIT (Investigation), Pune vide his order u/s.10(23C)(vi) r.w. 13th proviso of the I.T. Act, 1961 order dated 08-02-2008 has withdrawn exemption granted u/s.10(23C)(vi) of the I.T. Act, 1961. Since the assessee trust has lost exemption u/s.12AA as well as exemption granted u/s.10(23C)(vi) r.w. 13th proviso of the I.T. Act, 1961 the Assessing Officer held that the assessee has to be assessed like any other assessee and provisions of section 10(23C)(vi) and 11 and 12 are not applicable in the case of the assessee. He accordingly proceeded to assess the income of the assessee like an AOP to whom totally different sets of income tax provisions are applicable. In view of the complexities involved in computing the income of the assessee AOP, the CIT Central, Pune approved special audit for the A.Yrs. 1999-2000 to 2006-07. Accordingly, the assessee was directed to get its accounted audited by the auditor appointed by the CIT Central, Pune. The asses....
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....ase of Agricultural Institute and others Vs. UOI reported in 291 ITR 116. He further observed that the purpose of this amendment was apparently for increasing the social status of the trustees. He noted that there were huge expenses on World Philosophers Meet (in short 'WPM') at Geneva even prior to communicating the objects to the Charity Commissioner and the authority granting registration. Further during WPM at Geneva heavy expenditure was incurred outside India for which no approval was obtained from CBDT as laid down in proviso to section 11(1)(c) of the I.T. Act. In view of the above facts, the Assessing Officer held that since the object No.13 was not approved even by the Charity Commissioner, the expenses incurred is not on the objects of the trust. The Assessing Officer further noted that the assessee was granted registration u/s.12AA(1) as educational institution. The CBDT had also granted exemption u/s.10(23C)(vi) as educational institution. However, clause No.13 which was included has no education purpose whatsoever. Thus the assessee has violated not only the provisions of section 12AA(1) but also the provisions of section 10(23C)(vi) of the I.T. Act. 9. The Assessi....
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.... its clarification explained that Shri Avhad was looking after the court matters relating to the trust in toto. In order to verify this claim, the Assessing Officer examined the legal expenditure incurred by the assessee which are as under : 11. Looking at the magnitude of expenditure incurred by the assessee on legal charges and also the statement of Shri B.E. Avhad the Assessing Officer was of the opinion that Shri B.E. Avhad cannot be said to have been actively engaged in the day to day functioning of the trust. The Assessing Officer further noted that besides the car provided to the Honorary President, the assessee trust has also provided facilities such as personal computers, drives etc. The Trust bears the day-to-day maintenance of the car besides the interest on borrowed capital. Further, the assessee trust has been reimbursing the credit card expenditure on account of two credit cards held by Shri B.E. Avhad the details of which are as under : Sr.No. Asst.Year Expenditure 1 1999-00 1,33,891.71 2 2000-01 1,42,529.03 3 2001-02 91,054.38 4 2002-03 2,42,566.85 5 2003-04 2,79,298.68 6 2004-05 1,78,264.29 7 2....
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....the I.T. Act. 14. Visit to Kathmandu - The Assessing Officer further noted that Shri Rahul Karad, Son of the principal trustee has undertaken visit to Kathmandu, the expenses of which were incurred by the assessee trust. On being questioned by the Assessing Officer it was explained that the purpose of the visit was to promote the brand name of MIT in Nepal in the course of educational exhibition there. Similarly, another visit was undertaken by Shri Rahul Karad at the expenses of the trust. This according to the Assessing Officer was in clear violation of the provisions of section 13(1)(c) of the I.T. Act. 15. Visit to Australia - The Assessing Officer noted that Shri Rahul Karad and Managing Trustee Shri Vishwanath Karad visited Australia during the period July to August 2002 for which air fare expenses of Rs. 1,02,909/- and other expenditure of Rs. 1,50,245/- was incurred by the above two persons. Instances of personal purchase by Shri Rahul were also noticed by the Assessing Officer. On being questioned by the Assessing Officer it was explained that these expenses were met by the sister of Shri Rahul Karad. However, according to the Assessing Officer the assessee could not....
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....on of section 13(1)(c) of the I.T. Act. 19. The Assessing Officer noted that interest free loan of Rs. 18 lakhs to Shri Rahul Karad, Son of Principal trustee, Shri Vishwanath Karad was given without any security. No other person was found to have been extended such facility. According to the Assessing Officer higher education in a foreign country has only fetched personal gain to Shri Rahul Karad and Shri Vishwanath Karad and no purpose of the trust is served as such. This expenditure according to the Assessing Officer is in clear violation of section 13(1)(c) of the I.T. Act. 20. The Assessing Officer further noticed that the trust has been giving benefits to the Children/relatives of the trustees in the form of concession in fees for various courses. In order to verify and quantify such concessions the special auditor appointed by the Department was asked to furnish such details. The special auditor gave such details which have been incorporated by the Assessing Officer at pages 23 and 24 of the assessment order for A.Yrs. 1999-2000 according to which substantial concession in fee was granted to the wards of the trustees in various courses. On being questioned by the Assess....
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....st activities and a lot of expenditure on this account has been debited in the books of account. In order to verify the details of this expenditure a separate reference was made to the auditor doing special audit who quantified such expenditure at Rs. 1,11,41,532/- for the impugned assessment year. They have also observed that vouchers for an amount of Rs. 79,06,691/- for the impugned assessment year was not produced. The Assessing Officer asked the assessee to produce the copy of vouchers in support of the above expenses to which the assessee produced all those vouchers. The Assessing Officer noted that out of the expenses of Rs. 1,11,41,532/- incurred in F.Y. 1998-99 relevant to A.Y. 1999-2000 expenditure to the tune of Rs. 60,75,006/- is on account of World Philosophers Meet (WPM) held at Geneva. Further, the vouchers in support of expenses on account of WPM at Geneva was not in the name of the trust. Since the World Peace was not one of the objects as on 31- 03-1999 the Assessing Officer asked the assessee to clarify as to how expenditure of World Peace activities was on the objects of the trust. Rejecting the various explanations given by the assessee the Assessing Officer dis....
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....order either granting or refusing the renewal of the exemption u/s.10(23C)(vi) of the Act has been passed. It was submitted that later on, a letter dated 19-08-2007 was furnished before the prescribed authority, i.e. DGIT (Investigation), Pune bringing to his notice that applications in Form 56D for the renewal of exemption u/s.10(23C)(vi) of the Act for the period in relation to A.Yrs. 2002-03 to 2004-05 and 2005-06 to 2007-08 were filed and the DGIT was further requested to pass the orders for the renewal of the exemption u/s.10(23C)(vi) for the aforesaid period. It was pointed out that no order either granting or refusing the renewal of exemption u/s.10(23C)(vi) has yet been passed. It was accordingly argued that since the assessee has applied for renewal of exemption u/s.10(23C)vi) in Form 56D for the A.Yrs. 2002-03 to 2004-05 before the prescribed authority and also requested DGIT to dispose of the aforesaid applications and since no order was passed either granting or refusing the exemption u/s.10(23C)(vi) within a period of 12 months from the end of the month in which such application was received, therefore, such exemption u/s.10(23C)(vi) is deemed to have been granted as n....
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.... institution will be entitled to exemption thereunder even if the same income also falls u/s.11 and the conditions for exemption u/s.11 are fulfilled. For the above proposition, the assessee relied on the decision of Hon'ble Madras High Court in the case of CIT Vs. Rao Bahadur C.C. Chetty Charities reported in 135 ITR 485. The assessee further argued that the assessment of the income of the assessee trust as an AOP is wrong since the same is ab-initio void for all the aforesaid assessment years as the assessee trust is entitled to exemption u/s.10(23C)(vi) of the Act. 29. So far as the validity of notice u/s.148 is concerned it was argued that the reopening of assessment for A.Yrs. 1999-2000 to 2004-05 is bad in law. It was argued that the assessee has raised objections regarding the receipt of rental income by the trust which according to the assessee does not in any manner affect the exemption u/s.10(23C)(vi) of the I.T. Act. The objection dealt with by the Assessing Officer was brought to the notice of the CIT(A) and it was submitted that the arguments of the Assessing Officer are not only ridiculous but also highly objectionable. 30. The assessee also stated that the prov....
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.... in the light of the provisions of section 13 of the I.T. Act. 32. Based on the arguments advanced by the assessee the Ld.CIT(A) called for a remand report from the Assessing Officer. The Assessing Officer in compliance to the letter addressed by the CIT(A) forwarded his comments stating that though the exemption u/s.10(23C) has been restored to the assessee for the A.Y. 1999-2000 to 2001-02, that does not by itself make the assessee automatically eligible for exemption u/s.11 and 12. He stated that cancellation of registration u/s.12A was only one of the grounds on which exemption u/s.11 was denied to the assessee and such exemption is further governed by the provisions of section 13 of the I.T. Act. He stated that though during the assessment proceedings the Assessing Officers have pointed out several instances of violations of provisions of section 13 no disallowance on this count were made while passing the assessment orders. It was accordingly argued that such violations need to be considered while deciding the issues. 33. The Ld.CIT(A) confronted the comments of the Assessing Officer to the assessee who made elaborate submissions on the issues raised by the Assessing Of....
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....on. According to him, even otherwise also it is well settled that merely because the claim of the assessee was accepted in original assessment for the relevant assessment year, it would not preclude the Assessing Officer to reopen the assessment of that year on the basis of his finding of fact made out of fresh material gathered after the completion of the assessment suggesting that a particular claim is not correct. He observed that in the instant case during the survey operation and post survey enquiries conducted by the Department, new material had come on record suggesting that all is not well with the claim made by the assessee for exemption of its income u/s.10(23C)(vi) or section 11. The Assessing Officer, who completed the original assessment u/s.143(3), did not have access to the adverse findings of the survey action in the case of the assessee and when such findings became known to him subsequently the Assessing Officer took due note of the same and reopened the assessment. In such circumstances it cannot be said that it was merely a fresh application of mind by the Assessing Officer to the same sets of facts. Therefore, for A.Y. 2003-04 also it cannot be said that the as....
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....e assessment under the provisions of section 147 and for issue of notice u/s.148 are satisfied in the case of the assessee for the respective years. 37. So far as the contention of the assessee that Assessing Officer has not followed the procedure for assuming jurisdiction u/s.148 in the light of the decision in the case of GKN Drive shafts (India) Pvt. Ltd. reported in 259 ITR 19 is concerned the Ld.CIT(A) dismissed the contention on the ground that the Assessing Officer, before passing the assessment orders vide separate order dated 01-08-2008 for A.Yrs. 1999-2000 to 2002-03 and for A.Y. 2004-05, has considered and dealt with the preliminary objections raised by the assessee by passing a detailed speaking order. 38. As regards the contention of the assessee that the Assessing Officer erred in expanding the scope of reassessment beyond the reasons recorded for reopening the assessment is concerned the Ld.CIT(A) dismissed the same also on the ground that when the assessment is reopened on a valid ground u/s.147 the Assessing Officer can assess not only the escaped income which formed the basis for reopening but also any other income chargeable to tax which has escaped assessm....
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....or profit and not solely for educational purpose, the assessee was not entitled to exemption u/s.10(23C)(vi). He accordingly upheld the action of the Assessing Officer in not allowing the claim of the assessee for exemption of its income u/s.10(23C)(vi). 41. So far as the issue relating to whether the assessee is entitled to exemption of its income u/s.11 of the Act for the years under appeal is concerned in view of the violation of provisions of section 13 of the Act the Ld.CIT(A) referred to the various findings given by the Assessing Officer in the body of the assessment order such as : (a) Expenditure in providing facilities to Shri B.E. Avhad, Honarary President of the trust. (b) Credit card expenses of Shri B.E. Avhad. (c) Salary to Shri B.E. Avhad. (d) Expenditure of foreign tours of Shri B.E. Avhad. And his family members and the various members of Karad family (e) Concessional education to wards of trustees etc. (f) Expenditure of Vishwa Shanti Kendra He concluded that the assessee is applying or using its funds for the individual benefit of the trustees and their relatives in violation of the provisions of section 13. According to him section 13 re....
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....sessee has considered the entire donations credited in its books as donations received for the corpus of the trust. He noted that the assessee has got receipt book printed on which it has put a stamp that the donation is on account of corpus of the trust. However, according to the Ld.CIT(A) the same is not supported by any documentary evidence. According to him merely by issuing receipt for a particular amount it does not become donation and furthermore by affixing a stamp on it does not become corpus donation. He observed that the enquiries conducted by the department revealed that the donations are linked to admissions and such donations cannot be termed as voluntary. He further noted that from A.Y. 2007-08 there was a steep decline in the amount of donations shown in the books of account which according to him is in view of the introduction of the new section 115BBC. 43. So far as the donations claimed to have been received towards development funds is concerned he observed from the receipt books produced by the assessee before the Assessing Officer during the assessment proceedings for A.Y. 2001-02 that (a) all the donations were exactly for Rs. 10,000/- and there is a strik....
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....luntarily by the donors but as a quid pro quo for securing admission. The donations received are not voluntary, not towards corpus of the trust and not received by virtue of property held by the trust. Such donations are to be treated as revenue receipts and brought to tax as business income of the appellant. Even if the appellant is to be assessed as trust, the donations so received in lieu of admissions are to be taxed in the hands of the trust like any other receipt in the nature of income as there is clear violation of provisions of sec. 11(1)(d). (iv) The appellant earned substantial surplus of income over expenditure over the years from running of its institutions. Despite such profits, the trust has not demonstrated any charitable intent through reduction of fees. This clearly indicates that the activity of the appellant was a commercial activity with a profit motive and therefore the same cannot be said to be of a charitable nature. It is well settled that not only the objects of the Trust as mentioned in the Trust Deed but also its real activities should be examined before the trust is considered as charitable. This is not a case where surplus is only incidental to the ....
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....g disallowance u/s.40A(3), 43B, unexplained credit, disallowance u/s.40A(7), disallowance of capital expenses, misappropriation of funds of employees, excess provision of refund of fees, unrecorded donations etc. as per his findings in Pages 137 to 147 of his order. He also upheld the action of the Assessing Officer in making addition under the head capital gains on protective basis for A.Y. 2004-05, addition made by the Assessing Officer on account of depreciation pertaining to earlier years for A.Y. 2004-05, addition on account of on-money payment for purchase of property. 47. The Ld. CIT(A) further noted that though the Assessing Officer has discussed the violations of section 13 in detail under various heads in the respective assessment years, however, he has not disallowed the corresponding expenditure in the respective assessment years even after the claim of exemption u/s.11 or section 10(23C)(vi) was denied to the assessee. He, therefore, issued a show cause notice u/s.251(2) of the I.T. Act calling upon the assessee to explain as to why the deduction claimed in respect of various expenditure should not be disallowed to the extent worked out in the show cause notice for ....
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....g facilities to Shri B.E. Avhad Expenditure on Foreign Tours Concessional Education Proportionate interest on loan given to Rahul Karad & subsidy Total Enhancement 1999-00 133891 671273 307845 1113009 2000-01 14259 0 213205 355734 2001-02 Nil 130492 62,320 1,92,812 2002-03 557847 24700 88680 671227 2003-04 640486 266154 91100 997740 2004-05 861844 357442 0 1219286 2005-06 888294 71325 0 959619 2006-07 906884 1057333 0 544797 2509014 2007-08 720000 0 0 720000 49. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : "The following grounds are taken without prejudice to each other -- On the facts and in law, 1] The reasst. u/s 147 be held to be null and void as the notice u/s 148 is illegal and the reasons do not justify reopening of the asst. 2] The reasst. be held time barred as the limitation could not be extended in view of the illegal order for special audit u/s 142(2A). 3] The ....
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....ted u/s.143(1) of the I.T. Act on 18-09-2000. On perusal of return of income it was seen that the assessee has filed the income and Expenditure Account and Balance Sheet along with return. The assessee has shown the income from other sources of Rs. 17,97,33,097/-, which includes rent income of Rs. 1,92,34,679/-. The object of the assessee trust is to run educational institute and not giving the properties on rent. The rent income is to be taxed as income form house property/business income separately. For the above reason there being escapement of the income, the income of the assessee is to be reassessed. Hence the assessment for A.Y. 1999-2000 is to be reopened issued notice u/s.148 for A.Y. 1999-2000, after getting approval of Addl.CIT." 51. Referring to pages 250 to 259 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the objections raised by the assessee against the notice u/s.148 of the I.T. Act vide its letter dated 14-03-2007 addressed to the Assessing Officer. Referring to page 397 of the paper book Vol.2 he drew the attention of the Bench to the order passed by the Assessing Officer disposing of the objections against issue of no....
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....the assessee. 54. Referring to the decision of Hon'ble Chattisgarh High Court in the case of ACIT Vs. Major Deepak Mehta reported in 346 ITR 641 he submitted that the Hon'ble High Court in the said decision has held that when the income mentioned in the notice issued u/s.148 has not escaped assessment then in that case the reassessment proceedings are not valid. 55. Referring to the decision of the Pune Bench of the Tribunal in the case of ITO Vs. M/s. Shri Vishwakalyan Jivraksha Pratishthan and vice versa vide ITA No.2013/PN/2014 and CO No.18/PN/2016 order dated 22-07-2016 for A.Y. 2011 he submitted that the Tribunal, following the decision of Hon'ble Bombay High Court in the case of Jet Airways India Ltd. (Supra), has held that the reassessment proceedings are bad in law when the Assessing Officer has added some other income other than the income which according to the Assessing Officer had escaped assessment for which reassessment proceedings were initiated by issuing notice u/s.148. He also relied on the following decisions : 1. CIT Vs. ICICI Bank Ltd. reported in 349 ITR 482 (Bom.) 2. Hindustan Lever Ltd. Vs. R.B. Wadkar reported in 268 ITR 332 (Bom.) 3. Vijayku....
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....o section 142(2A). 58. The Ld. Counsel for the assessee submitted that under the proviso to section 142(2A) the Assessing Officer has to give an opportunity of being heard to the assessee. However, in the instant case the CIT has given an opportunity but the Assessing Officer has not given any such opportunity. Referring to the decision of Hon'ble Supreme Court in the case of Rajesh Kumar and others Vs. DCIT reported in 287 ITR 91 and the decision of Hon'ble Bombay High Court in the case of Nikunj Eximp Enterprises Pvt. Ltd. Vs. ACIT reported in 364 ITR 6 he submitted that the order passed u/s.142(2A) is illegal. Therefore, the limitation for completion of assessment could not be extended in view of the illegal order u/s.142(2A) of the I.T. Act. He submitted that the date of assessment order is 08-08-2008 whereas the assessments for A.Y. 1999-2000, 2000-01 and 2005-06 were getting time barred u/s.153(2) (2nd proviso) on 31-12-2007. Therefore, the assessments are time barred. Referring to the decision of the Pune Bench of the Tribunal in the case of ITO Vs. Vilsons Particle Board Industries Ltd. Vs. ITO vide ITA Nos. 448 & 449/PN/2013 order dated 21-12-2016 the Ld. Counsel for th....
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....decided against the assessee. 61. So far as ground of appeal No.5 is concerned he submitted that provisions of section 11 flows from registration u/s.12A. He submitted that after the search the registration granted earlier was cancelled vide order dated 31-10-2007 passed u/s.12AA(3). Referring to pages 35 to 83 of the paper book No.1 he submitted that the Tribunal vide ITA No.1669.PN/2007 order dated 08-09-2009 has restored the registration. Therefore, the CIT(A) was not justified in denying exemption u/s.11 to the assessee trust. 62. So far as ground of appeal No. 6 is concerned the Ld. Counsel for the assessee submitted that the assessee trust has received certain donations towards building fund etc. which were claimed as exemption u/s.11(1)(d) as corpus donation. Referring to page 120 of the order of the CIT(A) he drew the attention of the Bench to the year-wise donations received by the assessee from A.Yrs. 1997-98 to 2007-08. He submitted that all these donations are duly accounted for in the books of account of the assessee. Referring to the assessment order for A.Y. 2000-01 he drew the attention of the Bench to page 4 of the order wherein the Assessing Officer has stat....
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....re corpus donation. 64. The Ld. Counsel for the assessee without prejudice to the above submitted that even if the donations are treated as revenue receipts the assessee has spent substantial amounts every year on the objects of the trust and the expenditure is more than the amount of receipts and therefore the income being exempt u/s.11, there is no tax liability which is attracted for any of these years, i.e. A.Yrs. 1999-2000 to 2004-05. He submitted that the assessee has considered the capital expenditure incurred for these years as expenditure on the objects of the trust. Therefore, the contention of the Assessing Officer that the assessee exists for profit is not correct as considering the donations as revenue receipts, there is always deficit for every year after considering the capital expenditure. 65. As regards the contention of the Assessing Officer and the CIT(A) that the assessee has violated the provisions of Maharashtra Educational Institutes (Prohibition of Capitation Fees) Act, 1987 he submitted that the same is not correct. He submitted that the donations are taken and they are duly recorded in the books. The educational authorities like Pune University, UGC ....
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....e in any case and therefore the assessee has not violated any law on this issue. Again referring to the copy of the order of the Tribunal in assessee's own case while restoring registration u/s.12AA he submitted that the Tribunal has elaborately discussed this issue and held that assessee has charged donations within the limit prescribed under Management Quota and there is no mis-utilisation of funds. Further, the CIT is not authorized to deal with such offences, if any, under the Anti Capitation Fee Act. Accordingly the Tribunal has restored the registration u/s.12A to the assessee trust. He submitted that simply because the assessee trust has accepted donations from a few students, it does not mean that the assessee trust exists for profit making activity and not for purposes of education. He submitted that the Tribunal in order has stated that there are about 27000 students in the various institutes of the assessee trust and the activities of the trust are governed and approved by AICTE, Pune University, Medical Council of India, Director of Technical Education etc. and thus it cannot be held that assessee has violated any law or it exists as profit making body. Referring to pag....
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....ssessee on this topic, the list of wellknown speakers who addressed the participants, the appreciation by the Government of Maharashtra, the activities conducted and the guidelines by UGC for human rights education etc. He submitted that these documents clearly indicate that the World Peace studies form part of educational activities and even if the object was not introduced separately, still such activity could be a part of the objects of the assessee trust. He submitted that the assessee arranged seminars and sent its faculties, trustees for such seminars in order to upgrade their knowledge in this field so that they can conduct the teaching of the subject and enhance their awareness for such courses being conducted abroad. Therefore, the expenditure was not personal in nature but for the expenditure on objects of the trust and therefore is an allowable deduction. 70. As regards the objection of the Assessing Officer that the expenditure is incurred outside India and therefore it is not allowable and it is for the personal benefit of the trustees on their visits to foreign countries is concerned, he submitted that the expenditure is very much on the objects of the trust in Ind....
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....ncern of the assessing authority and only the civil court is empowered to decide the said issue and in any event that cannot be the reason for denying the charitable nature of the institution, if it is otherwise charitable. 74. Referring to the decision of Mumbai Bench of the Tribunal in the case of Gem and Jewellery Export Promotion Council Vs. ITO reported in 68 ITD 95 he submitted that the Tribunal in the said decision has held that assessee having applied the income for charitable purpose in India, the mere fact that the expenditure had been incurred out of India did not disqualify the expenditure from exemption u/s.11(1)(a). 75. So far as violation of section 13 as per Grounds of appeal No.8 and 11 are concerned the Ld. Counsel for the assessee drew the attention of the Bench to the following chart which gives the year-wise details showing various additions made by the Assessing Officer and enhanced by Ld.CIT(A) on the ground of violation of section 13 : Sr. No. Particulars Assessment year 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 1. Expenditure on providing facility to B E Avhad ....
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....xpenses by the trust. Further, there was no necessity of giving any salary to Shri B.E. Avhad from 01-01-2006 onwards. 77. He submitted that Shri B.E. Avhad is the founder member and is also an eminent lawyer by profession having knowledge in vast areas including legal and revenue matters. Although he was not engaged in day to day activities of the trust, he was associated with all the policy matters, developmental activities, legal matters including disputes in the courts etc. Besides this all the land matter concerning conveyance of land, conversion of the land, any assessment of the lands of the institution have been looked after by Shri B.E. Avhad. He submitted that Shri B.E. Avhad has used the facilities provided only for the official purposes of the trust. He was having his own car which was used for his personal work. The Assessing Officer nowhere in the assessment order has pointed out any instance where the facilities were used for personal purposes. He submitted that it is a regular practice to provide car facilities to the higher level authorities in every institution including Government offices. Therefore there should not be any objection for providing car facilitie....
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....d - ITA No.557/2008 order dated 17-06-2014 (Kar. HC) 2. Sheth Mafatlal Gagalbhai Foundation Trust reported in 249 ITR 533 (Bom.) 3. CIT Vs. Fr. Mullers Charitable Institutions - ITA No.589/2007 order dated 10-02-2014 (Kar. HC) 4. CIT Vs. Fr. Mullers Charitable Institutions reported in (2014) 227 Taxmann 369 (SC) 5. Audyogik Sikshan Mandal Vs. ITO reported in (2016) 156 ITD 1 (Pune (TM) 6. Jamshetji Tata Trust Vs. JCIT (Exemption) reported in (2014) 148 ITD 388 (Mum) 81. So far as the foreign tour of family members of Shri B.E. Avhad, President of the trust are concerned, he submitted that Shri B.E. Avhad has visited Geneva for attending World Philosophers Meet in the year 1999 and all the family members had accompanied him. The Assessing Officer had considered the amount incurred on airfare of Rs. 1,60,000/- and foreign currency expenses of Rs. 4,40,000/- as violation of section 13. He submitted that the representatives of the assessee trust were organizers and participants. The participation was in the official capacity as trustees, staff or as the students. Mr. B.E. Avhad and Mrs. Kamal Avhad represented the assessee trust as trustees. Mrs. Kamal Avhad attended ....
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....d the 13th Triennal conference of University Presidents which was held between 24th to 27th June 2002 and both the above delegates attended the conference during the period. He also referred to the invitation letters placed at pages 812 to 821 of the paper book. He submitted that as per the rules 2000 US dollars per delegate is allowable as allowance. However, the 2 delegates purchased only 3000 dollars, thus avoiding excess expenditure. The amounts were used for the local conveyance, coolie charges and for the stay/food etc. There was no misuse of funds as alleged by the Assessing Officer. There was no personal expenditure incurred by the above 2 delegates. The sun glasses, perfumes or shirt etc. were received as gifts from relatives and friends and there was no connection with the amount spent out of the above-mentioned foreign currency. In his alternate submission he submitted that there cannot be wholesale denial of exemption u/s.11 and 12 in respect of the entire income of the assessee trust. The disallowance is to be restricted to the extent of so called violation. 86. So far as foreign tour of Mr. and Mrs. Mangesh Karad (i.e., related to A.Y. 2001-02 - Rs. 1,30,492/-) is ....
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....is violation of provisions of section 13 of the I.T. Act. He submitted that the educational loan and the subsidy given to Shri Rahul V. Karad were in his capacity as an employee in accordance with the rules and regulations of the assessee trust and not as a relative of the trustee. He submitted that Shri Rahul V. Karad was employed as Executive Director of MIT School of Management w.e.f. 01-01-2001. He was also the coordinator for the MIT School of Government. He submitted that out of the course fee of Rs. 27 lakhs for his Post Graduate Course at Harward Business School, Mass, USA, the trust had sanctioned a loan of Rs. 18 lakhs as per the loan agreement entered into on 05-01-2004. Referring to the said agreement, copy of which is placed at pages 888 and 889 of the paper book No.4, he submitted that there was an undertaking by Shri Rahul V. Karad to serve the trust for a period of 5 years. The loan was given to Shri Rahul V. Karad on his own merit and the course undergone by him has been of great help to the trust in the expansion of the management courses. He submitted that the entire loan amount along with compounding interest has been recovered from the salary of Shri Rahul V. K....
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....st. In his alternate contention he submitted that there cannot be wholesale denial of exemption u/s.11 and 12 of the entire income of the assessee trust for violation of provisions of section 13. The disallowance has to be restricted to the extent of so called violation. 92. So far as addition on account of unexplained credits as per Ground of appeal No.9 is concerned the Ld. Counsel for the assessee submitted that this issue arises for A.Y. 1999-2000 for which addition of Rs. 37,72,248/- has been made and for A.Y. 2003-04 it is Rs. 17,58,354/-. He submitted that on account of certain missing credits in F.Y. 1997-98 the assessee passed a journal entry of Rs. 37,72,248/- for A.Y. 1999- 2000 which the Assessing Officer treated as income for A.Y. 1999-2000. The special auditor noted that an amount of Rs. 17,58,354/- was directly taken to balance sheet as on 01-04-2002 for which the Assessing Officer made the addition in A.Y. 2003-04. He relied on the submissions made on this behalf before the Assessing Officer and the CIT(A). In his alternate contention, he submitted that even if the amounts are added as income for A.Y. 1999-2000 and A.Y. 2003-04 the application of income in these ....
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.... whether a particular expenditure is revenue or capital in nature will not be relevant at all. The income in case of a charitable trust is to be computed in commercial manner and accordingly capital expenditure will also be considered as application of income. Without prejudice to above, he referred to pages 1006 to 1008 of paper book No.5 and submitted that even if the above amount is disallowed for A.Y. 2001-02, the application of income for this year is still higher than the income receipts. 95. So far as disallowance of income tax as per ground of appeal No.9 for A.Y. 2002-03 and 2003-04 are concerned he submitted that Assessing Officer has disallowed an amount of Rs. 4,12,656/- and Rs. 4,42,920/- respectively for A.Y. 2002-03 and 2003-04 on account of income tax debited in the books. He submitted that according to the Assessing Officer these amounts were debited to income and expenditure account of MIMER college and DBSR hospital, Talegaon which is one of the constituent units of the assessee. Since these amounts were debited as income tax the Assessing Officer disallowed the same. He submitted that there is no discussion in the assessment order as well as the CIT(A)'s orde....
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....,05,700/- in his recasted income and expenditure account for the year A.Y. 2004-05, copy of which is placed at page 85 of the paper book for A.Y. 2004-05. Thus, there is typographical error on the part of the Assessing Officer which needs to be corrected. He submitted that the correct surplus being Rs. 2,61,05,700/- and not Rs. 7,23,46,742/- relief of Rs. 4,62,41,042/- should be given. 98. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that search took place on the trustees of the assessee on 20-07-2005 and the survey action was conducted on the assessee trust on the same day. The 2nd survey on the assessee trust took place on 26-08-2005 during which cash amounting to Rs. 8 lakhs and various incriminating documents were found. The notice u/s.148 was issued on 20-03-2006 for the A.Y. 1999- 2000 which was received by the assessee on 01-04-2006. Referring to the decision of Hon'ble Supreme Court in the case of ACIT Vs. Rajesh Javeri Stock Brokers Pvt. Ltd. reported in 291 ITR 508 he submitted that 143(1) order is not an order of assessment and therefore there being no assessment u/s.143(3) the question of change of opin....
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....see has violated the provisions of section 13(1)(c). The Assessing Officer and the CIT(A) have categorically found that the funds of the trust have been diverted for the benefit of the trustees and their relatives. He submitted that the trustees and their relatives have visited foreign countries which is in no way connected with the activities of the assessee trust. The vehicles of the trust have been used for the personal use of the trustees. Therefore, in view of the violation of provisions of section 13(1)(c), the CIT(A) was fully justified in denying exemption u/s.11 to the assessee trust. He submitted that the assessee trust in the instant case has received donations in lieu of admission. Such donations were split into donations of smaller denominations and multiple receipts were issued to the donors who are not traceable. The assessee also expressed its inability to provide the address or whereabouts of the persons whose name appear as donors. The various instances brought on record by the Assessing Officer and CIT(A) clearly suggest that the assessee trust is running the institutions on commercial lines which indicates that the activity of the assessee is a commercial activi....
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....xemption u/s.11 on the entire income of the assessee trust. 106. So far as Ground of appeal No.9 relating to addition of unexplained entries of Rs. 37,72,249/- is concerned he submitted that the CIT(A) was fully justified in sustaining the addition in absence of any proper reconciliation by the assessee on this issue. 107. So far as ground relating to additions made by the Assessing Officer u/s.43B, 40A(7) and 40A(3) etc. and confirmed by the CIT(A) is concerned he submitted that since the income the assessee trust has been assessed like any other commercial organization such additions as per the findings of the special auditor is justified. 108. So far as enhancement of income by the CIT(A) as per Ground of appeal No.11 is concerned the Ld. Departmental Representative heavily relied on the order of the CIT(A). Referring to the decision of Hon'ble Kerala High Court in the case of Agappa Child Centre Vs. CIT reported in 226 ITR 211 he submitted that the Hon'ble High Court in the said decision has held that concession is not available where property of the trust has been made available for use of prohibited person. The property includes movable property. Since in the instant....
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....sessment, as a matter of fact not escaped assessment, it is not open to him independently to asses some other income. The power to assess such other income vests on him only if income referred to in notice of reassessment has been issued. The relevant observations of the Hon'ble High Court read as under : 16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is ....
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....t regard the decision of the Tribunal in the present case as being in error. The question of law shall, accordingly, stand answered against the revenue and in favour of the assessee. The appeal is, accordingly, dismissed. There shall be no order as to costs." 112. We find the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd.(Supra) has observed as under : "17. Now, coming back to the interpretation which was given by the Bombay High Court to Sections 147 and 148 in view of the precedent on the subject. The Court held as under:- "11. ... Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under Section 147 and following the issuance of a notice under Section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Pa....
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....ped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment the former, he cannot independently assess the latter." Section 147 has this effect that the Assessing Officer has to assessee or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings However, if after issuing a notice under Section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under Section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. 18. We are in complete agreement with the reasoning of the Division Bench of Bombay High Court in the case of Jaganmohan Rao (supra). We may also note that the he....
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....t of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80 HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make dis-allowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per explanation 3 to reduce the claim of deduction under Section 80 HH and 80-I as well. 21. In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of Revenue and the second part of the question against the Revenue. 22. The present appeal is accordingly allowed." 113. We find the Pune Bench of the Tribunal in the case of M/s. Shri Vishwakalyan Jivraksha Pratishthan (supra) while deciding an identical issue, following the decision o....
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....t given opportunity of being heard as per the proviso to section 142(2A) and only the Ld.CIT has given the opportunity. Therefore, in view of the decision of Hon'ble Supreme Court in the case of Rajesh Kumar (Supra) and the decision of Hon'ble Bombay High Court in the case of Nikunj Eximp Enterprises Pvt. Ltd. (Supra) the order u/s.142(2A) is illegal and invalid and therefore, the limitation for assessment could not be extended in view of the illegal order u/s.142(2A). It is also his submission that the assessments for A.Yrs. 1999-2000, 2000-01 and 2005-06 were getting time barred in view of second proviso to section 153(2) on 31-12-2007 whereas the assessment order is dated 08-08-2008. Therefore, such assessment orders are time barred and therefore are void. 117. We find merit in the above argument of the Ld. Counsel for the assessee. It is an admitted fact that the assessment order for A.Y. 2000-01 is dated 08-08-2008. It is also an admitted fact that the Assessing Officer while directing for special audit u/s.142(2A) has not given any opportunity of being heard to the assessee and the opportunity of being heard was granted only by the Ld. CIT Central who has passed a detailed....
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....;ble Supreme Court are that the principle of audi alteram partem cannot be ignored even at the stage of pre-decisional hearing. In other words, in case the Assessing Officer is of the view that having regard to the nature and complexity of the accounts and interests of revenue, it is necessary to get the accounts audited by an accountant, with previous approval of Principal Chief Commissioner, then he can do so. However, the proviso inserted by the Finance Act, 2007 w.e.f. 01.06.2007 has very categorically provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given an opportunity of being heard. In other words, the principles of natural justice that a person could not be condemned unheard, have been incorporated in section itself w.e.f. 01.06.2007. The Apex Court in Rajesh Kumar and Others Vs. DCIT (supra) had deliberated on the provisions of the Act before insertion of said proviso but had laid down the proposition that nobody could be unheard even at the stage of forming an opinion that in view of the nature and complexity of accounts and interest of revenue, special audit is to be conducted under section 142....
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....ority, who in any case is enshrined with the duties of checking whether there is no arbitrariness in functioning of adjudicating authority, has to be satisfied before giving approval. Hence, the opportunity allowed by the CIT(C), Pune after proposal was made by the adjudicating authority does not absolve the non-allowance of reasonable opportunity of hearing by the Assessing Officer. 41. Applying the principles laid down by the Apex Court in Sahara India (Firm) Vs. CIT and Another (supra), we hold that where no show cause notice was given to the assessee before making the order proposing conduct of special audit under section 142(2A) of the Act, in the present case and the CIT having approved the said proposal though after giving opportunity of hearing to the assessee is vitiated because of non-compliance with the principles of natural justice. Accordingly, the assessment order passed in the facts of present case is beyond the period of limitation and hence, the same is invalid and bad in law. 42. Another point raised by both the authorities was in respect of extension granted. We are not going into the said factual aspects, in view of our holding that the initial order at th....
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....t pages 89 to 100 of the paper book No.1, allowed the writ petition filed by the assessee. Subsequently, the revenue approached the Hon'ble Supreme Court and the Hon'ble Supreme Court vide order dated 04-10-2010 dismissed the SLP filed by the revenue. Copy of order of Hon'ble Supreme Court is placed at page 102 of the paper book No.1. We find subsequently the CBDT vide order dated 30-01-2012, copy of which is placed at pages 103 to 106 of the paper book No.1, withdrew the exemption for A.Yrs. 1999-2000 to 2001-02. Although the assessee has filed a writ petition before the Hon'ble Bombay High Court, however, the same is pending as on date. Therefore, in absence of any approval u/s.10(23C)(vi) as on the date for the A.Yrs. 1999-2000 to 2001-02 and for subsequent assessment years we do not find any infirmity in the order of the CIT(A) in holding that the assessee trust is not entitled to exemption u/s.10(23C)(vi) of the I.T. Act. Accordingly, the ground raised by the assessee on this issue for all the years is dismissed. 124. Ground of appeal No.7 which is common for all the years relates to allowability of expenditure on World Peace Centre. 125. After hearing both the sides, we....
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.... of' the Trust. The benefit of these programmes is also availed by the other educational institutions. As the education should include intellectual; moral and social instructions", the activities of WPC are designed to cover the requirements of 'standards and norms' set by AICTE/University* The activities of WPC have been recognised as educational by the Government of India/UNESCO, which have sanctioned grants for such programmes. The object of WPC is to promote the cause of protection of Human Rights, Culture of Peace and Democratic values through Value Based Education and Training to the students community including the students of the institutions run by the Trust and also the society at large. V. World Peace University It is worth noting that world over there are a large number of institutions and universities conducting various programmes in Peace Studies and Peace Research, Human Rights Education in addition to the education and research programmes in the fields of Arts, Science, Commerce, Engineering, Medical Management, Social Studies etc. To name a few Peace Universities in the world : (a) World Peace Research University - Medical World Peace Research ....
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....No.3 clearly show that the objects of World Peace Centre are educational in nature. 129. We find form the details furnished by the assessee in the paper book at pages 1100 of paper book No.5 and free English translation at page 1101 that in the minutes of State cabinet meeting dated 04-08- 2016 a decision was taken to give permission to the bill to establish the self-financed Dr. Vishwanath Karad MIT World Peace University, Pune. Similarly, Higher Education Department of Government of Andhra Pradesh vide letter dated 23-11-2016 copy of which is placed at page1 1002 of paper book No.5 has accepted the proposal given by the Maharashtra Academy of Engineering and Educational Research to establish the proposed Greenfield Private University at Visakhapatnam. Although these documents are additional evidences filed by the Ld. Counsel for the assessee during the course of hearing, however, these evidences being Government documents of the recent past which were not available at the time of hearing of the appeal proceedings are admitted for which separate application is filed. These documents conclusively show that the activities of World Peace Centre is education in nature. From the var....
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....eed made in 1975 and 1979, which have been tabulated by the Assessing Officer in the assessment order and a comparative chart has also been placed in the Paper Book filed before us at pages 52 to 53. A perusal of the same shows that in the original Trust Deed the objects of the assessee are in the sphere of education purpose, medical purpose and relief of poverty, etc. In the context of the objects of medical purpose and relief to poverty, the activities enumerated inter-alia, included:- "aid and relief in kinds such as giving clothes, grains and free distribution of medicines or providing free medical aid." Subsequently, in the 1975 amendment, the activities of aid or relief in kind has been supplemented by enabling providing of loan and relief in cash also." 131. We find the Bangalore Bench of the Tribunal in the case of Kripanidhi Educational Trust Vs. DIT (Exemption) reported in 139 ITD 228 has held that mere finding that the objects of Educational Trust have been amended without the consent of department would not be sufficient to exercise power u/s.12AA(3) without giving a finding that the assessee's objects are initially charitable. 132. The Hon'ble Madras High C....
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....possibilities of exports out of India. We accordingly hold that since the assessee has applied the income for charitable purposes in India, the mere fact that the expenditure has been incurred out of India, does not disqualify the expenditure from exemption under section 11(1)(a)." 136. In view of the above decision, the expenditure incurred abroad for World Peace Centre cannot be held as not for objects of the trust and consequently exemption u/s.11 cannot be denied. 136.1 Ground of appeal No.7 is accordingly allowed. 137. The next issue that is common for all the years is regarding grounds of appeal No.5, 6, 8 and 11 wherein the assessee has challenged the order of the CIT(A) in denying exemption u/s.11 for violation of provisions of section 13(1)(c) and further holding that the activity of the assessee is a commercial activity with a profit motive and it does not exist solely for charity and therefore not eligible for exemption u/s.10(23C)/11. 138. After hearing both the sides we find the CIT Central vide order dated 31-10-2007 passed u/s.12AA(3) cancelled the registration granted earlier to the assessee trust on the basis of the Ist survey conducted u/s.133A on 20-0....
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....n as is mandatory in statute; relevant section already reproduced ante. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the CIT to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged. 11.13 The aspect of morality as touched by the learned CIT is appreciable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities. But existing blue laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented correctly and efficiently then there is no scapegoat for an offender. We are tempted to write an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter; that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the informati....
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....ised but not utilized for achieving the objects i.e., towards imparting education; then such an institution must bear the consequence of cancellation of registration since ipso facto infringed s. 12AA(3) condition. Second aspect is, that though the donations received are meant to fulfill the objects but together with fees have infringed Anti Capitation Prohibition Act; then comes within the clutches of that Act but definitely not under s. 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no action can be suggested under s. 12AA(3). The assessee's case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the learned CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked. Grounds allowed." 139. Since the registration cancelled earlier has been restored by the Tribunal, therefore, the assessee is entitled to the exemption u....
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....at the donations are not accounted for. Wherever the donors have given the donations for specific purposes like construction of buildings, purchase of equipment etc. such donations are capital receipt and exempt u/s.11(1)(d). 143. It is also the submission of the Ld. Counsel for the assessee that none of the donors or any student or parent or the Assessing Officer has complained to appropriate authority against the assessee for violation of Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. It is also the submission of the Ld. Counsel for the assessee that if total expenditure including capital expenditure is considered as a whole there is deficit every year. However, the assessee does not have any surplus so as to treat the assessee trust as running on commercial activity with profit motive. 144. We find merit in the above submission of the Ld. Counsel for the assessee. There is no dispute to the fact that the assessee is a charitable trust running various educational institutions. It is the allegation of the revenue that the trust is collecting capitation fee in the garb of donation and was therefore running with a profit motive. However, we fin....
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...., Pune University, Medical council of India, Director of Technical Education etc. have a control on the activities of the assessee trust, therefore, it cannot be held that assessee has violated any law or it exists as a profit making body. It is also a fact that the donations have been entered in the books of account and it is not the case of the Revenue that such donations have been siphoned off by the trustees or the relatives. 147. We find somewhat similar issue had come up before the Tribunal in the case of Deccan Education Society. We find the Tribunal vide ITA No.1480/PN/2014 order dated 13-07-2015 from Para 66 onwards has observed as under : "66. The second question that arises for our consideration as to whether the trust is for profit motive. It is the allegation of the Revenue that the assessee trust was collecting the capitation fee in the garb of donation and was therefore running with a profit motive. We find the Assessing Officer has not reported the violation, if any, by the assessee trust to the Government of Maharashtra for taking any action for violation of The Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. None of the person....
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....earing to the assessee. On appeal the Hon'ble High Court held as under (Head Notes): "Held, dismissing the appeal, that under section 10(23C)(vi) and (via), what is required for the purpose of seeking approval is that the university or mother educational institution should exist ''solely for educational purposes and not for purposes of profit". It was nowhere the case or the finding of the Chief Commissioner that on account of the defect in the admission procedure, assessee ceased to exist solely for educational purposes or it existed for the purposes of profit. Further, it was not the case of the Revenue that the students who were admitted were not imparted education in the college in which they were admitted or the admissions granted were fake or non-existent or that the income generated by admitting the students was not used for the purpose of the assessee. The emphasis on the part of the Chief Commissioner that the purpose of education would not be served if the education is for students who have been illegally admitted and the purpose of education as contemplated in the section would be served only if the students have been legally admitted and not otherwise, went b....
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....ssion to various institutes which is in clear violation of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, we find there is no such complain before the Government of Maharashtra or AICTE or any other Government Department either by the Income Tax Department or by any of the student/parents stating that the assessee society has charged Capitation fee for giving admission which is in violation of the Maharashtra Educational Institutions (Prohibition of Capitation Fee Act) 1987. Even the CIT who is alleging that the assessee trust has collected huge donation for admission of students to various institutes run by it has not informed the Government of Maharashtra if he was serious about any such violation done by the society. The submission of the Ld. Counsel for the assessee that as against 70 Management Quota Seats it has collected donation from 9 students and such donation is within the permissible limit prescribed by the Government of Maharashtra and that all such receipts are reflected in the accounts could not be controverted by the Ld. Departmental Representative. 8.4. . . . . . . . . . . . . 8.5 . . . . . . . . . . . . 8.6 . . . . . .....
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....ofit through educational institutions. We also fail to appreciate the doubts cast or the possibilities expressed about there being something more to it in view of the funds being deposited in private banks. The opinion is completely based on surmises and conjectures as it seems to suggest that merely because funds were in a private bank, there may have been divergence of funds to the members of the Society. Similarly, the factum of construction being carried out by Ahluwalia Construction Co. (P) Ltd., stated to be a family concern of the President, was not material as there was no allegation of any inflated cost of construction or unreasonable profits being derived from the same by third parties as a mode of divergence of funds." 8.8 We find the Pune Bench of the Tribunal in the case of Dr. D.Y. Patil Education society (Supra) has observed as under : "13. Though the assessee has denied receipt of capitation fee/donations and running on commercial lines, however, without going into the merits of such plea, the pertinent question is the consequences of acceptance of capitation fee/donations by the assessee at the stage of examining assessee's application for registration under....
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....plication the trust has received income from its property, then find out how the said income has been expended, and whether it can be said that the income is utilized towards charitable and religious purposes. Therefore, for the purposes of registration u/s. 12AA of the Act, what the authorities have to satisfy is the genuineness of the activities of the trust or institution and how the income derived from the trust property is applied to charitable or religious purposes and not the nature of the activity by which the income was derived to the trust. 50. The above judgment proposes that what is to be looked into is the character of application of funds and the character of the activities carried out by an assessee and not the colour and nature of the sources out of which necessary funds were collected by the assessee. In other words, the source of funds is not an important ingredient in assessing the character of the activities carried on by a Charitable Institution. The Allahabad High Court in the case of CIT Vs. Red Rose School [163 Taxmann 19] has held that educational activities carried on by a Society are for charitable purposes and not against the public policy. Therefore,....
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....compilation in the light of the case laws cited. 11.1 The law now introduced is to streamline the "Procedure for registration" and by saying so we do not want to enter into the controversy whether the applicability of s. 12AA(3) was retrospective or prospective in nature. Rather we can make an observation that this issue stood answered by Co-ordinate Benches. We want to express that earlier to this section there was no guidelines in the statute for refusal of registration, therefore it was considered eminent to introduce in the statute the said procedure. What bothered the Tribunals and High Courts in the recent past is the scope and the purpose of introduction of s. 12AA in the statute. All those judgments as listed above, in agreement have said that the activities ought to be in fulfilment of the objects for which a trust is created. Sentiments should be in line with the purpose for which the trust is created. The purpose should be philanthropic, charitable, or for public general utility. Service without profit has to be the motive. As in the present case the objects are to undertake, to run and to improve the educational institution for imparting education in divergent fields....
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.... order to satisfy himself about the genuineness of the activities and also to enquire that those genuine activities are as per the objects of the trust for which it is seeking registration. The objects and activities should be philanthropic and not against the public interest must be for the benefit at large instead for the benefit of particular individual or group of individuals. 11.4 In the recent past sub-s. (3) was inserted in s. 12AA w.e.f. 1st Oct., 2004 which gives power of cancellation of registration to the CIT, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust. The need for the enactment had arisen due to belief of some quarter that in the absence of explicit law the CIT cannot exercise the power of cancellation of registration. To overcome this hurdle this subsection is incorporated and now in operation. Naturally these powers are conferred with a view to ensure that if once a registration has been granted under s. 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuin....
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.... An institution has to follow the norms as laid down in other related sections for availing prescribed benefits. 11.6 Procedure of registration is a first step and a preliminary stage where the CIT shall restrict the enquiries as to whether the trust is actually and whole heartedly performing all the duties and activities for which it was created. On careful reading of this section it was gathered that at this initial stage there is no scope of any apprehension of misutilization of funds or to judge the taxability income. The scheme of the Act otherwise does not subscribe and allow a trust to take the benefit of the provisions of ss. 11 and 12 unless it establishes the prescribed utilization of the income, even if, at all the trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein. For this view, we draw support from the order of the respected Co-ordinate Bench Tribunal, New Delhi pronounced in the case of Aggarwal Mitra Mandal Trust vs. Director of IT (Exemption) (supra), a portio....
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....hed factual position is that the institution is not doing in any other activity except running educational institutions. In such circumstances, can we uphold the action of cancellation of registration ? Answer is obvious no. 11.8 While reading the precedents cited from the side of the appellant we come across a decision of a respected Co-ordinate Bench Tribunal, Kolkata pronounced in the case of Kalinga Institute of Industrial Technology (supra) and have found that almost on identical situation, as in the present appeal, it was held that consequence upon a search while the assessment proceedings are pending a cancellation of registration by invoking s. 12AA(3) is a premature action on the part of CIT, because it is expected from him to take precaution to let the assessment get completed, if possible expeditiously, instead of rushing to cancel the registration which shall effect and interrupt the other proceedings under the Act and so prematurely punish a person without judicious hearing as prescribed by the statute. Held portion is worth reproduction as did in para (xii) p. 35 ante. 11.9 We have also gone through a decision referred from the side of the Revenue namely the Jam....
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....tance in learned CIT's stand that the income earned by assessee as licence fees, consent fees and testing charges are receipts in consideration of rendering the services to trade, commerce or business. What is termed as consent fees is in fact fees accompanying the application for obtaining consent (i.e., permission) of the assessee Board to set up a new unit. It cannot be anybody's case that the processing of applications by itself has s commercial motive, or that fees for processing of applications is a fees collected for rendering of service of pollution control which is undisputed sole object of the assessee trust. Similarly, fees for testing charges and licence fees are not also towards rendering of any services of pollution control either. These are not the services with a profit motive but essentially only to recoup the cost of getting the samples tested or processing of licences. In any event, these activities, if these can be at all be construed as rendering of services, these are wholly subservient to the public utility objective of pollution control, and, it cannot be anyone's case that even though the State Pollution Boards like the assessee before us are se....
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....erity then the claim of registration is within the ambiguity of s. 12A of the Act. 11.11 As far as the objective of the appellant is concerned this is not the case of the Revenue that the assessee was not imparting education. As we know the term education means to teach subjects to students for the development of his mind and also to equip students to deal with reality. The training process is either theoretical or practical but student has to be taught the essentials of the selected subjects so as to develop his skill and knowledge for the subjects studied by him. The appellant institute, admittedly, fulfils the requirements of imparting formal education by a systematic teaching and instructions. Since the question about the imparting of education has not been doubted or challenged by the Revenue therefore. In our considered opinion the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the Revenue Department has hopelessly failed to establish that there was any illegal activity or infringement of any law so that to dou....
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....n of source of income and also application of income, so that the amount of correct exempt income be not prejudged. 11.13 The aspect of morality as touched by the learned CIT is appreciable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities. But existing blue laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented correctly and efficiently then there is no scapegoat for an offender. We are tempted to write an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter; that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities ha....
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....Second aspect is, that though the donations received are meant to fulfill the objects but together with fees have infringed Anti Capitation Prohibition Act; then comes within the clutches of that Act but definitely not under s. 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no action can be suggested under s. 12AA(3). The assessee's case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the learned CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked. Grounds allowed." 8.10 In view of the above cited decisions, we hold that the finding given by the Ld.CIT that the assessee was collecting huge donation for admission of students to various institutes run by it in violation of provisions of Maharashtra Educational institutions (Prohibition of Capitation Fee) Act, 1987 for which the activities of the assessee tru....
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....ve 50% of admissions under management quota in respect of PU Course-Assessee filed its returns of income, admitting 'Nil' income for AYs 2006-07 & 2008-09 and declaring a loss for AY 2007-08 after claiming exemption u/s 11(1)(a) and 11(1)(d)-In meanwhile, survey was conducted u/s 133A in assessee's premises and certain books and documents containing details of student wise donations collected by way of DDs and donation receipt books for admissions given during FYs 2005-06 and 2006-07 relating to fees and alleged donations collected from students who got admissions into the schools/college run by the assessee were impounded and statement of secretary of assessee was also recorded-AO observed that assessee was collecting voluntary contributions/building fund/development funds against admissions given under management quota in institutions run by assessee and was not entitled to claim deduction u/s.11(1)(a) and 11(1)(d) -CIT(A) upheld findings of AO holding that there was a direct nexus between admissions granted under the management quota and voluntary contributions collected by assessee- Held, if educational institution has collected money in form of voluntary contributi....
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....f the activities carried on by it and any portion of that profit has been enjoyed by any of the trustees or the relatives. Surplus funds of the assessee-trust year to year have been used only for the purposes of furthering the objects of the assessee-trust-There is no distribution of profit or such other benefits to the trustees or relatives of the assessee-trust-Therefore action of the CIT in withdrawing the registration granted to the assessee under s. 12AA is not sustainable in law Held : It is found that the first ground pointed out by the CIT to cancel the registration granted to the assessee under s. 12A on the ground of accepting capitation fees is not sustainable in law. The CIT is not to conduct investigation into the sources of 72. We find the Hon'ble Supreme Court in the case of M/s. Queen's Educational Society vs. CIT vide Civil Appeal No.5167/2008 order dated 16-03-2015 has approved the decision of the Hon'ble Punjab and Haryana High Court in the case of Pine Grove International Charitable Trust Vs. Union of India reported in 327 ITR 73 has observed as under : "23. The Punjab and Haryana High Court, by the impugned judgment dated 29th January, 2010 expresse....
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.... Merely because an institution has earned profit would not be deciding factor to conclude that the educational institution exists for profit. (2) The provisions of Section 10(23C)(vi) of the Act are analogous to the erstwhile Section 10(22) of the Act, as has been laid down by Hon'ble the Supreme Court in the case of American Hotel and Lodging Association (supra). To decide the entitlement of an institution for exemption under Section 10(23C)(vi) of the Act, the test of predominant object of the activity has to be applied by posing the question whether it exists solely for education and not to earn profit [See 5-Judges Constitution Bench judgment in the case of Surat Art Silk Cloth Manufacturers Association (supra)]. It has to be borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. A workable solution has been provided by Hon'ble the Supreme Court in para 33 of its judgment in American Hotel and Lodging Association's case (supra). Thus, on an application made by an institution, the prescribed authority can grant approva....
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....ity is felt after taking into consideration the various propositions of law culled out by us in para 8.13 and various other paras. 8.16 The writ petitions stand disposed of in the above terms." 24. The view of the Punjab and Haryana High Court has been followed by the Delhi High Court in St. Lawrence Educational Society (Regd.) v. Commissioner of Income Tax & Anr., (2011) 53 DTR (Del) 130. Also in Tolani Education Society v. Deputy Director of Income Tax (Exemption) & Ors., (2013) 351 ITR 184, the Bombay High Court has expressed a view in line with the Punjab and Haryana High Court view, following the judgments of this Court in the Surat Art Silk Manufacturers Association Case and Aditanar Educational Institution case as follows: ".....The fact that the Petitioner has a surplus of income over expenditure for the three years in question, cannot by any stretch of logical reasoning lead to the conclusion that the Petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that the Petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In the present case, the sole and domin....
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.... to Section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C) read with Section 11 of the Income Tax Act." 73. From the submission of the Ld. Counsel for the assessee we further find that out of more than 47000 students the assessee trust has collected donations from only 1217 students out of which only 23 persons had admitted to have given donations for admission. We find out of the above 23 persons only 6 were available for cross examination. We find the relatives or par....
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...., foreign tour of Mr. and Mrs. Mangesh Karad, local tour of trustees and their family members to places where trust does not have any activity. These are already discussed in the preceding paragraphs. Apart from the above, the Assessing Officer has also referred to the interest free loan of Rs. 18 lakhs to Shri Rahul V. Karad who is the son of the Managing trustee, free admissions and fee concessions to relatives of the trustees, children of the employees. The details of such expenditure incurred by the trust for the benefit of the trustees and their family members which according to the Assessing Officer is violation of provisions of section 13(1)(c) are as under : MAHARASTRA ACADEMY OF ENGINEERING AND EDUCATINAL RESEARCH YEARWISE CHART SHOWING DETAILS OF EXPENSES CONSIDERED AS VIOLATION OF SECTION 13 Sr. No. Particulars Assessment year Total 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 1. Expenditure on providing facilities to B E Avhad -Vehicle Maintenance - - 21,850 143,893 224,077 245,991 635,811 &....
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.... associated with all the policy matters, developmental activity, legal matters including the disputes in the courts etc. It is also his submission that he is looking after all the land matters concerning conveyance of the land, conversion of land, assessment of lands of the trust etc. Further, the facilities provided by the trust to Shri B.E. Avhad is only for official purpose and not for personal purposes. So far as the expenditure incurred of Rs. 6 lakhs on account of foreign tour of family members of Shri B.E. Avhad is concerned it is his submission that the same was incurred on account of airfare Rs. 1,60,000/- and foreign currency expenses of Rs. 4,40,000/- for attending the World Philosophers Meet in the year 1998-99. So far as the various other foreign tour expenditure is concerned it is his submission that the entire expenditure is for the objects of the trust and no part of the expenditure relates to outside of the objects of trust. It is also his alternate contention that even if there is any violation of the provisions of section 13(1)(c) even then there cannot be wholesale denial of exemption and the disallowance should be restricted to the extent of the so called viola....
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....e relevant income or part of the relevant income at the maximum marginal rate, The phrase "relevant income or part of the relevant income" is required to be read in contradistinction to the phrase "whole income" under Section 161 (1A). This is only by way of comparison. Under Section 161 ( A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, then tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases show that the Legislature has clearly indicated its mind in the proviso to Section 164(2) when it Categorically refers to forfeiture of exemption for breach of Section 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax. This interpretation of ours is also supported by Circular No. 387, dated July 6, 1984 (see [1985] 152 ITR (St.) 1). Vide the said circular, it has been laid down in para. 28.6 th....
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.... case reported in (2001) 249 ITR 533 (Born). Following the aforesaid judgment, this court in the case of Commissioner of Income Tax, Mangalore Vs. Fr. Mullers Charitable Institutions, Kankanady, Mangalore, in ITA Nos.588 and 589 of 2007 decided on 10.2.2014 has held the entire income of the assessee cannot be assessed for the tax, for violating under Section 11(5) read with Sec.31(1)(d) of the Act and what would become the subject matter of assessment is only that income which is the subject matter of violation. In that view of the matter, as the substantial question of law has already answered in favour of the assessee and against the Revenue, we also answer it accordingly and dismiss these appeals." 71. We find the Hon'ble Supreme Court in the case of CIT Vs. Karnatak Industrial Area Development Board vide SLP (C) No.19422/2015 order dated 11-11-2016 has dismissed the SLP filed by the revenue. 72. In view of the above, we are of the considered opinion that whenever there is violation of section 11(5) and 13(1)(d) of the I.T. Act, exemption cannot be withdrawn for the entire income and income which is the subject matter of violation only can be brought to tax. Accor....
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....ses of personal articles like, sun glasses, perfumes, shirt etc. The assessee could not explain the source. It is also a fact that the daughter of Shri V.D. Karad was staying in Australia. Therefore, although the assessee has claimed that such expenditure is on account of attending the World Peace Tour, however, we do not find any merit in the argument of the Ld. Counsel for the assressee and the expenditure of Rs. 1,52,930/- for A.Y. 2001-02 is held as not for the objects of the trust. Similarly, the foreign tour expenses of Rs. 24,700/- for A.Y. 2002-03, Rs. 2,66,154/- for A.Y. 2003-04 and Rs. 3,75,442/- for A.Y. 2004-05 are held to be not for the objects of the trust and accordingly the same has to be brought to tax. 156. So far as the concession in education given to relatives of the employees are concerned, the same in our opinion cannot be disallowed for violation of provisions of 13(1)(c) and cannot be held as not for objects of the trust. We find the provisions of section 13(6) read as under : "13(6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but without prejudice to the provisions contained in sub-section (2) of section 12, in the case ....
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....the trust on account of each and every expenses we hold that 50% of such expenditure is for the objects of the trust and the balance 50% is towards his personal expenditure which has to be disallowed and brought to tax. We hold and direct accordingly. 159. So far as local tour by trustees and their family members to places where trust does not have activity is concerned, we find the assessee has incurred an amount of Rs. 47,697/- for A.Y. 2004-05. We find the assessee has given details at Page 884 of the paper book No.4. A perusal of the same shows that the tours are only by the trustees and in particular mainly by the President and the Managing trustee. We further find from the details filed that the visits are to Nagar Pathardi near Shirdi where trust has started a school during 1999-2000. The visit to Gondavale, Cochin, Mumbai, Madurai and Trivendrum are for administrative matters. The visit to Udaipur is also to attend the conference at Mount Abu and the visit to Solapur and Akkalkot was in connection with purchase of land to start educational complex at Solapur. Therefore, the local tours by the trustees in our opinion is for the objects of the trust and cannot be held as n....
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....the CIT(A) has not discussed the issue the matter may be restored to the file of the CIT(A). It is also his first alternate contention that if the income of the assessee is held to be eligible for exemption u/s.11 then the issue whether a particular expenditure is revenue or capital in nature will not be relevant at all. According to him, the income in case of a charitable trust is to be computed in commercial manner and accordingly capital expenditure will also be considered as application of income. It is also his second alternate contention that even if the amount is disallowed for A.Y. 2001-02 the application of income for this year being higher than the receipts, therefore, after granting exemption u/s.11 there is no taxable income in the hands of the assessee. 166. We find merit in the above argument of the Ld. Counsel for the assessee. We find although the assessee has raised the ground before the CIT(A) as per ground of appeal No.14, however, he has not given any decision on this issue. Further, treating the expenses as capital or revenue will not be material since the income in the case of a charitable trust has to be computed in a commercial manner as held by us in the....
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....ing Officer to make necessary verification and if the application is more than the income, there will be no taxable income. Accordingly, ground of appeal No.9 for A.Yrs. 2002-03 and 2003-04 are allowed for statistical purposes. 170. The next issue that requires adjudication is ground of appeal No.12 for A.Y. 2003-04 regarding disallowance of excess provision for refund of fees. 171. After hearing both the sides, we find the assessee has made a provision of Rs. 50 lakhs for refund of fees in A.Y.2002-03 in respect of MIT SFS which is one of its constituent unit. The unit was closed during A.Y. 2003-04. Certain amount was repaid out of the provision of Rs. 50 lakhs and an amount of Rs. 30,96,750/- remained outstanding during A.Y. 2003-04 which remained unpaid even upto 31-03-2006. The Assessing Officer accordingly added back the excess provision in the year of closure of the unit, i.e. A.Y. 2003-04. It is the submission of the Ld. Counsel for the assessee that even if the amount is added as income for A.Y. 2003-04 the application of income in this year is still higher than the income/receipts and therefore after exemption u/s.11 there is no taxable income in the hands of the as....