TaxTMI 
TaxTMI 
2017 (3) TMI 79
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.... 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 indicating on-money payment on account of purchase o....
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....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 for part of the donation received. Detailed discussion in this regard i....
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....efore, 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 assessee filed the audit report for the year under consideration on 13-06-2008. 7. The Assessing Officer....
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....pose 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 Assessing Officer further noted that the assessee has violated the provisions of section 13 on account of the follo....
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....sessing 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 2005-06 2,28,839.73 8 2006-07 2,10,636.97 Total 15,07,081.64 12. He observed that the amounts of the credit card expenses are on account of hotel bills for staying in Mumbai a....
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....ust. 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 substantiate the same. He further noted that although foreign currency to the tune of Rs. 1,50,245/- was given by the trust, however, no details as to how such foreign exchange was utilized was furnished during the cours....
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....on 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 Assessing Officer, it was explained that it is the approved policy of the trust from its inception to grant concession to deserving children including the children of the founder trustees and other trustees and members of the managing co....
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....nditure 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 disallowed the expenditure on the unapproved object of World Peace to the tune of Rs. 1,11,41,532/-. Similarly, for violation of making cash payment in excess of Rs. 20,000/- amounting to Rs. 1,62,850/- and delayed payment of Provident Fund....
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....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 no order is passed in respect of the aforesaid application. 26. Relying on various decisions it was argued that the provisions of 9th proviso to section 10(23C)(vi) and the provisions of section 12AA(2) are pari materia since both the provisions lay down that the nec....
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....adur 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 provisions of section 13 are not at all applicable to an educational institution which is entitled to exemption u/s.10(23C)(vi) of the Act. It was contended that the exemption u/s.10(23C) is separate from and in addition to the exemption u/s.11, therefore, the assessee trust will ....
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....ts 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 Officer. After considering the submissions of the assessee, remand report of the Assessing Officer and rejoinder of the assessee to such remand report the Ld.CIT(A) not only dismissed the appeals filed by the assessee but also enhanced the income for A.Y. 1999-2000 to 2003-04. While d....
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....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 assessment was reopened on mere change of opinion. 36. So far as the assessment record for other years are concerned he noticed that more or less similar reasons were recorded by the Assessing Officer for A.Yrs 2000-01, 2002-03, 2003-04 and 2004-05. For the assessment year 1999-00, the a....
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.... 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 assessment and which comes to his notice subsequently in the course of assessment proceedings. According to him, reassessment proceedings are not confined to the grounds on which the assessment was reopened. Since in the instant case the assessment was reopened on valid grounds and in the course of ....
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....er 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 renders the entire income of the trust or charitable institution liable to tax even if only part of income is applied for the benefit of the specified persons. In such circumstances the Assessing Officer is justified in denying the exemption u/s.11 of the Act to the assessee trust and bringing its surplus income/p....
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....cording 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 striking similarity in all the receipts (b) in all the receipts only the name of the so called donor is written, no address of the donor is given (c) all the donations are in cash only. He observed that the assessee also expressed its inability to provide the address or whereabouts of the persons whose name appears as donors. According to him when the as....
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...., 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 charitable activity. (v) For the years under consideration, the appellant is not an approved institution by the prescribed authority as specified under sec. 10(23C)(vi). The approval granted earlier for A.Y.s 1999-00 to 2001-02 was since withdrawn by the prescribed authority. (vi) The appellant is therefore not entitled to the benefit of exemption either un....
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....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 the respective assessment years and why the income so determined by the Assessing Officer should not be enhanced. The assessment year-wise, quantification for such disallowance as worked out in the said show cause notice was as under : A.Y. Expenditure incurred on WPC Expenditure on providing facilities to Shri B.E. Avhad Expenditure on Foreign Tours Concessional ....
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....7 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 learned CIT(A) erred in confirming the various additions made by the A.O. and also erred in enhancing the income on certain issues and as a result, erred in computing the total income of Rs. 4,21,83,275/- as against the returned income of Rs. NIL. 4] The learned CIT(A) erred in holding that the appellant trust was not entitled to the exemption u/s 10(23C)(vi) of IT Act. 5] The learned CIT(A) erred in denying exemption u/s 11 to the appellant trust. 6] The learned CIT(A) erred in holding that the activity of the appellant is a commercial activity with a profit motive and it does not exist solely for charity and theref....
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....ed 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 notice u/s.148 of the I.T. Act vide order dated 01-08- 2008. Referring to Schedule No.18 of the balance sheet, copy of which is placed at page 260 of the paper book Vol.2 the Ld. Counsel for the assessee drew the attention of the Bench to the details of rent received by the assessee for A.Y. 1999-2000. Referring to page 261 of the paper book he drew the attention of the Bench to the statement showing rent adjustment entries for the F.Y. 1998-99. Referring to pages 287,303,311,319,346, 333,356,362,370 and 378 of the paper book he drew the attention of the Bench to the individual balance sheets of the respective units. Referring to page 427 of the paper book the Ld. Cou....
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....rt 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. Vijaykumar M. Hirakhanwala HUF Vs. ITO reported in 287 ITR 443 4. ACIT Vs. Major Deepak Mehta reported in 344 ITR 641 5. CIT Vs. Jet Speed Audio Pvt. Ltd. reported in 372 ITR 762 (Bom.) 56. So far as ground of appeal No.2 is concerned the Ld. Counsel for the assessee submitted that the department ordered special audit u/s.142(2A) in this case for all the years. However, no opportunity of being heard was given by the Assessing Officer and opportunity of being heard u/s.142(2A) was given by the Ld.CIT. Referring to page 136 and 137 of the paper book No.1 he submitted that Ld. CIT in his notice dated 23-11-2007 has mentioned that he has received a proposal from the Assessing Officer rec....
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....ed 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 the assessee drew the attention of the Bench to the findings of the Tribunal from Para 21 onwards and submitted that the Tribunal in the said decision at para 41 has held that where no show cause notice was given to the assessee before making the order proposing conduct of special audit u/s.142(2A) of the Act and the CIT having approved the said proposal though after giving opportunity of being heard to the assessee, the order is vitiated because of non compliance with the principles of natural justice. Accordingly it was held that the assessment order passed was beyond the period of limitation and hence the same was held as invalid and bad in law. He also relied on the following decisions :....
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.... 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 stated that few persons have admitted to have given donations in cash for securing admission to the assessee trust in the statements recorded by Investigation wing of the department. The Assessing Officer accordingly made addition of Rs. 4 lakhs and Rs. 1 lakh in A.Y. 2004-05 and 2005-06 respectively as these donations are not recorded in the books of the assessee. He submitted that these donations being corpus donations are credited to various funds in the balance sheet and not routed through the income and expenditure account. He submitted that the assessee has issued the receipts to all the donors wherein the details like name, address of the donor are clearly mentioned. Referring to pages 26 to 30 of th....
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.... 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 and AICTE, Director of Technical Education who have a control on the activity of the assessee trust have not raised any objection in any of these years so far. He submitted that the Assessing Officer and the CIT(A) are not the authorities under the Anti Capitation Fee Act to hold that that the assessee has violated the provisions of that Act. Referring to the decision of the Tribunal in assessee's own case in ITA No.1669/PN/2007 order dated 08-09-2009 he submitted that the Tribunal in the order passed while restoring registration u/s.12AA(3) has observed that the revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means. Accordingly, they have restored th....
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....essee 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 pages 1006 to 1008 of the paper book No.5 he drew the attention of the Bench to the chart which indicates that the assessee has utilized entire surplus every year on its objects and the expenditure is more than the receipts including the donations. Referring to the said chart he submitted that the assessee does not work as a profit making body but it generates profit to sub serve its objects. Referring to the decision of Pune Bench of the Tribunal in the case of Deccan Education Society Vs. Addl.CIT vide ITA No.1480/PN/2014 order dated 13-07- 2015, copy of which is placed at pages 187 to 248 of the paper book (legal compilation) Vol.1 he submitted that under identical circumstances the Tribunal has held that the ass....
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....d 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 India as the courses on peace studies are to be started by the assessee in India and the expenditure was on training of the faculties including the trustees. Unless the management and the faculty are fully aware of the subject and are well versed with the subject the assessee could not start the educational programme. Therefore, this expenditure is on the object of the trust and not for the personal benefit of the trustees/faculty. 71. As regards the objection of the Assessing Officer that the object was introduced by the trustees on 20-07-1997 and the assessee trust did not inform the department about the amended trust deed is concerned he submitted that in reality this being a part of educational objects there was no n....
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.... 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 Vehicle Maintenance (a) Addition by AO - - 21,850 - - - (b) Enhancement by CIT(A) - - - 143,893 224,077 245,991 Depreciation on car (a) Addition by AO - - - - - - (b) Enhancement by CIT(A) - - - 171,388 137,111 437,589 Credit Card Expenses (a) Addition by AO - - 180,004 - - - (b) Enhancement by CIT(A) 133,891 142,529 - 242,566 279,298 178,264 Other Expenses - - - - - - Honorarium Paid - - - - - - Sub-total (1) 133,891 142,529 201,854 557,847 ....
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....not be any objection for providing car facilities to the President of the trust for official work of the trust. Therefore, the allegation of the Assessing Officer is baseless and it does not lead to violation of section 13. 78. So far as legal expenses are concerned he submitted that the legal expenses also include court fees, stamp duty, fees of other lawyers on record etc. There were numerous litigations on different issues like land matters, labour matters, civil, criminal and revenue matters etc. for which the trust was benefitted because of the services of Shri B.E. Avhad. Apart from Shri B.E. Avhad the trust had also engaged some other counsels and their expenses are debited as legal expenses in the books of the trust. Therefore, it should not be said that Shri B.E. Avhad has not rendered any services to the trust. He submitted that many times the trustees and the President are supposed to give courtesy gifts to Guests and Officials as token of appreciation or for promotional activities of the trust. The payments for such gifts occasionally were made by Advocate Shri B.E. Avhad through credit card. Thus the payments for clothing etc. were incurred for the purpose of the asse....
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..... Mrs. Kamal Avhad attended the meeting as part of protocol. The students participants included 3 children of Mr. B.E. Avhad. He submitted that only the expenditure incurred in relation to meet was debited by assessee trust. No expenditure for the personal benefit was made from the funds of the assessee trust. He submitted that amounts involved on this issue are very small as compared to the volume of gross receipts of the assessee trust. 82. In his alternate submission he submitted that at the most the amount incurred for relatives may be disallowed. In yet another alternate argument he submitted that if the foreign tour expenses were not in pursuance of the objects of the trust, in that case, there cannot be wholesale denial of exemption u/s.11 and 12 and the disallowance should be restricted to the extent of so called violation. For the above proposition, he relied on the decisions cited above. 83. So far as foreign tour of the trustees and their family members are concerned, he made similar arguments as argued while arguing for Mr. B.E. Avhad and his family. 84. As regards the visit to Katmandu by Shri Rahul Karad is concerned, he submitted that the International Education Ce....
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.... Rs. 1,30,492/-) is concerned he submitted that Mr. Mangesh Karad, Executive Director, Planning & Development of the Trust visited Europe in F.Y. 2000-01 to attend UNESCO conference on World Peace and Human Security representing the assessee trust. His wife Sunita Karad accompanied him as a protocol. However, her expenditure was not borne by the trust. Attending such high level conference by Mr. Mangesh Karad would definitely enrich the knowledge which in turn can be shared with students and colleagues in India. Thus, the trust is bound to gain from such activities. Therefore, it is not a personal expenditure but an expenditure for the objects of the trust. 87. In his alternate contention 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 should be restricted to the extent of so called violation. 88. So far as local tours by trustees and their family members to various places where the trust does not have any activity is concerned, the Ld. Counsel for the assessee submitted that the Assessing Officer has doubted the expenditure on various local travels of trustees and their relative....
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....hri Rahul V. Karad. He submitted that at the request of Shri Rahul V. Karad financial support of Rs. 5,44,797/- was sanctioned and paid in two instalments of Rs. 2,72,102/- on 12-01-2006 and Rs. 2,72,695/- on 31-03-2006. He used this amount for repayment of the loan and the amounts were repaid by cheque immediately thereafter. Referring to the loan account of Shri Rahul V. Karad he drew the attention of the Bench to the recovery of the same and submitted that the entire amount has been recovered and the contention of the Assessing Officer that the loan and interest have not been recovered is incorrect and false. He submitted that Shri Rahul V. Karad is not the only beneficiary of the educational loan and the subsidy. A number of other employees of the trust unconnected with the management have also availed such benefit. 90. So far as the claim of the Assessing Officer that the recovery of interest is an afterthought he submitted that this claim is factually incorrect. He submitted that charging of interest has been specifically recorded in the loan agreement dated 05-01-2004 itself. Therefore, advancement of loan and granting of subsidy to Shri Rahul V. Karad in his capacity as an....
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....n these two years is still higher than the receipts and therefore after granting exemption u/s.11 there is no taxable income in the hands of the assessee. 93. So far as disallowance u/s.43B, 40A(3) and 40A(7) as per Grounds of appeal No.10 is concerned the Ld. Counsel for the assessee submitted that the Assessing Officer while computing the income of the assessee trust had added various disallowances u/s.40A(3), 43B and 40A(7) on the ground that registration u/s.12A has been cancelled and assessee does not have any exemption u/s.10(23C)(vi) of the I.T. Act. He submitted that since the Tribunal has already restored registration u/s.12A to the assessee trust, therefore, the income of the assessee trust has to be computed u/s.11. Referring to various decisions he submitted that income u/s.11 is to be computed in a commercial manner and not as per the provisions of I.T. Act. The various heads of income u/s.14 are not relevant in the case of a charitable trust, therefore, while computing the income u/s.11 the various disallowances cannot be made u/s.28 to 43. For the above proposition he relied on the following decisions : 1. CIT Vs. Rao Bahadur Calavala Cunnan reported in 135 ITR 485....
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.... this issue. He submitted that since the assessee is a charitable trust claiming exemption u/s.11, therefore, there was no question of payment of any income tax. The amounts were not paid towards income tax but towards TDS arrears of earlier year which is an allowable deduction. Secondly, the income in case of a charitable trust is to be computed in commercial manner and accordingly even income tax expenditure will be considered as application of income. Without prejudice to the above the Ld. Counsel for the assessee referred to pages 1006 to 1008 of paper book No.5 and submitted that even if the above amounts are disallowed for A.Yrs. 2002- 03 and 2003-04 the application of income for these years are still higher than the income receipts and therefore after granting exemption u/s.11 there is no taxable income in the hands of the assessee. 96. So far as grounds of appeal No.12 for A.Y. 2003-04 is concerned which relates to disallowance of excess provision for refund of fees the Ld. Counsel for the assessee submitted that MIT SFS was one of the constituent units of the assessee trust which was closed during the A.Y. 2003-04. The assessee has made a provision of Rs. 50 lakhs for ref....
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....ot arise. Referring to the decision of Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. Vs. ITO reported in 236 ITR 34 he submitted that the Hon'ble Supreme Court in the said has held that reassessment proceedings initiated on the basis of information obtained in assessment proceedings for a subsequent year is valid. He submitted that in the instant case the Ld.CIT(A) has already held that all the conditions necessary for reopening of the assessment under the provisions of section 147 and for issue of notice u/s.148 are satisfied. Therefore, the order of the CIT(A) on this be upheld. 99. So far as ground relating to validity of the assessment because of limitation is concerned he submitted that the Ld.CIT(A) has discussed the issue from page 58 onwards and has given justifiable reasons for special audit u/s.142(2A) of the Act based on the objective satisfaction of the Assessing Officer and the CIT Central that there was complexity in the books of account and the transactions recorded in the voluminous seized documents and therefore the reference made by the Assessing Officer for special audit in the interest of the revenue does not suffer from any legal infirmity. S....
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....otive and it does not exists solely for charity. Therefore, the CIT(A) was fully justified in denying the exemption u/s.10(23C)/section 11 of the I.T. Act. 102. So far as the corpus donation is concerned he submitted that the provisions of section 11(1)(d) are not applicable since the assessee could not give the details of whereabouts of the donors and the direction of the donors that the contribution shall form part of corpus of the trust. 103. So far as the reliance on the order of the Tribunal restoring registration u/s.12A is concerned he submitted that the said order restoring registration cannot be relied upon in view of the detailed findings given by the Assessing Officer and the CIT(A). He submitted that the Ld.CIT(A) at para 17.3 onwards has clearly mentioned that the observations of the ITAT on application of income in the said order are only obiter-dicta and therefore do not have a binding force. He accordingly submitted that the arguments advanced by the Ld. Counsel for the assessee that the issues involved in the present appeal, i.e. application of income by the assessee and violation of provisions of section 13 were settled in view of decision of the ITAT, Pune in a....
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.... the use of its motor car to one of the trustees and the trustees and their family members have undertaken foreign trips for which the funds of the assessee trust has been used and the children of the trustees and the employees were given concession in education the trust has violated provisions of section 13(1)(c). He accordingly submitted that the order of the CIT(A) being in consonance with law should be upheld and the grounds raised by the assessee for various years should be dismissed. 109. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. Ground of appeal No.1 which is common for all the appeals relates to validity of reassessment proceedings. However, the Ld. Counsel for the assessee argued this issue only for A.Y. 1999-2000 and did not press this issue for other years. Therefore, our findings on this issue are confined only to A.Y. 1999-2000. 110. From the copy of the reasons supplied by the Assessing Officer for reopening of assessment for A.Y. 1999-2000, the contents of which have already been reproduced ....
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....annot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess 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. 17. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assess....
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....ss such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and" as well as "also" have been used together and in conjunction." ... Evidently, therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe Under Section 147 and the issuance of a notice under Section 148(2) must assess or reassess: (i). 'such income'; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is ....
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....nd that of Section 148 "issue of notice where income escaped assessment". Sections 148 is supplementary and complimentary to Section 147. Sub-section (2) of Section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per explanation (3) if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped incom....
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..... (Supra) has held that when addition has been made for reasons different from what has been communicated to the assessee and no addition has been made on the ground for which the Assessing Officer had 'reason to believe' for reopening of assessment, the reassessment proceedings are invalid. The various other decisions relied on by the Ld. Counsel for the assessee also support the case of the assessee. The various decisions relied on by the Ld. Departmental Representative are not applicable to the facts of the present case and are distinguishable, as in none of those cases the validity of reassessment proceeding was challenged on the ground that additions were made on the grounds other than the grounds on which the assessments were reopened on the basis of reason to believe by the Assessing Officer. Since in the instant case the Assessing Officer has not made any addition on the issue on which he had reopened the assessment and some other additions were made, therefore, following the decision of Hon'ble Bombay High Court in the case of Jet Airways India Ltd. (Supra) and the various other decisions cited (supra) we hold that the reassessment proceedings for the A.Y. 1999-2000 are ba....
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....ing Officer for special audit u/s.142(2A). Under these circumstances we have to see where the Assessing Officer before sending a proposal for conducting special audit u/s.142(2A) of the Act has not given an opportunity of being heard to the assessee and in view of the proviso to section 142(2A) of the Act, whether the said proposal made without affording predecisional hearing to the assessee was valid and can the proceedings conducted thereafter be held to be vitiated. 118. We find an identical issue had come up before the Pune Bench of the Tribunal in the case of ITO Vs. Vilsons Particle Board Industries Ltd. and vice versa. We find the Tribunal in ITA No.447/PN/2013, ITA Nos. 309 & 310/PN/2013 and ITA Nos. 448 & 449/PN/2013 vide order dated 21-12-2016 after considering the decision of Hon'ble Supreme Court in the case of Rajesh Kumar and others (supra) and various other decisions has held that where no show cause notice was given to the assessee before making the order proposing conduct of special audit u/s.142(2A) of the Act and such opportunity was given only by the CIT before approval for such special audit, such assessment is vitiated because of non-compliance of principle o....
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....supra) have upheld the said proposition laid down by the Hon'ble Supreme Court and has also taken note of the amendment w.e.f. 01.06.2007 and have held that the principles of natural justice have to be fulfilled even at the pre-decisional stage. In conclusion, the Apex Court directed that the said proposition would be applicable prospectively. The case of the assessee before us relates to the period which is prospective to the decision of the Apex Court and is also after insertion by the Finance Act, 2007 w.e.f. 01.06.2007. Reasonable opportunity of being heard on pre-decisional stage to be allowed by the Assessing Officer to the assessee was on Statute when the proceedings were taken up against the assessee. However, as the facts reveal before submitting the proposal dated 11.09.2008 for conducting special audit under section 142(2A) of the Act to the CIT(C), no opportunity of hearing was given to the assessee. The requirement of the Act is that the Assessing Officer has to give finding that there is complexity of accounts and the interests of revenue would be affected, and in such circumstances, show cause notice needs to be given to the assessee to explain its case. Where th....
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....assessee as to whether any special audit should be conducted in his case under section 142(2A) of the Act is bad in law. Hence, consequential orders of extension, if any become of no consequence. Since, we have decided the jurisdictional issue on merits, the other grounds of appeal becomes academic." 119. Since in the instant case the Assessing Officer has not given any opportunity of being heard to the assessee before directing him to get its accounts audited u/s.142(2A) and such opportunity was granted only by the CIT, therefore, the limitation for completion of assessment cannot be extended in view of said illegal order passed u/s.142(2A). Since the assessment in the instant case was getting time barred under second proviso to section 153(2) on 31-12-2007 and since the Assessing Officer has passed the order on 08-08-2008, therefore, the assessment order passed u/s.143(3)/147 for the impugned A.Y. 2000-2001 is barred by limitation and accordingly the same is void and illegal. Ground of appeal No.2 for A.Y. 2000-2001 by the assessee is accordingly allowed. 120. Since the assessee succeeds on this technical ground, the other grounds for A.Y. 2000-20001 have become academic in nat....
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...., faculties of the trust for attending various seminars on World Peace activities abroad. Some of the seminars are arranged by the assessee trust also. According to the Assessing Officer this activity does not fall in the category of education for which the assessee trust was set up. It is also his allegation that the activity of World Peace Centre is not an educational activity. Further, the assessee has amended the trust deed but has not intimated such amendment to the Assessing Officer. It is also the allegation of the Assessing Officer that expenditure incurred abroad for such activity is not an allowable expenditure. He accordingly denied the exemption u/s.11 of the I.T. Act to the trust. We find in appeal the Ld.CIT(A) upheld the action of the Assessing Officer. 126. It is the submission of the Ld. Counsel for the assessee that the object of World Peace Centre is very much a part of the educational object for which the assessee trust has been set up. Even if the object was not introduced separately still such activity could be a part of the objects of the assessee. It is also the submission of the Ld. Counsel for the assessee that since the assessee was not aware that amendm....
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....Costa Rica, USA - Under the UNESCO programme (c) United Nations Peace University, Sri Lankta (d) University of World Peace, Washington (e) European International University for World Peace (f) Global Open University for World Peace, Italy (g) Berkley Center for Religion, Peace and World Affairs (h) Rotary World Peace Fellowship (i) International Peace University, South Africa The Trust has submitted a proposal to University Grants Commission (UGC), New Delhi for the establishment of MAEER"s MIT World Peace University on the same lines. Approval from the UGC is awaited. VI. Activities of WPC are purely educational In this context, it has to be emphatically stated that the real education is one which makes a student socially relevant. For this purpose, his greater interface with the society is required and besides, the education should also develop the knowledge, skill and character of the students. It may also be stated in this context that the education in its true sense, must be so oriented, as to encourage human values, which go into making a good human being, a good human society and a good life. Otherwise our educational institutions would be producing only educated i....
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....nd merit in the submission of the Ld. Counsel for the assessee that the World Peace Studies conducted by the assessee constitute a part of education so far as the trust is concerned and the activities are charitable in nature. The Assessing Officer has not given a finding that the same is non charitable in nature. We find merit in the submission of Ld. Counsel for the assessee since this is the only programme abroad and has taken place in the very first year the trustees and faculty members went to attend the seminar at Geneva to educate themselves. Therefore, we do not find any merit in the objection of the Assessing Officer for denying the exemption on the ground that object of World Peace Centre is not education in nature. 130. So far as the objection of the Assessing Officer that the change in the objects in the trust deed was not intimated to the Assessing Officer, we find the same is not fatal for denying exemption u/s.11 or allowing the expenditure for objects of the trust. The Mumbai Bench of the Tribunal in the case of ITO Vs. Bhansali Trust reported in 155 ITD 736 has held that mere non intimation of amendments in trust deed to department cannot ipso facto lead to cancel....
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....d, it is not the concern 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. They have further held that the term 'charitable' u/s.2(15) includes "education" which connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling. 133. In view of the above discussion, we hold that the objection of the Revenue that since the assessee has not intimated the department about the amendment of the trust deed, therefore, the expenditure incurred is not for the object of the trust is not correct. 134. Now coming to the objection of the Revenue that expenditure has been incurred abroad and therefore, the assessee is not entitled to claim such expenditure is concerned, we find the same is also not correct as per law. 135. We find the Mumbai Bench of the Tribunal in the case of Gem and Jewellery Export Promotion Council vs. ITO 68 ITD 95 while deciding somewhat similar issue has observed as under : "32. In our considered view, the assessee deserves to succeed. It may be us....
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.... under Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. We find the Tribunal in assessee's own case vide ITA No.1669/PN/2007 order dated 09-09-2009 restored the registration by observing as under : "11.12 Based upon the facts of this case, we now sum up above discussion; the sine qua non for cancellation of registration are two conditions prescribed in s. 12AA(3) needs to be satisfied are : (a) That activities of the trust/institution are not genuine. (b) That activities of the trust are not carried out in accordance with the objects of the trust/institution. Thus the findings of the learned CIT has not to be only conceptual or contextual but should be within the four corners of law so that not surpassing the power, as listed above, granted in sub-s. (3) of s. 12AA. But unfortunately the fallacy is writ large as gathered on perusing the impugned order. We can hold that the CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. We are afraid about the ramification if we approve the action of learned CIT because in that case it may adversely aff....
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....(Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law. However presently the situation is that the Revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means; hence deregistration sans our approval. Nevertheless the list of fifteen cases, as highlighted by learned CIT, lack desired positive finding as it was left blank on the excuse that even the other authorities could not lay their hands on alleged defaults so it was also difficult for the Revenue authorities to trace the correct position. While dealing with the facts ante, it was found that after exhaustive enquiry few instances; fifteen in numbers; were noticed by the Revenue authorities wherein it was alleged to be the infringement of Capitation Fee Act. But the irony is that in the same breath the learned CIT has accepted the stand of the assessee that it can charge five times the normal fees in case of admi....
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....motive and it does not exists solely for charity for which it is not eligible for exemption u/s.10(23C)/11 is concerned we have already held that in absence of approval u/s.10(23C)(vi) the assessee is not entitled to exemption under section 10(23C). However, we have to see whether the assessee trust is eligible for exemption or not u/s.11 for accepting donation and whether the activities of the assessee trust are commercial activity with profit motive and whether it exists solely for charity or not. 141. We find the assessee trust has received certain donations towards building fund etc. which it claimed as exempt u/s.11(1)(d) as corpus donation. According to the Assessing Officer these donations are nothing but the capitation fees collected by the trust from students for granting admissions in various institutes of the trust. While holding so, the Assessing Officer relied upon the statements of parents of few students who have admitted to have given the donations for securing admissions in various institutes of the assessee trust. The Assessing Officer treated these donations as revenue receipts. The Assessing Officer further held that since the assessee is collecting donations f....
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....te authority for any such violation under the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. Nothing has been brought on record that any student has been denied admission for not giving donation. Therefore, merely because some of the donors have stated that they have given donation for admission, which have been retracted later on, the same in our opinion will not dis-entitle the assessee trust from getting exemption which is existing solely for educational purposes. 145. The Hon'ble Bombay High Court in the case of CIT Vs. Institute of Banking reported in 264 ITR 110 has upheld the decision of the Tribunal in directing the Assessing Officer to allow depreciation on the assets the cost of which had been fully allowed as application of income u/s.11 in the past years. Going by the ratio of decision of Hon'ble Bombay High Court cited (supra) we find from the various details furnished by the assessee that if the capital expenditure and depreciation thereon is considered as an application, then the assessee has got deficit in each year under appeal and therefore it cannot be said that the trust is existing solely for profit. 146. Even if the assessee ....
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....o to be noted that those persons have filled up the requisite proforma stating that they have given donation to the assessee voluntarily and not for seeking admission. Even some of them claimed deduction u/s.80G, a fact stated by Ld. Counsel for the assessee and not controverted by the Ld. Departmental Representative. Therefore, changing the stands after their wards completed their education from the institutions run by the assessee trust are contradictory. Further, it is also a fact that all donations received by the assessee trust are recorded in the books of account. There is no allegation by the Revenue that any part of such donation has been siphoned off for the benefit of any of the trustees or related persons. Nothing has been brought on record that any student has been denied admission for not giving donation. Merely because some of the donors stated that they have given the donation for admission the same in our opinion will not disentitle the society from getting exemption which is existing solely for educational purposes and which is otherwise entitled to the exemption. 67. We find a somewhat similar issue had come up before the Hon'ble Rajasthan High Court in the case ....
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....e adhered to in letter and spirit, but violation could not lead to its losing the character as an entity existing solely for the purpose of education. Therefore, there, was no interference with the order of the single judge." 68. We find the Pune Bench of the Tribunal in the case of Shikshana Prasaraka Mandali Vs. CIT Central Pune vide ITA Nos.1348 and 1349/PN/2010 order dated 27-03-2014 (where one of us - Accountant Member is a party) while dealing with denial of registration u/s.12A for violation of The Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987 by accepting donations has observed as under : "8. We have considered the rival arguments made by both the sides, perused the order of the Ld.CIT and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find there is no dispute to the fact that the assessee trust is more than 100 years old and it runs more than 60 educational institutions imparting education to more than 70000 students in various fields. The trust was granted registration earlier u/s.12A. However, the Ld.CIT cancelled the registration granted earlier on the ground that the o....
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.... learned counsel for the parties. We must at the inception itself note that the three components scrutinized by the Assessing Officer are the Admission Fee, Corpus Fund and the Loans taken from parents. Thus it really can't be disputed that even the source of funds is relatable to the activity of education. It may be noticed that there are factual findings on the loans having been availed of by the assessee from a nationalized bank for the purpose of creating additional infrastructure/schools and the three sets of amounts have been addressed only towards the object of creating additional infrastructure and easing the liability of the assessee towards the interest burden of loan repayment. What is pertinent to be taken note of is that there is no finding or allegation of any diversion of these funds for the purpose other than carrying on educational activity. There is no diversion of funds to the individual members or taking away of profits for some other activity. It does appear to us that the Assessing Authority appears to have been weighed down by the factum of some questions being raised in the Parliament about the manner of collection of funds by the institutions. That alon....
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....istration on the basis of the plea that the assessee was accepting capitation fee/donations. Following discussion by our co-ordinate Bench is relevant: "48. Now the question is the legal consequence of the assessee accepting capitation fees / donations from students seeking admission to various courses offered by the Institutions run by the Assessee-Trust. Even in the matter of capitation fees / donations, the Commissioner of Income Tax has no case that the funds collected by the Assessee- Trust through capitation fees / donations have been used for the purposes other than running the Institutions managed by the Assessee Trust. It is to be seen that all the Institutions run and managed by the Assessee Trust are carrying on the activities envisaged in the Memorandum of Association the Assessee-Trust. It is stated by the Commissioner in his order itself that the moneys collected by the Assessee-Trust by way of capitation fees / donations are used for the purpose of not only by the Assessee-Trust but also for other Institutions of similar nature It is to be seen that application of funds for the charitable activities of another eligible Institution amounts to application of funds for....
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....ion fees / donations. In this context, the Commissioner-DR has raised a contention that the donations received by the Assessee-Trust are not voluntary and that fact also should be contributed to justify the cancellation of the registration." On the basis of the aforesaid decision of the Tribunal, which has been rendered after considering the judgments of the Hon'ble Karnataka High Court in the case 11 of Sanjevamma Hanumanthe Gowda Charitable Trust (supra) and that of the Allahabad High Court in the case of CIT v Red Rose School 163 Taxmann 19 (AIL), it is quite clear that the objection raised by the Commissioner with regard to the receipt of capitation fee/donations are factors to be considered at the time of assessments while examining the eligibility of the assessee trust for the benefit of section 11 & 12 and the same do not come into play in the course of the examination by the Commissioner for the purposes of grant of registration under section 12AA of the Act. 14. In view of the aforesaid discussion, in our considered opinion, the Commissioner has examined the application of the assessee on irrelevant considerations which were beyond the scope of enquiry envisaged under....
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....e come to our notice that mere registration under s. 12AA would not by itself be a ground for exclusion of such an income from the total income of a trust. To our understanding, also acknowledged in the precedents; the provisions of s. 12AA prescribes conditions for registration of a trust and therefore in the absence of registration disentitles any trust from claiming any benefit of the provisions of s. 11 and s. 12 of the Act in relation to its income. Therefore the conclusion is that s. 12AA prescribes certain conditions for the registration of a trust and thereupon obligates a trust or an institution to seek, rather obtain, a registration under s. 12AA if such trust intends to have the benefits of the exemption as prescribed under ss. 11 and 12 of the Act. It is not the other way round that the benefit of ss. 11 and 12 shall be automatic once the registration is granted. Thus the outcome is that these provisions make it clear that if the trust is not registered under s. 12AA it would not be able to claim any exemption or exclusion of its income from the total income of the previous year, even if such income is otherwise liable for exclusion under any of the clauses of s. 11 and....
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....laid down the procedure of registration and this section nowhere speaks that while considering the application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The argument was, it also does not speak anywhere that while considering the registration the CIT shall also see the manner in which the receipts or the income is being spent by the trust. To our humble understanding of various related provisions, the power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections as already discussed ante. The language thus used in this section only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an i....
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....shed the objects as indicated in clause No. 3(4) only for the benefit of public at large without there being any activity undertaken as per object clause Nos. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under s. 11 or s. 12. This certainly is not the legislative intention as reflected in the scheme laid down in ss. 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of s. 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the AO is required to examine the claim of the assessee for benefits under s. 11 or s. 12 while computing the total income of the assessee of the relevant previous year. The application of s. 13 thus falls within the exclusive domain of the AO and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration under s. 12AA." 11.7 An another feature of the impugned order of the learned CIT is in fact bothering us that nowhere he has taken any objection to the charitable and educational nature of the institution. In fact, the objects ....
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.... the genuineness of the activities of a trust and to satisfy himself that such activities are being carried out in accordance with the objects of the trust. Secondly in case of dissatisfaction he is empowered to cancel the already granted registration. Thirdly in case it is found that the activities are not in conformity with the object that too is the good reason for cancellation of registration. Fourthly the sweep of the section is wide enough to empower the CIT to examine the nature of the object whether for general public utility and philanthropic in nature. In our conscientious view there is no disagreement about the abovementioned four legal proposition as eruditely laid down by the respected Amritsar Bench. Undisputedly we have also to decide this appeal more or less within these parameters. But the basic question is that before stepping towards the cancellation of registration the heavy burden is on the learned CIT to conclusively demonstrate that all had gone haywire i.e., objects are meant for personal benefits; that engaged in immoral activities or that there is no element of public benefit. In the present appeal none of the above criteria for rejection of registration w....
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....e in relation to trade, commerce or business'. 19. In any event, as a plain reading of s. 12AA(3) would indicate that a registration granted under s. 12AA can only be withdrawn when the CIT is satisfied that (a) the activities of the trust or the institution are not 'genuine'; or (b) the activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. There cannot be any other legally sustainable reason for cancelling or withdrawing the registration granted under s. 12AA. By no stretch of logic, the activities of the assessee can be said to be not genuine and the assessee is admittedly pursuing the objects for which it was established. When the assessee is engaged in bona fide activities, with the framework of law, to pursue its objectives, it cannot be said that the activities of the assessee are not genuine. Learned CIT has also not brought on record any material to demonstrate activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. Under these circumstances, the withdrawal of registration granted under s. 12AA cannot be sustained in law. Learned CIT has e....
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....lation of registration are two conditions prescribed in s. 12AA(3) needs to be satisfied are : (a) That activities of the trust/institution are not genuine. (b) That activities of the trust are not carried out in accordance with the objects of the trust/institution. Thus the findings of the learned CIT has not to be only conceptual or contextual but should be within the four corners of law so that not surpassing the power, as listed above, granted in sub-s. (3) of s. 12AA. But unfortunately the fallacy is writ large as gathered on perusing the impugned order. We can hold that the CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. We are afraid about the ramification if we approve the action of learned CIT because in that case it may adversely affect the imparting of education especially when the Revenue has not made out a case that the very purpose for creation of the trust was defeated. Rather we wonder that what purpose does it serve to Revenue by cancelling a registration if the activities are in public interest because in case of any breach of the laws the same i....
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....wever presently the situation is that the Revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means; hence deregistration sans our approval. Nevertheless the list of fifteen cases, as highlighted by learned CIT, lack desired positive finding as it was left blank on the excuse that even the other authorities could not lay their hands on alleged defaults so it was also difficult for the Revenue authorities to trace the correct position. While dealing with the facts ante, it was found that after exhaustive enquiry few instances; fifteen in numbers; were noticed by the Revenue authorities wherein it was alleged to be the infringement of Capitation Fee Act. But the irony is that in the same breath the learned CIT has accepted the stand of the assessee that it can charge five times the normal fees in case of admission in the defined management quota. Thereupon there was a circumvent in the approach of the learned CIT that the amount of donation be considered together with the fees to find out the violation of prohibition of Capitation Fee Act. But on facts that too did not stand the test of those provisions since admittedly did not e....
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....lated its surplus which is within the permissible limit of 15% u/s.11 and 12. 8.11 So far as the 2 decisions relied on by Ld.CIT are concerned we find the Ld. Counsel for the assessee has distinguished the same. We fully agree with his arguments. In any case since 2 views are possible on this issue, the view in favour of the assessee has to be adopted in view of the settled proposition of law. In this view of the matter, we hold that the Ld. CIT is not justified in cancelling the registration u/s.12A of the I.T. Act, 1961. We accordingly set-aside the order of the Ld.CIT and direct him to grant registration u/s.12A of the Income Tax Act. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed." 69. Although the above decision was rendered in the context of denial of registration u/s.12A of the I.T. Act we find the issue there was also denial of registration u/s.12A on the ground that the institutions are accepting capitation fee in guise of voluntary donations and are being run on commercial lines with profit motive. Therefore, the ratio that whether the institutions are being run on commercial lines with profit motive due to acceptance of capit....
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....al Schools starting from nursery to PUC and said fact has been endorsed by AO-No question of assessee collecting 'capitation fees' in guise of 'building fund or development fee-Further voluntary contributions received were for the specific purpose of 'building fund or development fee' - Further voluntary contributions received were for the specific purpose of 'building' and assessee had applied such contributions towards object of trust - Assessee had obtained the signatures of the parents of successful students in pre-printed letters before obtaining donation and shown instatement - Assessee was entitled to exemption u/s.11 in respect of 'building fund' as well as 'college development fund' - Assessee's appeal allowed. Held : In the present case, even if the fees collected were in violation of the norms subscribed by the State Government, the application of the funds were towards the objects of the assessee trust and as such, there was no violation of s.13 of the Act as ascribed by the Revenue, The assessee had obtained the signatures of the parents of the successful students in pre-printed letters without giving the details of amounts' donated, date of contr....
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....e variety of reasons to support our opinion. Firstly, the scope of the third proviso was not under consideration, inasmuch as, the case before the Uttrakhand High Court pertained to Section 10(23C)(iiiad) of the Act. The third proviso to Section 10(23C)(vi) is not applicable to the cases falling within the purview of Section 10(23C)(iiiad). Secondly, the judgment rendered by the Uttarkhand High Court runs contrary to the provisions of Section 10(23C)(vi) of the Act including the provisos thereunder. Section 10(23C)(vi) of the Act is equivalent to the provisions of Section 10(22) existing earlier, which were introduced with effect from 1st April, 1999 and it ignores the speech of the Finance Minister made before the introduction of the said provisions, namely. Section 10(23C) of the Act [See observations in American Hotel and Lodging Association Educational Institute's case (supra)]. Thirdly, the Uttrakhand High Court has not appreciated correctly the ratio of the judgment rendered by Hon'ble the Supreme Court in the case of Aditanar Educational Institution(supra) and while applying the said judgment including the judgment which had been rendered by Hon'ble the Supreme C....
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....ensure compliance of those conditions. The cases where exemption has been granted earlier and the assessments are complete with the finding that there is no contravention of the statutory provisions, need not be reopened. However, alter grant of approval if it comes to the notice of the prescribed authority that the conditions on which approval was given, have been violated or the circumstances mentioned in 13th proviso exists, then by following the procedure envisaged in 13th proviso, the prescribed authority can withdraw the approval. (3) The capital expenditure wholly and exclusively to the objects of education is entitled to exemption and would not constitute part of the total income. (4) The educational institutions, which are registered as a Society, would continue to retain their character as such and would be eligible to apply for exemption under Section 10(23C)(vi) of the Act. [See para 8.7 of the judgment-Aditanar Educational Institution case (supra)] (5) Where more than 15% of income of an educational institution is accumulated on or after 1st April, 2002, the period of accumulation of the amount exceeding 15% is not permissible beyond five years, provided the excess ....
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....ary books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. The Income-tax Act 1961 does not condition the grant of an exemption under Section 10(23C) on the requirement that a college must maintain the status-quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The provisions of Section 10(23C) cannot be interpreted regressively to deny exemptions. So long as the institution exists solely for educational purposes and not for profit, the test is met. 25. We approve the judgments of the Punjab and H....
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....latives or has not been utilised for purposes other than education. Therefore, we are of the considered opinion that the assessee trust whose main object is imparting education, cannot be denied the benefit of provisions of section 10(23C)(iiiab) and (iiiac) merely on the basis of contradictory statements of a few donors. Neither any donor nor the Assessing Officer has lodged any complain before Government authorities for violation of the Act. Assessments of the trust have been completed in the past accepting the exemption u/s.10(23C) of the Act. Therefore, we find no reason to deviate in absence of any evidence brought on record for denying the exemption claimed u/s.10(23C) for the year. So far as the decision relied on by Ld. Departmental Representative is concerned, the same in our opinion is not applicable to the facts of the present case which was in context of section 10(23C)(iiiad). In view of our reasons given above we hold that the Ld.CIT(A) is not justified in denying the exemption u/s.10(23C) (iiiab) of the I.T. Act. We accordingly set aside the same and the grounds raised by the assessee are allowed. Although the appeal was decided on the issue of applicability of sect....
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.... 5 Notional Interest on advance to Rahul Karad - - - - - - - Sub Total(a) 221,273 75,000 116,007 339,981 627,342 683,580 2,063,253 6 Expenditure on providing facilities to B E Avhad -Credit card Expenses 133,891 142,529 180,004 242,566 279,298 178,264 1,156,552 7 Expenditure on foreign tours - - - - - - - 8 Concessional education- Relatives of Trustee 157,845 138,205 154,720 88,680 91,100 - 630,550 Sub Total(b) 291,736 280,734 334,724 331,246 370,398 178,264 1,787,102 9 Expenditure on foreign tours which be taken on pro-rata basis -Mr. & Mrs B E Avhad & 2 childs- Geneva 600,000 - - - - - 600,000 -Mr. & Mrs.Mangesh Karad- Europe - - 130,492 - - - 130,492 -Mr. & Mrs.V D Karad- Australia - - 58,703 - - - 58,703 -Mr. & Mrs V.D Karad- Paris - - - - - 357,442 357,442 -Mr. & Mrs B E Avhad- USA - - - - - - - -Mr. & Mrs V.D Karad-UK - - - - - - - Sub Total(c) 600,000 - 189,195 - - 357,442 1,146....
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....ee. So far as denial of exemption u/s.11 and 12 for violation of provisions of section 13(1)(c) are concerned the Pune Bench of the Tribunal in the case of Sinhgad Technical Education Society Vs. ACIT vide ITA No.320/PUN/2010 order dated 14-12-2016 has held that whenever there is violation of provisions of section 13(1)(c) or 13(1)(d) of the Act, exemption cannot be withdrawn for the entire income and income which is the subject matter of violation only can be brought to tax. The relevant observation of the Tribunal from Para 68 onwards read as under : "68. We have considered the rival arguments made by both the sides, perused the orders of the AO and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only question to be decided in this additional ground is as to whether for violation of provisions of section 13(1)(c) and 13(1)(d), exemption u/s.11 be denied to the whole of the income or will be confined to the extent of income which is in violation of provisions of section 13(1)(c) and 13(1)(d). 69. We find the Hon'ble Bombay High Court in the case of DIT (Exemption) Vs. Sheth Mafatlal Gagalbhai Found....
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....nserted by the Finance Act, 1984, The proviso specifically refers to violation of Section 13 (1)( d) and its consequences. In the circumstances, we find merit in the contention of the assessee that in the present case, the maximum marginal rate of tax will apply only to the dividend income from shares in Mafatlal Industries Limited and not to the entire income. Therefore, income other than dividend income shall be taxed at the normal rate of taxation under the Act. 70. We find the Hon'ble Karnataka High Court has followed the above decision of Hon'ble Bombay High Court in the case of CIT Vs. Fr. Mullers Charitable Institutions reported in 363 ITR 230. Subsequently, the Hon'ble Karnataka High Court in the case of CIT Vs. Karnataka Industrial Area Development Board has decided the issue in favour of the assessee by observing as under : "2. These two appeals were admitted on 2004.2010 and 16.7.2009 respectively. In ITA NO.557/2008, the following substantial question of law is framed for consideration: "Whether the Tribunal was correct in upholding the finding of the Appellate Commissioner thereafter directing a re-look in respect of the relief claimed u/s.11 of the Act and Sectio....
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....a lawyer and is also attending to the various works of the trust. Apart from using his own car he has also used the vehicle of the trust. Therefore, disallowance of the entire expenditure on account of vehicle maintenance under the facts and circumstances of the case is not justified. Considering the totality of the facts of the case, we hold that 50% of the vehicle maintenance expenses can be held as for the objects of the trust and the balance 50% is to be disallowed and brought to tax. 154. So far as the depreciation on motor car is concerned an amount of Rs. 1,71,388/- for A.Y. 2002-03, Rs. 1,37,111/- for A.Y. 2003-04 and Rs. 4,37,589/- for A.Y. 2004-05 have been disallowed. Since the motor car is owned by the trust, therefore, disallowance of depreciation in our opinion is uncalled for. Accordingly, it is held that such depreciation is for the objects of the trust and cannot be disallowed as a facility given to Shri B.E. Avhad. 155. As regards the expenditure on foreign tour is concerned, the visit to Katmandu by Shri Rahul V. Karad, in absence of full details given before the Assessing Officer and in absence of furnishing of the passport despite being asked to do so by the ....
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....able to any concession in fee given to the relatives of the employees. However, the same in our opinion is not applicable to the relatives of the trustees as defined in explanation 1 to section 13. The Assessing Officer is accordingly directed to bring to tax the concession in fees given to the relatives of the trustees only. So far as interest free loan of Rs. 18 lakhs given Mr. Rahul Karad is concerned, we find such interest does not relate to any of the years under appeal since nothing has been brought on record by the revenue that any such interest relate to any of the years under appeal. Even otherwise also, as held earlier there cannot be wholesale denial of exemption u/s.11. 158. So far as the expenditure incurred on account of credit card expenses of Shri B.E. Avhad is concerned, we find the Assessing Officer disallowed the same on the ground that the credit card was used for meeting expenses of hotel bills at Mumbai and New Delhi and air tickets to Mumbai and Delhi etc. It is also his allegation that the assessee being a Senior Advocate is regularly appearing before the Bombay High Court and Supreme Court and therefore his personal expenses has been met through such credi....
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....e computing the income u/s.11 the various disallowances/additions u/s.40A(3), 40A(7) and 43B etc. cannot be made u/s.28 to 43. 162. We find the Hon'ble Madras High Court in the case of CIT Vs. Rao Bahadur Calavala Cunnan Chetty Charities reported in 135 ITR 0485 has held that income for purposes of section 11(1)(a) has to be computed on normal commercial basis without reference to provisions attracted by section 14. The ground raised by the assessee on this issue for the respective assessment years under appeal are accordingly allowed. 163. The next issue that requires adjudication is ground of appeal No.9 for A.Y. 2001-02 where the assessee has challenged the addition of Rs. 4,27,004/- on account of treating certain expenses as capital expenses. 164. After hearing both the sides, we find the special auditor in his report u/s.142(2A) has observed that expenditure amounting to Rs. 4,27,004/- was capital in nature but was claimed as revenue in nature in the income and expenditure account. He, therefore, disallowed the same amount in the recasted income and expenditure account. However, while computing taxable income for the year the Assessing Officer again disallowed the same which....
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....is a charitable trust claiming exemption u/s.11 and therefore there was no question of payment of any income tax. The amounts were not paid towards income tax but towards TDS arrears of earlier year which is an allowable deduction. It is also his first alternate contention that the income in case of a charitable trust is to be computed in commercial manner and income tax expenditure will also be considered as application of income. It is his second alternate contention that even if the amount is disallowed for A.Y. 2002-03 and 2003-04 the application of income for these years being higher than the receipts, therefore, after granting exemption u/s.11 there is no taxable income in the hands of the assessee. 169. We find merit in the above submission of the Ld. Counsel for the assessee. Since we have already held that the assessee trust is eligible for claiming exemption u/s.11, therefore, the income of the assessee trust has to be computed in commercial manner and such expenditure which is on account of TDS arrears of earlier year will be considered as application of income. Even otherwise also according to Ld. Counsel for the assessee, after disallowance of the same, application of....