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2018 (11) TMI 1426
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....ineering college named M/s. Vellore Institute of Technology (VIT) and it became a deemed university on 19.6.2001. Being registered u/s.12A of the Act, assessee was regularly claiming exemption u/s.11 of the Act. In the returns filed in response to notices u/s.153A of the Act also, assessee admitted ''Nil'' income after claiming exemption u/s.11 of the Act. Assessing Officer, however denied the claim citing the following reasons:- (i) Assessee was collecting amounts in excess of the prescribed fees from students, which was nothing but capitation fee. Such donations were not voluntary but given by parents of the students admitted to the institution, as a quid-pro-quo. (ii) Capitation fee accepted in the garb of donation was claimed as corpus donations. (iii) Donations were increasing on an year to year basis and corresponding increase in corpus fund were as under: Asst. Year Amount Increase 2002-03 5,38,39,500 Not applicable 2003-04 6,32,90,925 94,51,425 2004-05 8,71,65,250 2,38,74,325 2005-06 12,41,75,600 3,70,10,350 2006-07 14,04,38,300 1,62,62,700 2007-08 17,96,60,001 3,92,21,701 2008-09 ....
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.... at para 3 (vii) above, for denying the exemption claimed under Section 11 of the Act, ld. Assessing Officer had cited certain specific instances which, according to him, attracted the rigours of Section 13(1) (c) of the Act. These are listed hereunder:- (i) An agreement for purchase of 22.34 acres of land at Brahmapuram, Katpadi executed by the trust with one Smt. B. Ramani, daughter-in-law of the Managing Trustee was seized during the search. As per this, the agreed consideration was Rs. 1,00,00,000/-. However in the draft sale deed the agreed consideration was mentioned as Rs. 55,84,600/-. In the conveyance deed registered in favour of the assessee on 03.06.2004, consideration mentioned was Rs. 33,51,000/-. Assessee had paid the difference, which was on-money, to Smt.B. Ramani and this was a violation of the nature mentioned in Section 13(1) (c) of the Act. (ii) A sum of Rs. 22,34,000/- was paid again to Smt. B. Ramani for purchasing 6.32 acres of land, based on an agreement for sale dated 04.06.2004. The sale did not go through but was cancelled, without any specific reason. Though the amount of rRs. 22,34,000/- was returned by Smt. B. Ramani, there was divers....
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....nature specified u/s. 13(1) (c) of the Act. (vi) Loans aggregating to Rs. 1,00,00,000/- was raised on the security of fixed deposits, and this was given to Shri. Sampath, one of the trustees. Claim of the assessee that the amount was given to Shri. Sampath for acquiring a property at No. 56 and 56A, Thirumalai Pillai Road, Chennai could not be accepted. This property was never intended to be purchased by the trust and therefore there was a violation of the nature specified in Section 13(1) (c) of the Act. (vii) Diversion of funds for the benefit of the trustees and their relatives, was substantiated by the additional income disclosed by the following persons who were either trustees or their close relatives : Name of the assessee S/Shri. Additional income disclosed (G) Sankar/Ramani 1,35,78,153 Sampath/ Anitha 5,69,32,956 Selvam/ Preetha 82,10,279 Total 7,87,21,388 5. Ld. Assessing Officer, thereafter computed the income of the assessee starting from the surplus shown by it in its Income and Expenditure account for the respective assessment years, after making disallowance for loss on sale of assets, write- off of advan....
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....had no evidence to show that any such amount had reached the trustees or any specified person. Nevertheless, the ld. Commissioner of Income Tax (Appeals) held that a disallowance of 10% such expenditure could be sustained for the failure of the assessee to produce complete evidence in support of the claim. Ld. Assessing Officer was directed by the ld. Commissioner of Income Tax (Appeals) to tax such disallowance at maximum marginal rate. 9. In so far as refund of students advance fees and tuition fees were concerned, ld. Commissioner of Income Tax (Appeals) sought a remand report from the ld. Assessing Officer, since assessee produced affidavits from the parents, who had earlier stated to have received no such refunds. In such affidavits, it seems they affirmed receipt of such refunds. Ld. Commissioner of Income Tax (Appeals) took this approach since statements of the parents of the students, relied on by the ld. Assessing Officer for disbelieving the claim of refund of fee, were never put to the assessee during the assessment proceedings. From the remand report so obtained from the ld. Assessing Officer, ld. Commissioner of Income Tax (Appeals) found that ld. Assessing Officer ....
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....nlal Sunderdoss was concerned, ld. Commissioner of Income Tax (Appeals) noted that transactions clearly indicated squaring off of such advance within a short period of time. Ld. Commissioner of Income Tax (Appeals) brought out the transactions assessee had with Shri. Arjunlal Sunderdoss as under:- Date Debit Credit 24.10.2005 50,00,000 15.12.2005 50,00,000 19.01.2006 50,00,000 14.03.2006 50,00,000 11.05.2006 50,00,000 16.12.2006 50,00,000 Further, as per the ld. Commissioner of Income Tax (Appeals) Shri. Arjunlal Sunderdoss was not a trustee or a specified person and financial statements of Shri. V. Sankar and Shri. V.Sampath sons of the founder trustee of the assessee trust clearly indicated that they had not borrowed any funds from Shri. Arjunlal Sunderdoss. 13. In so far as acquisition of property by Smt. S. Preetha, daughter-in-law of Managing Trustee at 85, Second East Main Road, Gandhi Nagar, Katpadi, Vellore was concerned, ld. Commissioner of Income Tax (Appeals) noted that the property was acquired by Smt. S. Preetha and not the assessee. According to him, there wa....
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....ai could not be assessed under the head ''profits and gains of business'' and was to be considered as part of income from the property of the trust. 17. In so far as addition of G8,13,57,271/- made for change in method of accounting was concerned, ld. Commissioner of Income Tax (Appeals) held that such change was effected only in financial year ending 31.03.2008, based on accounting standard of Chartered Accountant of India. According to him, it was a legitimate change, consistently followed thereafter. He thus held that such addition was not justified. 18. Effectively ld. Commissioner of Income Tax (Appeals) sustained only 10% of the disallowances made for land development cost incurred in cash, while allowing the claim of exemption made by the assessee u/s.11 of the Act, for the impugned assessment years. 19. Now Department in its appeal has raised the following issues listed in the table given hereunder through its various grounds. Sl. No. Summary of grievance against CIT(A) order raised through various grounds ITA No.2219/ CHNY/2017, A.Y. 05-06 - Ground number ITA No.2220 /CHN/2017, A.Y. 06-07 - Ground number ITA No.2221/ CHN/2017, A.Y. 07-08 - Ground nu....
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.... to 7.2 (Connected issues repeated in grounds mentioned against Sl. Nos.18, 19 & 20) 5 & 5.1 ( Connected issues repeated in grounds mentioned against in Sl. 20) 7 to 7.2 N 11 CIT(A) erroneously ruled that no nexus was established by ld. AO to prove perceived diversion of funds to be beneficial for specified persons and ignored the additional income offered by such persons in individual assessments as well as statements under Section 132(4A) of the Act. CIT(A) erroneously held that diversion should bring direct benefit and indirect benefit was not sufficient. 7 to 7.2 8,9.1 & 9.2 11, 11.1, 13.1 & 14 8 to 8.2 12 Incorrectly directed application of maximum marginal rate of tax on 10% of land development expenses sustained. 8 & 8.1 10 & 10.1 12 & 12.1 9 & 9.1 13 Incorrectly held that assessee was entitled to exemption on G2,13,186/- surplus arising on sale of a plot at Bangalore for A.Y. 05-06 and G9,41,89,923/- arising on sale of flat at Chennai for A.Y. 2008-09 9 ---- ---- 12 14 Erroneously directed to treat loss on sale of assets, dona....
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....ugh the Co-ordinate Bench of the Tribunal in its order for earlier years had held the fees received by the assessee to be not in the nature of capitation fees, for the impugned assessment years there were number of others reasons also for denying exemption claimed by the assessee u/s.11A of the Act. These were not considered by ld. Commissioner of Income Tax (Appeals). (ii) Withdrawal of cash shown by the assessee as refund of advance fees and tuition fees were nothing but siphoning of funds, and such funds indirectly went to the benefit of specified persons. This was taken cognizance by ld. Commissioner of Income Tax (Appeals), but not given due importance. (iii) Ld. Assessing Officer had recorded statements from large number of parents, denying receipt of any refunds, and these were ignored by ld. Commissioner of Income Tax (Appeals) (iv) Shri. Prakash, Finance Officer, of the assessee had withdrawn large amounts in cash as imprest and claimed such amounts to have been incurred for land development, which was erroneously accepted by ld. Commissioner of Income Tax (Appeals). (v) Land development expenditure directly recorded in the books of the ....
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....law of the Managing Trustee, on money was paid out of cash drawings made by Shri. Prakash, Finance Officer from assessee's trust. (iii) Though Shri. Arjunlal Sunderdoss to whom loans/advances were given was not a related party, sons of the Managing Trustees had received loans from him. (iv) Payments made to M/s.GIE for property at Chamiers Road, was claimed to have been done based on a Memorandum of Understanding between the assessee and its trustees but such MOU, produced by the assessee before ld. Assessing Officer, was never found during the search. Such documents were all make believe in nature and manufactured for supporting the contention of the assessee that payment of trust funds to GIE was not for the benefit of the trustees. (v) Ld. Commissioner of Income Tax (Appeals) went wrong in observing that payment made by assessee to GIE having been shown as an asset in the Balance sheet of the assessee, there was no diversion of income. (vi) What is required to be proved by the Revenue is that there was diversion of funds or income of the assessee trust to the specified persons and this stood demonstrated. Section 13(1) (c) of the Act was there....
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....tution as a tool, they could very well have collected the donations in cash and not as demand drafts. Contention of the ld. Authorised Representative was that assessee from the very start of its operations had accepted only demand drafts from students and kept the identity proof of each of the parent and student on record for inspection by any authority. 25. Coming to the specific allegations raised by the Revenue, ld. Counsel submitted that the question whether donations received by the assessee from students and parents constituted capitation fee and whether the surplus arising to the assessee disentitled it from claiming exemption under Section 11 of the Act, stood decided in favour of the assessee through Tribunal's order in ITA 294 to 296/Mds/2014 in assessee's own case for assessment year 2002-03 to 2004-05. 26. Coming to the issue of land development expenditure, contention of ld. Authorised Representative, was that it had to be considered in light of the circumstances under which it was incurred. According to him, Vellore campus of the institution came to 300 acres, Madras campus came to 100 acres and Bangalore campus came to 60 acres. As per the ld. Authorised Repres....
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.... Ltd, (2014) 368 ITR 565, for supporting his argument that land development expenditure could be proved through indirect evidence. In any case as per ld. Authorised Representative, there was nothing on record with the lower authorities to show that any such amount was diverted or used by the trustees for their benefit. 28. On the cash refunds made against advance receipts from students, ld. Authorised Representative submitted that assessee had become a deemed university in 2001. According to him, seats in VIT was sought after by students all over India and for the entrance test for admission to 2100 seats available for the engineering stream, more than one lakh students regularly applied. Out of this, as per ld. Authorised Representative, about 10000 to 15000 students were invited for counseling, based on the marks obtained in the examination and such counseling was completed over a period of four days. According to him, there was unimaginable rush of people during this period and multiple forms were signed by the parents and kept for future use. Further, according to him, large number of parents used to send donations as demand draft, well before the admission process was on, u....
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....d. Reliance was also placed on the judgment of Hon'ble Delhi High Court in the case of Council for the Indian School Certificate Examinations vs. Director General of Income Tax, (2014) 364 ITR 508 and that of Hon'ble Gujarat High Court in the case of Surat City Gymkhana vs. DCIT, (2002) 254 ITR 733. 30. Viz-a-viz, the allegations of specific violations coming within the ambit of Section 13(1) (c) of the Act, ld. Authorised Representative submitted that the first one related to acquisition of a property by the assessee from Smt. B. Ramani, daughter-in-law of Managing Trustee. According to him, paper book page Nos.140 to 142 was the copy of the agreement. As per the ld. Authorised Representative, the value for which this property the measuring 22.34 acres of land at Brahmapuram, Katpadi was acquired was G33,51,000/-. This, alone was paid by the assessee and shown in its books. As per the ld. Authorised Representative, the transaction was done at the guideline value, and hence Department could not say that any benefit was derived by Smt. B. Ramani from it. What was received by her, as per ld. Authorised Representative, was the value of the property and receipt of a fair price canno....
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....238 which was a resolution passed by Board of the Trustees, ld. Authorised Representative submitted that trust had authorized Shri. G. Viswanathan, Shri. Sankar Viswanathan, Shri. G.V. Sampath, Shri. Sekar Viswanathan and Shri. G.V. Selvam, all of whom were trustees, to negotiate on behalf of the assessee trust for acquiring the said property. As per ld. Authorised Representative, agreement with the vendors entered on 3rd January, 2007 clearly showed that advance of G10,00,00,000/-, out of the agreed consideration of G34,77,50,000/-, was paid through pay orders issued from M/s. Indian Bank account of the assessee trust. According to him, all payments had directly gone from the assessee's bank account to the vendors. Relying on a Memorandum of Understanding entered between assessee and its trustees on 26th December, 2006, ld. Authorised Representative submitted that property was to be acquired by the trustees for the assessee and the mechanism of acquisition through trustees, was adopted to avoid elevated prices, if the vendors identified the assessee as the buyer. As per the ld. Authorised Representative, on recognizing that the property had an inchoate title, assessee had deemed i....
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....ing that the land development expenditure claimed was reasonable, fell in error in upholding a disallowance to the extent of 10%. In any case, according to him, maximum marginal rate of tax, if applied could only be on such amount which came within purview of violation of Section 13(1) ( c) of the Act and there cannot be a blanket denial of exemption under Section 11 of the Act. 38. Ad libitum reply of the ld. Departmental Representative was that benefit was derived by the trustees of the assessee, or their close relatives through the various land transactions. According to him, benefit did not mean that there should be a pecuniary surplus. As per the ld. Departmental Representative, on the question of the legitimacy of the claim for land development expenditure, answers given by Shri. Prakash, Finance Officer in the statements recorded from him on 16.11.2007 and 29.11.2007, were very relevant. According to him, Shri Prakash had clearly admitted that he was not aware about the persons to whom he had paid the money, though he admitted such disbursements to have been made by him personally to various lorry owners and other parties. According to ld. Departmental Representative , an....
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....Katpadi from Smt. B. Ramani for Rs. 33,51,000/-, for which agreed consideration was Rs. 1,00,00,000/-, gave rise to a presumption that the difference amount was coming out of trust funds, resulting in a benefit to Smt. B. Ramani who fell within the meaning of ''specified person'', thereby attracting Section 13(1) ( c) of the Act. (v) Whether advance payment of Rs. 22,34,000/- to Smt. B. Ramani for acquiring 6.23 acres of land at Kangaeyanallur, though later cancelled and refunded, resulted in a benefit to Smt. B. Ramani attracting Section 13(1) ( c) of the Act. (vi) Whether advance of Rs. 1,00,00,000/- paid to Shri. Arjunlal Sunderdoss during previous year relevant to assessment year 2006-07 and Rs. 50,00,000/- during previous year relevant to assessment year 2007-08, were diversion of income/property of the trust attracting Section 13(1) ( c) of the Act. (vii) Whether acquisition of property at No.85, Second East Main Road, Gandhi Nagar, Katpadi, Vellore by Smt. S. Preetha, daughter-in-law of Managing Trustee, for a sum of Rs. 40,00,000/-, in which there was an application for loan showing its value as G1,25,00,000/-, indicate that trust had advanced the....
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....t seat category (c) Non resident Indian students We find that there is a significant difference in the scale of fees for each category of students. Obviously, this is because the Government, in its wisdom, recognizes that unaided self financing educational institutions cannot be run by charging the lower fees charged by aided financial institutions. Therefore, the Government has permitted them to charge higher fees for the different categories. We find from the admission regulations and other documents submitted that 5% of the seats sanctioned by the University of Madras can be given to NRI students who are required to pay the highest scale of fees of ' 39200/- + 1000 Dollars. Out of the remaining seats 50% is under the "Free seats category" for which the fee prescribed is only Rs. 12800/-, the remaining 50% falls under "Payment seat category" which attracted a much higher fee of Rs. 47200/-. The reason for narrating the above facts is to appreciate the bigger picture in the field of education in our country. Tredltionellv education and health were considered the exclusive obligations of the State and was expected to be provided free of cost; subsidized rates or, at cost, to th....
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....ivate Limited, 210 ITR 299 (Ker) and Breach Candy Hospital Trust vs Chief CIT 322 ITR 246 (Bom). A careful appreciation of the aforesaid macro view can only lead to the irresistible conclusion that charging of higher fees from affluent students or raising funds for the laudable object of education, which is traditionally a State function, through donations, by an unaided self tinencinq educational institutions cannot deter the "charitable" nature of the activity and in any view make such activity "Commercial" in nature. 15. There is one more angle from which the present case can be approached. Although, charitable institutions earn surplus, if the promoters or the trustees or members of such a charitable institutions are precluded from and did not in fact participate or gain distribution of the surplus and the entire surplus is only applied or accumulated for charitable purposes, then occurrence of the surplus will not in any way militate against the claim of "Charitable" nature of the institutions or make it a commercial venture - CIT vs Pulikkal Medical Foundation Private Limited 210 ITR 301 (Ker). 16. We find from clauses 19 and 20 of the trust deed placed at pages No.6 to 17 of....
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....ome from business' and therefore, we dismiss Ground Nos. 1.d and Le raised by the Revenue. " By earning surplus, it cannot be said that the assessee is carrying on business activity. "23. Not being content with defending the order of the Id. CIT(A) restoring the exemption u/s 11 and assailing the Revenue's grounds of appeal, the Id.AR advanced erudite arguments on law to justify the grant of exemption u/s 11 which are dealt with hereunder: I. Exemption not anathema to "Surplus" arising out of charitable activity - if "surplus" is applied for "charitable" purposes. a. That the Revenue is importing the language of sec. 10(22) (deleted on 1.4.1999) that the educational institution should "exist solely for education purposes and not for purposes of profit" into sec.11 which has no such conditions and therefore, the generation of 'surplus' within the frame work of regulations of the competent authorities cannot be construed as a 'business' activity or 'profiteering' so as to deny exemption u/s 11. b. When the CIT, highest functionary of the Revenue had himself examined the very same aspect on 18.9.1998 (copy of this letter is fi....
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....owers of the concerned ... " " ... 10(22) should be evaluated or investigated every year and only if it was found that the 'institution' existed for educational purposes in the relevant year and even if any profit resulted which was only incidental to the purpose of education, the income would be ... ". American Hotel & Lodging Association Educational Institutes vs. CBDT - 301 ITR 86 (SC) " ... The mere existence of profit I surplus did not disqualify the institution ... ". ACIT vs. Surat Art Silk Cloth Manufacturers Association - 121 ITR 1 (SC) - 5 member bench " ... Not involving any activity for profit -meaning and scope ... " " ... So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be - it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not ... " CIT vs. Indian Institute of Computer Technology - 244 ITR 371 (KER) Birla Vidya Vihar Trust vs. CIT - 136 ITR 445 (CAL) " ... Educational Institution condition precedent - must exist solely for educational purposes and not for purposes of profit - position to be determined ....
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.... or anything else ... " Breach Candy Hospital Trust vs. Chief Commissioner (BOM) - 322 ITR 246 (BOM) 25. On a thorough reading of the judgments relied on, extracts from which are given above, we find that they apply in greater force to the assessee, whose claim for exemption is u/s 11, although most of the judgments have been rendered under sec. 10(22). We notice that, while sec 10(22) had an express condition that the institution should exist "not for purposes of profit" sec.11 does not impose any such condition. If the incidence of profit is not an impediment for allowing exemption u/s 10(22), as decided by the above line of cases and CBDT Circular, we fail to see the Revenue's claim that the surplus would militate the assessee's claim for exemption u/s 11 . We therefore, hold that the incidence of surplus during the course of activity of running the educational institution would not be a ground to state that the assessee is carrying on a business activity so as to forfeit exemption u/s 11. ". .... Therefore, for the relevant assessment years 2002-03, 2003-04 and 2004-05 where the assessments are based on the same search materials, in the same s....
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....,000/-1,00,000/- etc., are amount receivables but that is also not a conclusive proof for receipt of capitation fee. Similar Xerox copy of registers pertaining to management admission for PG courses are found in the pages, 110 to 139, 140 to 169 of the paper book from which no conclusive adverse inference can be made out. Page no.170 to 175 also refers to payment such as Rs. 8,00,000/- 2,00,000/- 1,00,000/- and 4,00,000/-, however no conclusive inference can be made that they are capitation fees. Page No.176 to 193 contain sheets wherein the remark column it is mentioned as "To Pay 2" To Pay 3 "To Pay 4" Nil Payment etc., however no conclusive inference can. be made that they are capitation fees. Page 194 to 199 contains letters for refund of donations but there is nothing to suggest that they are forced payments though an air of suspicion may arise. Page No.200 to 238 also contains certain requests for refunds from candidates and letters from companies such as Sundaram Finance, Brakes India Ltd., etc.,requesting for their candidates to be accommodated on sponsorships. We do not find this practice to be in violation of any law. ....
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.... having jurisdiction over the case had notified under section 10(23C)(vi) there was no applicability of section 11 or section J3 in those two years. The Department had not produced any evidence of breach of section 10(23C)(vi) of the Act and, therefore, the assessee-trust would be entitled to the benefit of exemption contained therein. The Department had proceeded on a wrong premise without any basic materials to establish a case of violation of section 13 of the Act. Therefore, the Tribunal was right in deleting the addition of capitation Fees. (ii) That the Assessing Officer had accepted the disclosure of the seized cash as the income of the individual and, therefore it could not be said that assessee-trust had violated the provisions of section 13(l)(d)." ii) In Queen's Educational Society Vs. CIT reported in 372 ITR 699(SC) the Hon'ble Supreme Court held as follows:- "The law common to sub-clauses (iiiad) and (vi) of section 10(23C) of the Income-tax Act, 1961, may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does no....
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.... to which approval has been given, such approval and exemption must forthwith be withdrawn." 19. Based on our above discussions, the facts of the case and the decisions cited by the learned Assessee's Representative, we hereby hold that the same decision of the earlier Order of the Tribunal in ITANo.1332/Mds/2010 and C.O.No.94/Mds/2010 for the assessment year 2001-2 will prevail for the assessment years 2002-03, 2003-04 and 2004-05 also, which is as follows:- "Corpus donations" received by the assessee cannot be treated as "capitation fees" and the surplus earned cannot be treated as "income from business". The employees of the assessee could not have knowledge on the assessee's affairs. By earning surplus, it cannot be said that the assessee is carrying on business activity. The assessee is entitled to the benefit of section 11 (4A) of the Act. Corpus donation received cannot be treated as capitation fee and therefore assessee cannot be denied benefit under section 11. Accordingly, we hereby direct the learned Assessing Officer to grant the benefit of section 11 to the assessee and delete the addition made by denying su....
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....s 12A(b) of the Act. The AR was at pains to point out that the income returned as per the books of account has been accepted and adopted in the assessment making adjustments only on legal issues. No addition whatsoever has been made for any concealed income or disallowance of any false claim of expenditure in the assessment order. ii. The AO has not totally brushed aside the documentary evidences produced by the appellant in regard to the claim of land development expenditure. Although he has expressed reservations on the genuineness of the cash expenditure, he has also stated elsewhere in the assessment order that vouchers in respect of certain items of expenditure such as wages paid to coolies, JCB operations etc., were properly maintained. His main contention is that the total expenditure claimed under this head is disproportionate compared to the corresponding extent of land value. iii. The only basis to come to this conclusion is the fact that the expenditures have been incurred in cash, with the AO's reservations on the vouchers supporting the cash expenditure. It is noted that the AO has not alleged that the Land development expenditure is NOT supported....
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....ld not accept cheque payments and necessarily payments were to be made by cash only. Had the intention of the appellant was to avoid cheque payment, then this modus operandi would have been adopted in the land development work at Bangalore also. It is not the intention of the Appellant to avoid cheque payment. Further, even if for argument sake, it is presumed that the appellant wantonly made cash payment to thwart the department's attempt to verify the veracity of the claim, it is unreasonable to reject the entire expenditure in toto. Without incurring any expenditure, such a massive work could not have been carried out. To have clarity on such expenditure incurred in cash and cheque at each of the 3 places AR has produced a table of the Land development expenditure at the 3 places, which is reproduced hereunder to bring clarity to decide this issue: VELLORE INSTITUTE OF TECHNOLOGY DETAILS OF LAND DEVELOPMENT EXPENSES Vellore Chennai Banga. Total Vellore & Chennai expenses considered as diversion by AO 1 2 3 4 (1+2+3) 5 (1+ 2) 05-06 A/C. Cheque ....
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....ly considered even the expenditure of about Rs. 18 lakhs at Vellore & Rs. 153.41 lakhs during 2008-09 a/y, paid by cheques after TDS, at Vellore and Chennai have been treated as not genuine and as diversion to the Trustees! xi. Considering all the above facts and that wherever it was possible the appellant had made cheque payment also and wherever it was not possible it made cash payment and further considering the fact that the cash expenditure is higher than that incurred by cheque is only 2.9% (as in para ix above) higher than that incurred by cheque, I am of the view that it would be fair to estimate the Land development expenditure not supported by evidence or as excessive at 10% of the said expenditure incurred in cash in the respective years to meet the ends of justice. Accordingly this ground of appeal is partly allowed. 42. Reason why ld. Assessing Officer disbelieved the claim of the above expenditure, apart from pointing out that these were incurred in cash, was that vouchers in support did not carry the address of the recipient, for supply of mormbu soil during the period 15.08.2005 to 20.08.2005. As per the ld. Assessing Officer, the rate per load was unifo....
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.... is whether refund of advance fees / tuition fees to students/parents were properly evidenced, and if not, could it be construed as funds diverted for the benefit of trustees/ specified persons, thereby attracting Section 13(1) (c) of the Act. The findings of the ld. Commissioner of Income Tax (Appeals) on refunds as it appear at paras 13.2.4 to 13.2.11 of his order are reproduced hereunder:- ''13.2.3 The facts presented and the observations & inferences of the AO in concluding that the refunds of Student advance fees and Advance tuition fee claimed to have been made to the students were not genuine were examined in detail. The submissions of the AR contesting the conclusion of the AO were also gone through. 13.2.4 It is seen that when the AO raised this issue and exemplified his inclination to reject the claim of the appellant during assessment proceedings, as per the appellant it took up the matter with the respective parents, obtained affidavits from the parents confirming the receipt of refunds from the appellant college. The appellant pleaded that unfortunately the AO rejected the same, on the plea that since the students were studying during the relevant tim....
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....e. However, Appellant complied with the direction of the AO in the best way possible in the circumstances, by obtaining confirmatory letters from most of the deponents and filing them with the AO. The AR submitted that in spite of accomplishing this herculean task, the AO did not give any weightage to the confirmations and gave a remand report against the appellant, brushing aside the same without assigning any reason. 13.2.9 After going through the entire materials, I am of the view that there is some sense and reasoning in the submissions of the appellant. Since the onus to disprove the affidavits was on the part of the AO, he himself ought to have summoned the deponents instead of entrusting the task to the appellant. With the powers vested on him under the provisions of the Act, he was obliged to and it would have been easier for him to enforce attendance to verify the veracity of the affidavits as per the Directions of this office in the Remand order. Having not done so, the action of the AO in brushing the affidavits and the subsequent confirmations aside does not appear to be reasonable. 13.2.10 Hence, without getting into unnecessary facts and legal quibbl....
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....es in cash is quite acceptable, especially when the number & % of students who have been repaid in cheque and cash are compared with the total aspiring students and applicants who paid for admission and withdrew later. The reason for higher repayment % of Tuition fee is also adequately and satisfactorily explained in para 2.15 above. Ill. Regarding the issue of statements from Parents recorded by the Department; affidavits produced from parents by the Appellant during assessment proceedings; retraction affidavits produced by the Appellant during remand proceedings before the AO & the remand report, I am convinced by the facts relating to these issues set forth in para 2.16 to 2.21 of the Appellant's written submissions, reproduced above to accept therefunds of Student Advances & tuition fees in cash as genuine, notwithstanding the views of the AO through coloured glasses. In the view that I have taken on being convinced about the genuineness of repayments in cash there is no material prejudice to the Appellant on account of the violation of principles of natural justice in the AO not providing copies of the alleged statements against the Appellant prior to the assessme....
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....the appellant's aforesaid submissions accepted by me; circumstantial evidence; the confirmations by parents independently obtained, which were brushed aside by the AO and the affidavits from parents whose statements recorded by the Department were purportedly against, confirming that they had .in fact received the refunds, which again was brushed aside by the AD in his remand report, I am convinced that the conclusion of the AD to treat the refund of Students advance fees & Tuition fee advances refunds in cash as not genuine cannot be endorsed or countenanced. vi. Finally in paras 77 & 83 of the assessment order reproduced above the AD's conclusion on disbelieving the cash refunds of student advances & Tuition fees is that it: "has to be treated as funds withdrawn by the trustees for the purpose of college expenses and said expenses were not proved and the proof adduced is treated as not genuine and therefore it has to be inferred that such cash refunds under the garb of refund of advance fees received has to be treated as funds diverted for the benefit of specified persons which constitutes violation under section 13(1) (c) of the Act" When the A....
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....isited the college premises. Further, as per the ld. Authorised Representative receipts were not issued for such amounts, which were all received in demand drafts except for that part considered as corpus donation. In any case, it is not disputed by the Revenue that during the remand proceedings, assessee had produced affidavits from a substantial number of parents acknowledging the refunds and had filed them before the ld. Assessing Officer. In our opinion, ld. Assessing Officer, if he chose not to believe these affidavits ought have summoned such persons and examined them. It was unfair on his part to require the assessee to accomplish an almost impossible task of producing all such parents. Especially so, when the ld. Assessing Officer had powers vested on him under the Act, to ensure their attendance or to get statements through commissions. Having not done it, in our opinion, ld. Assessing Officer fell in error in disbelieving the affidavits filed by the assessee. 45. Viz-a-viz, tuition fees, explanation of the assessee is that at the time of counseling, a sum of Rs. 10,000/- was collected from each aspirant for ensuring their earnestness but later refunded when seats were ....
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....opped the proposal of assessing the alleged on-money, after proposing the same. 9.1.4 Moreover, the seized so-called agreement for sale of land, contains only the signature of Ms. Ramani and none on behalf of the Appellant, which was observed by the AO also as such in the assessment order. Hence, no credence ought to have been placed by the AO on this document, wherein there were no signatures of the two parties for the agreement [but only one i.e. of Ms. Ramani] for concluding that the land was sold at Rs. 1 crore. If at all the transaction involved payment of on-money, certainly the appellant would have destroyed it and would not have kept the same, to be unearthed by the search party. 9.1.5 Further as per appellant, the subject matter of land is agricultural land. It is also to be mentioned here that a land which cost Rs. 17.58 lakhs will fetch Rs. 1 crore in just a period of three years is also unimaginable and unbelievable. 9.1.6 Finally, as has been held repeatedly by number of cases of the Honourable Madras ITAT cited in detail elsewhere in this order, to invoke sec. 13(1)(c), the Department must prove that the diverted funds of the trust has reach....
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....or religious institu?tion, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) : Section 13(3): (3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :- (a) the author of the trust or the founder of the institution ; (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees ; (c) where such author, founder or person is a Hindu undivided family, a member of the family ; (cc) any trustee of the trust or manager (by whatever name called) of the institution ; (d) any relative of any such author, fo....
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....ent cancellation thereof and disproves the suspicion of the AG. Hence, sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s 11 on this score. Hence this ground of appeal relating to 2005-06 is allowed''. 49. What we find is that both agreement for sale and cancellation agreement were registered and both these documents were found at the time of search. Assessee trust had paid a sum of Rs. 22,34,000/- to Smt. B.Ramani through cheque dated 03.06.2004 and the amount was returned by Smt. B. Ramani on 20.9.2004, on cancellation of the proposal. Hence the period for which Smt. B.Ramani had the money with her was 3.6.2004 to 20.09.2004. Intention of the trust to acquire the property from Smt. B.Ramani is clear in that the agreement was registered. There is no case for the Revenue that agreed price of Rs. 52,46,570/- was more than the fair market price. Just because the sale did not go through and the amount was returned by Smt.B. Ramani would not be sufficient to hold that she benefited from such transaction. The intention in entering the transaction was not to benefit Smt. B. Ramani, but for acquiring the property for the assessee trust. We cannot say that Sectio....
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....or its activities. Thus, we cannot say that the advances were given for no reason. In any case, Shri. Arjunlal Sunderdoss is neither a trustees nor a specified person coming within the meaning of Section 13(3) of the Act. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in taking a view that Section 13(1) ( c) of the Act could not be invoked here. 52. Next we have to answer whether the acquisition of a property at No.85, Second East Main Road, Gandhi Nagar, Katpadi, Vellore by Smt. S. Preetha, daughter-in-law of Managing Trustee, for a sum of Rs. 40,00,000/- in which there was an application for loan indicating the value of the property as G1,25,00,000/- meant that assessee had advanced the difference sum through Shri. Prakash, Finance Officer to Smt. S. Preetha, attracting Section 13(1) ( c) of the Act. Findings of the ld. Commissioner of Income Tax (Appeals) on the above mentioned property of Smt.Preetha, as it appear at para 11.3 of his order is reproduced hereunder:- ''11.3 The AO's conclusion that Appellant's money was diverted and paid as on-money by Mrs.S.Preetha, daughter in law of the Managing Trustee, stands d....
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....k the advance was also a problem since there were several owners in respect of the property and they would return the advance only after finding a suitable buyer, apart from the possible liquidated damages of Rs. 1 crore in the absence of specific performance. At this juncture the trustees decided to form a partnership in the name of Global Infrastructure Enterprises and bought the property. The said firm later returned the advance which was paid by the appellant to the seller, thus saving the trust from incurring loss. 12.1.6 Now what requires to be examined is as to whether the advance paid by the Appellant to the sellers of the property can be considered as a loan to the Trustees in whose names the agreement was entered into. The answer to this question is an emphatic NO, because the money was paid by the Appellant trust and recorded in its books of accounts as an asset and duely reflected in its balance sheet as an asset. When the money paid by the trust to another person for the purchase of a property for the trust, albeit in the name of the Trustees, is entered in its books of accounts and shown as an asset in its Balance sheet, by no stretch of fiction or imaginatio....
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....n obligation, for and on behalf of the Trust. Hence, it is clear that in the eyes of Law the advance paid for purchase of property in the name of the trustees which is reflected in the accounts and the Balance sheet of the trust, is legal and only a trust property and can lead to no 'diversion' u/s 13(1)(c) solely for that reason. 12.1.8 The next issue that requires examination is, as to whether the final registration of the property in the name of a firm, in which only the Trustees are partners can lead to the same legal conclusion as above. To make a fair assessment of the situation, an over all view of the facts and circumstance of the facts narrated above, the detriment if any to the trust as a consequence of such registration and the possible benefits or prevention of opportunity costs and liabilities to the trust have to be evaluated. On a fair view of the events and circumstances leading to the registration of the property in the name of the firm Global infrastructure enterprises {GIE}, in which only the 5 trustees were partners, I am convinced that there is no 'diversion' or application' of the income or properties of the trust for the benefit o....
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.... funds to complete the purchase and ultimately could do so from Indian bank and repaid the advance given by the appellant immediately on obtaining the loan. x. Appellant has filed the financial statement of GIE (which did not have any other business, income, asset or liabilities other than relating to the property at Chamiers road) from its inception in A.y.2008-09 upto A.y.2016-17 to prove that the said firm, INSTEAD of gaining any benefit as concluded by the AO had in fact been saddled with a losses and a debt of Rs.S.2S crores as at 31.3.2016, after havlnqsold the Chamiers road property at a loss. Thus the Appellant was saved from the above debt burden of Rs.8.25 crores as a result of the purchase of the property by the GIE. As the related person did not earn a single pie from the alleged diversion, but was only saddled with a huge loss as above, sec.13(1)(c) cannot be invoked. Reliance is place on Appellant's legal submissions below: "1.4 Reliance is placed on the decision of the Madras Tribunal in Soorya educational trust vs ITO in ITA No.579/Mds/2012 - copy enclosed [ANNEXURE 38J, where, in para 13.2, the ITAT has netd that if the specified person has no....
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.... acquisition was attempted directly, the prices would have been jacked up cannot be brushed aside. We also find that agreement for sale dated 03.01.2007 placed at paper book pages 238 to 246 show the advance payment of Rs. 10,00,00,000/- as to have been made from the bank account of the assessee trust directly to the vendors. Thus it is not a case where any money of the assessee trust had flowed into accounts of the trustees. Legal opinion of Shri S. Giritharan, advocate, placed at page book 247 to 250 does show that there were some defects in the title. Ld. Assessing Officer had disbelieved this legal opinion citing that the mobile number of Shri. S. Giritharan mentioned in the certificate issued was incorrect. However, we find that the document gave the address of the advocate, for his office, for his residence and for his chamber. No doubt the property was eventually purchased by the firm M/s.GIE in which trustees of the assessee trust were the partners. Nevertheless, contention of the assessee that such a step had to be taken, for avoiding the loss that would have been arisen, if it had cancelled the agreement, cannot in our opinion be ignored. Intention of the assessee was to ....
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....her advance for the property at Thirumalai Pillai road, Chennai, I am convinced that there is no 'diversion' or application' of the income or properties of the trust for the benefit of the prohibited persons u/s 13(3) for the following reasons: i. Shri Sampath, trustee, had entered into a registered agreement for the purchase of the property at Thirumalai Pillai Road, Chennai by paying an advance of Rs.10,00,000/- ii. As the transaction in respect of Chamiers Road property was not fructified, as narrated above, .... the appellant was in search of another property to start the training centre and as ths Thirumalai Pillai road property construction was substantially completed and Appellant could quickly commence its training centre, appellant had requested Shri Sampath to allow it to purchase the property for its training centre, pursuant to which an agreement was entered into by which Shri Sampath nominated the Appellant as the ultimate purchased, after which Appellant paid the sum of Rs..1 crore as further advance. Ill. Having paid a substantial portion of the agreed price, when the Appellant commenced the task of applying for approvals to the....
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....omination deed dated 16.02.2007 placed at paper book pages 266 to 271. Thus, the intention of the assessee as well as Shri. Sampath, when he entered into the agreement for acquiring the property from M/s. Bommidala Realty, was to acquire the property for the assessee. Argument of the ld. Authorised Representative that this acquisition was planned as an alternative to the proposal for acquiring the Chamiers Road property which fell through due to defects in title, carries much strength. The question of benefit arising to a trustee or specified person would arise only if the transactions were entered with the intention of benefiting such person. Flow of events clearly indicate that Shri. Sampath had not benefited himself, by using the money of the trust. His intention was only to acquire the property for the trust. Just because the transaction did not go through, would not mean that Shri. Sampath, had directly or indirectly benefited from it. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in holding that there was no violation of the nature mentioned in Section 13(1) (c) of the Act. 57. Before parting, we will be failing in our duty if ....
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....egate of funds alleged to have been diverted came to 98.66 crores and what were admitted as personal income by trustees/relatives were only G7.87 crores. Revenue was unable to bring on record any unexplained investments or asset held by the trustees and their relatives, which could reflect such diversion of income. Thus the onus which was on the Revenue to show diversion of income or property of the trust for the benefit of trustees or specified persons was not discharged. 58. Apart from the grounds relating to denial of exemption u/s.11 of the Act, there are certain others grounds raised by the Revenue in its appeals for various years. These grounds are dealt with hereunder:- 59. Through its ground No. 8 for assessment year 2005-06, ground No.10 for assessment year 2006-07, ground No.12 & 12.1 for assessment year 07-08 and ground No.9 and 9.1 for assessment year 08-09, Revenue assails the direction of the ld. Commissioner of Income Tax (Appeals) to tax the assessee at maximum marginal rate on the disallowed part of land development expenditure alone. We have already held at paras 41 & 42 above, there were no reasons to make any disallowance for land development expenditure c....
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....nd that the Appellant has acquired other capital assets during the year. Hence, this ground for A.Y.2008-09 is ALLOWED''. Ld. Commissioner of Income Tax (Appeals) had allowed the above claims since assessee was entitled for exemption u/s. 11 of the Act. Ld. Commissioner of Income Tax (Appeals) held that there was no reason for the Revenue to take a view that the sale of the flat/plot was part of any business in real estate, done by the assessee. Nothing has been brought before us by the ld. Departmental Representative to take a different view. 61. In its ground No.13 to 13.2 for assessment year 2008-09, Revenue assails the deletion of an addition of Rs. 8,13,57,271/- made by the ld. Assessing Officer for change in method of accounting from cash to mercantile. Findings of the ld. Commissioner of Income Tax (Appeals) on this issue is reproduced hereunder:- ''21.1 In his computation of income for A.Y.2008-09, the AO has added Rs. 81357271 as: '''Adjustment by way of change in method of accounting:" By concluding that the accounts of earlier years were also maintained on accrual basis and therefore there is no change in the method of account....
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....tive could not place anything to take a different view from that of ld. Commissioner of Income Tax (Appeals). 62. Grounds 1, 10, 10.1 for assessment year 2005-06, grounds 1, 11 and 11.1 for assessment year 2006-07, grounds 1, 13.1, 14 for assessment year 2007-08 and grounds 1 & 14 for assessment year 2008-09 raised by the Revenue are general in nature needing no specific adjudication. 63. Now we take up appeals of the assessee. 64. There are two common grounds taken by the assessee for all the assessment years. These assail the order of the ld. Commissioner of Income Tax (Appeals) upholding the validity of notice issued u/s.153A of the Act, and sustenance of disallowance to the extent of 10% of land development expenditure. 65. Viz-a-viz, validity of notice issued u/s.153A of the Act, we find that ld. Commissioner of Income Tax (Appeals) had followed the order of the Tribunal in assessee's own case for assessment years 2002-03 to 2004-05 in ITA Nos.294 to 296/Mds/2014, dated 22nd June, 2016. What was held by this Tribunal in the said decision is reproduced hereunder:- "After hearing both sides, we are of the considered view that initiation of proceedings under ....