AI Drafter 
TaxTMI 
TaxTMI 
2018 (12) TMI 1553
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....in confirming the addition of Rs. 60,60,000/- made by the A.O. in violation of Section 13(1)(c) r.w.s. 13(2)(b) of the Income Tax Act, 1961 on account of interest free advances to the specified persons. 4. Under the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the addition of Rs. 4,68,55,950/- by treating the development receipts as revenue receipts instead of capital receipts for development purposes without considering the earlier judgments of Hon'ble ITAT. 5. Under the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the addition of Rs. 71,18,248/- (Rs. 2997140/- of registration receipts, Rs. 27500/- of book bank receipts and Rs. 4093608/- of form and late fees receipts) by treating the revenue receipt as against capital receipts and receipts for the particular purposes without considering the earlier judgments of Hon'ble ITAT. 6. Under the facts and circumstances of the case, the ld. CIT(A) has erred in not allowing the capital expenditure as application of income for computing income of the trust. 7. The assessee craves your indulgence to add amend or alter all or any grounds of appea....
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....of the Act in entirety which is not the spirit of provisions of Section 13 of the Act. Thus, the ld AR has submitted that once the Tribunal has allowed the claim for the A.Y. 2013-14 and 2014-15 then the denial of exemption U/s 11 and 12 of the Act is not justified and the same may be allowed to the assessee for the year under consideration. 4. On the other hand, the ld CIT-DR has relied upon the orders of the authorities below and submitted that the Assessing Officer has clearly made out a case of violation of provisions of Section 13(1) and 13(3) of the Act and consequently the assessee is not eligible for exemption U/s 11 and 12 of the Act so as to exclude the income from total income of the previous year. 5. We have considered the rival submissions as well as the relevant material on record. The Assessing Officer has made various additions on account of interest payment to the specified persons U/s 13(3) of the Act as well as the advance paid to the specified persons. The Assessing Officer has also made disallowances in respect of the salary paid to the specified persons. However, some of these disallowances made by the Assessing Officer were deleted by the ld. CIT(A) on ....
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....7 of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is ....
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....he appeal is regarding the addition of Rs. 60,60,000/- on account of interest free advances to specified persons. The ld AR of the assessee has submitted that the assessee Trust advanced a sum of Rs. 5,05,00,000/- to M/s Perennial Real Estate Pvt. Ltd. for purchase of land vide agreement dated 27/8/2012. The Assessing Officer held that the provisions of Section 13(2) of the Act are attracted on such advances as the trustees of the assessee are also Director in the said company. The ld AR has submitted that since it is not a loan or advance given to the company but the money was paid for purchase of the land and it was not either used or applied directly or indirectly for the benefit of any person referred to in Section 13(3) of the Act. Once the amount was paid for purchase of land under an agreement then it will not fall in the category of the income or property used for the benefit of the specified person. The ld AR has submitted that the Assessing Officer has made addition on notional interest of Rs. 60.60 lacs. The ld AR has pointed out that the payment was made under an agreement for purchase of land for a total consideration of Rs. 8.00 crores against which an advance of Rs. ....
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....n was more than the fair market rate or the prevailing price of the land, payment made under the agreement for purchase of land cannot be considered as the income or property of the trust is used or applied for the benefit of the specified persons. The assessee has clearly made out a case that the land in question was in the possession of the assessee and therefore, the payment made under the agreement for purchase of land. Once the possession of land was already transferred to the assessee then the payment in question was evidently for purchase of land. Therefore, merely because the conveyance deed was not registered as the assessee has not paid the balance payment of purchase consideration would not lead to the conclusion or any inference that the said payment was made for the benefit of the specified persons. The assessee is in possession of the land of Rs. 8.00 crores against which only Rs. 5,05,00,000/- was paid, therefore, we do not find any substance in the opinion of the Assessing Officer as well as the ld. CIT(A) holding that the said payment is falling in the category of application of income or property for the benefit of specified persons. Even otherwise the Assessing O....
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....ixtures as well as equipments is justified. Thus, the ld AR has submitted that even the Hon'ble Supreme Court has held that the development fee is a capital receipt to be used by the institutions for supplementing the resources for purchase of the requisite furniture, fixtures, up-gradation etc. He has relied upon the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Children's Education Society 358 ITR 373 and submitted that the Hon'ble High Court has held that building fund received from students is a capital receipt in nature and therefore, it is created directly to the corpus fund. The ld AR has then relied upon the decision of the Hon'ble Delhi Benches of the Tribunal dated 08/1/2014 in the case of ITO Vs. J.D. Tytler School Society in ITA No. 4476/Del/2011 and submitted that the Tribunal has held that the development fee collected by the assessee is capital receipt in nature and cannot be assessed as income of the assessee. Hence, the ld AR has submitted that once the assessee having no discretion for utilizing the development fee received from the students but it has to be used for the specific purposes as specified in the circulars/orders of the....
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....as itself not utilized the amount in the development reserve for the development purposes as claimed. (c) Further, this also shows that on one hand, the assessee intends to claim depreciation as well as investment/purchase of fixed assets towards application of fund as allowed u/s 11, however, at the same time the assessee intends to immune the funds received as development fees from the tax liability by directly taking them to the balance sheet in the form of development reserve. (d) The assessee claims that such funds were not utilized for operational purposes but only for the development of the institution. However, the books of the assessee tell a different story altogether. Nowhere from the books, it is seen that the assessee has spent this amount towards the development of the institution. The assessee has itself not quantified in its records as to how much of the amount from this development reserve was utilized towards development of the institution. Though, the assessee has spent on infrastructure projects during the year but at the same time the assessee has not claimed any expenditure from the development reserve towards this purpose. Hence, th....
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....t of infrastructure, up-gradation of institution, special amenities to students etc. Hence, the assessee is having no discretion about utilization of the development fee charged from the students but the said fee has to be utilized for the specific purpose as allowed by the Government. The Hon'ble Supreme Court in the case of Modern School Vs Union of India (supra) while considering the provisions of Delhi School Education Act, 1973 as well as the Delhi Education Rules has observed as under: "The judgment in TMA Pai Foundation's case was delivered on 31.10.2002. The Union of India, State Governments and educational institutions understood the majority judgment in that case in different perspectives. It led to litigations in several courts. Under the circumstances, a bench of five Judges was constituted in the case of Islamic Academy of Education v. State of Karnataka reported in [(2003) 6 SCC 697] so that doubts/anomalies, if any, could be clarified. One of the issues which arose for determination concerned determination of the fee structure in private unaided professional educational institutions. It was submitted on behalf of the managements that such institution....
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....ersonal gains or for other business or enterprise. The Court noticed that there were various statutes/regulations which governed the fixation of fee and, therefore, this Court directed the respective State Governments to set up committee headed by a retired High Court Judge to be nominated by the Chief Justice of that State to approve the fee structure or to propose some other fee which could be charged by the institute. In the light of the judgment of this Court in the case of Islamic Academy of Education (supra) the provisions of 1973 Act and the rules framed thereunder may be seen. The object of the said Act is to provide better organization and development of school education in Delhi and for matters connected thereto. Section 18(3) of the Act states that in every recognized unaided school, there shall be a fund, to be called as Recognized Unaided School Fund consisting of income accruing to the school by way of fees, charges and contributions. Section i8(4)(a) states that income derived by unaided schools by way of fees shall be utilized only for the educational purposes as may be prescribed by the rules. Rule 172(1) states that no fee shall he collected from....
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....cialization of education in schools is to insist on every school following principles of accounting applicable to not-for-profit organizations/ non- business organizations. Under the Generally Accepted Accounting Principles, expense is different from expenditure. All operational expenses for the current accounting year like salary and allowances payable to employees, rent for the premises, payment of property taxes are current revenue expenses. These expenses entail benefits during the current accounting period. Expenditure, on the other hand, is for acquisition of an asset of an enduring nature which gives benefits spread over many accounting periods, like purchase of plant and machinery, building etc. Therefore, there is a difference between revenue expenses and capital expenditure. Lastly, we must keep in mind that accounting has a linkage with law. Accounting operates within legal framework. Therefore, banking, insurance and electricity companies have their own form of balance-sheets unlike balance-sheets prescribed for companies under the Companies Act 1956. Therefore, we have to look at the accounts of non-business organizations like schools, hospitals etc. in the light of th....
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.... for this reason that under Section 17(3) of the Act, every school is required to file a statement of fees which they would like to charge during the ensuing academic year with the Director. In the light of the analysis mentioned above, we are directing the Director to analyse such statements under section 17(3) of the Act and to apply the above principles in each case. This direction is required to be given as we have gone through the balance- sheets and profit and loss accounts of two schools and prima facie, we find that schools are being run on profit basis and that their accounts are being maintained as if they are corporate bodies. Their accounts are not maintained on the principles of accounting applicable to non-business organizations/not-for- profit organizations. As stated above, it was argued that clause 8 of the order of Director was in conflict with rule 177. We do not find any merit in this argument. Rule 177(1) refers to income derived by unaided recognized school by way of fees and the manner in which it shall be applied/utilized. Accrual of income is indicated by rule 175, which states that income accruing to the school by way of fees, fine, rent,....
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....nual tuition fee. Direction no.7 further states that development fees not exceeding 10% to 15% of total annual tuition tee shall be charged for supplementing the resources for purchase, upgradation and replacement of furniture, fixtures and equipments. It further states that development fees shall be treated as Capital Receipt and shall be collected only if the school maintains a depreciation reserve, fund. In our view, direction no.7 is appropriate. If one goes through the report of Duggal Committee, one finds absence of non-creation of specified earmarked fund. On going through the report of Duggal Committee, one finds further that depreciation has been charged without creating a corresponding fund. Therefore, direction no.7 seeks to introduce a proper accounting practice to be followed by non-business organizations/not-for-profit organization. With this correct practice being introduced, development fees for supplementing the resources for purchase, upgradation and replacements of furniture and fixtures and equipments is justified. Taking into account the cost of inflation between 15th December, 1999 and 31st December, 2003 we are of the view that the management of reco....