TaxTMI 
TaxTMI 
2024 (9) TMI 262
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.... could be seen that for this year, an order was passed by Tribunal vide ITA No.1080/Mds/2015 on 18-03-2016 against an order passed by revisionary authority u/s 263 on 27-03-2015. The substantive adjudication of Tribunal was as under: - 12. Now coming to the merit of the appeal filed by the assessee, now doubt, the assessee-trust constructed a community hall on the piece of land allotted by Government of Tamilnadu. The land originally belongs to Cosmopolitan Club, Madurai. The main objects of the trust are establishing educational institution and providing scholarships to the students. Running of community hall / kalyana mandapam is not the object of the assessee-trust as per the trust deed. Sec. 11(4) of the Act enables the charitable institution to hold a business undertaking as a property held under a trust. Sec. 11(4A) of the Act provides that when the business of the trust is incidental to the attainment of the objectives of the trust and the trust is maintaining separate books of account in respect of such business, the provisions of sec. 11 would be applicable and the assessee is entitled for exemption. The Assessing Officer, in fact, found that running of community ....
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.... opinion that the matter needs to be reexamined by the Assessing Officer in the light of the material available on record with regard to utilization of the income for charitable activity. Accordingly, while confirming the exercise of jurisdiction by the CIT(E), the Assessing Officer is directed to examine the utilization of the income of the assessee-trust in the light of the material available on record including the tax evasion petitions said to be received and thereafter decide the claim of exemption u/s 11, in accordance with law after giving a reasonable opportunity to the assessee. 14. With the above observations, the appeal of the assessee is partly allowed. The Tribunal, while upholding the revision, remitted the matter for re- examination by Ld. AO considering the material on record with regard to utilization of the income for charitable activity. The Ld. AO was directed to examine the utilization of the income of the assessee-trust and thereafter decide the claim of exemption u/s 11, in accordance with law. The aforesaid order attained finality since the assessee as well as revenue did not prefer any further appeal against the same. The Ld. AO gave effect to t....
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.... 1.4 The assessee challenged the aforesaid observations of Hon'ble Single Judge on merits in Writ appeals before coordinate bench of Hon'ble High Court of Madras vide WA Nos.114 & ors. of 2023. It was submitted that learned Single Judge made observations on the merits which would adversely affect the assessee's right to appeal and reduce the exercise of filing appeals a mere formality since the appellate authority would be influenced by the observations of the learned Single judge. Concurring with the same, the co-ordinate bench in its order dated 08-02-2023, held as under: - 6. Following the above judgment of the Hon'ble Supreme Court, the observations / findings on the merits of the case made by learned Single Judge, in the order dated 26.07.2022 passed in the writ petitions are vacated / set aside and the Appellate Authority is directed to decide the appeals, if filed on merits and uninfluenced / unobsessed by the observations of the learned Single Judge. The captioned writ appeals stand disposed of accordingly. No costs. It was thus directed by Hon'ble Court that appellate authority was to decide the appeal on its merits uninfluenced by the observations of learned s....
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....ed was executed on 21-10-1999. 2.4 The Ld. AO, on the basis of records and impounded material, alleged that trust did not let out the Kalyana Mandapam to poor people charging 50% of normal rent. In fact, Kalyana Mandapam was being managed with a profit motive which was evident from the fact that the rate of profits from Kalyana Mandapam ranged from 62% in AY 2009-10 to 92% in 2012-13. Therefore, Ld. AO concluded that the assessee trust did not exist for charitable purposes. The Ld. AO bolstered the allegation by observing that upon perusal of cash books as impounded from Madurai, the assessee collected Kalyanamandapam receipts of Rs. 124.58 Lacs during the period from 01-04-2009 to 31-03-2010 for letting out Kalyana Mandapam on rental basis for conducting various functions. The assessee collected receipts under various heads which were as under: - No. Description Amount 1. Donations 64,87,875 2. Hall Rent 4,11,011 3. Refundable Deposit 23,68,500 4. Amenities 2,96,695 5. Extra Rooms 1,71,000 6. Service Tax 1,63,635 7. Diesel 7,40,885 8. Gas 6,53,940 9. Electricity 3,95,978 10. Water & ....
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....tem from the fact that during the course of inspection proceedings at the assessee's premises in Chennai on 08-01-2016, a sheet relating to corpus fund transfer was found which was impounded in ANN / KVD / B&D / IMP/8 - LS#25. This sheet bears a caption "Actuals received" against which an amount of Rs. 66.71 Lacs was mentioned for this assessment year. The same would lead to a conclusion that the assessee actually received corpus donation of Rs. 66.71 Lacs as against disclosure of Rs. 52 Lacs. There was a difference of Rs. 14.71 Lacs. The assessee stated that this amount includes ordinary donations of Rs. 14.71 Lacs. However, since the sheet bear the heading "Corpus fund transfer", the explanation of the assessee was rejected and the differential of Rs. 14.71 Lacs was brought to tax as anonymous donations u/s 115BBC. 2.9 The Ld. AO also noted the object clause 3(k) wherein one of the objects of trust was to 'To build kalyanamandapam, pravachana mandapam etc., for the use and benefit of the public'. The Ld. AO opined that this activity would fall in the category of activity in the nature of "advancement of general public utility" as held by Chennai Tribunal in the case of M/s....
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....ion received either as service charges or donations, it forms part of value of taxable service whereas under Income Tax Act if there is nexus between corpus donation and consideration received for service rendered, so long as the donor and donee understand and accept that the donation is for furthering of charitable activity of the institution, the nature of payment is a donation towards corpus fund and not fees for services rendered to the donor by the donee. 3.2 However, in the remand proceedings, Ld. AO went by the declaration made by the assessee before Service Tax Department wherein Corpus donations were offered to service tax and additional service tax was paid by the assessee for various years. The Ld. AO observed that corpus donors were none other than the hirers of hall. The assessee accounted a portion of the rental receipts as corpus donations. The concealed rental receipts were declared as service income before service tax department under VCES. The assessee activities would fall under advancement of general public utility (GPU) and accordingly, it is hit by proviso to Sec. 2(15). The major portion of application of income was claimed as administrative expenditure an....
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....ic. Accordingly, the assessee had leased out certain land which was approved by Govt. of Tamil Nadu on certain conditions including the condition that the kalyanamandapam should not be run with profit motive and it should be let out to poor people at 50% of normal rental charges. Considering certain tax evasions petitions, Ld. CIT(E) invoked powers u/s 263 on 27-03-2015 wherein certain directions were given. 3.7 In the meanwhile, an inspection was carried out at the premises of the assessee on 08-01-2016 and day book and other documents were impounded on the basis of which Ld. AO held that the amounts were collected by the assessee under various heads. The person who booked kalyanamandapams had only contributed donations which would show that donations were nothing but part of kalyanamandapams receipts. The trust made hirers pay major part of collectible rent as corpus donation and it used to collect minimum amount as rent. Therefore, the donations were falsely termed as corpus donations in the financial statements for which exemption was claimed u/s 11(1)(d) of the Act. This same would be evidenced by the fact that the assessee disclosed corpus donations as rental receipts unde....
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....incidental profit-making also in not a good law. Once GPU is carried on as business, Sec.11 exemption would not be available as business income ploughed back to charity is irrelevant. 3.10 The Ld. CIT(A), in para 12.3, observed that though the assessee has main object of establishing educational and medical institutions and instituting scholarship endowments, these were not implemented. Only object clause 3(k) viz. running of kalyanamandapams was executed in reality. This activity would fall under the category of GPU. The activity of kalyanamandapams was being run as main activity and not incidental but with pure profit motive. If the corpus donations are added back, it would be evident that the assessee was collecting high rental receipts. Only a part of the net profits of the kalyanamandapams was being utilized for charitable purposes viz. school fees, CM relief fund, PM relief fund. As per decision in AUDA, ploughing back of business income to feed charity would be irrelevant factor. Therefore, the surplus / profit from kalyanamandapams which being an object of advancement of GPU, even if used for charitable purposes could not entitle the assessee to claim exemption u/s 11. T....
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.... Ld. AO, in this regard, at para 12.13 of the impugned order. 3.12 On the issue of suppressed hall receipts, it was stated by the assessee that Ld. AO has taken the credit entries alone as miscellaneous income but not taken the debit entries for payments made for services rendered. Further, refundable deposits were collected only as precaution against possible damages and the same has been returned to the hirers after the event was over. The assessee also argued that complete list of donors was available and therefore, the same could not be taxed u/s 115BBC of the act. This argument found acceptance with Ld. CIT(A) who concurred that names and address of the hirer was available from whom various charges were collected in the guise of donations. The Ld. AO was directed to verify whether the donations were already included as part of total receipts of corpus donations treated as rental receipts and ensure that this amount was not added twice in the computations. The Ld. CIT(A), accepting the argument of double addition, in para 12.15.5, issued suitable directions to Ld. AO regarding double addition of donations, refundable deposits, miscellaneous income etc. Accordingly, the argum....
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....ision regarding depreciation was already rendered. 3.17 The assessee also challenged penalty levied by Ld. AO for AYs 20-13-14 to 2015-16. However, Ld. CIT(A) rejected the same on the ground that the assessee had furnished inaccurate particulars of income as well as concealed its income and therefore, penalty was justified. However, Ld. AO as given liberty to reduce the same while giving effect to the order on assessment. 3.18 Aggrieved as aforesaid, the assessee is in further appeal before us with following grounds of appeal: - 1. The order of the Commissioner of Income Tax (Appeals) [CIT(A)] is against the law, the facts and circumstances of the case and the principles of equity and natural justice. 2. The order of the CIT(A) is without jurisdiction, particularly since the CIT(A) had failed to follow binding judgement of the Hon'ble High Court and this Hon'ble ITAT. The order of the CIT(A) is in gross violation of natural justice. 3. The CIT(A) erred in holding that the activities carried on by the appellant falls under the category- "any other object of general public utility" (GPU activity). 4. The CIT(A) erred in taxing the cor....
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.... this Hon'ble Tribunal to verify utilization of income, the CIT(A) erred in holding that the aspect of utilization of income was irrelevant. Our findings and Adjudication 4. Upon careful consideration of factual matrix as noted by us in the preceding paragraphs, we find that the Tribunal, in its order dated 27-03- 2015 remitted the matter back for re-examination by Ld. AO considering the material on record with regard to utilization of the income for charitable activity. The Ld. AO was directed to examine the utilization of the income of the assessee-trust and thereafter decide the claim of exemption u/s 11 in accordance with law. The aforesaid order attained finality since the assessee as well as revenue did not prefer any further appeal against the same. On the basis of revision order, the assessment of other years have been reopened which were subject matter of assessee's challenge before Hon'ble High Court of Madras. The Hon'ble Single Judge made certain observations and refused to exercise jurisdiction under Article 226. The assessee challenged those observations before co-ordinate bench wherein bench concurred with the grievance of the assessee and directed appellat....
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....e may have collected amenities charges on actual basis from hirers. In that event, the assessee would incur equivalent expenditure to procure those services and finally the resultant income out of these receipts would ultimately be nil. In other words, though these charges would still be subjected to service tax, however, under the income tax act, the same would not result into income for the assessee. To put it more clearly, the collection of such charges, being connected with renting of hall, would still be chargeable to service tax notwithstanding the fact that the same would ultimately have not income element in the same. Therefore, the concept of service income under Service Tax Act as well as concept of income under Income Tax Act would be quite different from each other and the two could not be equated with each other. Pertinently, there is no allegation or finding by Ld. AO that the corpus donations as received by the assessee were non- voluntary or forced donations. Notwithstanding the fact that the hirer of the hall and contributor of donations were the same persons, the donor thereof understood the donations to be corpus donations and voluntary contributions only and agr....
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....he assessee has earned huge margins on such receipts. The profitability analysis as done by Ld. CIT(A) treat corpus donations as part of rental receipts. The same, in view of our finding in para-6, is to be excluded from rental receipts. If we exclude the corpus donations from rental receipts, the surplus earned by the assessee from this activity over various assessment years, as tabulated on page no.230 of the paper-book, would be as under; - AY Interest & Other Income Hall Rent Collection Gross Receipts Total Expenses as per Audited Accounts Capital Exp. Loan Repayment not claimed earlier Depreciation Allowable Total of Utilization 85% utilisation on gross collection Excess / Shortfall in Utilization Commulativ e Excess / Shortfall in Utilization 2009-10 230605 2268994 2499599 3488254 1354626 800000 2705871 8348751 2124659 6224092 6224092 2010-11 1701031 2454427 4155458 3938734 2182270 1200000 2360289 9681293 3532139 6149154 12373246 2011-12 1511161 3861425 5372586 5247521 903000 0 2217088 8367609 4566698 3800911 16174156 2012-13 15....