TaxTMI 
TaxTMI 
2024 (11) TMI 357
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....ppeals) is justified in treating receipts of development fund of Rs. 2,27,78,950/- as capital receipts/corpus donation, earmarked as development fund by the assessee himself whereas the students or persons depositing the fee paid it as fee only, and nowhere has indicated that same is capital receipts/corpus donation." 3. Whether the Id. CIT(A) is justified in treating the receipts of development fund as capital/corpus receipts just on the basis of earmarking by the recipient trust, while as a matter of law it is the prerogative of donor/payer whether he want to pay for corpus or general 4. Whether Ld. CIT(A) is justified in holding advance of Rs. 1,62,86,091/- given to other trust cannot be treated as investment or deposit. While assessee trust failed to kept excess fund in the mode prescribed u/s 11(5), which is the violation of section 13(1)(d) of the Income-tax Act. 5. Whether Id. CIT(A) is justified in allowing exemption u/s 11 of the Income-tax Act while misappropriation of the funds done by the assessee by utilizing them other than the mode prescribed u/s 11(5) of the Income-tax Act 6. Whether Id. CIT(A) is justified in reducing disallowanc....
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.... 7.2 I am inclined to agree with the view of the appellant on this issue. From the various decisions on the issue what emerges is that what is required to be seen is not the manner in which the money is collected but rather the manner in which the sums are utilized. The Coordinate Bench of the ITAT in the case of ACIT vs JSS Mahavidyapeetha in ITA No 735/Bang/2012 has stated that the litmus Test of charitable institutions is the application of the funds and not the colour of the contribution. It has stated that the question whether the donations were voluntary or not becomes relevant and what becomes relevant is the application of such conditions for the objectives of the trust which are admittedly charitable if the development fee is used for the purposes of creating infrastructure then the same would be treated as a capillal receipt 7.3 Applying the test of application to the facts of the present case it is seen that application of the development fees collected is as under:- F.Y. Development fees received Addition to fixed assets 2007-08 65,14,702 1,15,37,327 2008-09 1,11,20,120 1,62,58,346 2009-10 1,35,75,701 41,10,041 2010-....
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....f bang utilized for the purposes of infrastructure development is to be treated as a capital receipt The extract of the judgement is reproduced below ''15. Thus, we find primarily the tuition fee is meant to incurring revenue expenditure, the development fee is aimed at requirement of equipments and acquisition of capital assets. On the issue, whether the development fee is revenue in nature or capital in nature. Reliance is being placed on the orders of Coordinate Bench of Tribunal in the case of Global Institute of Technology vs. DCIT (Exemption) in ITA No. 1066/Jp/2018 dated 05.11.2018 wherein it was held as under:- "Addition of development receipt/fee treating the same as revenue receipt Held that The development fee received by the assessee from the students as per the guidelines fixing the fee structure by the State Government for the technical institutions and applying the other conditions as specified in the orders of the State Govt. is capital in nature and not revenue Accordingly, we delete the addition made by the Assessing Officer on this account" 16. The Co-ordinate Bench of ITAT in the case of ACIT vs. JSS Manavidyapeetha in ITA No 735/Bang/....
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....ng the only way that one can find out whether there was a specific direction in to find out how the money so paid it is utilized. 21 In the instant case the Development Fee has been directly taken to corpus account as capital receipt u/s 11(1)(d) and has also invested in the fixed asset in the year 22. Ergo, we hold that the Development Fee is to be treated as corpus fund allowed to be taken as capital receipt.'' 76 In view of the above discussion and relying on the above judgements, it is held that Rs 2,27,78,950/- on account of development fund is a capital receipt and would not be added to the Gross receipts in the Income and expenditure account. The Ground of Appeal is Allowed 3.2 During the course of hearing, the ld.DR supported the order of the AO and submitted that the AO is justified in treating the amount of Rs. 2,27,78,950/- as revenue receipt. The narration as made by the AO in the assessment order is reproduced as under:- ''13. In view of the above discussion, the above fee amount of Rs. 2,27,78,950/- collected by the assessee under the garb of Development Fund is included in the gross receipts of the assessee society treating the ....
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....nd if he or she wants to study in the school. There is no option without development fund fees. The development fund is not received from the outside parties except students. 3.4.2 Accordingly, it is a part of the fees. Therefore, the AO held that the same can't be classified as corpus donation or contribution as the same is not voluntary and is not for any specified purpose. Accordingly, he considered development receipt of Rs. 2,27,78,950/- as revenue receipt and made addition for the same. 4.3.3 In first appeal, the Ld. CIT(A) after reproducing the submission of the assessee and the case laws relied upon at Page 3 to 13 of the order at Para 7.1 to 7.3 at Page 21-24 held that development fees is utilized in creation of capital asset. The co-ordinate bench of Jaipur Bench and various other Tribunals and High Courts have held that the development fees if utilized for the purpose of infrastructure development is to be treated as a capital receipt and accordingly the same was considered as a capital receipt not to be added to the gross receipts in the income and expenditure account. 3.4.4 Thus, in this case, the Bench observed that the issue involved in this ground is whethe....
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.... applied for charitable purposes, then the said voluntary contribution is towards corpus of Trust. Similarly, after receiving the amount if the donee keeps it in deposit and only utilizes the income there from to carry on charitable activities, then also the said amount would amount to be contribution to the corpus of the Trust and the nomenclature in which the deposits are kept is of no relevance as long as the deposit are kept as capital and the income thereof is utilized for carrying on the charitable and religious activities of the Trust. After considering the legal position and the facts on records, the Karnataka High Court held that:- "The word 'corpus' is used in the context of the Income tax Act. We have to understand the same in the context of capital, opposed to expenditure. It is a capital of the assessee, a capital of an estate; capital of a Trust; a capital of an institution. Therefore, if any voluntary contribution is made with a specific direction, then it shall be treated as capital of the Trust for carrying of its charitable or religious activities. Then such an income falls under section 11(1)(d) of Income tax Act and not liable to tax. Therefore, it is n....
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.... funds and not the colour of the contribution. It has stated that the question whether the donations are voluntarily or not becomes irrelevant and what becomes relevant is the application of such contributions on the objects of the trust which are admittedly charitable. If the developer fees is used for the purpose of creating infrastructure then the same would be treated as a capital receipt. We further take into consideration the decision of ITAT Jaipur bench in the case of Global Institute of Technology Society vs. DCIT(E) in ITA No. 1066/JP/2018 order dt.05.11.2018 after relying on the decision of the Hon'ble Supreme Court in case of Modern Schools vs. Union of India at Page 23 held as under:- "Thus, the Hon'ble Supreme Court while considering the recommendation of Duggal Committee has held that the development fee could be levied at the rate not exceeding 10 to 15% of the total annual tuition fee. Further the said fee shall be treated as capital receipt and shall be collected only if school maintains a depreciation reserve fund. Hence, the development fee collected from the students can be used only for the specific purpose incurring capital expenditure. The Hon'b....
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....ic purpose. Hence, the Tribunal has given the finding based on the fact that the said fee was not part of the corpus fund of the assessee Trust. Accordingly, we delete the addition made by the Assessing Officer on this account." The co-ordinate bench of Delhi in the case of Maharishi Markandeshwar Trust Vs. ACIT in ITA No. 1966 to 1972 for A.Y. 2009-10 to 2015-16 vide orderdt.27.06.2022 at Para 16 to 23 held as under: "16. Thus, we find primarily the tuition fee is meant to incurring revenue expenditure, the development fee is aimed at requirement of equipments and acquisition of capital assets. On the issue, whether the development fee is revenue in nature or capital in nature. Reliance is being placed on the orders of Coordinate Bench of Tribunal in the case of Global Institute of Technology vs. DCIT (Exemption) in ITA No. 1066/Jp/2018 dated 05.11.2018 wherein it was held as under: "Addition of development receipt/fee treating the same as revenue receipt - Held that:- The development fee received by the assessee from the students as per the guidelines fixing the fee structure by the State Government for the technical institutions and applying the other condit....
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....s a specific direction to treat it as corpus funds. The Court further held that the requirement is that the voluntary contributions have to be made with a specific direction. The law does not require that the said direction should be in writing. In the absence of the direction in writing, the only way that one can find out whether there was a specific direction is to find out how the money so paid it is utilized. 22. In the instant case, the Development Fee has been directly taken to corpus account as capital receipt u/s 11(1)(d) and has also invested in the fixed asset in the year. 23. Ergo, we hold that the Development Fee is to be treated as corpus fund allowed to be taken as capital receipt." Hence, in view of the above facts, circumstances of the and the case laws discussed hereinabove, we concur with the findings of the ld. CIT(A) who has rightly held development fund is a capital receipt and would not be added to the gross receipt in the Income & Expenditure Account. Hence the ground Nos. 1 to 3 raised by the Department are dismissed. 4.1 Apropos Ground No. 4 & 5 of the Department, it is noticed that the ld. CIT(A) has allowed the Ground raised by the....
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....ives did not violate the provisions of section 11(5) rws 13(1)(d) of the Act 8.4. I have perused the assessment order and the submissions of the appellant. I am unable to agree with the logic and rational adopted by the A.O. First and foremost there is a clear distinction between an investment or deposit and a loan or advance. In the case of an investment, there is a clear title to ownership of something i.e securities, immovable property financial instruments etc. The person making the investment becomes the owner of that property. Similarly a deposit is an amount given for securing a receipt of a service. In the case of a loan or an advance no such title in conferred on the person providing the loan or advance or no service is provided/received. Such loan or advance is temporary in nature and does not amount to a transfer of property in favour of the investor or does not secure a right to receive any service. In the present case at hand it is seen that the advances made to the staff of the school of Rs 6,26,000/- on no account can be considered as an investment. The staff are given advance on their salary which is deducted from the salary as it becomes due and hence is c....
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....xemption u/s 11 of the Act. Accordingly, it is concluded that the assessee violated section 13(1)(d) read with section 11(5) and misappropriated its funds, the said amount of Rs. 1,62,86,091/- is hereby added to the total income of the assessee and the assessee is denied exemption u/s 11 of the Act on the said amount.'' 4.1.3 During the course of hearing, the ld. AR of the assessee supported the order of the ld CIT(A) and filed the following the written submission to counter the grounds raised by the Department. ''Submission:- 1. The dispute in this ground is whether on advance of Rs. 1,62,86,091/- given by the assessee the provisions of section 11(5) applies and consequently section 13(1)(d) can be invoked. In this connection it would be relevant to submit that section 11(5) prescribes the forms and modes of investing or depositing the money referred to in clause(b) of sub-section (2) of section 11 of the Act. Sub-section (2) of the Act provides that where 85% of the income is not applied to charitable purposes but is accumulated or set apart then the money so accumulated or set apart has to be invested/deposited in the forms or the modes specified under sub-s....
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....re registered u/s 12AA and were charitable societies engaged in providing education and similar loans were given by assessee society in year 2004-2005 and issue had been decided by Tribunal in favour of assessee. Third society though not registered u/s 12AA, but was charitable society with object of education. For application of section 13(3) read with section 13(2)(a) share in profit was required to be 20 percent but there was no such profit in society, thus section 13 was not violated. It was held that assessee society had merely given interest free loan to another society and Loan was neither investment nor deposit. Section 13(3) is not applicable in this case. Thus there was no violation of section 13 and Revenue's appeal dismissed. Director of Income Tax (Exemp.) vs. Acme Educational Society (2010) 326 ITR 146 (HC) (80-85) Assessee society had given a loan of Rs. 90,50,000 to another educational society whose president was brother of assessee society's president. AO invoking provisions of s.13(1)(d) r/w s. 11(5) denied benefit of s. 11 to the assessee society. Delhi High Court held that Interest-free loan given by the assessee-society to another society havin....
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....and objects of both the organizations were similar. Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of DIT (Exemption) v. Acme Educational Society (326 ITR 146). It was decided by Hon'ble Delhi High Court held that interest-free loan given by the assessee society to another society, having similar objects and registered under Section 12AA of the Act, did not violate Section 13(1)(d) read with Section 11(5) of the Act, since such loans were neither investments nor deposits. No doubt, the assessee here had mentioned the amounts given to M/s SPK MAC Charitable Trust as "deposits" in its accounts, submission of the assessee that it was nothing but a loan given to the said Trust, for the purpose of its educational objects, has not been rebutted by the Revenue. Therefore it is held that CIT(Appeals) was justified in directing the A.O. to grant exemption claimed by the assessee under Sections 11 and 12 of the Act. Society Of Daughters Of Mary vs. ITO ITA No. 963/MDS/2012 (Chennai Trib.) (PB 106-108) Assessee is an educational organization and registered under section 12AA of the IT Act. AO held that loans/deposits to sister concer....
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....hich TDS deducted. Total 6,26,000/- These persons are not specified persons u/s 13(2) of the Act and the advance given is also not investment/deposits referred to u/s 11(5) and thus there is no violation of section 11(5) r.w.s. 13(1)(d) of the Act. 5. The decisions relied by the AO are not applicable to the facts of the case as discussed here under:- CIT V/s. Sri.M.Visveswaraya Educational Trust (Karn.) 319 ITR 425 In this case the loans/advances were given to its sister concern which is a Private limited Company, whereas in the present case the assessee has provided loans/advances to the societies registered u/s. 12AA having similar object as of the assessee and to the staff/contractor. Hence this decision is not applicable. Nachimuthu Industrial Association V/s. CIT235 ITR 190 (SC) In this case AO found that certain amount set apart as provision was not actually applied for charitable or religious purpose and therefore denied exemption u/s 11. Thus this is not a case of advance/loan to society. Accordingly this decision is not applicable. CIT V/s. V.G.P Foundation (262 ITR 187)(Mad) ....
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....ly, the addition made by the AO was deleted. The Bench has take into consideration the submissions of both the parties and also noted the relevant observations as made by the ld.CIT(A) that the AO has not recorded any finding that the sums of money were given interest free out of the borrowed funds on which interest is payable by the appellant. This is not the issue in the present case Regarding the propriety of giving non interest bearing loans to other institutions the fact is that all the institutions to whom the loans are given are also registered u/s 12AA and are within the control of the same management as the appellant and hence it cannot be said that they are part of any tax avoidance mechanism or scheme by transferring tax exempt funds to non- tax exempt entities. From this observation of the ld. CIT(A) and also the decisions mentioned hereinabove by the assessee, the Bench finds that there is no error in the order of the ld. CIT(A) and thus the Ground No. 4 & 5 of the Department are dismissed. 5.1 Now we take up the appeal of the Ground No.6 of the Department and CO of the assessee which is again mentioned as under:- Ground No.6 (Department) Whether Ld. CIT....
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.... has a discretionary power to reject books of account. The accounting method may be rejected by virtue of sub-Section (1) of Section 145. Further books of account itself by virtue of said sub-section, read with Section 144 or under sub- section (3) of Section 143, Instances of rejection of books of account- -Where entries in respect of certain transactions are altogether omitted or incorrect, etc -Where the accounts show an abnormally low rate of profit. -Where there is an inherent lacuna in the system of accounting the assessment completed after the rejection of books of account under Section 145 is not an assessment under Section 144 but is only an assessment under Section 143(3) which to be made in the manner provided in Section 144. 9.3 Thus in the present case, it is seen that the books of account were not produced before the A.O along with the bills and vouchers for expenses. Accordingly, the A.O was unable to verify the same. Hence there was reason for the A.O to exercise his discretion in rejecting the books u/s 145(3) of the Act 9.4 However it is seen that the disallowance of the expenses to the extent of 20 percent of the appli....
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.... exp. 336000.00 369600.00 432000.00 4 bank charges 1951.00 1919.50 331.65 5 conveyance exp. 362421.00 603900.00 840313.00 6 depreciation charges 2896422.07 3095136.95 3798057.57 7 drawing & craft exp. 515632.00 685971.00 678011.00 8 education exp. 587609.00 640070.00 730717.00 9 education al tour & picnic 290150.00 755993.00 930590.00 10 electricity & water exp. 204332.00 207415.00 346705.00 11 E.S.I. employers contribution 132012.00 177189.00 181118.00 12 P.F. employers contribution 228558.00 287923.00 278068.00 13 examination exp. 152432.00 415875.00 645506.00 14 ex-gratia 381058.00 422038.00 ..... 15 function & festival exp. 482913.00 913402.00 1186759.00 16 game & sports exp. 371170.00 513088.00 668451.00 17 horticulture expenses 9248.00 70455.00 ..... 18 house tax & city dev.tax 454943.00 ..... ..... 19 interest on bank overdraft 85440.00 34795.00 ..... 20 interest paid 1192452.00 ..... ..... 21 leave encashment....
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....ion charges, salary expenses and supervision charges aggregating to Rs. 99,71,696/- which is paid by cheque or otherwise not claimed by the assessee. After excluding this amount the expenditure claimed by the assessee is Rs. 1,69,70,641/-. These expenses are otherwise reasonable considering the comparative expenses incurred in previous year which has been accepted by the AO in the earlier assessment orders framed u/s 143(3) of the Act. Hence, the adhoc disallowance of 20% made by the AO which was restricted to 10% by Ld. CIT(A) is not justified. Reliance in this connection is placed on the following cases:- ACIT Vs. Mohinder Kumar Jain (2017) 157 DTR 267 (Del.) (Trib.) AO having failed to bring any documentary evidence on record to establish any personal element in the business promotion expenses and vehicle running & maintenance expenses claimed by the assessee, ad hoc disallowance out of these expenses could not be sustained. Arthur & Anderson & Co. Vs. ACIT 2010-TIOL-416-ITAT-Mum In this case it was held that "the very concept of token disallowance is bad in law because such a disallowance is inherently based on surmise & conjectures and devoi....
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....raft exp. 515632.00 685971.00 678011.00 8 education exp. 587609.00 640070.00 730717.00 9 education al tour & picnic 290150.00 755993.00 930590.00 10 electricity & water exp. 204332.00 207415.00 346705.00 11 E.S.I. employers contribution 132012.00 177189.00 181118.00 12 P.F. employers contribution 228558.00 287923.00 278068.00 13 examination exp. 152432.00 415875.00 645506.00 14 ex-gratia 381058.00 422038.00 ..... 15 function & festival exp. 482913.00 913402.00 1186759.00 16 game & sports exp. 371170.00 513088.00 668451.00 17 horticulture expenses 9248.00 70455.00 ..... 18 house tax & city dev. tax 454943.00 ..... ..... 19 interest on bank overdraft 85440.00 34795.00 ..... 20 interest paid 1192452.00 ..... ..... 21 leave encashment exp. 57246.00 72572.00 73077.00 22 legal exp. 167821.00 166174.00 69368.00 23 laboratory exp. 104426.00 196287.00 415572.00 24 library exp. 396803.00 463246.00 481876.00 25 medical exp. ....