TMI Blog2014 (2) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... The source of the so-called corpus fund was not explained by the assessee - Ther is no material on record to show that the income was generated in the course of the activity of the assessee trust or it was received from identifiable sources - The issue has been restored for fresh adjudication. Unaccounted income - Held that:- The receipt (monthly fee and term fee) was not recorded in the books of account maintained in the regular course of activities - It was unearthed during the course of search operation - Merely because the time limit for filing the return of income has not expired, the receipt which was not entered in the books of account cannot be excluded - The issue has been restored for fresh adjudication.] Disallowance u/s 40A(3) - Held that:- The certificate of registration produced before CIT(A) was not available before the assessing officer - The genuineness of the trust was not enquired into by the assessing officer, the issue needs to be examined by the assessing officer - The issue has been restored for fresh adjudication. Levy of surcharge u/s 113 - Held that:- Relying upon the decision in Commissioner Of Income-Tax Versus Suresh N. Gupta [2008 (1) TMI 396 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account were maintained for collection of the development fund. However, it is entered in a note book. According to the ld.DR, the assessee trust claimed before the assessing officer that the trust existed solely for the educational purpose, therefore, it was eligible for exemption u/s 10(22) of the Act as it was then in existence. The seized material found during the course of search operation shows excess collection over and above the fees in the name of development fund. The funds so collected were not accounted in the books of account of the trust. The collection of the funds in the name of the trust was admittedly deposited in the individual account of the trustee, viz. Mrs. Sula Jayakumar. Since the development fund collected by the assessee was not brought into the books of account and it was deposited in the individual account of the trustee, Mrs. Sula Jayakumar, the assessing officer treated the same as undisclosed income of the trust. Since it is a family trust for the benefit of children of Mrs. Sula Jayakumar, the assessing officer rejected the claim of the assessee for exemption u/s 10(22) and 10(23C) of the Act. However, on appeal by the assessee, the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onthly fees and term fees in the cash book. After the search, the assessee filed the return of income, that too, after issuing notice u/s 158BD of the Act. Since this money would not have been disclosed to the department, but for the search, according to the DR, this unaccounted monthly fees and term fees have to be treated as undisclosed income of the trust. However, on appeal, the CIT(A) deleted the addition on the ground that the Madhya Pradesh High Court in CIT vs Nitin Munje (2003) 185 CTR (MP) 255 declined to admit the appeal filed by the department against the decision of the Indore Bench of this Tribunal wherein it was held that where the time limit for filing the return of income u/s 139(1) has not lapsed the income pertaining to that period found at the time of search cannot be treated as undisclosed income. According to the ld.DR, the definition of undisclosed income is very clear. The income which would not have been disclosed to the department otherwise has to be treated as undisclosed income. In this case, the assessee has not entered the monthly fees and term fees in the cash book maintained in the regular course. Therefore, this would not have been disclosed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucational trust was not required to file return of income till 01-04-2006. Therefore, for the year under consideration, the assessee is not expected to file the return of income. Referring to provisions of section 10(22) of the Act as it existed then, the ld.representative submitted that the entire income of the assessee is exempt from taxation. Therefore, according to the ld.representative, the CIT(A) has rightly allowed the claim of the assessee. 10. Referring to the addition made by the assessing officer, the ld.representative submitted that the development funds were received by another society, viz. Parent Teacher Association and then it was given to the society for construction of the building. Therefore, as far as this society is concerned, it is a capital receipt, hence, it cannot be taxed. Even otherwise, the assessee is eligible for exemption u/s 10(22) of the Act, hence, the CIT(A) has rightly allowed the claim of the assessee. 11. As far as the addition of Rs.5 lakhs with regard to deposit is concerned, the ld.representative submitted that this was collected from the teachers, who were seeking appointment in Sabarigiri High School. The assessee has filed confirmatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cational purpose only and not for anything else. Therefore, according to the ld.representative, the entire income of the assessee is eligible for exemption u/s 10(22) of the Act as it was in existence at the relevant point of time. 16. We have considered the rival submissions on either side. The first question arises for consideration is whether the assessee is entitled for exemption u/s 10(22) and 10(23C) of the Act as it was in existence at the relevant point of time. Section 10(22) has been omitted with effect from 01-04-1999 by Finance (No.2) Act, 1998 and this section has been re- enacted in section 10(23C). We are concerned with block period 01-04- 1996 onwards. So, section 10(22) before its omission is applicable from the period 01-04-1996 to 31-03-1999 and section 10(23C) is relevant for the period 01-04-1999 onwards. Sub section (22) of section 10 before its omission from 01-04-1999 read as follows: "(22) any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit." Section 10(23C) reads as follows: "10. In computing the total income of a previous year of any person, any income falling within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms of the trust permit its operation "for profit", they become, prima facie, evidence of a purpose falling outside charity. They would indicate the object of profit making unless and until it is shown that terms of the trust compel the trustee to utilize the profits of business also for charity. This means that the test introduced by the amendment is : Does the purpose of a trust restrict spending the income of a profitable activity exclusively or primarily upon what is "charity" in law? If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity". In that obligation is there, the income becomes entitled to exemption. That, in our opi9nion, is the most reliable test." 18. In view of the above observations of the Apex Court, when there is no obligation to utilize the profit arising out of charitable activity for charitable purpose, the income is not entitled for exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the CIT(A) it is not known what was the explanation offered by the assessee and under what circumstances, the CIT(A) accepted the explanation of the assessee is not known. The fact remains is that the assessee trust is not eligible for exemption either u/s 10(22) or u/s 10(23C) of the Act. The assessee trust is also not registered u/s 12A of the Act, and therefore, not eligible for exemption u/s 11 of the Act; hence, the income of the assessee trust has to be computed on commercial principles. Since the source of the so-called corpus fund was not explained by the assessee, this Tribunal is of the considered opinion that the CIT(A) committed an error in saying that the assessee has explained the source of fixed deposit receipt. In the absence of any material on record to show that the income was generated in the course of the activity of the assessee trust or it was received from identifiable sources, this Tribunal is of the considered opinion that the CIT(A) ought not to have deleted the addition made by the assessing officer. Hence, the order of the CIT(A) is set aide and that of the assessing officer is restored on this issue. 20. The next ground of appeal is with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt which was not entered in the books of account cannot be excluded. Therefore, the CIT(A) is not justified in deleting the addition made by the assessing officer. This Tribunal is of the considered opinion that the judgment of the Madhya Pradesh High Court in Nitin Munje (2003) 185 CTR (MP) 255 is not applicable to the facts of the present case. Accordingly, the order of the CIT(A) is set aside and that of the assessing officer is restored. 22. The next ground of appeal is with regard to addition of Rs. 16,27,738 on sale of books and Rs. 3,61,040 being the disallowance u/s 40A(3) of the Act. The only contention of the assessee is that Sabarigiri School Society is a genuine trust. The certificate of registration is claimed to have been produced before the CIT(A). However, from the order of the assessing officer it appears that the certificate of registration was not produced before him and the assessee has not established the existence of the Sabarigiri School Society. Therefore, the assessing officer has no occasion to examine the genuineness of the Sabarigiri School Trust. The CIT(A) also has not made any enquiry with regard to the genuineness of the so-called certificate sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments filed by the assessee and thereafter decide the issue in accordance with law after giving opportunity of hearing to the assessee. 24. The next issue is with regard to levy of surcharge u/s 113 of the Act. The Apex Court in the case of Suresh N Gupta (supra) found that surcharge can be levied even before the amendment of section 113 of the Act in view of the Finance Act passed by the Parliament in the respective assessment year. Therefore, the CIT(A) is not justified in deleting the surcharge levied by the assessing officer. Accordingly, the order of the CIT(A) is set aside and that of the assessing officer is restored. 25. Now coming to the cross objection of the assessee, the first ground of appeal is with regard to validity of the block assessment made u/s 158BD of the Act. Admittedly, the search was conducted in the case of Dr. V.K. Jayakumar on 28-05-2002 u/s 132 of the Act. The assessee trust is not the searched person. In other words, the assessee trust is a person other than searched person. Therefore, this Tribunal is of the considered opinion that the proceedings have been validly been initiated u/s 158BD of the Act. Therefore, this Tribunal do not find any in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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