TMI Blog2010 (3) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... adu Societies Registration Act, 1975, with the object of setting up and estab-lishing and administering educational institutions, both engineering and medical colleges and hostels, is stated to have been started not with profit motive. The petitioner-society had started SRM Engineering College and thereafter, many institutions under its control and the petitioner-institu-tions are recognized as minority institutions, as declared by the High Court and the petitioner-society has been regularly filing audit reports in the prescribed manner, after complying with various statutory requirements of the Income-tax Act. 2.(a) The petitioner is eligible for exemption in respect of income as per section 10(23C) of the Income-tax Act and application has been made to the first respondent through the Commissioner of Income-tax for exemption under the said provision. It is stated that the petitioner-society has been granted exemption up to 2008-09. 2.(b) It is stated that for the year 2007-08, the first respondent by order dated March 4, 2008, accorded approval under the abovesaid provision read with rule 2CA of the Income-tax Rules, 1962, and the approval was subject to certain condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s construed to be a profit-oriented activity and, therefore, the pre-sumption has been drawn against the petitioner. 2.(f) Though there was a detailed enquiry conducted by the respon-dents, it is the case of the petitioner that no discrepancy was found in respect of the assessment year 2009-10, for which an application for approval was made and the averments made were relating to the year up to 2003-04 and not in respect of the later years. It is based on the said rejection of the application for the year 2009-10, the respondents proposed to withdraw the approval granted by the Director General in respect of the assessment years 2007-2008 and 2008-09 for the reason that for the assess-ment year 2009-10, the approval has been withdrawn.2.(g) It is stated that the rejection for the year 2009-10 with the reason given is not relating to that year and not even relating to the years 2007-08 and 2008-09 and the allegations are relating to the years 1999-2000 to 2000-01 and 2003-04. 3. The said impugned order and show-cause notices are challenged by the petitioner on various grounds that without any evidence of contravention of conditions by the petitioner, the orders have been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that these are the business ventures and the said activities are with business motive and the Supreme Court has heavily con-demned any such practice in T. M. A. Pai Foundation v. State of Karna-taka, AIR 2003 SC 355. It is also stated that SRM Engineering College has been taken over by a separate trust by name, SRM Institute of Science and Technology under a trust deed dated June 30, 2001, and the said institute which is distinct from the assessee-society, has been granted approval under section 10(23C)(vi) in the order dated October 26, 2009. 4.(c) It is stated that false accounts have been maintained and the society have not satisfied the conditions stipulated in section 10(23C)(vi) of the Act. It is stated that the approval granted to the petitioner-society on December 11, 2002, for the assessment years 1999-2000 to 2001-02 was given prior to the discovery of incriminating materials which were found during the search made on August 12, 2004, and the proceedings for rescinding of the notification are still pending. 4.(d) It is stated that after the search, no approval was granted under section 10(23C)(vi) for any assessment year up to the assessment year 2006-07 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand, it is the contention of the learned senior Central Government standing counsel for Income-tax, Mr. K. Subramaniam, that the case of the petitioner is one relating to capitation fees which is a social evil to be curtailed and the Supreme Court has heavily come down on the same in T. M. A. Pai Foundation's case, AIR 2003 SC 355. It is his con-tention that when the Department has found tangible, incriminatory mate-rials against the petitioner-society, the petitioner is not entitled to contin-uation of such concession at all. It is his submission that the withdrawal or refusal of grant of such concession can only be based on the past conduct and he would rely upon various judgments in Dhansiram Agarwalla v. CIT [1993] 201 ITR 192 (Gauhati), Coimbatore Spinning and Weaving Co. Ltd. v. CIT [1974] 95 ITR 375 (Mad) to substantiate his contention that the past conduct can be taken into consideration. According to him, if the condi-tions of exemption are violated, certainly the petitioner is not entitled for the grant of exemption for subsequent years and even if a mistake has been committed earlier, such mistake cannot be permitted to continue. 7. I have heard the learned s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee based on the previous conduct of the assessee. 10. Section 10 of the Income-tax Act, in computing the total income of the previous year of any person, excludes certain incomes like, (i) agricultural income ; (ii) income of a member of a Hindu undivided family where such sum has been paid out of the income of the family ; (iii) share income of a partner in the total income of the firm which is separately assessed ;(iv)any income by way of interest on securities or bonds or savingscertificates of a non-resident ; (v) the value of any travel concession orassistance received by or due to an individual from his employer ; (vi) theremuneration received by an individual who is not a citizen of India as an fficial of an embassy, etc. ; (vii) the remuneration received by an individualwho is not a citizen of India as an employee of a foreign enterprise for services rendered by him during his stay in India ; (viii) income chargeable under the head "Salaries" received by or due to any individual being a non-resident as remuneration for services rendered in connection with his employment on a foreign ship ; (ix) remuneration received as an employee of the Gov-ernment of a foreign State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whom the application shall be made as provided in sub-rule (2). (1A) The prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Central Board of Direct Taxes constituted under the Central Board of Revenue Act, 1963 (54 of 1963), for applications received prior to 3rd day of April, 2001 : Provided that in case of applications received prior to 3rd day of April, 2001, where no order has been passed granting approval or rejecting the application as on the 31st day of May, 2007, the pres-cribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director General. (2) An application for approval shall be made in Form No. 56D by any university or other educational institution or any hospital or other medical institution referred to in sub-clause (vi) or sub-clause (via) of clause (23C) of section 10. (3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, granted before the 1st day of December, 2006, shall at any one time have effect for a period not exceeding three assessment years. Explanation.-For the purposes of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or infor-mation from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf : Provided also that the fund or trust or institution or any university or other educational institution or any hospital or other medical insti-tution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via)- (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent. of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of March, 2001 : Provided also that the exemption under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the trust or institution or any university or other educational institution or any hospital or other medical institution, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later : Provided also that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical insti-tution, being profits and gains of business, unless the business is inci-dental to the attainment of its objectives and separate books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister's National Relief Fund on or before the 31st day of March, 2004, shall be deemed to be the income of the previous year and shall accordingly be charged to tax : Provided also that where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or to any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established : Provided also that where the fund or institution r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so that all pending applications, on which no notifica-tion has been issued under sub-clause (iv) or sub-clause (v) before the 1st day of June, 2007, shall stand transferred on that day to the prescribed authority and the prescribed authority may proceed with such applications under those sub-clauses from the stage at which they were on that day ; 17. The first proviso prescribes that application should be made in the prescribed form for grant of exemption or for continuance of exemption, which means that such application should be made for every assessment year. 18. Under the third proviso, when an institution covered under section 10(23C)(vi) applies its income or accumulates it for application, wholly to the objects for which it is established and in a case where 15 per cent. of its income is accumulated on or after April 1, 2002, the amount exceeding 15 per cent. shall not be accumulated beyond five years. Further, the said pro-viso makes it clear that such institution shall not deposit or invest its funds other than five circumstances mentioned therein, during the previous year otherwise than in any one or more of the forms or modes specified in sec-tion 11(5) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. The ninth proviso makes it clear that after coming into effect of the Taxation Laws (Amendment) Bill, 2006, on July 13, 2006, any application made in respect of grant of exemption shall be either granted or rejected within the period of 12 months from the end of the month from which such application was made. That relates to the grant of exemption. 21. The eleventh proviso says that in cases where the institution does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or to any fund or trust or institution or uni-versity or other educational institution or any hospital or other medical institution, etc., that shall not be treated as an application of income to the object for which the institution was established. Therefore, the said proviso makes it clear that in cases where the fund of the institution or trust or any university or other educational institution or any hospital or other medical institution are utilised otherwise than the purpose for which the institution was established, it is open to the authority to reject such application. That de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strued in the sense that the exist-ence of institution in so far as it relates to section 10(23C)(vi) is only for educational purpose and not commercial or profit-making purpose. Cer-tainly when an amount has been drawn as income by the institution, it is the duty on the part of the institution to prove that such receipt is only in furtherance of educational purpose for which the institution exists and not for any other purpose, of course, except those purposes which are given in various provisos including the purposes explained under section 11(5) of the Income-tax Act enumerated above. 25. The Government has in effect issued various circulars including Circular No. 580, dated September 14, 1990*, within the meaning of section 2(24) of the Act by granting exemption under section 10(23C). In the above back-drop of the legal position, we have to consider the impugned order passed by the first respondent especially for the year 2009-10 in respect of which year a positive order of rejection has been passed. A reading of the impugned order shows that by application of section 132(4A) which is as follows : "132.(4A) Where any books of account, other documents, money, bullion, je ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 132A, had been found in the possession or control of that per-son in the course of a search under section 132." 26. The authority has drawn a presumption about the contents of the CDs. and seized documents and even after opportunity was given to the asses-see, viz., the petitioner herein, as per section 10(23C)(vi), twelfth proviso, the petitioner has not rebutted the legal presumption. 27. As far as the documents and CDs. stated to have been seized on search made in accordance with the Income-tax Act are concerned, the authorities on the facts found that for the assessment year 1999-2000 there was gross difference between the contents of CDs. and the returns filed by the peti-tioner. It was also found on the facts that in respect of the assessment year 2003-04 there was a difference as seen from the documents seized. It was in those circumstances, the assessee's appeal came to be dismissed by the Income-tax Appellate Tribunal in its order dated March 31, 2009, and that dismissal order itself was based on the legal presumption drawn which was not rebutted by the assessee. 28. Further, it is seen from the order of rejection that the Income-tax Appel-late Tribunal has f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds. 31. A reference to the letter of Mr. K. Subramanian, chartered accountant of the petitioner dated December 29, 2009, addressed to the Assistant Com-missioner of Income-tax on which reliance has been placed by the autho-rity while passing the impugned order shows the clinching evidence against the petitioner institution. The said letter is as follows : "With reference to the enquiry with me for the transactions with M/s. Valliammai Society, I wish to state that I have been engaged as their chartered accountant for the period up to March 2005. I was paid audit fee of Rs. 90,000 (approximately) and monthly fee for han-dling banking loan transactions which will be around Rs. 50,000 per month. All the other transactions routed through my concern M/s. K.S. Co. are for the personal benefits of the members of the society and not for any developmental activities of the society. M/s. Val-liammai Society used current account with Tamil Nadu Mercantile Bank and Oriental Bank of Commerce for discounting the cheques to raise temporary funds and later on they used to deposit the amount back in the current account. As stated above, the funds were utilised mainly for the personal ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aogi [1968] 67 ITR 84 it cannot be said that the revision order of the Commissioner of Income-tax on the impugned issue is not justified. The view that when no enquiry has been con-ducted by the Assessing Officer, revision order is justified the same also gets support from the hon'ble Delhi High Court decision in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375. Thus, on the fact that as per the seized CDs, there was receipt of Rs. 6,87,77,922 from M/s. Valliammai Society, the Assessing Officer failed to make any further enquiry in this regard, the assumption of the jurisdiction by the Commissioner of Income-tax is justified." 33. While deciding about the drawing of inference under the Income-tax law, the Division Bench of this court in Coimbatore Spinning and Weaving Co. Ltd. v. CIT [1974] 95 ITR 375 held as follows (page 381) : "It is true that the decisions referred to above establish the position that it is for the Revenue to show that a particular receipt is an income, that whether the explanation given by the assessee as to the source of that receipt is acceptable or not is primarily a matter for the Tribunal and that the explanation of the assessee as to the source f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that itself is not sufficient to hold that the findings given by the first respondent in the impugned order are either perverse or illegal. 35. At the cost of repetition, it has to be reiterated that even though the conduct of the petitioner is stated to have related to the year 2004, when the search was made and seizure was effected, in spite of opportunity hav-ing been given, the petitioner has not discharged its onus of rebutting the presumption which was drawn by the authority under the Income-tax Act, based on various clinching documents. As long as such presumption has not been rebutted by the petitioner, in my considered view, it cannot be safely concluded that the petitioner-institution is in existence solely for the purpose for which it was started for the purpose of exemption under section 10(23C)(vi) of the Income-tax Act. In such view of the matter, all the writ petitions are dismissed, however, in so far as the impugned show-cause notice issued by the first respondent for the years 2007-08 and 2008-09 are concerned, it is always open to the petitioner to explain its stand to the authority concerned even to the extent of rebutting the pre-sumption as it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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