9911796707
TMI Blog2012 (4) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... priate at this stage to give a brief background of the case before we proceed to deal with the individual disputes raised in these appeals. The assessee is a leading educational institution in Vasai, Dist. Thane, Maharashtra, who was running the following institutions:- (i) Vidya vardhini's College of Engineering & Technology; (ii) Bhausaheb Vartak Polytechnic; (iii) Annasaheb Vartak College of Arts; (iv) Kedarnath Malhotra College of Commerce and E.S. Andrades College of Science. The trust was headed by its chairman, Shri Prataprai Khokhani. 2.1 The details of the trustees were as under :- S. No. Name of the trustee Age (i) Smt. Tarabai Vartak 83 yrs. (ii) Shri Prataprai Khokhani 74 yrs. (iii) Shri Arun G. Vartak 65 yrs. (iv) Shri Udhav J. Gharat 84 yrs. (v) Shri Madhukar N. Mohol 69 yrs. 2.2 The objects of the trust were as under :- (i) To provide for post-secondary school education in Arts, Science, Commerce & Trade, and Medicine, etc. (ii) To provide for education in agriculture and mechanical trades. (iii) To establish such other auxilliary/complementary facilities consistent with the above objectives. 2.3 The Income tax departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustees and also the chairman. The entries clearly showed that a sum of Rs.5.00 lacs had been paid to Shri Pratapbhai on 13.8.1999 and again sums of Rs.5.00 lacs and Rs.3,60,000/- were paid to Shri PGK on 18.9.1999 and 20.9.1999. 3.1.1 Further, on page-18 of the diary No.1, the following entries were found showing various amounts against names of students. The names of the chairman, referred to as Pratapbhai, another trustee referred to as Maisaheb and the Secretary Shri Patil also appeared along with the names of students. 1999-2000 ENGINEERING (1) PEREEIRA MERVIN MANGEL M E SMT. MAISAHEB 1.75 (2) D'AS RUDHA DAVID C M ARUN PATIL 2.75 (3) SHANTANU S. GAVANKAR INSTRUMENTATION PRATAPBHAI 2.00 3.1.2 Similarly page-26 of the diary No.2 contained entries showing various amounts against the names of different students, which were shown under the head "management". Management CM (1) Glim D'souza Local CM 2,25,000/- (2) Pastan Stani Rodrick(427) G.No.344 75,000/- (3) Gid Roy Nelson Gonsalves (500) 75,000/- i. Riddy 2,50,000/- _____________ 6,25,000/- 1,50,000/- _____________ 7,75,000/- Mehta CM E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given at the end of the diary. Shri Patil explained that higher of the two figures was taken by him as income and after deducting the expenses @ 50%, the undisclosed income was declared by him. The details of donations as declared by Shri Patil, the details of cash summary and details of undisclosed income declared under section 153A are given below:- A.Y. Donations recorded in the diary as per Shri Patel Total of cash summary at the end of the diary Income disclosed by Shri Patel after deducting 50% of expenses 2000-01 Rs.9,65,000/- Rs.17,67,591/- Rs.8,84,500/- 2001-02 Rs.14,71,000/- Rs.12,26,000/- Rs.7,35,500/- 2002-03 Rs.9,85,000/- Rs.1,55,000/- Rs.4,92,500/- 2003-04 Rs.7,75,000/- Rs.1,25,000/- Rs.3,87,500/- Shri Patil had thus declared undisclosed income on account of donations at Rs. 8,84,500/-, Rs. 7,35,500/-, Rs. 4,92,500/- and 3,87,500/- for assessment year 2000-01 to 2003-04 respectively. 3.1.7 The AO however did not accept the working of donations made by Shri Patil. According to him certain donations recorded in diaries were not considered in the computation made by Shri Patil. He compiled the page wise summary of donations recorded in four diaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onation in assessment year 2000-01 is not correct as the amounts were fees paid by the students. Similarly, in relation to assessment year 2001-02, it was submitted that the figure of Rs. 3,80,000/-at page-1 of the diary was not donation but working of the cost of studies of a student given to parents. The said sum consisted of 3 entries. The first entry of Rs. 1,80,000/- was probably the annual expenses @ Rs.15,000/- per month. The other two entries of one lac each also related to approximate working of cost given to a parent. Further, on page-2 of the diary, the figure written was 2000 but AO had considered the same as 2,00,000/-. 3.1.10 The CIT(A) after detailed examination held that the contention of the assessee that individual transactions of money collected were entered on earlier pages of diary and cash summary of inflow and outflow was noted in the later pages could not be accepted as entries could not be co-related. Similarly, CIT(A) also rejected the claim that some of the entries related to professional income of Shri Patil as same was not supported by any documentary evidence. CIT(A), however, accepted the claim of Rs. 72,000/- being fees, paid by students relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the order of AO assessing the donations in the name of the assessee. It was argued that the diaries were found from the premises of Shri A.K. Patil and not from the premises of the assessee or any of the trustees. Therefore, the presumption u/s. 132(4A) was not applicable to the assessee which was a third party. No addition in the case of the assessee could be made on the basis of the entries in the documents found from a third party. Reliance for this proposition was placed on the judgment of Hon'ble Supreme Court in the case of CBI v. V.C. Shukla [1998] 3 SCC 410. Reference was also made to the judgment of Hon'ble High Court of Bombay in the case of Addl. CIT v. Miss Lata Mangeshkar [1974] 97 ITR 696 and decision of Calcutta Bench of the Tribunal in the case of T.S. Venkatesan v. Asstt. CIT [2000] 74 ITD 298. It was also submitted that the same additions had been made by the AO in the case of Shri A.K Patil on substantive basis, and, therefore, making substantive addition in case of assessee could not be justified. Reliance was placed on the judgment of Hon'ble Jurisdictional High Court in case of Jekisondas Tribhuvandas v. CIT [1957] 31 ITR 376 (Bom.). 3.1.13 It was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted was income of the trust and not of the office bearer or trustee of the trust. As regards the claim of expenditure against donations collected, it was submitted that no papers were found showing incurring of any expenditure which were not accounted. Moreover, for collecting donation, no expenditure is required to be incurred. It was accordingly urged that the AO had rightly not allowed any expenditure against the donations collected. 3.1.15 We have perused the records and considered the rival contentions carefully. The dispute raised in this ground is regarding additions made in case of the assessee based on unaccounted donations entered in the four diaries recovered from the business premises of Shri A.K. Patil who was the Hon. Secretary of the trust. There is no dispute that the entries made in the diaries showed donations received from students/parents for admission to various colleges functioning under the trust. Shri Patil admitted that the entries had been made in his own handwriting and that these related to donations received for admissions to various courses. Shri Patil in the statement recorded on 25/7/2005 at the time of survey had also stated that donations had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against whom the donations have been shown. Shri Patil in his statement relating to page-18 of the diary No.1 had clearly stated that amounts had been collected on the direction of chairman Shri Prataprai Khokhani and Smt. Tarabhai Vartak. His statement has been reproduced in para 3.1.3 earlier. The notings on page 26 of the diary No.2 reproduced in para 3.1.2 earlier show different amounts entered against names of several students mentioning the name of course also and these were shown under the heading "management" which clearly points out involvement of management in collection of donations. Shri Patil had no independent authority to influence the principals for admissions. 3.1.18 The principals were working under the control and supervision of trustees and, therefore, it cannot be accepted that Shri Patil was accepting donations independently in his personal capacity. It is also an undisputed fact that the students whose names appeared in the diaries from whom donations had been collected had also been admitted to the school. The trust is an artificial juridical person and, therefore, it cannot itself collect donations. It has to act through trustees of the trust or anybody a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote books have to be treated as admissible under section 34 of Evidence Act and not loose sheets. Hon'ble Supreme Court also held that entries even if relevant evidence, shall not be alone be sufficient evidence to charge a person with criminal liability. These could be considered only as corroborative evidence and not independent evidence required to prove a criminal case. There was no evidence in that case to show that Shri Shukla and Others had given any favours to the business houses, which could be linked to the alleged payments mentioned in the seized diaries. The case is obviously different and not relevant to the revenue appeal under consideration before us in which finding of fact can be given after considering the surrounding circumstances and circumstantial evidence, which have been duly considered in this case as discussed earlier. 3.1.20 The ld. AR has also placed reliance on the judgment of Hon'ble Bombay High Court in case of Miss Lata Mangeshkar (supra). In that case, addition had been made on the basis of statement of two persons alleging that they had paid money in black to the assessee and entries to that effect were made in the books of account of those person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the plea was rejected. The AO had again provided opportunity of cross examination to the assessee which was declined. Under these circumstances, we are of the view that it cannot be said that the assessee had not been provided opportunity of cross examination of Shri Patil. It has also been argued that donations were collected only from small number of students totaling about 40 when there were total 9000 students and, therefore, entries could not be considered as donations being collected on behalf of the trust. We are not convinced by the arguments advanced. The donations are usually collected only from some undeserving students and, therefore, the number has to be lower. It has also been submitted that in case donations are treated as income, some expenditure should be allowed as deduction as done by the AO in case of Shri Patil. The authorities below have, however, given a finding that no documents were found showing incurring of expenditure for collecting donations and this finding has not been controverted before us. Even otherwise no expenditure is required for collecting donations. We, therefore, see no merit in the plea and the same is rejected. It has also been ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable in case any part of income or any property of trust or institution is applied directly or indirectly for benefit of persons referred to in section 13(3) which includes trustees of the trust or manager by whatever name called or any relative of any such person. In case donations have been used by the Hon. Secretary or trustees and not applied for the objects of the trust, provisions of section 13(1)(c) will be attracted. The AO in the assessment orders had made the additions of unaccounted donations without making any mention of provisions of section 13(1)(c). 3.2.1 CIT(A) however examined the provisions and observed that the trust had been granted registration only w.e.f. 1.4.2000 which was relevant to assessment year 2001-02 and onwards. He, therefore, held that provisions of 13(1)(c) were not applicable in case of assessment year 2000-01, as in that year income of the assessee could not be exempt under section 11 for want of registration under section 12A. In relation to other years, CIT(A) asked the assessee to explain as to why the provisions of section 13(1)(c) should not be applied. The assessee submitted that there was no concrete material to prove that income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our view, arguments have no merit. It is a settled legal position that powers of CIT(A) are co-terminus with that of the AO and he can do what the AO can do and can also consider aspects which have been omitted to be considered by the AO. The arguments of the ld. AR are, therefore, rejected. Under the provisions of section 13(1)(c), the exemption allowable under section 11 of the IT Act is not available, if any portion of income or any property of the trust or institution is applied directly or indirectly for the benefit of persons referred to in section 13(3) which includes trustees of the trust or manager by whatever name called or any relative of any such person. In this case, while dealing with the earlier ground, we have already held that the donations collected by Shri A.K. Patil and entered in the diaries were the donations collected on behalf of the trust which have to be treated as income of the trust. However, the said donations were not accounted in the books of assessee trust and had been used by the trustees and the secretary who are the persons specified in section 13(3). Therefore, in our view, provisions of section 13(1)(c) are applicable. However, the assessee tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 2001-02 to 2003-04 as in these years there were violations of provisions of section 13(1)(c) and for assessment year 2000-01, exemption under section 11 could not be granted on the additional ground of there being no registration u/s. 12A. 3.3.2 We have perused the records and considered the matter carefully. The dispute is regarding allowability of deduction/exemption under section 11 of the IT Act for assessment years 2001-02 to 2006-07. No ground has been raised for the assessment year 2000-01 as in that year, assessee was not registered under section 12AA and, therefore, not entitled to exemption under section 11. CIT(A) has confirmed the disallowance of exemption under section 11 for assessment years 2001-02 to 2003-04 on the ground of violations of provisions of section 13(1)(c). The exemption under section 11 has been denied for assessment years 2004-05 to 2006-07 on the ground that registration granted under section 12AA had been cancelled by CIT(A)(C) vide order dated 29/8/1997. In so far as assessment years 2001-02 to 2003-04 are concerned, while dealing with the earlier ground we have held that provisions, of section 13(1)(c) are applicable and therefore, exemption un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not pressed. Appeals by the revenue in ITA Nos. 2309 to 2315/Mum/2009 (Assessment Years 2000-01 to 2006-07): The main dispute raised in these appeals relates to assessment of income from voluntary contributions received by the assessee and disallowance of depreciation. In addition, there are also some minor disputes raised only in some of the years. 4.1 We first take up the dispute relating to additions on account of voluntary contributions. In addition to unaccounted donations found at the time of survey/search, the assessee had also received voluntary contributions which were accounted in the books of account. Details of these contributions were as under :- Assessment year Amount (Rs.) 2000-01 73,91,505/- 2001-02 60,27,001/- 2002-03 87,19,002/- 2003-04 61,27,000/- 2004-05 21,53,000/- 2005-06 61,20,001/- 2006-07 56,50,000/- 4.1.1 The assessee had treated these donations as capital receipts on the ground that the same were corpus donations. The assessee had taken the stand that in the assessment year 2000-01, corpus donations were capital receipts as assessee was not registered as a charitable institution under section 12AA of the IT Act whereas in assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the confirmations in which donations were specifically mentioned as corpus donations. He referred to the decision of Madras Bench of the Tribunal in case of N.A. Ramchandra Raja Charity Trust v. First ITO [1985] 14 ITD 230 in which it was held that where the counterfoils of receipts of donations were rubber stamped as "towards corpus only", the donations were to be treated as corpus donations and thus exempt. CIT(A), therefore, held that the voluntary donations received by the assessee were corpus donations. 4.1.3 CIT(A) also observed that voluntary contributions received by a trust or an institution created wholly or partly for charitable or religious purposes has to be treated as income under the provisions of section 2(24)(iia). Further, in section 12, it was provided that voluntary contributions could be treated as income only if these were not received towards corpus funds. CIT(A), therefore, on combined reading of Section 2(24)(iia) and Section 12 concluded that voluntary contributions could be treated as income only if they were received by trust or institution created wholly or partly for charitable or religious purposes. It was also observed by him that volunta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by a charitable or religious trust is income in view of fiction created by section 2(24)(iia) of the Act. Since the assessee has been assessed as AOP, the voluntary contribution could not be treated as income. Reliance for the said proposition was placed on the following judgments. (i) Pentafour Software Employees Welfare Foundation (supra) (ii) S.R.M.T. Staff Association (supra) and (iii) Mahila Sidh Nirman Yojna v. IAC [1994] 50 ITD 472 (Delhi) 4.1.5 The ld. DR on the other hand supported the order of AO. It was argued that the assessee had not given full details before the special auditors and, therefore, details given in standard format subsequently should not be accepted and donations should be treated as general donations. It was also submitted that in so far as assessment year 2000-01 was concerned, the assessee was not registered under section 12AA and, therefore, donations whether general or corpus had to be treated as income. The ld. DR placed reliance on the findings given in the assessment order. 4.1.6 We have perused the records and considered the rival contentions carefully. The dispute raised in this ground is regarding taxability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y contributions received by other institutions such as scientific research association/ institution as mentioned in section 10(21), association/institution established with the object of controlling, supervising, regulating or encouragement of certain specified games as mentioned in section 10(23), fund/institution established for charitable purposes as mentioned in 10(23C)(iv)(v), university or other institutions existing solely for educational purposes as mentioned in section 10(23C)(vi) or hospital or other institution referred to in section 10(23C)(via). The said provision of section 2(24)(iia) is reproduced below as ready reference. "2(24)(iia) - voluntary contributions received by a trust created wholly or partly for charitable or religious purposes by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) of clause (23C) of section 10 or university or other educational institution referred to in 10(23C)(vi) or hospital or other institutions referred to in section 10(23C)(via). Explanation : For the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000. The registration was subsequently cancelled by CIT(A)(C) by order dated 29.8.2007. The order of CIT was set aside by the Tribunal vide order dated 14/5/2010 in ITA No.6509/M/2007. The effect of the said order of the Tribunal is that the assessee trust stands registered under section 12AA w.e.f. 1/4/2000 i.e. from assessment years 2001-02 onwards, Thus for assessment years 2001-02 to 2006-07, the voluntary contributions received by the assessee trust which as held earlier were with specific directions to form part of the corpus of the trust have to be treated as capital receipt and will not be included in the total income of the assessee in the years in which the trust or institution is not hit by the provisions of section 13(1)(c) in which case the provisions of sections 11 and 12 which exclude voluntary donations with specific direction to form part of corpus from the purview of total income are not applicable. We have already held vide para 3.2.3 of this order earlier that the assessee trust is hit by the provisions of section 13(1)(c) in assessment years 2001-02 to 2003-04. Therefore, in these years, voluntary contributions are not eligible for exemption under section 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 2(24)(iia) and that the voluntary contributions received by other persons. It has been submitted that the AO had held that the assessee was an AOP and therefore, voluntary contribution received by it could not be considered as income. We are unable to accept the arguments advanced. The section 2(24)(iia) covers not only trusts but also institutions created wholly or partly for charitable or religious purposes. The character of an institution as a charitable entity depends upon its objects and activities and not on the status in which it is assessed. We have already held earlier that the assessee was a trust or institution created for charitable purposes and, therefore, it is covered by section 2(24)(iia) and any voluntary contribution received has to be treated as income. 4.1.12 The ld. AR for the assessee has placed reliance on certain decisions mentioned in para 4.1.4 earlier which in our view are distinguishable and are of no help to the assessee. In case of SRMT Staff Association (supra), relied upon by the ld. AR, the assessee was registered as a society of employees which had collected amounts from businessmen for advertising in souvenir for augmenting its funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case we have held earlier that the assessee even though not registered under section 12AA, is a trust or institution created for charitable purposes. Therefore, the case is different on facts. Moreover in that case, the Tribunal had also noted that the assessee had filed application for registration under section 12A which was pending since long and had not been rejected. Therefore, the Tribunal held that it was unfair for the department to deny exemption under section 11. Thus the Tribunal had impliedly treated the assessee as registered under section 12AA and, therefore decision could not be considered as a precedent for cases in which neither the trust is registered nor there is application for registration under section 12A. The voluntary contributions defined as income under section 2(24)(iia), cannot be treated, in the absence of any specific provision, as capital receipt only on the ground that these have to be applied towards corpus. It is a settled position of law that nature of income does not depend upon the application of the income. 4.1.14 In view of the foregoing discussion and for the reasons given earlier, we are of the considered view that in so far as assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92,67,147/- 1,31,74,088/- 2004-05 2,19,51,302/- 1,68,84,604/- 2005-06 2,59,67,741/- 2,16,16,307/- 2006-07 2,14,19,414/- 1,85,86,762/- 4.2.1 The assessee disputed the decision of AO and submitted before CIT(A) that income of the assessee was exempt under section 10(22) upto assessment year 1998-99 and therefore, there was no need to claim depreciation. In assessment years 1999-00 to 2000-01, the assessee did not have registration under section 12AA and therefore, benefit of deduction on account of capital expenditure under section 11(1) was not available. It was also submitted that the assessee was not precluded from claiming depreciation on the assets claimed as capital expenditure while computing benefits under section 11, which was supported by the judgment of Hon'ble High Court of Bombay in the case of CIT v. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110/131 Taxman 386. It was pointed out that the AO was not correct in arbitrarily taking WDV as on 1.4.1999 at Nil. The WDV of any asset has to be determined only on the basis of actual cost as reduced by the depreciation actually allowed to the assessee as held by Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n claimed in respect of capital expenditure claimed as full deduction. The details of depreciation claimed and depreciation allowed year wise have been given in para 4.2 earlier. CIT(A) noted that the assessee was not registered under section 12AA till 31.3.2000 and, therefore, the assessee was not entitled for exemption under section 11 under IT Act. He, therefore, concluded that the assessee could not have claimed the capital expenditure as application of income till 31.3.2000 CIT(A) has further given a finding that the assessee had been allowed normal depreciation till assessment year 1999-00 in the income and expenditure account and WDV of each asset as on 1/4/1999 was clearly mentioned in the books of account. He has referred to the judgment of the Hon'ble Supreme Court in the case of Madeva Upendra Sinai (supra), in which it was held that while computing WDV the depreciation actually allowed and not notional depreciation has to be deducted from actual cost. CIT(A) has observed that the special auditors had computed depreciation correctly under provisions pf the Act. On the other hand, the entire exercise of re-computation of depreciation made by AO had resulted into absurd re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual noting in the diary was only Rs.2000/-. We, therefore, confirm the order of CIT(A) on these points and dismiss the grounds raised by the revenue. 4.4 The 4th dispute which is relevant only to assessment year 2000-01 is regarding disallowance of deduction of Rs.2,32,000/-claimed by the assessee on account of payment to Director of Technical Education. The AO noted that Vidya vardhini's College of Engineering and Technology had paid penalty of Rs.32,000/-and Rs.2.00 lacs to Director of Technical Education. The AO held that the said payments were for infraction of statutory provisions and, therefore, deduction was not allowable in view of explanation to section 37(1) as per which any expenditure incurred for any purpose which is an offence or which is prohibited by law is deemed to have not been incurred for the purpose of business or profession. He, therefore, disallowed the claim of the assessee. In appeal, the assessee submitted before CIT(A) that college had inadvertently admitted six students in excess of the permissible number. The payment had been made by the assessee not for violation of any statutory provisions but for violation of administrative guidelines issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years 2000-01 to 2003-04. The facts have been discussed in detail while dealing with the connected ground of the assessee trust in para 3.1 onwards. The AO had assessed the income from unaccounted donations in case of the trust. In view of our decision taken earlier vide para 3.1.24 of this order while dealing with the appeal of the trust, we have to hold income from any unaccounted donations has to be assessed in case of the trust for assessment years 2000-01 to 2003-04. The orders of CIT(A) deleting the additions on account of unaccounted donations in case of the Shri A.K. Patil are accordingly upheld and appeals filed by the revenue in assessment years 2000-01 to 2003-04 are dismissed. 5.2 In the result : (i) The appeals of Vidyavardhini for assessment years 2000-01 to 2003-04 are dismissed and those for assessment years 2004-05 to 2006-07 are partly allowed. (ii) The appeals of the revenue in case of vidyavardhini for assessment years 2000-01 to 2003-04 are partly allowed whereas those for assessment years 2004-05 to 2006-07 are dismissed. (iii) The appeals of the revenue in case of Shri A.K. Patil for the assessment years 2000-01 to 2003- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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