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TMI Blog2012 (6) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) failed to appreciate that without allowing the requested opportunity to the appellant to cross examine the party, the said evidence could not be used as evidence in law. 1.2. Without prejudice, even otherwise, the alleged assertion of the party in the statement denying the fact of making the donation stood vitiated by other evidence on record, the party himself not disputing the donation to the appellant Trust of his own funds and under his own direction. 2. That on the law, facts and in the circumstances of the case, the learned CIT(Appeals) has erred in sustaining the addition of Rs. 25 lacs as corpus donation received by means of account payee cheque from Shri Piyush Jain in utter disregard to the confirmatory letter dated 24-02-2006 forwarding the donation containing details of payment of cheque and details of bank account number and branch as also the appellant's request for summoning the party and the requisite information from his bank account. 3. That on the law, facts and in the circumstances of the case, the learned CIT(Appeals) has erred in treating the development fund charges of Rs. 59,58,384/- recovered during the year and directly credited to the developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case, the ld. CIT(A) was correct in holding that advances made by the assessee to Charanjiv Educational Society were meant for establishing an educational institution at Chhattisgarh particularly when Charanjiv Educational Society was not registered u/s 12A of the Act. 5. Whether on the facts & in the circumstances of the case, the ld. CIT(A) was correct in holding that there was no violation of the provisions of Section 13(1)(c) read with section 13(2) of the Income-tax Act, 1961, particularly when an amount of more than Rs. 2 crores was continued to be lent to Charanjiv Educational Society during the relevant accounting period and a sum of Rs. 16,55,448/- remained payable on 31- 03-06. 6. Whether on the facts & in the circumstances of the case, the ld. CIT(A) was correct in holding that corpus donation received by the assessee from M/s HCL Corporation Ltd. and M/s Blue Bird Electrotrading Ltd. amounting respectively to Rs. 15,00,000/- and Rs. 13,00,000/- are eligible for benefit u/s 11(1)(d) of the Income Tax Act, 1961. 7. The Appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 59,06,750/- recovered by the Appellant Trust towards development fund charges directly crediting the same to the development fund in the Balance Sheet as corpus of the trust in utter disregard to the fact that the receipts were embedded at source with the obligation to apply the same solely for development activities and welfare of the students. 4. That on the law, facts and in the circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 25,00,000/-u/s 68 received as donation from M/s Kuberswamy Ashutosh Consultants (P) Limited. He, inter alia, failed to consider and appreciate the fact that in response to summons u/s 131, the party had duly appeared through his representative and not only confirmed the donation and also filed copy of its bank account in support. 5. That on the law, facts and in the circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 9,06,000/-u/s 68 received as donation from M/s Sun Systems Institute of Information Technology (P) Limited by not properly and judiciously appreciating the evidence adduced before him. 6. That the order of CIT(Appeals) is wrong being in violation of the prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with returns of income of both the concerns for A.Y. 2005-06. 2.3. In April 2005 the assessee cancelled the sale agreement and the moneys paid to APIL by way of sale consideration were returned to APIL by assessee in instalments as per the copy of a/c placed on record. It may be pertinent to mention that cancellation charges @ 10% were not levied by APIL from the assessee and the entire amount of Rs. 8,60,16,000/- was thereby returned to the assessee as per the copy of a/c on record. 2.4. During the course of assessment proceedings AO doubted the genuineness of the transaction of agreement to sell by various observations which are summarized as under: i) The agreements to sell were not registered. ii) No registered sale deed was executed for more than one year after the agreements of sale and if the transactions were genuinely ale transactions, there was no explanation why the ale deeds are not executed for such a long duration. iii) No evidence for taking possession of land ha been furnished. iv) APIL has submitted that no income for this transaction was shown by it during the year 2003-04 when the agreements to sell were executed and that this also showed that possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation. AO made this addition of Rs.1.5 crore as income of the assessee trust from undisclosed sources u/s 68 of the I.T. Act. 3.2. AO further found that assessee has claimed a further corpus donation of Rs. 25 lacs received from one Shri Piyush Jain by a/c payee cheque. On assessee's request summons u/s 131 were issued on him who did not appear. Assessee thereafter vide letter dated 26-12-2008 submitted that Piyush Jain was abroad and therefore he could not be produced. AO, however, held that the donation was unexplained and accorded added this amount also u/s 68 of the Act. 3.3. Assessee further received corpus donation of Rs. 15,00,000/- from HCL Corporation Ltd. The same was also added in the hands of assessee by observing that since benefits of secs. 11 & 12 were denied on account of violation of sec. 13 of the Act, the assessee could not be given the benefit of sec. 11(1)(d) of the Act. 3.4. The other corpus donation of Rs. 13 lacs was received by assessee from Blue Bird Electro trading Ltd. and on the same analogy about violation of sec. 13 and like HCL Corporation due to non-availability of benefits of sec. 11 & 12 this amount was also added. 3.5. AO further found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sec. 13(1)(c) read with sec. 13(2) and that the judgment of Hon'ble Delhi High Court in the case of Kanahya Lal Punj Charitable Trust (supra) was not applicable to assessee's case by following observations: "5. I have perused and considered the assessment order, the submissions of the appellant as also the relevant evidenced adduced. The facts that cannot be denied are:- That the plots purchased were earmarked in the sanctioned development plants for high school and primary school and for dispensary etc. The appellant was already engaged in running an educational institution and in the absence of any cogent evidence to the contrary, the intention of purchasing the plots cannot be doubted. Further, there were simultaneous sale agreements executed between the trust and the APIL setting out the detailed clauses restricting the use of the plots only for the purpose of school etc. and also stating since 95% of the sale consideration ha been received the possession of the plots had been handed over to the appellant trust. The AO has made enquiries from APIL and they filed with the AO copies of the sale agreements as also copies of handing over of the physical possession lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the balance lying in fixed assets account representing the cost of the plots and amounts lying in Land Refund Due Account and Land Amount payable Account were consolidated and squared up by transfer thereof to the current account of APIL It is further submitted that these consolidating entries having been passed during the same accounting year giving full narration of cancellation particulars etc. could not give rise to any adverse inference about the genuineness of the transaction and these adjustments are much before the impugned assessment was taken up. The appellant further stated that there were further scores of adjustment entries which have been finally adjusted at the time of closing of books of account. 5.2. In the light of the totality of the circumstances and evidence available the fat that adjustment entry was passed on the last day of the financial year could not impact the genuineness of the transaction. A further objection has been taken by the AO that even after the cancellation of plots, two cheuqes of Rs. 75 lacs and Rs. 80 lacs were given by the trust to APIL on 29-11-2005 and 13-12-2005 respectively for which no explanation had been furnished. The appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t did not represent any loan and the interest pertains prior to 2001. ii) Assessee had running account with APIL and their interest free credit balance far exceeded the above outstanding. iii) APIL as a good well gesture had waived the right of enforcing 10% plot cancellation charges iv Reliance was placed on ITAT judgment in the case of Kishore Trust v ADI 59 ITD 137 and CIT v Nachimuthu Indl. Orgn. 138 ITR 588 (Mad.), holding that non collection of rent or interest can not be termed as a benefit. 5.1. CIT(A) after considering the facts and circumstances acceded to assessees plea and deleted the addition. 6. Apropos assesses ground 3 about debit balance of Rs. 16,55,448/- in the name of Chiranjiv educational society, Chhatisgarh ("CES"). Assessee stated the facts as: a) The appellant trust decided to establish an educational institution as private university in the state of Chattisgarh. b) According to the laws of Chattisgarh Government, no society or institution established outside the State of Chattisgarh was permitted to register and open a private university. c) It was in order to overcome this legal hurdle that the trust decided to form and register a society in Chatt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses for which the accounts were to be rendered. As stated earlier, these fund were provided not for any personal benefit by the appellant trust or its trustees. These funds were used by the appellant trust for effectuating its objects through the medium of Chiranjiv Educational Society. There was no personal benefits derived by the society or the trust. The objects of the appellant trust and the society being charitable, it was open under the law for the appellant trust even to make the donations of the above amounts to the society which would be regarded as application of income of the trust. This has been so held in various decisions. As a matter of fat, there is no prohibition under the Act in this behalf. There is also no requirement that the other charitable trust should be a registered trust u/s 12AB." 6.1 Reliance was placed on the judgments in the cases of: - CIT Vs. Aurobindo Memorial Fund Society (2001) 247 ITR 93 (Mad.); - CIT Vs. Thanthi Trust (1982) 137 ITR 735. - Director of Income-tax Vs. Sir Shriram Education Foundation (2003) 262 ITR 164 (Del.) - 224 ITR 310 (SC) - CIT Vs. Indian National Theatre Trust (2008) 305 ITR 149 (Del.) - Guru Gobind Singh Educati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section, whether or not the assessee has claimed the deduction in computing, its total income. Therefore, irrespective of whether claim was made in the return or later on through a letter, the AO was statutorily bound to allow the depreciation. I find force in the arguments in the case of the appellant trust. Therefore, if withdrawal of exemption u/s 11 is upheld, the AO would be bound to allow depreciation. Sine however the withdrawal of exemption u/s 11 is not being upheld by me as per my decision on the earlier grounds as also the later grounds, the appellant's claim for deduction of the whole cost as application of income would be allowable and the AO is directed accordingly. 8. Apropos ground 5 about development charges of Rs. 59,58,384/- cr. directly to balance sheet CIT(A) dealt the issue as under: "9.1. It is submitted by the appellant that there was over riding obligation to apply these funds for further development and they stood diverted at source for that purpose. It was further submitted that even if the amount was treated as income of the year, the application of income during the year will exceeded 85% of such revised income and the Ld. AO however ignored this g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above legal submissions are ignored, there is no occasion for making the addition u/s 68 of the Income-tax Act inasmuch as the identity of the party as also the name of the party stand established. The fact that he confirmed that the payment was made under his direction fully satisfied the ingredients of section 68. The appellant trust was not a party to any agreement or arrangement between the donor and DLF Universal Limited nor there was any evidence that the trust exerted any pressure on the donor. As such the addition is wholly unwarranted and deserves to be deleted. vi) Assessee in fine argued before the CIT(A) that it had filed a confirmation from the party confirming the payment of Rs. 1.5 crores towards corpus of the appellant trust vide pay order no. 922790 dated 28-5-2005 drawn on Citi Bank. The donor was assessed to tax and his permanent account number also mentioned in this confirmation. Statement of the party was recorded by Addl. Director of Income-tax, Ludhiana as per direction of the AO. vii) In the statement which was recorded at the back of the appellant, the party stated that no donation was given nor any direction to use this corpus donation issued. Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore itself states that this payment was made to Chiranjiv Charitable Trust as per the direction of the party. In the sale deed, apart from mention of payment of other amounts aggregating to over Rs. 13 crores there is a mention of this payment of Rs. 1.5 crores having been paid to Chiranjiv Charitable Trust as per direction of the party. 9.2. Ld. counsel submitted that despite specific requests, no right of cross examination was allowed by the AO to the appellant. Further the facts that a letter was obtained by Addl. Director of Income-tax, Ludhiana from the party were never informed or confronted to the appellant. It was, therefore, vehemently contended that there was complete violation of the principle of natural justice and the evidence obtained at the back of the appellant without providing opportunity of cross examination to the appellant was nonest in law and has to be excluded out of consideration. The Authorized Representative for the appellant has relied upon a number of decisions in this behalf. It has been further submitted that without prejudice to the above, even if these legal submissions were to be ignored, there was no occasion for making addition u/s 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yush Jain confirmation drawn on Standard Chartered Grindlays Bank was also filed by the appellant. The learned AO, however, required the appellant to produce Shri Piyush Jain to verify the genuineness of the transaction. Summons were issued to him u/s 131 and Mr. Piyush Jain failed to appear in reply to the summons. The AO asked the assessee in case Shri Piyush Jain was not produced to confirm the genuineness of the transaction, this amount of Rs. 25 lacs shall be treated as income of the appellant. The appellant, however, informed the AO vide letter dated 26-12-2008 that Shri Piyush Jain was abroad and could not be produced before him. Mr. Piyush Jainwas now abroad and his father was living at the same address. The appellant requested that present address of Mr. Piyush Jain be obtained from his father and enquiries be made at the cost of the appellant. A request was also made to summon the copy of bank account of the party for the relevant period from Standard Chartered Grindlays Bank which will also prove the financial status of the party and source of making the donation. Assessee stated that it was also making best efforts to ascertain the precise foreign address of the party b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered the facts of the case and submissions of the appellant. The AO is correct in holding that if exemption u/s 11 is denied then this donation cannot be excluded u/s 11(1)(d). Denial of exemption is not being upheld by me, this addition would as a consequence stand deleted." 12. Apropos assesses ground no 9, about depreciation, CIT(A) decided the in alternative terms by following observations: "13. Ground no. 9 being the submission of the appellant that even assuming that the benefit of exemption denied to the appellant, the AO has erred in determining the taxable income of Rs. 4,96,58,406/-. He should have computed the income under different heads as per normal provisions of the Incometax Act governing the computation of income. He further erred in not even allowing the depreciation as per Income-tax Rules and in not computing income under the head property after allowing statutory deduction. Since I am holding that exemption u/s 11 cannot be denied to the appellant, this ground becomes redundant." 12.1. Thus, aggrieved in AY 2006-07 both parties are before us. 12.2. The assessee is before us on the issues of upholding - i. Corpus donations Rs 1.5 crs from S Jagjit Singh. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that possession of land was taken which was surrendered on cancellation of the deal. Both the entities have relationship as specified by sec. 13(1)(c) as they have common trustees and directors. AO by various observations in page 4&5 of his order, has held the alleged transaction of sale of land as an afterthought and held that an amount of more than 8 crores has been advanced by assessee trust without any security and interest to APIL, which amounts to clear violation of provisions of sec. 13(1)(c) & 13(2). It is further pleaded that AO has rightly applied the ratio of Delhi High Court judgment in the case of Kanhaiyalal Punj charitable trust Vs. DIT(E), Delhi 297 ITR 6. His order is relied on. 13.1. Ld CIT(DR) thus makes following main arguments in this behalf: (i) The theory of interest free advance of Rs. 8 crores being for alleged purchase of land to APIL an specified concern, is unbelievable as it does not fit into the normal human conduct and preponderance of probabilities. Reliance is placed on Hon'ble Supreme Court judgment in the case of Sumati Dayal 214 ITR 801. (ii) The factum of taking possession has not been demonstrated by assessee, similarly returni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession and cancellation of plots. The advances were for the benefit of group business entity namely APIL ex gratia, it is in clear violation of provisions of sec 13. AO was right in invoking the same, his order on the issue deserves to be upheld. (xii) The theory and transactions as proposed by assessee are colourable devise, it is imperative that while deciding the issues in income tax substance shall take precedence over the form. (xiii) Reliance is placed on: - Delhi High Court in the case of Kanahya Lal Punj Charitable Trust (297 ITR 66); - Mcdowells & Co. 154 ITR 148 (SC); - Supreme Court in Bharat Diamonds Bourse (259 ITR 280) - Madras High Court in Nagarathu Sangam case (246 ITR 164) - Bombay High Court in Champa Charitable Trust (214 ITR 764). - Contents of relevant commentary from the book "Income Tax Law" by Sampath Aiyenger 13.2. Apropos other revenue ground no. 3 about non collection of rent and interest from APIL & grounds no 4 & 5 i.e. advances to another trust with similar objects i.e. CES; Ld DR contends that applying the same analogy these amounts have been rightly held to be in violation of sec 13 (1)(c) & 13(2). AOs order is relied on. 13.3. Apropos r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer and are placed at Pg. 25-106/PB. v) The total amount to be paid by the assessee to Ansal Properties and Infrastructure Limited as per the agreement to sell was Rs. 8,60,16,000 out of which 95% i.e. Rs. 8,17,15,200 was claimed to have been paid by 31.3.2004. v) The payment of this amount was actually made by cheques and it is duly reflected in the contemporary account for the F. Y. 2003-04, both in the books of Trust as well as AIPL. vi) The agreement to sell was not registered. vi) This is correct. The agreements to sell were not registered as the trust would have unnecessarily been burdened with early payment of stamp duty of about Rs. 50 lakhs. CIT(A) accepted that in fact this was a vide-spread practice. It may be noted that since the trustees of the trust had majority stake in AIPL, it did not really need additional protection u/s 53A of the T. P. Act. vii) Vide letter dated 26.11.2008, assessee submitted that the possession of land was not taken by it. Thereafter vide letter dated 18.12.2008, it was submitted that possession of land was taken. Thus the assessee changed its submission. In any case, no evidence for taking the possession of land has been furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diate refund of price paid by vendee on cancellation of contract by the letter. On the other hand, the contract provides forfeit of 10% of the price in such a contingency. This aspect required to be sorted out between the two parties. (Clause 20 at 36/PB). The refund was fully paid and settled before the close of the Financial Year 2003-04. In fact there was credit balance in favour of AIPL at the end of the year. x) No sale deed was signed for more than one year after the agreement to sell was signed. If the transaction was genuinely for sale transaction, there is no explanation why the sale deed was not signed for such a long duration. Even though almost whole of the payment was made. x) It was shown that in a large number of cases the sale deeds are not executed for a number of years after signing of the agreement of sell and handing over of possession. This is so because the buyers continue postponing the payment of Stamp Duty. xi) During the F. Y. 2005-06, assessee claims to have cancelled the deal with Ansal Properties and Infrastructure Limited. The same was claimed to have been conveyed to Ansal Properties and Infrastructure Limited vide letter dated 31.3.2005. xi) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 29.11.2005 and 13.12.2005 for which no explanation has been furnished. xvi) These passing observations are made by the AO unilaterally without giving the assessee any opportunity. However, detailed explanation was furnished to the CIT(A) who has discussed it in para 5.2 of his order and has accepted the explanation. The findings of fact by the CIT(A) has not been questioned by the revenue in this appeal. 14.3. Adverting to other arguments, ld counsel contends that the Assessing Officer has principally relied on the decision of Delhi High Court in the case of Kanahya Lal Punj Charitable Trust (297 ITR 66) for holding that the purchase consideration paid under the sale agreement was in fact an advance of money to AIPL. The reliance on this judgment is misconceived. In Punj case it was found as a matter of fact that the story of purchase of land at Ponta Sahib for which earnest money of Rs. 70 lakhs was outstanding with M/s Punj Lloyd was an afterthought and without evidence. There was no sale agreement and nor was there any evidence to show that the payment was made by cheque. Entire refund was shown to have been received within the same year as the deal was allegedly cancelled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer, much before the date of cancellation of the contracts, how the AO has held the explanation as afterthought is beyond comprehension. Hence, the allegation that the whole transaction was a colorable one or that it was a story or it was an afterthought is baseless. The land was acquired in March 2004 which was duly disclosed in the audited balance sheet and the return for A. Y. 2004-05 on 18th October 2004. 14.8. As pointed out by the CIT(A), the Assessing Officer is not factually correct in saying that evidence of handing over of the possession of the impugned plots of land was not furnished. Apart from copy of six agreements to sell, the AIPL had filed copy of the following documents along with letter dt. December 26, 2008 in response to summons u/s 131 from the Assessing Officer:- i) Letter dt. 18.3.2004 from AIPL authorizing Chief Project Manager (Services), Palam Vihar Project to hand over the possession of Dispensary Plot 'H' Block Palam Vihar to the assessee trust. (Pg. 140/PB) ii) Letter dt. 18.3.2004 from AIPL authorizing Chief Project Manager (Services), Palam Vihar Project to hand over the possession of Health Centre Plot 'F' Block Palam Vihar to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Chapter II of the Specific Relief Act, 1877 (1 of 1877) (***) or as evidence of any collateral transaction not required to be effected by registered instrument." In view of the proviso to that section, the courts have always held that an unregistered document which is required to be registered under Sec. 20 of the Registration Act, it can be admitted for proving a collateral transaction. The sale agreements are therefore clearly admissible evidence to prove that the possession of the plots was willingly and voluntarily given by AIPL to the Assessee Trust in March, 2004 on receipt of 95% of the purchase consideration. We also enclose relevant extracts of the authoritative Sanjiva Row's Commentaries on the Registration Act (12th edition) as annexure to these submissions. ii) Definition of 'transfer' in section 2(47) is relevant only in the case of transfer of a 'Capital Asset' as defined in Sec. 2(14) of the Act and not for transfer of stock-in-trade. It is nobody's case that the impugned plots of land in Palam Vihar were held by AIPL as capital asset and not as its stock-in-trade in the course of its business of developing a major colony in Gurgaon. As explained by Palkhivala: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant previous year the AIPL had credit opening balance of Rs. 4.4 crores in the current account in the books of the Trust. AIPL fully settled before the end of the relevant Financial Year ending 31.3.2006 (Ref Pg. 132-134/ PB). In fact, it had closing credit balance of Rs. 88 lakhs in the books of the trust. It must be borne in mind that was there was not term for immediate refund. On the other hand, AIPL had also foregone the forfeit. The provisions of section 13(1)(c) or section 13(2) do not apply. 15.1. The allegation that the sale agreements of March, 2004 are a 'colourable device', is merely a figment of imaginationas all the contemporaneous evidence on record clearly establishe that the sale agreements were given effect. This is obvious from the return of income for A. Y. 2004-05 along with the annexed audited accounts. 15.2. In Union of India Vs. Azadi Bachao Andolan (263 ITR 706) the Supreme Court had the occasion to discuss the meaning of 'colourable device' by following observations: "If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant financial year, AIPL had a credit balance of more than Rs. 4 crores. Even at the end of the year, i.e., 31.3.2006, AIPL had a credit balance of more than Rs. 80 lakhs. 15.5. As regard 'rent receivable', the A.O. has without any reason ignored the explanation that the payment of interest was wrongly credited to different account in the books of the trust. However, that apart uncollected rent cannot be called money lent and therefore provisions of section 13 do not apply. 15.6. The assessee relies on the following judgments:- - Shree Ram Mills 23 ITR 120 (SC) - Nachimuthu Industrial Association 138 ITR 585 (Mad.) - Kishore Trust 59 ITR 137 at Pg. 164/PB) 15.7. Provisions of section 13(2)(h) also do not apply to the outstanding balances as these are not in the nature of "investment" as held in the case of Chandrika Trust,(supra). 15.8. Even if it is assumed that outstanding balances aggregating about Rs. 71 lakhs are 'investment', the transaction is saved by the provisions of Sec. 13(4) of the Act. This is so because the share capital of AIPL is more than 100 crores, which is much less than threshold amount of 5% prescribed in S. 13(4) which is not disputed. 15.9. Follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Trust so as to attract section 13(2)(a). As explained by the Supreme Court in Shree Ram Mills Ltd. case (supra): "The next question is about the managing agency commission. Under the Articles of Agreement entered into between the assessee and its managing agents the agents were to be paid a certain commission and the articles provided :- " The said commission shall be due to the said firm yearly on the thirty-first day of December in each and every year during the continuance of this agreement and shall be payable and be paid immediately after annual accounts of the said company have been passed by the shareholders of the company . . . . . . . . . . . . " The managing agents left the commission lying with the assessee. The assessee contends that this constitutes a " borrowing " within the meaning of Rule 2A of Schedule II. The Commissioner of Income-tax says it is a " debt " within the meaning of Rule 2. We agree with the High Court that this is a " debt " and not a " borrowing ". It is a question of fact that money so left could, by a proper agreement between the parties, be converted into a loan, but in the absence of an agreement mere inaction on the part of the managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s set up with a view to earn profits would mean 'concern' for the purpose of S.13 (3) (e). viii) A bare perusal of the memorandum and rules of Chhattisgarh Society make it clear that all the trustees of that Society put together are not entitled to even a single penny, let alone 20 percent its income. There is no question of such a society making 'profit'. ix) The A.O has failed to establish that the Chhatisgarh trust comes within the purview of section 13(3) (e) read with Explanation 3 of that section. x) The main reason for which the Ld. A.O. has disallowed the claim is that the Chattisgarh Society is not registered u/s.12A of the Act. But, he has not indicated any provision of the Act putting such a bar. Further this question would arise had the assessee instead of advancing the money invested it in the Chatitisgarh society. In such a case, section 13(1)(d) read with section 13(2)(h) would apply. But, the admitted facts are that the assessee had made advance/ loan to Chattisgarh society. xi) There is no dispute that money of more than Rs. 2 crores was advanced by the assessee to Chattisgarh Society so as to set up a private university. For reasons which are set out in detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said instruction clearly states "where the payment by one charitable to another for utilization by the donee trust towards its charitable objects is proper application of income for charitable purpose". In the fact that the Chattisgarh Trust spent the amount so advanced for on purchase of land and for depositing Rs. 2 crores with the Govt of Chattisgarh for setting up a university which is not in dispute. The CBDTinstruction No. 1132 is at Pg. 12 of the Paper Book filed on 26.8.2011. 17. The Ld. CIT(DR) has relied on certain observations made in Sampath Aiyenger book " Law Of Income Tax". We have no quarrel with them but they are not relevant for deciding the question of exemption u/s 11 on the facts of the present case covered by Sec. 13(3)(e). So far as AIPL is concerned, it is admitted that it is an interested party. As regards Chattisgarh society, it is also admitted that the founder/ trustees of the assessee trust are also the founder/trustees of Chattisgarh Society. However, the provisions of section 13 do not apply to it from the reasons given in para 17 & 18 of these submissions. The judgments cited by the Ld. DR also do not apply for the same reasons. 17.1. It is thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r educational institutions at Palam Vihar, New Delhi. It has been of continuous financial help to assessee which is evident from the fact that by and large had interest free credit balance with the assessee in past several years. Therefore, on prima facie view it cannot be assumed that it was using the trust as a tool for financial gains in terms of using it's funds exgratia. (iii) The agreement to sale the plots to assessee were entered into the FY 2003-04 i.e. AY 2004-05 and the alleged 95% advance and possession were exchanged in that year. In AY 2006-07 there is no further advance rather the advances have been returned and agreements cancelled. Even if some colorable evidence about misuse of fund is assumed, it may be in AY 2004-05, but not in the present assessment year. In essence assessee is being denied of benefits of sec 13 for the allegation relatable to AY 2004-05, in the year money is rather brought back to the trust. (iv) Be that as it may the whole case of revenue hinges on the fact that the agreements of sale of educational plots is a colorable devise for fabricated to use the trust funds for the benefits of specified person APIL, because of common trustees and dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence which has bearing on the subject matter and is primarily relied can be considered in income tax proceedings. The agreements and other record is complimentary to each other, corroborative to each other. In our considered view on the basis of contemporaneous evidence, like account books, bank accounts and returns of income it cannot be held that assesses explanation in this behalf is unbeleivable. Some minor issues here and there about posting a journal entry at the end of the year or difference in nomenclature cannot make a transaction colourable, which otherwise has corroborative evidence. (d) From APIL copy of account in the assesses books it clearly emerges that more often than not APIL had credit balance, thus it has been providing monetary support to trust now and then. Therefore, a presumption cannot be drawn that APIL diverted the funds without proper justification for its use. (e) Assessee debited 95% advance to asset acquisition a/c itself indicate that because of substantial advance and possession it treated the plots as its assets. Treatment of these amounts as advances in APIL books, does not militate against assessee's method of accounting. Both maintain indepen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but it was shown as receivable in the books of the trust. Similarly three other cheques amounting to Rs. 20 lakhs remained unadjusted. These mistaken posting were duly reconciled by assessee. 20.1. In our considered view CIT(A) rightly held that S.13(1)(c) read with S.13(2) (a) are not violated as what is due in books from AIPL was not money lent or advanced to APIL. It was caused by unadjusted balances of interest on debts already discharged prior to 2001. At the beginning of the relevant financial year, APIL had a credit balance of more than Rs. 4 crores and at the end of the year, i.e. 31.3.2006, APIL had a credit balance of more than Rs. 80 lakhs. Thus in real terms there is no merit in the revenue ground which is dismissed. 21. Apropos revenue ground about debit balances against CES also we see no infirmity in the order of CIT(A). It has been held that assessee in furtherance of its objects intended to open a university at Chhatisgarh, proper formalities were completed, due to Supreme Court order the object could not be achieved in the hands of the assessee. Therefore, it formed this charitable society with same objects and trustees and incurred the expenses which are shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bind the assessee. Besides assessee treated consequently it as corpus donation, used it accordingly on which no question has been raised. Even donors may develop some bad feelings about the trust they donated but it can not take away the original nature of corpus donation. In view thereof we are inclined to hold that this amount has been wrongly added as unexplained cash credit u/s 68, the same is deleted. This ground of the assessee is allowed. 24.4. Other amount added u/s 68 is corpus donation made by one Shri Piyush Jain. Copy of signed confirmation along with photo copy of a/c payee cheque drawn on Standard Chartered Grindlays Bank was also filed by the appellant. Summons were issued and he did not appear, assessee informed the AO vide letter dated 26-12-2008 that Mr. Piyush Jain was now living abroad and his father was living at the same address. The present address may be obtained from his father and these enquiries may be made at the cost of the appellant. A request was also made to summon the copy of his bank account for the relevant period from Standard Chartered Grindlays Bank to prove his financial status and source of donation. 24.5. In our considered view the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome under Section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so whether depreciation on fixed assets utilised for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(Appeals) as well as the Tribunal. In CIT vs. The Society of the Sisters of St. Anme (Supra), an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under Section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the "total income" as defined in Section 2(45) of the Act and that the word "income" is a wider term than the expression "profits and gains of business or profession". Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in respect of the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... System donation, assessee filed confirmation, bearing address, PAN no and balance sheet of the donor. The balance sheet reflected that the company had paid up capital of Rs. 1 crore. 27.6 AO however was of the view that due to violation of sec 13, assessee had to explain the donations as cash credit u/s 68. It was further held that the evidence furnished in respect of both the donors was not sufficient to discharge the onus of identity, creditworthiness of the donor. The amounts were added as unexplained cash credits u/s 68. In first appeal additions were confirmed by CIT(A). Aggrieved assessee is before us. 27.7. Ld counsel for the assessee contends that all the necessary documents confirming donations were furnished before AO. Sec 68 has been applied to donations on the reasoning sec 13 benefits have been withdrawn and the donations are to be treated as cash credits. Even from the perspective of Sec. 68, assessee has discharged its burden of establishing identity of donors, genuineness of donations and creditworthiness of the donors. The additions are urged to be deleted. Ld DR is heard who supports the orders of lower authorities. 27.8 We have heard the parties on these grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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