TMI Blog2014 (3) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... were given to APIL on 29.11.2005 and 13.12.2005 for which there was no explanation – Relying upon Kanahya Lal Punj Charitable Trust Vs. Director of Income Tax (Exemptions) (Delhi) [2007 (5) TMI 166 - HIGH COURT, DELHI] - the findings of the Tribunal on this aspect cannot be upheld - in advancing the amount of Rs.8,60,16,000/- to APIL the assessee committed a violation of the provisions of Section 13(1)(c)(ii) read with Section 13(2) and Section 13(3) of the Act - The trust was accordingly not eligible for the exemption under Section 11 of the Act for both the years - Decided in favour of revenue. Advances made to society - Whether the advance made to Charanjiv Educational Society can be said to be in violation of the provisions – Held that:- The relevant documentary evidence is on record and has been noticed and relied upon by the Tribunal - it is not possible to question the correctness of the view taken by the Tribunal - thus, denial of the exemption u/s 11 on the ground that by advancing monies to Charanjiv Educational Society the assessee committed a violation of Section 13(1)(c)(ii) read with Section 13(2) and Section 13(3) cannot be accepted – The order of the Tribunal up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 2006-07 and 2007-08 and one by the revenue relating to the assessment year 2006-07. In other words, in respect of the assessment year 2006-07, there were cross-appeals before the Tribunal and in respect of the assessment year 2007-08, it was the assessee which was in appeal. All the appeals were disposed of by a common. 2. The brief facts giving rise to the present appeals are as follows. The assessee is a Charitable Trust which was granted registration under section 12A of the Act on 28.05.1976. In respect of the assessment year 2006-07, it filed a return of income declaring Rs.Nil as its income. On 31.10.2006 this return was processed under Section 143(1). Subsequently a scrutiny of the return was initiated and notices under Sections 142(1) and 143(2) were issued. A sum of Rs.8,60,1600/- was shown by the assessee as the proceeds of the sale of assets, being land. It appears that M/s. Ansal Properties and Industries Ltd. (APIL) owned certain plots of land earmarked for schools, dispensaries, etc. The assessee in furtherance of its objects to open a school, entered into agreements with APIL on 18.03.2004 and 14.03.2004 for purchase of the land situated at Palam Vihar, New Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed the exemption under Section 11. 5. In the course of the assessment proceedings, the assessing officer also noted that the assessee claimed to have received corpus donation of Rs.1.5 crores from one S. Jagjit Singh, S/o. S. Bachan Singh through a pay order. Under Section 12(1) of the Act, all voluntary contributions received by a trust will be deemed to be income derived from property held under trust wholly for charitable purposes, except those contributions which are made with a specific direction that they shall form part of the corpus of the trust. The effect of Section 12(1) is that non-corpus donations which are treated as income derived from property held under trust will have to be subjected to the provisions of Section 13. Corpus donations, however, will not be treated as income derived from property held under trust and, therefore, the provisions of Section 13 will not be attracted. Having regard to the relevance of the corpus donations in the assessment of a trust, the assessing officer issued notice under Section 131 and got the statement of Jagjit Singh recorded by the Additional Director of Income Tax (Exemptions). It would appear that Jagjit Singh stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount of Rs.25 lakhs claimed to have been received by the assessee from M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. and Rs.9,06,000/- from M/s. Sun System Institute of Information Technology as corpus donations, disbelieving the assessee s version and invoking Section 68 of the Act. He also took steps to verify both the donations. M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. furnished the copy of the bank statement to show the payment made to the assessee and also furnished the copy of the receipt issued by the assessee, the PAN number and copy of the bank certificate confirming the payment made to the assessee. The assessing officer rejected the evidence on the ground that the donor never filed any return of income and did not submit its audited balance sheet as on 31.03.2006. Moreover, the assessee did not produce the Director of the donor company despite specific direction in this Court by the assessing officer. As regards the corpus donation from Sun System Institute of Information Technology the assessing officer took steps to verify the same and issued a letter under Section 133(6) calling for information but there was no compliance. He, therefore, added both the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to establish an educational institution (private university) in the State of Chhattisgarh. According to the law prevailing in Chhattisgarh, no society established outside that State could open a private university. In order to overcome this legal hurdle the assessee formed and registered a trust by name Chirajiv Educational Society as an independent unit in Chhattisgarh. The signatories to the trust deed were the trustees of the assessee. The object of the society was charitable and similar to the objects of the assessee trust. The assessee provided the funds to the aforesaid society for the purpose of meeting the expenditure required for establishing the private university. These funds were utilised by Charanjiv Educational Society for purchase of land, contribution to the endowment fund, etc. The society received permission from the Chhattisgarh government and also made the required payments in order to establish the private university. However, in the year 2005 the Supreme Court struck down Sections 5 and 6 of Chhattisgarh Niji Khsetra Vishwavidalaya Regulatory Commission (Sthapana Aur Viniyaman) Adhiniyam, 2002 as a result of which the Chhattisgarh government by letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corpus donation from Piyush Jain, the CIT (Appeals) after examining the evidence held that since the assessee failed to produce the donor or any proof of donation towards the corpus of the trust and even failed to demonstrate that the amount was received for a purpose other than the corpus, the amount was rightly added by the assessing officer. 13. In the appeal for the assessment year 2007-08 a different incumbent in the office of the first appellate authority, found himself unable to follow the decision taken by his predecessor in respect of the disallowance of the exemption under Section 11 on the ground of violation of Section 13(1)(c)(ii) read with Section 13(3). According to him, both in respect of the advances made to APIL and the debit balances in the account of Charanjiv Educational Society, there was a violation of the above statutory provisions disentitling the assessee from the benefit of exemption under Section 11. The addition made under Section 68 of the Act on account of corpus donations received from M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. and Sun System Institute of Information Technology were also confirmed. 14. The matter reached the Income Tax App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules of evidence and evidence 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 unbelievable. 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 acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the assessee. Therefore, it formed this charitable society with same objects and trustees and incurred the expenses which are shown as advance to CEC. In our view, even if the same amount was donated to CEC in place of advance, in that eventuality also it would have been allowed as application to objects. CIT (A) rightly dismissed this ground which had no merit. 16. We are leaving out the finding of the Tribunal relating to the corpus donations treated by the assessing officer as not being eligible for the benefit of Section 11(1)(d) since no question has been raised before us by the revenue on this point. 17. The Tribunal s finding in the assessee s appeal with respect to the addition made under Section 68 is that the assessee has successfully demonstrated the identity of the donors, the source of the payment, the PAN numbers, original confirmation, etc. and in the light of the documentary evidence, which were not pursued by the assessing officer by making further inquiries, and, therefore, the assessee has discharged the onus of establishing the identity and creditworthiness of the donors as also the genuineness of the donations. The additions of Rs.1.50 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1961 in respect of the transactions which the assessee had with M/s. APIL and Charanjiv Educational Society and consequently in holding that the assessee was entitled to the exemption under Section 11? (b) Was such decision perverse? (ii) Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the addition of Rs.25 lakhs and Rs.9.06 lakhs being amounts claimed to have been received by the assessee as corpus donations from M/s. Kuber Swamy Ashutosh Consultancy Pvt. Ltd. and Sun System Institute of Information Technology respectively by invoking Section 68 of the Act? 21. We may first take up the fundamental question as to whether the assessee was ineligible for the exemption under Section 11 on the ground that there was contravention of the provisions of Section 13(1)(c)(ii) read with Section 13(3) of the Act. It is necessary to briefly notice the statutory provisions in this regard. Section 11 exempts any income derived from property held under trust wholly for charitable or religious purposes to the extent to which it is applied to such purposes in India, to the extent of 85% of such income. Charitable purposes are defined i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was not taken by the trust. The payment was, however, treated as application of income (towards charitable purposes) in the said financial year. In the same letter it was further averred that due to various reason the assessee changed its mind and the agreements were cancelled; the amount was refunded to the assessee in the financial year relevant to the assessment year 2006-07. The refunded amount was reduced from the fixed assets to which they had been debited. Having said this, in its subsequent letter dated 18.12.2008 the assessee appears to have changed its stand. In this letter it was admitted that though no registered deeds were executed but possession of the plots were given to the assessee in the financial year 2003-04. The attention of the assessing officer was drawn to the clauses 16 and 20 of the agreements dated 18.03.2004 and 24.03.2004 which stipulated that on receipt of 95% of the amount, physical possession of the plots was handed over to the assessee by APIL. It was explained that these clauses were unfortunately overlooked by the assessee and the attention of the assessing officer was not drawn to that in the earlier letter. The assessee also enclosed copies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation. On these facts and relying upon certain authorities including the judgment of this Court in Kanahya Lal Punj Charitable Trust Vs. Director of Income Tax (Exemptions) (Delhi), (2008) 297 ITR 66, the assessing officer took the view that there was a violation of Section 13(1)(c)(ii) read with Section 13(2) read with Section 13(3)(e). These findings were not accepted either by the CIT (Appeals) who decided the appeal for the assessment year 2006-07 or by the Tribunal. 24. Counsel for the revenue submitted that the findings of the Tribunal are perverse and have been recorded by taking into account irrelevant considerations and by ignoring relevant material. We are inclined to agree. The statutory provisions which we have referred to have to be applied stringently by having regard to their object, viz., to prevent misuse of the exemption provision. It is difficult to see how the assessee-trust can advance about 95% of the price of the land allegedly purchased by it for its objects and not insist on the lands being conveyed to it within reasonable time or within the time which it normally takes. If the trust is quite serious about pursuing its objects of running schools/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted person within the meaning of Section 13(3), it was the burden of assessee to establish beyond any doubt or suspicion that the advance was made bona fide and with the genuine object of acquiring land for the pursuit of the objects of the trust. Further, even though APIL accepted the request for cancellation of the agreements by letter dated 21.04.2005, the entry reflecting the cancellation of the agreement was passed in the assessee s account only after almost a year i.e. on 31.03.2006 which is the last day of the relevant accounting year. This fact will have to be noted and appreciated keeping in view the whole perspective and not in isolation. Even if the agreements were cancelled on 21.04.2005, there is no explanation why further amounts of Rs.80 lakhs and Rs.75 lakhs were advanced to APIL on 29.11.2005 and 13.12.2005 respectively. These amounts also did not bear any interest nor was any security taken. 25. Counsel for the assessee would, however, contend that the chart set out in the order of the Tribunal would show that the account between the assessee and the APIL is a running account and if the entries are taken as a whole it would be seen that it is APIL which is fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer in its first letter that it had not taken possession of the lands, but resiled from that position in its second letter, realising its faux par, citing some clauses in the agreements. Taking possession of the lands has not been established as a fact by adducing evidence. 26. The argument of the counsel for the assessee that the CIT (Appeals) and the Tribunal have entered concurrent findings of fact which should not normally be disturbed unless they are perverse is technically correct; however, we are in agreement with the submission of the counsel for the revenue that the findings of the CIT (Appeals) (for the assessment year 2006-07) and the Tribunal are superficial and have not taken note of the normal course of human conduct and probabilities. A little probing or scratching of the surface was all that was required on the part of the Tribunal to find out the truth about the claim of the assessee. The Tribunal has chosen, erroneously this we say with respect to ignore the normal course of human conduct and probabilities of the case and has preferred to be led simply by the documentation presented by the assessee. Each and every objection taken by the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2006-07. So far as the Jagjit Singh is concerned, the Tribunal has deleted the addition on the ground that the assessee has successfully demonstrated the identity of the donors, the source of the payment, the PAN number and by filing the confirmation letters. These were not pursued by the assessing officer by making further inquiries. The Tribunal, however, has overlooked that Jagjit Singh, in some other proceedings made a statement on oath denying the fact that he made any corpus donations to the assessee trust. What he stated was that an amount of Rs.1.5 crores was payable to him by DLF in a tripartite dispute between him, APIL and DLF out of which a sum of Rs.1.5 crores was paid by DLF directly to the assessee as corpus donation of Jagjit Singh. The Tribunal has held that it is not possible to view the transaction with suspicion merely because some other entity, which owes money to Jagjit Singh, had made the donation on behalf of Jagjit Singh in discharge of the debt to Jagjit Singh. It has also observed that Jagjit Singh was not cross-examined by the assessee on the statement said to have been made by him before another income tax authority in some other proceedings denying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.07.1968, that while computing the income of the trust available for application for charitable purposes, depreciation on assets used for charitable purposes should be allowed. The point to be noticed is that in this judgment, this Court referred to and distinguished the judgment of the Supreme Court in Escorts Ltd. (supra) on the ground that in Escorts (supra), the Supreme Court was concerned with a case where the deduction of the cost of the asset was allowed under Section 35(1) as capital expenditure incurred on scientific research and, therefore, no deduction for depreciation on the very same assets was held allowable under general principles of taxation, as it would amount to double deduction. The judgment of this Court in DIT vs. Vishwajagrati Mission reinforces the principle that if the cost of the asset has been allowed as deduction by way of application of income then depreciation on the same asset cannot be allowed in the computation of the income of the trust. The distinction has not been kept in view by the Tribunal which seems to have erroneously relied on the judgment of this Court to direct allowance of depreciation even in respect of assets, the cost of which has a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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