Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2017 (11) TMI 638

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... g awarded by the trust. No such resolution of the trust has also been placed either before AO as well as Ld. CIT(A). It is futile exercise on the part of the assessee to justify the benefit given to the persons specified u/s. 13. If the conscience of the assessee was clear then why it had not disclosed this fact in the audit report. Hence, there is a clear cut violation of the provisions of section 13 and accordingly, AO as well as Ld. CIT(A) has rightly denied the benefit of section 11. We note that scholarship given to Ms. Aarti Rai has been incurred in foreign currency and has been paid in UK i.e. to say the application of money has taken place outside India. For claiming exemption u/s. 11 the application of funds has to take place within India. Otherwise the approval of the Board is required which can grant exemption on the facts of each case. Thus in any case this income has not been applied in India and therefore not exempt. Further the trust is also hit by the provision of Section 13(1)(c). In view of the above, we are of the considered view that action of the Ld. CIT(A) in upholding the action of the AO in treating the scholarship given to Ms. Aarti Rai, as being in violati .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... t is also a ground for rejecting the benefit of section 11 of the Act. Addition of ₹ 34,41,987/- out of refundable security deposit of the students confirmed Adhoc addition of 50% of repairs and car maintenance expenses - no log book was maintained by the assessee - Held that:- We find that AO observed that assessee is maintaining luxury cars like Toyoto Camry, Hyundai Sonata and Honda Accord and has claimed expenses of ₹ 14,18,836/-. No log book was maintained, which establish that the said cars were being used by the trustees for their own benefit, hence, 50% of such expenditure was rightly upheld by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground raised by the assessee. Disallowing scholarship expenses paid to Ms. Aarti Rai - Held that:- We find that this expenditure cannot be regarded as an expenditure incurred to run the business nor can the same be allowed as discussed in preceding paras in the case of Trust, hence, the addition of ₹ 13,35,905/- was rightly upheld by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and accordingly, reject the g .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Sec. 13(3) in violation of Sec. 13(1)(c) of the Act, despite the fact that the payment made to her was towards he services rendered. 2.2 That the Commissioner of Income Tax (Appeals) erred on facts and in law in observing that the appellant had failed to justify that the salary payment to Mrs. Malvika Rai was commensurate with her educational qualifications without considering the submissions made by the appellant and the services rendered by her. 3. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in treating the scholarship given to Ms. Aarti Rai, asbeing in violation of provisions of Sec. 13(1)( c) of the Act. 3.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in alleging that the appellant had not mentioned the name of persons who had been extended similar scholarship facilities. 3.2 That the Commissioner of Income Tax (Appeals) erred on facts and in law in holding that the scholarship amount incurred by Ms. Aarti Rai in UK, was in violation of section 11 (1)( a) of the Act on the ground that exemption is allowed only for charitable purposes in India. .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Commissioner of Income Tax (Appeals) erred on facts and in law in: ( a) affirming the action of the assessing officer in disallowing scholarship expenses of ₹ 13,35,905/- paid to Ms. Aarti Rai. ( b) affirming the action of the assessing officer in disallowing salary of paid to Mrs. Malvika Rai. 9. While computing Income of the appellant as a business entity after denying exemption under sections 11/12 of the Act, the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming disallowance of donation paid of ₹ 37,900/-. 10. That the Commissioner of Income Tax (Appeals) erred on facts and in law in confirming imposition of interest under section 234B and 234C of the Act. The appellant craves leave to add, alter, amend, or vary the above grounds of appeal at or before the time of hearing. 3. The grounds raised in Revenue s Appeal (AY 2007-08) read as under:- 1. In the facts and in the circumstances of the case, the Ld. CIT(A) erred in granting relief to the assessee trust in r/o the payment of ₹ 2.72 crores for purchase of land for Ram Krishan Sons Charitable Trust (RKSCT) and advancing of interest free l .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of salary paid to Ms. Malvika Rai, which is excessive in nature and not commensurate to her education, experience and duties and has been paid to the related party as she is chairperson of the trust. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the exemption u/s. 13(3) of the Income Tax Act, 1961 for usage of vehicles and other assets by trustees or specified persons u/s. 13(3) without assessee providing any evidence in the form of log books as stated in the assessment order. 4. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing. ASSESSEE REVENUE APPEALS (A.Y. 2007-08) 6. The brief facts of the case are that return for the assessment year 2007-08 was filed on 31.10.2007 disclosing NIL income. The case was selected for scrutiny as per norms and notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred as the Act) was issued on 30.7.2008 and in response to the same and subsequent notices including notice u/s. 142(1) of the Act, .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... essee s appeal) :- The appellant seek to place on record synopsis in supplement to the arguments addressed during the course of hearing before the Hon'ble Bench. Facts in brief are that the appellant is a charitable trust settled vide Trust Deed dated 1.02.2001 for the predominant charitable object of imparting education. The appellant-trust was initially declared/setup in the name of Ram Krishan Kulwant Rai Charitable Trust and subsequently, the name of the trust was changed to IILM Foundation vide amendment of Trust Deed dated 26th July, 2007. In furtherance of its predominant object of imparting education, during the year under consideration, theappellant was running the following educational institutions: ( 1) Banyan Tree World Schoolat Gurgaon: - ( 2) IILM Under Graduate Business School at Lodhi Road. ( 3) IILM Early College at Lodhi Road. Apart from the aforesaid, the appellant was also contemplating setting up institute under the name and style of IILM Academy of Higher Learning at New Town, Kolkata and also 'IILM Institute of Higher Education at Lodhi Road, New Delhi'. For the previous year relevant to the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ount of refundable security deposit, proceeded to draw adverse inference on the basis of details available on record, without affording any opportunity of being heard to the appellant [Issue specifically raised vide ground of appeal No.6] It is submitted that on account of the aforesaid violation of principles of natural justice, the impugned orders passed by the AOI CIT(A) alleging violation of provisions of section 13(1)(c) of the Act and affirming the addition of refundable security deposit is illegal and bad in law. In the aforesaid circumstances, it is further respectfully submitted that the appellant has filed application filed by the appellant for admission of additional evidences in support of grounds of appeal Nos. 2 to 2.2. It is respectfully submitted that for reasons elaborately set out in the said application; the additional evidences now being filed before-the Hon'ble bench may kindly be admitted and taken into consideration in terms of Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. Emphatic reliance in this regard is placed on the decision of the jurisdictional Delhi High Court in the case of CIT vs. Text Hundred India Pvt. Ltd.: 239 CTR2 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... atter of record that before-admitting the additional evidence; the CIT (A) had obtained 'remand report from the AO. While submitting his report, the AO had not objected to the admission of the additional evidence, but had merely, reiterated the contentions in the assessment orders. It is only after considering the remand report, the CIT (A) had admitted the additional evidence. It cannot be disputed that this additional evidence was crucial to the disposal of the appeal and had a direct bearing on the quantum of claim made by the assessee. Plea of the assessee which was taken before the AO remains the same. The AO had taken adverse note because of nonproduction of certain documents to support the plea and it was in these circumstances, the additional evidence was submitted before the CIT (A). It cannot, be said not is It the case of the Revenue that additional evidence is not permissible at all before the first appellate authority. On the contrary, Rule 46A of the Act permits the CIT (!\.) to admit additional evidence if he finds that the same is crucial for disposal of the appeal. In the facts of this case, therefore, we are of the opinion' that on this aspect, no substant .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... College, Delhi University, has been actively involved in the field of education for more than 2 decades. That apart, Mrs. Malvika Rai is amongst the few Indian women, who have pioneered the cause of education in the Country. Mrs. Malvika Rai has also launched a primary school and vocational training centers, namely, Roshni , for the socially economically backward section of the society in Lodhi Institutional area, New Delhi. Mrs. Malvika Rai was awarded the Indira Gandhi Priyadarshini award for the year 1996 as acknowledgment of her services to the nation and society. The CIT(A) however decided the issue against the' appellant observing asunder: 9.2 The submission given by the appellant and the objections of the assessing officer has been perused. It is seen that Mrs. Malvika Rai is related to the trustee' and is being given a hefty salary of ₹ 16.20,000 p.m. despite the fact that she is just a graduate and the appellant had not furnished any details as to how the educational qualification of Mrs. Malvika Rai is commensurate with the salary which she is drawing. Thus the assessing officer was correct in invoking the provision of section 13 and deny .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... is of the aforesaid, it was submitted that the aforesaid senior faculty members of the appellant were getting almost equal salary/ remuneration. It was further submitted that the aforesaid persons were merely looking after a particular institution, whereas Mrs. Malvika Rai, being Chairperson of the appellant, was responsible for all the institutions run by the appellant. In view of the aforesaid profile/ roles and responsibilities and contributions/ services of Mrs. Malvika Rai, it was submitted that the aforesaid salary paid to her was very much justified and not at all unreasonable/ excessive and cannot, in any manner, be considered as giving of any undue benefit by the appellant. It may also be pertinent to mention here that the CIT(A) did not take into consideration the aforesaid details/ information filed by the appellant, during the appellate proceedings, to substantiate the fact that Mrs. Malvika Rai had actually rendered services to the appellant. The CIT(A) has, however, observed that the appellant was unable to show that the salary paid was commensurate with the educational qualification of Mrs. Malvika Rai. In this regard, it is respectfully submitted t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... t, i 961 ('the Act'). The appeal relates to the assessment years 1995-96 and 1996-97. The following question has been posed: Whether, on the facts and in the circumstances of the case and in law the Tribunal was correct in allowing the benefit under section 11 of the Income Tax Act, 1961 without appreciating that the assessee had violated the provisions of section 13(I)(c) and 13(1)(d) of the Act? 2. We find that the Commissioner (Appeals) decided in favour of the assessee on all aspects in the revenue's appeal for the assessment year 1995-96. The Tribunal affirmed conclusion of the Commissioner (Appeals) with the following observations: We have considered the rival submissions and the materials on the file. We are of the view that on the facts and in the circumstances of the case and for the detailed reasons given in the impugned appellate order, the ld. CIT(A) was justified in holding that the assessee was entitled to exemption under section 11 of the Act for the assessment year 1995-96. As noted above, the) assessee is a registered society under section 12A(a) of the Act. It is providing services in the field of family planning, family welfar .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ue, the services rendered and how the payment made is excessive and unreasonable:- - ITO vs. Virendra Singh Memorial Shiksha Samiti: (2009) 18 DTR (Luck) 502 (refer paras 17 and 18) - Dr. D.Y. Patil Pratisthan: (2014) 61 SOT 48 (Pune) (refer paras 35 - 37) - ITO v. Human Resource Development and Management Trust: (2011) 47 SOT 85 (Cuttack) (refer para 23) * On perusal of the aforesaid, it is respectfully submitted that merely because payment is made to persons specified in section 13(3), it cannot be alleged that there is violation of section 13(I)(c) of the Act. The onus is on the assessing officer to show how the remuneration! payment made is excessive and reasonable. * Pertinently, the CIT(A) in the appellant's own case for assessment years 2008-09 and 2009-10 held that there is no violation of section 13(1)(c) of the Act, after taking into consideration the entire material! evidences placed on record: - CIT(A) for AY 2008-09 - refer pgs. 1-31 of PB of Case Laws @ 17-22,31 CIT(A) for A Y 2009-10 - refer pgs. 32-37 of PB of Case Laws @ 36-37 It is also pertinent to note that even the assessing officer, in the imp .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... assing out from the college intends to pursue higher studies from abroad. Such scholarships are provided subject to the condition that these students would serve the institution, for a minimum period of 5 years after completion of their studies abroad, at reduced salary which would be decided by the Director of the Institute. B. Scholarships to Employees/Faculties for Higher Studies Scholarships are given to the employees of the appellant who intends to pursue higher studies from abroad, Such scholarships are provided subject to the condition that these employees would serve the institution, after completion of their studies abroad, under either of the following two alternatives: Alternative- I : : To serve the institution for a minimum period of 5 years at 50% salary as compared to the market norms Alternative II To serve the institution at an Honorarium of ₹ 10,000 per month for at least 3 years. In the present case, Ms. Aarti Rai, it is respectfully submitted, was sent abroad for pursuing higher education under Alternative-II (supra). After completing her studies abroad, she worked Honorary for the appellant. On perusal of the aforesaid .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... r page 50 of Paper Book). For the aforesaid reasons, it is respectfully submitted that there was. no violation of section 13(1)(c) of the Act merely on account of payment of remuneration and scholarship to Ms. Aarti Rai. Re: Grounds of Appeal Nos. 4 to 4.2 In the assessment order, the assessing officer observed that during the year under consideration the net profit as per income and expenditure account was ₹ 4,75,83,039/- and gross income of ₹ 9,82,41,290/- meaning thereby that net profit was 48.43% of the gross income. Similar observation has also been made with regard to the profitability of the immediately preceding assessment year 2006-07. In this regard, it is submitted that while coming to the aforesaid conclusion, the assessing officer failed to notice. that -the appellant, in fact, applied 92.83% of its income for charitable purposes during the year under consideration (refer page 52 of the paper book). Kind attention is further invited to the following table reproduced in the order of the CIT(A) for assessment year 2008-09 to demonstrate the position of actual surplus after taking into consideration various capital expenditure incurred .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... students were given concessional education, it is respectfully submitted as under: It is submitted that the aforesaid findings/ allegations of the assessing officer are without any basis. It is respectfully submitted that under the scheme of the Act education', per se, is charitable. It is, therefore, not at all necessary that education must be imparted to the poor only; what is required is benefit must be given to a section of the public as distinguished from specified individuals by imparting education. Reference, in this regard, may be made to the following decisions: CIT vs. Krishi Utpadan Mandi Samiti, Purva, Unnao: 231 CTR 505 (All.) CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (No.1): 186 ITR 728 (All.) Hiralal Bhagwati vs. CIT: 246-ITR 188 (GJlj.) Gaur Brahmin Vidya Pracharini Sabhavs .. CIT: 129 TTJ 627 (Del) [refer pg. 211-220 @219 of case law PB] Indo American Society vs. ADIT: 96 ITD 61 (Mum.) [refer pg. 221- 225 @224 of case law PB] St. Don Bosco' Educational Society V. CIT: 84 TTJ 805 (Luck) [refer pg. 233-239 @239 of case law PB] The CIT(A), while confirming the findings of the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ety v CIT: 372 ITR 699 (SC) - American Hotel Lodging Association Education Institute v. CBDT: 301 ITR 86 (SC) - CIT v Delhi Kannada Education Society: 246 ITR 731(Del.) - Tolani Education Society v. Dy. Dl'I'(Exemptions)- 351 ITR 184 (Born.) - (approved by SC Queen's Educational Society v CIT in 372 ITR 699) Shree Karndar Education trust v, ITA: 243 Taxman 76 (Guj.) In view of the aforesaid, it is respectfully submitted that the AO/ CIT(A) erred in holding that the appellant was not entitled to exemption under sections 11/12 of the Act merely on account of surplus in the books of account and on account of the appellant charging fees for imparting education. Re: Ground of appeal No.5 Without prejudice to the aforesaid, it is respectfully submitted that the AO/ CIT(A) further failed to appreciate that even -assuming {without admitting) that there was violation of section 13, then too, there was no-warrant to deny complete exemption under sections 11/12 -and the exemption should have been denied only to the extent of expenditure/ income to the extent of alleged violation under section 13 of the Act, for the reasons elaborated hereund .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ctions provide that income of trust will be taxable at maximum marginal rate of tax : 1. If any fund of the organization has been invested or deposited, for any part of the year, as per section H(1)(d) read with section 11(5) of the Act; 2. If any part of income has been applied directly or indirectly for the benefit of any of the excluded persons under section 13(1) r.w.S. 13(3) of the Act. However, the section categorically provides that tax shall be charged on the 'relevant income' or 'part of relevant income' which has forfeited exemption at the maximum . marginal rate. Thus, on a conjoint reading of section 13(1) and section 164 of the Act, it may be observed that taxability of the income of an organization forfeiting exemption under section 13(1) or 13(1)(d), shall be charged at maximum marginal rates of tax only on that part of income which has forfeited exemption. Thus, where the trust contravenes the provisions of section 13(1) or (d) of the Act, the maximum marginal rate will apply only to that part of the income which has forfeited exemption. Further, the language of section 13(1)(c) and (d) also supports this view whic .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... to the business profits of such trusts which are otherwise chargeable to tax. In other words. where such a trust contravenes the provisions of section 13(1)(c) or (d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provisions. (emphasis supplied) In this regard, your Honour's kind attention is further invited to various judgments/ decisions wherein it has been held that instances of violation of any provision of section 13 could not result in complete-denial of exemption under sections 11/12 of the Act. The Delhi Bench of the Tribunal in the case of Span Foundation vs. ITO: 2008 TIOL 108 ITAT Del [refer pages 449-454 of Case Law Paper Book- II] held that even in a case of alleged violation under section 13, benefit under section 11 would not be available only to the extent of application of income or property for the benefit of person referred to in section 13(3) of the Act. The same could not, however, the Tribunal further held, result in total denial of exemption under section 11 of the Act. The pertinent observations of the Tribunal read as under: 8. We have .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Mafatlal Gagalbhai Foundation Trust: 249 ITR 533 (Born) [refer Pages 123-125 124, 125 of Case law paper book] CIT vs. S.P. Mehta Memorial Trust: ITA No. 187 2005 (Guj) [refer pages 126-130 @ 130 of Case law paper book] CIT vs. Orpat Charitable Trust: 230Taxman 66 (Guj) [refer Pages 131-133 @ 132 of Case law paper book] Manockjee Cowasjee Petit Charities vs. DIT(E): 148 TTJ 181 (Mum. TM) [refer Pages 134-152 @ 148, 151 of Case law paper book] ACIT vs. Idicula Trust Society: 52 SOT 1 (Del) ..... .Jamsetji Tata Trust vs. JDIT (Exemption) ITAT : 161 TTJ 742 (Mum) [refer Pages 173 193 @188 of Case law paper book] Reliance placed by the Ld. DR on the decision of the Hon'ble Delhi High Court in the case of DIT (Exemption) v. Charanjiv Charitable Trust: 223 Taxman 71 is misplaced on account of following: a) Firstly, the aforesaid decision is distinguishable on facts inasmuch as in that case the assessee advanced substantial amount for purchase of land which was subsequently cancelled and such cancellation was recorded in the books of the assessee after considerable time. In these facts the Hon'ble High Court held that the assessee violated the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... e for the reasons stated as under: The appellant received refundable security deposit from the students taking admission in various institutes/ schools run by the appellant. As and when the student leaves the institute/ school and, clears all the dues and also completes all the formalities, the entire security deposit, after adjusting any pending dues; is refunded to, the student. As on 31st March, 2007, the appellant had refundable security deposit of ₹ 1,17,62,966, which was shown as liability in the books of account and the audited financial statements. In the assessment order, the assessing officer made addition of ₹ 34,41,987, out of the security deposit, which was computed as under: Amount (Rs.) Reason The appellant received refundable security HDFC Bank Expense Expense 22,75,226 Student Security 1999-2002 4,19,564 Student Security 2001-2004 8,65,734 Source and nature unexplained Total 35,60,524 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... uring the course of assessment proceedings the appellant produced books of accounts, which were duly examined by the assessing officer [refer page and para 71 pg 15 of AO]. Despite the aforesaid, the assessing officer, without bringing any evidence on record to substantiate that the aforesaid cars were not utilized by the appellant for the official purposes and without pointing out any specific instance of misuse of the above cars, simply made ad-hoc disallowance @50% of the total expenditure, which is not-permissible in law. Reliance is placed on the following decisions wherein it has been held that no ad-hoc disallowance could be made by the assessing officer out of expenditure- claimed by the assessee: - Friends Clearing Agency V. CIT: 332 ITR 269 (Del) [refer Pages 303-306 @-305/ para 10 of case law paper book] - Dwarka Prasad Agarwal v. ITO:_ 52 ITD 239 (Cal) [refer Pages 312-316 @ 31-61 para 15 of Case law paper book]. , _ - -- Mahendra Oil Cake Industries Pvt. Ltd; v, ACIT: 55 TTJ n 1 (Ahd.) ACIT v. Amtek Auto Ltd.: 112 TTJ 455(Del.) __ Rattah Mechanical Works Ltd. v ITa: 87 Taxman 288 (Mag)(Chd.) Shriram Pistons and Rings Ltd. v I .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 6.1 We are also reproducing the Synopsis submitted by the Ld. Counsel of the Assessee as under, with regard to ITA No. 1214/Del/2011 (AY 2007-08) (Revenue s appeal) :- The .assessee-respondent seek to place on record synopsis in supplement to the arguments addressed during the course of hearing before the Hon'ble Bench. Facts in brief have already been set out in the synopsis filed in the assessee's appeal, which are not repeated here for the sake of brevity. The assessee's ground-wise contentions are briefly stated hereunder: Re: Ground of Appeal No.1 In this ground, the Revenue has challenged the Older of the CIT(A) granting relief on the, following two issues: ( a) Payment of ₹ 2. 72 cr. for purchase of land for Ram Krishan Sons Charitable Trust (RKSCT) in violation of section 13(3) of the Income Tax Act, 1961 ( the Act ); ( b) interest free loan ofRs.2.19 cr. to Ram Krishan Sons Charitable Trust (RKSCT), in violation ofsection 13(3) of the Act. The aforesaid issues are-discussed hereunder: Re (a): Payment of ₹ 2.72 cr for purchase of land As stated in synopsis filed in assess .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... see had utilized funds for acquiring assets on behalf of another trust is, thus, factually incorrect. Re (b): Loan to RKSCT As regards loan of ₹ 2.19 crares, it is submitted that the said loan was given by the assessee to Ram Krishan Sons Charitable Trust ( RKSCT'), another charitable trust having similar objects. The aforesaid-loan was given merely to assist the said trust in construction of school building, which was under progress during the relevant year, which has not at all been disputed by the assessing officer. The said loan was received back by the assessee within the year under consideration. Pertinently, 'RKSCT' is also a charitable trust engaged primarily in the field of education activities and duly registered under section 12A of the Act. Kind attention, in this regard, is invited to the following: Copy of registration certificates under sections 12A and 80G the Act issued to RKSCT [refer pages 134-137 of the paper book]; - Trust Deed of RKSCT [refer pages 126-133 @127 of the paper book]; 3 It may also be pertinent to mention here that the assessee is duly empowered under the Trust Deed to .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ther trust/ institution, which are run by the same trustees (refer Sarladevi Sharabahai Trust vs. CIT 172 ITR 698 (Mad.) As regards the so called violation of section 11(5) of the Act on account of non-investment / deposit of funds in the modes prescribed in the said section, it is respectfully submitted that: ( a) the aforesaid requirement is only applicable to income accumulated under section 11 (2) of the Act (i.e., accumulation on account of nonapplication to the extent of 85%), which is not the present case since during the year under consideration, the application of income was more than 90%; ( b) when the amount advances itself is application of income, where is the question of further deposit! investment in the modes/ manner specified in section 11(5) of the Act. In view of the aforesaid, it is respectfully submitted that there was no violation of any of the conditions contained in section 13 of the Act, as held in the assessment order. 6.2 On the contrary, Ld. DR relied upon the orders of the AO. Ld. DR also filed the written submissions and relied upon the decision of the Hon ble Delhi High Court in the case of DIT(E) vs. Charanjiv Charitab .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... rmation was provided. In fact AO had to guess that she could be 'Aarti Rai' and a member of Rai Family. 3.1 Regarding loan advanced to another trust, it is submitted that certainly it is not 'application' of income. All the case laws cited by the AR deal with the issue if 'donation' to other 'trust' being 'application' of income or not. By way of loan the title of money is not parted with. 3.2 The loan is also not 'specified' mode of investment in section 11(5). Therefore, if 85% is not applied for objects of the trust and given as a loan, exemption u/s 11 and 12 is not available. 3.3 It is stated that the loan is given for 'purpose' of school building but no supporting evidence is furnished. 3.4 In the trust deed, there is no clause of extending loan. The reliance of assessee on 'assistance' is far-fetched. 3.5 As per clause 5 (a) (iii) of the RK Sons Charitable trust is having objects to open, found (sic), establish, equip, finance, assist, maintain, or contribute to technical, industrial, or commercial concerns, institutions, associations, or bodies imparting any type of training or p .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... l in nature and therefore needs no adjudication. 7.2 Apropos ground no. 2 to 2.2 raised in Assessee s appeal is concerned, we find that Mrs. Malvika Rai is related to the Trustee and is being given a hefty salary of ₹ 16,20,000/- p.m. despite the fact that she is just a graduate and the assessee had not furnished any details as to how the educational qualification of Mrs. Malvika Rai is commensurate with the salary which she is drawing. Thus the Ld. CIT(A) was correct in upholding the action of the AO in invoking the provision of section 13 and denying the benefit of exemption u/s. 11 12 of the Act, which does not need any interference on our part, hence, we uphold the same and reject the grounds raised by the assessee. 7.3 Apropos ground no. 3 to 3.2 raised in Assessee s appeal is concerned, which is relating to upholding the action of the AO in treating the scholarship given to Ms. Aarti Rai, as being in violation of provisions of section 13(1) of the Act, we find that AO invoked the provisions of section 13(1) and observed that the trust had granted scholarship of ₹ 13.36 lakhs to Mr. Aarti Rai for pursuing a course in London School of Economics and the ass .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... he purpose of profit and not for the purpose of charity. We further note that the Hon ble Supreme Court of India delivered its decision on August 12, 2005 in the case of P A Inamdar Vs State of Maharashtra AIR 2005 SC 3226/ [2005] SCC 537 a unanimous judgment by a bench of 7 judges on various issues pertaining to educational institutes includes issues of fee structure, reservations, admission policies, etc. The Court based on an earlier landmark decision by the Supreme Court in TMA Pai Foundation case held that every institution is free to advise its own fee structure subject to the limitation that there can be no profiteering and no capitation fee charged directly or indirectly, or in any form. The Court further held that no profiteering does not imply that the institutions cannot have reasonable surplus for future sustenance and expansion of the institute. It was held that upto 15% of profit could be considered as reasonable and legitimate. Thus, the Hon ble Supreme Court of India has observed that the profit rate upto 15% is reasonable for charitable organization. However, in this case it was observed that the profit rate is varying between 44.6% for the assessment year 2006-07 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ect the ground raised by the assessee. 7.7 Apropos ground no. 7, relating to affirming of action of AO in making adhoc addition of 50% of repairs and car maintenance expenses amounting to ₹ 7,09,468/-, on the ground that no log book was maintained by the assessee is concerned, we find that AO observed that assessee is maintaining luxury cars like Toyoto Camry, Hyundai Sonata and Honda Accord and has claimed expenses of ₹ 14,18,836/-. No log book was maintained, which establish that the said cars were being used by the trustees for their own benefit, hence, 50% of such expenditure was rightly upheld by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and reject the ground raised by the assessee. 7.8 Apropos ground no. 8 relating to affirming the action of the AO in disallowing scholarship expenses of ₹ 13,35,905/- paid to Ms. Aarti Rai is concerned, we find that this expenditure cannot be regarded as an expenditure incurred to run the business nor can the same be allowed as discussed in preceding paras in the case of Trust, hence, the addition of ₹ 13,35,905/- was rightly upheld by the Ld. CIT(A), which does no .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... RKSCT whereas in fact the said sum was advanced to WBHIDCO, Kolkata for acquisition of land by the assessee itself and not for any other trust. As regards advancing of interest free loan of ₹ 2.l9 crores to RKSCT the assessee had stated that the said trust is also a charitable trust registered u/s. 12A and thus advancing this amount to the said trust in any case does not violate the provisions of section 13(l)(c)and 13(2)(g). We note that the fact remains that RKSCT is a charitable trust which is registered u/s. 12(A) of the IT Act and in fact in the assessment order it was observed that the assessee had stated the same before the AO. In fact there is no bar for one charitable trust donating or advancing loan to another charitable trust registered u/s.12(A). It has been held by various courts that when one charitable trust donates to another charitable trust the same should be regarded as an application of income towards the object of trust. Thus in view of the above, Ld. CIT(A) has rightly granted the relief in dispute, which does not need any interference on our part, hence, we uphold the same and reject the ground raised by the Revenue. Accordingly, the Appeal filed by th .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates