TMI Blog2011 (6) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.01.2007. It is because of the said search that six consecutive assessments have been completed under sec.153A for the above assessment years from 2001-02 to 2006-07. The appeal for the assessment year 2007-08 arises out of the regular assessment completed under sec.143(3). The appeals and cross objections are filed against the orders of the Commissioner of Income-tax (Appeals)- I, at Chennai dated 17.5.2010 and 1.6.2010. 2. The assessee is a trust registered under sec.12A of the Act and consistently claiming exemption under sections 11 and 12. The assessee-trust is running a number of educational institutions including Engineering Colleges and professional institutions. 3. In the light of the search carried out on 23.1.2007 and the materials and documents seized in the course of search, notices under sec.153A were issued to the assessee for the six assessment years from 2001-02 to 2006-07. In response to the notices, the assessee-trust filed returns declaring NIL income. This is because, the assessee is claiming exemption under sec.11 as an educational/charitable institution. For the assessment year 2007-08 also, the assessee filed its regular return declaring NIL income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust, for the respective assessment years. 7. According to the assessing authority, two loose sheets were recovered in the course of search carried out at the residence of the Managing Trustee of the assessee-trust, which showed that the assessee had collected amounts from the students admitted in various institutions, in excess of fees prescribed for various courses by the Directorate of Technical Education, Tamilnadu. The Assessing Officer has held the view that such excess amounts were in the nature of capitation fee collected from the students admitted in the institutions run by the assessee-trust. Relying on certain judicial pronouncements, the Assessing Officer has held that such capitation fees have to be brought to tax as they have nothing to do with charitable activities. 8. For the assessment years 2005-06 and 2006-07, the assessee had donated certain amounts to an associate trust, M/s. Jeppiaar Remibai Charitable Trust. The assessing authority has observed that M/s. Jeppiaar Remibai Charitable Trust is registered under sec.12AA and also enjoys the approval under sec.80G. The assessing authority while denying the benefits of sec.11 to the assessee-trust, has held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned assessments was upto 31st December, 2008. The assessment orders are dated 30.12.2008 but served on the assessee on 3.1.2009. As the orders were served on the assessee beyond the last day of the period of limitation, the assessee contended that the assessments were not in fact, completed on 30.12.2008 as noted in the assessment orders but the assessments were completed beyond 31.12.2008 and therefore barred by limitation. This common ground raised for all the assessment years, has been rejected by the Commissioner of Income-tax (Appeals). 14. The Commissioner of Income-tax (Appeals), but accepted the contentions of the assessee raised against almost all the additions made by the assessing authority. The Commissioner of Income-tax (Appeals) held that there was no diversion of funds so as to benefit interested persons and therefore, there cannot be a case against the assessee that it has violated the provisions of law contained in sec.13(1)(c)(ii) read with sec.13(3) of the Act. He also found that the assessee has not violated the provisions of law stated in sec.12. Accordingly, he held that the Assessing Officer has erred in denying the benefits of sec.11 to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. Accordingly, he deleted those additions as well. 17. In respect of the additions made by the assessing authority against capitation fee, the Commissioner of Income-tax (Appeals) held that the basis of the addition as alleged by the assessing authority has not been proved against the assessee. The Assessing Officer has made the addition on the ground that particulars were reflected in two loose sheets found at the residence of the Managing Trustee at the time of search. According to the Assessing Officer, the assessee has collected amounts in excess of fees prescribed by the Directorate of Technical Education and the excess amount amounted to collection of capitation fees. The Commissioner of Income-tax (Appeals) after verification of the details held that the said two loose sheets do not speak anything about such amounts stated to be collected by the assessee in excess of the fees prescribed by the Directorate of Technical Education. On the other hand, he found that those papers reflected an estimation of capitation fees calculated at a fixed rate for each branch of the engineering course for different academic years allocating 15% of the seats for NRIs and 5% for o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Managing Trustee for his own personal use. The said additions were also deleted by the Commissioner of Income-tax (Appeals). 21. The Revenue is aggrieved by all these reliefs granted by the Commissioner of Income-tax (Appeals) and therefore, have come in appeals before us. Obviously, the grounds raised by the Revenue are by and large common for all the assessment years and relate to issues of granting exemption under sec.11, corpus donations, sec.40A(3), capitation fees, donations made to Jeppiaar Remibai Charitable Trust and other additions made on the basis of visiting card entries and bank withdrawals. 22. While disposing of the first appeals, the Commissioner of Income-tax (Appeals) did not accept the common contention of the assessee-trust that the impugned assessments were barred by limitation. Dismissing the contention raised by the assessee-trust, the Commissioner of Income-tax (Appeals) held that the assessments are valid and sustainable in law. The assessee is aggrieved by this finding. 23. Another issue agitated before the Commissioner of Income-tax (Appeals) for the assessment years 2003-04, 2004- 05, 2005-06, 2006-07 and 2007-08 was whether the payments m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds for charitable purposes or not. (6) Whether addition made on the basis of the entries found on the visiting card is justified or not. (7) Whether the addition made against the bank withdrawals is justified or not. 26. The most important question to be considered in all these appeals filed by the Revenue is whether the assessee-trust is entitled for the benefits available under sections 11 12 of the I.T. Act, 1961 or not. The Assessing Officer has denied the exemption under sec.11 to the assessee-trust for the alleged reason that the assessee has violated the provisions of law contained in sec.13(1)(c)(ii) read with sec.13(3) of the Act. 26.1. Sec.11 provides for exemption of the income from property held for charitable or religious purposes. Sec.11 itself provides for the various conditions to be satisfied so that an assessee may make a claim of exemption under sec.11. Sec.12 provides that voluntary contributions received by charitable institutions would not be treated as income, if applied for charitable purposes and therefore, exempt. Sec.12A stipulates the conditions to be satisfied so that sections 11 and 12 are applied in the case of a particular assessee. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the trusts are common. He has further observed that Jeppiaar Farms and Jeppiaar Housing Ltd. are associate concerns of the assessee-trust as the trustees of the assessee- trust are directors/partners in those concerns. The Assessing Officer has observed that the assessee-trust has advanced huge sums of money to the above stated entities without establishing the necessity of advancing of such sums. On the basis of the detailed discussion available in his order, the Assessing Officer has ultimately held that those payments are nothing but diversion of funds for the benefits of those institutions. As those institutions are falling within the purview of sec.13(3), the assessee is hit by the restrictive provision contained in sec.13(1)(c). It is on this ground that the assessing authority has held that the assessee has violated the above provision and, therefore, not entitled for the exemption provided under sec.11 of the Act. 26.6. The Commissioner of Income-tax (Appeals) in his order held that as far as the funds transmitted to Jaisakthi Educational Trust is concerned, there cannot be a case of diversion of funds for the benefit of an interested person. This is because, he he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he I.T.A.T. in assessee's own case mentioned above, held that there is no diversion of funds to the benefit of any interested persons and, therefore, the assessing authority has erred in denying the exemption available to the assessee under sec.11. 26.7. We considered this issue very carefully. In the case of Jeppiaar Farms and Jeppiaar Housing Ltd., as pointed out by the Commissioner of Income-tax (Appeals), the Assessing Officer has relied on brought down opening balances to make a case of diversion of funds in favour of related concerns. But it is true that the opening balances in the respective assessment years have already been considered by the I.T.A.T., Chennai Bench 'A' in the block assessment appeals mentioned above. It means that the opening balances relied on by the Assessing Officer to make out a case of diversion of funds to Jeppiaar Farms and Jeppiaar Housing Ltd. have already been adjudicated by the Tribunal in its earlier orders. In addition to the above quantum impropriety pointed out by the Commissioner of Income-tax (Appeals), it is to be seen that in its block assessment appeal order, the Tribunal has considered the very same issue that whether the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt has not so far passed any judgment in those cases. The Commissioner of Income-tax (Appeals) was bound to follow the order of the Jurisdictional Tribunal on the issue. 26.9. In the light of the above facts and circumstances of the case, we find that the argument of the Revenue that the assessee-trust has diverted its funds to interested persons is unfounded. 26.10. Therefore, we hold that the Commissioner of Income- tax (Appeals) is justified in restoring the benefits of sections 11 and 12 to the assessee-trust. His order on this issue is upheld. Accordingly, the Commissioner of Income-tax (Appeals) is justified in giving direction to the assessing authority to re-do the assessment in the status of a trust and also in deleting the additions made by the assessing authority in respect of the excess of income over expenditure for all the impugned assessment years. 26.11. The above issues of exemption under sec.11, assessee's status of assessment and the addition of excess of income over expenditure which are common to all the assessment years are decided in favour of the assessee-trust. 27.1. The next issue to be considered is whether the corpus fund has to be added to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us fund of the assessee trust or not. It is to be seen that more than 85% of that amount have already been spent by the assessee-trust to carry on its activities. By confirming the status of the assessee-trust under sec.11, we have already held that the activities carried on by the assessee- trust are charitable in nature. Therefore, the monies spent by the assessee-trust amounted to application of funds for charitable purposes. Therefore, it is to be seen without any contradiction that more than 85% of the sum of ₹ 6,29,60,000/- had already been applied by the assessee-trust for charitable purposes. In such circumstances, sec.68 cannot make an appearance. It is to be seen that the taxability of a trust is primarily to be determined on the basis of the application of its funds for charitable activities and not on the basis of the colour of its receipts. On this principle, we uphold the order of the Commissioner of Income-tax (Appeals) and confirm the deletion of ₹ 6,29,60,000/- in computing the taxable income of the assessee-trust. 27.4. This issue is also decided in favour of the assessee. 28.1. The next issue to be considered is whether the assessing authority i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no disallowance or addition could be made on that ground. Therefore, we hold that the Commissioner of Income-tax (Appeals) is justified in deleting the addition made by the assessing authority on the ground of violation of sec.40A(3). 28.3. This issue is also decided in favour of the assessee. 29.1. The next issue relates to the addition made by the assessing authority on the ground that the assessee-trust has collected capitation fees from students. The Assessing Officer has made out the case of capitation fees on the ground that the assessee has collected fees more than the limit prescribed by the Directorate of Technical Education. This finding has been arrived at by the assessing authority on the ground that two loose sheets seized from the residence of the Managing Trustee of the assessee-trust in the course of search contained particulars of such excess collection. The contents of two loose sheets have been reproduced by the Commissioner of Income-tax (Appeals) in pages 20 and 21 of his order for the assessment year 2001-02. On an analysis of the details reflected in the said two loose sheets, the Commissioner of Income-tax (Appeals) came to the conclusion that they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is justified in making addition against the donations made by the trust to M/s. Jeppiaar Remibai Educational Trust. The assessing authority has allowed 50% of the donation as deduction on the ground that the assessee is assessed in the status of an AOP. The said decision of the assessing authority has already been set aside and held that the assessee has to be assessed as a trust. Therefore, 50% disallowance looses its ground. M/s. Jeppiaar Remibai Educational Trust, is a trust registered under 12A of the Act and engaged in charitable activities of education. Only for the reason that the trustees are common, it is not possible to hold that donor and donee are not entitled for the privileges granted by law. Common trustee is not a disqualification in the case of a charitable trust. It is an established position in law that donation given to another charitable institution to apply for the objectives of the other charitable institution amounts to application of funds for charitable purposes in the hands of the donor. The assessee is a donor in the present case. The donee is also a charitable trust. Money donated by the assessee-trust has been utilized by M/s. Jepp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt for the assessment year 2007-08. The remand report has stated that the correct amount of cash withdrawals was ₹ 18,31,95,000/- and not ₹ 36,19,45,000/- as stated in the assessment order. It is also stated in the remand report that Shri Jeppiaar is the Chairman of the assessee-trust who is the authorized person to draw funds from the banks to meet various expenses of the assessee-trust. All these withdrawals made from the banks and the corresponding expenses incurred by the trust have been properly accounted in the day-to-day cash book maintained by the assessee-trust. It is stated in the remand report that the expenses were in the nature of construction, mess, transport etc. Relevant details and vouchers are available to support the expenditure. It is in the above circumstances that the Commissioner of Income-tax (Appeals) has deleted the said addition. 32.2. We have nothing to state more than the observation of the Commissioner of Income-tax (Appeals), as far as this point is concerned. The assessee is a trust. It cannot be operated by itself but only through authorized signatories. Shri Jeppiaar is the Chairman of the assessee-trust and he is the authorized pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee on the ground of the vagaries of dates of passing and serving the assessment orders. The assessment orders are dated 30.12.2008. The assessment orders were served on the assessee on 3.1.2009. The last date of the limitation period was 31.12.2008. By going through the relevant dates, the assessee made a ground that if the assessment orders were passed on or before 31.12.2008, the assessment orders would have been served on the assessee before 3.1.2009 and therefore, the assessment orders were not passed on or before 31.12.2008 and barred by limitation. We only say that this is an argument for the sake of an argument without any basis. The assessment orders were served on the assessee on 3.1.2009. The assessment orders are dated 30.12.2008. Even if the assessment orders are dispatched on the same day, there is no guarantee that the assessment orders must reach the assessee on or before 3.1.2009. This is just a presumption made by the assessee. The Commissioner of Income-tax (Appeals) rightly rejected this contention of the assessee. This ground of the assessee is, therefore, rejected. 35.1. The next common ground raised by the assessee is that the Commissioner of Income-tax (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institutions at a large scale and therefore necessary to ensure uninterrupted supply of ready mix concrete. It is for that purpose according to the assessee, advances are given to M/s. Holy Satellite Town Ltd.. 35.5. It is also to be seen that M/s. Holy Satellite Town Ltd. is supplying ready mix concrete to the assessee-trust, by and large at the rate lower than the open market rate. 35.6. When these crucial facts are considered together, and the normal conclusion arrived at is that the relation between the assessee-trust and M/s. Holy Satellite Town Ltd. is business relation. The corollary of this finding is that the account of M/s. Holy Satellite Town Ltd. maintained in the accounts of the assessee-trust is a running business account. These basic characteristics are not changed only for the reason that M/s. Holy Satellite Town Ltd. is an entity coming under sec.13(3). 35.7. When M/s. Holy Satellite Town Ltd. is supplying the entire requirement of ready mix concrete to the assessee-trust and maintaining a running account with the assessee, it is not possible to hold a view that the amounts advanced by the assessee-trust to M/s. Holy Satellite Town Ltd. were in the nature of in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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