9911796707
TMI Blog2018 (11) TMI 1426X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Technology (VIT) and it became a deemed university on 19.6.2001. Being registered u/s.12A of the Act, assessee was regularly claiming exemption u/s.11 of the Act. In the returns filed in response to notices u/s.153A of the Act also, assessee admitted ''Nil'' income after claiming exemption u/s.11 of the Act. Assessing Officer, however denied the claim citing the following reasons:- (i) Assessee was collecting amounts in excess of the prescribed fees from students, which was nothing but capitation fee. Such donations were not voluntary but given by parents of the students admitted to the institution, as a quid-pro-quo. (ii) Capitation fee accepted in the garb of donation was claimed as corpus donations. (iii) Donations were increasing on an year to year basis and corresponding increase in corpus fund were as under: Asst. Year Amount Increase 2002-03 5,38,39,500 Not applicable 2003-04 6,32,90,925 94,51,425 2004-05 8,71,65,250 2,38,74,325 2005-06 12,41,75,600 3,70,10,350 2006-07 14,04,38,300 1,62,62,700 2007-08 17,96,60,001 3,92,21,701 2008-09 29,22,25,001 11,25,65,000 (iv) A large number of parents had confirmed that donations paid by them were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of 22.34 acres of land at Brahmapuram, Katpadi executed by the trust with one Smt. B. Ramani, daughter-in-law of the Managing Trustee was seized during the search. As per this, the agreed consideration was Rs. 1,00,00,000/-. However in the draft sale deed the agreed consideration was mentioned as Rs. 55,84,600/-. In the conveyance deed registered in favour of the assessee on 03.06.2004, consideration mentioned was Rs. 33,51,000/-. Assessee had paid the difference, which was on-money, to Smt.B. Ramani and this was a violation of the nature mentioned in Section 13(1) (c) of the Act. (ii) A sum of Rs. 22,34,000/- was paid again to Smt. B. Ramani for purchasing 6.32 acres of land, based on an agreement for sale dated 04.06.2004. The sale did not go through but was cancelled, without any specific reason. Though the amount of rRs. 22,34,000/- was returned by Smt. B. Ramani, there was diversion of funds of the trust for the benefit of a specified person coming within the meaning of Section 13(3) of the Act, resulting in a violation of the nature mentioned in Section 13(1) (c) of the Act. (iii) An advance of Rs. 1,00,00,000/- was paid during previous year relevant to assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pillai Road, Chennai could not be accepted. This property was never intended to be purchased by the trust and therefore there was a violation of the nature specified in Section 13(1) (c) of the Act. (vii) Diversion of funds for the benefit of the trustees and their relatives, was substantiated by the additional income disclosed by the following persons who were either trustees or their close relatives : Name of the assessee S/Shri. Additional income disclosed (G) Sankar/Ramani 1,35,78,153 Sampath/ Anitha 5,69,32,956 Selvam/ Preetha 82,10,279 Total 7,87,21,388 5. Ld. Assessing Officer, thereafter computed the income of the assessee starting from the surplus shown by it in its Income and Expenditure account for the respective assessment years, after making disallowance for loss on sale of assets, write- off of advances, payment of interest, payments of donations and adjustments for change in method of accounting. 6. Aggrieved, assessee moved in appeal before ld. Commissioner of Income Tax (Appeals) for all the impugned assessment year. Assessee challenged the denial of exemption u/s.11 of the Act and also various additions made while computing total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax (Appeals) to tax such disallowance at maximum marginal rate. 9. In so far as refund of students advance fees and tuition fees were concerned, ld. Commissioner of Income Tax (Appeals) sought a remand report from the ld. Assessing Officer, since assessee produced affidavits from the parents, who had earlier stated to have received no such refunds. In such affidavits, it seems they affirmed receipt of such refunds. Ld. Commissioner of Income Tax (Appeals) took this approach since statements of the parents of the students, relied on by the ld. Assessing Officer for disbelieving the claim of refund of fee, were never put to the assessee during the assessment proceedings. From the remand report so obtained from the ld. Assessing Officer, ld. Commissioner of Income Tax (Appeals) found that ld. Assessing Officer had not summoned the concerned parents for verifying the veracity of their confirmation but had directed the assessee to produce them. As per the ld. Commissioner of Income Tax (Appeals), ld. Assessing Officer did not use the powers vested on him for ensuring the attendance of the concerned parents, and had ignored the evidence filed by the assessee. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 50,00,000 19.01.2006 50,00,000 14.03.2006 50,00,000 11.05.2006 50,00,000 16.12.2006 50,00,000 Further, as per the ld. Commissioner of Income Tax (Appeals) Shri. Arjunlal Sunderdoss was not a trustee or a specified person and financial statements of Shri. V. Sankar and Shri. V.Sampath sons of the founder trustee of the assessee trust clearly indicated that they had not borrowed any funds from Shri. Arjunlal Sunderdoss. 13. In so far as acquisition of property by Smt. S. Preetha, daughter-in-law of Managing Trustee at 85, Second East Main Road, Gandhi Nagar, Katpadi, Vellore was concerned, ld. Commissioner of Income Tax (Appeals) noted that the property was acquired by Smt. S. Preetha and not the assessee. According to him, there was nothing on record to link the payments effected by her for purchase of such property with the imprest money drawn by Shri. D. Prakash, Finance Officer from the assessee trust. Further, as per the ld. Commissioner of Income Tax (Appeals) addition made in the hands of Smt. S. Preetha for alleged on-money payment stood deleted by ld. Commissioner of Income Tax (Appeals) in her appeal. 14. Coming to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountant of India. According to him, it was a legitimate change, consistently followed thereafter. He thus held that such addition was not justified. 18. Effectively ld. Commissioner of Income Tax (Appeals) sustained only 10% of the disallowances made for land development cost incurred in cash, while allowing the claim of exemption made by the assessee u/s.11 of the Act, for the impugned assessment years. 19. Now Department in its appeal has raised the following issues listed in the table given hereunder through its various grounds. Sl. No. Summary of grievance against CIT(A) order raised through various grounds ITA No.2219/ CHNY/2017, A.Y. 05-06 - Ground number ITA No.2220 /CHN/2017, A.Y. 06-07 - Ground number ITA No.2221/ CHN/2017, A.Y. 07-08 - Ground number ITA No.2222/ CHN/2017, A.Y. 08-09 - Ground number 1 General 1,10 & 10.1 1,11 & 11.1 1, 13.8 & 14 1, 14 2 Erroneously held assessee had followed cash system against mercantile system considered by AO, & deleted addition of Rs. 8,13,57,271/- for A.Y. 2008-09. 2 & 2.1 2 & 2.1 2 & 2.1 13 to 13.2 3 Erroneously held assessee to be eligible for exemption u/s. 11 and allowed the claim. 3 & 3.1 3 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit and indirect benefit was not sufficient. 7 to 7.2 8,9.1 & 9.2 11, 11.1, 13.1 & 14 8 to 8.2 12 Incorrectly directed application of maximum marginal rate of tax on 10% of land development expenses sustained. 8 & 8.1 10 & 10.1 12 & 12.1 9 & 9.1 13 Incorrectly held that assessee was entitled to exemption on G2,13,186/- surplus arising on sale of a plot at Bangalore for A.Y. 05-06 and G9,41,89,923/- arising on sale of flat at Chennai for A.Y. 2008-09 9 ---- ---- 12 14 Erroneously directed to treat loss on sale of assets, donations paid, interest payment as application of income. 10 11 13 10 & 10.1 15 Erroneously held that G1 Cr advanced to Arjunlal Sunderdoss did not attract 13(1) ( c) since he was not a related party though there was no security or interest and sons of the Managing Trustee had taken loans from Arjunlal Sunderdoss. --- 4 to 4.2 4 to 4.2 ----- 16 Erroneously restricted to 10% disallowance of land development expenses in cash, through imprest account of Finance Manager, Prakash. --- 5 & 5.1 8 & 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Ld. Assessing Officer had recorded statements from large number of parents, denying receipt of any refunds, and these were ignored by ld. Commissioner of Income Tax (Appeals) (iv) Shri. Prakash, Finance Officer, of the assessee had withdrawn large amounts in cash as imprest and claimed such amounts to have been incurred for land development, which was erroneously accepted by ld. Commissioner of Income Tax (Appeals). (v) Land development expenditure directly recorded in the books of the assessee had perfect and correct vouchers, whereas such expenditure incurred out of cash drawings made by Shri. Prakash was not supported by any meaningful vouchers. This difference was not appreciated by ld. Commissioner of Income Tax (Appeals). (vi) There were no land development expenditure incurred in cash at Bangalore, but such expenditure was incurred at Vellore and Chennai and this was highly improper. (vii) All fees including the donations received by the assessee were by Demand Drafts, whereas refund of advance fees was in cash and such refunds were made only to students admitted under management quota. (viii) Even after such refunds, concerned students were continuing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals) went wrong in observing that payment made by assessee to GIE having been shown as an asset in the Balance sheet of the assessee, there was no diversion of income. (vi) What is required to be proved by the Revenue is that there was diversion of funds or income of the assessee trust to the specified persons and this stood demonstrated. Section 13(1) (c) of the Act was therefore automatically triggered. (vii) Payment to Shri. Sampath for acquiring property at No.56 and 56A, Thirumalai Pillai Road, Chennai never reached the logical end of acquisition in assessee's name and refund of the amount by Shri. Sampath, did not take the transaction out of in purview of Section 13(1) ( c) of the Act. (viii) Ld. Commissioner of Income Tax (Appeals) fell in error in holding that specific payments made for benefiting the trustees did not result in a violation of the nature specified u/s.13(1) (c) of the Act. 23. In support of his arguments, ld. Departmental Representative placed reliance on the following judgments/decisions. (i) Deputy Director of Income Tax (Exemptions) - I vs. India Cements Educational Society, (2016) 46 ITR (Trib) 80. (ii) DIT (Exemption) vs Chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue of land development expenditure, contention of ld. Authorised Representative, was that it had to be considered in light of the circumstances under which it was incurred. According to him, Vellore campus of the institution came to 300 acres, Madras campus came to 100 acres and Bangalore campus came to 60 acres. As per the ld. Authorised Representative, all these land were agricultural and under cultivation, when these were acquired for constructing the colleges. Submission of the ld. Authorised Representative was that assessee had to purchase Murambu or soil, fill up the land and allow sufficient time for settling, before starting construction. According to the ld. Authorised Representative all the development works were carried out based on the instructions of a reputed Architect. Area that could not be used for building structures, even after filling and leveling the land were used, as per ld. Authorised Representative, for play grounds, open air auditorium etc. Contention of the ld. Authorised Representative was that it was necessary to engage local people and local JCB owners in the respective places for development of the land so as to enable smooth transitioning and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination and such counseling was completed over a period of four days. According to him, there was unimaginable rush of people during this period and multiple forms were signed by the parents and kept for future use. Further, according to him, large number of parents used to send donations as demand draft, well before the admission process was on, under a wrong impression that such pre-payments would help them get admission easily. Since assessee was not interested in keeping any amount other than the normal donations, as per the ld. Authorised Representative, such amounts were refunded. According to him, these refunds were genuine. Contention of the ld. Authorised Representative was that the Department had obtained statements from parents of the students coercing them to say that no refunds were received by them. These statements, as per the ld. Authorised Representative were never put to the assessee any time. According to the ld. Authorised Representative, at the time of the remand proceedings, assessee had produced affidavits from substantial number of parents affirming that they had indeed received such amount in cash, but Department chose not to summon them for examination. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and shown in its books. As per the ld. Authorised Representative, the transaction was done at the guideline value, and hence Department could not say that any benefit was derived by Smt. B. Ramani from it. What was received by her, as per ld. Authorised Representative, was the value of the property and receipt of a fair price cannot be termed as a benefit. 31. Viz-a-viz, advance of Rs. 22,34,000/- paid by the assessee to Smt. B. Ramani for acquiring 6.23 acres of land at Kangaeyanallur, ld. Authorised Representative submitted that both the sale agreement dated 04.06.2004 as well as cancellation agreement dated 20.9.2004 were found during the search. Assessee, as per the ld. Authorised Representative, had every intention of acquiring the said land but since the purchase could not go through, the agreements were cancelled. As per the ld. Authorised Representative, the amounts were refunded by Smt. B. Ramani. Thus, according to him, there was no benefit arising to Smt. B. Ramani. 32. Arguing on the advance paid to Shri. Arjunlal Sunderdoss, ld. Authorised Representative submitted that the said party was not associated with the trustees nor a specified person. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that property was to be acquired by the trustees for the assessee and the mechanism of acquisition through trustees, was adopted to avoid elevated prices, if the vendors identified the assessee as the buyer. As per the ld. Authorised Representative, on recognizing that the property had an inchoate title, assessee had deemed it fit not to acquire it. Reliance was placed on the legal opinion of Advocate Shri. S. Giritharan placed at paper book pages 247 to 250. According to him, so as to avoid the loss that would have arisen, had the assessee resorted to a cancellation of the agreement for purchase, the property was acquired by the trustees in their personal name. Further, according to him, money given by the assessee for purchase was shown as asset in its Balance Sheet as advance for Chamiers Road property. In any case, as per ld. Authorised Representative, assessee had filed documents relating to M/s.GIE, which was the partnership firm which ultimately acquired property and in which the trustees were partners, proving that they had suffered a loss out of the said transaction and never benefited from it. 35. Adverting to the property at No.56 & 56A, Thirumalai Pillai Roa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007 and 29.11.2007, were very relevant. According to him, Shri Prakash had clearly admitted that he was not aware about the persons to whom he had paid the money, though he admitted such disbursements to have been made by him personally to various lorry owners and other parties. According to ld. Departmental Representative , answers to various questions given by Shri. Prakash clearly indicated that he was not aware of soil filling expenditure being incurred with regard to land development. Further, according to him, the claim of the Department was that land development expenditure claimed was entirely bogus and therefore the question of limiting the disallowance to such amounts did not arise. According to him, assessee clearly lost the benefit of Section 11 of the Act. Submission of the ld. Departmental Representative was that even a small benefit derived by the trustees was enough to deprive the trust the exemption claimed u/s.11 of the Act. For this proposition he relied on the judgment of Hon'ble Kerala High Court in the case of Agappa Child Centre vs. CIT, (1997) 226 ITR 211, that of Andhra Pradesh High Court in the case of Action for Welfare and Awakening in Rural Environment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of property at No.85, Second East Main Road, Gandhi Nagar, Katpadi, Vellore by Smt. S. Preetha, daughter-in-law of Managing Trustee, for a sum of Rs. 40,00,000/-, in which there was an application for loan showing its value as G1,25,00,000/-, indicate that trust had advanced the difference amount through Shri. Prakash, Finance Officer, for facilitating such purchase, attracting Section 13(1) ( c) of the Act. (viii) Whether payment of Rs. 34,77,50,000/- for acquiring property at Chamiers Road, Chennai, which was finally acquired by a firm called M/s.GIE, in which the partners were the trustees, result in a benefit coming within the purview of Section 13(1) ( c) of the Act. (ix) Whether the sum of Rs. 1,00,00,000/- paid to Shri. Sampath for acquiring a property at 56 & 56A. Thirumalai Pillai Road, Chennai, which was later returned by Shri. Sampath when the acquisition did not go through, result in a benefit to Shri. Sampath coming within the purview of Section 13(1) ( c) of the Act. 40. As mentioned above, the first question to be answered is whether the donations received by the assessee from the students/ parents were capitation fee and if so, whether such receipts, res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above facts is to appreciate the bigger picture in the field of education in our country. Tredltionellv education and health were considered the exclusive obligations of the State and was expected to be provided free of cost; subsidized rates or, at cost, to the different segments of the society, depending on their need for support from the State. However, over a period of difficult financial times, and population explosion, when the State was unable to find the necessary resources to discharge its traditional or constitutional obligations, the State found new ways of catering to its citizens in the fields of education and health. One of the ways is what is popularly called as "Public private partnership" in which the State's function is outsourced to the private sector. While doing this, the Government had to take into account the fact that, while its ability to raise resources by tax and borrowings was unlimited, at least in theory, the resources of the private sector were limited. The State had faced one more difference between the motivation for investments by the State and the Private Sector; ie. - while the State can look at the aforesaid services ss a mere "Cost Centre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny way militate against the claim of "Charitable" nature of the institutions or make it a commercial venture - CIT vs Pulikkal Medical Foundation Private Limited 210 ITR 301 (Ker). 16. We find from clauses 19 and 20 of the trust deed placed at pages No.6 to 17 of the statement of facts that, . there is an absolute embargo on any benefits or remuneration to the trustees or their relatives. It is not a/so the case of the Revenue that any such benefits have been conferred by the assessee during the year. Hence, for this reason too, the occurrence or recurrence of surplus of the assessee through its educational activity will not affect its eligibility for being considered as a charitable trust entitled to exemption u/s 11. Similarly, the assessee's submission that it could not have obtained donations through coercion as alleged by the Revenue also deserves to be accepted, as we find from the admission regulations of AICTE that there were only two defined areas of discretion in the matter of admission viz. 5% of the sanctioned seats for NRls and filling up of 'lapsed seats'. We find from the breakup of admissions given that, out of the 5%, only 3% of seats were allotted to N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be construed as a 'business' activity or 'profiteering' so as to deny exemption u/s 11. b. When the CIT, highest functionary of the Revenue had himself examined the very same aspect on 18.9.1998 (copy of this letter is filed in page 35 of Volume I of Paper book) and concluded in favour of the assessee, no new facts or circumstances have been brought q!h record for the year relating to 2001-02 a/y to change the Commissioner of Income Tax's view in 1998. c. Eleemosynary and altruism are irrelevant for claiming exemption u/s 11 - relying on the commentary in the law and practice of income tax in Kanga and Palkhiwala and the cases cited therein (page 392). d. CBDT Circular F.No.194116-17-IT{AI) reproduced in 212 ITR 462 (KER) - "The question for consideration is whether an educational institution existing solely for educational purpose but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational institution will be subject to tax. However, there may be cases where the educational institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 244 ITR 371 (KER) Birla Vidya Vihar Trust vs. CIT - 136 ITR 445 (CAL) " ... Educational Institution condition precedent - must exist solely for educational purposes and not for purposes of profit - position to be determined with reference to cumulative effect of all relevant facts ... " " ... Neither the fortuitous factor of having a large surplus in any particular year nor the solitary fact of diverting some of the income to objects charitable but not educational would .be decisive of the matter ... " *** a solitary instance of application of income from the schools for non-educational purposes in a prior year was not very material. The fact that the assessee trust had objects other than educational objects was also not material ... n Pinegrove International Charitable Trust vs. Union of India and Others - 327 ITR 73 (P&H) " ... Merely because profits have resulted from the activity of imparting education that would not change the character of the institution existing solely for educational purpose ... " " ... Merely because there are surpluses in the hands of the educational institution that would not ipso facto lead to an inevitable conclusion that such an educational institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness activity so as to forfeit exemption u/s 11. ". .... Therefore, for the relevant assessment years 2002-03, 2003-04 and 2004-05 where the assessments are based on the same search materials, in the same search proceedings and based on the same facts, we are bound to follow the decision of the coordinate Bench of the Tribunal mentioned supra." The Honourable ITAT had given the following decision for 2002-03 to 2004- 05 a/s on the issue of considering Donations received as Capitation fess and assessing the income as 'profits and gains of business and thereby denying exemption u/s 11, after considering all the factual materials found during the search and statements recorded, which were relied on in the Assessment order, in the following words: "16. Further, we find in the paper book filed by the learned Departmental Representative containing 1 to 270 pages that:- a) In page no.124 sworn statements of the parents / otttciels of the trust are enclosed and they were taken into consideration while deciding the issue by the Tribunal for the assessment year 2001-02. Moreover the Revenue itself has admitted that most of the parents have retracted their statements. The grie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requesting for their candidates to be accommodated on sponsorships. We do not find this practice to be in violation of any law. In Page NO.239 & 240 there are reference about some payments, admissions etc., but they cannot be conclusively said that it is capitation fee though it may raise an air of suspicion. Page NO.241 shows course-wise summary of donation which cannot be concluded that they are capitation fees. Page no.242 to 244 shows that the institution has collected some special fee and made certain refund. No specific inference of violations can be made out from these official notes. Page Nos.245 to 255 contains Xerox copy of letters from parents regarding payment made for tuition fee, hostel fee, advance and donations. Again these do not suggest that the assessee is receiving capitation fees. The above paper book filed by the Revenue has also been taken into consideration by the Tribunal while deciding the appeal for the assessment year 2001-02. Further, on perusing the above mentioned paper book filed by the learned Departmental Representative, we are of the considered view that based on surmises and conjectures, it cannot be presumed that the donations rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied-the purpose of education should not be submerged by a profit-making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year in question the object is to make profit as opposed to educating persons. These tests would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit.ADDL. CIT v. SURA T ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC),ADITANAR EDUCATIONAL INSTITUTION v. ADDL. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by denying such benefits for all the relevant assessment years 2002-03, 2003-04 & 2004-05. Thus, the ground nos. 2 & 4 is decided in favour of the assessee.". We also find that the question was answered by the Tribunal, in favour of the assessee, for assessment years 2002-03 to 2004-05, based on records, found during the search held on 06.06.2007 and the statements of various parties, which were the same documents relied on by the ld. Assessing Officer for impugned assessment years also. Judicial discipline requires us to follow the orders of the Co-ordinate Benches unless there are very strong reasons to express a dissent. No such strong reasons were brought to our attention by the ld. Departmental Representative. We therefore hold that donations received by the assessee could not be considered as capitation fee and generation of surplus did not render it ineligible for claiming exemption u/s.11 and 12 of the Act. 41. Next question is whether the land development expenditure incurred in cash at Chennai and Vellore centers of the assessee can be considered as not properly vouched and if so, whether it can be construed as funds diverted for use of trustees or specified person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chers at all - he was only unconvinced about the genuineness of the vouchers produced. Even accepting that the expenditure claimed under this head is excessive as held by the AO, it is unreasonable on his part to disallow the expenditure in entirety which means there was no land development work at all undertaken by the appellant. The appellant's submissions in paras 1.3 to 1.6 extracted above definitely have to be accepted that agricultural lands do in fact need substantial development expenditure to enable construction of multistorey concrete structures. The Ar produced copies of all land purchase documents to prove that all the lands bought by the Appellant were in fact only agricultural lands and were described as such in the sale deeds with S.No., Kisth etc. iv. As for the reasons for incurring the said expenditure in cash, it is an accepted principle that judicial notice needs to be taken of the realities of life pointed out in para 1.7 of Appellant's submissions and cannot be ignored in its entirety. v. The Appellant's submissions in paras 1.8 to 1.10 extracted above are also acceptable as the Appellant had carried out the Land development in a prudent and rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 041020 Total 10124811 27945196 0 38070007 38070007 06-07 A/C. Cheque 0 0 0 0 0 Cash 82711544 75039600 0 157751144 157751144 Total 82711544 75039600 0 157751144 157751144 07-08 A/C. Cheque 1793685 15340500 68674575 85808760 17134185 Cash 47314562 98474942 12522000 1474041704 145789504 Total 49108247 113815442 69926775 232850464 162923689 Grand Total 141944602 216800238 69926775 428671615 358744840 viii. I am also inclined to agree with submission of the Appellant that, to assess the genuineness of the Land development expenditure, the AO erred in comparing it with the cost of the lands. The more rational approach would be to compare the expenditure incurred with cost per acre at the 3 dif1Ferent locations in Vellore, Chennai and Bangalore to assess possible excess claims, when the genuineness of the cash vouchers are being questioned by the AO. I find that the Land development cost p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ksh had better vouchers. But this, is in our opinion could not be a reason to reject the vouchers which were otherwise available. We have to look at this, in conjunction with the contention of the assessee that all these vouchers were available at the time of search but Revenue had not seized it, considering its voluminous in nature. Coming to the nature of evidence required to support land development expenditure, the Cochin Bench of the Tribunal in the case of Damac Holdings (P) Ltd (supra) had held that general evidence was sufficient to prove such expenditure. This view gets roboranted by Hon'ble Jurisdictional High Court through its judgment in the case of VGP Housing (P) Ltd (supra). In any case, there is nothing on record nor anything coming out of the statements given by Shri.Prakash who had drawn the cash imprest, which can corroborate the finding of the ld. Assessing Officer that land development expenditure claimed to have been incurred in cash, had gone to the hands of any of the trustees or any specified person coming under Section 13(1) (c) of the Act. In our opinion, ld. Commissioner of Income Tax (Appeals) correctly understood the nature of expenses and its quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent advance fees as per the Annexure to the Assessment orders, all of whom have purported to have stated in the negative. It is the allegation of the Appellant that none of these statements were ever put forth during the course of assessment and that it became aware of the purported statements only on receipt of the assessment order and being in violation of the principles of natural justice cannot be acted upon or taken cognizance of in deciding the issue. 13.2.6 On coming to know of such purported statements denying the refunds on receipt of the assessment order, the appellant had approached the parents, who had furnished fresh affidavits that the statements r:ecorded by the Department were under duress and that in retraction of such statements they affirmed having received the refund of student advance fees. The Appellant wanted to produce the fresh affidavits obtained by it during the Appellate proceedings. 13.2.7 As these were fresh evidence, as the appellant was objecting to the addition made by the AO by on the basis of statements recorded by the Department '(which were not furnished to the Appellant during the course of assessment), it was felt necessary to obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; of students qualified in VITEE who 43732 82980 88446 No. of students attended counselling who 1965 2159 2220 No. of student advances received. fee 514 902 1285 No. of student fee advances adjusted towards 88 165 745 fee 17% 18% 58% No. of student fee advances repaid by CH/DD 157 31% 222 25% 132 10% No. of student fee advances repaid by cash 269 52% 516 57% 408 32% SUMMARY OF TUITON FEE ADVANCES RECEIVED, AJUSTED AND REPAID YEAR ENDED 31.03.2006 31.03.2007 31.03.2008 No. of students who qualified in VITEE 43732 82980 88446 No. of students who attended counselling 1965 2159 2220 No. of Tuition fee advance received. 854 1115 211 No. of Tuition fee advances repaid by CH/DD 210 25% 234 21% 81 38% No. of student fee advances repaid by CH/DD 644 75% 881 79% 130 62% ii. Appellants submission in paras 2.1 to 2.13 extracted abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 0 0 0 0 0 0 0 0 03-04 0 0 0 0 0 0 0 0 0 04-05 0 0 0 39 16 23 39 16 23 05-06 22 13 9 0 0 0 22 13 9 06-07 65 37 28 0 0 0 65 37 28 07-08 0 0 0 2 2 0 2 2 0 08-09 0 0 0 45 30 15 45 30 15 Repea t A.Y 02-03 to 08-09 15 9 6 0 0 0 0 0 0 Total 102 59 43 86 48 38 173 98 75 58% 42% 56% 44% 57% 43% iv. There is another angle from which the refund matter can be viewed. The refunds that are disbelieved by the AO are 'advances' received and not the 'income' of the Appellant. No sane parent is going to rest if the advance money was not repaid to him, as alleged by the AO, especially when the Department had recorded statements from hundreds of parents. At least thereafter the Department's action should have created an onslaught of requests from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Student advances and tuition fees in cash for 2006-07 to 2008-09 aYS and hold that sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s 11 on this score. Hence this ground of appeal relating to AYs 2006-07, 2007-08 & 2008-09 is Allowed''. 44. Ld. Assessing Officer had disallowed the above claim finding that a large number of parents had denied receipt of any refund, and noting certain irregularities in the forms signed by the students/parents. As per the ld. Assessing Officer, the refunds were all made within a short period of admissions and could not be believed. Ld. Assessing Officer had cited instance of one Shri. T. V. Karthik, , Shri. S. Arun, Shri. Sunil Sharma, Shri. J. Vinoth, Shri. Gaurav Bhattacharja, Shri. Praneeth Rao, Shri. Pradek Singla, Shri. Ena Negi, Shri. Harsh Raghava, Shri. Punkit Jain, Ms. Radhika, Shri. R. Jegannathan, Ms. Meera George Palackan, Shri.Abishkek Gupta, Shri. Amitesh Anand, Shri. Haider Chandu, Shri. G.V. Dinesh, Shri. S. Karthick, Shri. K. Balaganapathy, Shri. Rohit Seth, Shti. Koshy Mathew, Shri. V. Vishal, Shri. K.S. Dinesh, Shri. Vishesh Kalra, Ms. A. Srimathi, Shri. Deepan Thangaraj and Shri. Yeswanth Kumar in this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of probability, is in favour of the assessee that the refunds were actually effected. In our opinion the question of any benefit arising to the trustees or specified persons will not arise, once the payments are accepted as accounted correctly. 46. Now coming to the question, whether acquisition of 22.34 acres of land at Brahmapuram, Katpadi from Smt. B. Ramani for G33,51,000/-, for which agreed consideration was Rs. 1,00,00,000/- gave rise to a presumption that the difference amount was coming out of trust funds, resulting in a benefit to Smt. B. Ramani which fell within the meaning of specified person thereby attracting Section 13(1) ( c) of the Act. The findings of the ld. Commissioner of Income Tax (Appeals) with regard to the above, as it appear at para 9.13 to 9.17 of his order are reproduced hereunder:- ''9.1.3 After going through the discussions made by the AO in the assessment order as to how he came to the conclusion that funds of the appellant were diverted for the benefit of specified persons as contemplated in section 13(1)(c) and the submissions made by the appellant, extracted above, as to how the AO went wrong in coming to this erroneous conclusion, I am of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted-above to hold that there has been no diversion u/s 13(1)(c) by the Appellant to the said B.Ramani, as the AO has not made any additions in respect of the same u/s 69B on the appellant in respect of the alleged payment of excess consideration, nor has he assessed such excess in the hands of the alleged recipient B.Ramani. Hence, sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s lion this score and this ground of appeal relating to 2005-06 is allowed''. 47. It is an undisputed fact that the property was acquired by the assessee from Smt. B. Ramani, who was the daughter-in-law of the Managing Trustee and the price stated in the registered sale deed was Rs. 33,51,000/-. It may be true that seized records revealed an agreement mentioning the consideration as Rs. 1,00,00,000/-. However, it is not disputed that what was accounted by the assessee in its books was Rs. 33,51,000/- only. Nothing more was paid by the assessee for this acquisition in it's books. It is also mentioned by the ld. Assessing Officer that the amount of Rs. 33,51,000/- was the guideline value of the property. In other words, nothing more than the guideline value was paid by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage and such advantage was not commensurate with the value of the property transferred. Just because a transaction is entered between a trust and trustee, we cannot say that it resulted in a benefit to the trustee. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in taking a view that there was no violation of Section 13(1) (c) of the Act on the above transaction. 48. Next question before us is whether the advance payment of Rs. 22,34,000/- to Smt. B. Ramani for acquiring 6.23 acres of land at Kangaeyanallur, which was later cancelled and refunded resulted in any benefit to Smt. B. Ramani attracting Section 13(1) ( c) of the Act. The findings of the ld. Commissioner of Income Tax (Appeals) with regard to the this issue as it appear at para 9.23 of his order is reproduced hereunder:- ''9.2.3 It is found that the advance for the purchase of land was paid by a cheque; the advance paid is evidenced by a duly stamped instrument of sale agreement; the advance was repaid by the said B.Ramani by a cheque, pursuant to a duly stamped cancellation agreement and most importantly the aforesaid agreements were found at the time of search and seized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , account copies of statements and copy of the above agreement I am convinced that the transactions seem to be genuine. It is not the case of the Department that Arjunlal Sunderdoss is a 'prohibited person' u/s 13(3) not entitled to be paid any amount from the Trust. He isa Sindhi and the Trustees are Mudaliars et id they are not 'related'. The allegation of the AO that sons of the Founder Trustee, V.Sankar & V.Sampath have obtained loans from the said Arjunlal Sunderdoss is disproved from copies of the financial statements of V.Sankar & V.Sampath, a perusal of which is obvious that they have not borrowed any loans from Arjunlal Sunderdoss during the relevant period. The AO's conclusion that the monetary transaction of the trustees with the above financier, have nexus with the above contract involving Rs. 50,OO,OOO/- is contrary to the facts and not acceptable just on the face of it. Hence, sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s 11 on this score. Hence this ground of appeal relating to AYs 2006-07 & 2007-08 is allowed''. 51. It is not disputed that the money given to Shri. Arjunlal Sunderdoss was returned by him within a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that there is nothing on record to link the acquisition made by Smt. Preetha with the assessee. Just because Finance Office, of the assessee Shri. Prakash had drawn imprest money from the trust would not mean that such money reached the hands of Smt. Preetha. Especially so, when no such admission was made by Shr. Prakash in any of the statements recorded from him. We therefore find no reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals) in this regard. 53. Now we have to address the question, whether payment of Rs. 34,77,50,000/- for a property at Chamiers Road, Chennai, which was acquired by GIE in which partners were trustees of the assessee trust, resulted in a benefit to a specified person coming within the purview of Section 13(1) ( c) of the Act. Findings of the ld. Commissioner of Income Tax (Appeals) on this issue, as it appear at paras 12.1.5 to 12.1.9 of his order are reproduced hereunder:- ''12.1.5 As far as purchase of the property at Chamiers Road is concerned, the appellant stated that the said property was planned to be purchased for the use of the trust to construct a training centre. As per the practice in vogue, the Trust pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1882 "3. Interpretation clause- "trust" A "trust" is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner: In this section "living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals." And the following definition of 'transfer of property' under the Transfer of Property Act, 1882, reproduced below "5. Transfer of property defined In the following sections "transfer of property" means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and "to transfer property" is to perform such act. In this section "living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d above, attempted to find another buyer to whom the said property could be transferred as its nominee under the purchase agreement and it was only after failing to find such a buyer that the Trustees decided on 9.2.2007, to relieve the Appellant from the purchase of a onerous property, by entering into MOU. vi. Appellant had agreed to pay the balance purchase price and other costs for the property on the condition, as per the MOU dt.9.2.2007 on the condition that all the said advances would be repaid by GIE on arranging the funds at the earliest, as the 5 Trustees did not intend to purchase the property nor could they arrange for the finances within the 3 remaining weeks to go through the transaction and to save itself from the financial loss to the tune of RS.l0 crore. vii. The defect in the title to the property was real as even GIE who purchased the property was not able to rent it or develop it and ultimately sold it at a huge loss after a number of years; VIII. Appellant, contrary to what the AO has stated in para 71 of his order, did not incur any of the expenditure, (including interests on the loan taken for payment of the advances upto the date of repayment of the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he gift of of 15.791/4 acres valued at Rs. 1.26 crores near Madras by GIE to the Appellant on 7.10.2008, (apart from reimbursement of all expenses including interest on loan taken to pay the advances) is more than adequate consideration for the payment of the aforesaid advances for the purchase of the property by the Appellant under bona fide and genuine circumstances. 12.1.9 For all the reasons aforesaid, I hold that that there was no diversion or 'application' of the trust funds for the benefit of the prohibited persons u/s 13(3) as far as the dealing in immovable property at Chamiers Road is concerned and hold that sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s lion this score. Hence this ground of appeal relating to A.Ys.2007-08 & 2008-09 is Allowed''. 54. Submission of the ld. Authorised Representative before us is that copy of the Board resolution and Memorandum of Understanding between the trustees and the assessee were all available at the time of search, but were not examined nor seized by the Department. This submission was not effectively rebutted by the Revenue. Memorandum of Understanding dated 26.12.2006 placed at paper book pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) has also given a finding that GIE had suffered a loss on sale of Chambiers Road property and they had derived no benefit. This finding was not rebutted by the ld. Departmental Representative. Thus we cannot say that the payments were made by the assessee with any intention of benefitting its trustees or the firm M/s. GIE, nor can we say that they benefitted from it. We thus do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals) on this issue. 55. Next question we have to answer is whether the sum of Rs. 1,00,00,000/- paid to Shri. Sampath, one of the trustees for acquiring a property at 56 & 56A, Thirumalai Pillai Road, Chennai which was later returned by the said Shri. Sampath, when the acquisition did not go through, resulted in any benefit to Shri. Sampath, coming within the purview of Section 13(1) ( c) of the Act. Findings of the ld. Commissioner of Income Tax (Appeals) on the above issue, as it appear at paras 12.2.3 and 12.2.4 of his order are reproduced hereunder:- ''12.2.3 Here again, to make a fair assessment of the situation, an over all view of the facts and circumstance of the facts narrated above, the detriment if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e idea of buying this property and the advance was returned to the Appellant by the Shri Sampath, trustee. vi. Thus from the above discussion it may be noted that there was no diversion or 'application' of the Trust funds as such, to interested parties asthe amount was paid for purchasing a property for the Trust and not to financially benefit the trustee. The transaction is through banking channels and is backed by resolution passed by the Board of Trustees. The payment to the trustees and the repayment by the trustees to the appellant are all by cheques only and are reflected in the accounts and the Balance sheet of the Appellant as advance for purchase of Thirumalai Pillai road property and not as an loan to a Trustee. 12.2.4 Based on the above discussion and evidences produced, I am of the considered view that there is no element of any diversion of trust funds to the interested persons in respect of the advance of Rs. 1 crore paid for the nomination and purchase of the Thirumalai Pillai Road property and hold that sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s 11 on this score. Hence this ground of appeal relating to A.Ys. 2007-08 & 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case before us, what we find is that there were no benefits to the trustees or any specified person coming within the meaning of Section 13(1) (c) of the Act, on account of any of the alleged transactions on land/purchase or on account of land development expenditure claimed by the assessee or on account of refund of fees. As already mentioned by us mere receipt of funds by a trustee is not sufficient to attract Section 13(1) (c) of the Act. There has to be an intention to benefit the trustee and some real benefit arising to the trustee. These should manifested in actions of the trust and the trustee. Since, there has been no such benefit arising to the trustees or any specified person here, these judgments in our opinion have no application on facts. As against this, there is considerable force in the argument of the ld. Authorised Representative that burden of proof was on the Revenue to prove any benefit to have been accrued to the trustees, at the expense of the trust, and this was never discharged. We are alive to the fact that in the statements recorded during the search, trustee /related parties had admitted personal income aggregating to 7.87 crores. However, at no po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate and the Department cannot convert the aforesaid gain as 'profits and gain of business'. It is assessable under the head capital gain only, in which case the sale results in Long term capital loss of Rs. 438742 as per Appellant's computation submitted. Further, as I have held that the Appellant is entitled to exemption u/s 11, the capital gain of Rs. 213186 is exempt u/s 11(lA) as it is found that the Appellant has acquired another capital asset during the year. Hence, this ground for 2005- 06 a.y is ALLOWED''. Assessment year 2008-2009 : Appellant had sold a plot purchased on 13.3.2006 for Rs. 90810067 during the year (20.3.2008) for Rs. 185000000, resulting in capital gain of Rs. 94189933, which was credited to the corpus fund account. The AO has assessed this gain as 'profits and gains of business' without any discussion in his order, probably because exemption u/s 11 was denied by him. Appellant is not in the business of real estate and the Department cannot convert the aforesaid gain as 'profits and gain of business'. It is assessable under the head capital gain only, in which case the sale results in Short term capital gain of Rs. 94189933 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g followed by the Appellant for A.Ys. 2002-03 to 2004-05. Respectfully following ITAT's order in the Appellant's case for A.Yrs.2002-03 to 2004-05, I have held that the Appellant was only following the 'cash system'' of accounting during A.Y.s. 2005-06 to 2007-08 in para 6 above. 21.4 The Appellant has changed its method to the' mercantile' system of accounting only from the year ended 31.3.2008 (A.Y.2008-09) which I find has been consistently followed till date, from the financial statements for the subsequent years produced before me. As this is a bonafide change in the method of accounting for A.Y. 2008-09, which has been consistently followed till date, the income of the Appellant has to be computed only ,according to the books of account maintained and audited by the Appellant. Accordingly I direct the AO to delete the addition of Rs. 81357271 made on this score. Hence, this ground is treated as allowed''. What we find is that ld. Commissioner of Income Tax (Appeals) had followed the Tribunal order in assessee's own case for assessment years 2002-03 and 2004-05 in ITA No.294 to 296/Mds/2014, dated 20.06.2016. There is nothing on record to show that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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