TMI Blog2018 (11) TMI 1426X X X X Extracts X X X X X X X X Extracts X X X X ..... that:- CIT (Appeals) correctly understood the nature of expenses and its quantum after comparing the per acre rate at different places. Nevertheless, he fell in error in sustaining a disallowance to the extent of 10%. CIT(A) did not give any specific reason for sustaining a disallowance to the extent of 10% of the claim. More so since CIT (Appeals) himself had given a finding that per acre land development expenditure incurred in Chennai and Vellore were lower than what was incurred in Bangalore, where admittedly the payments were effected through bank. There is also no case for the Revenue that the land in question was not developed and was not an agricultural in nature when the assessee acquired it - disallowance of any land development expenditure was not warranted. Ex-consequenti there can be no question of any benefit accruing to the trustees or specified persons for applying Section 13(1)(c). Refund of advance fees / tuition fees to students/parents - whether it be construed as funds diverted for the benefit of trustees/ specified persons, thereby attracting Section 13(1)(c)? - Held that:- It is not a case where no evidence was there to prove the refunds. AO had simply ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefited from such transaction. The intention in entering the transaction was not to benefit Smt. B. Ramani, but for acquiring the property for the assessee trust. We cannot say that Section 13(1)(c) stood attracted. We are of the opinion that CIT (Appeals) was justified in taking a view that there was no violation of Section 13(1)(c) on this transaction as well. Advance paid to Shri. Arjunlal Sunderdoss during previous year relevant to assessment year 2006-07 and ₹ 50,00,000/- paid during previous year relevant to assessment year 2007-08, were diversion of income/property of the trust attracting Section 13(1)(c) - Held that:- Case of the AO is that no security was given for such advances nor any interest received from Shri. Arjunlal Sunderdoss. As against this, case of the assessee is that money was intended for developing a property owned by Shri. Arjunlal Sunderdoss, which was to be used by the assessee for its activities. Thus, we cannot say that the advances were given for no reason. In any case, Shri. Arjunlal Sunderdoss is neither a trustees nor a specified person coming within the meaning of Section 13(3). CIT (Appeals) was justified in taking a view that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ampath, coming within the purview of Section 13(1) (c) - Held that:- Argument of AR that this acquisition was planned as an alternative to the proposal for acquiring the Chamiers Road property which fell through due to defects in title, carries much strength. The question of benefit arising to a trustee or specified person would arise only if the transactions were entered with the intention of benefiting such person. Flow of events clearly indicate that Shri. Sampath had not benefited himself, by using the money of the trust. His intention was only to acquire the property for the trust. Just because the transaction did not go through, would not mean that Shri. Sampath, had directly or indirectly benefited from it. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in holding that there was no violation of the nature mentioned in Section 13(1)(c) 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 point did they say that this was part of trust funds. Shri. Sampath and his wife who had admitted G5.69 crore out of 17.87 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short the Act ). Before adjudicating the grounds taken by both parties, it is important to capture the facts. 3. Assessee a trust registered u/s.12A of the Act on 09.07.1984 was subjected to a search u/s.132 of the Act on 06.06.2007. Assessee is running an engineering college named M/s. Vellore Institute 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ini Jain (Miss) vs. State of Karnataka and others (1992) 2 SCC 666 had held that capitation fee collected by private education institutions was nothing but a price for selling education and this was contrary to the edicts in Constitution of India (vii) There were large number of instances of violations coming within the ambit of Section 13(1) (c) of the Act, where income and property of the trust were diverted for the benefit of the trustees and their relatives. (viii) Expenses for land development were inflated and such amounts were diverted for personal benefit of the trustees and their relatives, attracting Section 13(1) ( c) of the Act. (ix) Repayments of advance fees and tuition fees in cash, had no reliable confirmation from the parents of the students, and this was nothing but diversion of funds of the Trust for personal benefit of the Trustees. Refunds considered by the ld. Assessing Officer as diversion of funds were as under:- (a) Student Advance refunds A.Y.2006-07 ₹ 8,00,31,224 A.Y. 2007-08 ₹ 20,67,49,998 A.Y. 2008- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said sum was paid by Smt.S. Preetha through cheques dated 18.08.2006 and 09.04.2007 for ₹ 10,00,000/- and ₹ 30,00,000/- respectively. However one of the seized documents revealed that Smt. S. Preetha had applied for a loan of ₹ 85,00,000/- from M/s.Indian Bank for purchasing this property. In the application filed by Smt. S. Preetha to Indian Bank, cost of the property was shown as ₹ 1,25,00,000/-. Almost contemporaneously there were drawings of imprest cash by Shri. Prakash, Finance Officer of the assessee, on 14.08.2006, 23.08.2006 and 30.08.2006 aggregating to ₹ 80,14,250/- from the trust account. This money was obviously used for paying the difference between actual purchase amount of ₹ 1,25,00,000/- and apparent consideration of G40,00,000/. Thus there was violation of a nature specified u/s.13(1) (c) of the Act. (v) During the previous year ended 31.03.2007, loans were raised by the assessee on the security of its fixed deposits and immovable property, out of which a sum of ₹ 10,00,00,000/- was paid to five trustees and a sum of ₹ 17,87,27,500/- was paid to a firm called M/s. Global Infrastructure Enterprises (in short GI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-ordinate Bench in assessee s own case for assessment year 2001-02 in ITA No.165/Mds/2008, dated 28.05.2010 and for assessment years 2002-03 to 2004-05 in ITA Nos.294 to 296/Mds/2014, dated 22.06.2016. As per the ld. Commissioner of Income Tax (Appeals) by virtue of the above orders, it was clear that donations received by the assessee from the parents of the students could not be considered as Capitation fee and the surplus income could not be assessed under the head income from profits and gains of business . According to the ld. Commissioner of Income Tax (Appeals) exemption under Section 11 of the Act could not be denied for this reason. 8. Viz-a-viz, the finding of the ld. Assessing Officer that there were violation of nature specified u/s.13(1)(c) of the Act on account of inflated land development expenditure, ld. Commissioner of Income Tax (Appeals) was of the opinion that ld. Assessing Officer could not establish any direct nexus of such alleged inflation with any benefit which accrued to the trustees or any specified persons. According to the ld. Commissioner of Income Tax (Appeals), expenditure for land development incurred by the assessee at its properties at Chen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no evidence on record to show that any of the alleged refunds were used for the benefit of any trustees or any specified person. According to him, ld. Assessing Officer himself had admitted in the assessment order that funds withdrawn were used for the purpose of meeting college expenditure. 10. Ld. Commissioner of Income Tax (Appeals) also analyzed the specific violations alleged by the ld Assessing Officer falling within Section 13(1) ( c) of the Act of a nature mentioned in the Act. Viz-a- viz purchase of 22.34 acres of land at Brahmapuram, Katpadi from Smt. B. Ramani on 11.03.2004, ld. Commissioner of Income Tax (Appeals) noted that consideration mentioned in the registered document was ₹ 33,51,000/- only. Further, as per the ld. Commissioner of Income Tax (Appeals) in the individual assessment of Smt. B. Ramani, made u/s.153C of the Act, the sale price of G33,51,000/- was accepted and the ld. Assessing Officer had dropped a proposed addition of G66,49,000/-. According to him, there was nothing on record to show that there was any diversion of trust funds to Smt. B. Ramani. 11. In so far as advance of ₹ 22,34,000/- paid to Smt. B . Ramani for acquiring 6.23 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals) in her appeal. 14. Coming to the payments aggregating to G10,00,00,000/- to five trustees of the assessee trust, and G17,87,27,500/- to M/s.GIE, a firm in which such trustees were partners, ld. Commissioner of Income Tax (Appeals) noted that such payments were recorded in the Balance Sheet of the assessee as an asset. According to him, assessee was saved from a potential loss of G1,00,00,000/- which was the damage, it was bound to pay, if the sale was not registered within stipulated date. As per ld. Commissioner of Income Tax (Appeals) assessee by giving the amount had effectively avoided the loss by facilitating acquisition of property at Chamiers Road, Chennai by M/s. GIE, and it was the assessee which had benefited from the transaction and not other way round. Ld. Commissioner of Income Tax (Appeals) also verified the financial statements of GIE and found that they had incurred substantial loss of sale of this property. As per the ld. Commissioner of Income Tax (Appeals) M/s. GIE had also gifted 15.79 acres of land near Madras to the assessee on 07.10.2008. Thus, as per the ld. Commissioner of Income Tax (Appeals) there was no benefit for the trustees or M/s. GIE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneously held assessee had followed cash system against mercantile system considered by AO, deleted addition of ₹ 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 3.1 3 3.1 2 2.1 4 Erroneously held that collection of fees above prescribed limits from students was not capitation fee these were voluntary in nature. 3.2 3.3 3.2 3.3 3.2 3.3 2.2 2.3 5 Though refund of advance fees were denied by parents, payment of capitation fee confirmed and quid-pro-quo proved and still CIT(A) allowed exemption u/s.11 of the Act. 3.4 3.4 3.4 2.4 6 Higher profits earned year after proved profiteering and by virtue Hon'ble Supreme Court judgment in Modern Dental College Rese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (i) Though the Co-ordinate Bench of the Tribunal in its order for earlier years had held the fees received by the assessee to be not in the nature of capitation fees, for the impugned assessment years there were number of others reasons also for denying exemption claimed by the assessee u/s.11A of the Act. These were not considered by ld. Commissioner of Income Tax (Appeals). (ii) Withdrawal of cash shown by the assessee as refund of advance fees and tuition fees were nothing but siphoning of funds, and such funds indirectly went to the benefit of specified persons. This was taken cognizance by ld. Commissioner of Income Tax (Appeals), but not given due importance. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri. Prakash, Finance Officer from assessee s trust. (iii) Though Shri. Arjunlal Sunderdoss to whom loans/advances were given was not a related party, sons of the Managing Trustees had received loans from him. (iv) Payments made to M/s.GIE for property at Chamiers Road, was claimed to have been done based on a Memorandum of Understanding between the assessee and its trustees but such MOU, produced by the assessee before ld. Assessing Officer, was never found during the search. Such documents were all make believe in nature and manufactured for supporting the contention of the assessee that payment of trust funds to GIE was not for the benefit of the trustees. (v) Ld. Commissioner of 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 56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Representative was that assessee from the very start of its operations had accepted only demand drafts from students and kept the identity proof of each of the parent and student on record for inspection by any authority. 25. Coming to the specific allegations raised by the Revenue, ld. Counsel submitted that the question whether donations received by the assessee from students and parents constituted capitation fee and whether the surplus arising to the assessee disentitled it from claiming exemption under Section 11 of the Act, stood decided in favour of the assessee through Tribunal s order in ITA 294 to 296/Mds/2014 in assessee s own case for assessment year 2002-03 to 2004-05. 26. Coming to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any case as per ld. Authorised Representative, there was nothing on record with the lower authorities to show that any such amount was diverted or used by the trustees for their benefit. 28. On the cash refunds made against advance receipts from students, ld. Authorised Representative submitted that assessee had become a deemed university in 2001. According to him, seats in VIT was sought after by students all over India and for the entrance test for admission to 2100 seats available for the engineering stream, more than one lakh students regularly applied. Out of this, as per ld. Authorised Representative, about 10000 to 15000 students were invited for counseling, based on the marks obtained in the examination 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Examinations vs. Director General of Income Tax, (2014) 364 ITR 508 and that of Hon ble Gujarat High Court in the case of Surat City Gymkhana vs. DCIT, (2002) 254 ITR 733. 30. Viz-a-viz, the allegations of specific violations coming within the ambit of Section 13(1) (c) of the Act, ld. Authorised Representative submitted that the first one related to acquisition of a property by the assessee from Smt. B. Ramani, daughter-in-law of Managing Trustee. According to him, paper book page Nos.140 to 142 was the copy of the agreement. As per the ld. Authorised Representative, the value for which this property the measuring 22.34 acres of land at Brahmapuram, Katpadi was acquired was G33,51,000/-. This, alone was paid by 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 ₹ 22,34,000/- paid by the assessee to Smt. B. Ramani for acquiring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G. Viswanathan, Shri. Sankar Viswanathan, Shri. G.V. Sampath, Shri. Sekar Viswanathan and Shri. G.V. Selvam, all of whom were trustees, to negotiate on behalf of the assessee trust for acquiring the said property. As per ld. Authorised Representative, agreement with the vendors entered on 3rd January, 2007 clearly showed that advance of G10,00,00,000/-, out of the agreed consideration of G34,77,50,000/-, was paid through pay orders issued from M/s. Indian Bank account of the assessee trust. According to him, all payments had directly gone from the assessee s bank account to the vendors. Relying on a Memorandum of Understanding entered between assessee and its trustees on 26th December, 2006, ld. Authorised Representative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %. In any case, according to him, maximum marginal rate of tax, if applied could only be on such amount which came within purview of violation of Section 13(1) ( c) of the Act and there cannot be a blanket denial of exemption under Section 11 of the Act. 38. Ad libitum reply of the ld. Departmental Representative was that benefit was derived by the trustees of the assessee, or their close relatives through the various land transactions. According to him, benefit did not mean that there should be a pecuniary surplus. As per the ld. Departmental Representative, on the question of the legitimacy of the claim for land development expenditure, answers given by Shri. Prakash, Finance Officer in the statements recorded from him on 16.11.2007 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e difference amount was coming out of trust funds, resulting in a benefit to Smt. B. Ramani who fell within the meaning of specified person , thereby attracting Section 13(1) ( c) of the Act. (v) Whether advance payment of ₹ 22,34,000/- to Smt. B. Ramani for acquiring 6.23 acres of land at Kangaeyanallur, though later cancelled and refunded, resulted in a benefit to Smt. B. Ramani attracting Section 13(1) ( c) of the Act. (vi) Whether advance of ₹ 1,00,00,000/- paid to Shri. Arjunlal Sunderdoss during previous year relevant to assessment year 2006-07 and ₹ 50,00,000/- during previous year relevant to assessment year 2007-08, were diversion of income/property of the trust attracting Section 13(1) ( c) of the Act. (vii) Whether acquisition 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 ₹ 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. (vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Obviously, this is because the Government, in its wisdom, recognizes that unaided self financing educational institutions cannot be run by charging the lower fees charged by aided financial institutions. Therefore, the Government has permitted them to charge higher fees for the different categories. We find from the admission regulations and other documents submitted that 5% of the seats sanctioned by the University of Madras can be given to NRI students who are required to pay the highest scale of fees of ' 39200/- + 1000 Dollars. Out of the remaining seats 50% is under the Free seats category for which the fee prescribed is only ₹ 12800/-, the remaining 50% falls under Payment seat category which attracted a much higher fee of ₹ 47200/-. The reason for narrating the 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 tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acro view can only lead to the irresistible conclusion that charging of higher fees from affluent students or raising funds for the laudable object of education, which is traditionally a State function, through donations, by an unaided self tinencinq educational institutions cannot deter the charitable nature of the activity and in any view make such activity Commercial in nature. 15. There is one more angle from which the present case can be approached. Although, charitable institutions earn surplus, if the promoters or the trustees or members of such a charitable institutions are precluded from and did not in fact participate or gain distribution of the surplus and the entire surplus is only applied or accumulated for charitable purposes, then occurrence of the surplus will not in any 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id that the assessee is carrying on business activity. 23. Not being content with defending the order of the Id. CIT(A) restoring the exemption u/s 11 and assailing the Revenue's grounds of appeal, the Id.AR advanced erudite arguments on law to justify the grant of exemption u/s 11 which are dealt with hereunder: I. Exemption not anathema to Surplus arising out of charitable activity - if surplus is applied for charitable purposes. a. That the Revenue is importing the language of sec. 10(22) (deleted on 1.4.1999) that the educational institution should exist solely for education purposes and not for purposes of profit into sec.11 which has no such conditions and therefore, the generation of 'surplus' within the frame work of regulations of the competent authorities cannot 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educational purposes in the relevant year and even if any profit resulted which was only incidental to the purpose of education, the income would be ... . American Hotel Lodging Association Educational Institutes vs. CBDT - 301 ITR 86 (SC) ... The mere existence of profit I surplus did not disqualify the institution ... . ACIT vs. Surat Art Silk Cloth Manufacturers Association - 121 ITR 1 (SC) - 5 member bench ... Not involving any activity for profit -meaning and scope ... ... So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be - it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not ... CIT vs. Indian Institute of Computer Technology - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, extracts from which are given above, we find that they apply in greater force to the assessee, whose claim for exemption is u/s 11, although most of the judgments have been rendered under sec. 10(22). We notice that, while sec 10(22) had an express condition that the institution should exist not for purposes of profit sec.11 does not impose any such condition. If the incidence of profit is not an impediment for allowing exemption u/s 10(22), as decided by the above line of cases and CBDT Circular, we fail to see the Revenue's claim that the surplus would militate the assessee's claim for exemption u/s 11 . We therefore, hold that the incidence of surplus during the course of activity of running the educational institution would not be a ground to state that the assessee is carrying on a business 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 ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admission for PG courses are found in the pages, 110 to 139, 140 to 169 of the paper book from which no conclusive adverse inference can be made out. Page no.170 to 175 also refers to payment such as ₹ 8,00,000/- 2,00,000/- 1,00,000/- and 4,00,000/-, however no conclusive inference can be made that they are capitation fees. Page No.176 to 193 contain sheets wherein the remark column it is mentioned as To Pay 2 To Pay 3 To Pay 4 Nil Payment etc., however no conclusive inference can. be made that they are capitation fees. Page 194 to 199 contains letters for refund of donations but there is nothing to suggest that they are forced payments though an air of suspicion may arise. Page No.200 to 238 also contains certain requests for refunds from candidates and letters from companies such as Sundaram Finance, Brakes India Ltd., etc.,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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10(23C)(vi) of the Act and, therefore, the assessee-trust would be entitled to the benefit of exemption contained therein. The Department had proceeded on a wrong premise without any basic materials to establish a case of violation of section 13 of the Act. Therefore, the Tribunal was right in deleting the addition of capitation Fees. ( ii) That the Assessing Officer had accepted the disclosure of the seized cash as the income of the individual and, therefore it could not be said that assessee-trust had violated the provisions of section 13(l)(d). ii) In Queen's Educational Society Vs. CIT reported in 372 ITR 699(SC) the Hon'ble Supreme Court held as follows:- The law common to sub-clauses (iiiad) and (vi) of section 10(23C) of the Income-tax Act, 1961, may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby hold that the same decision of the earlier Order of the Tribunal in ITANo.1332/Mds/2010 and C.O.No.94/Mds/2010 for the assessment year 2001-2 will prevail for the assessment years 2002-03, 2003-04 and 2004-05 also, which is as follows:- Corpus donations received by the assessee cannot be treated as capitation fees and the surplus earned cannot be treated as income from business . The employees of the assessee could not have knowledge on the assessee's affairs. By earning surplus, it cannot be said that the assessee is carrying on business activity. The assessee is entitled to the benefit of section 11 (4A) of the Act. Corpus donation received cannot be treated as capitation fee and therefore assessee cannot be denied benefit under section 11. Accordingly, we hereby direct the learned Assessing Officer to grant the benefit of section 11 to the assessee and delete the addition made 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 assesse e. . We also find that the question was answered by the Tribunal, in favour of the assessee, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led income or disallowance of any false claim of expenditure in the assessment order. ii. The AO has not totally brushed aside the documentary evidences produced by the appellant in regard to the claim of land development expenditure. Although he has expressed reservations on the genuineness of the cash expenditure, he has also stated elsewhere in the assessment order that vouchers in respect of certain items of expenditure such as wages paid to coolies, JCB operations etc., were properly maintained. His main contention is that the total expenditure claimed under this head is disproportionate compared to the corresponding extent of land value. iii. The only basis to come to this conclusion is the fact that the expenditures have been incurred in cash, with the AO's reservations on the vouchers supporting the cash expenditure. It is noted that the AO has not alleged that the Land development expenditure is NOT supported by any vouchers 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the Appellant to avoid cheque payment. Further, even if for argument sake, it is presumed that the appellant wantonly made cash payment to thwart the department's attempt to verify the veracity of the claim, it is unreasonable to reject the entire expenditure in toto. Without incurring any expenditure, such a massive work could not have been carried out. To have clarity on such expenditure incurred in cash and cheque at each of the 3 places AR has produced a table of the Land development expenditure at the 3 places, which is reproduced hereunder to bring clarity to decide this issue: VELLORE INSTITUTE OF TECHNOLOGY DETAILS OF LAND DEVELOPMENT EXPENSES Vellore Chennai Banga. Total Vellore Chennai expenses considered as diversion by AO 1 2 3 4 (1+2+3) 5 (1+ 2) 05-06 A/C. Cheque 28987 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (for 2005-06; 2006-07 2007-08). Comparing the average costs above, I findP that: the cost incurred in cash at Madras Vel.ere are much lower than the cost: incurred by Cheque at Bangalore. ix. Another way of comparing the reasonableness of the expenditure would be to compare the cost per acre at Madras for which payment was made by cheque after TDS and that incurred in cash. The cost per acre of expense paid by cheque at Madras comes to ₹ 34.94/acre [Rs.15340500 for 4.39 acres) and that in cash ₹ 35.43/acre [Rs.98474942 for 27.80 acres]. Hence, the cost per acre incurred in cash at Madras in the same year is higher by 2.9% than the cost incurred by cheque. x. As rightly pointed out by the Appellant the AO has erroneously considered even the expenditure of about ₹ 18 lakhs at Vellore ₹ 153.41 lakhs during 2008-09 a/y, paid by cheques after TDS, at Vellore and Chennai have been treated as not genuine and as diversion to the Trustees! xi. Considering all the above facts and that wherever it was possible the appellant had made cheque payment also and wherever it was not possible it made cash payment and further considering the fact that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning a disallowance to the extent of 10% of the claim. More so since ld. Commissioner of Income Tax (Appeals) himself had given a finding that per acre land development expenditure incurred in Chennai and Vellore were lower than what was incurred in Bangalore, where admittedly the payments were effected through bank. There is also no case for the Revenue that the land in question was not developed and was not an agricultural in nature when the assessee acquired it. In such circumstances, we are of the opinion that the disallowance of any land development expenditure was not warranted. Ex-consequenti there can be no question of any benefit accruing to the trustees or specified persons for applying Section 13(1) (c) of the Act. 43. Next question before us is whether refund of advance fees / tuition fees to students/parents were properly evidenced, and if not, could it be construed as funds diverted for the benefit of trustees/ specified persons, thereby attracting Section 13(1) (c) of the Act. The findings of the ld. Commissioner of Income Tax (Appeals) on refunds as it appear at paras 13.2.4 to 13.2.11 of his order are reproduced hereunder:- 13.2.3 The facts presented and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the appellant after receipt of the assessment order. 13.2.8 The appellant's AR submits that the AO, instead of summoning the deponents to verify the veracity of the retracting affidavits, summoned the appellant and directed it to produce the deponents before the AO for cross-examination, which is again contrary to the principle of natural justice and Law on evidences 13.2.9 As the Appellant did not have the power to enforce attendance, unlike the AO, the deponents from all across India refused to take the trouble of spending time and money to travel all the way to Chennai for this purpose, especially since by this time, the respective students had completed the course and left the institution and employed elsewhere. However, Appellant complied with the direction of the AO in the best way possible in the circumstances, by obtaining confirmatory letters from most of the deponents and filing them with the AO. The AR submitted that in spite of accomplishing this herculean task, the AO did not give any weightage to the confirmations and gave a remand report against the appellant, brushing aside the same without assigning any reason. 13.2.9 After going through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 above/ explaining the need for repayment of Student advances Advance tuition fees in cash can be appreciated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bala nce Summ oned Resp oned Bala nce 02-03 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id submissions accepted by me; circumstantial evidence; the confirmations by parents independently obtained, which were brushed aside by the AO and the affidavits from parents whose statements recorded by the Department were purportedly against, confirming that they had .in fact received the refunds, which again was brushed aside by the AD in his remand report, I am convinced that the conclusion of the AD to treat the refund of Students advance fees Tuition fee advances refunds in cash as not genuine cannot be endorsed or countenanced. vi. Finally in paras 77 83 of the assessment order reproduced above the AD's conclusion on disbelieving the cash refunds of student advances Tuition fees is that it: has to be treated as funds withdrawn by the trustees for the purpose of college expenses and said expenses were not proved and the proof adduced is treated as not genuine and therefore it has to be inferred that such cash refunds under the garb of refund of advance fees received has to be treated as funds diverted for the benefit of specified persons which constitutes violation under section 13(1) (c) of the Act When the AD has concluded that he has to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Further, as per the ld. Authorised Representative receipts were not issued for such amounts, which were all received in demand drafts except for that part considered as corpus donation. In any case, it is not disputed by the Revenue that during the remand proceedings, assessee had produced affidavits from a substantial number of parents acknowledging the refunds and had filed them before the ld. Assessing Officer. In our opinion, ld. Assessing Officer, if he chose not to believe these affidavits ought have summoned such persons and examined them. It was unfair on his part to require the assessee to accomplish an almost impossible task of producing all such parents. Especially so, when the ld. Assessing Officer had powers vested on him under the Act, to ensure their attendance or to get statements through commissions. Having not done it, in our opinion, ld. Assessing Officer fell in error in disbelieving the affidavits filed by the assessee. 45. Viz-a-viz, tuition fees, explanation of the assessee is that at the time of counseling, a sum of ₹ 10,000/- was collected from each aspirant for ensuring their earnestness but later refunded when seats were not allotted to them. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessing the alleged on-money, after proposing the same. 9.1.4 Moreover, the seized so-called agreement for sale of land, contains only the signature of Ms. Ramani and none on behalf of the Appellant, which was observed by the AO also as such in the assessment order. Hence, no credence ought to have been placed by the AO on this document, wherein there were no signatures of the two parties for the agreement [but only one i.e. of Ms. Ramani] for concluding that the land was sold at ₹ 1 crore. If at all the transaction involved payment of on-money, certainly the appellant would have destroyed it and would not have kept the same, to be unearthed by the search party. 9.1.5 Further as per appellant, the subject matter of land is agricultural land. It is also to be mentioned here that a land which cost ₹ 17.58 lakhs will fetch ₹ 1 crore in just a period of three years is also unimaginable and unbelievable. 9.1.6 Finally, as has been held repeatedly by number of cases of the Honourable Madras ITAT cited in detail elsewhere in this order, to invoke sec. 13(1)(c), the Department must prove that the diverted funds of the trust has reached the persons pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitu?tion, any income thereof- ( i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or ( ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) : Section 13(3): ( 3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :- ( a) the author of the trust or the founder of the institution ; ( b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees ; ( c) where such author, founder or person is a Hindu undivided family, a member of the family ; ( cc) any trustee of the trust or manager (by whatever name called) of the institution ; ( d) any relative of any such author, founder, person, member, tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and disproves the suspicion of the AG. 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 2005-06 is allowed . 49. What we find is that both agreement for sale and cancellation agreement were registered and both these documents were found at the time of search. Assessee trust had paid a sum of ₹ 22,34,000/- to Smt. B.Ramani through cheque dated 03.06.2004 and the amount was returned by Smt. B. Ramani on 20.9.2004, on cancellation of the proposal. Hence the period for which Smt. B.Ramani had the money with her was 3.6.2004 to 20.09.2004. Intention of the trust to acquire the property from Smt. B.Ramani is clear in that the agreement was registered. There is no case for the Revenue that agreed price of ₹ 52,46,570/- was more than the fair market price. Just because the sale did not go through and the amount was returned by Smt.B. Ramani would not be sufficient to hold that she benefited from such transaction. The intention in entering the transaction was not to benefit Smt. B. Ramani, but for acquiring the property for the assessee trust. We cannot say that Section 13(1) (c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r its activities. Thus, we cannot say that the advances were given for no reason. In any case, Shri. Arjunlal Sunderdoss is neither a trustees nor a specified person coming within the meaning of Section 13(3) of the Act. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in taking a view that Section 13(1) ( c) of the Act could not be invoked here. 52. Next we have to answer whether the acquisition of a 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 ₹ 40,00,000/- in which there was an application for loan indicating the value of the property as G1,25,00,000/- meant that assessee had advanced the difference sum through Shri. Prakash, Finance Officer to Smt. S. Preetha, attracting Section 13(1) ( c) of the Act. Findings of the ld. Commissioner of Income Tax (Appeals) on the above mentioned property of Smt.Preetha, as it appear at para 11.3 of his order is reproduced hereunder:- 11.3 The AO's conclusion that Appellant's money was diverted and paid as on-money by Mrs.S.Preetha, daughter in law of the Managing Trustee, stands d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing back the advance was also a problem since there were several owners in respect of the property and they would return the advance only after finding a suitable buyer, apart from the possible liquidated damages of ₹ 1 crore in the absence of specific performance. At this juncture the trustees decided to form a partnership in the name of Global Infrastructure Enterprises and bought the property. The said firm later returned the advance which was paid by the appellant to the seller, thus saving the trust from incurring loss. 12.1.6 Now what requires to be examined is as to whether the advance paid by the Appellant to the sellers of the property can be considered as a loan to the Trustees in whose names the agreement was entered into. The answer to this question is an emphatic NO, because the money was paid by the Appellant trust and recorded in its books of accounts as an asset and duely reflected in its balance sheet as an asset. When the money paid by the trust to another person for the purchase of a property for the trust, albeit in the name of the Trustees, is entered in its books of accounts and shown as an asset in its Balance sheet, by no stretch of fiction or im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, for and on behalf of the Trust. Hence, it is clear that in the eyes of Law the advance paid for purchase of property in the name of the trustees which is reflected in the accounts and the Balance sheet of the trust, is legal and only a trust property and can lead to no 'diversion' u/s 13(1)(c) solely for that reason. 12.1.8 The next issue that requires examination is, as to whether the final registration of the property in the name of a firm, in which only the Trustees are partners can lead to the same legal conclusion as above. 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 any to the trust as a consequence of such registration and the possible benefits or prevention of opportunity costs and liabilities to the trust have to be evaluated. On a fair view of the events and circumstances leading to the registration of the property in the name of the firm Global infrastructure enterprises {GIE}, in which only the 5 trustees were partners, I am convinced that there is no 'diversion' or application' of the income or properties of the trust for the benefit of the prohibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd ultimately could do so from Indian bank and repaid the advance given by the appellant immediately on obtaining the loan. x. Appellant has filed the financial statement of GIE (which did not have any other business, income, asset or liabilities other than relating to the property at Chamiers road) from its inception in A.y.2008-09 upto A.y.2016-17 to prove that the said firm, INSTEAD of gaining any benefit as concluded by the AO had in fact been saddled with a losses and a debt of Rs.S.2S crores as at 31.3.2016, after havlnqsold the Chamiers road property at a loss. Thus the Appellant was saved from the above debt burden of Rs. 8.25 crores as a result of the purchase of the property by the GIE. As the related person did not earn a single pie from the alleged diversion, but was only saddled with a huge loss as above, sec.13(1)(c) cannot be invoked. Reliance is place on Appellant's legal submissions below: 1.4 Reliance is placed on the decision of the Madras Tribunal in Soorya educational trust vs ITO in ITA No.579/Mds/2012 - copy enclosed [ANNEXURE 38J, where, in para 13.2, the ITAT has netd that if the specified person has not earned any income from out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the prices would have been jacked up cannot be brushed aside. We also find that agreement for sale dated 03.01.2007 placed at paper book pages 238 to 246 show the advance payment of ₹ 10,00,00,000/- as to have been made from the bank account of the assessee trust directly to the vendors. Thus it is not a case where any money of the assessee trust had flowed into accounts of the trustees. Legal opinion of Shri S. Giritharan, advocate, placed at page book 247 to 250 does show that there were some defects in the title. Ld. Assessing Officer had disbelieved this legal opinion citing that the mobile number of Shri. S. Giritharan mentioned in the certificate issued was incorrect. However, we find that the document gave the address of the advocate, for his office, for his residence and for his chamber. No doubt the property was eventually purchased by the firm M/s.GIE in which trustees of the assessee trust were the partners. Nevertheless, contention of the assessee that such a step had to be taken, for avoiding the loss that would have been arisen, if it had cancelled the agreement, cannot in our opinion be ignored. Intention of the assessee was to acquire the property and this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty at Thirumalai Pillai road, Chennai, I am convinced that there is no 'diversion' or application' of the income or properties of the trust for the benefit of the prohibited persons u/s 13(3) for the following reasons: i. Shri Sampath, trustee, had entered into a registered agreement for the purchase of the property at Thirumalai Pillai Road, Chennai by paying an advance of Rs. 10,00,000/- ii. As the transaction in respect of Chamiers Road property was not fructified, as narrated above, .... the appellant was in search of another property to start the training centre and as ths Thirumalai Pillai road property construction was substantially completed and Appellant could quickly commence its training centre, appellant had requested Shri Sampath to allow it to purchase the property for its training centre, pursuant to which an agreement was entered into by which Shri Sampath nominated the Appellant as the ultimate purchased, after which Appellant paid the sum of Rs. .1 crore as further advance. Ill. Having paid a substantial portion of the agreed price, when the Appellant commenced the task of applying for approvals to the Corporation it came to light: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced at paper book pages 266 to 271. Thus, the intention of the assessee as well as Shri. Sampath, when he entered into the agreement for acquiring the property from M/s. Bommidala Realty, was to acquire the property for the assessee. Argument of the ld. Authorised Representative that this acquisition was planned as an alternative to the proposal for acquiring the Chamiers Road property which fell through due to defects in title, carries much strength. The question of benefit arising to a trustee or specified person would arise only if the transactions were entered with the intention of benefiting such person. Flow of events clearly indicate that Shri. Sampath had not benefited himself, by using the money of the trust. His intention was only to acquire the property for the trust. Just because the transaction did not go through, would not mean that Shri. Sampath, had directly or indirectly benefited from it. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in holding that there was no violation of the nature mentioned in Section 13(1) (c) of the Act. 57. Before parting, we will be failing in our duty if we do not address certain general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en diverted came to 98.66 crores and what were admitted as personal income by trustees/relatives were only G7.87 crores. Revenue was unable to bring on record any unexplained investments or asset held by the trustees and their relatives, which could reflect such diversion of income. Thus the onus which was on the Revenue to show diversion of income or property of the trust for the benefit of trustees or specified persons was not discharged. 58. Apart from the grounds relating to denial of exemption u/s.11 of the Act, there are certain others grounds raised by the Revenue in its appeals for various years. These grounds are dealt with hereunder:- 59. Through its ground No. 8 for assessment year 2005-06, ground No.10 for assessment year 2006-07, ground No.12 12.1 for assessment year 07-08 and ground No.9 and 9.1 for assessment year 08-09, Revenue assails the direction of the ld. Commissioner of Income Tax (Appeals) to tax the assessee at maximum marginal rate on the disallowed part of land development expenditure alone. We have already held at paras 41 42 above, there were no reasons to make any disallowance for land development expenditure claimed by the assessee. Hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is found that the Appellant has acquired other capital assets during the year. Hence, this ground for A.Y.2008-09 is ALLOWED . Ld. Commissioner of Income Tax (Appeals) had allowed the above claims since assessee was entitled for exemption u/s. 11 of the Act. Ld. Commissioner of Income Tax (Appeals) held that there was no reason for the Revenue to take a view that the sale of the flat/plot was part of any business in real estate, done by the assessee. Nothing has been brought before us by the ld. Departmental Representative to take a different view. 61. In its ground No.13 to 13.2 for assessment year 2008-09, Revenue assails the deletion of an addition of ₹ 8,13,57,271/- made by the ld. Assessing Officer for change in method of accounting from cash to mercantile. Findings of the ld. Commissioner of Income Tax (Appeals) on this issue is reproduced hereunder:- 21.1 In his computation of income for A.Y.2008-09, the AO has added ₹ 81357271 as: '''Adjustment by way of change in method of accounting: By concluding that the accounts of earlier years were also maintained on accrual basis and therefore there is no change in the metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Representative could not place anything to take a different view from that of ld. Commissioner of Income Tax (Appeals). 62. Grounds 1, 10, 10.1 for assessment year 2005-06, grounds 1, 11 and 11.1 for assessment year 2006-07, grounds 1, 13.1, 14 for assessment year 2007-08 and grounds 1 14 for assessment year 2008-09 raised by the Revenue are general in nature needing no specific adjudication. 63. Now we take up appeals of the assessee. 64. There are two common grounds taken by the assessee for all the assessment years. These assail the order of the ld. Commissioner of Income Tax (Appeals) upholding the validity of notice issued u/s.153A of the Act, and sustenance of disallowance to the extent of 10% of land development expenditure. 65. Viz-a-viz, validity of notice issued u/s.153A of the Act, we find that ld. Commissioner of Income Tax (Appeals) had followed the order of the Tribunal in assessee s own case for assessment years 2002-03 to 2004-05 in ITA Nos.294 to 296/Mds/2014, dated 22nd June, 2016. What was held by this Tribunal in the said decision is reproduced hereunder:- After hearing both sides, we are of the considered view that initiation of procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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