TMI Blog2019 (10) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... eceivable cannot be assessed - HELD THAT:- In earlier assessment years, the Assessing Officer had taxed only extra fees actually received and not the receivables. The CIT(A) also considered only the actual receipt of extra fees received in other assessment years except assessment year, 2009-10. CIT(A) only for this assessment year directed the Assessing Officer to take the entire extra fees both received and receivable. In our opinion, the CIT(A) cannot follow different yardstick for different assessment years. Accordingly, we direct the Assessing Officer to consider the actual extra fees received by the assessee to tax as unaccounted income. Thus, this ground of appeals of the assesses are partly allowed in both appeals. Treatment of amount received on sale of agricultural property vide registered sale deed as the amount received for relinquishment of trusteeship in the Trust - contention of the AR is that since there is no cost of acquisition, it is not possible to compute capital gain as section 55(2) of the I.T. Act does not include this kind of asset as capital asset - HELD THAT:- As concluded in BC SRINIVASA SETTY (AND OTHER APPEALS) [ 1981 (2) TMI 1 - SUPREME COURT] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed accordingly. Thus the appeals of the assessee are partly allowed. Addition of sum received by St. Thomas Educational Society in which the assessee's were Trustees - HELD THAT:- This amount of ₹ 8 crores each was treated as income in the hands of these two assesses which was paid by Believers Church to St. Thomas Educational Trust where Shri Jose Thomas and Smt. Gracy Babu were trustees. The Assessing Officer assessed the amount of ₹ 8 crores in the hands of these two assesses as income from other sources as the receipt was in lieu of relinquishment of trusteeship in Carmel Educational Trust which was managed by Believers Church after the relinquishment of trusteeship by these two parties. The amount of ₹ 8 crores was not received by these two assesses but by St. Thomas Educational Trust, hence, it cannot be treated as income of these two assesses, as these assessees are different from Trust. Being so, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. Denial of exemption u/s. 11 - HELD THAT:- It cannot be said that there is violation of section 13(1)(c)(ii) of the I.T. Act. If the Trustees themselves collected ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the CIT(A) without giving any opportunity of hearing to the assessee which is violation of principle of natural justice. Thus, this ground of appeals of the assessee is allowed. CIT(A) observed that trustees of the assessee trust were collecting capitation fees from the students, part of which they were pocketed and the remaining was being handed over to the trust which was undisclosed in the books of accounts of the trust Enhancement made by the CIT(A) - Amount paid for construction of building - HELD THAT:- There was construction activity carried out by those two assesses as evidenced by the agreements cited supra and the construction was reflected in the balance sheet of the present assesses which was subjected to TDS. Thus, by any stretch of imagination, it cannot be said that there was no construction activity carried out by the assesses and it cannot be said that payments were not made towards construction of building which was for the establishment of educational institution. Thus, this ground of appeals of the assessee is allowed. Set off of excess application of earlier years - HELD THAT:- Since we have held that the assessee is entitled for exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y from the students in excess of what is fixed by the Govt. of Kerala in their hands which was not accounted by the Trust as the income of the trust. The learned commissioner of incometax( Appeals) has confirmed the assessment ignoring the submission of the assessee. 4.1 Hence, the additional ground raised by the assesses is dismissed as not pressed. 5. The facts of the case with regard to the main ground are that the Trust was running educational institutions in engineering and management courses. The Trust had 12 trustees as detailed below: 1. Babu Thomas, GracyBabu and their two major sons. 2. Jose Thomas, Reena Jose and their major son and daughter. 3. P.J. Poulose, LizzyPoulose and their two major daughters. Due to the difficulties in managing the college and also due to the personal differences, the trustees had decided to discontinue the business and entered into an agreement with Believers Church on 10/03/2009 whereby the entire trustees resigned from the trusteeship inducting new trustees from the side of the Believers Church. The agreement also provided for payment of 37. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the seized materials PJP-5, JTP-4 and KRS -2 contained the details of donations received by the Governing Body members from students, the amount given by the Governing Body Members to the Trust and the amount appropriated by them. The Assessing Officer observed that admission to the management quota seats were done by the three Governing Body Members together during the period from F.Y. 2002-03 to 2006-07. The Assessing Officer found that the admission in 2007-08 was controlled by Sri Jose Thomas and Smt. GracyBabuin 2008-09, Sri Jose Thomas and Smt. GracyBabu together and Sri. P.J. Poulose independently had filled up the management quota seats. It was noticed from the accounts of the Trust that no amount of donation received from students was accounted in its accounts. In the sworn statements recorded u/s 132 of the I.T. Act, it was admitted by the trustees that during management quota admissions a lump sum fee was collected from the students which was kept with the trustees and not reflected in the college accounts. Details of the donations received by the Governing Body Members are as follows: Assessment Year Dona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GracyBabu 50%Jose Thomas 50% ₹ 2,11,93,500 NIL NIL ₹ 2,11,93,500 5.4 The assessing officer further noticed that out of the total seats for admission 50% are filled up by the government and the balance 50% was filled up by the management. According to the Assessing Officer, the fees that was collected from students admitted in the management quota were fixed by thegovernment but the governing body members of the trust comprising of thechairperson, the secretary and the treasurer used to get amounts in excess ofprescribed fees for giving admission to the management quota seats and the amounts so collected being capitation fee or donation was termed by them asadvance fee. It was noticed that the donation so collected from students in the management quota was not accounted in the accounts of the college and the trust. It was shared among the governing body members and utilized by them. 5.5 Before the Assessing Officer, the assesseethat the assessee did not personally receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer noticed that the Trustees had collected donations from students using their official capacity as Trustees for giving admission to students in Management Quota and they did not consider it as a receipt of the Trust. Hence, they did not include the donations in the accounts of the Trust and the funds so received had been kept separately by the Trustees. It was noticed that part of it has been utilized by them for their personal purposes and part handed over to the Trust for investment/expenses. Further, some of the funds received had been drawn as allowances by the Trustees which was also not accounted in the Trust and part of the fund was utilized for giving to and receiving from the Trust. In short, it was noticed that a separate account of the fund collected from students was maintained by the assessee and the co-trustees. According to the Assessing Officer, the claim of the assessee that it did not receive donations from students in his individual capacity was contrary to his own statements given consequent to the search. The other trustees, SmtGracyBabu and Sri PJ Poulosehad also admitted that they had received amounts from students in addition to the prescribed fees a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered by the department but the details of distribution/sharing of income available in the same materials was ignored. It is well settled position of law that once a document is relied on as evidence, it has to be done in Toto. 6.2 It was submitted that the total amount collected for A.Ys 2004-05 to 2007-08 as per the seized materials which was shown in the table comes to ₹ 1,70,72,750/- and out of this ₹ 1,23,99,250/- has been handed over to the college/trust in those years itself as per the same seized materials as was shown in the table prepared by the assessing officer. The return of substantial part of collection in the year of collection itself showed that the collection of donation was on behalf of the Trust only and the gross amount of collection solely belonged to the Trust/college. Hence, the assessment of donation in the hands of trustees was therefore not in order. 6.3 It was submitted that mere receipt of money would not constitute income in the hands of recipient. It may be by way of loan, gift or receipt on behalf of others. It was submitted that the money received by the Trustees was paid by the stud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not find any force in the argument of the Ld. AR in pleading that collection of unaccounted fees should be allocated among the trustees of the Trust. Accordingly, we confirm the findings of the CIT(A). Thus, the appeals of the assesses in ITA Nos. 27, 28, 29, 30, 32, 33 34/Coch/2019 are dismissed. ITA Nos. 31 35/Coch/2019 :By Jose Thomas Gracy Babu :AY 2009-10 7. The common ground in ITA No. 31/Coch/2019 in the case of Shri Jose Thomas and ITA No. 35/Coch/2019 in the case of Smt. Gracy Babu for the assessment year 2009-10 is with regard to assessment of extra fee collected from students as the income of the family head of the trustees instead of equally allocating among the trustees. The fact that the actual amount received by the family was ₹ 62,95,000/- and the Assessing Officer had adopted the figure of ₹ 1,05,96,750/- at 50% at ₹ 2,11,93,500/- was ignored by the officer. The CIT(A) confirmed it at ₹ 1,01,88,875/- ignoring the submission of the assessee. 7.1 The CIT(A) observed that as per seized material JTP-4 (page 11) the total amount of donation received was ₹ 2,11,93,500/-. Out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual amount received by the assessee for the assessment year 2009-10 is ₹ 62,95,000/-. However, the CIT(A) observed that on the same page of the seized document, the assessee s share was mentioned as ₹ 1,01,88,875/-, out of which he had taken cash of ₹ 62,95,000/- and balance was payable to him. Since the total share was ₹ 1,01,88,875/-, the CIT(A) confirmed the addition to this extent and as no evidence was available on record for AY 2008- 09, the entire estimated addition on account of donation was deleted. 7.2 Against this, the assessee is in appeal before us. The Ld. AR reiterated the submissions made before the lower authorities. 7.3 The Ld. DR relied on the order of the CIT(A). 7.4 We have heard the rival submissions and perused the record. In these appeals, the contention of the assesses is that only actual fees collected by the assessee is to be assessed and the amount receivable cannot be assessed. In earlier assessment years, the Assessing Officer had taxed only extra fees actually received and not the receivables. The CIT(A) also considered only the actual receipt of extra fees received in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular No. 3/2018 dated 11.07.2018 issued by the Central Board of Direct Taxes (CBDT) in exercise of its power vested under Sec. 268A(1) of the I.T. Act comes into play, wherein, the monetary limit for filing the appeals by the Revenue before the ITAT and various High Courts as well as Apex Court are revised with an object of reducing the tax litigation. Vide para 3 of the said circular (supra), it is stated that in cases where the tax effect in the appeal to be filed before the Appellate Tribunal does not exceed ₹ 20 lakhs, appeal should not be filed. Thus, taking a note of CBDT Circular No. 03/2018 dated 11.07.2018 and considering the fact that the tax effect in the instant appeal is less than ₹ 20 lakhs, the present appeal deserves to be dismissed as not maintainable. However, we make it clear that the issue(s) raised in the instant appeal is left open to be examined in the appropriate proceedings, if arises, in future. At the same time, we also make it clear that if the appeal falls in any of the exceptions referred to in the above said CBDT Circular, the Revenue is at liberty to move an application for recalling the order, if so, advised. 8.4 Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) confirmed the findings of the Assessing Officer. With respect to the excess price received on sale of agriculture land @₹ 10,40,400/- for 5 Acres, the CIT(A) observed that the assessee s contention that the sale of rubber plantation is as per registered sale deed may be a valid contention when viewed in isolation. However, when viewed in a holistic manner keeping in view all the 3 transactions- sale of rubber plantation, donation to related trust and payment for construction, the CIT(A) observed that income had been sought to be diverted through colorable transactions to create a veil of legitimacy for evading tax accruing as a result of receipt of income/ benefit for directed and voluntary relinquishment of his trusteeship. As is evidenced by the unsigned document dated 23.02.2009, the sale consideration for acquiring the above plantation was 6.5 crores which was subsequently changed in the registered documents to ₹ 12.5 crores. Moreover, those plots of land which were owned by non trustees were sold at a much lower rate, similar to that indicated in the unsigned seized document. Since the sale of rubber plantation was the sale of a capital asset land, the proceeds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the aforesaid 8.90 acres of rubber estate owned by Late Babu Thomas was transferred for ₹ 2,26,10,197 (₹ 25,40,470 per acre) on 25/03/2009 by the aforesaid legal heirs to Believers Church group vide registered document No.353/1/2009. Hence, it was submitted that the share of Gracy Babu in 8.90 acres comes to 2.97 acres only. According to the Ld. AR, if ₹ 10,40,400/- out of 25,40,470/-was taken as consideration in lieu of relinquishment of trusteeship such amount to be considered in the hands of Gracy Babu comes to ₹ 95,92,490/- [(2.97x 10,40,400) + (6.25 x 10,40,400)] and not ₹ 1,57,62,060/- assessed in the hands of Gracy Babu. The Ld. AR submitted that while holding that ₹ 10,40,470/- out of ₹ 25,40,470/- received as sale consideration of rubber estate per acre formed part of consideration in lieu of relinquishment of trusteeship, the assessing officer and the CIT(A) had ignored the agreement dated 01/06/2010 where in the parties to the agreement had decided to amend the clauses in the agreement dated 10/03/2009 relating to the payments to the trustees for relinquishing the trusteeship. 11.2 The ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, according to the Ld. DR, the money received by the assessee in the guise of excess price of agricultural land ₹ 10,40,400(25,40,400 15,00,000) per Acre for 5 Acres or contract receipt under the head other sources in the hands of the assessee, as this right being not legally enforceable, cannot be brought into the ambit of definition of capital asset , and hence, could not be income from capital gains. The Ld. DR contended that the assessee had received consideration for the ease of cessation of his position as trustee in the trust in favour of identified individuals, which was not enforceable by law but had existence in reality and hence, the payment received can be accounted for only under the head income from other sources and the assessee s plea of attracting the provision of capital gains cannot be accepted. 11.4 We have heard the rival submissions and perused the record. In the present case, there was unsigned Agreement dated 23/02/2009 wherein the sale consideration was shown at ₹ 6.5 crores for sale of rubber plantation. Later as per registered deed, it was changed to ₹ 12.5 crores. In other words, in draft a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elievers Church, the consideration received for such relinquishment is nothing but a capital receipt and gain on such transaction cannot be considered as income from other sources . 11.5 The contention of the Ld. AR is that since there is no cost of acquisition, it is not possible to compute capital gain as section 55(2) of the I.T. Act does not include this kind of asset as capital asset. For better understanding, we will examine the provisions of section 55(2) of the I.T. Act. S. 55 (2) For the purposes of sections 48 and 49, cost of acquisition ,- (a) in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carnage permits or loom hours - (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price: and (ii) in any other case not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49shall be taken to be nil; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset become the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1 st day of April, 1981, at the option of the assessee; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1stday of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee; (iii) where the capital asset became the property of the assessee on the distribution of the capital asset of a company on its liquidation and the assessee has been assessed to income tax under the head Capital gains in respect of that asset under section 46, means the fair market value of the asset on the date of distribution; (v) wherethe capital asset, being a share or a stock of a company, became the property of the assesseeon - (a) the consolidation and division of all or any of the share c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not incur any cost to acquire the leasehold rights and that if at all any cost had been incurred it was incapable of being ascertained. It was therefore held that since the capital gains could not be computed as envisaged in section 48 of the Income Tax Act, therefore, capital gains earned by the assessee, if any, was not exigible to tax. The Department's Appeal to the High Court was dismissed and that is how it approached the Hon'ble Supreme Court. In dealing with the rival contentions, the Hon'ble Supreme Court held as under: '(8) In 1981 this court in CIT v. B.C. Srinivasa Shetty(1981) 128 ITR 294; (1981) 2 SCC 460 held that all transactions encompassed by section 45 must fall within the computation provisions of section 48. If the computation as provided under section 48 could not be applied to a particular transaction, it must be regardedas never intended by section 45 to be the subject of the charge . In that case, the court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The court found that the consideration received for the sale of goodwill could not be subjected to capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1995-96 and subsequent years. But till that amendment in 1995, and therefore covering the assessment year in question, the law as perceived by the Department was that if the cost of acquisition of a capital asset could not in fact be determined, the transfer of such capital asset would not attract capital gains. The appellant now says that CIT v. B.C. Srinivasa Shetty's case [1981] 128 ITR 294 (SC) would have no application because a tenancy right cannot be equated with goodwill. As far as goodwill is concerned, it is impossible to specify a date on which the acquisition may be said to have taken place. It is built up over a period of time. Diverse factors which cannot be quantified in monetary terms may go into the building of the goodwill, some tangible some intangible. It is contended that a tenancy right is not a capital asset of such a nature that the actual cost on acquisition could not be ascertained as a natural legal corollary. (12) In A. R. Krishnamurthy v. CIT (1989) 176 ITR 417 this court held that it cannot be said conceptually that there is no cost of acquisition of grant of the lease. It held that the cost of acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only under item E of section 14. That being so, it cannot be treated as a casual or non-recurring receipt under section 10(3) and be subjected to tax under section 56. The argument of the appellant that even if the income cannot be chargeable under section 45, because of the inapplicability of the computation provided under section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under section 45, it cannot be taxed at all. (SeeS. G. Mercantile Corporation P. Ltd. v. CIT (1972) 83 1TR 700 (SC). (17) Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or non-recurring receipt under section 10(3) read with section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody v. S.A.L. Narayan Row,CIT (1966) 61 ITR 428 (SC) . 11.8 Thus, the conclusion of the Supreme Court is that an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head Capital gains as opposed to assets in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement entered into between Believers Church and seven outgoing trustees belonging to the families of Gracy Babu and Jose Thomas on 01/06/2010, the construction was completed and a further sum of ₹ 4.50 crores each was payable to Gracy Babu and Jose Thomas subject to deduction of tax u/s. 194C of the I.T. Act. On enquiry, the college authorities had stated that no construction work was carried out by the outgoing trustees. Hence, the total amount of ₹ 4.84 crores each received by Gracy Babu and Jose Thomas was treated as consideration received in lieu of relinquishment of trusteeship which is assessable as income from other sources. 12.1.1 A sum of ₹ 16 crores was paid in June 2010 by Believers Church and six associate trusts, St. Thomas Educational Trust in which Gracy Babu and Jose Thomas are trustees. The purpose of this donation was stated to be for reserving engineering seats for the beneficiaries of the donor trusts. Since no such reservation was given in the admission and payment of donation was made after relinquishment of trusteeship the donation received by St. Thomas Educational Trust was treated as consideration received in lieu of rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f having undertaken any construction activity. Further,it was observed that the assessee had claimed to have received payment of ₹ 4.84 crores spread over assessment year 2009-10, 2010-11, 2011-12 and as mandated by law, not only the assessee is supposed to maintain his books of accounts but also have the same audited. The CIT(A) observed that the assessee had not been able to produce any audit report for any of the relevant years. It was observed that even the bank account was indicative of only cash withdrawals (including those over ₹ 20,000/-) and there was no cheque payment to any party for any purchase or service and there was no TDS deduction to support any sub contract work. According to the CIT(A), these findings showed that no construction work had actually been undertaken and the payments shown as contractual receipts were nothing but payment received for the easy and voluntary relinquishment of trusteeship in payment in favour of identified individuals. According to the CIT(A), the Carmel Trust had not deducted any TDS on the payments made to the assessee and other old trustees for construction work during the assessment years 2009-10 2010-11, when the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 persons}. The assessing officer had relied on the unsigned agreement and the agreement dated 10/03/2009, but had ignored the agreement dated 1/06/2010 which clearly confirmed the construction.It was submitted that the amount of Rs. one crore (Issue in Revenue s appeal) given to the assessee on 11/03/2009 and assessed in their hands in the original assessment for A.Y.2009-10 forms part of the total amount of ₹ 4.84 crores. Hence,it was submitted that the addition made in the original assessment is to be deleted as the same amount is included in the total amount of ₹ 4.84 crores. 12.4 The Ld. AR submitted that construction was carried out by all the seven persons who are parties to the agreement dated 01/06/2010 and a statement to that effect was given as was agreed in clause 6 of that agreement. Tax was also deducted in the F Y 2010-11 u/s 194 C @ 2 percent as the construction was over and the amount had been brought under the fixed asset schedule of the Carmel Educational Society. It was submitted that in addition to the receipt of 9.68 crores, the CIT(A) had directed that the tax deducted on this amounting to ₹ 8.68 lakhs also forms part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax and no profit was derived by the assessee from the work as equal expenses were incurred in the execution of ongoing construction. 12.6 The Ld. DR relied on the order of the CIT(A). 12.7 We have heard the rival submissions and perused the record. The amounts of ₹ 34,00,000/- in AY 2009-10 and ₹ 4.50 crores in AY 2010-11 each received by Gracy Babu and Jose Thomas from which is said to be towards the on-going construction work as mentioned in clause 5 of the agreement dated 10/03/2009 and pages 4 5 of the deed of agreement dated 01/06/2010 entered into between Believers Church and Gracy Babu and her two sons and Jose Thomas and his three family members. The parties to the agreement (7 persons) together had completed the construction in the F.Y. 2010-11 as evidenced by clause 2 of the agreement dated 01/06/2010 for a total amount of ₹ 9.68 crores and vide clause 3 of the said agreement it was agreed to appropriate the contract amount from the amount already paid to the parties. Contrary to this, the Assessing Officer had relied on the unsigned agreement and the agreement dated 10/03/2009, but had ignored the agreement dated 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,10 and 11) in the said agreement has undertaken the construction as per clause 5 of the Deed dated 10.03.2009, incurring a cost of ₹ 9.68 Crores for which the statement will be filed by the said parties 1 to 3 and 8 to 10 to the first party in the agreement dt.10.03.2009 within one month from today. 12.8 The Believers Church had disclosed this construction in its Balance Sheet as on 31/03/2010 and 31/03/2011. Being so, there was construction activity and the Believers Church paid the contract amount to these two assesses. By any stretch of imagination, it cannot be considered as an amount paid towards relinquishment of trusteeship in Carmel Educational Society. In our opinion, it is appropriate to estimate the income fromconstruction contract amount at 8% for these assessment years. Directed accordingly. Thus the appeals of the assessee in ITA Nos. 208,209, 210 211/Coch/2019 are partly allowed. ITA Nos. 210 213/Coch/2019 :(AY 2011-12)[Assessee s appeals] 13. Coming to the appeals in ITA Nos. 210 213/Coch/2019, there was tax deduction by Believers Church in respect of ₹ 8.68 lakhs relating to assessment year 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is also part and parcel of the original transaction as espoused in the draft agreement dated 23/02/2009 and the only reason why this manner of transfer of the acquisition cost was adopted was due to fact that the intention of the assessee and his family members were known to the Income- tax Department by virtue of the recovery of the draft agreement dated 23/02/2009 during the search proceedings against the assessee. 4. The learned CIT(Appeals) has also erred in holding that since the money had gone to a charitable trust exempt u/s 12AA and that the assessee has derived no benefit from this transfer by not appreciating the fact that the host of agreements entered into between the erstwhile trustees and the nominees of Believers Church were just camouflage for effecting the transfer of the sale consideration without inviting the incidence of tax, primarily because the intention of the trustees were known to the Income tax Department by recovery of the draft agreement dated 23/02/2009 during the search proceedings. 5. The learned CIT(Appeals) had rightly concluded that the excess consideration received by the trustees for the sale of adjacent land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any benefit accrued to her out of the aforesaid donation. The CIT(A) observed that the giving of donation by the donor trust to the donee trust, could have been done as a part of the arrangement for the voluntary and easy exit of the assessee from the trusteeship, but the very fact that the money had gone into a donee trust for a charitable objective, which is in receipt of exemption of income u/s. 12AA of the I.T. Act, 1961, is indicative of the fact that no benefit can accrue to the assessee in the future without the receipt getting taxed and the fact that no money or benefit of any kind was accrued to the assessee by virtue of the aforesaid donation, no addition in the hands of the assessee was possible and if ever any benefit were to be passed by the donee trust to its trustee, it would be at the risk of not only being taxed but also losing its exemption of income status. Hence the addition of ₹ 8,00,00,000/- for the AY 2011-12 was deleted by the CIT(A). 14.4 Against this the Revenue is in appeal before us. The Ld. DR relied on the above grounds. 14.5 The Ld. AR submitted that receipt of money by St. Thomas Educational Trust as donation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has raised the following grounds of appeal: 1. The CIT(A) went wrong in upholding the assessment of income from relinquishment of trusteeship of a public charitable trust as income of the trustees chargeable under the head income from other sources by ignoring the fact that the receipt constitute capital receipts. 2. The CIT(A) went wrong in upholding the assessment of income from sale of agricultural land of trustees as income derived by the trustees from relinquishment of trusteeship of a public charitable trust which is charged under the head other source. 15.1 As discussed in ITA No. 208 211/Coch/2019 in para 11.4 to 11.8, this appeal is disposed off accordingly. Thus, the appeal of the assessee in ITA No.207/Coch/2019 is allowed. ITA Nos.304 t0 310/Coch/2019 : Carmel Educational Trust: AY 2004-05 to 2010-11[Assessees appeals] 16. These appeals filed by the assesseeare directed against the order of the CIT(A)-III, Kochi dated 25/02/2019 and pertain to the assessment years 2004-05 to 2010-11. 16.1 The assessee has raised the following commongrounds of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2004 5,87,623 50,26,658 11,75,000 3,00,000 23,34,808 31.03.2005 6,49,235 57,61,501.50 13,16,299.74 3,00,000 14,80,756 31.03.2006 0 54,61,501.50 18,06,299.74 0 22,28,756 31.03.2007 0 46,31,488.50 16,93,799.74 0 6,78,270 31.03.2008 0 44,06,488.50 16,47,879.74 0 4,35,270 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile trustees was for meeting the liabilities of the Trust. Out of the above 37.5 crores,₹ 1 crore each totaling to ₹ 3 crores was given to Smt. Gracy Babu, Sri Jose Thomas and Sri P J Poulose in March 2009. The balance amount was agreed to be paid within 6 months on fulfilling the other conditions namely discharging of all liabilities of the Trust and carrying out of the remaining constructions of the Engineering College. It was noticed that no further construction work had been carried out by the erstwhile Trustees to the college building. 16.5 By the substitution of the erstwhile trustees by the new Trustees and the handing over and taking over of the assets of the college and the Trust, the erstwhile trustees had in fact, sold the assets of the trust to new trustees for a consideration of ₹ 37.5 crores as per executed agreement, but was much more(43.5 crores) as per the seized records. At the same time, when the composition of the Trust was being changed, the trustees decided to sell an adjacent piece of land to Believers Church and its associated churches. A part of the compensation for relinquishment of trusteeship was sought to be passed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,39,37,615 As per Original Returns filed u/s 139 Income as per Income Expenditure Statement Amount claimed as utilized for charitable purposes 2003-04 2,41,97,800 2,41,97,800 2004-05 1,91,27,477 1,87,73,094 2005-06 2,57,11,373 2,57,11,373 2006-07 64,91,220 1,52,03,803 2007-08 5,87,81,220 5,87,81,220 2008-09 6,88,77,429 6,88,77,429 2009-10 8,25,96,750 1,39,37,635 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement given before the Dy. Director of income tax on 30.03.2009 in answer to question No. 10 had admitted that amount in excess of the fees prescribed by the Govt. were collected from management quota students and that the amount so collected was not reflected in the accounts of the college. According to her the admission for the year 2008-09 was managed by Shri Jose Thomas and the amount collected on her behalf is kept by Shri Jose Thomas. Out of the amount so collected ₹ 40 lakhs has been invested in St. Thomas Educational Society. As per her statement admission during the year 2007-08 was done by Shri Jose Thomas himself and its accounts are available with him only. 16.8 The seized material PJP-5, KRS-2, contained the details of donations received from students, the amount given by the Governing Body Members to the trust and the amount appropriated by them. It was noticed from the account of the Trust that no amount of donation received from students was accounted in its accounts. Details of the donations received by the Governing Body Members are as under: Assessment Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gracy Babu 50% Jose Thomas 50% ₹ 2,11,93,500 NIL NIL ₹ 2,11,93,500 16.9 The Assessing Officer noticed that out of the total seats for admissions to the courses in the Carmel Engineering College, 50% are filled up by the government and the balance 50% is filled up by the management. The fees that can be collected from students admitted in the management quota are fixed by the government, but the governing body members of the trust comprising of the chairman, the secretary and the treasurer used to get amount in excess of prescribed fees for giving admissions to the management quota seats. The amounts so collected from students in the management quota is not accounted in the accounts of the college and the trust. It is shared among the governing body members and utilized by them. During the year 2006-07, the Assessing Officer noticed that M/s Carmel Educational Trust had collected ₹ 94,87,200/- from students as donation for admission to the Engineering College as evidenced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as utilized for charitable purposes 2003-04 15,51,297 (-) 4,21,36,687 2004-05 10,50,980 (-) 1,44,25,959 2005-06 41,82,731 1,36,73,316 2006-07 64,91,222 1,42,03,803 2007-08 2,40,34,444 1,90,76,299 2008-09 2,99,17,018 2,59,85,137 2009-10 2,64,46,323 1,39,37,615 As per Original Returns filed u/s 239 Income as per Income Expenditure Statement Amount claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and management of the Trust and its College and financial management were not carried out as expected of a Trust. The financial transactions were carried out as if the Governing Body Members were carrying on their own personal business. The amount collected from students as donation was kept separately in a parallel secret account without disclosing it in the regular accounts of the College/Trust. According to the CIT(A), they were drawing allowances without fully accounting in the Trust and also money was taken out without proper accounting. The Trustees were using the Trust for their personal profit and not for the charitable objectives of the Trust. In these circumstances, it was observed that the Trust cannot be considered as a 'charitable one'. As the funds of the Trust had been misutilized by the trustees and they were making profit out of the activities of the Trust, the CIT(A) held that Trust cannot be given exemption u/s 11 as per the provisions of section 13(1)(c)(ii) of the IT Act, 1961, and hence, the CIT(A) confirmed the finding of the AO that the activity of the trust was being carried out in contravention to the provisions of section 11 12 of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Capitation Fees And Procedure For Admission And Fixation Of Fees) Act, 2004 prohibits collection of capitation fees from any candidate or student. Section 6( 1) of the Act is stated below Collection of capitation fee prohibited. (1) No capitation fee Shall be collected by or on behalf of any self-financing, professional college or by any person who is in charge of or is responsible for the management of such college from or in relation to any candidate/student in consideration of his admission to, or prosecution of any course of study, or hispromotion to a higher class in such college or an institution under such management . 17.3 The Ld. AR relied on the judgment of the Apex Court in the case of Miss Mohini Jain vs State Of Karnataka And Ors( 1992 AIR 1858) wherein it washeld that ... ...capitation fee in consideration of admissions to educational institutions is wholly arbitrary' and as such infracts Article 14 of the Constitution........... We, therefore, hold and declare that charging of capitation fee by the private educational institutions as a consideration for admission is wholly illegal and cannot be permitted... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) if any part of such income or any property of the trust or the 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 subsection (3) According to the Ld. AR, this section restricted exclusion of certain income from total income, to the extent such income had been applied directly or indirectly for the benefit of the trustees. Here, the Ld. AR submitted that no income had been received by the Trust as capitation fees and there was no claim for exclusion of any non-existent income under section 11 or section 12 and hence section 13(1) has no applicability here. Capitation fees, if any, were collected by the Erstwhile Trustees and was never a part of the income of the Trust. 17.6 The Ld. AR submitted that no seized material was found for A.Y.2008-09. However, it was submitted that the AO had taken average of preceding and subsequent years' donation to arrive at amount collected by the erstwhile Trustees. Where no seized material is available no addition can be made. It was submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed every year and the students are studying in the Trust-owned college. Thus, the object of establishment of the Trust is for imparting education which is going on uninterruptedly. Therefore, it cannot be said that the activities of the Trust are not being carried out in accordance with the objectives of the Trust. When these conditions are fully satisfied, it cannot be said that the Trust is misappropriating funds of the Trust and hence exemption u/s. 11 of the Act cannot be denied. In the present case, the trustees admitted that they have collected excess fees in their personal capacity and paid a portion of it to the Trust. However, the Department has not found any incriminating material in the case of the Trust. The accounts of the assessee-Trust shows that the assessee carried on educational activities by running various institutions within the domain of Central and State laws. The assessee-Trust has been maintaining regular books of accounts and they were audited under the relevant provisions of the Act. The lower authorities have not found any error in the books of accounts of the assessee-Trust. The only allegation is that a portion of the extra fees collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trustees was not accounted in the books of accounts of the assessee and also there is no evidence to show that it was applied for the purpose of charitable activities of the assessee-Trust. Thus, it is deemed that it was applied for purposes other than charitable purpose of the assessee-Trust. Being so, only that part of income is liable to be taxed at maximum marginal rate as envisaged in section 164(3) of the I.T. Act which reads as follows: (3) In a case where the relevant income which is derived from property held under trust in part only for charitable or religious purposes(or is of the nature referred to in sub-clause (iia) of clause (24) of section 2) or is of the nature referred to in sub-section (4A) of section 11) and either the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are indeterminable or unknown, the tax chargeable on the relevant income shall be the aggregate of (a) tax which would be chargeable on that part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant years, had withdrawn amounts in excess of the receipts and allowances allowable to them as per the bylaws of the Trust and this additional amount withdrawn had been correctly added in the hands of the trustees by the AO in each of the relevant assessment years. 18.2 The CIT(A) observed that a part of the capitation fees collected by the trustees had been passed on to the trust, as per the seized documents, but have not been accounted for in the books of accounts of the appellant trust, during AY 2004-05, 2005-06, 2006-07 and 2007-08. According to the CIT(A), these amounts had been collected by the trustees from the students during the relevant assessment years and are evidenced in the seized documents and the assessee Trust had not been able to substantiate and produce evidence for denial of receipts of the same and thus, as per the presumption arising out of section 132(4A), the same is to be added in the hands of the assessee Trust. The CIT(A) directed the AO to enhance the income of the Trust, after treating as AOP on a substantive basis as follows: AY Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption, else such shortfall in application alone can constitute income. 18.6 The Ld. DR relied on the order of the lower authorities. 18.7 We have heard the rival submissions and perused the record. In view of our findings in para 17.8 of this order wherein we have observed that only unaccounted income received by the assessee-Trust from the Trustees is to be taxed at maximum marginal rate, there cannot be any enhancement of income so as to assessee the entire amount collected by the Trustees in the hands of the assessee- Trust. More so, the amount retained by the Trustees has been assessed in their respective hands. Thus, there cannot be any double addition. This enhancement was also made by the CIT(A) without giving any opportunity of hearing to the assessee which is violation of principle of natural justice. Thus, this ground of appeals of the assessee is allowed. Ground No. 3 : Enhancement by CIT(A) Amount paid for construction of building ₹ 14.55 crores : For AY 2010-11 19. The CIT(A) observed that the assessee had created a fresh asset in his balance sheet for AY 2010-11 which has in the subsequent ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal built-up area of the buildings totals to 236,999.78 Square Feet (220,118.57 Square Meter). It was submitted that even considering a conservative per square feet rate of of ₹ 1400 per Square Feet, the total cost comes to ₹ 33.18 Crores. The Ld. AR submitted that as per the Audited balance sheet of AY 2018-19, the gross building value (without depreciation) was ₹ 24,38,23,931.53 and this amount was inclusive of ₹ 14,54,59,169/- given to the erstwhile trustees who constructed the buildings for the Trust which clearly showed that there had been no overstatement of building value and the amount paid was for the buildings constructed by them. Thus, there was no violation of section 13(1)(c). The amount paid to the erstwhile trustees werefor the construction of infrastructure. It was submitted that no benefit arises to the erstwhile trustees through the payment of ₹ 14,54,59,169/- made to them by the Trust. Such benefit would have been there, if it was diversion of Trust funds by virtue of section 13(2)(g). It was submitted that the payments were made to offset the cost of construction of building done by the erstwhile Trustees and hence, there was no div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the prescribed time. Hence, the CIT(A) confirmed the finding of the Assessing Officer. 20.1 The Ld. AR submitted that excess application of earlier years can be set off against deficits in subsequent year. Reliance was placed on following case laws: CIT (Exemption) v Subros Educational Society 2018 (4) TMI 1622 (SC), CIT v Matriseva Trust [2000] 242 ITR 0020 (Mad) Gonvindu Naicker Estate v ADIT [2001 ] 248 ITR 0368 (Mad) CIT v Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 0293 (Guj) CIT v Maharana of Mewar Charitable Foundation [1987] 164 ITR 0439 (Raj) It was submitted that the AO and the CIT(A) had not allowed set off for the reason that the Trust has lost its status on account of denial of exemption u/s. 11 due to which it was assessed as AOP. 20.2 The Ld. DR relied on the order of the lower authorities. 20.3 We have heard the rival submissions and perused the record. Since we have held that the assessee is entitled for exemption u/s. 11 of the Act, excess application of earlier years could be set off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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