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TMI Blog2019 (10) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... e being disposed of by this common consolidated order for the sake of convenience. 3. ITA Nos. 27 to 31/Coch/2019 : Jose Thomas :AY 2004-05 to 2007-08 ITA Nos. 32 to 35/Coch/2019 :GracyBabu :AY 2004-05 to 2007-08 3.1 The assesses have raised the following common ground of appeals in ITA Nos. 27, 28, 29, 30, 32, 33 & 34/Coch/2019: 1. The Assessing Officer went wrong in assessing the extra fee collected from students as the income of the family head of the trustees instead of equally allocating among the trustees. The CIT(A) had confirmed the finding of the Assessing Officer ignoring the submission of the assessee. 4. The Ld AR has not pressed the following additional ground of appealsin the case of both the assesses for all the assessment years. The Assessing Officer went wrong in assessing the fee collected by the trustees in their official capacity 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 dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6). iv. Copies of accounts with the trust -PJP-5, KRS-2, JTP-4 etc. 5.3The Assessments were made under section 143(3) r.w.s 153A for the A Ys 2003- 04 to 2008-09and under section 143(3) for the A Y 2009-10 in the case of persons searched namely Smt. GracyBabu, Sri. Jose Thomas and Sri.P. J. Paulose who were the heads of family comprising of adult members only. No assessments in consequence to the search by invoking provisions of section 153C were made in the cases of family members who were trustees.Based on the above seized documents and records the assessing officer further concluded that 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee did not personally receive any donations from students for admission to the Management quota; donation if any received was received by the trust and utilized by the Trust and hence, it was assessable in the case of the Trust. The assessee did not receive any allowance or any other amount from the Trust other than what is specifically included in the accounts of the Trust. The transactions as entered in the seized materials PJP-5, JTS-4 and KRS-2 were totally denied by the assessee. According to the assessee, these accounts had no relevance to the actual accounts of the Trust and they were only some noting which had no evidentiary value. With regard to the interest due on AICTE deposit, it was claimed that the interest on the deposit was due on maturity only, i.e. 25.2.2012. It was explained that the correct rental income was computed by the assessee and included in the return filed u/s 153A of the IT Act, 1961. As an explanation for the source of funds for the credits in bank accounts the assesseestated that he owned 5 acres of Rubber Estate, the trees standing in those Estates were sold in 1996 for replanting and he had received approximately Rs. 15 lakhs for those ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed fees and that they had invested the amounts so received in their new Trusts/other investment though Shri Jose Thomas and Smt.GracyBabudenied income from donations received from students. Shri. P.J.Poulose had filed returns of income admitting income from donations received from students as per the accounts seized as PJP-5. Shri Jose Thomas in his statement dated 19.3.2009 had stated that he had approximately Rs. 60 lakhs as income from donations received from students. He had expressed his willingness to declare the income and pay tax on the amount. Rejecting the contentions of the assessee, the Assessing Officer took the entire amount collected from students and 1/3rd each was taken as the share of the trustees and added to the income of the trustees. 6. Before the CIT(A), it was submitted that in case it is held to be a case of collection made by Trustees in their individual capacity for specific services provided to the students, the money had to be allocated amongst other Trustees also as the so called three trustees are the heads of family and are acting on behalf of other trustees also. It was submitted that no material was in possession of the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he courses conducted in the college in excess of the fees fixed by the Government. It was submitted that in case it cannot be considered as course fee as the fee was already fixed by the government, it would take the character of donation or voluntary contribution only by the students. It was submitted that donation or voluntary contribution did not come under the purview of income chargeable to tax and provisions of section 56(v) will not attract as there was consideration in the form of a seat for the student in the college. In case of absence of adequate consideration, it can be a voluntary contribution. The assessee submitted that voluntary contribution would constitute income within the meaning of section 2(24)(iia) of the Act. But such contribution received by the Trust or any other on behalf of the Trust can be considered as income of the Trust only and not as income of the recipient. 6.4 The CIT(A) directed the Assessing Officer to adopt the share of donation as per the seized material after deducting the expenses and the amount refunded for the assessment years 2004-05 to 2007-08 and the actual amount received by the assessee for the assessment year 2009-10 is Rs. 62,95,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial PJP-5, JTP-4 and KRS-2 contained the details of sharing of donation among the trustees and the share of donation received by the trustees for the AY 2003-04, 2004-05, 2006-07, 2007-08 was found to be the same. The CIT(A) observed that for AY 2005-06, the amount actually shared among the trustees as per the seized record was correctly given by the assessee. For the AY 2009-10, the assessee had taken the actual cash received by the trustees as their share of donation. The assessee submitted that the amount received during the year can only be taxed. From the seized records, the CIT(A) observed that the plea of the assessee was correct for all the years. The actual amount received by the assessee as per this is as follows: Jose Thomas GracyBabu AY 2003-04 Nil Nil AY 2004-05 6,33,677 6,33,677 AY 2005-06 3,50,000 3,00,000 AY 2006-07 2,50,000 2,50,000 AY 2007-08 13,25,750 Nil AY 2008-09 Nil Nil AY 2009-10 62,95,000 6,00,000 The assessee had also stated that the addition on account of donation received for the assessment year 2008-09 was made on estimate basis without evidenced by any seized material or any other records indicating su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 10/03/2009 to arrive at his conclusion, whereas he should have relied on page 16, para to where it was unambiguously stated that the assessee would be paid Rs. 1 crore to clear the debt and liabilities of the trust on the date of execution of the agreement. Hence, the CIT(A) decision is based on inaccurate facts and this sum was not part of the consideration of sale of agricultural land. 2. The CIT(A) disregarded the finding by the Assessing Officer that the amount recorded as given back to the trust in the seized material is also not reflected in the books of accounts as well as the assessee's accounts as detailed by the Assessing Officer in page 13 of the assessment order where he has held that all such donations received from the students is to be considered as having been received by the assessee, Shri Jose Thomas and ShriPoulose P.J. Hence, whatever funds were handed over to the college could be treated only as application of income earned by the assessee and hence, the share of the assessee of these receipts in its entirety should be assessed in this case at Rs. 1,05,96,750/-. 8.3. It is observed that the tax effect in this appeal is less than Rs. 20 lakhs and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rubber Estate @Rs. 10,40,470 per acre 52,02,349 1,57,62,060 Contract payment 34,00,000 34,00,000 Total 86,02,349 1,91,62,060 10.2 The said consideration was treated as receipt in lieu of relinquishment of Trusteeship received in the form of sale consideration of agricultural land and contract payment was assessed under the head income from other sources. According to the Assessing Officer, since the trustees had relinquished the right of Trusteeship in a Trust viz. Carmel Educational Trust and indirectly received consideration in lieu of transfer, such consideration was chargeable in the hands of trustees as income under the head other sources. 11.On appeal, the CIT(A) confirmed the findings of the Assessing Officer. With respect to the excess price received on sale of agriculture land @Rs. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acres of rubber estate owned by her late husband, Babu Joseph who expired before the date of supplementary deed of the trust(25/03/2009). Hence, it was submitted that he had not relinquished his right of succession as lifelong trustee on 25/03/2009 as his right of succession as lifelong trustee extinguished on the date of death and nobody will acquire or inherit his such right on the date of his death as the death of the ownerwill put an end to the life of the right as well. It was submitted that Gracy Babu and her two major sons viz Judy Babu & Frudy Babu Thomas were the legal heirs of late Babu Thomas. The Ld. AR submitted that the aforesaid 8.90 acres of rubber estate owned by Late Babu Thomas was transferred for Rs. 2,26,10,197 (Rs. 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 Rs. 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 Rs. 95,92,490/- [(2.97x 10,40,400) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the trusteeship in a public charitable trust is not a right of the trustee and a trustee is not entitled to receive any benefits from trust other than reasonable remuneration for the services rendered. Hence, it was submitted that the assessee had no legal right for receipt of compensation in lieu of relinquishment of trusteeship. According to the Ld. DR, in the instant case, there were compensations which was received indirectly even though the assessee did not have a legal right to receive any consideration for his relinquishment. Hence, according to the Ld. DR, the money received by the assessee in the guise of excess price of agricultural land Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax the same. This finding of the CIT(A) is not proper. The assesses herein wereholding trusteeship in the Carmel Educational Trust which was relinquished in favour of trustees of Believers Church, and this right is nothing but a capital asset. Had the Carmel Educational Trust survived as it is, then they have the right to continue as a Trustee throughout their life time. Once it has ceased to exist and relinquished the right of trusteeship in favour of the new trustees in Believers 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, produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil; (b) in relation to any other capital asset - (i) where the 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 distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT v. B.C. Srinivasa Shetty[1981] 128 ITR and the amendment to section 55(2) of the Income Tax Act and held that the assesseedid 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 1st April, 1995 and accordingly applied, in relation 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 leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 acquisition of which no cost at all can be conceived. There was no cost of acquisition, which was determined and on the basis of which the Assessing Officer could have proceeded to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... homas 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 Rs. 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 Rs. 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 relinquishment of trusteeship by the outgoing trustees Gracy Babu and Jose Thomas. As such fifty percent of the donation of Rs. 16 crores is chargeable in the hands of Gracy Babu and Jose Thomas in the AY 2011-12 by treating it as consideration received in lieu of relinquishment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores had been received by the assessee, instead the Carmel Trust had deducted TDS for the aforesaid amount during assessment year 2011-12, which was not claimed by the assessee and is a clear case of after thought. According to the CIT(A), the total amount of payment made to the assessee including the TDS amount (unclaimed) does not match in the amount reflected inthe agreement. The CIT(A) found that there was a credit of Rs. 8.68 lakhs in the books of accounts of Carmel Trust which had gone into the TDS account of Gracy Babu for AY 2011-12 and had not been claimed by her so far and hence, the protective addition in the hands of the assessee for AY 2011-12 was reduced from Rs. 4.84 Crores to Rs. 8.68 lakhs. Hence, the CIT(A) sustained only substantive addition of Rs. 34,00,000/- in the AY 2009-10 and Rs. 4,50,00,000/- in the AY 2010-11 and also brought into tax the amount of Rs. 8.68 lakhs in the AY 2011-12. 12.3 Against this, the assessee is in appeal before us. The Ld. AR submitted that according to this agreement the cost of ongoing construction agreed Rs. 9.68 was only payable to Jose Thomas and Gracy Babu who are the family heads and after the execution of this agreement da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is work and by inadvertence had omitted to claim such loss in the return.With regard to the denial of construction by the college authorities (Believers Church) it was evident from their Balance sheet as at 31/03/2010 that they had accounted the entire sum Rs. 9.68 crores in A.Y.2010-11 and shown this amount as advance for work in progress in its balance sheet as on 31.03.2010. On completion of the work this amount was taken by the college in its balance sheet as on 31.03.2011 under fixed asset schedule. The assessing officer has without proper inquiry and without appreciating full facts stated that no work had been done at the college. According to the Assessing Officer, the college authorities had reported that they had not done any construction activity during the year and not mentioned anything about the work done by the assessee. The reason for making such a statement by the college authorities (BELIEVERS CHURCH GROUP) before the assessing officer is not known to the assessee especially when their audited financial statements showed otherwise. The statement of college authorities may be with regard to any new work entrusted where as the payment of Rs. 9.68 crores to the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their Chartered Accountants shall prepare all the debts and liabilities during the above said period of within six months since from the execution of this agreement in order to clear it by receiving the above said amount of 37.50 crores (Rupees thirty seven Crores and Fifty lakhs only) in different instalments and the first parties agree that they will release such funds without any delay as per the demand of the second parties. It is further agreed by the second parties that they shall complete the ongoing constructions of buildings, landscape, hostels, play grounds etc. with approve estimates and supporting bills within the said period and the 1st party shall release the said amount on the basis of such records from the said amount of Rs. 37.50 Crores (Rupess Thirty seven Crores and Fifty lakhs only) proportionately to each three groups among the 2nd parties." Clause 2 to 6 of the agreement dated 01/06/2010 reads as under: "2. The statement of debts and liabilities as prepared pursuant to clause 5 of the agreement does not disclose any debts or liability as on the date of agreement and the 2nd party is not eligible for any further amount for the said purpose as envisaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-11. This ground of appeals of the assesses are partly allowed. In the result, the appeals of the assesses in ITA No. 208 to 213/Coch/2019 are partly allowed. ITA Nos.238/Coch/2019:Revenue Appeal:JoseThomas:AY 2011-12 ITA No. 239/Coch/2019:Revenue Appeal:Gracy Babu :AY 2011-12 14. The Revenue has raised the following common grounds of appeals: 1. The Learned CIT(A) in his order dated 31/01/2019 has erred in concluding that the payment of Rs. 8 crores of the Rs. 16 crores received by St Thomas Educational Society in which the assessee was a trustee cannot be treated as income of the assessee as no money had been received by her nor any benefit had accrued to her. ' 2. The order of the learned CIT(A) dated 31/01/2019 is contradictory, when the CIT(A) has acknowledged that the intention of the erstwhile trustees of Carmel Educational Trust (of which, the assessee was one) in transferring the educational institution and other assets of this trust to the acquirers, Believers Church of India, through its nominees, as espoused in the draft agreement dated 23/02/2009 for a sum of Rs. 43.5 crores and one of the channels of the payment to the trustees is through making contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by the assessee is also part and parcel of the above mentioned consideration for the benefit of the assessee and hence cannot be treated as separate and distinct from the other transfers only because it is disguised as an inter trust transfer. 6. The order of the learned CIT(A) dated 31/01/2019 is erroneous and so maybe quashed and the order of the assessing officer dated 30/11/2016 may be upheld. 14.1 The crux of the above ground in ITA Nos. 238 & 239/Coch/2019 is with regard to deletion of addition by the CIT(A)of Rs. 8 crores in each assessment year received by St. Thomas Educational Society in which the assessees were Trustees. 14.2 The facts of the case are that during the year St. Thomas Educational Trust in which the assessee and GracyBabu were trustees received donation of Rs. 16 crores from seven trusts for promoting the educational objectives of the trust. The Assessing Officer had taken 50% of this, i.e., 8 crores as income of the assessee since the said amount was received as compensation for relinquishment of trusteeship. The amount of Rs. 8 crores each was assessed under the head "other sources" in the hands of assessees. According to the Assessing officer su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al receipt which is received or receivable as on the date of relinquishment of trusteeship. This is because the right of succession of lifelong trusteeship can be a capital asset within the meaning of section 2(14) and its exchange or relinquishment or extinguishment of therein amounts to transfer u/s 2(47) of the Act and the transfer took place on 25/03/2009. Hence, it was submitted that no income, in this regard can be assessed under the head other sources or capital gains for the AY 2011-12. The Ld. AR submittedthat no benefit had accrued to the assessee or received by the assessee from the donation received by St Thomas Educational Trust. 14.6 We have heard the rival submissions and perused the record. This amount of Rs. 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 Rs. 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 relinqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There was no violation of section 13 of the I.T. Act by the Trust and the Assessing Officer and CIT(A) were misdirected in considering it's activity of running an Engineering College as running of a business. 4. Trust claimed utilization and set off of carry forward deficit for earlier years but the CIT(A) erred in not considering such claim, just for a reason that returns were filed belatedly within the prescribed time. 16.2 The facts of the case are that a search u/s. 132 of the I.T. Act was conducted at the residences of Smt. Gracy Babu, Shri Jose Thomas and Shri P.J. Poulose, the Chairperson, Treasuer and Secretary of the Trust. During the course of search, document/account relating to Carmel Education Trust were seized. As per the account of Trust received from the Carmel Educational Trust the amount advanced by the Trustees to the Trust for the different years are as under: Financial Year Smt. Gracy Babu (Rs.) Shri Jose Thomas (Rs.) Shri P.J. Poulose (Rs.) Smt. Lizzy Poulose Estate Loan (Rs.) 31.03.2003 17,74,097 41,04,994 95,416 5,00,000 24,76,000 31.03.2004 5,87,623 50,26,658 11,75,000 3,00,000 23,34,808 31.03.2005 6,49,235 57,61,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstwhile trustees was for meeting the liabilities of the Trust. Out of the above 37.5 crores,Rs. 1 crore each totaling to Rs. 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 Rs. 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 to the trustees by inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o drawing allowances from the Trust. Further they were frequently drawing money from the trust and partly returning it as if in a proprietary business. But these transactions are not included in the accounts of the trust which have been filed in the Income tax Office. Shri PJ Poulose, in his statement dated 26.02.2009 given before the authorized officer has stated that the Governing Body members were collecting approximately Rs. 40,000 from each students admitted to the management quota seats and that the same has been appropriated by the governing bodymembers by sharing it. During the early years, part of the above donation was paid to the Trust for expenses/investment. Shri Jose Thomas in his statement dated 19.03.2009 given before the Deputy Director of IT Inv-ll,Ernakualm u/s 131 of the IT Act had in answer to question no.21 stated that the entries in JTP-4 relate to the advance fees (donation) received from students admitted to the management quota seats. He had admitted that for the year 2008-09 the advance fees collected was Rs. 2,11,93,500/- which was divided between himself and Smt. Gracy Babu equally. It was admitted that this amount was not reflected in the college acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 Lapsed Seat Rs. 17,94,750/- NIL NIL Rs. 17,94,750/- PJ Poulose Rs. 6,39,000/- Jose Thomas Rs. 11,55,750/- 2008-09 No accounts seen 2009-10 Rs. 1,93,55,000 NIL NIL Rs. 1,93,55,000 Gracy Babu 50% Jose Thomas 50% Rs. 2,11,93,500 NIL NIL Rs. 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 Rs. 94,87,200/- from students as donation for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. They were drawing allowances without fully accounting in the Trust. 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 circumstance, the Assessing Officer held that the Trust cannot be considered as a charitable one. As the funds of the Trust have been misutilized by the trustees and they were making profit out of the activities of the Trust, the Trust cannot be given exemption u/s 11 as per provisions of section 13(i)c(ii) of the IT Act, 1961. Thus, it was assessed as on AOP doing business in running of the college and the Trustees were doing business in the guise of charity. Ground No. 1 : Denial of exemption u/s. 11: A.Ys 2004-05 to 2010-11 17. The CIT(A) observed that the Assessing Officer was correct in holding that it was evident that the administration 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Trust including other erstwhile Trustees were not party to such collections by the 3 erstwhile Trustees. Hence, protective assessment of donations collected by erstwhile Trustees in the hands of Trust was not valid. 17.2 The Ld. AR submitted that no discrepancies were found in the allowances to erstwhile Trustees accounted in the books of the assessee and the Trust was not responsible for the donations or the amount of allowances shared by the 3 erstwhile Trustees from such donations. It was submitted that the act of the erstwhile trustees collecting capitation fees was illegal and the Trust cannot be fastened with the liabilities for the illegal deeds of three among eleven erstwhile Trustees. The illegality is manifest from the following: i. Section 6(1) of the Kerala Self Financing Professional Colleges (Prohibition Of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its own separate legal existence. Thus, it was submitted that the Trust should not be put on peril for the illegal activities committed by few of the Trustees of the Trust running an affiliated college. 17.5 The Ld. AR submitted that section 13(1) (c) had no applicability here. The Ld. AR reproduced the said subsection as below: "Section 13(1) Nothing contained in section II or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a): ... ... ... ... (b): ... ... ... ... (c): in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) ... ... ... (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for imparting education. The records show that the Trust has established educational institutions and conducted engineering and management courses. Huge investments were made for construction of building for housing the college and to provide other facilities to the students who were studying in the college. The college is recognized by competent authority. Therefore, it cannot be said that the Trust is not genuine. Admittedly, the students are being admitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt received from the Trustees out of the excess fees collected by them. If the excess fees collected by the Trustees was received by the Trust which was not accounted, the department can tax the same in the hands of the Trust and exemption u/s. 11 of the Act can be denied on that amount and total denial of exemption u/s 11 is not possible. In the present case, the extra fees received by the assessee-Trust from 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hered from the seized documents showed that the funds of the trust have been misutilized and diverted for the personal use of trustees. Further, the trustees namely Gracy Babu, Jose Thomas and P.J. Paulose, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 years been clubbed in the building expenditure undertaken by the assessee Trust during the relevant year and hence, an enhancement notice was given to the assessee in reply to which the assessee submitted that it was the old trustees who have benefited from the various transactions and none of the capitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation) was Rs. 24,38,23,931.53 and this amount was inclusive of Rs. 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 Rs. 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 diversion. 19.3 The Ld. AR submitted that the Trust did not claim Rs. 14.55 crores as expenditure or application and hence, the same cannot be added to income of the Trust (copy of Balance Sheet and Income and Expenditure account for year ended 31.03.2009, 31.03.2010 and 31.03.2011 along with enclosures placed before the Bench in Serial Number 11 to 12 of the Paper Book). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 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 against deficits in the next assessment year. This view of ours is supported by various judgments in the cases cited by Ld. AR wherein it was held that the expenditure incurred by the Trust on religious/charitable purposes in earlier year or years can be adjusted against the income of the subsequent year irrespective of the head of income under which it was incurred. Accordingly, the Assessing Officer has to re-compute the income. Thus, this ground of appeals of the assessee is allowed. Thus, the assesse's appeals in ITA no. 304 to 310/Coch/2019 are partly allowed. 21. In the result, the appeals o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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