Income Tax Appellate Tribunal - Chennai
Periyasamy Pillai Educational Trust, ... vs Department Of Income Tax on 28 May, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI V. DURGA RAO, JUDICIAL MEMBER
I.T.A. No. 1668/Mds/2012
(Assessment Year : 2009-10)
M/s Periyasamy Pillai Educational
The Assistant Director of Trust,
Income Tax (Exemptions)-IV, v. No.4, Aiswariya Complex,
Chennai - 600 034. Duraisamy Road, Chennai - 600 034
PAN : AAATP 9255 C
(Appellant) (Respondent)
Appellant by : Dr. S. Moharana, CIT-DR
Respondent by : Shri V. Subbarayan, DCIT(Retd.)
Date of Hearing : 28.05.2013
Date of Pronouncement : 13.06.2013
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by the Revenue, its grievance is that Commissioner of Income Tax (Appeals)-XII, Chennai, vide his order dated 24.5.2012, held the assessee to be entitled for exemption under Section 11 of Income-tax Act, 1961 (in short 'the Act') and gave 2 I.T.A. No. 1668/Mds/12 a finding that there was no violation as mentioned under Section 13(1)(c)(ii) of the Act.
2. Facts apropos are that assessee, a trust having registration under Section 12AA of the Act, had filed its return for impugned assessment year declaring NIL income, after claiming exemption under Sections 11 and 12 of the Act. During the course of assessment proceedings, it was noted by the Assessing Officer that the following amounts were due from two concerns in which Managing Trustee of the assessee, namely, Shri P. Subramani was an interested party:-
(1) M/s Apollo Computer Education ` 1,61,03,553/- (2) M/s Apollo Computer Education Ltd. ` 1,40,95,053/-
Assessee was called to explain why Section 13 was not attracted, since its Managing Trustee was the proprietor of one of the concerns and was also a Director holding more than 50% shares in other concern. Reply given by the assessee was not found satisfactory by the Assessing Officer. According to her, exemption under Section 11 could not be given where there were any violation of nature mentioned under Section 13 of the Act. Assessing Officer noted that once income of the trust was used directly or indirectly for benefit of 3 I.T.A. No. 1668/Mds/12 any person referred to in Section 13(3) of the Act, it forfeited its right for claiming exemption under Section 11 of the Act. As per the A.O., even if any income or property of the trust was lent or continued to be lent to any such person, claim of exemption under Section 11 of the Act could not be allowed. A.O. noted that by application of clause (e) of Section 13(3) of the Act, lending of money to a concern in which the author of the trust or any trustee of the trust had substantial interest, called for application of Section 13 of the Act. A.O. also found that the amounts were lent to M/s Apollo Computer Education and M/s Apollo Computer Education Ltd. without any adequate security and such concerns had enjoyed such money without paying interest to the assessee. Thus she concluded that there was a violation of Section 13(1)(c) read with Section 13(2)(a) of the Act and assessee lost the benefit under Section 11 of the Act. She, therefore, denied the exemption claimed under Section 11 and completed the assessment considering the total taxable income at ` 7,36,21,715/-.
3. In its appeal before CIT(Appeals), argument of the assessee was that what was paid to M/s Apollo Computer Education and M/s Apollo Computer Education Ltd. were repayments of loans taken from one M/s Apollo Institute of Hotel Management, Catering and Fashion 4 I.T.A. No. 1668/Mds/12 Technology (AIHMC&FT). As per the assessee, the latter concern was also a proprietorship concern of Shri P. Subramani and, therefore, the accounts of M/s Apollo Computer Education and M/s Apollo Computer Education Ltd. had to be seen in a consolidated manner along with the account of M/s AIHMC&FT. Further, as per the assessee, a sum of ` 3,35,33,535/- was due to M/s AIHMC&FT on 1.4.2008 and the payments effected to M/s Apollo Computer Education and M/s Apollo Computer Education Ltd., during the relevant previous year, were based on the directions of M/s AIHMC&FT, in satisfaction of the debts due to M/s AIHMC&FT. Insofar as Apollo Computer Education Ltd. was concerned, Shri P. Subramani was holding substantial interest and was also a Director and hence it had also to be considered while deciding whether there was any violation under Section 13(1) of the Act. Assessee also pointed out that in the preceding assessment year 2008-09, for similar reasons, exemption under Sections 11 and 12 was denied to it but on appeal, the CIT(Appeals) had allowed the claim. As per the assessee, the facts for the impugned assessment year were very similar to the preceding assessment.
5 I.T.A. No. 1668/Mds/12
4. Further, as per the assessee, it had entrusted the work of construction of compound wall, sewage and water treatment plant in its campus to M/s AIHMC&FT and part of the payment made to M/s AIHMC&FT during the relevant previous year, was only for settlement of dues on such work. In other words, as per assessee, against the opening balance of ` 3,35,33,535/- due from the assessee to M/s AIHMC&FT, though an amount of ` 1,74,08,000/- was paid during the relevant previous year, out of the latter amount, a sum of ` 1,21,04,162/- was reimbursements for the construction work done through M/s AIHMC&FT. If this was excluded, the closing credit balance due to M/s AIHMC&FT came to ` 2,82,74,697/- and not the sum of ` 1,61,70,535/- shown in the books. When compared with such amount, the payments effected to M/s Apollo Computer Education and M/s Apollo Computer Education Ltd., were less. Though a sum of ` 5,28,20,234/- was paid to M/s Apollo Computer Education Ltd. during the relevant previous year, out of this, ` 51 lakhs was for meeting training expenses of the students studying in the institute of the assessee. Such training was given by M/s Apollo Computer Education Ltd. based on a Memorandum of Understanding. Thus effectively, as per assessee, the closing balance due to M/s Apollo Computer Education and M/s Apollo 6 I.T.A. No. 1668/Mds/12 Computer Education Ltd., as on 31.3.2009, were ` 1,61,03,553/- and ` 89,95,053/- respectively. When set off against the dues of 2,82,74,697/- to M/s AIHMC&FT, it could be seen that there was no loan whatsoever given by the assessee to any interested parties. Thus, argument of the assessee was that there was no reason for invoking Section 13(1) of the Act. Assessee also produced a consolidated account of the three concerns in its books of accounts and argued that the balances shown on any given day was in the negative, viz. amounts were due from the assessee only and never due to the assessee.
5. CIT(Appeals) was appreciative of the contentions of the assessee. In the first place, he noted that in the preceding assessment year, claim of the assessee that the three concerns should be considered together for working out the balnces due to them or due from them, was accepted. Further, as per CIT(Appeals), out of the payments effected by the assessee to M/s AIHMC&FT during the relevant previous year, a sum of ` 1,21,04,162/- was reimbursement of construction expenses and this had to be excluded. Thus, as per CIT(Appeals), the amount due from assessee to M/s AIHMC&FT was ` 2,82,74,697/-. CIT(Appeals) also accepted the 7 I.T.A. No. 1668/Mds/12 contention of the assessee that out of sum of ` 5,28,20,234/- paid by the assessee during the relevant previous year to M/s Apollo Computer Education, ` 51 lakhs was for training done by M/s Apollo Computer Education Ltd. for the students in assessee's institution. Thus, in the opinion of the CIT(Appeals), when the three concerns were considered together and payments effected for other purposes were excluded, then what was paid was considerably less than what was due from the assessee. Therefore, he held that there was no reason for invoking Section 13(1) of the Act. He held the assessee to be eligible for exemption under Sections 11 of the Act.
6. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that in the first place, one of the concerns considered for consolidation was a limited company. According to him, the CIT(Appeals) fell in error in holding that accounts of the limited company could be considered on par with that of proprietorship concerns of Shri P. Subramani, who was Managing Trustee of the assessee. As per learned D.R., M/s AIHMC&FT to which sums were due from assessee, was a proprietorship concern and such sums could not be set off against sums due to the assessee from M/s Apollo Computer Education Ltd., which was a company. 8 I.T.A. No. 1668/Mds/12 Further, as per learned D.R., the facts in the impugned assessment year were different from that of preceding assessment year. In the impugned assessment year, even if the dues from assessee to M/s AIHMC&FT were set off, the books of the assessee itself showed that there was debit balance of ` 1,41,05,523/-. The closing credit balance due from assessee to M/s AIHMC&FT was ` 1,61,70,535/-. Against this, closing debit balance due to the assessee from M/s Apollo Computer Education was 1,61,03,553/- and from M/s Apollo Computer Education Ltd. was ` 1,40,95,053/-. As per learned D.R., in the preceding assessment year, such a set off resulted in a net credit balance only and it was due to such reason that assessee was held to be eligible for exemption under Section 11 by the CIT(Appeals). In the impugned assessment year, according to him, this was not the case and therefore, reliance placed on the order for the preceding year was incorrect.
7. Per contra, learned A.R. submitted that the matter in the preceding year travelled upto this Tribunal in Revenue's appeal in I.T.A. No. 667(Mds)/2012. Placing a copy of order dated 5th September, 2012, learned A.R. submitted that all the three concerns, namely, M/s Apollo Computer Education, M/s Apollo Computer 9 I.T.A. No. 1668/Mds/12 Education Ltd. and M/s AIHMC&FT had to be considered together for the purpose of finding whether any amount was advanced by the assessee to the interested concerns. The Tribunal had upheld the order of CIT(Appeals) in preceding assessment year and held that there was no violation of Section 13(1)(c) of the Act. According to him, during the relevant previous year, out of the sums paid to M/s AIHMC&FT, a sum of ` 1,21,04,162/- was for construction of compound wall, sewage and water treatment plant. Similarly, out of the sums paid to M/s Apollo Computer Education Ltd., a sum of ` 51 lakhs was for conducting training to students of the assessee, by it. The construction of compound wall, sewage and water treatment plant were done during the financial year 2008-09 relevant to impugned assessment year. A Memorandum of Understanding was entered by M/s AIHMC&FT and M/s Murali Builders for such construction on 1.6.2008 and a copy of MOU was produced before the Assessing Officer also. It would clearly show that a sum of ` 1,21,04,162/- was paid by M/s AIHMC&FT to M/s Murali Builders, for and on behalf of assessee-Trust, for the work done by M/s Murali Builders to the assessee-Trust. Similarly, according to learned A.R., there was an MOU entered by M/s Apollo Computer Education Ltd. also for training the students of the assessee. A billing of ` 51 lakhs 10 I.T.A. No. 1668/Mds/12 for the service rendered by the said concern in the month March, 2009 was paid by the assessee on 30.3.2009. Therefore, as per learned A.R., this sum of ` 51 lakhs, out of total payment of ` 5,28,20,234/- effected to M/s Apollo Computer Education Ltd., during the relevant previous year, had to be excluded. These aspects were properly appreciated by ld. CIT(Appeals). CIT(Appeals) gave a clear finding that effectively a sum of ` 31,76,091/- was due from the assessee to the concerns in which Shri P. Subramani was interested, when all such concerns were considered together. Therefore, according to learned A.R., CIT(Appeals) was justified in following his own order for the preceding assessment year and accepting claim of the assessee that it was eligible for exemption under Section 11 of the Act.
8. Ad libitum reply of the learned D.R., relying on the decision of Hon'ble jurisdictional High Court in the case of CIT v. VGP Foundation (262 ITR 187), submitted that where amounts were given to companies, wherein the trustees were also directors, there was contravention of Section 13(1)(d) of the Act.
9. We have perused the orders and heard the rival submissions. There is no doubt that in the preceding assessment year also 11 I.T.A. No. 1668/Mds/12 assessee had transactions with three concerns, namely, M/s AIHMC&FT, M/s Apollo Computer Education and M/s Apollo Computer Education Ltd. There is also no dispute that M/s AIHMC&FT and M/s Apollo Computer Education were the proprietorship concerns of Shri P. Subramani, whereas, M/s Apollo Computer Education Ltd. was a company in which the said Shri P. Subramani was Managing Director and had substantial interest. In the preceding year, the CIT(Appeals) had held that all the three concerns had to be considered together for finding out whether there was any violation of the nature mentioned in Section 13(1) of the Act. This view was upheld by the Tribunal in its order dated 5th September, 2012 in I.T.A. No. 667(Mds)/2012. Hence, all the three concerns had to be considered together for finding out whether there was any violation of Section 13(1) of the Act. No doubt, the question whether a limited company could be considered on par with a proprietorship concern and whether set off of amounts due from a limited company against the amounts due to a proprietorship concern, could be done, were never considered by the Tribunal, nor adjudicated. However, judicial propriety requires us to follow decision of a co-ordinate Bench in letter and spirit. Nevertheless, one aspect that stands out is that in the preceding assessment year 2008-09, 12 I.T.A. No. 1668/Mds/12 when all the three concerns were considered together, there was a closing balance, which was on the credit side. In other words, amounts were only due from assessee and not due to the assessee. However, in the impugned assessment year, the books of the assessee itself show that the closing balance was a debit balance. We are reproducing the summary of the transactions with each of these three concerns, during the previous year relevant to assessment year:-
During the Financial Year 2008-09 Name of the Opening Credits Debits during Closing balance concern balance as on during FY FY 2008-09 as on 01.04.2008 2008-09 31.03.2009 AIHMC&FT 3,35,33,535 Cr 45,000 1,74,08,000 1,61,70,535 Cr Apollo Computer Education 1,00,00,000 Dr 39,85,000 1,00,88,553 1,61,03,553 Dr Apollo Computer Education Ltd. 2,15,32,395 Dr 6,02,57,576 5,28,20,234 1,40,95,053 Dr Total 20,01,140 Cr 6,42,87,576 8,03,16,787 1,40,28,071Dr Other transactions with Apollo Computer Education Ltd. which the A.O. has not noticed 20,63,787 Cr ..... ...... 77,452 Dr Grand Total 40,64,926 Cr 6,42,87,576 8,03,16,787 1,41,05,523 Dr Similarly, summary of the transactions for immediately preceding previous year is also reproduced hereunder:-
During the Financial Year 2007-08 Name of the Opening balance Credits Debits during Closing balance concern as on during FY FY 2007-08 as on 01.04.2007 2007-08 31.03.2008 AIHMC&FT 5,80,07,535 Cr 65,52,000 3,10,26,000 3,35,33,535 Cr Apollo Computer 13 I.T.A. No. 1668/Mds/12 Education 0 0 1,00,00,000 1,00,00,000 Dr Apollo Computer Education Ltd. 51,52,738 Cr 61,69,760 3,28,54,893 2,15,32,395 Dr Total 6,31,60,273 Cr 1,27,21,760 7,38,80,893 20,01,140 Cr Other transactions with Apollo Computer Education Ltd.
which the A.O. has not noticed 0 ..... ..... 20,63,786 Cr Grand Total 6,31,60,273 Cr 1,27,21,760 7,38,80,893 40,64,926 Cr It is very clear from the above that as of end of the relevant previous year, an amount of ` 1,41,05,523/- was due to the assessee, even when all the three concerns were considered together.
10. Now the claim of the assessee is that out of the sum of ` 1,74,08,000/- paid to M/s AIHMC&FT, ` 1,21,04,162/- was for the service rendered by it with regard to construction of compound wall, sewage and water treatment plant. Hence, as per assessee, out of payments of ` 1,74,08,000/- effected to M/s AIHMC&FT, during the relevant previous year, ` 1,21,04,162/- had to be excluded and if so excluded, the closing balance would be ` 2,82,74,697/-. We are unable to accept this contention of the assessee for two reasons. First is that if the assessee wanted to construct a building or compound wall or water treatment plant, there was no necessity for it to route the payments to M/s Murali Builders, the party who 14 I.T.A. No. 1668/Mds/12 eventually constructed these items through M/s AIHMC&FT. Admittedly, M/s AIHMC&FT was an institute running hotel management, catering and fashion technology course and had nothing to do with building construction. Nothing was shown by the assessee as to why and for what purpose the payments to M/s Murali Builders, if at all made for any construction, had to be done through M/s AIHMC&FT and not by itself. What expertise M/s AIHMC&FT had which assessee did not have, for supervising the work of M/s Murali Builders, was never placed on record or shown. In any case, if such payments were indeed effected for construction, then assessee by itself should have in the books of accounts shown so. There was no need for it to show the sum of ` 1,74,08,000/- against the account of M/s AIHMC&FT. It could have charged at least ` 1,21,04,162/- to construction expenses account. The fact is that as on 31.3.2009, the books of the assessee showed a sum of ` 1,61,70,535/- as due to M/s AIHMC&FT. We cannot exclude from ` 1,74,08,000/- paid by the assessee to M/s AIHMC&FT during the relevant previous year, the sum of ` 1,21,04,162/-. The plea of the assessee that the actual balance due from the assessee to M/s AIHMC&FT as on 31.3.2009 was ` 2,82,74,697/-, was simply accepted by the CIT(Appeals) without appreciating the real facts.
15 I.T.A. No. 1668/Mds/12
11. Coming to the payment of ` 51 lakhs to M/s Apollo Computer Education Ltd., it was argued by the assessee that the payment was made for the training rendered for its students. Admittedly, here also assessee had not passed any entry of like nature in its books of accounts. It is only claiming that an amount of ` 51 lakhs was paid for the services rendered by M/s AIHMC&FT in March, 2009. There is nothing on record to show how the sum of ` 51 lakhs was arrived at except for the contention of the assessee that average monthly bill for computer training in the succeeding financial year exceeded ` 50 lakhs. Ld. CIT(Appeals) had simply accepted the contention of the assessee that out of ` 5,28,20,234/- paid by the assessee to M/s Apollo Computer Education Ltd. during the relevant previous year, a sum of ` 51 lakhs had to be excluded as paid for training fees. Assessee having itself not passed any entry of this nature, in our opinion, such contention ought not have been accepted.
12. Treatment of transactions in the books of accounts are prima facie evidence of the nature of such transactions. If an assessee wants to say that payments were for a different purpose than what was shown by it in its account, then the burden of evidence which lies on it is much more rigorous. Except for two Memorandum of 16 I.T.A. No. 1668/Mds/12 Understandings, nothing was brought on record by the assessee. Such Memorandum of Understandings were blindly believed by the CIT(Appeals) without appreciating that these were nothing but self- servicing documents, and not sufficient to dislodge the nature of the transaction recorded by the assessee in its books. Thus, for the impugned assessment year, what we find is that as at the end of the relevant year, even if the three concerns were considered together, a sum of ` 1,41,05,523/- was due to the assessee.
13. A look at Section 13(2)(a) of the Act is necessary at this juncture.
"(a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both....."
Assessee has no case that any interest was received from such parties to which money was lent. There was no security whatsoever given to the assessee. Thus, in our opinion, there was an indirect benefit to Shri P. Subramani, Managing Trustee of the assessee- Trust and this fell clearly within the scope of Section 13(1)(c) of the Act read with Section 13(2)(a) of the Act. Such violation did warrant denial of exemption claimed under Section 11 of the Act. We are, 17 I.T.A. No. 1668/Mds/12 therefore, of the opinion that CIT(Appeals) fell in error in blindly following the order of preceding assessment year and accepting the case of the assessee. We, therefore, set aside the order of CIT(Appeals) and reinstate the order of Assessing Officer.
14. In the result, appeal filed by the Revenue is allowed. Order was pronounced in the Court on Thursday, the 13th of June, 2013, at Chennai.
sd/- sd/-
(V.Durga Rao) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 13th June, 2013.
Kri.
Copy to: Appellant/Respondent/CIT(A)-XII, Chennai-34/
DIT (Exemptions), Chennai/D.R./Guard file