Income Tax Appellate Tribunal - Hyderabad
Smt. P. Narasamma vs Income-Tax Officer on 9 July, 2004
Equivalent citations: [2005]93ITD71(HYD), (2005)94TTJ(HYD)159
ORDER
Deepak R. Shah, Accountant Member
1. This appeal by the assessee is arising out of the order of the learned CIT (Appeals), Guntur, dated 3-3-2003. The assessee has raised the following grounds before us:-
"2. The learned CIT (A) is not justified in upholding the addition made by the Assessing Officer of the amounts of donations received by 'Sri Satya Sai Trust for Learning' to the income declared by the appellant which is contrary to the facts and provisions of law.
3. The learned CIT (A) ought to have seen that the Assessing Officer did not call for the objections of the appellant for the proposed addition."
2. The assessee is the proprietrix of Omega Academic Services (OAS in brief), an educational institution. A survey was conducted at the premises of the institution on 24-8-1999. During the course of survey, certain challans for payment of donations to Sri Satya Sai Trust For Learning were found. The husband of the assessee, Shri P. Janaki Ramulu, who was in charge of administration of OAS, was questioned. He gave details regarding the fees charged for various standards. He also submitted that out of the total fees, 1/3rd of the fee was deposited by the students to Sri Satya Sai Trust For Learning in which he is the Managing Trustee. During the course of assessment, the assessee was asked to furnish names, addresses and other details regarding the donations received by the said Trust. The assessee could file the details only in respect of five students. The Assessing Officer examined the parents of such students. The parents confirmed having paid donations to the Trust. The statement of the assessee was also recorded during the course of assessment proceedings. The assessee submitted that the Trust was set up in 1994, of which her husband and her daughter are life trustees. Her husband is the Managing Trustee and her daughter is the Treasurer. The assessee was also asked as to why the name of the educational institution was appearing on the challans for payment of donations. The assessee submitted that the same was voluntary donation made by the students. She was also questioned as to why the date of admission, the date of payment of fees and the date of donation to the Trust were the same. The assessee replied that while paying the fees, the students made voluntary donations to the Trust. The assessee also filed affidavits of at least 10 parents stating that they had made the donations to the Trust which were not in consideration of educational services rendered by OAS. The AO held that the donations were not genuine, that the students were made to pay the donations as part of the fees and that the students had no alternative but to heed to the dictum of the management of OAS. Since the assessee and her husband had confirmed having charged certain fees, part of which was asked to be deposited in the account of the Trust by way of donation, the same was part and parcel of the income of the assessee, simply diverted to the Trust. He accordingly added the so-called donations to the Trust as income of the assessee by way of fees. The learned CIT (A), after elaborately considering each and every objection of the assessee, held that the so-called donations received by the Trust were income of the assessee. In this process, the learned CIT (A) also rectified an arithmetical mistake on the basis of information supplied by the assessee. The assessee is in further appeal before us.
3. The learned counsel for the assessee, Smt. K. Neeraja, took us through a paper book containing 70 pages. She submitted that the Trust was set up with the blessings of Shri Satya Sai Baba of Puttaparthi. There are four independent Trustees. The Trust is separately registered and is also recognised under Section 12A of the Income-tax Act, 1961. The Trust is filing its separate returns of income and the Trust is also assessed to tax. Since the assessee and the Trust are two different entities, the amount received by the Trust cannot be considered as income of the assessee. The assessee never received any benefit out of either the income of the Trust or the donations to the Trust. All the parents, who were examined by the AO, had confirmed the payment of donations apart from fees. In the affidavits of at least ten parents, they confirmed having paid the donation without any force or undue influence either from the assessee or from any other person. Hence, the payment of donation is not in consideration of educational services rendered by OAS of which the assessee is the proprietrix. The learned counsel further submitted that the funds received by way of donations have been utilized to acquire a large piece of land to set up an educational institution for poor and needy children. Thus, the assessee had not received any benefit out of such donations. Since the donations were made voluntarily, such income cannot be said to have accrued to the assessee first and thereafter applied to the Trust. It can be treated as diversion by overriding title in favour of the Trust. She relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Bijli Cotton Mills Pvt. Ltd., 116 ITR 60. In that case, the facts are as under (as per head note):
"The respondent, a private company carrying on the business of manufacturing and selling yarn, realised certain amounts on account of "Dharmada" from its customers on sales of yarn and cotton, at the rate of 1 anna per bundle of 10 lbs. of yarn and 2 annas per bale of cotton. In the bills issued to the customers these amounts were shown in a separate column headed "Dharmada". The respondent did not credit the amounts so realised by it in its trading account, but maintained a separate account known as the "Dharmada account", in which the realisations on account of Dharmada were credited and payments made thereout were debited. The Tribunal held that the amounts could not be regarded as having been received or held by the respondent under atrust for charitable purposes, the trust being void for vagueness and uncertainty and that the realisations partook of the character of trading receipts. On a reference, the High Court held that the amounts in question were not the respondent's income liable to tax, as the amounts were paid by its customers specifically on account of Dharmada, the amounts were never treated by it as trading receipts or surcharge on the sale price, and that the "Dharmada" was a customary levy prevailing in certain parts of the country and where it was paid by the customers to a trading concern the amount was not paid as a price for the commodity sold to the customer, and that the respondent was merely acting as a conduit pipe of clearing house for passing on the amounts to the objects of charity."
The Hon'ble Supreme Court in that case held as under (as per head note):-
"(i) that when the customers or brokers paid the amounts to the respondent earmarking them for "Dharmada", those payments were validly earmarked for charity: in other words, right from the inception those amounts were received and held by the respondent under an obligation to spend them for charitable purposes only, with the result that those amounts were not its trading receipts;
(ii) that the "Dharmada" amounts could not be regarded as part of the price or a surcharge on the price of goods purchased by the customers: the amount of "Dharmada" was undoubtedly a payment which a customer was required to pay in addition to the price of the goods which he purchased from the respondent, but the purchase of the goods by the customer would be an occasion and not the consideration for the "Dharmada" amount taken from the customer. It was true that without payment of the "Dharmada" amount the customer might not be able to purchase the goods from the respondent but that did not make the payment of "Dharmada" involuntary inasmuch as it was out of his own volition that he purchased yarn or cotton from the respondent. The "Dharmada" amount was, therefore, not a part of the price, but a payment for the specific purpose of being spent on charitable purposes.
Held also, that none of the following facts would lead to the inference that no obligation to utilize the amounts exclusively for charitable purposes could be said to have been created: (a) the compulsory nature of the payment, (b) the fact that the respondent had some discretion as regards the manner in which and the time when the respondent should spend the Dharmada amounts for charitable purposes; or (c) the fact that the respondent did not keep the amounts in a separate bank account."
Applying the same principle, the donations by students to Sri Satya Sai Trust For Learning cannot be considered as part of fees and includible in the income of the assessee.
4. The learned departmental representative, Shri Bhaskara Rao, strongly supported the orders of the authorities below. He brought to our notice the fact that the husband of the assessee, who is managing the affairs of the Trust and who, with the consent of the assessee, has made a statement voluntarily, submitted that the fees ranged between Rs. 2,385 and Rs. 7,425 for VIII class to Inter Senior class and for EAMCET. He also confirmed that one-third of the fees was deposited by the students to the Trust of which he is the Managing Trustee. Thus, the total fee charged by the assessee is fixed and the student is asked to deposit part of the fee in the account of the Trust. The assessee herself issues necessary challan to the student marked as 'OmEGA Academic Services Fee Challan' and after the student submits the copy of the paid challan, the student is admitted. In the light of the above facts, the learned departmental representative submitted that since the donations are not voluntary and since the fees receivable by the assessee were asked to be deposited in the account of the Trust at the behest of the assessee herself, the said income accrues to the assessee first. Thus, the income is rightly included in the hands of the assessee.
5. We have carefully considered the relevant facts, the arguments advanced and the decision relied upon. In the present case, the undisputed fact is that whenever a student is to be admitted to any standard, apart from payment of fees to OAS, the student/parent is required, rather unconditionally forced, to pay the amount to the Trust in the name of donation. OAS has not admitted any student who has not paid such donation. Conversely, no person other than a student has made any donation to the Trust. The so-called Trust has not commenced any of its charitable activities. The Trust has simply acquired certain land on which construction has not commenced. Thus, to say that the parents have made the donations considering the charitable activities carried on by the Trust is only imaginary and an eyewash. The assessee in no unclear terms has agreed that part of the fee itself is asked to be deposited in the account of the Trust. The challan along with which the remittance is paid to the bank on account of donation, clearly shows that OAS has issued the challan. The student is required to submit the copy of such paid challan to the institute for admission. This proves that but for the amount paid to the Trust the student is not admitted to OAS. In effect, this is part and parcel of the total fees payable by a student to the assessee and not voluntary act by way of donation to the Trust. We have also perused the affidavits of the parents. We find that all the affidavits, though signed at different places, are identically worded, on stamp papers sold by a common stamp vendor, attested by a common Advocate, where even the stamp papers are serially numbered. This is the most unusual thing that can ever happen. Thus, the affidavits do not support the case of the assessee that the donation was paid voluntarily; on the other hand, it can be safely inferred that the affidavits are signed at the behest of the assessee and not given by free will or voluntarily. Though the cause of setting up the Trust may be a noble one, yet the means for achieving the end are not pure and sacrosanct. The assessee, in the garb of receiving the fees, diverted the funds to the Trust account. Since the donations are not voluntary, but only a different form of fees, the same are rightly taxed in the hands of the assessee. At the most, it can be said to be an application of fees received by the assessee to the Trust but not voluntary donations made by the students to the Trust.
5.1 The decision of the Hon'ble Supreme Court in the case of Bijli Cotton Mills (supra) will not help the case of the assessee. In the said case, Dharmada paid by the customers is over and above the price of the yarn sold by the assessee to the customers. Hon'ble Supreme Court has given a dear finding that the payments were in fact for charity right from the inception and as per the tradition and practice followed in the line of trade as carried on by that assessee. Dharmada amount collected was handed over to the trust and were utilized for the objects of the trust. In the present case, the payment by the students is by way of fees alone and there is no voluntary act of payment of donation to the trust but something forced upon the students. This cannot be treated as diversion of income, but merely application of income, and hence rightly taxable in the hands of the assessee. The learned CIT (A), while considering the appeal, has covered each and every argument of the assessee and has met all of them in proper perspective. We accordingly confirm the addition.
6. The learned counsel for the assessee submitted that before considering the donations as income of the assessee, the AO did not call for objections of the appellant for the proposed addition. We find that there is no such provision in the Income-tax Act to call for objections of the assessee for a proposed addition. In the present case, the assessment is made under Section 143(3). Before making an assessment under Section 143(3), the AO is required to issue notice under Section 143(2) or under Section 142(1) and call for various details and explanations. While making an assessment under Section 143(3), all that is required is to consider the evidence which the assessee has produced and also consider the material which the AO has gathered while framing the assessment. The AO is required to afford reasonable opportunity of being heard to the assessee, but he is not supposed to call for objections for a proposed addition, unless he is relying on certain extraneous evidence gathered at the back of the assessee. The AO is to hear the assessee only on such material which he has gathered without the knowledge of the assessee, but not in respect of material which the assessee himself has furnished to the AO. If an assessment is made under Section 144, as per proviso to Section 144(1), the AO is required to serve a notice on the assessee to show cause as to why the assessment should not be completed to the best of his judgment. No such provision is found in Section 143(3). Since the assessment in this case was made only on the basis of information furnished by the assessee, the AO was not required to call for objections of the assessee for the proposed addition.
7. In the result, the appeal is dismissed.