Income Tax Appellate Tribunal - Bangalore
M/S Venkatesha Education Society , ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
ITA Nos.90 to 94/Bang/2012
Assessment years : 2005-06 to 2009-10
Shri M.J. Balachander, Vs. Dy.Commissioner of Income
16, 1st Main Road, Vasanth Tax, Central Circle 1 (2),
Nagar, Bangalore Bangalore.
PAN : ADBPM6694A
APPELLANT RESPONDENT
ITA Nos.95 to 99/Bang/2012
Assessment years : 2005-06 to 2009-10
Asst.Commissioner of Income Vs. Shri M.J. Balachander,
Tax, Central Circle 1 (2), 16, 1st Main Road, Vasanth
Bangalore. Nagar, Bangalore
PAN : ADBPM6694A
APPELLANT
RESPONDENT
Assessee by : Shri Vijay Mehta, C.A.
Department by : Shri. Farhad Hussain Qureshi, CIT (DR-
II), ITAT.
ITA Nos.90 to 106/B/12
& CO Nos. 50 to 51/B/12
Page 2 of 37
ITA Nos.100 to 106/Bang/2012
Assessment years : 2003-04 to 2009-2010
The Assistant Commissioner of Vs. M/s. Venkatesha Education
Income Tax, Society,
Central Circle 1(2), 125, Armstrong Road,
Bangalore. Shivaji Nagar,
Bangalore - 560 001.
PAN : AAATV 1990J
APPELLANT RESPONDENT
C.O. Nos. 50 to 51/Bang/2012
(in ITA Nos.100 to 101/Bang/2012)
Assessment years : 2003-04 to 2004-05
M/s. Venkatesha Education Vs. The Assistant Commissioner of
Society, Income Tax,
125, Armstrong Road, Central Circle 1(2),
Shivaji Nagar, Bangalore.
Bangalore - 560 001.
PAN : AAATV 1990J
CROSS OBJECTOR RESPONDENT
Department by : Shri. Farhad Hussain Qureshi, CIT (DR-
II), ITAT.
Assessee by : Balaram R.Rao, Advocate for
Mr.S.Parthasarthi, Advocate.
Date of hearing : 12.12.12
Date of Pronouncement : 21.12.12
ITA Nos.90 to 106/B/12
& CO Nos. 50 to 51/B/12
Page 3 of 37
ORDER
Per Bench:
ITA Nos.90 to 94/Bang/2012 are appeals by the assessee, an individual by name M.J. Balachander [hereinafter referred to as "MJB"].
ITA Nos. 95 to 99/Bang/2012 are appeals by the Revenue. All these appeals are directed against common order dated 15.11.2009 of CIT(Appeals)-VI, Bangalore, relating to A.Y. 2005-06 to 2009-10.
2. ITA nos. 100 to 106/Bang/2012 are appeals by the Revenue in the case of an assessee, M/s. Venkatesha Education Society against the common order dated 14.11.2011 of the CIT(Appeals)-VI, Bangalore relating to A.Ys. 2005-06 to 2009-2010. CO Nos. 50 & 51/Bang/2012 are cross objections by the assessee against the very same order of the CIT(Appeals) relating to A.Ys. 2003-04 to 2004-05.
3. All these appeals have some common issues arising out of the same facts and circumstances. These appeals were heard together. We deem it proper to pass a consolidated order.
4. The facts and circumstances giving rise to these appeals and cross objections are as follows.
5. M/s. Venkatesha Education Society is a society registered under the Mysore Societies Registration Act, 1961, [hereinafter referred to as the "Society"] for the purpose of establishing educational institutions for the benefit of Tamil speaking students of Bangalore. The society runs about 9 institutions like engineering college, medical college, polytechnic, nursing ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 4 of 37 college, D.Ed. and other educational institutions. The society is managed/governed by a Managing Committee. One Mr. M.J. Mohan looked after the affairs of the society in his capacity as Secretary of the Society. One M.J.Balachander, (hereinafter called MJB), brother of the Secretary was appointed by the Society to look after the admission process of the various institutions. MJB had to report to the Secretary in matters relating to admission of students in the various educational institutions run by the Society. MJB was not in the Managing Committee of the society. One Mr. M.J. Ramani is the President of the society and member of the Managing Committee. MJB was the younger blood brother of M.J.Ramani and M.J.Mohan. The other members and office bearers were Dr. Arulmozhi, A.M. Venugopalan, K.C. Venkataramani, S. Govindarajan and B. Swaminathan.
6. MJB was a member of the Governing Council of MVJ College of Engineering, one of the institutions run by the society. As already stated, it is the society which manages all colleges and as Governing Council member, MJB had to act within the authority given to him by the Managing Committee of the society, in particular the Secretary and Correspondent Mr. M.J. Mohan, to whom he had to report on the duties allocated to him.
7. There was a search and seizure operation carried out u/s. 132 of the Income-tax Act, 1961 ("the Act") on 16.09.2008 at the office of the Society and the members of the Managing Committee of the Society and also in the residential premises of Mr. MJB. In the course of search, several documents were found which showed that over and above the normal fee ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 5 of 37 that had to be collected as per law, certain sums had been collected. The excess sum so collected is referred as Extra Tuition Fee (ETF) in the seized documents as well as in the orders of the Assessing Officer and the first appellate authority. There was no seizure of cash in the case of search of the Society or any of its Managing Committee members. In the search conducted in the residential premises of MJB, cash of Rs.1,20,95,900 was found. A statement on oath was recorded by the Authorised Officer conducting the search u/s. 132(4) of the Act. In the statement so recorded, MJB stated that the cash found in his possession was tuition fee collected by the Society and that the same was handed over to him by his brother, M.J. Mohan. The papers found along with the cash contained a narration, "The following amount is handed over to Sri M.J. Balachander Sir". The Authorised Officer was therefore not convinced with the claim of MJB that cash found with MJB was given to him by his brother, M.J. Mohan. He therefore questioned MJB on the aforesaid claim which was as follows:-
"Q.No.4 Some of the paper covers in which cash was found contained the papers put as seized material "A/MJB/1/2008-09. In these papers it has been specifically stated that \'The following amount is handed over to Sri.M.J.Balachander sir". It also contains denomination and value of the cash contained in the cover which matches with the actual value. Under these circumstances how can you say that the amount has been handed over to you by your brother Dr.Mohan?
Ans. My brother Dr.Mohan gave these cash bags and told me to keep it for safe custody till he returned. Probably because he is giving me the cash he must have got my name mentioned in the statement you are referring."
ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 6 of 37 However at the time of assessment, the AO took the stand that the society collected ETF from students seeking admission to the various educational institutions run by the Society. The Society took the stand that ETF was collected by MJB on his own without the knowledge and authority of the Society. MJB in his assessment accepted the stand taken by the Society. MJB also submitted that the entire ETF collected as per the seized document should not be assessed as income because ETF was refunded to students who did not ultimately take admission. MJB also explained that ETF was collected from students who seek admission. Ultimately if they do not opt to join the colleges of the Society, they will be refunded the ETF. MJB claimed that 50% of the ETF was refunded. Therefore, only 50% of the ETF as evidenced by the seized document as having been collected should be assessed as income in his hands.
8. The Assessing Officer held that ETF was received by the Society and assessed it in the hands of the Society substantively. The AO assessed ETF protectively in the hands of MJB. The AO gave reduction in the quantum of ETF only to the extent of evidence produced for having refunded ETF to the students. The CIT(Appeals) held that ETF was to be assessed only in the hands of MJB and not in the hands of the Society. On the quantum of ETF to be assessed, the CIT(A) held that 60% of the ETF collected as per seized document has to be assessed to tax and 40% was held to have been refunded.
ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 7 of 37
9. The major common issue to be decided in all these appeals is as to whether ETF is to be assessed in the hands of the Society or MJB and what is the quantum of ETF that should be assessed to tax. Besides the aforesaid issue, there are certain issues in the appeals of the Society. We will deal with those issues after dealing with the major common issue.
10. There is a delay of about 8 days in filing of appeals by MJB i.e., ITA No.90 to 94/Bang/2012. The reason for the delay is stated to be because of the assessee suffering slip disc and confined to bed as per medical advise. The certificate of the Medical Practitioner has been filed in support of the assessee's claim. The delay in filing the appeal is not inordinate or deliberate and the reason given for the delay in our view would be sufficient cause for not filling the appeals within time. We therefore condone the delay in filing these appeals.
11. On the aforesaid facts, the issue for consideration before us is as follows:-
Whether ETF has to be assessed in the hands of the Society or in the hands of Mr. MJB? What is the quantum of EFT that has to be taxed, whether the entire receipt in the form of ETF or whether any deduction has to be allowed on account of refund of ETF?
12. After the search, the Assessing Officer issued notice u/s. 153A of the Act for A.Ys. 2003-04 to 2009-10. As per the provisions of section 153A of the Act, where a search u/s. 132 of the Act is carried out in the case of a person, then the AO has to make assessment for 6 years immediately preceding the date of search. Accordingly notice u/s. 153A of ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 8 of 37 the Act was issued to the Society. The Society had filed a NIL return of income for all the assessment years as aforesaid. According to the Society, its income as per its Income & Expenditure Account was not chargeable to tax as it was carrying on charitable activity of providing education and therefore entitled to the benefits of section 11 of the Act. As far as the ETF is concerned, the Society submitted that it was collected by MJB for himself without any authority or knowledge of the Society.
13. As far as MJB is concerned, he did not declare ETF in the original return of income filed in response to notice u/s. 153A of the Act. MJB filed a revised return of income in which he declared ETF as evidenced and as contained in the seized documents. He however claimed that 50% of the ETF collected had been refunded. Thus 50% of the ETF as per seized document was offered to tax by MJB. The claim in this regard was made by MJB vide letter dated 22.11.2010 addressed to the AO.
14. In the assessment of the society, the Assessing Officer referred to the statement of Dr. R.M.O. Gemson, Principal of MVJ College of Engineering recorded on the date of search. This statement is general and refers to the fact that there were two types of admission viz., (a) through CET (Common Entrance Test) which is Government allotment, and (b) Management Quota. The AO then referred to the statement of Dr. Rajeshwari, Dean of MVJ College & Research Hospital, recorded at the time of search. In this statement, she had referred to the fact that 75 out of 100 seats are to be filled up through Karnataka Religious Linguistic Minority Professional Colleges Association (KRPLMPCA) through conduct of ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 9 of 37 entrance exams. The AO then referred to the statement of M.S. Shanti, Guest Relations Executive. She in her statement had mentioned that apart from Tuition Fee, Extra Tuition Fee (capitation fee) was also collected ranging between Rs.25,000 to Rs.One lakh, depending on the branches for which admission was sought. Another statement recorded was that of Mr. Nagaraja Shetty, Office Superintendent of MVJ Medical College and Research Centre, Hoskote. He was asked about how NRI quotas are filled. He firstly mentioned that when anybody approaches him for admission, he directs them to Sri M.J. Ramani, President of the Society. A document viz., Pg. 57 of 8/MVJ/08-09 found at the time of search was confronted to him and he admitted that the contents of this document were in his handwriting. He also explained the contents by saying that when NRI students do not appear for entrance test and seek admission, Rs.26 lakhs would be collected from them over and above the regular fee. If NRI quota is not filled up and the same is later filled through COMED-K, Rs.24 lakhs is collected over and above the regular fee. When a seat is not filled up through KRLMPCA quota and that seat is given to others then Rs.19 lakhs is collected over and above the regular fee. The AO also referred to the statement of Mr. MJB at the time of search, wherein he had mentioned that cash of Rs.1.2 crores found at his residence was given to him by Mr. M.J. Mohan.
15. After referring to the above statements, the AO held that the plea of the assessee that ETF was collected by MJB on his own without knowledge and authority of the Society cannot be accepted and that ETF was collected only by the Society. The AO also referred to seized ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 10 of 37 documents pertaining to each assessment year and concluded that the society collected ETF. He gave credit for refund of ETF to the extent evidence was produced by the assessee. Thus ETF was substantively brought to tax in the hands of the Society.
16. In the assessment order of MVJ, the AO held that ETF was collected by the Society, but the ETF was brought to tax in the hands of MJB on a protective basis.
17. The following chart will show the ETF collected and brought to tax, after allowing deduction on account of refund of ETF.
A.Y. ETF ETF ETF assessed ETF
Collected considered admitted by
as refunded MJB
2005-06 1,53,08,600 NIL 1,53,08,600 77,51,078
2006-07 4,24,81,400 1,30,000 4,23,51,400 2,15,09,926
2007-08 5,00,80,500 2,75,000 4,98,05,500 2,53,56,850
2008-09 2,12,91,700 16,65,000 1,96,26,700 1,07,80,452
2009-10 7,53,71,119 16,50,000 7,37,21,119 3,81,02,861
TOTAL 20,45,53,319 37,20,000 20,08,13,319 10,35,00501
18. In the assessment of the Society, apart from making addition of ETF on a substantive basis, the AO also brought to tax income as per Income & Expenditure account on the ground that registration granted to the society u/s. 12A had been withdrawn. But this ground no longer survives because the CIT in an order dated 17.02.2011 granted registration to the Society u/s. 12A of the Act, observing as follows:-
"1. M/s Venkatesha Education Society had preferred an application on 01.01.2002 seeking registration u/s 12A of the IT Act which was rejected vide order dated 26.07.2002 of the DIT(Exemptions) u/s 12AA(1)(b)(ii). On appeal before the ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 11 of 37 Tribunal, the Tribunal vide its order dated 28.11.2003 allowed the appeal of the assessee and therefore in obedience of the order of the ITAT, effect was given to the order dated 28.11.2003 and Registration u/s 12AA(1)(b)(i) was granted to M/s Venkatesha Education Society w.e.f. 01.01.1999 as a Public Charitable Trust u/s 12AA(1)(b)(i).
2. Against the said order of the ITAT, the revenue preferred an appeal u/s 260A in ITA No.223/2004 and the Hon'ble High Court of Karnataka vide its order dated 31.05.2010 set aside the order dated 28.11.2003 in ITA No. 1209/Bang/2002 passed by the Income Tax Appellate Tribunal, Bangalore Bench, remitting back the matter of the Appellate Tribunal for fresh consideration. Consequent to the order of the Hon'ble High Court of Karnataka, Bangalore in ITA No.223/2004, the registration granted vide order dated 12.12.2005 was withdrawn vide order dated 29.10.2010 of the Commissioner of Income Tax, Karnataka (Central), Bangalore.
3. The Hon'ble ITAT vide its order dated 28.01.2011 has allowed the assessee's appeal and has directed to grant registration u/s 12A of I T Act. In the light of the said order, Registration is granted u/s 12AA(1)(b)(i) of the Income Tax Act, w.e.f. 01.04.1999.
4. The registration u/s 12AA(1)(b)(i) of the I T Act, does not automatically exempt the income of the Trust/Institution. The question of taxability of the income of the Trust/Institution shall be examined and decided upon by the Assessing Officer (A.O.) based on the conduct of the activities, compliance with various statutory and other requirements etc., without prejudice to the fact of granting mere in Principle Registration by this Order.
5. The registration u/s 12AA(1)(b)(i) of the I T Act , does not automatically confer any exemption or deduction u/s 80G to the donors."
Based on this Order, the A.O. has passed consequential orders for all these years starting from A.Y. 2003-04 to 2009-10. Accordingly, the issue of allowing exemption u/s 11 becomes redundant and the appellant should not have any grouse on this issue."
Thus the stand of the revenue in denying the benefits of Sec.11 of the Act on the ground that the Society does not enjoy registration u/s.12A of ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 12 of 37 the Act, no longer survives and cannot be the basis to deny the benefits of Sec.11 of the Act to the Society.
19. The Society as well as MJB filed appeals against the order of assessment. The CIT(A) on the issue, whether ETF has to be assessed in the hands of the Society or MJB, held that ETF has to be taxed in the hands of MJB. The CIT(A) held that agreed with the stand of the Society that the whole process of admission was being carried out by MJB and the task of admission was delegated to him by the society and that the role of the managing committee of the Society was to administer the functioning of the colleges. The CIT(A) agreed with the stand of the Society once the powers are delegated to the various personnel there was no direct involvement of the managing committee. The CIT(A) also agreed with the stand taken by the society that to regulate the admission process, MJB was appointed and allowed autonomy to carry out functions related to admission and he regulated and closely controlled the admission process using the Head Office of the Society. The CIT(A) found that MJB was not member of the Society and that he had great influence over the administrative staff and hence his actions could not have been questioned by any of the administrative staff. The CIT(A) also held that none of the seized material establishes the involvement of the society in collection of ETF and that the collection of ETF has not been authorized by the trustees/members vide any resolution passed by them. The involvement of the society or any of the trustees/members has not been proved with the help of any documentary evidence. The CIT(A) also found that MJB has come forward and accepted that he was responsible for collecting ETF and ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 13 of 37 filed return of income accepting the ETF as received by him. Even some of the affidavits of students who affirmed that they had got refund of ETF, confirmed that the ETF was collected by MJB. In this regard the CIT(A) also found that these affidavits of the students have been accepted by the Assessing Officer as true and correct and reduction on account of refund of ETF receipt has been allowed by the Assessing Officer to a certain extent ( 37,20,000/- for all the five years) in the Assessment Order. The CIT(A) was of the view that the Assessing Officer having accepted such affidavits, cannot hold that the ETF was not received by MJB and that it was the society which received ETF. The CIT(A) also noticed the circumstance that cash bag containing Rs. 1.20 crore found during the course of search was containing a slip stating that the amount was handed over to Sri M J Balachander. He held that the direct evidence found during the course of search leads to the conclusion that the ETF was collected by MJB. With regard to the statement of MJB at the time of search in his premises which was to the effect that the cash bags were given by his brother, Dr. Mohan, the CIT(A) was of the view that MJB Vide letter dated 22.11.2010, had clarified to the Assessing Officer that the society or any of its members had never directed Sri M J Balachander to collect ETF and as such, they were not involved in collection of ETF. It was further stated by MJB that the ETF was collected solely at his discretion. The CIT(A) was therefore satisfied that the statement of MJB at the time of search on 16.09.2008 has been duly explained. Another reason given by CIT(A) for coming to the conclusion that ETF was collected by MJB and not by the Society was the circumstance that during the course of search, Sri M J Balachander was ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 14 of 37 found to be in possession of cash of Rs. 1,20,95,900/- and also certain bullion, etc. The Assessing Officer in the assessment of MJB held that all these assets found in the course of search belong to MJB and they were not accounted for by him in his books of accounts. However, the Assessing Officer did not made any addition on account of other assets found at the time of search of MJB for the reason that source of funds of the unexplained assets found at the time of search was ETF collected by MJB and that the value of the assets found was less than the ETF collected by MJB. This circumstance according to the CIT(A) also supported the view that ETF were collected by MJB.
20. On the issue of quantum of ETF claimed to have been refunded by MJB and the amount of ETF that has to be brought to tax in the hands of MJB, the CIT(A) firstly examined the question whether ETF was refundable in nature. On the above question, the CIT(A) found that out of the total additions pertaining to the ETF in five years put together amounting to Q 20,44,15,447/-, the A.O. had allowed refunds amounting to Q 37,20,000/- and the break-up for the five years were as under:-
A.Y. ETF ETF ETF assessed ETF
Collected considered admitted by
as refunded MJB
2005-06 1,53,08,600 NIL 1,53,08,600 77,51,078
2006-07 4,24,81,400 1,30,000 4,23,51,400 2,15,09,926
2007-08 5,00,80,500 2,75,000 4,98,05,500 2,53,56,850
2008-09 2,12,91,700 16,65,000 1,96,26,700 1,07,80,452
2009-10 7,53,71,119 16,50,000 7,37,21,119 3,81,02,861
TOTAL 20,45,53,319 37,20,000 20,08,13,319 10,35,00501
ITA Nos.90 to 106/B/12
& CO Nos. 50 to 51/B/12
Page 15 of 37
The CIT(A) accepted the plea that there were circumstances in which students leave the college in the middle of the course, viz.,
(i) When they get admission in a much better college, they forego the amount paid and join the other colleges.
(ii) When they fail to clear specific number of papers and when carry over to the next year is not allowed, which results in their seat remaining vacant.
(iii) When bright students take exams of IIT's, NTT's and clear it, they leave the college mid course, even if they have completed one or two semesters.
It is because of the above reasons that ETF on the basis of past experience was being collected by MJB. ETF was to be refunded to the students when it becomes fairly certain that they will continue their studies in the colleges of the Society or when they leave the college and take admission elsewhere. This way the society will have a track of the seats that can be further filled up by admission of other students in place of students who have taken admission but left the college. In view of the above circumstances, the CIT(A) held that ETF was refundable but some amount had been retained by MJB which has resulted in unaccounted income of MJB. In view of the same, the stand of MJB that entire ETF was refundable was held to be not acceptable and only a portion of it was held to be spent/refunded.
ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 16 of 37
21. On the issue whether the entire ETF has to be taxed in the hands of MJB or whether only a part thereof has to be taxed, the CIT(A) found that MJB on his own has offered 50% of the ETF collected and evidenced by seized documents viz., Q 10,35,00,500/- has accepted as his income out of gross collections of Q 20,45,33,319/-. The CIT(A) also found that the A.O. himself has accepted Q 37,20,000/- as refunded for the five years by MJB. He was of the view that MJB could not furnish the entire details of ETF refunded and expenses incurred. Nevertheless the CIT(A) was of the view that the entire ETF collections cannot be brought to tax as income of MJB. Before CIT(A) MJB filed further affidavits from students to the effect that ETF was refunded by MJB to him. The value of ETF so refunded for the entire period in dispute was Rs.2 Crore. The CIT(A) noticed that though ETF collected over the years was Q 20,44,15,447/-, no such corresponding cash or investment have been found by the department during the course of search. This according to him clearly showed that the amount of ETF as estimated by the Assessing Officer was never available in the possession of MJB since most of the amount was already refunded to the respective students. The CIT(A) noticed that MJB had on his own offered to tax as income to buy peace, 50% of the ETF collected in the respective years. Taking into consideration the above circumstances, the CIT(A) was of ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 17 of 37 the view that taxing the entire amount of ETF would not be correct. Since there was no direct evidence of what was the quantum of ETF refunded, the CIT(A) held that the quantum of ETF receipt not refunded was required to be estimated considering the totality of the facts and circumstances. He found that MJB that the total assets found during the course of search of MJB was 9% of the total ETF collections. As against that, he himself has offered 50% of ETF amount for the purpose of taxation. Considering the facts of the case in totality and absence of any commensurate asset, the CIT(A) held that 60% of the year wise gross ETF receipts should be taxed in the hands of MJB and that would meet the ends of justice. Accordingly, 60% of the ETF was directed to be taxed year wise in the hands of MJB by reducing 40% of the ETF towards refunded amount and expenses.
22. Aggrieved by the order of the CIT(A) holding that (i) ETF has to be assessed in the hands of MJB on substantive basis and (ii) only 60% of the ETF collected has to be assessed in the hands of MJB, the Revenue has filed appeals in the case of MJB which are ITA Nos.95 to 99/Bang/2012 for the A.Y. 2005-06 to 2009-10.
23. Aggrieved by the order CIT(A) holding that 60% of ETF is to be taxed in the hands of MJB as against MJB's claim that only 50% of ETF is to be taxed, MJB has filed appeals for AY 2005-06 to 2009-10 which are ITA Nos.90 to 94/Bang/2012.
ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 18 of 37
24. We have heard the submissions of the ld. DR. The ld. counsel representing MJB and the ld. counsel representing the Society. We also had the benefit of looking into the documents seized at the time of search, based on which the AO made substantive assessment in the hands of the society.
25. The ld. DR submitted that it was the society that was collecting ETF and in this regard referred to the seized documents. It was submitted that it was purely an afterthought on the part of the Society to disown collection of ETF and attribute the same to have been collected by MJB, who is not a member of the Committee of the Society. According to him, the plea has been taken only for the purpose of avoiding the consequences of being derecognized by the State Government for having taken capitation fee. In this regard, he also submitted that the society has apparently taken no action against MJB and this circumstance by itself goes to show that the plea of the Society cannot be accepted.
26. The ld. DR referred to seized document A/15/MVJCB relevant to AY 2005-06 wherein a comprehensive break-up of the ETF and normal Tuition Fee has been given. According to him, such details would not be maintained if MJB was collecting ETF without the knowledge and consent of the Society. He also drew our attention to seized document A/14/MVJE (page 54 and page 99 of A/18/MVJE) which refers to the fact that ETF collected in cash was deposited in the H.O. i.e., the society through different persons of the Society viz., Ms. Kavitha Prasad, Mohan - Secretary of the Society, Indira and others. The documents are relevant to ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 19 of 37 AY 2006-07 & 2007-08. According to him, these documents which are relevant for AY 2006-07 also goes to show that it was the Society which was collecting and appropriating ETF. The ld. DR drew our attention to the statement of MJB at the time of search wherein he had stated that Mr. Mohan had given cash found at the time of search and that the same was tuition fee collected from students. A reference was also made to A/14/MVJB (page 56) relevant to AY 2006-07, wherein the fact that ETF collected was deposited in the Head office i.e., the Society has been mentioned. It was pointed out in some of the seized documents there was a reference to the Secretary depositing ETF in the Head Office. It was submitted that this circumstance also goes to show that the Secretary was aware of the collection of ETF and that ETF was in fact collected by the Society.
27. The other reasons given by the AO were reiterated by the ld. DR. It was submitted that the act of collecting capitation fee by the Society would only show that it did not exist for a charitable purpose and therefore the benefit of exemption u/s. 11 of the Act should also be denied to the Society. It was also argued that acts done by a servant in the course of performing his duties binds the Master. It was argued that MJB, an employee collecting ETF, even if held to be true, will bind the Master viz., the Society and therefore ETF is deemed to have been collected by the Society.
28. The ld. counsel for the assessee i.e., MJB, submitted that the society delegated powers of admission to MJB. MJB was the brother of the President of the Society and therefore the staff members did not doubt ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 20 of 37 or question his actions. It was further submitted that none of the seized material shows that ETF was collected by the Society. It was submitted that the involvement of the Members of the Managing Committee of the Society has not been established by the revenue nor do the seized documents show that there was any involvement by the Members of the Managing Committee of the Society. It was submitted that MJB on his own came forward and accepted that he had collected the ETF. It was also submitted that MJB was able to get affidavits that ETF were refunded by him to the tune of Rs.37.20 lakhs. It was pointed out that the factum of MJB having refunded the ETF to some of the students has not been disputed by the Assessing Officer and the AO has given due credit to those refunds and has excluded while taxing ETF, the amounts refunded by MJB. It was submitted that at the time of search in residential premises of MJB, cash of Rs.1.20 crores was found from his possession. It was submitted that this fact goes to show that it was MJB who was collecting the ETF. It was submitted that in the statement recorded u/s. 132(4) of the Act, the assessee had stated that cash of Rs.1.20 crores was handed over by Mr. Mohan to him. On this aspect, the ld. counsel submitted that in course of assessment proceedings, the assessee addressed a letter dated 22.11.2010 to the AO in which he had explained that the entire ETF was collected by him without authority of the Managing Committee of the Society. It was pointed out that MJB confessed having taken the liberty of collecting the ETF on his own, without the knowledge and directions of the Managing Committee of the Society. Another circumstance pointed out by the ld. counsel for MJB was the fact that along with the cash of Rs.1.20 ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 21 of 37 crores found at the time of search at MJB's residence, there was a paper containing the words "handed over to Balachander Sir". Referring to the aforesaid document, the ld. counsel for MJB submitted that if the cash had been given by the assessee's elder brother Mr. Mohan, then the description in the loose paper found along with the cash could not read as "cash given to M.J. Balachander Sir".
29. With regard to the quantum of ETF refunded by MJB, the ld. counsel for the assessee submitted that it was not possible for MJB to get confirmation from all the students to whom he had refunded the ETF. Our attention was drawn to the letter dated 22.11.2010 filed before the AO in which the assessee has explained that the confirmations produced in the form of affidavits of some of the students should be accepted and that the assessee will make all endeavour to get such affidavits from the other students who were also refunded the ETF. It was pointed out that taking into consideration the difficulties in procuring the affidavits from students to whom ETF was refunded; the assessee voluntarily offered 50% of ETF for taxation. It was argued that such disclosure was sufficient to take care of any income arising out of ETF and no further addition is required in respect of ETF. In this regard, the ld. counsel for the assessee also pointed that out of the total ETF as per the seized material of about Q 120 crores, Q 1.2 crores was found in the form of cash at the time of search. Apart from the above, bullion worth Q 24,20,000 was found. MJB also owned cash of Q 41,43,808 found in the office at the time of search. Thus, the total assets that were found at the time of search which can be attributed to the ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 22 of 37 ownership of MJB was only worth Q1,86,60,000. Thus, there was surplus of Q 18.57 crores out of the ETF which was available at the hands of MJB. It was submitted that the assets found at the time of search was 9% of the total collections in the form of ETF by MJB. According to the ld. counsel for the assessee, this circumstance would also go to show that MJB would have refunded 50% of the ETF.
30. The ld. counsel for the Society relied on the order of the CIT(Appeals) and in all other respects reiterated the stand as was taken by MJB. In particular, it was submitted that none of the seized documents show that ETF collected was the collection authorized by the Society. On the other hand, the fact that MJB accepted that he had collected ETF on his own without any authority by the Committee of the Society only goes to show that the Society has nothing to do with the ETF said to have been collected by MJB. It was submitted that the AO's observation that acts of the employees will be binding on the master, cannot be applied to the facts of the present case for the reason that MJB was never authorized to collect the ETF. The authority to collect ETF should have been given by the Society, it is only then that it can be said that the acts of the employee will bind the principal. It was submitted that anything done by the employee beyond the scope of the powers given to him will not bind the Society.
31. We have given a very careful consideration to the rival submissions. For deciding the controversy as to whether the ETF has to be assessed in the hands of the Society or in the hands of MJB, it is necessary to have a ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 23 of 37 look at the seized documents. In the A.Y. 2005-06, the AO for making the addition on account of ETF has placed reliance on A/15/MVJCE, pages 37 to 39 of the seized documents. Page 39 is a letter written by one Kavitha Prasad in which Kavitha Prasad has mentioned that she is giving the details of admissions done in the college for the academic year 2004-05. She has also mentioned that the total collections in cash and DD was a sum of Q 3,18,39,540. The details of the DDs deposited in Bank and cash deposited in the Head Office are also given in the said letter. It is very important to note that this letter is addressed to MJB (pages 37 and 38 of the seized documents) and gives a break-up of a sum of Q 3,18,39,540 referred to by Kavitha Prasad in the letter. It is pertinent to mention that the break-up given along with this letter is in the form of a table in which the bi- furcation of the sums which are received by cash and which are received by DD are given. Further, the agreed tuition fee and agreed Extra Tuition Fee (ETF) is also given in this table. The table also gives the ETF that has already been collected and the amount due to be collected from the students on account of ETF. In pages 37 as well as page 35 of the seized papers, there is a reference to cash having been deposited in the Head Office. It is not clear as to how a reference to cash having been deposited in the Head Office should be treated as funds collected by the Society. In this regard, we find that the author of the letter viz., Kavitha Prasad has not been examined by the AO to prove the fact that cash deposited in Head Office means that the cash has been deposited with the society. On the other hand, the fact that this letter is addressed to MJB only goes to show ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 24 of 37 that the money in question was given to MJB. Further the sheet annexed with page 35 of A/15/MVJCE is an abstract of fees collected and deposited after cancellations. This has a heading 'MVJ College of Engineering'. It is not in doubt or dispute that MJB was the person managing the affairs of MVJ Engineering College. It can thus be safely said that the involvement of the society in the collection of ETF on the basis of the seized material A/15/MVJCE (pages 37, 38 & 39) has not been fully established. In these circumstances, we are left with no other option, but to accept the plea put forth by MJB that he was collecting the ETF without the knowledge of the society. In this regard, we also find that in the statement recorded u/s. 132(4) of the Act that MJB initially claimed that the sum of Q 1.2 crores found in his residence was given to him by his brother, M.J. Mohan. This statement of MJB goes contrary to the loose sheets found along with the cash in which the description is "cash given to M.J. Balachander Sir". As rightly contended on behalf of the Society, if the money was given by M.J. Mohan to MJB, then the description could not have been "M.J. Balachander Sir". Mr. Mohan happens to be elder brother of MJB and it is not possible that the description in the loose sheet found along with the cash would be "M.J. Balachander Sir". The description only suggests that cash has been handed over by some of the staff members of the college. As already stated, there is nothing to suggest that ETF as reflected in the seized documents referred to be the AO in order of assessment for the A.Y. 2005- 06 has any connection with the society.
ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 25 of 37
32. As far as A.Y. 2006-07 is concerned, the AO while making the addition on account of ETF in the hands of the Society has placed reliance on the seized documents A/14/MVJCE (pages 50 to 56). Page 56 of the seized documents is a letter written by one Indira Devi to MJB. This letter again gives a break-up of the collections in cash as well as in DD. In this letter also, there is a reference to cash deposited in the Head Office as in that A.Y. 2005-06. This seized document also gives a break-up of the agreed tuition fee and the Extra Tuition Fee (ETF) and also the balance to be collected. Apart from the above, page 54 of the seized documents also gives the details of the deposit of cash in the Head Office through whom. E.g., on 25.05.2005, cash deposited in the Head Office is stated to be in a sum of Q 5,69,000 and that the same has been deposited in the Head Office through Ms. Kavitha Prasad. In this description, which has a total of about 29 different dates, there is a reference to the "cash having been deposited in the Head Office through Secretary Sir", on three instances i.e., on 02.06.05, 08.09.05 and 19.10.05.
33. Based on the above entries in the seized documents, the ld. DR contended before us that the Secretary's involvement in the collection of cash and deposited in the Head Office is proved by the seized documents. In this regard, the ld. counsel for the assessee brought to our notice that the agreed tuition fee which the Society can collect for admission has also been collected and this is duly reflected in the statement found in the seized documents. It was submitted that the total collections in the form of DD was a sum of Q 1,16,74,975 and the amount stated to have been ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 26 of 37 deposited by the Secretary in the Head Office is only a sum of Q 80,000 on 02.06.2005 and Q 14,33,500 on 19.10.05. It was submitted that the reference in the seized document might be with regard to the normal tuition fee which the society can collect. It was submitted that the entries in page 54 cannot be conclusive to show that the Secretary was also involved in collecting the ETF. We are of the view that the submissions made on behalf of the assessee in this regard appear to be convincing. In this regard, we also find that Indira Devi, who is stated to have written letter dated 08.12.07, has not been examined by the Assessing Officer. In those circumstances, it cannot be said that the seized document on which the AO has placed reliance conclusively proves that it was only the Society which received the ETF. On the other hand, the circumstances pointed out by the Society only go to show that it was MJB who was collecting ETF without the knowledge and authority of the Society.
34. As far as A.Y. 2007-08 is concerned, the Assessing Officer while making the addition in the hands of the Society, has placed reliance on the seized document A/18/MVJCE (pages 101 to 107). Page 101 is a letter written by Indira Devi to MJB and this letter is almost on identical lines which we have discussed in A.Y. 2006-07. This letter has as its annexure the break-up of the amounts referred to in the letter at page 101 of the seized documents. This letter also has a description that 4 payments had been made to the Head Office through the Secretary. In this regard, as we have already observed while dealing with the case of the Society for the A.Y. 2006-07, that the legitimate tuition fee which the Society can collect ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 27 of 37 and which has been collected is to the tune of Q 5,26,63,500. The amount stated to have been deposited in the Head Office through the Secretary is a sum of Q 35,53,000 on 24.06.2006, a sum of Q 49,21,000 on 01.07.2006, a sum of Q 66,67,600 on 15.07.2006 and another sum of Q 51,11,500 on 19.07.2006. Thus, the total amounts referred to in this loose sheet viz., page 99 is less than the legitimate tuition fee which the Society can collect and which has been collected by the Society. In these circumstances, no adverse inference can be drawn on the basis of entries referred to by the ld. DR in the course of arguments before us.
35. As far as A.Y. 2008-09 is concerned, the AO has placed reliance on the seized material A/VES/01 (pages 60 to 72 & 74). We have seen the seized papers and we find that this seized paper only gives a list of clients (students) and the quantum of tuition fee and ETF. There is no other indication in these seized documents that the Society has received any payment on account of ETF.
36. As regards A.Y. 2009-10, the seized documents are pages 1 to 96 and 113 to 116 of A/8/MVJCE and pages 247, 250, 272, 276, 280, 284, 286 and 387 of the seized material A/3/MVJCE. We have seen pages 37 to 41 of these seized papers as well as page 25. In all these papers, the recipient of the cash given is MJB. In fact, the loose papers contain a description "following amount handed over to Sri M.J. Balachander Sir". As already discussed in the earlier part of this order, the description "M.J. ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 28 of 37 Balachander Sir" can only be by an employee under MJB and the same cannot be attributed as 'knowledge' or 'consent' of the Society.
37. It can thus be seen that none of the seized documents suggest that the monies were collected by MJB on the authority and consent of the Society. On the other hand, the circumstances clearly point out that MJB was collecting ETF on his own without any authority or consent of the Society. In this regard, we also find that the assertion made by MJB in the course of assessment proceedings has simply been denied (by the AO) without any further probe or investigation. We are therefore of the view that the conclusions of the CIT(Appeals) that ETF was collected by Balachander on his own and that the Society has nothing to do with ETF collections is correct and does not call for interference.
38. We shall now take up the question as to the quantum of ETF, whether the entire ETF as found in the seized material has to be brought to tax or it is only 60% as determined by the CIT(Appeals) that has to be brought to tax, or should 50% of ETF be brought to tax as claimed by the assessee.
39. In this regard, we find that the fact that the ETF is refundable in nature is not disputed by the revenue. The revenue's contention is that the assessee has not given any proof that ETF was refunded to the students. In this regard, the claim of the assessee is that it was not possible to trace the students who had taken refund of the ETF, since between the date of search and the period when the amounts were refunded sufficient time had elapsed. It is because of this handicap that the assessee voluntarily with a ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 29 of 37 view to buy peace has offered 50% of the ETF to tax on the presumption that 50% of the ETF had been refunded to the students.
40. As to what is the quantum of ETF that was refunded by the assessee to the students, there is no direct evidence available on the record. In these circumstances, one has to make an estimate of the sum that would have been refunded by MJB to the students. The circumstance pointed out by MJB, is that at time of search only 9% of the total ETF collections were found in the form of assets from the possession of MJB. This according to MJB, it will only go to show that he was not holding the entire ETF and he had refunded substantial potion of the ETF. This circumstance, in our view, will be a factor which will be relevant in deciding as to what will be the quantum of ETF that can be considered as having been refunded by MJB. It has been the argument of the ld. counsel for MJB that the circumstances pointed out by the assessee should be accepted and only 50% of ETF offered to tax should be accepted as sufficient.
41. We have considered the claim of the assessee with reference to the refund of ETF and also the reasons given by the CIT(Appeals) for estimating the ETF that has to be brought to tax @ 60% of the total collections of ETF by MJB. We are of the view that there is no basis whatsoever for the CIT(Appeals) to have estimated the ETF @ 40% as refunded by MJB to the students. In this regard, we have to go only by the probabilities of the case. We are of the opinion that the AO having accepted that ETF is refundable and going by the prevailing practice that ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 30 of 37 when a student does not avail of admission to the college, the same has to be refunded, it would be just and fair to resort to an estimate. No doubt the CIT(Appeals) has no basis for estimating the ETF refunded at 40%. Thus, we are of the view that it would be just and fair, if 45% of ETF collected has been refunded. Thus, this ground of appeal of the assessee is partly allowed.
42. The claim of the revenue that the entire ETF has to be brought to tax cannot be accepted for the reason that ETF by its nature is refundable and it is common practice that students who do not get admission, seek refund of ETF. We therefore reject the grounds of appeal of the revenue in this regard and partly allow the grounds of appeal raised by the assessee.
43. We also find that the AO assessing the Society has denied exemption u/s. 12 on the ground that the Society was collecting capitation fee. Since we have found that the Society was not collecting ETF, the benefit of section 11 of the Act should not be denied to the assessee Society. We therefore hold that the Society would be entitled to benefit of section 11.
44. In conclusion on the issues, we hold that it is only MJB who was collecting ETF and not the Society. We also hold that ETF to the extent of 55% of the total collections of ETF as evidenced by the seized documents should be brought to tax in the hands of MJB on a substantive basis. The additions made in the hands of Society is directed to be deleted. It is also held that the benefit of section 11 of the Act cannot be denied to the Society as there are no circumstances justifying the denial of benefits of ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 31 of 37 section 11 of the Act to the Society. Accordingly, the grounds of appeal of the revenue in the case of the Society and MJB are dismissed, while the grounds of appeal of the assessee in the case of MJB are partly accepted.
45. In the revenue's appeal being ITA Nos.100 to 106/Bang/2012, another issue has been raised by the revenue. This issue is with regard to disallowance of depreciation. The assessee-society claimed depreciation on assets used for the purpose of business. According to the revenue, the amount spent for acquisition of the assets had already been considered as an application of income and the assessee had the benefit of section 11 of the Act in respect of such application of income. It is the case of the revenue that when the entire investment in acquiring the asset has been treated as an application of income, depreciation on the very same assets should not be allowed and if it is so allowed that would be conferring a double benefit to the charitable organization. The revenue in coming to the aforesaid conclusion, has placed reliance on the decision of the Hon'ble Kerala High Court in the case of Lissee Medical Institutions v. CIT, 348 ITR 344 (Ker). In the aforesaid decision, the Hon'ble Kerala High Court took the view that when the full value of capital expenditure on acquisition of assets is treated as application of income for charitable purposes and when the assessee has been allowed the benefit of exemption u/s. 11, the assessee cannot again claim the same in the form of depreciation, and such notional income would become cash surplus available with the assessee which was outside the books of accounts of the trust, unless it was written back which was not done by the assessee. The Court further held that it was not permissible for charitable institution to ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 32 of 37 generate income outside the books of accounts in this fashion and there would be violation of section 11(1)(a). The Hon'ble Kerala High Court has not accepted the view expressed by the Hon'ble Karnataka High Court in the case of CIT v. Society of the Sisters of St. Anne, 146 ITR 28 (Kar).
46. The above issue with regard to allowing depreciation is no longer res integra and has been decided by the Hon'ble Madhya Pradesh High Court, the Hon'ble Punjab & Haryana High Court and Hon'ble Bombay High Court in favour of the assessee. In this regard, we find that the question had come up for consideration before the Hon'ble Bombay High court in the case of CIT v. Institute of Banking, 264 ITR 110 (Bom). In the aforesaid case, it was held that depreciation was allowable notwithstanding that the acquisition of assets were allowed as application of income u/s. 11(1)(a) of the Act. The revenue has been relying on the decision of the Hon'ble Supreme Court in the case of Escorts Ltd. v. UOI, 199 ITR 43 (SC) wherein it was held that where double deduction, once as cost of the assets and again as depreciation was claimed, such claim should not be allowed. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H) had an occasion to consider the decision of the Hon'ble Bombay High Court in the case of Institute of Banking (supra) as well as the decision of the Hon'ble Supreme Court in the case of Escorts Ltd. (supra). The Hon'ble Punjab & Haryana High Court was considering a case of a trust registered under ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 33 of 37 the Income-tax Act as a charitable trust. The Assessing Officer disallowed the depreciation on the assets on the ground that since the income was exempt, allowing depreciation to ascertain whether the requisite funds were applied for the purpose of trust would amount to conferring double deduction. The view of the AO was affirmed by the CIT(Appeals), but the Tribunal allowed the assessee's appeal. On further appeal by the revenue, the Hon'ble Punjab & Haryana High Court held that income of the assessee being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which had been applied for the purpose of the trust. The Hon'ble Court thus held that there was no double deduction claimed by the assessee. In coming to this conclusion, the Hon'ble Punjab & Haryana High Court followed the decision of the Hon'ble Bombay High Court in the case of Institute of Banking (supra). The decision of the Hon'ble Supreme Court in the case of Escorts Ltd. (supra) was also considered by the Hon'ble Punjab & Haryana High Court. The following were the relevant observations of the Hon'ble Court.
"8. In all fairness to the learned counsel for the Revenue, reference is made to the judgment of the Hon'ble apex Court in Escort Ltd.'s case (supra), on which reliance has been placed by the learned counsel for the Revenue. The Hon'ble Supreme Court in that case was dealing with a case relating to two deductions both under ss. 10(2)(vi) and 10(2)(xiv) of the 1922 Act or both under ss. 32(1)(ii) and 35(1)(iv) of the Act. The assessee therein had incurred expenditure of a capital nature on scientific research relating to the business which resulted into acquisition of an asset. The assessee had sought to claim a specified percentage of the written down value of the asset as depreciation and at the same time claimed deduction, in five consecutive years of the expenditure incurred on the acquisition of the asset. The apex Court observed :
"Where a capital asset used for scientific research related to the business of the assessee is also ipso facto an asset used for the purpose of the business, it is impossible to conceive of the ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 34 of 37 legislature having envisaged a double deduction in respect of the same expenditure, one by way of depreciation under s. 32 of the IT Act, 1961 and other by way of allowance under s. 35(1)(iv) of a part of the capital expenditure on scientific research, even though the two heads of deduction do not completely overlap and there is some difference in the rationale of the two deductions......"
It was further recorded that :
"There is a fundamental, though unwritten, axiom that no legislature could have at all intended a double deduction in regard to the same business outgoing; and, if it is intended, it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions......"
9. In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by learned counsel for the Revenue. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. Judgment of the Hon'ble Supreme Court in Escorts Ltd. & Anr. (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of s.
11. The questions proposed have, thus, to be answered against the Revenue and in favour of the assessee. "
47. The Hon'ble Karnataka High Court in the case of Society of the sisters of St.Anne 146 ITR 28 (Karn) has taken the view that income derived from properties held under trust should be arrived at in the normal commercial manner and that a charitable institution running a school should be allowed depreciation on school building. The Hon'ble Court held that depreciation cannot be disallowed on the ground that the said allowance is allowable as deduction only while computing income under the head "Business" and that while determining income of charitable trust the heads of income become redundant.
ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 35 of 37
48. There thus appears to be two views on the issue, one of the Hon'ble Kerala High Court in the case of Lissee Medical Institutions v. CIT, 348 ITR 344 (Ker) wherein it was held that when the cost of a capital asset on which depreciation is claimed is considered as application of income by the charitable institution, depreciation on the very same asset should not be allowed and doing so would amount to giving two benefits.
Contrary view has been taken by the Hon'ble Karnataka High Court, in the case of Society of sisters of St.Anne, the Hon'ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H) and the Hon'ble Bombay High Court in the case of Institute of Banking (supra). The preponderance of judicial opinion is in favour of the Assessee and therefore, we respectfully following the decisions in favour of the Assessee, hold that the CIT(A) was justified in directing the AO to allow depreciation as claimed by the Assessee. The relevant grounds of appeal of the Revenue in ITA No. 100 to 106/Ban/2012 are thus dismissed.
49. The Assessee has filed two C.O. i.e., C.O.No.50/bang/2012 for AY 03-04 and C.O.No.51/ban/2012 for AY 04-05. These C.O.s to the extent they are supportive of the order of CIT(A) on issues decided in favour of the Assessee by CIT(A) cannot stand because Cross Objection can only be against that part of CIT(A)'s order which is against the Assessee. The other grievance projected by the Assessee in the C.O. is the observation of the CIT(A) in his order that appeals of the Assessee i.e., the Society for AYT 03-04 and 04-05 are dismissed as infructuous. It is the stand of the Assessee society that the issue with regard to depreciation as well as ITA Nos.90 to 106/B/12 & CO Nos. 50 to 51/B/12 Page 36 of 37 allowing deduction u/s.11 of the Act had been decided in favour of the Assessee in both the aforesaid A.Y.s and therefore the CIT(A) should have observed that the appeals for the aforesaid two AYs are allowed. We find force in the submission made on behalf of the Assessee and hold that the observations of the CIT(A) that the appeals for AY 03-04 and 04-05 are dismissed should be modified to read that the appeals of the Assessee society for these years are allowed. We order and direct accordingly.
50. In the result the appeals being ITA No.100 to 106/Ban/12 by the Revenue against the Society are dismissed. C.O.No.50 and 51/ban/12 for AY 03-04 and 04-05 are allowed. ITA No.90 to 94/ban/12 by the Assessee, MJB are partly allowed while ITA No.95 to 99/ban/12 by the Revenue in the case of MJB are dismissed.
Pronounced in the open court on this 21st day of December 2012.
Sd/- Sd/-
( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN )
VICE PRESIDENT Judicial Member
Bangalore,
Dated, the 21st December, 2012.
Ds/-
ITA Nos.90 to 106/B/12
& CO Nos. 50 to 51/B/12
Page 37 of 37
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.