Income Tax Appellate Tribunal - Chennai
The Madras Medical Mission, Chennai vs Assessee on 20 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
BEFORE Dr. O.K. NARAYANAN, VICE-PRESIDENT
AND SHRI V.DURGA RAO, JUDICIAL MEMBER
I.T.A. Nos. 1149 to 1152/Mds/2010)
Assessment years : 2003-04, 2004-05,
2006-07 & 2008-09
The Madras Medical Mission, The Assistant Commissioner,
1st floor, 4-A, Dr. JJ Nagar, Vs. of Income-tax,
Mogappair, Central Circle-III(4),
Chennai 600 037. Chennai - 34.
PAN - AAATT0433G
(Appellant) (Respondent)
AND
I.T.A. Nos. 1470 to 1475/Mds/2010)
Assessment years : 2003-04 to 2008-09
The Assistant Commissioner, The Madras Medical Mission
of Income-tax, Vs. Chennai - 600 037.
Chennai - 34.
(Appellant) (Respondent)
Appellant by : Dr. Anita Sumanth, Advocate
Respondent by : Shri Shaji P. Jacob, IRS, Addl. CIT
Date of Hearing : 20th June, 2012
Date of Pronouncement : 30th July, 2012
:- 2 -: ITA 1149 to 1152/10 etc.
O R D E R
PER Dr. O.K. NARAYANAN, VICE-PRESIDENT This is a bunch of 10 appeals. The assessee has filed four appeals and the Revenue has filed six appeals. The appeals relate to six consecutive assessment years 2003-04 to 2008-09.
2. The cross appeals filed for the assessment years 2003-04 and 2004-05 are directed against the individual orders passed by the Commissioner of Income-tax(Appeals)-II at Chennai on 20.5.2010. The remaining cross appeals filed for the assessment years 2005-06 to 2008-09 are directed against the common order passed by the same appellate authority on 20.5.2010. All these appeals arise out of the assessments completed under sec.143(3) read with sec.153A of the Income-tax Act, 1961.
3. The assessee, Madras Medical Mission, Mogappair at Chennai is a society registered under the Societies Registration Act. The assessee society runs a Hospital at Mogappair at Chennai and also runs a Medical College in Puduchery. The assessee society is also running courses in Nursing and other Paramedical disciplines. The assessee is registered as a :- 3 -: ITA 1149 to 1152/10 etc. charitable society under sec.12AA of the Act. So also, the assessee society enjoys the approval for the purpose of sec.80G. As a registered charitable institution, the assessee has been legitimately enjoying the benefits of exemption from taxation as provided in sec.11 of the Act along with other enabling provisions of law.
4. While the matter being so, a search was carried out by the Revenue on 13.8.2007. The search was simultaneously carried at the premises of the assessee society, premises of the Hospital and Educational Institutions and also in the residence of the office bearers of the society. On the basis of the materials collected in the course of search, notices were issued to the assessee to file its returns for six assessment years from 2003-04 to 2008-09 under sec.153A. The returns were filed in compliance with the notices and the assessments were accordingly completed.
5. In the course of assessment proceedings, it was brought to the notice of the Revenue that the assessee society has been accepting refundable deposits from students admitted to MBBS course. According to the society, the deposits are interest-fee and to be refunded after 10 years. For some years, the deposit per student was ` 21 lakhs and for some years, it was ` 25 lakhs :- 4 -: ITA 1149 to 1152/10 etc. per student. In the light of the above fact that the society has been accepting refundable deposits against the allotment of MBBS seats, the Revenue sought further details and clarification to confirm the bona fides of the explanations offered by the assessee society. Notices were issued to the parents of the students who were pursuing MBBS course in the Medical College run by the assessee. Many of the parents replied or appeared before the authorities and confirmed that they had made refundable deposits while securing medical seats for their children. In certain cases confirmations were not received. So also, in the course of search at the residence of the office bearers of the assessee society, who had given statements, could not give accurate details of refunds of the deposits made, if any, to the parents of the students, who have already completed their MBBS course. Therefore, the authorities held a view that the deposits were not refunded as claimed by the assessee society and in fact what has been collected by the assessee society was only capitation fee and not any refundable deposits. In other words, the authorities did not accept the explanations offered by the assessee society that they were accepting refundable :- 5 -: ITA 1149 to 1152/10 etc. deposits and treated all these deposits as capitation fee collected by the assessee against the allotment of medical seats.
6. In addition to the above, statements were taken from the staff of the assessee society as well. On the basis of those statements, the Revenue made out a case of accepting capitation fee for all the impugned six assessment years. As the details were not available, the Assessing Officer estimated the capitation fee by multiplying the number of students admitted to the medical course with the capitation fee per head.
7. In the light of the above, all these assessments were made by the assessing authority after making additions against the refundable deposits/capitation fee. The additions have been made by the assessing authority under sec.68 of the Act as unexplained credits. Among other things, the Assessing Officer has also made observation that certain amounts received by the assessee society have not been recorded in the books of account and, therefore, such amounts could not be treated as applied for charitable purposes. Ultimately, all the additions have been made by the assessing authority under sec.68 of the Act.
8. In first appeals, the Commissioner of Income-tax(Appeals) examined the materials available on record and accepted the :- 6 -: ITA 1149 to 1152/10 etc. contentions of the assessee society in part. Wherever the parents of the students have appeared before the authorities and confirmed making refundable deposits, the Commissioner of Income-tax(Appeals) accepted the contention of the assessee society. In such cases, the Commissioner of Income- tax(Appeals) held that those deposits are explained and those deposits cannot be treated as capitation fee, as alleged by the assessing authority. Such additions have been deleted by the Commissioner of Income-tax(Appeals). Wherever confirmations have not been obtained from the parents of the students, the additions were confirmed by the Commissioner of Income- tax(Appeals). While deleting the additions made by the assessing authority against refundable deposits, the Commissioner of Income-tax(Appeals) has also made another direction that if the deposits are not refunded after expiry of 10 years period, such deposits must be treated as income of the assessee under sec.41(1) of the Act. The first appeals were disposed of in the above lines.
9. The Revenue as well as the assessee society are aggrieved by the orders passed by the Commissioner of Income- tax(Appeals). The Revenue is aggrieved for the reason that the :- 7 -: ITA 1149 to 1152/10 etc. Commissioner of Income-tax(Appeals) has deleted those additions which are supported by the confirmation of the parents of the students. The assessee society is aggrieved for the additions sustained by the Commissioner of Income-tax(Appeals) and also for other observations made by the Commissioner of Income-tax(Appeals). It is how, these cross appeals placed are before us.
10. The frame and features of all these impugned assessments are same and similar, as they relate to same set of facts arising out of search carried out on 13.8.2007. The different grounds raised for different assessment years are in fact only with reference to quantum differentials. The basic contentions and arguments are common. In view of this position, let us briefly record the arguments advanced by both sides.
11. Shri Shaji P. Jacob, the learned Commissioner of Income- tax appeared for the Revenue and argued the case. The arguments advanced by the learned Commissioner may be summarized as below.
(i) The books of account of the assessee shows credits in the name of several persons, which the assessee failed to substantiate. Though the assessee has claimed that the :- 8 -: ITA 1149 to 1152/10 etc. amounts are refundable deposits received from the parents of medical students, the assessee society has not produced them and in many cases, letters issued by the assessing authority to some of the parents were returned unserved by the postal authority.
(ii) It is in the above circumstances, that the Assessing Officer has treated those amounts as unexplained credits and assessed under sec.68. This proposition is supported by the decision of the Hon'ble Madras High Court rendered in the case of Mangilal Jain v. ITO (315 ITR 105).
(iii) Though the credits were claimed to be refundable deposits, it is for the first time that the assessee has produced a list before the Tribunal and that too contains very few names alone without address. The complete particulars of the persons who had given such refundable deposits have not been furnished even before the Tribunal. Therefore, the additions made for the assessment years 2003-04 and 2004-
05 are very much justified.
(iv) Evidences collected in the course of search and subsequent enquiry have proved that the assessee is collecting capitation fee/donation for admitting students to :- 9 -: ITA 1149 to 1152/10 etc. MBBS course. The assessee runs its Medical College as a self-financing institution. Such activity cannot be treated as a charitable activity of the assessee, as running a self-financing college itself is a business activity. Therefore, the estimated additions made for the assessment years 2005-06 to 2008-09 are justified.
(v) Some of the collections by way of donation/capitation fee are not accounted in the books of account of the assessee society. In the circumstances, such amount cannot be treated as applied for charitable purposes, as those collections are not even finding a place in the books of account.
12. The learned Commissioner has further relied on the following decisions in support of his arguments :
(i) P.S.Govindasamy Naidu & Sons v. ACIT (Mad) 324 ITR 44
(ii) Valliammal Society v. DGIT(Inv.) (Mad) 327 ITR 337
(iii) Vodithala Education Society vs. ADIT (Exem) (ITAT, Hyd.) 20 SOT 353
(iv) CIT v. National Institute of Aeronautical Engineering Educational Society (Uttarakhand) 315 ITR 428
(v) Rajah Sir Annamali Chettiar Foundation v. DIT (Exem) (ITAT, Chennai) 10 ITR (Trib) 424.
:- 10 -: ITA 1149 to 1152/10 etc.
13. Dr. Anita Sumanth, the learned counsel who appeared for the assessee society placed her arguments in the following manner :
(i) In the course of assessment proceedings, statements were recorded from S/Shri Verghese Eapen, E.J.Thomas, K.V.George, V.J.Poulose and Ajit John Punnose, who are functionaries of the assessee society. The Revenue has placed much reliance on the contents stated to be reflected in the statements made by these office bearers. In fact, the statements were extracted under duress. S/Shri K.V.George, E.J.Thomas and Verghese Eapen are senior citizens who had to face the proceedings, questions and queries through-
out the night which had even impaired their reflexes. So also, exact details relating to many of the queries made by the officers were not traceable from memories alone, without referring to accounts and documents.
(ii) The copies of the statements were furnished to those persons only after repeated requests made to the authorities and once the copies were furnished to them, the statements were retracted as they found that the statements were not :- 11 -: ITA 1149 to 1152/10 etc. doing justice to the actual affairs of the assessee society. It is on the basis of the above unacceptable statements of the office bearers that the Assessing Officer has come to an erroneous conclusion that the capitation fees were collected by the assessee purported to be refundable deposits.
(iii) In reply filed by the assessee on 12.11.2009, full details and particulars of the depositors received and refunds made were furnished before the authorities. All the amounts were received by the assessee society though bank instruments. All such amounts received through bank instruments have been property accounted in the books of account maintained by the assessee. The assessee society had issued proper receipts for the amounts received from the parents of the students.
(iv) In response to the summons issued by the assessing authority under sec.133(6), the majority of the parents have appeared and responded. In the assessment year 2003-04, out of 54 parents, 33 parents have replied in affirmative, confirming the acceptance of interest free deposits and in the assessment year 2004-05 out of 55 parents, 42 have :- 12 -: ITA 1149 to 1152/10 etc. confirmed the refundable deposits made by them. There was not a single case where any deposits have been denied or disputed by any of the parents. These confirmations furnished by the parents of the medical students prove the case of the assessee that what have been received by the assessee society are only interest free refundable deposits.
14. The learned counsel further emphasized on the following factual premises relating to the issue of interest free refundable deposits:
(i) The amounts were received from the persons as interest free refundable deposits.
(ii) The manner of deposits was similar in all cases.
(iii) All the deposits were received through bank instruments.
(iv) The refunds were made again through bank instruments.
(v) Names and particulars of all the depositors were available with the assessee and all such particulars were placed before the department.
(vi) A majority of the parents have confirmed the deposits, 33 out of 54 in the first year and 42 out of 55 in the second year as per the assessment orders itself. The remaining deposits :- 13 -: ITA 1149 to 1152/10 etc. also stood confirmed as evidenced from the documents relating to the students maintained by the assessee and forming part of the records available with the department.
15. In the above circumstances, the learned counsel argued that there is no basis for making any presumption that the assessee had accepted capitation fee for the purpose of admitting students to the medical course. The Commissioner of Income- tax(Appeals) having accepted the fact that in majority of the cases interest free deposits have been proved, should have arrived at a logical conclusion on the same pattern and ought to have deleted the entire addition made by the assessing authority. The Commissioner of Income-tax(Appeals) also should have held that there were absolutely no material on record to allege any case of capitation fee and he was not justified in confirming the additions partially, wherever he made so.
16. We heard both sides in detail and perused the rival contentions in a careful manner. We have gone through the records of the case including the orders passed by the lower authorities. We have also gone through the paper books, notes :- 14 -: ITA 1149 to 1152/10 etc. and submissions placed by the parties before us, in the course of hearing.
17. The individual grounds raised both by the assessee and the Revenue in different appeals placed before us relate to the question of additions made under sec.68. There are some grounds filed by the assessee objecting to certain directions given by the Commissioner of Income-tax(Appeals) as well. Fact-wise and issue-wise, the grounds in all these appeals are almost identical and repetitive. Therefore, it is necessary for us, before going through the individual appeals, to discuss upon the larger premises on which the impugned assessments have been made and the respective contentions raised both by the assessee and the Revenue.
18. In the course of hearing of these appeals, fervent arguments were made by both sides regarding the charitable nature of activities carried on by the assessee society and on the applicability of sec.11 to the assessee.
19. But, as a matter of fact, it is to be seen that the assessee society is enjoying registration under sec.12AA and approval under sec.80G as a recognized charitable institution. The registration granted to the assessee under sec.12AA as well as :- 15 -: ITA 1149 to 1152/10 etc. the approval given to the assessee under sec.80G have not been disturbed so far. It means that the assessee is a recognized charitable institution for the purpose of the Income-tax Act for all these impugned assessment years under appeal. When that is the position, there is no provocation at all to go into agitating whether the assessee society is carrying on charitable activities or not. All those questions and deliberations are outside the purview of the subject matter of appeals placed before us. We find that the assessee is a registered charitable institution for all the purposes of the Income-tax Act, 1961 and therefore, there is no occasion to discuss such basic issues and fundamental matters while disposing these appeals. Therefore, we are not indulging in any such discussion as they are absolutely uncalled for.
20. The limited issue to be considered by the Tribunal in all these appeals is that whether the assessing authority is justified in making additions under sec.68 and treating those additional amounts as taxable in the hands of the assessee society. Now, let us consider the appeals one by one.
21. The Revenue has filed its appeal for the assessment year 2003-04 in ITA No.1470/Mds/2010. The ground raised by the :- 16 -: ITA 1149 to 1152/10 etc. Revenue is that the Commissioner of Income-tax(Appeals) has erred in treating the deposits of ` 4.2 crores as genuine, relying only on the findings of the Tribunal. The Commissioner of Income-tax(Appeals) has failed to note that the order of the Tribunal with reference to the approval under sec.80G has been taken up in higher forum and has not become final. It is the case of the Revenue that the Commissioner of Income-tax(Appeals) has failed to note that the statements under sec.132(4) from office bearers of the assessee have made out a case of accepting capitation fee.
22. It is the case of the assessee that on verification of the statements of office bearers of the assessee society and other relevant materials, the Commissioner of Income-tax(Appeals) has come to a finding that the management of the assessee society has taken a conscious decision not to charge any capitation fee for the seats allotted from management quota. On the other hand, the assessee society had decided to take non-interest- bearing refundable deposits from the students who had secured admissions for MBBS course under management quota. The Commissioner of Income-tax(Appeals) found nothing contrary to the above position in the statements furnished by the :- 17 -: ITA 1149 to 1152/10 etc. functionaries of the assessee society. All those deposits received by the assessee society were properly recorded in the books and receipts were issued to the parents of the students. The Commissioner of Income-tax(Appeals) relied on the decision of the Tribunal to hold that such transparent transactions cannot be held to be in the nature of capitation fee. The Commissioner of Income-tax(Appeals) also found, out of 54 students, 33 parents had replied in affirmative confirming the facts explained by the assessee society. It is in the light of speaking facts, the Commissioner of Income-tax(Appeals) held that the amount of ` 4.2 crores in fact related to interest free refundable deposits accepted by the assessee society.
23. We find that the Commissioner of Income-tax(Appeals) has arrived at a reasonable and sustainable finding. All the 54 students were admitted to the medical course after complying all official formalities of the assessee society as well as formalities required under University and Government Regulations. Addresses and particulars of all the students are very much available in the record maintained by the assessee society. Therefore, it is beyond comprehension to argue that any parent of the students was not traceable. Out of 54 students, parents of 33 :- 18 -: ITA 1149 to 1152/10 etc. students have replied in affirmative confirming that they had given interest free refundable deposits to the assessee society. The majority of the parents have given testimony in support of the statements given by the assessee society. The reason that the remaining 11 parents have not given any confirmation, does not dilute the probative value of the material evidence available on record. Minority of the parents might not be available at that point of time at the addresses available on record and it might not be possible for them to give confirmation letters within the time frame given by the authorities. Therefore, the fact that those 11 parents could not confirm the deposits, cannot be taken as an adverse finding against the assessee society. By and large, the assessee society has proved that the amounts were collected by it, by way of interest free refundable deposits. Therefore, we find that the Commissioner of Income-tax(Appeals) is justified in deleting the said addition made by the assessing authority. The Revenue fails in its appeal filed for the assessment year 2003-04.
24. In the appeal filed by the assessee for the assessment year 2003-04 in ITA No.1149/Mds/2010, the only ground raised is that the Commissioner of Income-tax(Appeals) has erred in recording :- 19 -: ITA 1149 to 1152/10 etc. a finding that if the deposits were not refunded, those amounts would be made taxable under sec.41(1) of the Act. The Commissioner of Income-tax(Appeals) has already accepted that the amounts recorded by the assessee society were in fact interest-free deposits refundable after 10 years. When the nature of the amounts credited by the assessee in its books are found genuine, as explained by it, there is no justification for the Commissioner of Income-tax(Appeals) to go further and record a premature direction what to be done in future. If and when the assessee society does not refund those deposits as required, the law will take its own course at that point of time. Even if those deposits were not refunded, questions may still arise as to whether the same would be taxable at all and where the assessee society has used such amounts for charitable purposes and the parents of the students do not have any complaint against the assessee society. Therefore, we find that the direction given by the Commissioner of Income-tax(Appeals) is premature and unwarranted. The said direction is accordingly vacated.
25. In the appeal filed by the Revenue for the assessment year 2004-05 in ITA No.1471/Mds/2010, again the ground is that the :- 20 -: ITA 1149 to 1152/10 etc. Commissioner of Income-tax(Appeals) has erred in treating the deposits of ` 2.6 crores as genuine relying only on the findings of the Tribunal. All other grounds are similar to the grounds raised for the earlier assessment year 2003-04. For the reasons discussed for the earlier assessment year 2003-04, we hold that the Commissioner of Income-tax(Appeals) is justified in deleting the addition of ` 2.6 crores. The appeal filed by the Revenue for the assessment year 2004-05 is liable to be dismissed.
26. In the corresponding appeal filed by the assessee for the assessment year 2004-05 in ITA No.1150/Mds/2010, the ground is that the Commissioner of Income-tax(Appeals) has erred in giving a direction that if the deposits were not refunded in time, those amounts would be treated as taxable under sec.41(1) of the Act. For the same reasons discussed for the earlier assessment year 2003-04, we hold that the said direction given by the Commissioner of Income-tax(Appeals) is not justified. The direction with reference to invoking of sec.41(1) is accordingly vacated. The appeal filed by the assessee for the assessment year 2004-05 is thus, successful.
:- 21 -: ITA 1149 to 1152/10 etc.
27. Next, we will consider the appeal filed by the Revenue for the assessment year 2005-06 in ITA No.1472/Mds/2010. The ground raised by the Revenue is that the Commissioner of Income-tax(Appeals) has erred in deleting the addition of `4,17,77,200/- observing that the case of receipt of capitation fee is not proved. The Commissioner of Income-tax(Appeals) has examined in detail, the basis on which the Assessing Officer has made the addition. The Assessing Officer has made the addition on the basis of purported admissions made by the functionaries of the assessee society in the statements furnished by them. It is to be seen that those statements have been subsequently, retracted. The retractions of those statements made by the functionaries of the society are well supported by the books of account maintained by the assessee with supporting documents and evidences. The receipts of deposits are properly accounted and acknowledged by giving receipts. In addition to those amounts, there is no case of seizure of any speaking material to allege any collection against the assessee. Wherever the Commissioner of Income-tax(Appeals) has upheld the additions, to that extent proper accounts were available with the assessee. Therefore, as a matter of fact, we find that the Commissioner of :- 22 -: ITA 1149 to 1152/10 etc. Income-tax(Appeals) has deleted the addition on the basis of materials available on record. We find that the ground raised by the Revenue is without any basis. The contention of the Revenue that there is violation of Rule 46A of the I.T. Rules, 1962 in furnishing the details before the Commissioner of Income- tax(Appeals), is also not correct. All the basic details are very much available before the assessing authority, himself. In the circumstances, we find that the appeal filed by the Revenue for the assessment year 2005-06 is liable to be dismissed.
28. Next we will consider the appeal filed by the Revenue for the assessment year 2006-07 in ITA No.1473/Mds/2010. In this appeal, the only ground raised by the Revenue is that the Commissioner of Income-tax(Appeals) has erred in deleting the addition of ` 17,52,000/- relating to Shri Amul John Jacob. On going through the orders of the Commissioner of Income- tax(Appeals), we find that the Commissioner of Income- tax(Appeals) has deleted the addition for the reason that, that much amount was received from Shri Amul John Jacob through bank instrument and recorded in the books of account. When these facts are apparent from the record, there is no reason to :- 23 -: ITA 1149 to 1152/10 etc. interfere with the order of the Commissioner of Income- tax(Appeals). This ground is rejected. This appeal also fails.
29. In the corresponding appeal filed by the assessee for the assessment year 2006-07 in ITA No.1151/Mds/2010, the only ground is that the Commissioner of Income-tax(Appeals) has erred in confirming an addition of ` 6 lakhs being the alleged amount of cash received from Shri Amul John Jacob. It is the case of the assessee that the Commissioner of Income- tax(Appeals) has already deleted an addition of `17,52,000/- made by the assessing authority in the light of the confirmation of receipts made by the assessee. Even though confirmation is only to that extent, the Commissioner of Income-tax(Appeals) is not justified in going beyond and sustaining the addition of ` 6 lakhs. In fact, the basis of the addition was a sheet of paper found in the course of search. According to the Assessing Officer, a sum of ` 23,52,000/- was stated to have been paid to the assessee. The assessee explained that a sum of `17,52,000/- had been received by cheque from Shri Amul John Jacob and it was not aware of any money received in cash. As already found in the appeal filed by the Revenue for the same assessment year :- 24 -: ITA 1149 to 1152/10 etc. 2006-07, the Commissioner of Income-tax(Appeals) has deleted the addition of the said amount of `17,52,000/- made by cheque. When the assessee had accounted for the amount received by cheque, there is no reason to go beyond, only for the reason that in the sheet of paper found in the course of search, the amount recorded was `23,52,000/-. There should have been some corroborating material to show that the assessee had received any sum in cash from Shri Amul John Jacob over and above the amount received by cheque. There is no direct nexus with the proposition made by the Assessing Officer and the paper seized in the course of search. We find that no addition can be confirmed on the basis of that paper, on which both sides have no idea as to what it was. Therefore, we delete the addition of ` 6 lakhs sustained by the Commissioner of Income-tax(Appeals).
30. The assessee is successful in the appeal filed for the assessment year 2006-07.
31. Next we will consider the appeal filed by the Revenue for the assessment year 2007-08 in ITA No.1474/Mds/2010. The only ground is that the Commissioner of Income-tax(Appeals) has erred in deleting the addition of ` 10,80,000/- observing that the :- 25 -: ITA 1149 to 1152/10 etc. case of receipt of capitation fee has not been proved. We have already considered the grounds on which the Commissioner of Income-tax(Appeals) has arrived at a similar conclusion on the additions deleted by him for the earlier assessment years. The Assessing Officer has made the additions only on the basis of preliminary statements obtained from the functionaries of the assessee society. As already stated, those statements were later retracted. Wherever the assessee has received amounts from the parents of the students, those amounts have been recorded in the books of account and those amounts were received through bank instruments. The number of students admitted for medical course in different years and the corresponding deposits collected from those students have been properly analyzed and detailed by the assessee society in the regular books of account maintained by it. Therefore, it is to be seen that retractions made by the functionaries of the assessee society are supported by proper documentary evidences and valid materials. It is to be seen that the admissions made under sec.132(4) are rebuttable, if cogent materials or evidences are available on record. In the present case, we find that the retractions are supported by regular books of account of the assessee society maintained in the regular :- 26 -: ITA 1149 to 1152/10 etc. course. Therefore, in these circumstances, the Assessing Officer is not justified in making the addition on the basis of those stale admissions, stated to have been made in the preliminary statements furnished by the functionaries of the assessee society. We find that the Commissioner of Income-tax(Appeals) is justified in deleting the addition. The appeal filed by the Revenue for the assessment year 2007-08 fails.
32. Next we will consider the appeal filed by the Revenue for the assessment year 2008-09 in ITA No.1475/Mds/2010. The only ground raised by the Revenue is that the Commissioner of Income-tax(Appeals) has erred in deleting the addition of `6,12,00,000/-, observing that the case of receipt of capitation fee has not been proved. For the reasons stated for the assessment year 2007-08, we hold that the Commissioner of Income- tax(Appeals) is justified in deleting the said addition. The ground raised by the Revenue is, therefore, liable to be rejected.
33. The assessee has filed an appeal for the assessment year 2008-09 in ITA No.1152/Mds/2010. The only ground raised by the assessee is that the Commissioner of Income-tax(Appeals) has erred in confirming the addition of ` 4.68 crores as :- 27 -: ITA 1149 to 1152/10 etc. undisclosed income. It is seen that the Commissioner of Income- tax(Appeals) has confirmed the addition on the ground that those receipts were not recorded by the assessee in the books of account. This contention was also raised by the learned Commissioner in the course of his argument. But it is to be seen that there are no materials available on record to show that the assessee society had received such amounts over and above what was recorded in its books of account. The Assessing Officer has made a presumption that the assessee society might have received that much amount on the strength of students admitted for medical course. This is only an intelligent presumption. The Commissioner of Income-tax(Appeals) has also made a partial endorsement of the above erroneous presumption. When there is no material available on record, it is not possible to presume that the assessee might have collected capitation fee for admitting students for medical course. As there is no evidence, we find that the addition sustained by the Commissioner of Income- tax(Appeals) is not warranted. Accordingly, the addition of ` 4.68 crores is deleted. The assessee is successful in its appeal for the assessment year 2008-09.
:- 28 -: ITA 1149 to 1152/10 etc.
34. In the above paragraphs, we have decided all the appeals filed by the Revenue as well as by the assessee on the merits of the grounds raised in those appeals.
35. Apart from the above, we have to state that the assessing authority has no case that the assessee society has applied its funds for any purposes other than the purposes for which the assessee society is established. As already mentioned in the earlier paragraphs, the assessee society is running a Hospital and running Educational Institutions including a Medical College. All these activities have been considered as charitable in the hands of the assessee society by the Revenue itself by granting registration under sec.12AA and approval under sec.80G. Even when the Revenue has raised cases of accepting capitation fee and that of unaccounted receipts, there is no case for the Revenue that the assessee has applied any funds for the purposes other than running Hospital and running Educational Institutions including the Medical College.
36. The whole purpose of sec.11 is to confer exemption on the income of a charitable trust subject to certain safe-guards in the interest of the proper application of trust monies and appropriate :- 29 -: ITA 1149 to 1152/10 etc. investment of the trust fund. This proposition has been highlighted by the Hon'ble Mysore High Court way back in 1974 while deciding the case of Siddaramanna Charities Trust v. CIT (96 ITR 275). It is to be seen that application of income for charitable purpose is one of the prerequisite conditions for exemption and the income of the trust should be applied for charitable purposes. It is to be seen that law is more concerned about application of funds by a charitable society. In fact that is the essence of sec.11. The funds available in the hands of a charitable society must be applied for charitable purposes alone and even investments must be made as prescribed by the Act and Rules. Therefore, the litmus test of deciding whether the assessee is entitled for exemption under sec.11 or not, is the application of the funds for charitable purposes.
37. As far as the income of a charitable society is concerned, there is only one distinction, that is between corpus donations and donations other than corpus donations. Corpus donations, if so proved, do not form part of the income of a charitable society. The voluntary donations, other than corpus donations, do form part of income of a charitable society. Where an assessee has :- 30 -: ITA 1149 to 1152/10 etc. applied such entire income towards charitable purposes, of course, it is entitled for exemption under sec.11.
38. In the above backgrounds, when we examine the facts of the present case, in our view, even the additions made under sec.68, if applied for charitable purposes, cannot be treated as an independent segment of taxable income. It is to be seen that unexplained credits are added as "income". Even if the additions made by the Assessing Officer under sec.68 are upheld, those amounts always do form part of income in the hands of the assessee society. Those additional income added by the Assessing Officer under sec.68 will be liable for taxation, only if those amounts are not applied for charitable purposes. In this case, the assessee has applied its entire funds in running the Hospital, Medical College and other Educational Institutions. Therefore, even if, for the sake of argument, the additional amounts covered by sec.68 are treated as part of assessee's income, still the amounts cannot be brought to tax, as those amounts have been applied for charitable purposes.
39. In fact, it is always to be seen that where a charitable society has applied all the funds available at its disposal for charitable purposes, the addition even made under sec.68 cannot :- 31 -: ITA 1149 to 1152/10 etc. form part of an independent segment of taxable income. In that way, the concept of taxable income under sec.68 in the case of a charitable society is almost a mirage.
39. In result, the appeals filed by the Revenue are dismissed and the appeals filed by the assessee are allowed.
Order pronounced on Monday, the 30th of July, 2012 at Chennai.
Sd/- Sd/- (V.DURGA RAO) (Dr.O.K.NARAYANAN) Judicial Member Vice-President Chennai, Dated the 30th July, 2012 mpo*
Copy to : Appellant/Respondent/CIT/CIT(A)/DR