Income Tax Appellate Tribunal - Chennai
Jeppiaar Educational Trust, Chennai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'D' CHENNAI
BEFORE Dr. O.K. NARAYANAN, VICE-PRESIDENT
AND SHRI HARI OM MARATHA, JUDICIAL MEMBER
I.T.A.Nos. 1333, 1334, 1591 to 1595/Mds/2010
Assessment years : 2001-02 to 2007-08
The Assistant Commissioner M/s. Jeppiaar Educational
of Income-tax, Vs. Trust,
Central Circle-I(3), No.29-A, Ganapathy Street,
Chennai-34. Royapettah,
Chennai-14.
PAN - AAATJ 0562 E
(Appellant) (Respondent)
AND
C.O.Nos. 116 to 120/Mds/2010
(in I.T.A.Nos. 1591 to 1595/Mds/20
Assessment years : 2003-04 to 2007-08
M/s. Jeppiaar Educational The Assistant Commissioner
Trust Vs. of Income-tax,
Chennai-14. Chennai - 34.
(Cross-objector) (Appellant-in-appeal)
Department by : Shri Anirudh Rai, IRS,
Commissioner of Income-tax
Cross-objector by : Shri T. Banusekar, Chartered
Accountant
:- 2 -: ITA 1333, 1334 etc &
CO 116 to 120/10
O R D E R
PER BENCH This is a bunch of seven appeals and five cross objections. All the appeals are filed by the Revenue. The appeals are filed for the assessment years 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08. The cross objections are filed by the assessee for the assessment years 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08. The six appeals for the assessment years 2001-02 to 2006-07 arise out of the assessments completed under sec.143(3) read with sec.153A. There was a search carried out under sec.132 of the I.T. Act, 1961, in the premises of assessee, the offices and institutions. The search was conducted on 23.01.2007. It is because of the said search that six consecutive assessments have been completed under sec.153A for the above assessment years from 2001-02 to 2006-07. The appeal for the assessment year 2007-08 arises out of the regular assessment completed :- 3 -: ITA 1333, 1334 etc & CO 116 to 120/10 under sec.143(3). The appeals and cross objections are filed against the orders of the Commissioner of Income-tax (Appeals)- I, at Chennai dated 17.5.2010 and 1.6.2010.
2. The assessee is a trust registered under sec.12A of the Act and consistently claiming exemption under sections 11 and 12. The assessee-trust is running a number of educational institutions including Engineering Colleges and professional institutions.
3. In the light of the search carried out on 23.1.2007 and the materials and documents seized in the course of search, notices under sec.153A were issued to the assessee for the six assessment years from 2001-02 to 2006-07. In response to the notices, the assessee-trust filed returns declaring NIL income. This is because, the assessee is claiming exemption under sec.11 as an educational/charitable institution. For the assessment year 2007-08 also, the assessee filed its regular return declaring NIL income, on the very same ground of charity.
4. But, the assessing authority did not accept the claim of exemption made by the assessee trust in pursuance of sec.11 :- 4 -: ITA 1333, 1334 etc & CO 116 to 120/10 of the Act, on various grounds detailed in his orders. On scrutiny of the accounts of the assessee-trust, the assessing authority found that the assessee has given money to different associate concerns like Jaisakthi Educational Trust, Jeppiaar Farms, Jeppiaar Housing Ltd. etc. The Assessing Officer has observed that the trustees of the assessee-trust are also trustees in the associate trusts as well as directors/partners in the associate concerns. In view of this relationship, the Assessing Officer has held that the assessee-trust has diverted its funds to the benefit of the trustees and their family members and, therefore, violated the provisions of law contained in sec.13(1)(c)(ii) read with sec.13(3) of the Act. For the assessment years 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 the Assessing Officer also has observed that the assessee has violated the provisions of law stated in sec.13(1)(d) by making deposits of money with associate concerns. In view of the above violations alleged by the assessing authority, the benefits claimed by the assessee under sections 11 and 12 were denied. On the basis of the above finding, the assessing authority treated the excess of income over :- 5 -: ITA 1333, 1334 etc & CO 116 to 120/10 expenditure reported for all the impugned assessment years, as taxable income of the assessee-trust.
5. The assessee-trust has accounted for certain amounts of donation as corpus donations for the assessment years 2001-02 and 2003-04. The assessing authority has observed that the details of the donors are not available on record and therefore, the donations could not be treated as corpus donations. It is the observation of the assessing authority that such donations need to be identified with the names and addresses of the donors with further details like mode of payment, date of receipt etc. As such details were not available, the Assessing Officer has treated those amounts as unexplained cash credits answerable to sec.68. Accordingly, additions were made.
6. For certain assessment years, the assessing authority has observed that the assessee has made payments in cash in excess of the limit prescribed in sec.40A(3). He has added such payments in cash in excess of the prescribed limit to the income of the assessee trust, for the respective assessment years.
:- 6 -: ITA 1333, 1334 etc & CO 116 to 120/10
7. According to the assessing authority, two loose sheets were recovered in the course of search carried out at the residence of the Managing Trustee of the assessee-trust, which showed that the assessee had collected amounts from the students admitted in various institutions, in excess of fees prescribed for various courses by the Directorate of Technical Education, Tamilnadu. The Assessing Officer has held the view that such excess amounts were in the nature of capitation fee collected from the students admitted in the institutions run by the assessee-trust. Relying on certain judicial pronouncements, the Assessing Officer has held that such capitation fees have to be brought to tax as they have nothing to do with charitable activities.
8. For the assessment years 2005-06 and 2006-07, the assessee had donated certain amounts to an associate trust, M/s. Jeppiaar Remibai Charitable Trust. The assessing authority has observed that M/s. Jeppiaar Remibai Charitable Trust is registered under sec.12AA and also enjoys the approval under sec.80G. The assessing authority while denying the benefits of sec.11 to the assessee-trust, has held that the assessee is liable :- 7 -: ITA 1333, 1334 etc & CO 116 to 120/10 for taxation not as a trust but as an A.O.P. with maximum marginal rate. As the assessing authority has assessed the assessee-trust for all these assessment years as an A.O.P., he held that such donations made by the assessee to M/s. Jeppiaar Remibai Charitable Trust would be deductible only to the extent of 50%. Accordingly, he disallowed the balance 50% and added the same to the income of the assessee.
9. In the course of search, a visiting card was seized from the premises of Sathyabama University Campus, Jeppiaar Nagar, Chennai-119, on which certain entries were made regarding cash transactions. The entries relating to cash transactions reflected on the visiting card were taken by the assessing authority as unexplained cash transactions. The ultimate balance available as per those entries was added as income of the assessee under sec.69 of the Act.
10. The Assessing Officer has also observed that the Managing Trustee, Shri Jeppiaar had withdrawn cash from bank accounts of the assessee. The assessing authority has asked for the details and purposes of those cash withdrawals. The explanations offered by the assessee were not acceptable to the :- 8 -: ITA 1333, 1334 etc & CO 116 to 120/10 assessing authority and the total cash withdrawals were added as the income of the assessee-trust.
11. Having denied the benefits of sec.11, the assessee- trust was assessed as an A.O.P. with maximum marginal rate of tax. Consequently, the excess of income over expenditure for all the impugned assessment years have been treated as part of the taxable income of the assessee-trust. In addition to that, the Assessing Officer has made several other additions in the nature of income taxable in the hands of the assessee. Such additions relate to corpus donations, cash payments, capitation fee, donations to other trusts, cash transactions reflected on visiting card and the cash withdrawals from bank. The assessments were completed in the above line determining positive taxable income in the hands of the assessee-trust against NIL income returned by it.
12. All the assessments were taken in first appeals before the Commissioner of Income-tax (Appeals).
:- 9 -: ITA 1333, 1334 etc & CO 116 to 120/10
13. Among other various grounds agitated before the Commissioner of Income-tax (Appeals), the first common ground raised by the assessee relates to the validity of the assessments. According to the assessee, the time limit for completing the impugned assessments was upto 31st December, 2008. The assessment orders are dated 30.12.2008 but served on the assessee on 3.1.2009. As the orders were served on the assessee beyond the last day of the period of limitation, the assessee contended that the assessments were not in fact, completed on 30.12.2008 as noted in the assessment orders but the assessments were completed beyond 31.12.2008 and therefore barred by limitation. This common ground raised for all the assessment years, has been rejected by the Commissioner of Income-tax (Appeals).
14. The Commissioner of Income-tax (Appeals), but accepted the contentions of the assessee raised against almost all the additions made by the assessing authority. The Commissioner of Income-tax (Appeals) held that there was no diversion of funds so as to benefit interested persons and therefore, there cannot be a case against the assessee that it has :- 10 -: ITA 1333, 1334 etc & CO 116 to 120/10 violated the provisions of law contained in sec.13(1)(c)(ii) read with sec.13(3) of the Act. He also found that the assessee has not violated the provisions of law stated in sec.12. Accordingly, he held that the Assessing Officer has erred in denying the benefits of sec.11 to the assessee and thereby assessing it in the status of AOP. with maximum marginal rate of tax. The Commissioner of Income-tax (Appeals) held that the assessee is entitled for the benefit of sec.11 and accordingly, must be assessed as a trust. The Commissioner of Income-tax (Appeals) deleted the additions that of the excess of income over expenditure made by the assessing authority.
15. Regarding the addition towards corpus donations, the Commissioner of Income-tax (Appeals) held that even if the donations received by the assessee were held to be falling under sec.68, still additions could not be made as unexplained cash credits for the reason that all such donations received by the assessee have already applied for charitable/educational purposes. He held that when the receipts irrespective of its nature have been fully utilized for charitable purposes, there cannot be an independent addition under sec.68. He held that :- 11 -: ITA 1333, 1334 etc & CO 116 to 120/10 the stains on the nature of donations have been made good by application of such donations for charitable purposes. Therefore, he held that additions made by the assessing authority against corpus donations could not be justified. Those additions have also been deleted.
16. In respect of the additions made by the assessing authority under sec.40A(3) against payments made in cash in excess of the prescribed limit, the Commissioner of Income-tax (Appeals) held that first of all those payments have not been proved in the hands of ultimate payees exceeding of the prescribed limit. He held that even though cash amounts were paid by the assessee-trust to the functionaries, those cash amounts have been used for making different and several payments in various contexts in running the day- to-day activities of the trust. Therefore, he held that the violation of quantum limit has not been proved with reference to those cash payments pointed out by the assessing authority. Secondly, the Commissioner of Income-tax (Appeals) held that once the assessee is held to be a charitable trust entitled for the benefits of sections 11 and 12, no receipt in the hands of the assessee could :- 12 -: ITA 1333, 1334 etc & CO 116 to 120/10 be assessed as business income. He has pointed out that the provisions of law contained in sec.40A(3) apply only to the computation of business income. No business income is assessable in the hands of the assessee, as it is a charitable trust. Therefore, sec.40a(3) does not apply to the assessee. Accordingly, he deleted those additions as well.
17. In respect of the additions made by the assessing authority against capitation fee, the Commissioner of Income-tax (Appeals) held that the basis of the addition as alleged by the assessing authority has not been proved against the assessee. The Assessing Officer has made the addition on the ground that particulars were reflected in two loose sheets found at the residence of the Managing Trustee at the time of search. According to the Assessing Officer, the assessee has collected amounts in excess of fees prescribed by the Directorate of Technical Education and the excess amount amounted to collection of capitation fees. The Commissioner of Income-tax (Appeals) after verification of the details held that the said two loose sheets do not speak anything about such amounts stated to be collected by the assessee in excess of the fees prescribed by :- 13 -: ITA 1333, 1334 etc & CO 116 to 120/10 the Directorate of Technical Education. On the other hand, he found that those papers reflected an estimation of capitation fees calculated at a fixed rate for each branch of the engineering course for different academic years allocating 15% of the seats for NRIs and 5% for others. On the basis of the above finding, those additions have also been deleted by the Commissioner of Income-tax (Appeals).
18. In the case of additions made by the assessing authority against the donations made by the assessee to M/s. Jeppiaar Remibai Charitable Trust, the Commissioner of Income- tax (Appeals) held that M/s. Jeppiaar Remibai Charitable Trust is not hit by sec.13(3) and therefore, donations made to the said trust could not be treated as diversion of assessee's income. He held that Jeppiaar Remibai Charitable Trust is a full-fledged charitable institution and therefore any donation made by the assessee to that trust for the purpose of charitable activities is application of funds in the hands of the assessee towards charitable purposes. The Commissioner of Income-tax (Appeals) equally observed that he has already treated the assessee as a trust eligible for the benefits of sections 11 and 12 and assessable :- 14 -: ITA 1333, 1334 etc & CO 116 to 120/10 in the status of a trust and not as an AOP. Therefore, 50% restriction does not arise in the present case. The Commissioner of Income-tax (Appeals) accordingly, deleted those additions.
19. In respect of the addition made by the assessing authority against the cash transactions reflected on the visiting card found in the course of search, from the premises of Sathyabama University Campus, the Commissioner of Income-tax (Appeals) observed that the card is a plain white card in the size of a normal visiting card and the card does not belong to any particular person. There is no direct or indirect evidence to connect the entries found in the card to the activities carried on by the assessee and therefore, there is no evidence whatsoever to invoke sec.69 of the Act to make addition in the hands of the assessee-trust. The said addition was also deleted.
20. Regarding the additions made by the Assessing Officer towards cash withdrawals, the Commissioner of Income- tax (Appeals) found that all the withdrawals from the banks were made through cheques issued by the Managing Trustee of the assessee-trust who is authorized to operate the bank accounts :- 15 -: ITA 1333, 1334 etc & CO 116 to 120/10 and those withdrawals are reflected in the regular books of account of the assessee-trust. The amounts withdrawn from the banks were used for the purposes of activities carried on by the assessee-trust and there is nothing on record to make a presumption that those withdrawals were made by the Managing Trustee for his own personal use. The said additions were also deleted by the Commissioner of Income-tax (Appeals).
21. The Revenue is aggrieved by all these reliefs granted by the Commissioner of Income-tax (Appeals) and therefore, have come in appeals before us. Obviously, the grounds raised by the Revenue are by and large common for all the assessment years and relate to issues of granting exemption under sec.11, corpus donations, sec.40A(3), capitation fees, donations made to Jeppiaar Remibai Charitable Trust and other additions made on the basis of visiting card entries and bank withdrawals.
22. While disposing of the first appeals, the Commissioner of Income-tax (Appeals) did not accept the common contention of the assessee-trust that the impugned assessments were barred by limitation. Dismissing the contention raised by the assessee-
:- 16 -: ITA 1333, 1334 etc & CO 116 to 120/10 trust, the Commissioner of Income-tax (Appeals) held that the assessments are valid and sustainable in law. The assessee is aggrieved by this finding.
23. Another issue agitated before the Commissioner of Income-tax (Appeals) for the assessment years 2003-04, 2004- 05, 2005-06, 2006-07 and 2007-08 was whether the payments made by the assessee-trust to M/s. Holy Satellite Town Ltd. were hit by the restrictive provisions contained in sec.13(1)(d). M/s. Holy Satellite Town Ltd. is a concern in which trustees of the assessee-trust are directors. The company is manufacturing ready mix concrete for building construction. In spite of substantial debit balance due from M/s. Holy Satellite Town Ltd., the assessee-trust has been making further payments in the impugned assessment years. The contention of the assessee was that the assessee had undertaken substantial construction activities during the relevant period and in order to ensure regular supply of ready mix concrete, M/s. Holy Satellite Town Ltd. was encouraged to concentrate in manufacturing of ready mix concrete and supply the same to the assessee. The payments were made to M/s. Holy Satellite Town Ltd. as a necessary :- 17 -: ITA 1333, 1334 etc & CO 116 to 120/10 support. So that the supply of ready mix concrete was not interrupted with which the assessee was much concerned. This contention was not accepted by the Commissioner of Income-tax (Appeals). He held that those payments were in the nature of deposits made in contravention of sec.13(1)(d). The peak credits for the respective assessment years have been confirmed as additions on this ground. The assessee-trust is aggrieved on this point as well. It is for these two reasons, that the assessee-trust has filed its cross objections for the five assessment years from 2003-04 to 2007-08.
24. After stating the history of the impugned appeals, we proceed to decide them, issue wise. We heard Shri Anirudh Rai, the learned Commissioner of Income-tax appearing for the Revenue and Shri T. Banusekar, the learned Chartered Accountant appearing for the assessee-trust.
25. Before proceeding further it is necessary for us to short list the various issues raised in the appeals filed by the Revenue:
:- 18 -: ITA 1333, 1334 etc & CO 116 to 120/10 (1) Eligibility of the assessee-trust for the benefits available under sec.11.
(2) Whether corpus donations need to be added under sec.68 or not.
(3) Whether cash payments violating sec.40A(3) should be added to the income of the assessee or not.
(4) Whether the assessee-trust has received fees in excess of the prescribed rate so as the excess to be treated as capitation fee liable to be added as the income of the assessee-trust.
(5) Whether donations made to Jeppiaar Remibai Charitable Trust amount to application of funds for charitable purposes or not.
(6) Whether addition made on the basis of the entries found on the visiting card is justified or not.
(7) Whether the addition made against the bank withdrawals is justified or not.
:- 19 -: ITA 1333, 1334 etc & CO 116 to 120/10
26. The most important question to be considered in all these appeals filed by the Revenue is whether the assessee-trust is entitled for the benefits available under sections 11 & 12 of the I.T. Act, 1961 or not. The Assessing Officer has denied the exemption under sec.11 to the assessee-trust for the alleged reason that the assessee has violated the provisions of law contained in sec.13(1)(c)(ii) read with sec.13(3) of the Act. 26.1. Sec.11 provides for exemption of the income from property held for charitable or religious purposes. Sec.11 itself provides for the various conditions to be satisfied so that an assessee may make a claim of exemption under sec.11. Sec.12 provides that voluntary contributions received by charitable institutions would not be treated as income, if applied for charitable purposes and therefore, exempt. Sec.12A stipulates the conditions to be satisfied so that sections 11 and 12 are applied in the case of a particular assessee. The foremost condition is that an assessee must be registered as a charitable institution under that section. Sec.12AA provides for the :- 20 -: ITA 1333, 1334 etc & CO 116 to 120/10 procedure to be followed by an assessee to get registered under sec.12A.
26.2. After explaining the scheme of exemption given to charitable societies or charitable institutions, the law provides certain cases in which an assessee may not be entitled to claim the benefit of sec.11. Those cases and circumstances are provided in sec.13 in an exhaustive manner. Sec.13 provides that nothing contained in sections 11 and 12 shall operate so as to exclude from the total income of the previous year of the person if the income or part of income of the trust have been applied for personal benefits of certain persons described in that section and if spent for purposes other than that of charity. Different circumstances are provided in sec.13(1) (a), (b), (c) and (d). Clause (c) provides that, if any part of the income or any property of the trust or the institution during the relevant previous year is used or applied directly or indirectly for the benefit of a person referred to in sub-sec.(3), the benefit of section 11 would not be available to that assessee.
:- 21 -: ITA 1333, 1334 etc & CO 116 to 120/10 26.3. In clause (c) of sec.13(3), the category of persons is mentioned. The category of persons includes author of the trust or founder of the institution, any person who has made a substantial contribution to the trust or institution, where author or founder is a HUF then a member of that HUF, any trustee or manager of the trust, any relative of the above person and any other concern in which any of the stated persons have a substantial interest.
26.4. In short, sec.13(1)(c) read with sec.13(3) provided that if any part of the income or property of the trust or institution is applied for the benefit of related persons, interested persons, associate concerns etc., the assessee shall be deprived of the benefit available under sec.11.
26.5 In order to invoke the provisions of sec.13(1)(c) and sec.13(3), the assessing authority has stated certain reasons in his order. The Assessing Officer has stated that during the relevant period, the assessee-trust has diverted its funds in favour of Jaisakthi Educational Trust, Jeppiaar Farms, Jeppiaar Housing Ltd. The assessing authority has observed that Jaisakthi :- 22 -: ITA 1333, 1334 etc & CO 116 to 120/10 Educational Trust is an associate trust of the assessee where trustees in both the trusts are common. He has further observed that Jeppiaar Farms and Jeppiaar Housing Ltd. are associate concerns of the assessee-trust as the trustees of the assessee- trust are directors/partners in those concerns. The Assessing Officer has observed that the assessee-trust has advanced huge sums of money to the above stated entities without establishing the necessity of advancing of such sums. On the basis of the detailed discussion available in his order, the Assessing Officer has ultimately held that those payments are nothing but diversion of funds for the benefits of those institutions. As those institutions are falling within the purview of sec.13(3), the assessee is hit by the restrictive provision contained in sec.13(1)(c). It is on this ground that the assessing authority has held that the assessee has violated the above provision and, therefore, not entitled for the exemption provided under sec.11 of the Act.
26.6. The Commissioner of Income-tax (Appeals) in his order held that as far as the funds transmitted to Jaisakthi Educational Trust is concerned, there cannot be a case of :- 23 -: ITA 1333, 1334 etc & CO 116 to 120/10 diversion of funds for the benefit of an interested person. This is because, he held that Jaisakthi Educational Trust is not an entity coming under sec.13(3)(e). Jaisakthi Educational Trust is an independent charitable institution engaged in educational activities having its own registration and assessment status. The said trust cannot be held to be an interested person under sec.13(3) only for the reason that common trustees are available both in assessee-trust and Jaisakthi Educational Trust. The Commissioner of Income-tax (Appeals) also observed that in addition to the above basic distinction, the funds given by the assessee-trust to Jaisakthi Educational Trust have been utilized by Jaisakthi Educational Trust in discharging its educational activities of charitable nature and not used for any other purpose than charitable purposes. Therefore, the amounts advanced by the assessee-trust to Jaisakthi Educational Trust is also application of funds for charitable purposes in the hands of the assessee-trust. He held that this issued was considered by the I.T.A.T., Chennai Bench 'A' in assessee's own case in a block assessment appeal order dated 22.9.2006 passed in IT(SS)A No.117/Mds/2003 and others. He also relied on another order of :- 24 -: ITA 1333, 1334 etc & CO 116 to 120/10 the I.T.A.T. again in assessee's own case for the assessment year 2001-02 dated 22.9.2006 passed in ITA No.3387/Mds/04. In respect of monies given to Jeppiaar Farms and Jeppiaar Housing Ltd., the Commissioner of Income-tax (Appeals) found that the Tribunal has considered the very same issue in its block assessment appeal order and have held that the monies given to those concerns could not be treated as diversion of funds but they were given for valid consideration received in by the assessee- trust. The Commissioner of Income-tax (Appeals) held that the assessee-trust was owing lot of money to those concerns for past services received when the assessee-trust was not in a good financial position and therefore, those payments were in fact, repayments of those obligations/liabilities. The Commissioner of Income-tax (Appeals) further observed that in the case of Jeppiaar Farms and Jeppiaar Housing Ltd., the assessing authority has treated the opening balances brought down from earlier assessment years as diversion of funds which have already been adjudicated by the Tribunal in its earlier orders. The Commissioner of Income-tax (Appeals), on the above stated grounds and relying on the two orders of the I.T.A.T. in :- 25 -: ITA 1333, 1334 etc & CO 116 to 120/10 assessee's own case mentioned above, held that there is no diversion of funds to the benefit of any interested persons and, therefore, the assessing authority has erred in denying the exemption available to the assessee under sec.11. 26.7. We considered this issue very carefully. In the case of Jeppiaar Farms and Jeppiaar Housing Ltd., as pointed out by the Commissioner of Income-tax (Appeals), the Assessing Officer has relied on brought down opening balances to make a case of diversion of funds in favour of related concerns. But it is true that the opening balances in the respective assessment years have already been considered by the I.T.A.T., Chennai Bench 'A' in the block assessment appeals mentioned above. It means that the opening balances relied on by the Assessing Officer to make out a case of diversion of funds to Jeppiaar Farms and Jeppiaar Housing Ltd. have already been adjudicated by the Tribunal in its earlier orders. In addition to the above quantum impropriety pointed out by the Commissioner of Income-tax (Appeals), it is to be seen that in its block assessment appeal order, the Tribunal has considered the very same issue that whether the assessee-
:- 26 -: ITA 1333, 1334 etc & CO 116 to 120/10 trust has diverted its funds to Jeppiaar Farms and Jeppiaar Housing Ltd. so as to be caught in the web of sec.13(1)(c)(ii). The detailed discussion on the issue is available in pages 67 to 71 of the order of the Tribunal mentioned above which has been passed in IT(SS)A No.117/Mds/03 and others. The Tribunal has come to a finding that the above associate concerns had in fact, transferred funds to the assessee-trust during the initial period of establishing the educational institutions till 31.3.1997, for which purpose those associate concerns have availed loans from Indian Bank. Since then, the associate concerns were continuing as creditors of the assessee-trust for huge amounts. The assessee- trust had used the funds advanced by the associate concerns to establish its educational institution in its earlier period of formation. The assessee-trust had purchased the lands by using those funds advanced by the associate concerns. The Tribunal had discussed this issue in a very detailed manner and have come to an unequivocal finding that there was no diversion of funds from assessee's accounts to the associate concerns, Jeppiaar Farms and Jeppiaar Housing Ltd. On the other hand, it is the finding of the Tribunal that the assessee-trust was only :- 27 -: ITA 1333, 1334 etc & CO 116 to 120/10 discharging its past liabilities against huge sums of money advanced by those concerns in the initial years of formation to help the assessee-trust to establish by itself. This view is again adopted by the Tribunal in assessee's own case in ITA No.3387/Mds/04 dated 22.9.2006 relating to the assessment year 2001-02 which is also mentioned elsewhere above. Therefore, it is to be seen that the I.T.A.T., Chennai Bench 'A' has consistently held that there was no diversion of funds from the accounts of the assessee-trust in favour of the associate concerns like Jeppiaar Farms and Jeppiaar Housing Ltd. etc. 26.8. The contention of the Revenue is that the earlier decisions of the Tribunal have not become final and those orders have been appealed before the Hon'ble High Court of Madras and therefore, the Commissioner of Income-tax (Appeals) was not justified in holding the view that the assessee was entitled for the benefits of sec.11. We are not able to agree with the argument of the Revenue. As the matter stands today, earlier orders of the Tribunal are in force. The Hon'ble Jurisdictional High Court has not so far passed any judgment in those cases. The :- 28 -: ITA 1333, 1334 etc & CO 116 to 120/10 Commissioner of Income-tax (Appeals) was bound to follow the order of the Jurisdictional Tribunal on the issue. 26.9. In the light of the above facts and circumstances of the case, we find that the argument of the Revenue that the assessee-trust has diverted its funds to interested persons is unfounded.
26.10. Therefore, we hold that the Commissioner of Income- tax (Appeals) is justified in restoring the benefits of sections 11 and 12 to the assessee-trust. His order on this issue is upheld. Accordingly, the Commissioner of Income-tax (Appeals) is justified in giving direction to the assessing authority to re-do the assessment in the status of a trust and also in deleting the additions made by the assessing authority in respect of the excess of income over expenditure for all the impugned assessment years.
26.11. The above issues of exemption under sec.11, assessee's status of assessment and the addition of excess of income over expenditure which are common to all the assessment years are decided in favour of the assessee-trust.
:- 29 -: ITA 1333, 1334 etc & CO 116 to 120/10 27.1. The next issue to be considered is whether the corpus fund has to be added to the income of the assessee-trust by invoking sec.68 of the Act. The balance in the corpus fund was `6,29,60,000/- which was added by the assessing authority. This position was in the assessment year 2000-01 relevant to the assessment year 2001-02. On examination of the above balance, the Commissioner of Income-tax (Appeals) found that a sum of ` 5 crores was transferred to the corpus fund out of the fees collection account maintained by the assessee-trust. The transfer was made through a journal entry. Therefore, he held that this sum of ` 5 crores could not be treated as unexplained. The balance amount of ` 1,29,60,000/- was found to be received in cash on various dates. The Commissioner of Income-tax (Appeals) held that even if sec.68 was to be invoked, it could be invoked only in respect of this balance amount of `1,29,60,000/-. But at the same time, the Commissioner of Income-tax (Appeals) held that the amount of ` 5 crores cannot be treated as voluntary contributions towards corpus fund of the trust as the said sum was transferred from the fee collection account, He also held that :- 30 -: ITA 1333, 1334 etc & CO 116 to 120/10 for want of details, it is not possible to treat the amount of ` 1,29,60,000/- as donations received to corpus fund. 27.2. But the Commissioner of Income-tax (Appeals) accepted an alternate contention of the assessee-trust that even if the amount of ` 6,29,60,000/- could not be held to be corpus donations, the same cannot be treated as the income of the assessee for the reason that the assessee has applied the said amount for charitable activities carried on by it. In paragraph 23 of his order for the assessment year 2001-02, the Commissioner of Income-tax (Appeals) has examined the details of the application of funds made by the assessee-trust. On verification, the Commissioner of Income-tax (Appeals) found that more than 85% of the said amount of ` 6,29,60,000/- have been spent by the assessee-trust for charitable activities. On the basis of this legal proposition, the Commissioner of Income-tax (Appeals) has deleted the addition of ` 6,29,60,000/- holding that the said sum cannot be added under sec.68.
27.3. We agree with the finding of the Commissioner of Income-tax (Appeals) on the second line of argument of the :- 31 -: ITA 1333, 1334 etc & CO 116 to 120/10 assessee irrespective of the fact whether the sum of `6,29,60,000/- forms part of the corpus fund of the assessee trust or not. It is to be seen that more than 85% of that amount have already been spent by the assessee-trust to carry on its activities. By confirming the status of the assessee-trust under sec.11, we have already held that the activities carried on by the assessee- trust are charitable in nature. Therefore, the monies spent by the assessee-trust amounted to application of funds for charitable purposes. Therefore, it is to be seen without any contradiction that more than 85% of the sum of ` 6,29,60,000/- had already been applied by the assessee-trust for charitable purposes. In such circumstances, sec.68 cannot make an appearance. It is to be seen that the taxability of a trust is primarily to be determined on the basis of the application of its funds for charitable activities and not on the basis of the colour of its receipts. On this principle, we uphold the order of the Commissioner of Income-tax (Appeals) and confirm the deletion of ` 6,29,60,000/- in computing the taxable income of the assessee-trust.
27.4. This issue is also decided in favour of the assessee.
:- 32 -: ITA 1333, 1334 etc & CO 116 to 120/10 28.1. The next issue to be considered is whether the assessing authority is justified in making additions in the hands of the assessee-trust in respect of cash payments made in excess of the limit prescribed under sec.40A(3). This issue arises for the assessment years 2001-02 and 2002-03. The Commissioner of Income-tax (Appeals) held that sec.40A(3) lays down, the provisions for the computation of income under the head "profits and gains of business or profession" where 20% of any cash expenses exceeding ` 20,000/- is not to be allowed as deduction. He observed that this provision of sec.40A(3) is not attracted in the case of the assessee-trust as its income is not computed under the head "profits and gains of business or profession". It is also not computed under the head "income from other sources". 28.2. We considered this issue. Sec.40A(3) is one of the specific provisions incorporated in the Income-tax Act for the computation of an assessee's income under the head "income from profits and gains of business or profession". This section is applicable to the claims of deduction made by the assessees towards expenditure where the expenses have been paid by cash in excess of ` 20,000/-. If the expenses by way of cash payment :- 33 -: ITA 1333, 1334 etc & CO 116 to 120/10 exceeded ` 20,000/-, 20% of the excess amount will be disallowed. Therefore, this is a question of claiming of deduction of expenditure by an assessee and the disallowance of a portion of that claim by the assessing authority. That is the theme of sec.40A(3). The said theme is not applicable in the assessment of a charitable trust. This is because a charitable trust is claiming exemption from taxation not exactly on the basis of the concept of "expenditure". On the other hand, it is claiming exemption from the levy of taxation on the concept of "application of funds for charitable purposes". Therefore, the difference between the application of funds for charitable purposes and claim of deduction by way of expenses has to be borne in mind while applying the provisions of sec.40A(3) in the case of a charitable trust. The assessee-trust is not claiming the cash payments made by it as deductible expenditure in its computation of taxable income. The assessee-trust is claiming that it has applied its funds for purposes of charitable activities. Therefore, the Commissioner of Income-tax (Appeals) has rightly held that the provisions of law stated in sec.40A(3) would not apply to charitable trust and no disallowance or addition could be made on :- 34 -: ITA 1333, 1334 etc & CO 116 to 120/10 that ground. Therefore, we hold that the Commissioner of Income-tax (Appeals) is justified in deleting the addition made by the assessing authority on the ground of violation of sec.40A(3). 28.3. This issue is also decided in favour of the assessee. 29.1. The next issue relates to the addition made by the assessing authority on the ground that the assessee-trust has collected capitation fees from students. The Assessing Officer has made out the case of capitation fees on the ground that the assessee has collected fees more than the limit prescribed by the Directorate of Technical Education. This finding has been arrived at by the assessing authority on the ground that two loose sheets seized from the residence of the Managing Trustee of the assessee-trust in the course of search contained particulars of such excess collection. The contents of two loose sheets have been reproduced by the Commissioner of Income-tax (Appeals) in pages 20 and 21 of his order for the assessment year 2001-02. On an analysis of the details reflected in the said two loose sheets, the Commissioner of Income-tax (Appeals) came to the conclusion that they are only an estimation of capitation fees :- 35 -: ITA 1333, 1334 etc & CO 116 to 120/10 calculated at a fixed rate for each branch of engineering for the academic assessment years 2001-02 to 2006-07, multiplied with number of students allocating 15% of the seats for NRIs and 5% for others. The Commissioner of Income-tax (Appeals) further observed that this estimation has been rounded off upto two decimal places.
29.2. We have gone through the contents of those loose sheets stated to be found in the course of search. There is nothing in those sheets to show that the amounts were paid by any particular person to the assessee-trust. The details of cash payments if for a particular purpose, should reflect the names of the parties and necessary particulars. But in these sheets such details are not available. What is mentioned is the number of different branches of engineering courses in different academic years and the number of students available for every such branch. The seats have been allotted to NRI category and others. On the basis of the strength of students, the estimation of capitation fees have been made. It is true, as rightly observed by the Commissioner of Income-tax (Appeals) that it is not an account of actual cash received. As it is not towards actual :- 36 -: ITA 1333, 1334 etc & CO 116 to 120/10 receipt of cash, there is no justification for making additions in the hands of the assessee-trust. The Commissioner of Income-tax (Appeals) has rightly deleted it. Moreover, after examining the record, the Commissioner of Income-tax (Appeals) held that the two loose sheets are not part of the seized material as alleged by the assessing authority. They are only part of the search records. Therefore, there is no presumption regarding the correctness as provided in sec.132(4). As observed by the Commissioner of Income-tax (Appeals), it is the onus of the assessing authority to prove that the two loose sheets reflected the actual receipt of any amounts from the students. 29.3. Therefore, in the facts and circumstances of the case, we find that the two loose sheets relied on by the assessing authority to make out a case of capitation fee is unsustainable on facts. There is no acceptable evidence. The sheets do not speak anything about the actual receipt of money. Therefore, we uphold the order of the Commissioner of Income-tax (Appeals) on this point.
:- 37 -: ITA 1333, 1334 etc & CO 116 to 120/10 29.4. This issue is also decided in favour of the assessee. 30.1. The next issue is whether the Assessing Officer is justified in making addition against the donations made by the trust to M/s. Jeppiaar Remibai Educational Trust. The assessing authority has allowed 50% of the donation as deduction on the ground that the assessee is assessed in the status of an AOP. The said decision of the assessing authority has already been set aside and held that the assessee has to be assessed as a trust. Therefore, 50% disallowance looses its ground. M/s. Jeppiaar Remibai Educational Trust, is a trust registered under 12A of the Act and engaged in charitable activities of education. Only for the reason that the trustees are common, it is not possible to hold that donor and donee are not entitled for the privileges granted by law. Common trustee is not a disqualification in the case of a charitable trust. It is an established position in law that donation given to another charitable institution to apply for the objectives of the other charitable institution amounts to application of funds for charitable purposes in the hands of the donor. The assessee is a donor in the present case. The donee is also a charitable trust.
:- 38 -: ITA 1333, 1334 etc & CO 116 to 120/10 Money donated by the assessee-trust has been utilized by M/s. Jeppiaar Remibai Educational Trust for its accomplished objectives. So, the donations made by the assessee-trust to M/s. Jeppiaar Remibai Educational Trust, have necessarily to be treated as application of funds for charitable purposes. Therefore, we have to hold that the Commissioner of Income-tax (Appeals) is justified in deleting the said addition made by the assessing authority.
30.2. This issue is decided in favour of the assessee. 31.1. The next issue is the addition made by the Assessing Officer on the basis of the entries reflected on a visiting card seized in the course of search, from the premises of Sathyabama University Campus, Jeppiaar Nagar, There is a series of cash transactions on the said visiting card with an ultimate balance of `7,64,185/-. The said balance amount has been added by the assessing authority under sec.69. The Commissioner of Income- tax (Appeals) held that the visiting card is a white blank card without the name of any person. The only similarity is that the said card was on the same size of an ordinary visiting card. The :- 39 -: ITA 1333, 1334 etc & CO 116 to 120/10 identity of the person who made those entries on the card is not available. It is also not known what is the nature of those cash transactions and in which context those entries were made on that card. There is no head and tail. It is recovered from the campus of a University where a number of persons are visiting. It is almost improbable to connect the card to a particular person, not to speak about the assessee-trust. Therefore, in a case where even a remote nexus is not established between the assessee-trust and the said visiting card, it is not possible to make out a case that the card should be considered against the assessee-trust. It could only be a presumption. Accordingly, we hold that the Commissioner of Income-tax (Appeals) has rightly deleted the said addition.
31.2. This issue is also decided in favour of the assessee. 32.1. The last issue to be considered is whether the Assessing Officer is justified in making addition on the basis of the cash withdrawals from banks. The addition is made by the Assessing Officer on the ground that Shri Jeppiaar, Managing :- 40 -: ITA 1333, 1334 etc & CO 116 to 120/10 Trustee of the assessee-trust has made a number of cash withdrawals from the bank accounts of the assessee-trust for which details were not furnished. In this matter, the Commissioner of Income-tax (Appeals) has asked for a remand report for the assessment year 2007-08. The remand report has stated that the correct amount of cash withdrawals was `18,31,95,000/- and not ` 36,19,45,000/- as stated in the assessment order. It is also stated in the remand report that Shri Jeppiaar is the Chairman of the assessee-trust who is the authorized person to draw funds from the banks to meet various expenses of the assessee-trust. All these withdrawals made from the banks and the corresponding expenses incurred by the trust have been properly accounted in the day-to-day cash book maintained by the assessee-trust. It is stated in the remand report that the expenses were in the nature of construction, mess, transport etc. Relevant details and vouchers are available to support the expenditure. It is in the above circumstances that the Commissioner of Income-tax (Appeals) has deleted the said addition.
:- 41 -: ITA 1333, 1334 etc & CO 116 to 120/10 32.2. We have nothing to state more than the observation of the Commissioner of Income-tax (Appeals), as far as this point is concerned. The assessee is a trust. It cannot be operated by itself but only through authorized signatories. Shri Jeppiaar is the Chairman of the assessee-trust and he is the authorized person to operate the bank accounts. Therefore, it is his duty to withdraw cash from the banks on a day-to-day basis whenever it is necessary. It does not mean that all the cash withdrawals were for his personal use. The cash withdrawals from the banks are made to meet various expenditure like construction, mess, transport etc. All these withdrawals are recorded in the books of account. The corresponding expenditure incurred by the assessee are also recorded in the books of account, Those expenses are supported by bills and vouchers. In these circumstances, we do not find any justification to treat these withdrawals as taxable income of the assessee-trust. The Commissioner of Income-tax (Appeals) has therefore, rightly deleted the said amount.
32.3. This issue is also decided in favour of the assessee.
:- 42 -: ITA 1333, 1334 etc & CO 116 to 120/10
33. We have considered all the issues raised by the Revenue in its appeals for the impugned seven assessment years from 2001-02 to 2007-08. The appeals are disposed of on adjudicating the issues raised therein. All the issues are not raised for all the assessment years. The only common issue raised for all the assessment years is the question of exemption available under sec.11 and consequently the justification of the addition in excess of income over expenditure. The question of corpus donations arises for three assessment years, 2001-02, 2002-03 and 2003-04. The question of cash payments under sec.40A(3) arises for assessment years 2001-02 and 2002-03. The question of capitation fee arises for all the assessment years under appeals. The question of issue of donations to M/s. Jeppiaar Remibai Educational Trust arises only for two assessment years 2006-07 and 2007-08. The addition on the basis of visiting card and withdrawals from the banks arise only for the assessment year 2007-08. All the issues raised by the Revenue in its appeals have been decided in assessee's favour by confirming the respective orders of the Commissioner of :- 43 -: ITA 1333, 1334 etc & CO 116 to 120/10 Income-tax (Appeals). Therefore, the appeals filed by the Revenue are liable to be dismissed.
34. Now we will consider the cross objections filed by the assessee for five assessment years 2003-04 to 2007-08. The first common ground raised by the assessee is that the Commissioner of Income-tax (Appeals) has erred in holding that the impugned assessments are not barred by limitation. This contention has been raised by the assessee on the ground of the vagaries of dates of passing and serving the assessment orders. The assessment orders are dated 30.12.2008. The assessment orders were served on the assessee on 3.1.2009. The last date of the limitation period was 31.12.2008. By going through the relevant dates, the assessee made a ground that if the assessment orders were passed on or before 31.12.2008, the assessment orders would have been served on the assessee before 3.1.2009 and therefore, the assessment orders were not passed on or before 31.12.2008 and barred by limitation. We only say that this is an argument for the sake of an argument without any basis. The assessment orders were served on the :- 44 -: ITA 1333, 1334 etc & CO 116 to 120/10 assessee on 3.1.2009. The assessment orders are dated 30.12.2008. Even if the assessment orders are dispatched on the same day, there is no guarantee that the assessment orders must reach the assessee on or before 3.1.2009. This is just a presumption made by the assessee. The Commissioner of Income-tax (Appeals) rightly rejected this contention of the assessee. This ground of the assessee is, therefore, rejected. 35.1. The next common ground raised by the assessee is that the Commissioner of Income-tax (Appeals) has erred in holding that the amounts paid to M/s. Holy Satellite Town Ltd. were in violation of sec.13(1)(d) of the I.T. Act, 1961 and thereby sustaining those additions.
35.2. The assessee-trust had made certain payments to M/s. Holy Satellite Town Ltd. The payments were made for the supply of ready mix concrete for construction of assessee's buildings. M/s. Holy Satellite Town Ltd. is an associate concern coming within the purview of sec.13(3). The Assessing Officer and the Commissioner of Income-tax (Appeals) held that the payments were made by the assessee-trust to the said company, :- 45 -: ITA 1333, 1334 etc & CO 116 to 120/10 even when balance of amounts are still recoverable from that company. It is the case of the lower authorities that when huge balances are outstanding from M/s. Holy Satellite Town Ltd., there was no justification for the assessee to make further payments in favour of that company. It is also the finding of the lower authorities that M/s. Holy Satellite Town Ltd. has supplied ready mix concrete not only to the assessee-trust but also to outsiders. It is, in these facts and circumstances of the case, that the lower authorities have held that the advances made by the assessee to M/s. Holy Satellite Town Ltd. were in the nature of deposits made in contravention of sec.13(1)(d).
35.3. We considered the issue in a detailed manner. It is a fact on record as well as reinforced by the observations of the lower authorities that M/s. Holy Satellite Town Ltd. is engaged in the business of ready mix concrete and the said company is supplying the entire quantity of ready mix concrete required by the assessee-trust for constructing its buildings. The case of the lower authorities is that M/s. Holy Satellite Town Ltd. is supplying ready mix concrete to outside parties also. But the most important question to be looked into, is whether the assessee-
:- 46 -: ITA 1333, 1334 etc & CO 116 to 120/10 trust has purchased ready mix concrete from any party other than M/s. Holy Satellite Town Ltd.. The answer is no. The assessee is purchasing ready mix concrete only from M/s. Holy Satellite Town Ltd. It may be selling outsiders when surplus ready mix concrete is available occasionally. That fact does not dilute the business relationship between the assessee-trust and M/s. Holy Satellite Town Ltd.
35.4. The contention of the assessee-trust is that as the assessee is constructing buildings and campuses for housing its educational institutions at a large scale and therefore necessary to ensure uninterrupted supply of ready mix concrete. It is for that purpose according to the assessee, advances are given to M/s. Holy Satellite Town Ltd..
35.5. It is also to be seen that M/s. Holy Satellite Town Ltd. is supplying ready mix concrete to the assessee-trust, by and large at the rate lower than the open market rate. 35.6. When these crucial facts are considered together, and the normal conclusion arrived at is that the relation between the assessee-trust and M/s. Holy Satellite Town Ltd. is business :- 47 -: ITA 1333, 1334 etc & CO 116 to 120/10 relation. The corollary of this finding is that the account of M/s. Holy Satellite Town Ltd. maintained in the accounts of the assessee-trust is a running business account. These basic characteristics are not changed only for the reason that M/s. Holy Satellite Town Ltd. is an entity coming under sec.13(3). 35.7. When M/s. Holy Satellite Town Ltd. is supplying the entire requirement of ready mix concrete to the assessee-trust and maintaining a running account with the assessee, it is not possible to hold a view that the amounts advanced by the assessee-trust to M/s. Holy Satellite Town Ltd. were in the nature of investments or deposits. The distinction between the advance for supply and deposits or investments is obvious which does not call much discussion. The assessee-trust has already given huge amounts as advance to M/s. Holy Satellite Town Ltd. and still continues to give such advances, do not make the advances as deposits and investments. The fundamental character of the transaction is of business transaction. It is also to be seen that the business relation is justified as M/s. Holy Satellite Town Ltd. is :- 48 -: ITA 1333, 1334 etc & CO 116 to 120/10 supplying ready mix concrete at a lower rate to the assessee- trust.
35.8. Therefore, it is our considered view that the balance available in the running account of M/s. Holy Satellite Town Ltd. cannot be construed as a deposit or investment so as to catch the mischief of sec.13(1)(d). The lower authorities are not justified in making additions on this ground.
35.9. Therefore, the additions made by the Assessing Officer and sustained by the Commissioner of Income-tax (Appeals) on the ground of violation of sec.13(1)(d) for the assessment years 2003-04 to 2007-08 are deleted.
36. Accordingly, the cross objections filed by the assessee are partly successful.
37. In result, the appeals filed by the Revenue are dismissed and the cross objections by the assessee are partly allowed.
:- 49 -: ITA 1333, 1334 etc & CO 116 to 120/10 Orders pronounced on Wednesday, the 15th day of June, 2011 at Chennai.
Sd/- Sd/- (HARI OM MARATHA) (Dr.O.K.NARAYANAN) Judicial Member Vice-President Chennai, Dated the 15th June, 2011 mpo*
Copy to : Appellant/Respondent/CIT/CIT(A)/DR