Income Tax Appellate Tribunal - Bangalore
M/S Mookambika Charitable Trust , ... vs Department Of Income Tax on 4 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA Nos.1135 & 1136/Bang/2011
Assessment years : 2005-06 & 2007-08
The Deputy Commissioner Vs. M/s. Mookambika Charitable
of Income Tax, Trust,
Central Circle, Plot No.20, Bidadi Industrial Area,
Mysore. Ramanagara Taluk,
Bangalore Rural District - 562 109.
PAN: AABTM 7397M
APPELLANT RESPONDENT
Appellant by : Smt. Susan Thomas Jose, Jt.CIT (DR)
Respondent by : S/Shri V. Srinivasan &
Raghavendra Chakravarthy, C.As.
Date of hearing : 04.06.2013
Date of Pronouncement : 07.06.2013
ORDER
Per N.V. Vasudevan, Judicial Member
These are appeals by the revenue against the common order dated 06.09.2011 of the CIT(Appeals)-VI, Bangalore relating to assessment years 2005-06 & 2007-08.
ITA No.1135 & 1136/Bang/2011 Page 2 of 13
2. The assessee viz., Mookambika Charitable Trust ("MCT" for short) in these appeals came into existence by virtue of Trust Deed dated 19.06.2006. There was another trust by name, Annapoorneshwari Charitable Trust ("ACT" for short). Both these trusts had common trustees. ACT was running Sri Vivekananda Educational Institution ("SVEI" for short), Belavadi, Mysore. There was a survey u/s. 133A of the Act at SVEI, Belavadi, Mysore, which happened to be the premises where the office of ACT as well as MCT functioned. The exact date of survey is not known. Statement of one M.K. Potharaju, one of the trustees of ACT as well as MCT was recorded on 18.01.2007 u/s. 131(1) of the Act by ADIT, Mysore. It is not in dispute that in the course of survey u/s. 133A of the Act in the premises of SVEI School, receipt books of MCT evidencing collection of donations was found. In the statement recorded by ADIT, following questions and answers were given by the trustee, Mr. M.K. Potharaju:-
"Q.3 Are you associated with Mookambika Charitable Trust?
Ans. Yes, I am one of the trustees of Mookambika Charitable Trust which was formed on 19.6.06. I am the President, Sri K.M. Rajashekar is Vice President, Sr. T. Shivalingappa is the Secretary, Sri T. Prabhakara Shetty is the Treasurer.
Q.4 Where are the books of a/c of Mookambika Charitable Trust are maintained?
Ans. It is maintained at S.V.E.I. School, Belwadi, Mysore.
Accountant of the SVEI School is maintaining the accounts.
ITA No.1135 & 1136/Bang/2011 Page 3 of 13 Q.5 I am showing you the receipt Book Nos. 1 to 7 Exhibit No. A/SVEI/17. Pl. identify this.
Ans. It is the receipt Book of Mookambika Charitable Trust towards colln. of donation. These donations are collected from the students of the school and credited to the S.B. A/c. of "The Principal, SVEI School".
Q.6 In the Receipt Book No.1, Exhibit No.A/SVIE/17, the donations are collected from 16.4.04, it is before the execution of trust deed. What do you say?
Ans. I do not have any idea. However, the donations collected prior to the execution of trust deed have been handed over to the Principal & deposited into the Bank A/c of Principal, SVEI School / Annapoorneshwari Trust, which has been used for educational purposes.
Q.7 Whether any register/document is maintained by the Mookambika Charitable Trust for accounting the donations and for crediting it to Bank A/c.
Ans. Yes, Regular colln. Register is maintained. It is possible to identify such entries. All donations from 16.4.04 are accounted and are verifiable.
Q.8 Do you want to say anything else.
Ans. No."
3. The main aspect to be noted in the above statement is the fact that donations collected by issue of receipts by MCT are deposited in the bank A/C. of Principal, SVEI school which is admittedly run by ACT. It is not in dispute that a sum of Rs.4,26,000 was the sum total of receipts issued by MCT relatable to previous year relevant to assessment year 2005-06 and a sum of Rs.37,26,850 relatable to previous year relevant to assessment year 2007-08. Consequent to the survey proceedings, notice u/s. 148 of the Act was issued on 28.09.2009 for A.Y. 2005-06 and A.Y. 2007-08 to the ITA No.1135 & 1136/Bang/2011 Page 4 of 13 assessee calling upon the assessee to file return of income for the aforesaid assessment years. For the A.Y. 2005-06, the assessee filed return of income declaring total income of Rs.2,050 after showing gross receipts of Rs.4,30,000. For the A.Y. 2007-08, the assessee filed a return of income declaring Nil taxable income after showing gross receipts of Rs.66,40,890. In the course of scrutiny assessment proceedings, the question that came up for consideration before the AO was with regard to taxing the sum of Rs.4,26,000 and Rs.37,26,850 said to have been received by the assessee, evidenced by the receipt books of the assessee found in the course of survey.
4. The assessee submitted before the AO that it was constituted by a Deed of Trust dated 18.06.2006 and therefore the question of taxing the assessee for the A.Y. 2005-06 when the assessee did not come into existence does not arise for consideration at all. The assessee further submitted that its trustees, as well as trustees of ACT, were one and the same. It was submitted that ACT was constituted by a Deed of Trust in the year 1991 and was running number of schools and educational institutions upto Pre-University level. It was submitted that the trustees of ACT had an idea of commencing post-graduation course in Business Administration and Computer Analysis. It was also submitted that ACT was advised to start post-graduation courses under a separate entity. It was in this background that MCT was constituted. It was submitted that even before the assessee (MCT) was constituted, stationeries were printed including receipt book of the assessee. These were also kept in the common office of the assessee ITA No.1135 & 1136/Bang/2011 Page 5 of 13 as well as ACT viz., SVEI, Belavadi, Mysore. The assessee submitted that the staff unknowingly used the receipt books of the assessee, while collecting building funds, donation, etc. from the students of ACT. The assessee pointed out that the collections evidenced by the receipt books found at the time of survey in the name of the assessee were all reflected as fees collection of ACT. It was also pointed out that even in the statement recorded at the time of survey, it was clearly mentioned that the donations collected as evidenced by the receipt books in the name of the assessee were credited to the SB account of "The Principal, SVEI School". It was thus submitted that the receipt books found at the time of survey evidenced collections of ACT and not the assessee. It was submitted that:-
(i) the trust was non-existent during the year of collection,
(ii) the collection was made by the employees of Annapoorneshwari Trust by using a receipt book named "Mookambika Charitable Trust",
(iii) the funds so collected was never kept apart or handed over to the prospective Trustees of Mookambika Charitable Trust,
(iv) all the funds collections were accounted in the books of "Sri Annapoorneshwari Trust" and even deposited into its savings bank account known as "The Principal - SVEI", Mysore."
5. Alternatively, it was submitted that without prejudice to the above and assuming for argument sake without conceding that the donations collected represent income/receipt in the hands of the assessee trust, then, it would be improper to merely look at the receipts alone ignoring the fact ITA No.1135 & 1136/Bang/2011 Page 6 of 13 that the same has been deposited in the bank account of M/s. Annapoorneshwari Trust. In the Income and Expenditure account filed along with the return in response to the notice u/s. 148 of the Act the assessee had adopted this view and had shown the collection of donation as receipt and the amount deposit in the bank account of M/s. Annapoorneshwari Trust as application. In other words, the amounts collected were paid to M/s. Annapoorneshwari Trust and there is no doubt on this aspect of this matter at all. It was submitted that the fact that the donations collected have been applied cannot be ignored and full effect for the same has to be given.
6. It was further submitted that the consequence of non-registration u/s. 12A of the Act for the year under appeal means that the assessee is not entitled to exemption u/s 11 of the Act. However, that does not mean that the receipts of the assessee have to be considered as income de hors the application of the funds. It was submitted that the assessee has to be considered as an AOP and what is assessable is the income of the AOP and not the gross receipts. It was submitted that the receipt of donations and the application of the same by depositing the funds in the bank account of M/s. Annapoorneshwari Trust has to be regarded as income and expenditure of the AOP. Thus, even adopting the view that the receipts of donation constitute the income of the assessee, in light of the fact that the same has been deposited in the bank account of M/s. Annapoorneshwari Trust, it would lead to the inescapable conclusion that the assessee has expended the amount so deposited and that there would be no income ITA No.1135 & 1136/Bang/2011 Page 7 of 13 assessable for the year under appeal. From this angle of the matter also, there is no justification for making an addition of Rs. 4,26,000/- and 37,23,255/- and taxing the same at maximum marginal rate in the hands of the assessee.
7. The AO did not agree with the submissions made by the assessee. She held that the collections evidenced by the receipt book found at the time of survey in the name of the assessee were income of the assessee. She was of the view that the plea of the assessee that it came into existence only on 19.06.2006 was purely an afterthought. She was of the view that the trust was in existence and had not been registered u/s. 12A prior to 19.06.2006. The assessee made an application for grant of registration u/s. 12A and has been allowed registration u/s. 12A of the Act by an order dated 29.06.2007 with effect from the date of establishment of the trust viz., 19.06.2006. The AO was of the following view :-
"5. In this case, the deed was put to writing on 19.06.2006. Then the application was submitted to the Commissioner. The commissioner has granted the registration. Now the assessee has submitted that since the Trust is registered during the financial year the entire income for the year is exempt for the reason that income is recognized at the end of the year.
As per the provisions of the Act the assessee has to make an application before the Commissioner u/s 12A. One of the prerequisites for making such an application is to draw up a deed. Prior to drawing up the Trust deed, an oral trust may exist which in fact exists in this case. The fact that it exists is evidenced by the receipt books. Therefore even if registration u/s 12A is granted, it can be only from the date of the deed and not prior to it. The law does not contemplate any such thing. So the income of the trust from the date of deed can only be exempt u/s 11."
ITA No.1135 & 1136/Bang/2011 Page 8 of 13
8. For the A.Y. 2005-06, the AO was of the view that since the assessee did not have registration u/.s 12A of the Act, the assessee cannot get the benefit of section 11 of the Act.
9. With regard to the alternative contention raised by the assessee, the AO held as follows:-
"Thus the assessee has taken a stand that the income accrues as on the day of the closing of books of accounts. As per the provisions of the Act, in the case of a trust, any voluntary donation received is income of the Trust. The recognition of income in the hands of a trust is not governed by principles of accountancy for the reason that the income of a trust is not just revenue generated from an activity, but also voluntary donation which in fact otherwise is capital in nature. Hence the above argument of the assessee does not hold good.
Therefore the total donation received from 01.04.06 till the date of registration of trust i.e. 19.06.06 amounting to Rs.37,26,850/- is considered as income. Proportionate expenses of Rs.3,595/- is granted and Rs.37,23,255/- is taxed as Income or the Trust at maximum marginal rate. The assessment is completed as under:"
10. Aggrieved by the addition made by the AO for the A.Ys. 2005-06 & 2007-08, the assessee preferred an appeal before the CIT(Appeals). The submissions as were made before the AO were reiterated before the CIT(A).
11. The ld. CIT(Appeals) on a consideration of the above submissions, deleted the additions made by the AO. The CIT(A) held that there was not dispute that the fees collected by issue receipts in the name of the Assessee were eventually deposited into the SB a/c of the Principal - SVEI ITA No.1135 & 1136/Bang/2011 Page 9 of 13 school which is run by M/s Annapoorneshwari Trust. He accepted the plea that the staff of M/s Annapoorneshwari Trust had used the receipt books of the newly contemplated trust of M/s Mookambika Charitable Trust, inadvertently without realizing the consequences and without knowing that the two Trusts cater to the needs of different educational institutions. The CIT(A) found that eventually the entire collections have gone to the account of M/s Annapoorneshwari Trust and the bank account of M/s Annapoorneshwari Trust reflects the entire collections. The CIT(A) also held that since the entire collections have gone to the other Trust as reflected in the bank account of Principal, SVEI school, the assessee could only be considered as having collected donations for and on behalf of M/s Annapoorneshwari Trust. He held that a simple mistake of the clerical staff does not make the contemplated new Trust liable for assessing the amount of donation collected by the staff using wrong receipt books. He also held that the Assessee ought not to have shown receipts and payments when the entire amount is accounted by the other Trust being M/s Annapoorneshwari Trust. Since the entire amount of donation collected during F.Y. 2004-05 and during 01.04.2006 to 18.06.2006 when the appellant was not at all in existence, but using the receipt books of the contemplated new Trust viz., the appellant, is remitted in the bank account of M/s Annapoorneshwari Trust, the entire receipts are to be regarded as that of M/s Annapoorneshwari Trust and not that of the assessee. Accordingly, he held that the assessment of income in the hands of the assessee for both the years is not proper and the same was deleted.
ITA No.1135 & 1136/Bang/2011 Page 10 of 13
12. Aggrieved by the order of the ld. CIT(Appeals), the revenue has preferred the present appeals before the Tribunal.
13. We have heard the rival submissions. The ld. DR while reiterating the stand of the AO as reflected in the orders of assessment for the A.Y. 2005-06 & 2007-08, submitted that the CIT(A) ought not to have accepted the plea of the assessee that the staff of the ACT had inadvertently used the receipt books of the assessee. It was submitted that the further conclusion of the CIT(A) that the collections evidenced by receipt books of the assessee were collections of ACT is a finding which has been given without evidence on record and contrary to the statement of the trustee recorded u/s. 131 of the Act after the date of survey. It was also submitted that the finding of the CIT(A) that in A.Y. 2005-06, the assessee did not exist is incorrect.
14. The ld. counsel for the assessee relied on the order of the CIT(A) and reiterated the submissions as were made before the CIT(A).
15. We have heard the rival submissions. As far as A.Y. 2005-06 is concerned, we are of the view that the assessment made by the AO for that assessment year cannot be sustained. Admittedly, the assessee trust was constituted by Deed of Trust dated 18.06.2006. Therefore, during the previous year relevant to A.Y. 2005-06, the assessee trust was not in existence and therefore no assessment could be made in the name of a non-existent person. The AO seems to have proceeded on the ITA No.1135 & 1136/Bang/2011 Page 11 of 13 presumption that prior to the drawing of the trust deed dated 18.06.2006, the oral trust had come into existence and that is the reason why the receipt books had been printed in the name of the assessee. As rightly submitted by the assessee, the oral trusts are not valid in law. Therefore the basis on which the AO sought to sustain the assessment in the A.Y. 2005-06, in our view, cannot be accepted. Therefore, we confirm the order of the CIT(Appeals) as far as A.Y. 2005-06 is concerned, though for different reasons.
16. As far as A.Y. 2007-08 is concerned, we have seen the statement of one of the trustees recorded u/s. 131 of the Act on 18.01.2007. It is clear from the answer to Q.5 that receipts evidenced by the receipt book of the assessee were credited to SB account of the 'The Principal, SVEI School'. Admittedly, SVEI School was run by ACT and not the assessee. It is also further interesting to note that no question has been put to the trustee of the ACT as to why the amounts collected in the name of the MCT were being put in the SB account of SVEI School, which is run by ACT. These circumstances, in our view, only go to show that there was no admission at the time of survey or any subsequent proceedings thereto, that the donations evidenced by the receipt books in the name of MCT were at any point of time admitted to belong to MCT, the assessee.
17. In the course of assessment proceedings, the assessee explained the reasons as to how because of the common office of the assessee trust as well as ACT, the staff issuing receipts had wrongly used the receipt ITA No.1135 & 1136/Bang/2011 Page 12 of 13 book of the assessee instead of ACT. In our view, the collections evidenced by the receipt issued in the name of MCT were being deposited to the credit of a school run by ACT shows that the plea put forth by the assessee that the collections in question belonged to ACT is acceptable. It is thus a case of a mistake that the assessee's receipt books were used for recording collections by ACT. We are of the view that the ld. CIT(Appeals) has rightly considered all the surrounding circumstances and come to the conclusion that the donations in question were donations received by ACT. The fact that ACT accounted for all these receipts is also not in dispute. In the circumstances, we are of the view that the findings of the CIT(A) do not call for any interference. As a result, we do not find merits in both these appeals of the revenue and dismiss the same.
18. In the result, the appeals by the revenue are dismissed.
Pronounced in the open court on this 7th day of June, 2013.
Sd/- Sd/-
( JASON P. BOAZ ) ( N.V. VASUDEVAN )
Accountant Member Judicial Member
Bangalore,
Dated, the 7th June, 2013.
DS/-
ITA No.1135 & 1136/Bang/2011
Page 13 of 13
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.