9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (10) TMI 825 - AT - Income TaxEntitlement for claiming exemption under sections 11 and 12 - assessee had made investment in violation to section 11(5) of the Income-tax Act - Held that - Even as per section 13 sub-section (4) the investment of the assessee is only 0.77 per cent. of the total paid-up capital of the investee companies. This submission of the assessee was not rebutted by the Revenue authorities. The hon ble Rajasthan High Court in the case of Deputy CIT v. Cosmopolitan Education Society reported in 1999 (8) TMI 13 - RAJASTHAN High Court has held that if misapplication of the funds for the institution is noticed then that does not mean that the institution would lose its charity status. The income from such misapplication can be brought to tax and exemption cannot be denied as observed by the hon ble jurisdictional High Court.In view of the above discussion we are of the view that this one factor cannot be considered as a corroborative factor to say that the assessee is not carrying out its activities in consonance with its object. The investment in the non-specified companies is only 1.68 per cent. of the total asset. It is a very miniscule investment if looked into the overall proportion of the activities of the trust. This should not be considered by the Assessing Officer as a substantial change which can goad him to depart from his stand right from 1975. Agricultural lands are held in the name of the trust and no corresponding books of account have been maintained - held that - On a perusal of the findings of the Assessing Officer extracted (supra) it reveals that the Assessing Officer has assumed that the assessee has not carried out any agricultural activities and it is trying to introduce money collected by way of donations by giving admission in engineering colleges by way of net agricultural activities. We fail to understand what is the evidence possessed by the Assessing Officer for arriving at this conclusions. Even if the accounts are not maintained in a proper way of the agricultural activities then also he could have called for the record of the Revenue authorities of the State Government. It could be ascertained whether 1, 000 coconut 7, 500 mango and 13, 000 beetlenut and banana plants etc. planted in a land of more than 100 acres could give rise of income of 34 lakhs or not. Even if a conservative figure is taken then one acre can easily generate income of 20, 000 to 30, 000 per acre from normal agricultural activities. The findings of the Assessing Officer is thus purely based on guess work and assumption. It is also not discernible how this one factor can indicate that the assessee was not doing charity work. Therefore in our opinion the Assessing Officer failed to bring any substantial material with regard to this factor which can be considered as one of the reasons to say that the assessee is not entitled for exemption under section 11 of the Income-tax Act. Trust has returned corpus donations which are against the object of the trust and collection of huge donations while giving admission in the engineering college - Held that - The Assessing Officer in the assessment years 2006-07 and 2002-03 made a mention of capitation fee but except making discussion of the law he has not referred to any instance which indicate that it was a capitation fee received by the assessee. We could appreciate the efforts of the Assessing Officer had he collected the details of a student or confirmation from any parent indicating that the assessee has taken fees or capitation fee in the form of donations over and above the one determined by the Government such an amount was taken forcibly. Merely by mentioning it is not sufficient to deny exemption under section 11 to an institution which is enjoying such an exemption for more than 25 years Diversion of income towards the trustees their relatives and directors - Held that - There is no prohibition for the trust to take services of the persons specified in sub-clause (3) of section 13 the restriction is that the payment should not be more than the market value of such services. The Assessing Officer has also observed that the assessee has awarded huge work and advanced substantial amount at a higher rate to carry out construction activities to benefit the trust. He has not mentioned the amount advanced by the assessee how it is higher what information he has collected indicating that these advances were not in commensurate with the services those sister concerns had rendered to the assessee. For ascertaining these facts we have reproduced the findings of the learned Assessing Officer. It is nowhere recorded therefore in our view the Assessing Officer failed to collect any evidence with regard to justifying the violation of section 13(1)(c) and 13(3) of the Income-tax Act. Dominant part of the trust is to make profit - Held that - The hon ble Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association reported in 1979 (11) TMI 1 - SUPREME Court has observed that in order to determine whether the activity of a trust is the activities of profit one has to assess that whether the activities carried on with the objective of earning profit and not whether the activity results in profit meaning thereby if a trust is running educational institutions it has to maintain its status and it has to create infrastructure in order to achieve the object. The income or profit is an incidental to such an activity. If the object is only based for making profit then one can understand that the trust has deviated from its object of charity but except making narrations the Assessing Officer has not brought any substance on the record. Also see Pinegrove International Charitable Trust v. Union of India 2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT . The observations of the Assessing Officer are not in consonance with the law propounded in these judgments. - Decided against revenue. Consideration of agricultural income for rate purposes - CIT(A) directed the Assessing Officer that agricultural income should be considered as exempt in case of denial of exemption of the trust is treated as allowed as per provisions of the Act - Held that - Assessing Officer has judged the issues peripherally he has not collected any specific information about any particular issue except the investments made by the assessee in violation to section 11(5). We have observed that this violation is not in excess to 5 per cent. of the total paid up capital of the investee companies and it will not influence the activities of the trust to say that the assessee has extended undue benefit. Even for the sake of argument it is construed that it was an attempt to make undue benefit to the investee companies then also as per the decision of the hon ble jurisdictional High Court the income from such investment would not qualify for exemption under section 11. Apart from this one aspect the Assessing Officer failed to collect any substantial material which can goad him to say that the activities of the assessee are not charitable and it is to be treated differently in these years than the earlier years starting from assessment year 1975 when the trust came into existence. Therefore we allow all the three appeals of the assessee and direct the Assessing Officer to grant exemption under sections 11 and 12 of the Income-tax Act to the assessee in these years and thereafter compute its income - Decided in favour of assesse.
Issues Involved:
1. Reopening of assessments. 2. Investment in shares and securities. 3. Agricultural income and maintenance of accounts. 4. Corpus donations and refund of donations. 5. Collection of donations for admissions. 6. Diversion of income to sister concerns. 7. Profit-making activities of the trust. Detailed Analysis: 1. Reopening of Assessments: The assessee challenged the reopening of assessments for the years 2001-02, 2002-03, and 2006-07. The Supreme Court quashed the reopening for 2001-02 due to lack of proper sanction by the Assessing Officer. The High Court upheld the reopening for 2002-03, and the matter was remanded to the Assessing Officer for fresh consideration. 2. Investment in Shares and Securities: The Assessing Officer noted that the trust invested in non-specified companies, violating Section 11(5) of the Income-tax Act. The assessee argued that the investment was negligible (1.68% of total assets) and should not disqualify the trust from exemption. The Tribunal, relying on the Karnataka High Court's decision in CIT v. Fr. Mullers Charitable Institutions, held that only the income from such investments should be taxed at the maximum marginal rate, not the entire income of the trust. 3. Agricultural Income and Maintenance of Accounts: The Assessing Officer questioned the genuineness of the agricultural income declared by the trust due to lack of separate books of account and the condition of the agricultural lands. The Tribunal found the Assessing Officer's conclusions to be based on assumptions and held that the agricultural income declared by the trust was reasonable given the evidence of land holdings and plantations. 4. Corpus Donations and Refund of Donations: The Assessing Officer contended that the trust failed to provide specific directions from donors for corpus donations and treated the donations as unexplained cash credits under Section 68. The Tribunal noted that the assessee had recognized the donations as income and applied them for charitable purposes. The Tribunal also found that the refunds were related to fees paid by students who later canceled their admissions, not corpus donations. 5. Collection of Donations for Admissions: The Assessing Officer alleged that the trust collected capitation fees for admissions. The Tribunal found no evidence to support this claim and noted that the fees collected were as prescribed by the Government of Karnataka. The Tribunal held that voluntary donations received by the trust did not violate any provisions of the Income-tax Act. 6. Diversion of Income to Sister Concerns: The Assessing Officer argued that the trust diverted income to sister concerns by awarding construction contracts and letting out buildings at nominal rents. The Tribunal found that the payments made for services were reasonable and at arm's length. The Tribunal held that the Assessing Officer failed to demonstrate any undue benefit extended to the trustees or their relatives. 7. Profit-making Activities of the Trust: The Assessing Officer claimed that the trust existed solely for profit-making. The Tribunal, relying on the Supreme Court's decision in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association, held that the profit generated was incidental to the trust's charitable activities and did not indicate a deviation from its charitable objects. Conclusion: The Tribunal allowed the appeals of the assessee for the assessment years 2005-06, 2002-03, and 2006-07, directing the Assessing Officer to grant exemptions under Sections 11 and 12 of the Income-tax Act. The Tribunal dismissed the Revenue's appeal for the assessment year 2005-06, upholding the assessee's claim of agricultural income and other charitable activities. The order was pronounced on December 10, 2014.
|
