2014 (2) TMI 305 - AT - Income Tax

Whether the assessee is entitled for exemption u/s 10(22) and 10(23C) - Held that - Relying upon the decision in Sole Trustee Loka Shikshana Trust vs Commissioner of Income-tax 1975 (8) TMI 1 - SUPREME Court - When there is no obligation to utilize the profit arising out of charitable activity for charitable purpose the income is not entitled for exemption - In assessee s case the trust is admittedly established for the benefit of children of Mrs. Sula Jayakumar - There is no obligation to use the surplus funds for the charitable purpose viz. education - As per the trust deed the profit would go to the benefit of children of Mrs. Sula Jayakumar - The assessee is not in existence solely for educational purpose - The assessee trust exists only for profit motive - The issue has been restored for fresh adjudication. Unexplained deposits - Held that - The assessee trust is not registered u/s 12A of the Act and not eligible for exemption u/s 11 of the Act - The income of the assessee trust has to be computed on commercial principles - The source of the so-called corpus fund was not explained by the assessee - Ther is no material on record to show that the income was generated in the course of the activity of the assessee trust or it was received from identifiable sources - The issue has been restored for fresh adjudication. Unaccounted income - Held that - The receipt (monthly fee and term fee) was not recorded in the books of account maintained in the regular course of activities - It was unearthed during the course of search operation - Merely because the time limit for filing the return of income has not expired the receipt which was not entered in the books of account cannot be excluded - The issue has been restored for fresh adjudication. Disallowance u/s 40A(3) - Held that - The certificate of registration produced before CIT(A) was not available before the assessing officer - The genuineness of the trust was not enquired into by the assessing officer the issue needs to be examined by the assessing officer - The issue has been restored for fresh adjudication. Levy of surcharge u/s 113 - Held that - Relying upon the decision in Commissioner Of Income-Tax Versus Suresh N. Gupta 2008 (1) TMI 396 - SUPREME Court - Surcharge can be levied even before the amendment of section 113 of the Act in view of the Finance Act passed by the Parliament in the respective assessment year - The issue has been restored for fresh adjudication. Validity of the block assessment made u/s 158BD - Held that - The assessee trust is a person other than searched person - The proceedings have been validly been initiated u/s 158BD of the Act - Decided against assessee. Whether assessment order passed after time limit - Held that - The search took place on 28-05-2002 notice u/s 158BC r.w.s. 158BD was issued on 12-12-2002 and the assessment order was passed on 30-12-2004 - The order passed by the assessing officer is within the period of two years as provided in section 158BE(2)(b) of the Act - Decided against assessee.

Summary

Issues Involved:
1. Eligibility for exemption under Section 10(22) and 10(23C) of the Income Tax Act.
2. Treatment of development funds collected.
3. Addition of Rs.5 lakhs as undisclosed income.
4. Addition of Rs.19,82,672 for unaccounted monthly and term fees.
5. Addition of Rs.16,27,738 and Rs.3,61,040 related to sale of books and disallowance under Section 40A(3).
6. Addition of Rs.6,47,000 based on confirmation letters.
7. Levy of surcharge under Section 113.
8. Validity of block assessment under Section 158BD.
9. Limitation period for assessment.
10. Validity of corrigendum issued by the assessing officer.

Detailed Analysis:

1. Eligibility for Exemption under Section 10(22) and 10(23C):
The Tribunal analyzed whether the trust was eligible for exemption under Section 10(22) and 10(23C) of the Income Tax Act. It was noted that the trust was established for the benefit of the children of Mrs. Sula Jayakumar and was a private family trust. The Tribunal found that the trust had a profit motive as the children could appropriate the profits, and there was no obligation to reinvest the profits into educational activities. Citing the Supreme Court's decision in Sole Trustee, Loka Shikshana Trust vs Commissioner of Income-tax, it was concluded that the trust did not exist solely for educational purposes and was not eligible for exemption under these sections.

2. Treatment of Development Funds Collected:
The development funds collected over and above the prescribed fees were not accounted for in the trust's books and were deposited in the individual account of Mrs. Sula Jayakumar. The Tribunal remanded this issue back to the assessing officer to examine whether the funds were capital or revenue receipts.

3. Addition of Rs.5 Lakhs as Undisclosed Income:
The Tribunal found that the source of the so-called corpus fund, which was used to make deposits in the name of Mrs. Sula Jayakumar, was not explained. The CIT(A)'s decision to delete the addition was overturned, and the assessing officer's addition was restored.

4. Addition of Rs.19,82,672 for Unaccounted Monthly and Term Fees:
The Tribunal noted that the monthly and term fees were not recorded in the books of account and were unearthed during the search operation. The CIT(A)'s deletion of the addition was overturned, and the assessing officer's addition was restored.

5. Addition of Rs.16,27,738 and Rs.3,61,040 Related to Sale of Books and Disallowance under Section 40A(3):
The Tribunal remanded the issue back to the assessing officer to examine the genuineness of the Sabarigiri School Society, as the registration certificate and other documents were not produced before the assessing officer.

6. Addition of Rs.6,47,000 Based on Confirmation Letters:
The Tribunal remanded this issue back to the assessing officer for verification of the confirmation letters and other documents filed by the assessee.

7. Levy of Surcharge under Section 113:
The Tribunal upheld the levy of surcharge under Section 113, citing the Supreme Court's decision in CIT vs Suresh N Gupta, which allowed for the levy of surcharge even before the amendment of Section 113.

8. Validity of Block Assessment under Section 158BD:
The Tribunal confirmed the validity of the block assessment initiated under Section 158BD, as the search was conducted on Dr. V.K. Jayakumar, and the assessee trust was a person other than the searched person.

9. Limitation Period for Assessment:
The Tribunal found that the assessment order was passed within the two-year period prescribed under Section 158BE(2)(b) and thus was within the limitation period.

10. Validity of Corrigendum Issued by the Assessing Officer:
The Tribunal upheld the corrigendum issued by the assessing officer, noting that it only corrected the year of assessment and did not affect the additions made.

Conclusion:
The appeal of the revenue was partly allowed, and the cross-objection of the assessee was dismissed. The Tribunal remanded certain issues back to the assessing officer for further examination and verification.