2016 (4) TMI 84 - AT - Income Tax

Additional/capitation fees recipt - Registration granted u/s 12AA cancelled - Held that - It is important to mention here that the department has chosen to bring to tax the same additional/capitation fees collected, both in the hands of society as well as in the hands of Mr. K.T. Mahi. The same amount cannot be brought to tax in the hands of two persons. From this, it is evident that the Assessing Officer is not able to come to any conclusion as the person to whom, this income belongs. The substantive additions in the hands of both the assessees are not sustainable. Shri K.T. Mahi has offered the income in his hands and therefore the revenue had no option but to accept the returned income by Shri K.T. Mahi. Since, the revenue has accepted the income offered by Shri K.T. Mahi in his hands, bringing the same to tax in the hands of the society also by making addition amounts to double taxation of the same amount which is not justified as the principle that is applicable in tax statutes is that an income can be subjected to tax in the hands of one person only. Therefore, we hold that the income cannot be charged to tax in the hands of society as well as in the hands of trustee cum secretary of the society. We are inclined to adjudicate that the additional fees collected should be assessed only in the hands of Mr. Mahi and the same should be deleted to be assessed in the hands of society. With regard to quantification of unaccounted receipts by the Assessing Officer, the Assessing Officer had quantified the same at ₹ 16.62 crores instead of ₹ 16.50 crores as accepted by Mr. Mahi. The calculation is based on the investment made by Mr. Mahi in his individual name as well as in his own companies and the material seized during search. As the Assessing Officer had assessed the same in the hands of Mr. K.T. Mahi, the same cannot be brought to tax in the hands of the society. Assessing Officer cannot estimate the unaccounted receipts for all the assessment years based on the material found in the search proceedings relating to a particular AY without any cogent material available for the other AYs and without any statement/deposition of any of the office bearers of the society that it has collected additional fees in the earlier years also. With regard to pending assessments which abated in view of the provisions of section 153A of the Act, the Assessing Officer had already made addition based on the materials seized during the course of search. Apart from that, revenue has not found anything more to suggest that the assessee had collected beyond seized materials nor it has got any deposition from the office bearers of the society that it had collected beyond seized materials. In the absence of such findings, we delete the additions made based on estimation of additional capitation fees collected. Disallowance u/s 40(a)(ia), as held in the case of Mahatma Gandhi Seva Mandir Vs. DDIT(E) (2012 (5) TMI 396 - ITAT MUMBAI ), section 40 is applicable only when deductions u/s 30-38 are being made in computing income chargeable under the head profits and gains of business or profession u/s 28. Similarly, provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11. - Decided in favour of assessee

Issues Involved:
1. Jurisdiction of the search on the Society.
2. Status of the assessment as an Association of Persons (AOP).
3. Addition of undisclosed income based on extrapolation of capitation fees.
4. Denial of exemption under Section 11 and Section 10(23C).
5. Disallowance under Section 40(a)(ia).
6. Assessment of total income of the Society.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Search on the Society:
The assessee contended that the search on the Society was without proper jurisdiction and that the Assessing Officer (AO) did not acquire jurisdiction to conduct the assessments, which should be declared a nullity. However, this argument was not upheld as the search was conducted based on credible information regarding unaccounted income and investments.

2. Status of the Assessment as an Association of Persons (AOP):
The AO assessed the income of the Society in the status of an AOP, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) observed that the Society was involved in activities that were not solely for educational purposes but for profit, thus justifying the assessment as an AOP.

3. Addition of Undisclosed Income Based on Extrapolation of Capitation Fees:
The AO quantified unaccounted receipts for various years based on seized documents and statements recorded during the search, concluding that the Society was collecting capitation fees over and above the prescribed fees. The CIT(A) upheld the AO's estimation of suppressed income for the years 2004-05 to 2007-08 based on the evidence found for subsequent years, stating that the practice of collecting capitation fees was not an isolated instance.

4. Denial of Exemption under Section 11 and Section 10(23C):
The AO denied the exemption under Section 11 and Section 10(23C)(vi) on the grounds that the Society was collecting capitation fees and using the funds for personal benefits, thus violating the provisions of Section 13(1)(c). The CIT(A) upheld this denial, emphasizing that the Society's activities were not solely for educational purposes but for profit. However, the ITAT had previously restored the Society's registration under Section 12AA, stating that the excess fees were collected by an individual (Shri K.T. Mahi) without the authority of the Society.

5. Disallowance under Section 40(a)(ia):
The AO disallowed certain expenditures under Section 40(a)(ia) due to non-payment of TDS on payments towards contracts, rent, and professional charges. The CIT(A) upheld these disallowances. However, the ITAT, following the decision in Mahatma Gandhi Seva Mandir vs. DDIT(E), held that Section 40(a)(ia) is not applicable to charitable trusts where income and expenditure are computed under Section 11.

6. Assessment of Total Income of the Society:
The AO computed the total income for the assessment years 2004-05 to 2010-11 by adding unaccounted receipts and disallowing certain expenditures. The CIT(A) upheld these computations, but the ITAT held that the additional fees collected should be assessed only in the hands of Shri K.T. Mahi, not the Society, to avoid double taxation.

Conclusion:
The ITAT concluded that the additional fees collected should be assessed in the hands of Shri K.T. Mahi, not the Society. The disallowances under Section 40(a)(ia) were deleted, and the extrapolation of income for earlier years was not justified without cogent material. The appeals of the assessee were allowed, and the assessment orders were modified accordingly.

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