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2024 (11) TMI 357 - AT - Income TaxNature of receipts - receipts of development fund - capital receipt/corpus donation, or revenue receipt - HELD THAT - In the present case, the development fund is received from the students apart from the tuition fees. The development fees are received with the clear understanding that it is to be utilized for creation of capital asset necessary for achieving the object of the society. Therefore, the development fees received during the year is directly credited to development fund account and not routed through the Income Expenditure A/c. The development fund is used in creating construction of school building/creation of infrastructure. Development fees is utilized in creation of capital asset and therefore the same cannot be treated as revenue receipt. In earlier years also, such development fees is accepted by the AO in assessment completed u/s 143(3) as capital receipt. Litmus test of charitable institution - In ACIT vs. JSS Mahavidhyapeetha 2013 (4) TMI 761 - ITAT BANGALORE as stated that the litmus test of charitable institution is the application of funds and not the colour of the contribution. It has stated that the question whether the donations are voluntarily or not becomes irrelevant and what becomes relevant is the application of such contributions on the objects of the trust which are admittedly charitable. If the developer fees is used for the purpose of creating infrastructure then the same would be treated as a capital receipt. We concur with the findings of the ld. CIT(A) who has rightly held development fund is a capital receipt and would not be added to the gross receipt in the Income Expenditure Account. Denial of exemption u/s 11 - advance given to staff and sister concern amounts to the misappropriation of funds - CIT(A) deleted addition - HELD THAT - CIT(A) held that an amount is amount advanced to supplier/contractor/old staff which cannot be considered as an investment. The remaining amount is advance given to other educational institutions which cannot be considered as investment or deposit and thus the question of their falling within the modes prescribed u/s 11(5) do not arise and consequently provisions of section 13(1)(d) are also not applicable. Accordingly, the addition made by the AO was deleted. The Bench has take into consideration the submissions of both the parties and also noted the relevant observations as made by the CIT(A) that the AO has not recorded any finding that the sums of money were given interest free out of the borrowed funds on which interest is payable by the appellant. This is not the issue in the present case Regarding the propriety of giving non interest bearing loans to other institutions the fact is that all the institutions to whom the loans are given are also registered u/s 12AA and are within the control of the same management as the appellant and hence it cannot be said that they are part of any tax avoidance mechanism or scheme by transferring tax exempt funds to non- tax exempt entities. From this observation of the CIT(A) and also the decisions mentioned hereinabove by the assessee, the Bench finds that there is no error in the order of the ld. CIT(A) and thus the Ground No. 4 5 of the Department are dismissed. Rejection of books of accounts u/s 145(3) - adhoc disallowance made by the AO at 20% and partly confirmed at 10% by the ld.CIT(A) - HELD THAT - We note that the ratio of expenses to the receipt has declined to 85.87% as compared to 87.04% in A.Y. 2011-12 and 88.96% in A.Y. 2010-11. Further the above expenditure includes audit fee, building rent expenses, depreciation, electricity water expenses, ESI PF contribution, PF administration charges, salary expenses and supervision charges which is paid by cheque or otherwise not claimed by the assessee. After excluding this amount the expenditure claimed by the assessee. These expenses are otherwise reasonable considering the comparative expenses incurred in previous year which has been accepted by the AO in the earlier assessment orders framed u/s 143(3) of the Act. Hence, the adhoc disallowance of 20% made by the AO which was restricted to 10% by Ld. CIT(A). Considering details of expenses as narrated in the table and also the case laws cited by the ld. AR of the assessee, we do not concur with the findings of the ld.CIT(A).
Issues Involved:
1. Classification of development fund as capital receipt or revenue receipt. 2. Treatment of advances given to other trusts and staff as investments or deposits. 3. Justification of disallowance percentage on total application of income. 4. Rejection of books of accounts under Section 145(3). Issue-wise Detailed Analysis: 1. Classification of Development Fund: The primary issue was whether the development fund of Rs. 2,27,78,950/- should be treated as a capital receipt or a revenue receipt. The CIT(A) concluded that the amount collected as a development fund was a capital receipt, as it was utilized for creating capital assets like infrastructure. The decision referenced multiple judicial precedents, including the ITAT Jaipur Bench's ruling in the case of Global Institute Technology Society, which supported treating development fees as capital receipts when used for infrastructure development. The Tribunal agreed with CIT(A), emphasizing the application of funds rather than the nature of the contributions, thus dismissing the department's appeal. 2. Treatment of Advances: The second issue concerned whether advances of Rs. 1,62,86,091/- given to other trusts and staff should be treated as investments or deposits, potentially violating Section 13(1)(d) of the Income-tax Act. The CIT(A) found that these advances were not investments as they did not confer ownership or secure services. The advances were given to other educational institutions registered under Section 12AA, which shared similar objectives and management. The Tribunal upheld the CIT(A)'s decision, noting that the advances did not constitute a violation of Section 13(1)(d), as they were not investments or deposits. 3. Disallowance Percentage on Total Application of Income: The department challenged the CIT(A)'s reduction of disallowance from 20% to 10% of the total application of Rs. 3,03,53,582/-. The CIT(A) justified the reduction, citing the absence of defects in earlier assessments and the fact that the accounts were duly audited. The Tribunal agreed with the CIT(A), noting that the disallowance was excessive and not supported by evidence of unverified expenses. Consequently, the Tribunal dismissed the department's appeal on this ground. 4. Rejection of Books of Accounts: The assessee contested the rejection of its books of accounts under Section 145(3). The CIT(A) upheld the AO's decision to reject the books due to the non-production of accounts and vouchers. However, the Tribunal found that the ratio of expenses to receipts had declined compared to previous years and that the expenses were reasonable and comparable to earlier periods. The Tribunal allowed the assessee's cross-objection, concluding that the rejection of books and the subsequent disallowance lacked justification. Conclusion: The Tribunal dismissed the department's appeal and allowed the assessee's cross-objection, agreeing with the CIT(A)'s treatment of the development fund as a capital receipt, the non-applicability of Section 13(1)(d) to the advances, and the reduction of disallowance percentage. The Tribunal also overturned the rejection of books of accounts, finding the expenses reasonable and comparable to previous years.
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