2012 (10) TMI 14 - AT - Income Tax

Addition on account of capitation fee Assessee is a public charitable trust registered for the purpose of carrying on educational activities - Revenue argues that even assuming that capitation fee is booked under the building fund, the character of the receipt is business income and not that of donation or corpus donation Held that - Even if the colour of certain receipts is characterized as capitation fees, if those receipts are applied for the purpose of the assessee trust, the colour attached to the receipts does not vitiate the status of the assessee as a trust eligible for exemption u/s 11. As the assessee has applied the entire such receipts characterized as capitation fees for the purposes of carrying on its educational activities, such receipts cannot be treated as income in the hands of the assessee. Therefore appeal decides in favour of assessee Application of income towards building fund AO disallow on the basis of that assessee failed to satisfying application of income by capitation fee, the investments of the trust must come out of current year s income and that has not proved the nexus as per accounts by producing books of accounts, vouchers, etc. - Held that - Building fund is used only for the purpose of constructing buildings. Therefore, there is no justification in treating the receipts towards building fund in a different way, as they are applied for educational purposes which is to be treated as application for charitable purposes and as such not taxable in the hands of the assessee. Appeal decides in favour of assessee Addition on account of sundry creditors AO holds that assessee has not proved the creditors before the assessing authority Held that - Nothing was brought out in the course of search to show that the sundry creditors reflected in the accounts were not genuine. All the relevant details were submitted before the AO. Therefore, when no adverse materials are found against the assessee, there is no reason to disbelieve the closing credit balances and make corresponding additions. Appeal decides in favour of assessee Addition on account suppression in fee receipts by trust Assessment has been completed on the basis of receipt shown by assessee as fees from student Held that - The fee collection admitted by the assessee in the return of income is more than the gross fee collection reflected in the seized material. Therefore there is no need of any separate addition towards suppression, as the situation has been covered by a higher amount of fee disclosed by the assessee in its return of income. Appeal decides in favour of assessee Addition made against cash found in the course of search Rs. 19 lakhs The total cash balance available on the date of search was more than Rs. 90 lakhs as per books - The registered office of the trust is the residence of the trustee where Rs. 10 lakhs were found out of Rs 19 lakhs - Held that - As the assessee trust was only holding funds properly accounted and it was not an application or diversion of funds. The cash found and seized in the course of search is not a ground to make an allegation that the trustees have diverted the funds of the assessee-trust for activities other than its objectives. Appeal decides in favour of assessee Validity of notice u/s 153A on basis of AO s jurisdiction - Assessee contended that no search warrant against the assessee trust and as such no notice u/s 153A could be issued against the assessee Search warrant was issued in the name of assessee, who is one of the trustees, and there was no warrant against the name of the assessee trust itself - Office of the assessee trust and the residence of trustee both are the same building Held that - As the warrant also reflected the name of assessee as well as the assessee trust. By reading the warrant and Panchanama that the search was meant to cover the assessee trust and its institutions. Therefore, the search carried out in the registered office of the trust itself takes care of the entire institutions. Merely non mentioning of section 158BD by itself would not invalidate the issue of notice. Appeal decides in favour of revenue

Summary

Issues Involved:
1. Addition towards capitation fees
2. Exemption of income towards building fund
3. Addition towards sundry creditors
4. Addition against lease deposits
5. Disallowance of expenses
6. Status of the assessee as a trust or AOP
7. Charitable nature of the assessee's activities
8. Treatment of fine collected from students
9. Payment for medical seat for trustee's daughter
10. Suppression in fee receipts
11. Addition against cash found in the course of search
12. Validity of jurisdiction for issuing notice under section 153A

Issue-wise Detailed Analysis:

1. Addition towards Capitation Fees:
The Revenue argued that capitation fees are taxable as they are involuntary and should be treated as business income, not donations. The Tribunal, referencing its earlier order, held that even if the assessee accepted capitation fees, it did not affect the charitable status under the Income-tax Act. The fees were applied for educational purposes, thus not taxable.

2. Exemption of Income towards Building Fund:
The Revenue contended that the investments must come from the current year's income. The Tribunal found that the entire amount, including capitation fees, was used for building infrastructure for educational purposes. Thus, the building fund was not taxable as it was applied for charitable purposes.

3. Addition towards Sundry Creditors:
The Revenue claimed that the assessee did not prove the creditors before the assessing authority. The Tribunal upheld the Commissioner of Income-tax(Appeals)'s finding that the creditors were genuine, as the transactions were made through cheques and verified during the search.

4. Addition against Lease Deposits:
The Tribunal held that lease deposits were applications of funds for educational purposes, thus deleting the additions made by the assessing authority.

5. Disallowance of Expenses:
The Revenue argued that the assessee did not produce relevant materials for verification. The Tribunal noted that the expenses were supported by regular accounts and valuation reports, thus considering them as application of funds for educational purposes.

6. Status of the Assessee as a Trust or AOP:
The Revenue argued for the status of AOP. The Tribunal, referencing its earlier order, held that the assessee is entitled to registration under section 12AA, thus maintaining its status as a trust.

7. Charitable Nature of the Assessee's Activities:
The Revenue argued that the assessee's activities were profit-oriented. The Tribunal, following its earlier order, held that the assessee is a charitable institution entitled to the benefits of section 11.

8. Treatment of Fine Collected from Students:
The Revenue contended that the fine should be treated separately. The Tribunal found that the fine was included in the total fee collection and upheld the Commissioner of Income-tax(Appeals)'s finding.

9. Payment for Medical Seat for Trustee's Daughter:
The Revenue argued that the decision of the Tribunal was not accepted. The Tribunal found that the payments were made personally by the trustee and not from the trust's funds, thus deleting the addition.

10. Suppression in Fee Receipts:
The Revenue claimed suppression of fee receipts. The Tribunal found that the fee collection admitted by the assessee was higher than the gross fee collection reflected in the seized material, thus deleting the addition.

11. Addition against Cash Found in the Course of Search:
The Tribunal found that the cash was properly accounted for and held by the trust, thus deleting the addition.

12. Validity of Jurisdiction for Issuing Notice under Section 153A:
The assessee argued that there was no search warrant against the trust. The Tribunal found that the search warrant covered both the trustee and the trust, thus upholding the validity of the notice under section 153A.

Conclusion:
All appeals filed by the Revenue and the cross objections filed by the assessee were dismissed. The Tribunal upheld the findings of the Commissioner of Income-tax(Appeals) on all issues, maintaining the assessee's status as a charitable trust and confirming the application of funds for educational purposes.