2012 (11) TMI 537 - AT - Income Tax

Addition u/s 68 Capitation fees AO argued that any parent of the students was not traceable Held that - Out of 54 students, parents of 33 students have replied in affirmative confirming that they had given interest free refundable deposits to the assessee society. The majority of the parents have given testimony in support of the statements given by the assessee society. The reason that the remaining 11 parents have not given any confirmation, does not dilute the probative value of the material evidence available on record. Minority of the parents might not be available at that point of time at the addresses available on record and it might not be possible for them to give confirmation letters within the time frame given by the authorities. The Revenue fails in its appeal filed for the assessment year 2003-04. In favour of assessee Addition on account of receipt of capitation fee AO argued that purported admissions made by the functionaries of the assessee society in the statements furnished Held that - As the statements have been subsequently, retracted. The retractions of those statements made by the functionaries of the society are well supported by the books of account maintained by the assessee with supporting documents and evidences. All the basic details are very much available before the assessing authority, himself. Issue decides in favour of assessee Addition on account of paper found in course of search - A sum of Rs. 23,52,000/- was stated to have been paid to the assessee Held that - The assessee explained that a sum of Rs.17,52,000/- had been received by cheque from Shri Amul John Jacob and it was not aware of any money received in cash. As already found in the appeal filed by the Revenue for the same assessment year 2006-07, the CIT(A) has deleted the addition of the said amount of Rs.17,52,000/- made by cheque. When the assessee had accounted for the amount received by cheque, there is no reason to go beyond, only for the reason that in the sheet of paper found in the course of search, the amount recorded was Rs.23,52,000/-. There is no direct nexus with the proposition made by the AO and the paper seized in the course of search. Therefore addition deleted. Issue in favour of assessee Addition on account of undisclosed income AO on the ground that those receipts were not recorded by the assessee in the books of account Held that - As there are no materials available on record to show that the assessee society had received such amounts over and above what was recorded in its books of account. The AO has made a presumption that the assessee society might have received that much amount on the strength of students admitted for medical course. This is only an intelligent presumption. When there is no material available on record, it is not possible to presume that the assessee might have collected capitation fee for admitting students for medical course. In favour of assessee Whether in case of trust addition u/s 68, was taxable at Maximum Marginal Rate or consider as applied u/s 11 Held that - Assessee has applied its entire funds in running the Hospital, Medical College and other Educational Institutions. Therefore, the additional amounts covered by sec.68 are treated as part of assessee s income, still the amounts cannot be brought to tax, as those amounts have been applied for charitable purposes. Issue in favour of assessee

Issues Involved:
1. Whether the amounts received by the assessee society as refundable deposits from students were actually capitation fees.
2. The applicability of Section 68 of the Income-tax Act, 1961, regarding unexplained credits.
3. The treatment of deposits not refunded after 10 years under Section 41(1) of the Income-tax Act.
4. The overall charitable nature of the assessee society's activities and the applicability of Section 11 of the Income-tax Act.

Detailed Analysis:

1. Refundable Deposits vs. Capitation Fees:
The primary issue was whether the amounts received by the assessee society from students were refundable deposits or capitation fees. The Revenue argued that these amounts were capitation fees, citing statements from the society's office bearers and lack of confirmations from some parents. However, the assessee contended that these were interest-free refundable deposits, supported by confirmations from a majority of parents and proper accounting records. The Commissioner of Income-tax(Appeals) (CIT(A)) accepted the assessee's contention where confirmations were received and deleted the additions made by the assessing authority. The Tribunal upheld CIT(A)'s decision, noting that the majority of parents confirmed the deposits and that the transactions were transparent and properly recorded.

2. Applicability of Section 68:
The Assessing Officer (AO) treated the deposits as unexplained credits under Section 68, arguing that the assessee failed to substantiate the credits. The CIT(A) and the Tribunal found that the deposits were properly accounted for and supported by confirmations from parents. The Tribunal emphasized that the unexplained credits added under Section 68, if applied for charitable purposes, should not be treated as taxable income. The Tribunal held that the assessee's application of funds for charitable purposes negated the applicability of Section 68.

3. Treatment of Non-refunded Deposits under Section 41(1):
The CIT(A) directed that if the deposits were not refunded after 10 years, they should be treated as the assessee's income under Section 41(1). The assessee challenged this direction, arguing it was premature and unwarranted. The Tribunal agreed with the assessee, vacating the CIT(A)'s direction, stating that the issue should be addressed if and when the deposits were not refunded.

4. Charitable Nature and Applicability of Section 11:
The Tribunal noted that the assessee society was a registered charitable institution under Section 12AA and enjoyed approval under Section 80G. The Tribunal found no provocation to question the charitable nature of the assessee's activities, as the registration and approval were not disturbed. The Tribunal emphasized that the application of income for charitable purposes is the essence of Section 11, and the assessee had applied all its funds for running a hospital, medical college, and other educational institutions. Therefore, even if the additions under Section 68 were upheld, they would not be taxable as the funds were applied for charitable purposes.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, holding that the amounts received were refundable deposits, not capitation fees, and the additions under Section 68 were not justified. The Tribunal vacated the CIT(A)'s direction regarding Section 41(1) and upheld the assessee's charitable status and the applicability of Section 11.

← Previous Next →