2013 (12) TMI 777 - AT - Income Tax

Denying exemption u/s. 11 and 10(23C) - Rescinding of the approval granted u/s. 10(23C)(vi) - unaccounted income as also unaccounted investment in land and cash - incriminating documents found during search and seizure - Held that - The objects of the trust have been violated in a wholesome manner and the basis on which registration is granted no longer survives or holds good, would call immediate interference by the registration granting authority. In these circumstances, the registration authority cancels the registration. The argument placed before us by learned AR is superficial which cannot be considered. - Decided against the assessee. Estimation of unaccounted receipt collected from students towards management quota fees - Held that - the receipts as per seized documents accepted to have been collected by Sri R. Kondal Rao during the course of search action as well as before us and offered for taxation by Sri R. Kondal Rao, the same cannot be considered in the hands of the assessee once again in the event he complied with the payment of tax. - AO to pass fresh orders - Decided in partly in favor of assessee. Addition towards capital fund - funds contributed by members of the trust for specific purpose - Held that - voluntary contributions in the nature of tied up grant received by the assessee cannot be brought to tax even the trust is not registered u/s. 12AA of the Act. The tied up donations received by the assessee should not be taxable as income of the assessee, if it is used for specific purpose for which it has been given and it cannot be considered as revenue receipts so as to tax the same. - On the other hand, the donations used for the benefit of the trustees it should be brought to tax as income of the assessee. The AO is directed to segregate these donations which are diverted for personal benefit of the Members of the trust and tax the same accordingly. - Decided partly in favor of assessee. Addition on account of amount collected over and above the prescribed fees and that amounts were not brought in the books of account - Held that - it is seen that while the seized documents indeed showed receipt of such unaccounted income by the assessee society, M/s. J.B. Educational Society's books do not show anything payable on this account to the assessee. Therefore, it cannot be said that the amount received by JB Educational Society was not over and above the total amount recorded in the. seized documents pertaining to the assessee society. Accordingly, he was of the view that the claim of double addition is not tenable in the facts and circumstances of the case. - Decided against the assessee.

Issues Involved:
1. Denial of exemption under Section 11 and Section 10(23C) of the Income Tax Act.
2. Taxation of additional receipts in the hands of the assessee.
3. Addition towards capital fund.
4. Addition due to difference in opening balance of the capital fund.
5. Addition of unaccounted investment in land.
6. Addition of unaccounted cash.
7. Levy of interest under Sections 234A and 234B of the Income Tax Act.
8. Additional grounds regarding the determination of receipts on a cash basis and assessing the fees received for the entire course in one year.

Detailed Analysis:

1. Denial of Exemption under Section 11 and Section 10(23C):
The Tribunal confirmed the cancellation of the registration granted under Section 12A by the CIT, citing that the society's activities were contrary to its stated objects and involved collection of capitation fees not recorded in the books of account. The Tribunal upheld the denial of exemption under Section 11 and Section 10(23C), as the society was found to be engaged in profit-making activities rather than charitable purposes. The Tribunal referenced its earlier decision in the case of Joginpally BR Educational Society and JB Educational Society, where similar findings led to the cancellation of registration.

2. Taxation of Additional Receipts:
The Tribunal addressed the issue of taxing additional receipts based on seized material, which showed unaccounted income from capitation fees. The Tribunal noted that the AO had prepared a comprehensive chart showing unaccounted income for various assessment years. However, it was highlighted that Sri R. Kondal Rao, a manager of the society, had collected these amounts without the management's knowledge and had offered them for taxation before the Settlement Commission. The Tribunal directed the AO to verify if the unaccounted income was already taxed in the hands of Sri R. Kondal Rao and, if so, not to tax it again in the hands of the society to avoid double taxation.

3. Addition Towards Capital Fund:
The Tribunal examined the addition of capital fund amounts as income. It was argued that these were tied-up funds for specific purposes and should not be taxed. The Tribunal referenced various judicial precedents, including the case of Nirmal Agricultural Society, which held that tied-up grants for specific purposes do not form part of the income of the trust. The Tribunal directed the AO to segregate donations used for personal benefits of the trustees from those used for specific purposes and tax accordingly.

4. Addition Due to Difference in Opening Balance of the Capital Fund:
The Tribunal remitted the issue back to the AO for fresh consideration, directing the assessee to furnish a statement of capital fund on a year-to-year basis. The AO was instructed to verify the differences in opening balances and decide the issue afresh.

5. Addition of Unaccounted Investment in Land:
The Tribunal remitted this issue back to the AO for fresh consideration, directing verification of whether the purchase of land was accounted for in the books of the assessee or Mr. Bhaskar Rao. If accounted for, the addition should not be made in the hands of the assessee.

6. Addition of Unaccounted Cash:
The Tribunal directed the AO to verify the availability of cash balance in the books of the assessee as of the date of search. If the cash balance is justified, the addition should not be made.

7. Levy of Interest under Sections 234A and 234B:
The Tribunal held that interest under Sections 234A and 234B is mandatory and consequential, to be charged on assessed income. The Tribunal dismissed the assessee's reliance on the judgment in the case of Imami Ltd., distinguishing the facts of that case from the present one.

8. Additional Grounds:
The Tribunal admitted additional grounds regarding the determination of receipts on a cash basis and assessing the fees received for the entire course in one year. The Tribunal remitted the issue back to the AO for proper quantification of income on an accrual basis, directing that fees received for the full course should be appropriated proportionately for each year during the course period.

Conclusion:
The Tribunal's judgment addressed multiple issues related to the denial of exemptions, taxation of unaccounted receipts, and proper accounting of funds. The Tribunal provided detailed directions for fresh consideration and verification by the AO, ensuring that the assessment is based on accurate and substantiated records.

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