9911796707
TMI Blog2012 (12) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue in the case of an assessee, M/s. Venkatesha Education Society against the common order dated 14.11.2011 of the CIT(Appeals)-VI, Bangalore relating to A.Ys. 2005-06 to 2009-2010. CO Nos. 50 & 51/Bang/2012 are cross objections by the assessee against the very same order of the CIT(Appeals) relating to A.Ys. 2003-04 to 2004-05. 3. All these appeals have some common issues arising out of the same facts and circumstances. These appeals were heard together. We deem it proper to pass a consolidated order. 4. The facts and circumstances giving rise to these appeals and cross objections are as follows. 5. M/s. Venkatesha Education Society is a society registered under the Mysore Societies Registration Act, 1961, [hereinafter referred to as the "Society"] for the purpose of establishing educational institutions for the benefit of Tamil speaking students of Bangalore. The society runs about 9 institutions like engineering college, medical college, polytechnic, nursing college, D.Ed. and other educational institutions. The society is managed/governed by a Managing Committee. One Mr. M.J. Mohan looked after the affairs of the society in his capacity as Secretary of the Society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as given to him by his brother, M.J. Mohan. He therefore questioned MJB on the aforesaid claim which was as follows:- "Q.No.4 Some of the paper covers in which cash was found contained the papers put as seized material "A/MJB/1/2008-09. In these papers it has been specifically stated that \'The following amount is handed over to Sri.M.J.Balachander sir". It also contains denomination and value of the cash contained in the cover which matches with the actual value. Under these circumstances how can you say that the amount has been handed over to you by your brother Dr.Mohan? Ans. My brother Dr.Mohan gave these cash bags and told me to keep it for safe custody till he returned. Probably because he is giving me the cash he must have got my name mentioned in the statement you are referring." However at the time of assessment, the AO took the stand that the society collected ETF from students seeking admission to the various educational institutions run by the Society. The Society took the stand that ETF was collected by MJB on his own without the knowledge and authority of the Society. MJB in his assessment accepted the stand taken by the Society. MJB also submitted that the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er issued notice u/s. 153A of the Act for A.Ys. 2003-04 to 2009-10. As per the provisions of section 153A of the Act, where a search u/s. 132 of the Act is carried out in the case of a person, then the AO has to make assessment for 6 years immediately preceding the date of search. Accordingly notice u/s. 153A of the Act was issued to the Society. The Society had filed a NIL return of income for all the assessment years as aforesaid. According to the Society, its income as per its Income & Expenditure Account was not chargeable to tax as it was carrying on charitable activity of providing education and therefore entitled to the benefits of section 11 of the Act. As far as the ETF is concerned, the Society submitted that it was collected by MJB for himself without any authority or knowledge of the Society. 13. As far as MJB is concerned, he did not declare ETF in the original return of income filed in response to notice u/s. 153A of the Act. MJB filed a revised return of income in which he declared ETF as evidenced and as contained in the seized documents. He however claimed that 50% of the ETF collected had been refunded. Thus 50% of the ETF as per seized document was offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owledge and authority of the Society cannot be accepted and that ETF was collected only by the Society. The AO also referred to seized documents pertaining to each assessment year and concluded that the society collected ETF. He gave credit for refund of ETF to the extent evidence was produced by the assessee. Thus ETF was substantively brought to tax in the hands of the Society. 16. In the assessment order of MVJ, the AO held that ETF was collected by the Society, but the ETF was brought to tax in the hands of MJB on a protective basis. 17. The following chart will show the ETF collected and brought to tax, after allowing deduction on account of refund of ETF. A.Y. ETF Collected ETF considered as refunded ETF assessed ETF admitted by MJB 2005-06 1,53,08,600 NIL 1,53,08,600 77,51,078 2006-07 4,24,81,400 1,30,000 4,23,51,400 2,15,09,926 2007-08 5,00,80,500 2,75,000 4,98,05,500 2,53,56,850 2008-09 2,12,91,700 16,65,000 1,96,26,700 1,07,80,452 2009-10 7,53,71,119 16,50,000 7,37,21,119 3,81,02,861 TOTAL 20,45,53,319 37,20,000 20,08,13,319 10,35,00501 18. In the assessment of the Society, apart from making addition of ETF on a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on this Order, the A.O. has passed consequential orders for all these years starting from A.Y. 2003-04 to 2009-10. Accordingly, the issue of allowing exemption u/s 11 becomes redundant and the appellant should not have any grouse on this issue." Thus the stand of the revenue in denying the benefits of Sec.11 of the Act on the ground that the Society does not enjoy registration u/s.12A of the Act, no longer survives and cannot be the basis to deny the benefits of Sec.11 of the Act to the Society. 19. The Society as well as MJB filed appeals against the order of assessment. The CIT(A) on the issue, whether ETF has to be assessed in the hands of the Society or MJB, held that ETF has to be taxed in the hands of MJB. The CIT(A) held that agreed with the stand of the Society that the whole process of admission was being carried out by MJB and the task of admission was delegated to him by the society and that the role of the managing committee of the Society was to administer the functioning of the colleges. The CIT(A) agreed with the stand of the Society once the powers are delegated to the various personnel there was no direct involvement of the managing committee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further stated by MJB that the ETF was collected solely at his discretion. The CIT(A) was therefore satisfied that the statement of MJB at the time of search on 16.09.2008 has been duly explained. Another reason given by CIT(A) for coming to the conclusion that ETF was collected by MJB and not by the Society was the circumstance that during the course of search, Sri M J Balachander was found to be in possession of cash of Rs. 1,20,95,900/- and also certain bullion, etc. The Assessing Officer in the assessment of MJB held that all these assets found in the course of search belong to MJB and they were not accounted for by him in his books of accounts. However, the Assessing Officer did not made any addition on account of other assets found at the time of search of MJB for the reason that source of funds of the unexplained assets found at the time of search was ETF collected by MJB and that the value of the assets found was less than the ETF collected by MJB. This circumstance according to the CIT(A) also supported the view that ETF were collected by MJB. 20. On the issue of quantum of ETF claimed to have been refunded by MJB and the amount of ETF that has to be brought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed documents viz., Q 10,35,00,500/- has accepted as his income out of gross collections of Q 20,45,33,319/-. The CIT(A) also found that the A.O. himself has accepted Q 37,20,000/- as refunded for the five years by MJB. He was of the view that MJB could not furnish the entire details of ETF refunded and expenses incurred. Nevertheless the CIT(A) was of the view that the entire ETF collections cannot be brought to tax as income of MJB. Before CIT(A) MJB filed further affidavits from students to the effect that ETF was refunded by MJB to him. The value of ETF so refunded for the entire period in dispute was Rs. 2 Crore. The CIT(A) noticed that though ETF collected over the years was Q 20,44,15,447/-, no such corresponding cash or investment have been found by the department during the course of search. This according to him clearly showed that the amount of ETF as estimated by the Assessing Officer was never available in the possession of MJB since most of the amount was already refunded to the respective students. The CIT(A) noticed that MJB had on his own offered to tax as income to buy peace, 50% of the ETF collected in the respective years. Taking into consideration the above circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by itself goes to show that the plea of the Society cannot be accepted. 26. The ld. DR referred to seized document A/15/MVJCB relevant to AY 2005-06 wherein a comprehensive break-up of the ETF and normal Tuition Fee has been given. According to him, such details would not be maintained if MJB was collecting ETF without the knowledge and consent of the Society. He also drew our attention to seized document A/14/MVJE (page 54 and page 99 of A/18/MVJE) which refers to the fact that ETF collected in cash was deposited in the H.O. i.e., the society through different persons of the Society viz., Ms. Kavitha Prasad, Mohan - Secretary of the Society, Indira and others. The documents are relevant to AY 2006-07 & 2007-08. According to him, these documents which are relevant for AY 2006-07 also goes to show that it was the Society which was collecting and appropriating ETF. The ld. DR drew our attention to the statement of MJB at the time of search wherein he had stated that Mr. Mohan had given cash found at the time of search and that the same was tuition fee collected from students. A reference was also made to A/14/MVJB (page 56) relevant to AY 2006-07, wherein the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Mohan to him. On this aspect, the ld. counsel submitted that in course of assessment proceedings, the assessee addressed a letter dated 22.11.2010 to the AO in which he had explained that the entire ETF was collected by him without authority of the Managing Committee of the Society. It was pointed out that MJB confessed having taken the liberty of collecting the ETF on his own, without the knowledge and directions of the Managing Committee of the Society. Another circumstance pointed out by the ld. counsel for MJB was the fact that along with the cash of Rs. 1.20 crores found at the time of search at MJB's residence, there was a paper containing the words "handed over to Balachander Sir". Referring to the aforesaid document, the ld. counsel for MJB submitted that if the cash had been given by the assessee's elder brother Mr. Mohan, then the description in the loose paper found along with the cash could not read as "cash given to M.J. Balachander Sir". 29. With regard to the quantum of ETF refunded by MJB, the ld. counsel for the assessee submitted that it was not possible for MJB to get confirmation from all the students to whom he had refunded the ETF. Our attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal. It was submitted that anything done by the employee beyond the scope of the powers given to him will not bind the Society. 31. We have given a very careful consideration to the rival submissions. For deciding the controversy as to whether the ETF has to be assessed in the hands of the Society or in the hands of MJB, it is necessary to have a look at the seized documents. In the A.Y. 2005-06, the AO for making the addition on account of ETF has placed reliance on A/15/MVJCE, pages 37 to 39 of the seized documents. Page 39 is a letter written by one Kavitha Prasad in which Kavitha Prasad has mentioned that she is giving the details of admissions done in the college for the academic year 2004-05. She has also mentioned that the total collections in cash and DD was a sum of Q 3,18,39,540. The details of the DDs deposited in Bank and cash deposited in the Head Office are also given in the said letter. It is very important to note that this letter is addressed to MJB (pages 37 and 38 of the seized documents) and gives a break-up of a sum of Q 3,18,39,540 referred to by Kavitha Prasad in the letter. It is pertinent to mention that the break-up given along with this lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready stated, there is nothing to suggest that ETF as reflected in the seized documents referred to be the AO in order of assessment for the A.Y. 2005- 06 has any connection with the society. 32. As far as A.Y. 2006-07 is concerned, the AO while making the addition on account of ETF in the hands of the Society has placed reliance on the seized documents A/14/MVJCE (pages 50 to 56). Page 56 of the seized documents is a letter written by one Indira Devi to MJB. This letter again gives a break-up of the collections in cash as well as in DD. In this letter also, there is a reference to cash deposited in the Head Office as in that A.Y. 2005-06. This seized document also gives a break-up of the agreed tuition fee and the Extra Tuition Fee (ETF) and also the balance to be collected. Apart from the above, page 54 of the seized documents also gives the details of the deposit of cash in the Head Office through whom. E.g., on 25.05.2005, cash deposited in the Head Office is stated to be in a sum of Q 5,69,000 and that the same has been deposited in the Head Office through Ms. Kavitha Prasad. In this description, which has a total of about 29 different dates, there is a reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he legitimate tuition fee which the Society can collect and which has been collected is to the tune of Q 5,26,63,500. The amount stated to have been deposited in the Head Office through the Secretary is a sum of Q 35,53,000 on 24.06.2006, a sum of Q 49,21,000 on 01.07.2006, a sum of Q 66,67,600 on 15.07.2006 and another sum of Q 51,11,500 on 19.07.2006. Thus, the total amounts referred to in this loose sheet viz., page 99 is less than the legitimate tuition fee which the Society can collect and which has been collected by the Society. In these circumstances, no adverse inference can be drawn on the basis of entries referred to by the ld. DR in the course of arguments before us. 35. As far as A.Y. 2008-09 is concerned, the AO has placed reliance on the seized material A/VES/01 (pages 60 to 72 & 74). We have seen the seized papers and we find that this seized paper only gives a list of clients (students) and the quantum of tuition fee and ETF. There is no other indication in these seized documents that the Society has received any payment on account of ETF. 36. As regards A.Y. 2009-10, the seized documents are pages 1 to 96 and 113 to 116 of A/8/MVJCE and pages 247, 250 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been refunded by MJB to the students. The circumstance pointed out by MJB, is that at time of search only 9% of the total ETF collections were found in the form of assets from the possession of MJB. This according to MJB, it will only go to show that he was not holding the entire ETF and he had refunded substantial potion of the ETF. This circumstance, in our view, will be a factor which will be relevant in deciding as to what will be the quantum of ETF that can be considered as having been refunded by MJB. It has been the argument of the ld. counsel for MJB that the circumstances pointed out by the assessee should be accepted and only 50% of ETF offered to tax should be accepted as sufficient. 41. We have considered the claim of the assessee with reference to the refund of ETF and also the reasons given by the CIT(Appeals) for estimating the ETF that has to be brought to tax @ 60% of the total collections of ETF by MJB. We are of the view that there is no basis whatsoever for the CIT(Appeals) to have estimated the ETF @ 40% as refunded by MJB to the students. In this regard, we have to go only by the probabilities of the case. We are of the opinion that the AO having accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch application of income. It is the case of the revenue that when the entire investment in acquiring the asset has been treated as an application of income, depreciation on the very same assets should not be allowed and if it is so allowed that would be conferring a double benefit to the charitable organization. The revenue in coming to the aforesaid conclusion, has placed reliance on the decision of the Hon'ble Kerala High Court in the case of Lissee Medical Institutions v. CIT, 348 ITR 344 (Ker). In the aforesaid decision, the Hon'ble Kerala High Court took the view that when the full value of capital expenditure on acquisition of assets is treated as application of income for charitable purposes and when the assessee has been allowed the benefit of exemption u/s. 11, the assessee cannot again claim the same in the form of depreciation, and such notional income would become cash surplus available with the assessee which was outside the books of accounts of the trust, unless it was written back which was not done by the assessee. The Court further held that it was not permissible for charitable institution to generate income outside the books of accounts in this fashio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Bombay High Court in the case of Institute of Banking (supra). The decision of the Hon'ble Supreme Court in the case of Escorts Ltd. (supra) was also considered by the Hon'ble Punjab & Haryana High Court. The following were the relevant observations of the Hon'ble Court. "8. In all fairness to the learned counsel for the Revenue, reference is made to the judgment of the Hon'ble apex Court in Escort Ltd.'s case (supra), on which reliance has been placed by the learned counsel for the Revenue. The Hon'ble Supreme Court in that case was dealing with a case relating to two deductions both under ss. 10(2)(vi) and 10(2)(xiv) of the 1922 Act or both under ss. 32(1)(ii) and 35(1)(iv) of the Act. The assessee therein had incurred expenditure of a capital nature on scientific research relating to the business which resulted into acquisition of an asset. The assessee had sought to claim a specified percentage of the written down value of the asset as depreciation and at the same time claimed deduction, in five consecutive years of the expenditure incurred on the acquisition of the asset. The apex Court observed : "Where a capital asset used for scientific research related to the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue, one of the Hon'ble Kerala High Court in the case of Lissee Medical Institutions v. CIT, 348 ITR 344 (Ker) wherein it was held that when the cost of a capital asset on which depreciation is claimed is considered as application of income by the charitable institution, depreciation on the very same asset should not be allowed and doing so would amount to giving two benefits. Contrary view has been taken by the Hon'ble Karnataka High Court, in the case of Society of sisters of St.Anne, the Hon'ble Punjab & Haryana High Court in the case of CIT v. Market Committee, Pipli, 330 ITR 16 (P&H) and the Hon'ble Bombay High Court in the case of Institute of Banking (supra). The preponderance of judicial opinion is in favour of the Assessee and therefore, we respectfully following the decisions in favour of the Assessee, hold that the CIT(A) was justified in directing the AO to allow depreciation as claimed by the Assessee. The relevant grounds of appeal of the Revenue in ITA No. 100 to 106/Ban/2012 are thus dismissed. 49. The Assessee has filed two C.O. i.e., C.O.No.50/bang/2012 for AY 03-04 and C.O.No.51/ban/2012 for AY 04-05. These C.O.s to the extent they are supportive of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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