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TMI Blog2018 (12) TMI 1553X X X X Extracts X X X X X X X X Extracts X X X X ..... in violation of Section 13(1)(c) r.w.s. 13(2)(b) of the Income Tax Act, 1961 on account of interest free advances to the specified persons. 4. Under the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the addition of Rs. 4,68,55,950/- by treating the development receipts as revenue receipts instead of capital receipts for development purposes without considering the earlier judgments of Hon'ble ITAT. 5. Under the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the addition of Rs. 71,18,248/- (Rs. 2997140/- of registration receipts, Rs. 27500/- of book bank receipts and Rs. 4093608/- of form and late fees receipts) by treating the revenue receipt as against capital receipts and receipts for the particular purposes without considering the earlier judgments of Hon'ble ITAT. 6. Under the facts and circumstances of the case, the ld. CIT(A) has erred in not allowing the capital expenditure as application of income for computing income of the trust. 7. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing." 2. Grounds No. 1 and 2 of the appeal are regarding de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld AR has submitted that once the Tribunal has allowed the claim for the A.Y. 2013-14 and 2014-15 then the denial of exemption U/s 11 and 12 of the Act is not justified and the same may be allowed to the assessee for the year under consideration. 4. On the other hand, the ld CIT-DR has relied upon the orders of the authorities below and submitted that the Assessing Officer has clearly made out a case of violation of provisions of Section 13(1) and 13(3) of the Act and consequently the assessee is not eligible for exemption U/s 11 and 12 of the Act so as to exclude the income from total income of the previous year. 5. We have considered the rival submissions as well as the relevant material on record. The Assessing Officer has made various additions on account of interest payment to the specified persons U/s 13(3) of the Act as well as the advance paid to the specified persons. The Assessing Officer has also made disallowances in respect of the salary paid to the specified persons. However, some of these disallowances made by the Assessing Officer were deleted by the ld. CIT(A) on the ground that the payment was not found to excessive or unreasonable having regard to the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate; 48[(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 5,05,00,000/- to M/s Perennial Real Estate Pvt. Ltd. for purchase of land vide agreement dated 27/8/2012. The Assessing Officer held that the provisions of Section 13(2) of the Act are attracted on such advances as the trustees of the assessee are also Director in the said company. The ld AR has submitted that since it is not a loan or advance given to the company but the money was paid for purchase of the land and it was not either used or applied directly or indirectly for the benefit of any person referred to in Section 13(3) of the Act. Once the amount was paid for purchase of land under an agreement then it will not fall in the category of the income or property used for the benefit of the specified person. The ld AR has submitted that the Assessing Officer has made addition on notional interest of Rs. 60.60 lacs. The ld AR has pointed out that the payment was made under an agreement for purchase of land for a total consideration of Rs. 8.00 crores against which an advance of Rs. 5,05,00,000/- was paid. The possession of the said land was already transferred to the assessee, however, due to inevitable circumstances, no further payment could be made and the convey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed or applied for the benefit of the specified persons. The assessee has clearly made out a case that the land in question was in the possession of the assessee and therefore, the payment made under the agreement for purchase of land. Once the possession of land was already transferred to the assessee then the payment in question was evidently for purchase of land. Therefore, merely because the conveyance deed was not registered as the assessee has not paid the balance payment of purchase consideration would not lead to the conclusion or any inference that the said payment was made for the benefit of the specified persons. The assessee is in possession of the land of Rs. 8.00 crores against which only Rs. 5,05,00,000/- was paid, therefore, we do not find any substance in the opinion of the Assessing Officer as well as the ld. CIT(A) holding that the said payment is falling in the category of application of income or property for the benefit of specified persons. Even otherwise the Assessing Officer has made the addition of notional interest whereas there was no corresponding expenditure incurred by the assessee. In any case when the payment was made as a consideration for purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for supplementing the resources for purchase of the requisite furniture, fixtures, up-gradation etc. He has relied upon the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Children's Education Society 358 ITR 373 and submitted that the Hon'ble High Court has held that building fund received from students is a capital receipt in nature and therefore, it is created directly to the corpus fund. The ld AR has then relied upon the decision of the Hon'ble Delhi Benches of the Tribunal dated 08/1/2014 in the case of ITO Vs. J.D. Tytler School Society in ITA No. 4476/Del/2011 and submitted that the Tribunal has held that the development fee collected by the assessee is capital receipt in nature and cannot be assessed as income of the assessee. Hence, the ld AR has submitted that once the assessee having no discretion for utilizing the development fee received from the students but it has to be used for the specific purposes as specified in the circulars/orders of the State Govt. then the same is in fact capital receipt and not revenue receipt. 10. On the other hand, the ld DR has submitted that even if the development fee is treated as capital in nature the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fixed assets towards application of fund as allowed u/s 11, however, at the same time the assessee intends to immune the funds received as development fees from the tax liability by directly taking them to the balance sheet in the form of development reserve. (d) The assessee claims that such funds were not utilized for operational purposes but only for the development of the institution. However, the books of the assessee tell a different story altogether. Nowhere from the books, it is seen that the assessee has spent this amount towards the development of the institution. The assessee has itself not quantified in its records as to how much of the amount from this development reserve was utilized towards development of the institution. Though, the assessee has spent on infrastructure projects during the year but at the same time the assessee has not claimed any expenditure from the development reserve towards this purpose. Hence, the contention of the assessee in this regard is not acceptable. 7.2 In view of the above facts and discussion, it is held that the development fees of Rs. 4,68,55,950/- collected by the assessee is a revenue receipt and must be taken into accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the Government. The Hon'ble Supreme Court in the case of Modern School Vs Union of India (supra) while considering the provisions of Delhi School Education Act, 1973 as well as the Delhi Education Rules has observed as under: "The judgment in TMA Pai Foundation's case was delivered on 31.10.2002. The Union of India, State Governments and educational institutions understood the majority judgment in that case in different perspectives. It led to litigations in several courts. Under the circumstances, a bench of five Judges was constituted in the case of Islamic Academy of Education v. State of Karnataka reported in [(2003) 6 SCC 697] so that doubts/anomalies, if any, could be clarified. One of the issues which arose for determination concerned determination of the fee structure in private unaided professional educational institutions. It was submitted on behalf of the managements that such institutions had been given complete autonomy not only as regards admission of students but also as regards determination of their own fee structure. It was submitted that these institutions were entitled to fix their own fee structure which could include a reasonable revenue surpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be nominated by the Chief Justice of that State to approve the fee structure or to propose some other fee which could be charged by the institute. In the light of the judgment of this Court in the case of Islamic Academy of Education (supra) the provisions of 1973 Act and the rules framed thereunder may be seen. The object of the said Act is to provide better organization and development of school education in Delhi and for matters connected thereto. Section 18(3) of the Act states that in every recognized unaided school, there shall be a fund, to be called as Recognized Unaided School Fund consisting of income accruing to the school by way of fees, charges and contributions. Section i8(4)(a) states that income derived by unaided schools by way of fees shall be utilized only for the educational purposes as may be prescribed by the rules. Rule 172(1) states that no fee shall he collected from any student by the trust/society running any recognized school; whether aided or unaided. That under rule 172(2), every fee collected from any student by a recognized school, whether aided or not, shall be collected in the name of the school. Rule 173(4) inter alia states that every Recog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like salary and allowances payable to employees, rent for the premises, payment of property taxes are current revenue expenses. These expenses entail benefits during the current accounting period. Expenditure, on the other hand, is for acquisition of an asset of an enduring nature which gives benefits spread over many accounting periods, like purchase of plant and machinery, building etc. Therefore, there is a difference between revenue expenses and capital expenditure. Lastly, we must keep in mind that accounting has a linkage with law. Accounting operates within legal framework. Therefore, banking, insurance and electricity companies have their own form of balance-sheets unlike balance-sheets prescribed for companies under the Companies Act 1956. Therefore, we have to look at the accounts of non-business organizations like schools, hospitals etc. in the light of the statute in question. In the light of the above observations, we are required to analyse rules 172,175,176 and 177 of 1973 rules. The above rules indicate the manner in which accounts are required to be maintained by the schools. Under section 18(3) of the said Act every recognised school shall have a fund titled "R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles in each case. This direction is required to be given as we have gone through the balance- sheets and profit and loss accounts of two schools and prima facie, we find that schools are being run on profit basis and that their accounts are being maintained as if they are corporate bodies. Their accounts are not maintained on the principles of accounting applicable to non-business organizations/not-for- profit organizations. As stated above, it was argued that clause 8 of the order of Director was in conflict with rule 177. We do not find any merit in this argument. Rule 177(1) refers to income derived by unaided recognized school by way of fees and the manner in which it shall be applied/utilized. Accrual of income is indicated by rule 175, which states that income accruing to the school by way of fees, fine, rent, interest, development fees shall form part of Recognized Unaided School Fund Account. Therefore, each item of income has to be separately accounted for. This is not being done in the present case. Rule 177(1) further provides that income from fees shall be utilized in the first instance for paying salaries and other allowances to the employees and from the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation reserve, fund. In our view, direction no.7 is appropriate. If one goes through the report of Duggal Committee, one finds absence of non-creation of specified earmarked fund. On going through the report of Duggal Committee, one finds further that depreciation has been charged without creating a corresponding fund. Therefore, direction no.7 seeks to introduce a proper accounting practice to be followed by non-business organizations/not-for-profit organization. With this correct practice being introduced, development fees for supplementing the resources for purchase, upgradation and replacements of furniture and fixtures and equipments is justified. Taking into account the cost of inflation between 15th December, 1999 and 31st December, 2003 we are of the view that the management of recognized unaided schools should be permitted to charge development fee not exceeding 15% of the total annual tuition fee. To sum up, the interpretation we have placed on the provisions of the said 1973 Act is only to bring in transparency, accountability, expenditure management and utilization of savings for capital expenditure/investment without infringement of the autonomy of the institute in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the development fee received by the assessee from the students as per the guidelines fixing the fee structure by the State Government for the technical institutions and applying the other conditions as specified in the orders of the State Govt. is capital in nature and not revenue. The decision as relied upon by the ld CIT-DR in the case of ACIT Vs. M/s Scholars Education Trust of India (supra) is based on different set of facts and it was not either pleaded or brought on record by the assessee in the said case that the development fee was to be used for specific purpose. Hence, the Tribunal has given the finding based on the fact that the said fee was not part of the corpus fund of the assessee Trust. Accordingly, we delete the addition made by the Assessing Officer on this account. 13. Ground No. 5 & 6 of the appeal are regarding the addition of Rs. 71,18,248/- on account of registration receipt, book bank receipt and late fee receipts etc. and not allowing the capital expenditure as application of income for computing income of the Trust. 14. At the time of hearing, the ld AR of the assessee stated at bar that the assessee does not press ground No. 5 and 6 of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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