9911796707
TMI Blog2018 (6) TMI 1571X X X X Extracts X X X X X X X X Extracts X X X X ..... y such contemporaneous material. As regards the payment to Ms Prathyusha, the daughter of Managing Trustee the Appellant had not produced any documentary evidence as to the functioning of the lady, nature of work allotted to her, what are the official matters which she attends everyday etc., and as to how such a huge salary of 4,92,000 is reasonable. In the circumstances the action of the AO does not warrant any interference. - decided against assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... trust are in accordance with its objects and hence, the Ld. PCIT cancelled the registration granted earlier to the assessee u/s 12AA(3) w e f 1.4.2009 i.e. from a y 2010-11 onwards primarily on the following 3 counts : (i) huge amount of ₹ 1,57,42,700/- collected from students in cash, as recorded in the seized document vide Annexure ANN/JXP/REG/S-l was made without issuing any receipts and without entering them in the regular books of account maintained by the trust , was lying with the Managing Trustee and other trustees during the said period and have not been used for the objects of the trust. (ii) ₹ 6 crore advanced to M/s Prathyusha Associates Shipping Pvt. Ltd. (PASPL), a sister concern engaged in civil constructions, free-of-interest. Though it was claimed to have been advanced towards cost of construction of the buildings for the trust, it was not made by any tender or receipt of bids in a transparent manner. From the evidences placed, such huge advances was found not to have been made towards cost of construction of the buildings of the trust. Therefore, the impugned advances were held as not made for the purposes of the trust and (iii) the payment of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He failed to appreciate that it was not the case of any student or the payer that such payment was in excess of fees or capitation fees. The sum has been duly accounted for in the books of accounts upon the student getting the admission, duly as fees. In case of students who did not get the admission, the advance fees has been returned and the same is not income of the appellant. The conclusion that it is capitation fees of excess over the prescribed fees has been arrived at without any basis or evidence. There is no basis in concluding that the receipt is for any purpose other than the object. The Ld. PCIT ought to have appreciated that the receipts are duly applied in carrying out the objects of the trust. Regarding the advance of ₹ 6 crores given to M/s Prathyusha Associates Shipping P Ltd (PASPL), it was submitted that the same is mobilisation advance towards the contract for construction of hostel for students which was awarded to the said concern based competitive bidding. The Ld. PCIT erred in holding that the advance made by the appellant to M/s Prathyusha Associates Shipping P Ltd is not towards construction of hostel. The Ld. PCIT failed to appreciate that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "7. 2 Now, during the present proceedings, after issuance of the said notices u/s 12AA(3) of the Act, in the first reply submitted on 8.8.2013, the assessee has tried to explain such amounts received from different students, as recorded in the seized document, by stating that students belonging to poor community, aspiring for engineering degree would block a seat in their preferred course, in the college run by the trust, by paying some advance fees. It is further stated that such payment is made by the concerned students before counselling(sic) commences for admission and in the counselling, if that student gets Prathyusha Institute and also the preferred course, admission is given and then the advance fee collected is adjusted against the actual fees to be paid by him and a consolidated receipt is issued to the students. From these submissions, it may be carefully noticed that, it has been stated by the assessee trust that such amount has been paid by the concerned student for blocking a seat in the Engineering college run by the assessee trust and that the same is received from such student before the start of counseling. Only on start of counseling for the students by the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h submission of the assessee trust is not tenable. It may be further mentioned here that it has been admitted by the assessee trust in both the said replies that prior to commencement of counseling, students approaching their college use to make payment for blocking seats. From the same, it may be noticed that the assessee trust has admitted that it has collected such amounts from the students for booking Engineering seats in the college run by it. When at that stage, the actual admission process through counseling procedure has not commenced, it cannot be said and also cannot be accepted that such payment collected by the assessee from those students represents advance fees. Such amount in varying sums collected from those students, much prior to the commencement of admission process through counseling, actually is in the nature of capitation fee/donation collected from the students for the purpose of getting admission in the college run by the assessee trust. From collection of such amounts totaling to Rs.l,57 ,42,700/-, as recorded in the seized register ANN/JXP/REG/S, Sl.No. 1, from students prior to admission, for which there were no receipts issued by the assessee and further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teering through it is impermissible. In that decision in Modern Dental College and Research Centre, the Hon'ble Apex Court held that charging of capitation fee is not permissible. Having regard to the ratio of the aforementioned decisions of Hon'ble Supreme Court, strictly prohibiting collection of capitation fees by charitable trust/ institutions, from students for the purpose of getting admission to the educational institutions run by them, and since in the instant case, the assessee trust has indulged in collection capitation fees from the students for the purpose of getting admission to the Engineering college run by it, as explained above, the registration earlier granted u/s 12AA of the Act in its case is thus liable for cancellation u/s 12AA(3) of the Act. 7.5 Further, it may be mentioned here that in the decision in the case of Vodithala Educational Society vs ADIT (Exemp) reported in (20 SOT 353), it was held by the Hon'ble ITAT, Hyderabad Bench, that when the assessee collects money from students over and above the fees prescribed by the Government for the purpose of admission, it amounts to selling of education and the element of charity no longer remains t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord, it is noticed that the assessee trust has carried out activities which are not in accordance with its objects, mentioned in the trust deed, thereby, entailing cancellation of registration u/s 12AA(3) of the Act. 8.1 It may be mentioned here that the various amounts collected by the assessee trust from the students, as recorded in the seized document vide Annexure ANN/JXP/REG/S-l, have not been entered in the books of accounts maintained by the assessee trust. No receipts have been issued by the assessee for such amounts collected by it from those students, at the time of receipt of such amount from each student. These facts pointed out in the said show cause notice u/s 12AA(3) have not been denied by the assessee. In the submissions filed in response to the said show cause notice u/s 12AA(3), it has been stated that after the admission of a student to the college run by the assessee trust is confirmed, the amount collected from that student is adjusted against the actual fee to be paid and a consolidated receipt is issued. It is further stated that entry in the regular books would show the total of the fees received from the students includes advance fees received earlier. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manner of utilization of the said amount, after receipt of the same by the Managing Trustee which represents income of the trust, during the intervening period, is not known. Therefore, in the show cause notice dated 18.7.2013 issued u/s 12AA(3) of the Act, it was specifically pointed out that the purpose of application of those receipts can only be for anything other than the objects of the trust. In this context, it is relevant to refer to the observations made in this regard, in para 15 of the said notice u/s 12AA(3) issued by the CIT, Central-II, which are reproduced as under ;- "15. As mentioned in the foregoing paragraphs, the Managing Trustee and the relevant officers of the trust have admitted in the sworn statements recorded during the course of search and in the post search investigation that the amounts so. collected were collected in cash for which no receipts were issued and no entries were made in the books of accounts, even after a gap of two years. Though the books maintained by the trust were audited and audit reports were furnished, such audit reports do not reflect the true affairs of the trust, in so far as such huge amounts collected in cash without g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforementioned two object clauses, it is stipulated that the funds and income of the assessee trust are to be utilised to advance the objects of the trust and for promotion and fulfillment of the aims and objects of the trust. Thus, as per such object clauses, all the income and funds of the trust, are to be utilised only for the purposes of objects of the trust. Since in the instant case, the said amount of Rs.l,57,42,700/- collected from students during that period, representing income of the assessee trust, but not recorded in the books of accounts maintained, have not been utilised for the purpose of objectives of the trust, under such circumstances, it clearly shows that the assessee trust has not carried out activity in accordance with the object clauses (q) & (v), In other words, the activity on the part of the assessee trust from utilisation of the said amount of Rs.l,57,42,700/- collected from students recorded in that seized document, constituting its income, is found to be not in accordance with the said two object clauses (q) & (v). Under these circumstances, it is thus evident that the assessee trust has carried out activity, which are not in accordance with the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized records that huge sums were unauthorized collected from the students and were not brought into the books of account of the trust. Even receipts were not issued in favour of the students. Thus it is clear that the appellant had diverted the funds and did not apply them for the objects of the trust. Therefore, the AO rightly held that the trust had violated the terms of the trust as well as the conditions subject to which exemption was granted u/s. 11. The order passed by the AO Is clearly right and no reason has been brought for reversing the same. Hence this ground of appeal for both the AYs is dismissed. 10.2. Ground No.2 relating to claim of advance fees received: Before dealing with the issue on hand it will be necessary to have a glimpse of the seized document (photo copy as below) to have a clear picture. …………………………………………………………………………………………………………… …………&he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance fee collected is adjusted against the regular fee and for those students who does not get admission, the fee collected is returned and when the amounts are refunded not many trails are created. Further when the Trust Is enjoying the tax concessions no tax evasion motive can be attributed as reason for the current method of accounting, thus it balls down to the aspect the current method of accounting for fees Is followed for the convenience of the Trust for handling a high academic standard and seamless admission process which need to be appreciated rather than regressively attributing so many malicious intentions to the same. Further the current system of accounting does not permit an entry into the system of the college unless there is an unique student ID Number that is created for making an entry towards the fees, thus at advance fees stage there will be no unique ID Number for the student and It is only at the stage of firm admission, this number will be created till such time these ad-hoc advance fees collected from students who are on the admission shopping cannot be entered into the system of fees collection from students." The explanation of the appellant th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proved with conclusive and corroborative evidence. Further, in a similar case, the Hon'ble ITAT has given its verdict as under. As the issues are identical, the order of the Hon'ble ITAT's Chennai in ITA No. 1475/Mds/2010, dated 31.7.2014, in the case of Madras Medical Mission, Chennai v. ACIT, Central Circle, Chennai, is reproduced below: "In the course of search, demand drafts totalling to ₹ 18 lakhs were found. These amounts were not recorded in the books of account maintained by the assessee, at the time of search. No explanation was offered before the AO. Later on, before the CIT(Appeals), the explanation of the assessee was that those amounts were collected from respective applicants and the amounts would be entered in the accounts only after the admission process was finalized. The assessee also explained that the amounts were paid back to those applicants, who were not admitted to the nursing course. We find that the above explanation of the assessee is devoid of any merit. It Is a fact that DDs amounting to ₹ 18 lakhs were found at the time of search. It is also true that those amounts were not recorded I the books of account of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, it is clear that on a search and seizure action, it was found that huge amount of ₹ 1,57,42,700/- was collected from students, in cash , without issuing any receipts and without entering them in the regular books of accounts maintained by the trust. Subsequently, the assessee was required to prove its exemption claim. After considering the assessee's submissions etc, the above facts were confirmed with a finding that the impugned sum was lying with the Managing Trustee and others during the said period, which have not been used for the objects of the assessee and the trust, in fact, the assesse has indulged in activities which are not permissible under law etc. The assessee challenged these findings but has not placed material viz certified copies of contemporaneous audited or unaudited profit /loss account or income and expenditure statement, as the case may be , in accordance with the provisions of the Income Tax Act ,1961, and their enclosures and appropriate documents showing that the impugned sum were accounted for by the trust , used for the purposes of the trust etc and hence, it could not assail as to how the decisions arrived by the Lower authority (ies) is/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable to public trusts. Even so, the provisions of the Trusts Act are founded on general principles, and Rules of English Law. In matters which are not provided for, the Courts in India apply the principles and Rules of English Law. on the subject unless they are inconsistent with the Rules and practice of this Court. (See Shivramdas v. B. V. Nerurkar, , Rambabu v. Committee of Rameshwar, Bom LR 667 and Nathiri Menon v. Gopalan Nair, 39 Mad 597 : AIR 1916 Mad 92 )." 7.5 The Hon'ble SC in Sheikh Abdul Kayum Vs. Mulla Alibhai dt 17 August 1962 : 1963 AIR 309 has held that the sections of the Indian Trust Act embody nothing more or less than the principles which have been applied to all trusts in all countries. The relevant portion is extracted as under : "It is true that s. I of the Indian Trusts Act makes provisions of the Act inapplicable to public or private religious or charitable endowments; and so, these sections may not in terms apply to the trust now in question. These sections however embody nothing more or less than the principles which have been applied to all trusts in all countries. " 7.6 Further, the Hon'ble SC in the case of State of Uttar, Pradesh Vs. Bansi Dhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be utilised to defeat the other arm of law. Doing so would be opposed to public policy and bring the law into ridicule. It would be wrong to think that while acting under the Income-tax Act, the Income-tax Officer need not look to the law governing the partnership which is seeking registration. It would probably have been a different matter if the Income-tax Act had specifically provided that the registration can be granted notwithstanding that the partnership is violative of any other law---but it does not say so." 7.8 From the above, it is clear that since the provisions of Indian Trusts Act reflect principles of equity, justice and good conscience , in our considered opinion, the authorities granting exemptions are duty bound to verify for any such violations. As the tax concessions involve a sacrifice of public revenue, it becomes imperative to ensure the tax concessions are not abused and enjoyed only by those charitable Trusts which actually deserve. 7.9 When we test the facts and circumstances of this case in the light of the above ratios, it is clear that the assessee trust has carried its activities which invited the search and seizure action by the Revenue , whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the students. It was stated that the contract for construction was granted to PASPL constructions, as per an agreement made on 29.12.2009. It is further stated that the contract was awarded through a bidding process by a team of civil engineering experts, from amongst bids received by the trust. Stating that the total cost of the project was ₹ 20 .08 crores and as per clause (ix) of the agreement, the trust was to provide 30% of the total contract amount by way of mobilisation advance, it was submitted that as per such agreement, a sum of ₹ 6 crore was advanced to M/s PASPL. It was contended that the awarding of construction contract to M/s PASPL construction is to the advantage of the assessee trust, as it enabled them to incur lesser construction cost compared to third parties. It was further stated that there was no detriment to the funds of the assessee trust. Lastly, it was contended that there was no violation of the provisions of the trust deed or provisions of the Act. 9.1 However, such contention of the assessee trust that in that process of awarding the contract to PASPL constructions and giving said advance of ₹ 6 crores were not detriment to the fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may be mentioned that along with such submissions, the assessee has only furnished a xerox copy of the agreement for work shown as executed on 29.12.2009 with M/s PASPL and xerox copies of certain estimates for certain buildings, without bearing any date in each such copy and copies of certain ledger accounts of PASPLConstruction for the period from 1.4.2009 to 31.3.2010, from 1.4.2010 to 31. 3.2011 and from 1.4.2011 to 31.3.2012. From the same, it cannot be said and it also cannot be accepted that giving such construction work to that sister concern, was through calling for a tender and receipt of bids in a transparent manner. 9.3 Further, as per the said submission of the assessee trust, the amount of ₹ 6 crore advance paid to M/s PASPL was towards cost of construction of the buildings for the trust to be used by the trust for educational purposes. Thus, as per such submission, such amount has been paid towards cost of construction of the buildings to be used by the assessee trust. However, such contention does not appear to be correct, as evident from the ledger accounts of PASPL-Construction for different years filed by the assessee trust during the present proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instead of making payment separately for the same. Thus, the actual financial transactions made by the assessee with the said associate concern, as evident from the copies of said ledger accounts of that concern filed by the assessee, disprove such contention of the assessee. 9.4.2 Further, as per the ledger accounts for the subsequent year, i.e from 1.4.2011 to 31.3.2012, for the bill of ₹ 1,86,15,066/- raised by that PASPLConstruction, the assessee has adjusted the same on 31.3.2012 against the said advance given earlier and on the same date i.e 31.3.2012, the last date of that financial year, has adjusted the balance amount of ₹ 4,15,65,622/- against certain other amounts mentioned as payable to PASPL from college . 9.5 From the aforementioned financial transactions carried on by the assessee, as noticed from the ledger accounts of PASPL-Construction, for the three different financial years (copies enclosed as Annexures '8'), it is thus evident that the said advance of ₹ 6 crore made by the assessee trust to that sister concern, is not towards construction cost of the buildings of the trust. In other words, it can be said that the said huge payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n building etc. This time also, instead of adjusting that bill against that advance of ₹ 6 crores given earlier, the assessee has made payment on 13.5.2010 at ₹ 90,41,000/-, which is more than the amount of said bill. On 15.5.2010, PASPL has raised another bill for ₹ 60,40,548/- for work done at main building. This time again, instead of adjusting that bill from such advance of ₹ 6 crore given during the F.Y 2009-10, the assessee has made payment on 22.7.2010 and the closing balance as on 31.3.2011 was shown at ₹ 6,01,80,688/-. On 31.3.2012 , an adjustment was made that too for Rs. ₹ 1,86,15,066/- only and the balance amount of ₹ 4,15,65,622/- was adjusted against certain other amounts mentioned as payable to PASPL from college and (iii) From the above financial transactions between the assessee trust and PASPL, it cannot be said that the said advance of ₹ 6 crore was paid for cost of construction of the buildings for the trust. Had such contention been true, the assessee would have adjusted the bills for construction raised during the FY 2010- 11, against such advance, instead of making payment separately for the same. Thus, the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to the assessee observed as under : "The AO disallowed a portion of the interest claimed on loan taken by the appellant since the appellant had paid certain sum to its associate M/s. PASPL Construction in which the trustees are having substantial interest. The appellant's contention was that it was given to PASPL Construction, as advance towards cost of construction of certain buildings. No disallowance on this count is warranted inasmuch as the work was executed at a cheaper rate compared to the market value etc. I have gone through the submissions of the appellant. The appellant's contentions are farfetched. First of all no tenders were called for, for the proposed construction work. Giving an advance of ₹ 6 crore at a stetch that too at the initial stage could happen only when the appellant has some interest in the contractor i.e. M/s.PASPL Construction. How the appellant justifies that the cost of construction was cheaper, when estimate from none others were obtained. In the circumstances the action of the AO in disallowing the portion of interest is justified. Hence this ground of appeal for both AYs is dismissed. " 8.5 Before us also, the assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te remuneration or compensation. Section 13(2)(e) relates to the situation of purchase of property by or on behalf of the trust for consideration which is more than adequate. Section 13(2)(f) relates to the sale by or on behalf of the trust of any shares, security or other property of the trust. Similarly, Section 13(2)(g) relates to the diversion of the income of the property or the trust and, lastly, Section 13(2)(h) relates to the investment of the funds of the trust in any concern of a person contemplated in Section 13(3) of the Act. 9.2. The above provisions also would make it abundantly clear that all the provision seeks to protect the trust and its benefit of exemption from everything which could be understood in terms of the affairs of the trust. It protects the income, it protects the sale and purchase, it protects the user, it also protects various other aspects discussed herein before. 9.3 Thus, under both the Indian Trusts Act as well as in the Income Tax Act, the rationale of actions of the trust and motive in exercise of them have to be judged in the light of the above provisions. Lack of reasonableness or even fairness at either of the two stages, ie when a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution of assessee trust. In fact, the salary paid is significantly low when compared to her academic participation and carrying out of the activities of the Institution. Therefore, a general and mere allegation without any corroborating evidence that the above payment Is made, Is excessive or violative of any specific provision of law or the payment is not in accordance with the activities of the trust, is only a baseless allegation, incorrect on facts and against the principles of natural justice." Out of the salary claimed of ₹ 4,92,000 the AO accepted a salary of ₹ 1,80,000 (Rs.15,000 X 12) as reasonable and added back the balance of ₹ 3,12,000/- as excessive. The Appellant had not produced any documentary evidence as to the functioning of the lady, nature of work allotted to her, what are the official matters which she attends everyday etc., and as to how such a huge salary of ₹ 4,92,000 is reasonable. In the circumstances the action of the AO does not warrant any interference. In the circumstances this ground of appeal is dismissed." 10.1 Before us also, the assessee has not laid any material to dislodge the above findings. Based on the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
