9911796707
TMI Blog2024 (11) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable institution - In ACIT vs. JSS Mahavidhyapeetha [ 2013 (4) TMI 761 - ITAT BANGALORE ] as stated that the litmus test of charitable institution is the application of funds and not the colour of the contribution. It has stated that the question whether the donations are voluntarily or not becomes irrelevant and what becomes relevant is the application of such contributions on the objects of the trust which are admittedly charitable. If the developer fees is used for the purpose of creating infrastructure then the same would be treated as a capital receipt. We concur with the findings of the ld. CIT(A) who has rightly held development fund is a capital receipt and would not be added to the gross receipt in the Income Expenditure Account. Denial of exemption u/s 11 - advance given to staff and sister concern amounts to the misappropriation of funds - CIT(A) deleted addition - HELD THAT:- CIT(A) held that an amount is amount advanced to supplier/contractor/old staff which cannot be considered as an investment. The remaining amount is advance given to other educational institutions which cannot be considered as investment or deposit and thus the question of their falling within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AYANTBHAI, AM The Department has filed an appeal against the order of the ld. CIT(A) dated 27-12-2023, National Faceless Appeal Centre, Delhi [hereinafter referred to as (NFAC/CIT(A) ] for the assessment year 2012- 13 and Assessee has also filed the Cross objection to the appeal so filed by the revenue against the same order of the ld. CIT(A). 2. The grounds of appeal raised by the respective parties are as under:- ITA NO. 201/JP/2024 - Department 1 Whether order passed by the Ld. CIT(A) is justified, ignoring the facts and circumstances of the present case and without applying the correct preposition of law. 2. Whether Ld. Commissioner (Appeals) is justified in treating receipts of development fund of Rs. 2,27,78,950/- as capital receipts/corpus donation, earmarked as development fund by the assessee himself whereas the students or persons depositing the fee paid it as fee only, and nowhere has indicated that same is capital receipts/corpus donation. 3. Whether the Id. CIT(A) is justified in treating the receipts of development fund as capital/corpus receipts just on the basis of earmarking by the recipient trust, while as a matter of law it is the prerogative of donor/payer wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount from all the children of the school The appellant on the other hand has stated that the money received by the school on account of the development fee, it utilized only for the purposes of the infrastructure Development and is thus treated as a capital receipt and taken directly to the Balance Sheet. Further that the treatment of development fees has in the past been accepted by the AO in the assessment completed 143(3) as capital receipts in AY 10-11 and AY 11-12 The appellant has relied on numerous decisions in support of its contentions 7.2 I am inclined to agree with the view of the appellant on this issue. From the various decisions on the issue what emerges is that what is required to be seen is not the manner in which the money is collected but rather the manner in which the sums are utilized. The Coordinate Bench of the ITAT in the case of ACIT vs JSS Mahavidyapeetha in ITA No 735/Bang/2012 has stated that the litmus Test of charitable institutions is the application of the funds and not the colour of the contribution. It has stated that the question whether the donations were voluntary or not becomes relevant and what becomes relevant is the application of such con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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 7.5 Furthermore the Delhi Bench of the ITAT in a recent decision in the case of Maharishi Markandeshwar Trust dated 27.06.2022 has also held that the development fee if bang utilized for the purposes of infrastructure development is to be treated as a capital receipt The extract of the judgement is reproduced below 15. Thus, we find primarily the tuition fee is meant to incurring revenue expenditure, the development fee is aimed at requirement of equipments and acquisition of capital assets. On the issue, whether the development fee is revenue in nature or capital in nature. Reliance is being placed on the orders of Coordinate Bench of Tribunal in the case of Global Institute of Technology vs. DCIT (Exemption) in ITA No. 1066/Jp/2018 dated 05.11.2018 wherein it was held as under:- Addition of development receipt/fee treating the same as revenue receipt Held that The development fee received by the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held as capital and only applied for specific purposes then it can be said that there was a specific direction to treat it as corpus funds. The Court further held that the requirement is that the voluntary contributions have to be made with a specific direction. The law does not require that the said direction should be in writing. In the absence of the direction in writing the only way that one can find out whether there was a specific direction in to find out how the money so paid it is utilized. 21 In the instant case the Development Fee has been directly taken to corpus account as capital receipt u/s 11(1)(d) and has also invested in the fixed asset in the year 22. Ergo, we hold that the Development Fee is to be treated as corpus fund allowed to be taken as capital receipt. 76 In view of the above discussion and relying on the above judgements, it is held that Rs 2,27,78,950/- on account of development fund is a capital receipt and would not be added to the Gross receipts in the Income and expenditure account. The Ground of Appeal is Allowed 3.2 During the course of hearing, the ld.DR supported the order of the AO and submitted that the AO is justified in treating the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other fees. It is an admitted fact that the development fund is received from the student against the services to be rendered. As such it is fees against services and not voluntary offer from any person but a compulsion of student to pay development fund if he or she wants to study in the school. There is no option without development fund fees. The development fund is not received from the outside parties except students. 3.4.2 Accordingly, it is a part of the fees. Therefore, the AO held that the same can t be classified as corpus donation or contribution as the same is not voluntary and is not for any specified purpose. Accordingly, he considered development receipt of Rs. 2,27,78,950/- as revenue receipt and made addition for the same. 4.3.3 In first appeal, the Ld. CIT(A) after reproducing the submission of the assessee and the case laws relied upon at Page 3 to 13 of the order at Para 7.1 to 7.3 at Page 21-24 held that development fees is utilized in creation of capital asset. The co-ordinate bench of Jaipur Bench and various other Tribunals and High Courts have held that the development fees if utilized for the purpose of infrastructure development is to be treated as a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the donor and the donee is to be seen. If the intention of the donor is that the donation given is to be treated as capital receipt and the income thereof has to be applied for charitable purposes, then the said voluntary contribution is towards corpus of Trust. Similarly, after receiving the amount if the donee keeps it in deposit and only utilizes the income there from to carry on charitable activities, then also the said amount would amount to be contribution to the corpus of the Trust and the nomenclature in which the deposits are kept is of no relevance as long as the deposit are kept as capital and the income thereof is utilized for carrying on the charitable and religious activities of the Trust. After considering the legal position and the facts on records, the Karnataka High Court held that:- The word corpus is used in the context of the Income tax Act. We have to understand the same in the context of capital, opposed to expenditure. It is a capital of the assessee, a capital of an estate; capital of a Trust; a capital of an institution. Therefore, if any voluntary contribution is made with a specific direction, then it shall be treated as capital of the Trust fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore/2012 has stated that the litmus test of charitable institution is the application of funds and not the colour of the contribution. It has stated that the question whether the donations are voluntarily or not becomes irrelevant and what becomes relevant is the application of such contributions on the objects of the trust which are admittedly charitable. If the developer fees is used for the purpose of creating infrastructure then the same would be treated as a capital receipt. We further take into consideration the decision of ITAT Jaipur bench in the case of Global Institute of Technology Society vs. DCIT(E) in ITA No. 1066/JP/2018 order dt.05.11.2018 after relying on the decision of the Hon ble Supreme Court in case of Modern Schools vs. Union of India at Page 23 held as under:- Thus, the Hon'ble Supreme Court while considering the recommendation of Duggal Committee has held that the development fee could be levied at the rate not exceeding 10 to 15% of the total annual tuition fee. Further the said fee shall be treated as capital receipt and shall be collected only if school maintains a depreciation reserve fund. Hence, the development fee collected from the students can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id 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. The co-ordinate bench of Delhi in the case of Maharishi Markandeshwar Trust Vs. ACIT in ITA No. 1966 to 1972 for A.Y. 2009-10 to 2015-16 vide orderdt.27.06.2022 at Para 16 to 23 held as under: 16. Thus, we find primarily the tuition fee is meant to incurring revenue expenditure, the development fee is aimed at requirement of equipments and acquisition of capital assets. On the issue, whether the development fee is revenue in nature or capital in nature. Reliance is being placed on the orders of Coordinate Bench of Tribunal in the case of Global Institute of Technology vs. DCIT (Exemption) in ITA No. 1066/Jp/2018 dated 05.11.2018 wherein it was held as under: Addition of development receipt/fee treating the same as revenue receipt - Held 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 institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rection to treat it as corpus funds. The Court further held that the requirement is that the voluntary contributions have to be made with a specific direction. The law does not require that the said direction should be in writing. In the absence of the direction in writing, the only way that one can find out whether there was a specific direction is to find out how the money so paid it is utilized. 22. In the instant case, the Development Fee has been directly taken to corpus account as capital receipt u/s 11(1)(d) and has also invested in the fixed asset in the year. 23. Ergo, we hold that the Development Fee is to be treated as corpus fund allowed to be taken as capital receipt. Hence, in view of the above facts, circumstances of the and the case laws discussed hereinabove, we concur with the findings of the ld. CIT(A) who has rightly held development fund is a capital receipt and would not be added to the gross receipt in the Income Expenditure Account. Hence the ground Nos. 1 to 3 raised by the Department are dismissed. 4.1 Apropos Ground No. 4 5 of the Department, it is noticed that the ld. CIT(A) has allowed the Ground raised by the assessee before him who while adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to agree with the logic and rational adopted by the A.O. First and foremost there is a clear distinction between an investment or deposit and a loan or advance. In the case of an investment, there is a clear title to ownership of something i.e securities, immovable property financial instruments etc. The person making the investment becomes the owner of that property. Similarly a deposit is an amount given for securing a receipt of a service. In the case of a loan or an advance no such title in conferred on the person providing the loan or advance or no service is provided/received. Such loan or advance is temporary in nature and does not amount to a transfer of property in favour of the investor or does not secure a right to receive any service. In the present case at hand it is seen that the advances made to the staff of the school of Rs 6,26,000/- on no account can be considered as an investment. The staff are given advance on their salary which is deducted from the salary as it becomes due and hence is clear by way of an advance given to employees for which there is no bar on the same under the provisions of the Act. Now with regard to the advances-given to the other educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to the total income of the assessee and the assessee is denied exemption u/s 11 of the Act on the said amount. 4.1.3 During the course of hearing, the ld. AR of the assessee supported the order of the ld CIT(A) and filed the following the written submission to counter the grounds raised by the Department. Submission:- 1. The dispute in this ground is whether on advance of Rs. 1,62,86,091/- given by the assessee the provisions of section 11(5) applies and consequently section 13(1)(d) can be invoked. In this connection it would be relevant to submit that section 11(5) prescribes the forms and modes of investing or depositing the money referred to in clause(b) of sub-section (2) of section 11 of the Act. Sub-section (2) of the Act provides that where 85% of the income is not applied to charitable purposes but is accumulated or set apart then the money so accumulated or set apart has to be invested/deposited in the forms or the modes specified under sub-section (5) of the Act. In the present case assessee has not made any claim of accumulation or set apart of income u/s 11(2) of the Act and therefore question of investing or depositing the money in forms and modes specified u/s 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be 20 percent but there was no such profit in society, thus section 13 was not violated. It was held that assessee society had merely given interest free loan to another society and Loan was neither investment nor deposit. Section 13(3) is not applicable in this case. Thus there was no violation of section 13 and Revenue s appeal dismissed. Director of Income Tax (Exemp.) vs. Acme Educational Society (2010) 326 ITR 146 (HC) (80-85) Assessee society had given a loan of Rs. 90,50,000 to another educational society whose president was brother of assessee society s president. AO invoking provisions of s.13(1)(d) r/w s. 11(5) denied benefit of s. 11 to the assessee society. Delhi High Court held that Interest-free loan given by the assessee-society to another society having similar objects and registered under s. 12A does not violate s. 13(1)(d) r/w s. 11(5) as the said loan was neither an investment nor a deposit and fact that the loan was interest-free and had been subsequently returned is also significant. Kanpur Subhash Shiksha Samiti vs. DCIT (2011) 11 ITR 0023 (Trib.Lucknow) (PB 86-102) Assessee trust had given loans to another trust RLSS. AO alleged violation of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, since such loans were neither investments nor deposits. No doubt, the assessee here had mentioned the amounts given to M/s SPK MAC Charitable Trust as deposits in its accounts, submission of the assessee that it was nothing but a loan given to the said Trust, for the purpose of its educational objects, has not been rebutted by the Revenue. Therefore it is held that CIT(Appeals) was justified in directing the A.O. to grant exemption claimed by the assessee under Sections 11 and 12 of the Act. Society Of Daughters Of Mary vs. ITO ITA No. 963/MDS/2012 (Chennai Trib.) (PB 106-108) Assessee is an educational organization and registered under section 12AA of the IT Act. AO held that loans/deposits to sister concern violates section 13(1)(d) and 11(5) of the Act. The assessee explained that all the loans are interest-free loans and are given to educational institutions run by the society/trust belonging to its group. The purpose of the loan was purely for putting up building/infrastructure for educational institutions. It was neither a deposit nor an investment and therefore there was no infringement as contained in section 13(1)(d) read with section 11(5) of the Act and the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has provided loans/advances to the societies registered u/s. 12AA having similar object as of the assessee and to the staff/contractor. Hence this decision is not applicable. Nachimuthu Industrial Association V/s. CIT235 ITR 190 (SC) In this case AO found that certain amount set apart as provision was not actually applied for charitable or religious purpose and therefore denied exemption u/s 11. Thus this is not a case of advance/loan to society. Accordingly this decision is not applicable. CIT V/s. V.G.P Foundation (262 ITR 187)(Mad) In this case payments were made to chairman, legal advisor, family members of chairman, etc. and purchases made for chairman's house including electricity bills of the house. Family members had been appointed to important posts. Property was also purchased in chairman's name out of trust funds. Thus, there was clear finding of AO in respect of misappropriation and mis-utilization of trust funds. Further, the documentary evidence would clearly go to show that the receipts which are in the name of the trust and donations collected amounts to profit motive and it cannot be the object or the purpose of running a charitable educational institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avoidance mechanism or scheme by transferring tax exempt funds to non- tax exempt entities. From this observation of the ld. CIT(A) and also the decisions mentioned hereinabove by the assessee, the Bench finds that there is no error in the order of the ld. CIT(A) and thus the Ground No. 4 5 of the Department are dismissed. 5.1 Now we take up the appeal of the Ground No.6 of the Department and CO of the assessee which is again mentioned as under:- Ground No.6 (Department) Whether Ld. CIT(A) is justified in reducing disallowance of 20% out of total application of Rs. 3,03,53,582/- to extend of 10% on Rs. 3,03,53,582/- i.e. Rs. 30,35,358/- without any proper reason, though the Id. CIT(A) himself admitted that the AO has rightly rejected the books of accounts u/s 145(3) of the I.T. Act, 1961 Appellant craves the right to add, alter or amend any grounds of appeal before the Hon. ITAT in the interest of justice. CO of the assessee The Ld. CIT(A), NFAC has erred on facts and in law in upholding the action of AO in rejecting the books of accounts u/s 145(3) of IT Act, 1961. The Ld. CIT(A), NFAC has erred on facts and in law in confirming the disallowance of Rs. 30,35,358/-, being 10% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account were not produced before the A.O along with the bills and vouchers for expenses. Accordingly, the A.O was unable to verify the same. Hence there was reason for the A.O to exercise his discretion in rejecting the books u/s 145(3) of the Act 9.4 However it is seen that the disallowance of the expenses to the extent of 20 percent of the application of income is found to be excessive on account of the fact that in the earlier years and assessments no defect has been found with the books and also that the accounts have been duly audited. Accordingly, the disallowance is thus reduced to 10 percent of the expenses. The contentions raised by the appellant regarding certain expenses being paid in cheque and also discrepancy regarding the total expenses cannot be accepted as these were not subject to verification before the A.O and neither have the details and evidences been submitted in the instant appellant proceedings. Accordingly, the disallowance of 20% out of the Total expenses of Rs 30353582/- amounting to Rs 60.70.716 is reduced to 10% of the of the Total expenses of Rs 30353582/- amounting to Rs 30.35.358/- This amount is to be added to the Gross receipts for purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 166174.00 69368.00 23 laboratory exp. 104426.00 196287.00 415572.00 24 library exp. 396803.00 463246.00 481876.00 25 medical exp. 135539.00 281164.00 319250.00 26 miscellaneous exp. 64900.00 280152.00 305765.00 27 music exp. 313017.00 576849.00 554192.00 28 news paper exp. 29407.00 40060.00 57748.00 29 office expenses 239537.00 456375.00 589856.00 30 accounting charges .. 24000.00 24000.00 31 postage telegrams 140751.00 53181.00 55452.00 32 P.F. administration charges .. .. 24326.00 33 printing stationery exp. 491454.00 804379.00 977364.00 34 rep. maintenance building 616524.00 971910.00 1077976.00 35 rep. maintenance computer 420120.00 578907.00 359574.00 36 rep. maintenance furniture 379000.00 688887.00 256750.00 37 rep. maint.plant machinery 126968.00 332859.00 152855.00 38 rep. maintenance of vehicle 157047.00 285924.00 514699.00 39 salary expenses 3245301.00 4201660.00 4672562.00 40 social welfare expenses 670647.00 966300.00 1027426.00 41 Staff welfare expense 340748.00 464510.00 622552.00 42 student welfare expense 601738.00 802224.00 1064525.00 43 supervision charges .. 72000.00 120000.00 44 teaching expenses 557093.00 673422.00 759936.00 45 telephone expenses 61539.00 494 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the facts and lack of investigation and proper reasoning, the disallowance was deleted. In view of the above, the adhoc disallowance made by the AO and partly confirmed by the Ld. CIT(A) be directed to be deleted. 5.1.5 On the other hand, the ld. DR supported the order of the AO. 5.1.6 We have heard both the parties and perused the materials available on record. It is noticed that the AO during assessment proceedings noticed that the despite providing ample opportunities, the assessee failed to produce the books of accounts and vouchers for expense. He noted that the expense claimed by the assessee in the shape of income applied to charitable purpose during the year amounting to Rs. 3,03,53,582/- are not open for verification and thus he applied the provisions of Section 145(3) and made 20% disallowance which comes to Rs. 60,70,716/- being unverifiable expenses and thus made the addition in the hands of the assessee which in first appeal the ld. CIT(A) reduced the expenses to the extent of 10% and thus restrict addition at Rs. 30,35,358/-. Before us, the ld. AR of the assessee has submitted the following details of expenses claimed by the assessee which are duly audited and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 46 travelling expenses .. 280193.00 315650.00 47 uniform liveries 135550.00 291180.00 313338.00 48 vehicle running maintenance 430619.00 784905.00 779539.00 TOTAL 18920355.07 24954185.45 26942337.22 Total Receipt 21266152 2866847 31374467 Ratio of expense on receipts 88.96% 87.04% 85.87% From the above table we note that the ratio of expenses to the receipt has declined to 85.87% as compared to 87.04% in A.Y. 2011-12 and 88.96% in A.Y. 2010-11. Further the above expenditure includes audit fee, building rent expenses, depreciation, electricity water expenses, ESI PF contribution, PF administration charges, salary expenses and supervision charges aggregating to Rs. 99,71,696/- which is paid by cheque or otherwise not claimed by the assessee. After excluding this amount the expenditure claimed by the assessee is Rs. 1,69,70,641/-. These expenses are otherwise reasonable considering the comparative expenses incurred in previous year which has been accepted by the AO in the earlier assessment orders framed u/s 143(3) of the Act. Hence, the adhoc disallowance of 20% made by the AO which was restricted to 10% by Ld. CIT(A). Considering the totality of the facts and the discussions so ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
