Maharashtra Academy of Engineering & Educational Research v. Dy. CIT

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2017 TaxPub(DT) 0812 (Pune-Trib) : (2017) 055 ITR (Trib) 0242 M.A.E. & Educational Research v. DCIT INCOME TAX ACT, 1961 --Charitable trust--Cancellation of registration under section 12AAOnly on the root cause that trust received donation for admission of student.----Where there was no finding or allegation of any diversion of the funds of assessee-trust for the purpose, other than carrying on educational activity, nothing was brought on record to show that there was a profit motive, the receipt of donation by trust was not illegal since its application of funds was for trust objective which was not challenged. --Assessee was a trust registered under the Bombay Public Trusts Act, 1950. The trust runs several educational institutions and filed its return disclosing a nil income, it showed income from other sources and claimed that the entire income from other sources which were the gross receipts of the assessee as exempt under section 11. In the assessment proceedings, AO observed that there was a search under section 132 in the case of two of the trustees. Survey was conducted in the case of the assessee. During the post-survey enquiry, several discrepancies were noticed that trust had taken donation for admission from various persons which was for reservation of seats under management quota, Major portion of donation was in cash and against many such donations there was no addresses, There were instances wherein either receipt for cash donation was not given or the receipt was given for part of the donation received. AO was of view that the activities of assessee were illegal and therefore, registration granted to it under section 10(23)(C) should be withdrawn.Held: There was no finding or allegation of any diversion of these funds for the purpose, other than carrying on educational activity. There was no material to show or a complaint that there has even been any coercive process to recover the amounts in form of donations. There was nothing brought on record to show that there was a profit motive. The opinion of revenue was completely based on surmises and conjectures as it seems to suggest that merely because funds were in a private bank, there may have been divergence of funds to the members of the Society. The source of funds was not an important ingredient in assessing the character of the activities carried on by a charitable institution. Commissioner had examined the application of the assessee on irrelevant considerations which were beyond the scope of enquiry envisaged under section 12AA. Commissioner has also not brought on record any material to demonstrate activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. Under these circumstances, the withdrawal of registration granted under section 12AA could not be sustained in law. Income Tax Act, 1961 Section 12AA Refer:Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC); Agappa Child Centre v. CIT (1997) 226 ITR 211 (Ker); Aggarwal Mitra Mandal Trust v. DIT (Exemption) (2007) 293 ITR (AT) 259 (Delhi); Allahabad Agricultural Institute v. Union of India (2007) 291 ITR 116 (All); American Hotel and Lodging Association Educational Institute v. CBDT (2007) 289 ITR 46 (Delhi); Audyogik Shikshan Mandal v. ITO (2016) 156 ITD 1 (Pune); City Montessori School (Regd.) v. Union of India (2009) 315 ITR 48 (All); CIT v. Fr. Mullers Charitable Institutions (2015) 371 ITR (St.) 370 (SC); CIT v. Fr. Mullers Charitable Institutions (2014) 363 ITR 230 (Karn); CIT v. Ganga Charity Trust Fund (1986) 162 ITR 612 (Guj); CIT (Chief) v. Geetanjali University Trust (2013) 352 ITR 433 (Raj); CIT v. ICICI Bank Ltd. (2012) 349 ITR 482 (Bom); CIT v. Institute of Banking (2003) 264 ITR 110 (Bom); CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom); CIT v. Jet Speed Audio (P) Ltd. (2015) 372 ITR 762 (Bom); CIT v. Karnataka Industrial Area Development Board (I.T.A. No. 557/2008, dt. 17-6-2014); CIT (Asst.) v. Major Deepak Mehta (2012) 344 ITR 641 (Chhattisgarh); CIT (Deputy) v. Muthoottu Mini Kuries (2004) 266 ITR 213 (Ker); CIT v. Nirbheram Daluram (1997) 224 ITR 610 (SC); CIT v. Queens' Educational Society (2009) 319 ITR 160 (Uttarakhand); CIT (Asst.) v. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC) *REFERRED :* FAVOUR : In assessee's favour A.Y. : 1999-2000 to 2004-05 INCOME TAX ACT, 1961 --Charitable trust--Bar to exemption under section 13(1)(c)Foreign tour expenses of trustee and their family members.----If there was any violation of the provisions of section 13(1)(c), even then there could not be wholesale denial of exemption and the disallowance should be restricted to the extent of the so-called violation.--Assessee was a trust running several educational institutions. AO denied exemption under section 11 for violation of provisions of section 13(1)(c) on account of use of trust funds by the trustees and their family members for foreign tour of family members of the trustees and local tour of trustees and their family members to places where trust does not have any activity. Assessee submitted that tour was for attending the World Philosophers Meet and no expenditure incurred which was outside the trust objects. Held: If there was any violation of the provisions of section 13(1)(c), even then there could not be wholesale denial of exemption and the disallowance should be restricted to the extent of the so called violation. Entire income of the assessee cannot be assessed for the tax, for violating under section 11(5) read with section 13(1)(d) and what would become the subject matter of assessment was only that income which is the subject-matter of violation, that should be added back. Therefore, AO was directed to add only that amount which was incurred beyond trust objects. Income Tax Act, 1961 Section 13(1)(c) *REFERRED :* FAVOUR : Partly in assessee's favour A.Y. : 1999-2000 to 2004-05 INCOME TAX ACT, 1961 --Charitable trust--Bar to exemption under section 13(1)(c)Vehicle maintenance expenses and depreciation on motor car.----Where trustee A, apart from using his own car, had also used the vehicle of the trust for trust work, therefore, disallowance of the entire expenditure on account of vehicle maintenance was not justified and 50 per cent, of the vehicle maintenance expenses was to be disallowed and brought to tax. Further, motor car was owned by the trust, therefore, disallowance of depreciation was not justified.--AO had disallowed expenditure on account of vehicle maintenance for the reason that the vehicle was owned by trustee A and the expenditure incurred was personal in nature. Further, AO also disallowed depreciation on motor car.Held: Trustee A was a lawyer and was also attending to the various works of the trust. Apart from using his own car, he had also used the vehicle of the trust. Therefore, disallowance of the entire expenditure on account of vehicle maintenance under the facts was not justified and 50 per cent, of the vehicle maintenance expenses could be held as for the objects of the trust and the balance 50 per cent, was to be disallowed and brought to tax. Further, since motor car was owned by the trust, the disallowance of depreciation was not justified. Income Tax Act, 1961 Section 13(1)(c) *REFERRED :* FAVOUR : Partly in assessee's favour A.Y. : 1999-2000 to 2004-05 INCOME TAX ACT, 1961 --Charitable trust--Application of incomeExcess provision remanding after closure of one of the units----Where excess provision of fee refund remained after the closure of one of the units of assessee trust, and AO added back to the income of assessee, the case was remanded back to AO to check that after disallowance of the provision, the application of income was more than the receipt and if there was any taxable income in the hands of the assessee. --Assessee has made a provision of Rs. 50 lakhs for refund of fees in the assessment year 2002-03 in respect of MIT SFS which was one of its constituent units. The unit was closed during the assessment year 2003-04. Certain amount was repaid out of the provision and an amount of Rs. 30.96 lakhs remained outstanding which remained unpaid even up to 31-3-2006. AO accordingly added back the excess provision in the year of closure of the unit. Assessee submitted that even if the amount was added as income for the assessment year 2003-04, the application of income in that year was still higher than the income/receipts and therefore after exemption under section 11 there was no taxable income in the hands of the assessee. Held: Since the assessee was entitled to exemption under section 11, therefore, this issue was restored to the file of AO to find out as to whether after disallowance of the provision, the application of income was more than the receipt and if there was no taxable income in the hands of the assessee. Income Tax Act, 1961 Section 11 *REFERRED :* FAVOUR : Case remanded A.Y. : 1999-2000 to 2004-05 INCOME TAX ACT, 1961 --Charitable trust--Application of incomeAmount paid towards TDS arrears. ----Where assessee-trust was eligible for claiming exemption under section 11, therefore, the income of the assessee-trust has to be computed in commercial manner and such expenditure which was on account of TDS arrears of earlier year would be considered as application of income.--AO made disallowance on account of income-tax debited in the books. Assessee submitted that it was a charitable trust claiming exemption under section 11 and therefore, there was no question of payment of any income-tax. The amounts were not paid towards income-tax but towards TDS arrears of earlier year and was application of income.Held: Since assessee-trust was eligible for claiming exemption under section 11, therefore, the income of the assessee-trust had to be computed in commercial manner and such expenditure, which was on account of TDS arrears of earlier year, would be considered as application of income. Income Tax Act, 1961 Section 11 *REFERRED :* FAVOUR : In assessee's favour A.Y. : 1999-2000 to 2004-05 IN THE ITAT, PUNE A BENCH R.K. PANDA, A.M. & VIKAS AWASTHY, J.M. Maharashtra Academy of Engineering & Educational Research v. Dy. CIT I.T.A. Nos. 915 to 920/Pune/2012 A.Y. 1999-2000 to 2004-05 10 February, 2017 Appeals Allowed *Cases referred to:* Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC) Agappa Child Centre v. CIT (1997) 226 ITR 211 (Ker) Aggarwal Mitra Mandal Trust v. DIT (Exemption) (2007) 293 ITR (AT) 259 (Delhi) Allahabad Agricultural Institute v. Union of India (2007) 291 ITR 116 (All) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2017 TaxPub(DT) 0812 (Pune-Trib) : (2017) 055 ITR (Trib) 0242

M.A.E. & Educational Research v. DCIT

INCOME TAX ACT, 1961

--Charitable trust--Cancellation of registration under section 12AAOnly on the root cause that trust received donation for admission of student.----Where there was no finding or allegation of any diversion of the funds of assessee-trust for the purpose, other than carrying on educational activity, nothing was brought on record to show that there was a profit motive, the receipt of donation by trust was not illegal since its application of funds was for trust objective which was not challenged. --Assessee was a trust registered under the Bombay Public Trusts Act, 1950. The trust runs several educational institutions and filed its return disclosing a nil income, it showed income from other sources and claimed that the entire income from other sources which were the gross receipts of the assessee as exempt under section 11. In the assessment proceedings, AO observed that there was a search under section 132 in the case of two of the trustees. Survey was conducted in the case of the assessee. During the post-survey enquiry, several discrepancies were noticed that trust had taken donation for admission from various persons which was for reservation of seats under management quota, Major portion of donation was in cash and against many such donations there was no addresses, There were instances wherein either receipt for cash donation was not given or the receipt was given for part of the donation received. AO was of view that the activities of assessee were illegal and therefore, registration granted to it under section 10(23)(C) should be withdrawn.Held: There was no finding or allegation of any diversion of these funds for the purpose, other than carrying on educational activity. There was no material to show or a complaint that there has even been any coercive process to recover the amounts in form of donations. There was nothing brought on record to show that there was a profit motive. The opinion of revenue was completely based on surmises and conjectures as it seems to suggest that merely because funds were in a private bank, there may have been divergence of funds to the members of the Society. The source of funds was not an important ingredient in assessing the character of the activities carried on by a charitable institution. Commissioner had examined the application of the assessee on irrelevant considerations which were beyond the scope of enquiry envisaged under section 12AA. Commissioner has also not brought on record any material to demonstrate activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. Under these circumstances, the withdrawal of registration granted under section 12AA could not be sustained in law.

Income Tax Act, 1961 Section 12AA

Refer:Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC); Agappa Child Centre v. CIT (1997) 226 ITR 211 (Ker); Aggarwal Mitra Mandal Trust v. DIT (Exemption) (2007) 293 ITR (AT) 259 (Delhi); Allahabad Agricultural Institute v. Union of India (2007) 291 ITR 116 (All); American Hotel and Lodging Association Educational Institute v. CBDT (2007) 289 ITR 46 (Delhi); Audyogik Shikshan Mandal v. ITO (2016) 156 ITD 1 (Pune); City Montessori School (Regd.) v. Union of India (2009) 315 ITR 48 (All); CIT v. Fr. Mullers Charitable Institutions (2015) 371 ITR (St.) 370 (SC); CIT v. Fr. Mullers Charitable Institutions (2014) 363 ITR 230 (Karn); CIT v. Ganga Charity Trust Fund (1986) 162 ITR 612 (Guj); CIT (Chief) v. Geetanjali University Trust (2013) 352 ITR 433 (Raj); CIT v. ICICI Bank Ltd. (2012) 349 ITR 482 (Bom); CIT v. Institute of Banking (2003) 264 ITR 110 (Bom); CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom); CIT v. Jet Speed Audio (P) Ltd. (2015) 372 ITR 762 (Bom); CIT v. Karnataka Industrial Area Development Board (I.T.A. No. 557/2008, dt. 17-6-2014); CIT (Asst.) v. Major Deepak Mehta (2012) 344 ITR 641 (Chhattisgarh); CIT (Deputy) v. Muthoottu Mini Kuries (2004) 266 ITR 213 (Ker); CIT v. Nirbheram Daluram (1997) 224 ITR 610 (SC); CIT v. Queens' Educational Society (2009) 319 ITR 160 (Uttarakhand); CIT (Asst.) v. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 1999-2000 to 2004-05

INCOME TAX ACT, 1961

--Charitable trust--Bar to exemption under section 13(1)(c)Foreign tour expenses of trustee and their family members.----If there was any violation of the provisions of section 13(1)(c), even then there could not be wholesale denial of exemption and the disallowance should be restricted to the extent of the so-called violation.--Assessee was a trust running several educational institutions. AO denied exemption under section 11 for violation of provisions of section 13(1)(c) on account of use of trust funds by the trustees and their family members for foreign tour of family members of the trustees and local tour of trustees and their family members to places where trust does not have any activity. Assessee submitted that tour was for attending the World Philosophers Meet and no expenditure incurred which was outside the trust objects. Held: If there was any violation of the provisions of section 13(1)(c), even then there could not be wholesale denial of exemption and the disallowance should be restricted to the extent of the so called violation. Entire income of the assessee cannot be assessed for the tax, for violating under section 11(5) read with section 13(1)(d) and what would become the subject matter of assessment was only that income which is the subject-matter of violation, that should be added back. Therefore, AO was directed to add only that amount which was incurred beyond trust objects.

Income Tax Act, 1961 Section 13(1)(c)

REFERRED :

FAVOUR : Partly in assessee's favour

A.Y. : 1999-2000 to 2004-05

INCOME TAX ACT, 1961

--Charitable trust--Bar to exemption under section 13(1)(c)Vehicle maintenance expenses and depreciation on motor car.----Where trustee A, apart from using his own car, had also used the vehicle of the trust for trust work, therefore, disallowance of the entire expenditure on account of vehicle maintenance was not justified and 50 per cent, of the vehicle maintenance expenses was to be disallowed and brought to tax. Further, motor car was owned by the trust, therefore, disallowance of depreciation was not justified.--AO had disallowed expenditure on account of vehicle maintenance for the reason that the vehicle was owned by trustee A and the expenditure incurred was personal in nature. Further, AO also disallowed depreciation on motor car.Held: Trustee A was a lawyer and was also attending to the various works of the trust. Apart from using his own car, he had also used the vehicle of the trust. Therefore, disallowance of the entire expenditure on account of vehicle maintenance under the facts was not justified and 50 per cent, of the vehicle maintenance expenses could be held as for the objects of the trust and the balance 50 per cent, was to be disallowed and brought to tax. Further, since motor car was owned by the trust, the disallowance of depreciation was not justified.

Income Tax Act, 1961 Section 13(1)(c)

REFERRED :

FAVOUR : Partly in assessee's favour

A.Y. : 1999-2000 to 2004-05

INCOME TAX ACT, 1961

--Charitable trust--Application of incomeExcess provision remanding after closure of one of the units----Where excess provision of fee refund remained after the closure of one of the units of assessee trust, and AO added back to the income of assessee, the case was remanded back to AO to check that after disallowance of the provision, the application of income was more than the receipt and if there was any taxable income in the hands of the assessee. --Assessee has made a provision of Rs. 50 lakhs for refund of fees in the assessment year 2002-03 in respect of MIT SFS which was one of its constituent units. The unit was closed during the assessment year 2003-04. Certain amount was repaid out of the provision and an amount of Rs. 30.96 lakhs remained outstanding which remained unpaid even up to 31-3-2006. AO accordingly added back the excess provision in the year of closure of the unit. Assessee submitted that even if the amount was added as income for the assessment year 2003-04, the application of income in that year was still higher than the income/receipts and therefore after exemption under section 11 there was no taxable income in the hands of the assessee. Held: Since the assessee was entitled to exemption under section 11, therefore, this issue was restored to the file of AO to find out as to whether after disallowance of the provision, the application of income was more than the receipt and if there was no taxable income in the hands of the assessee.

Income Tax Act, 1961 Section 11

REFERRED :

FAVOUR : Case remanded

A.Y. : 1999-2000 to 2004-05

INCOME TAX ACT, 1961

--Charitable trust--Application of incomeAmount paid towards TDS arrears. ----Where assessee-trust was eligible for claiming exemption under section 11, therefore, the income of the assessee-trust has to be computed in commercial manner and such expenditure which was on account of TDS arrears of earlier year would be considered as application of income.--AO made disallowance on account of income-tax debited in the books. Assessee submitted that it was a charitable trust claiming exemption under section 11 and therefore, there was no question of payment of any income-tax. The amounts were not paid towards income-tax but towards TDS arrears of earlier year and was application of income.Held: Since assessee-trust was eligible for claiming exemption under section 11, therefore, the income of the assessee-trust had to be computed in commercial manner and such expenditure, which was on account of TDS arrears of earlier year, would be considered as application of income.

Income Tax Act, 1961 Section 11

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 1999-2000 to 2004-05

IN THE ITAT, PUNE A BENCH

R.K. PANDA, A.M. & VIKAS AWASTHY, J.M.

Maharashtra Academy of Engineering & Educational Research v. Dy. CIT

I.T.A. Nos. 915 to 920/Pune/2012

A.Y. 1999-2000 to 2004-05

10 February, 2017

Appeals Allowed

Cases referred to:

Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC)

Agappa Child Centre v. CIT (1997) 226 ITR 211 (Ker)

Aggarwal Mitra Mandal Trust v. DIT (Exemption) (2007) 293 ITR (AT) 259 (Delhi)

Allahabad Agricultural Institute v. Union of India (2007) 291 ITR 116 (All)