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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI ANIL CHATURVEDI, AM & SHRI PARTHA SARATHI CHAUDHURY, JM
आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the Revenue and the supportive cross objection preferred by the assessee emanates from the order of the Ld. CIT(Appeals)-2, Kolhapur dated 10.01.2017 for the assessment year 2005-06 as per the following grounds of appeal on record:
“1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that deposits of Rs.65,00,000/- with Madhyamik Adhyapak Sahakari Patsanstha and Rs.50,000/- with Ravindra Nagari Patsantha are eligible for investment u/s.11(5) of the I.T. Act. 2. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in holding that payment of Rs.21,53,830/- to Marleshwar Construction Pvt. Ltd. are eligible for investment u/s.11(5) of the I.T. Act and there is no violation of section 13 of the Act. 3.Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in holding that development fee of Rs.38,34,640/- as corpus in nature. 4. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in holding that depreciation of Rs.78,27,777/- in respect of assets which are already claimed as application of income.”
The brief facts in this case are that the assessee is a public charitable trust engaged in imparting education to students enrolled in its institutions as per govt. policies. The original ROI was filed declaring total loss at Rs.1,23,69,555. This ROI was beyond the due dates mentioned in sec. 139(1) & 139(4) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). The ROI was processed u/s.143(1) of the Act on 24/03/2008. The Assessing Officer reopened the assessment u/s.147 of the Act vide notice dated 23/10/2009. However, there was no compliance from the assessee in the
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form of a return to be filed in response to the same. In the reassessment, the Assessing Officer examined the nature of activities carried on by the assessee and held that he has not carried out any charitable work. The Assessing Officer held that there is no distinction between the assessee and any other private educational institution. The assessee charges fees to students as per its prospectus but no charitable work is carried out as students are enrolled with full fees and other expenses which they have to incur. The Assessing Officer, therefore, concluded that the assessee does not fulfil the basic condition of charitable nature prescribed u/s.11 and 12 of the Act.
The Assessing Officer further examined the violations of see 13 in the case of the assessee. The Assessing Officer has listed out 5 instances of violation of see 13 such as : amounts advanced to trustees as well as societies in which trustees are interested Rs.5000/- for staff shares in Marleshwar Falprakriya Kendra, advance with trustee for purchase of land Rs.8,24,000/-, advance to 4 trustees for purchase of motor car Rs.6,00,000/-, Advance to Kosumb group Rs.2,00,000/- and advance to Marleswar Construction Pvt. Ltd Rs.5,24,830/-. These alleged violations have been extracted by the Assessing Officer from the audit report submitted by the trust. The Assessing Officer further quoted the audit report which opined that the trust has deposited Rs.65,00,000/- with the Madhyamik Adhyapak Sah Pathpedhi & Rs.50,000/- in Ravindra Nagari Pat Sanstha which the auditors opined is contrary to the provisions of Mumbai Public Trusts Act. The Assessing Officer therefore concluded that the provisions of see 13(c) would apply to the 1st 5 instances listed out totaling to Rs.21,53,830/- and the provisions of sec 13(d) would apply to the two investments listed out. The Assessing Officer held that
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Rs.21,53,830/- & Rs.65,50,000/- would not qualify for exemption u/s.11 of the Act.
The Assessing Officer further noted that the assessee has received Rs.38,37,640/- as development fee and the same has been carried directly to the balance sheet as corpus donations. The Assessing Officer examined the nature of the development fee and held that the fee structure of the Min of HRD is in two categories viz. tuition fees and development fees. The development fees are allowed to be collected for the recovery of the capital cost to the management. There are also certain restrictions on the utilisation of development fees on the management. The Assessing Officer was of the view that the development fee goes towards the earmarked funds and not corpus donation. The Assessing Officer was of the view that the corpus funds are towards the overall objects of the trust and on the other hand, the development fees being for specific purposes cannot be said to be corpus donations. The Assessing Officer therefore assessed the development fees received as income of the assessee trust.
The Assessing Officer noted that the assessee has set apart 15% of the amount to be carried forward to subsequent years, however, no notice in Form 10 u/r 17 was given to the Assessing Officer and there is also no record of the same in the minutes of the trust. The Assessing Officer held this to be in contravention to see 11(2)(a) and therefore denied the benefit of 15% set aside. This has resulted in an addition of Rs.38,75,710/-. The Assessing Officer further held that the assessee has claimed application of income on account of addition to capital assets at Rs.91,10,210/- and at the same time claimed depreciation on the same at Rs.78,27,773/-. Applying the ratio of the
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decision of the Hon'ble Supreme Court in the case of Escorts Ltd 199 ITR 43 (SC], the Assessing Officer denied the claim of depreciation.
With regard to ground No.1 at Para 5.2.1, the Ld. CIT(Appeals) observed that the registration u/s.12A of the Act was cancelled with regard to the assessee trust. Thereafter, at Para 5.2.2, the Ld. CIT(Appeals) observed that the matter was thereafter taken up for consideration before the Pune Bench of the Tribunal in ITA No.892/PN/2012 dated 30.09.2013 and the findings of the Tribunal has been reproduced in the order of the Ld. CIT(Appeal) which is on record. Thereafter, at Para 5.2.3, the Ld. CIT(Appeals) has observed as follows:
“5.2.3 From the above, it is evident that the Hon’ble ITAT has held that the order u/s. 12AA(3) cancelling the registration is not retrospective and is nothing but a review of the earlier order granting registration. Accordingly the appeal was allowed. This therefore means that the registration granted to the assessee for this AY is now restored by the order of the Hon’ble ITAT. In doing so, the ITAT has also ruled on the same violations pointed out by the AO in his present assessment order. The operative portion of the ITAT order starts from para 8. The 2 additions made by the AO totalling to Rs 65,50,000 being the deposits made by the appellant in Madhyamik Adhyapak Sahakari Pat Pedhi & Ravindra Nagari Pat Sanstha have been dealt with by the ITAT in para 8.3 of its order. Similarly the issue of advance made to one of the trustees and advances for purchase of car has also been dealt with by the ITAT in its impugned order. Finally it could be observed that the Hon'ble ITAT has held in the concluding para that there is no infringement of any of the provisions of sec 11(5) or 13. This finding of fact has become final on the issues before the ITAT and I am therefore bound by these factual findings. It is evident therefore that the additions made by the AO for infringement of see 13(c) & (d) of Rs.65,50,000 cannot now stand in light of the clear findings of the Hon'ble ITAT. Respectfully following the decision of the Hon'ble ITAT in the appellants own case, I delete the addition of Rs.65,50,000 made by the AO on this count. Ground 7 is therefore allowed.”
With regard to ground No.2 i.e. payment of Rs.21,53,830/- to Marleshwar Construction Pvt. Ltd., the Ld. CIT(Appeals) relying on the decision of the Pune Bench of the Tribunal in assessee‟s own case in ITA No.892/PN/2012 vide Para 5.2.5 has held and observed as follows:
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“5.2.5 It could be further observed that the transactions with Marleshwar Construction Pvt. Ltd, the advances given for purchase of land, advances given for purchase of car has also been held in favour of the appellant by the ITAT. The total addition made by the AO on these issues of Rs.21,53,830 has no legs to stand on facts and therefore the addition is deleted. Ground 6 is allowed.”
With regard to ground No.3 i.e. development fee of Rs.38,34,640/- as corpus in nature, at Para 5.2.7, the Ld. CIT(Appeals) has held as follows:
“5.2.7 Let me now consider the matter of development fees collected. The appellant stated to be towards corpus donations while the AO held them to be revenue receipts. The reason the AO held so was based on the guidelines of the HRD Ministry which allows the appellant to collect tuition fees as well as development fees which go towards recoupment of the capital cost. This itself would indicate that the donations are towards the capital of the trust and not voluntary. It is also known that the appellant is obtaining donations only from students who are granted admission and the development fees donated are in addition to the tuition fees charged from the students. This is another pointer to show that the development fees charged from students is not voluntary in nature. There is nothing on record to show that only some students pay these fees and others don't which would indicate an element of voluntary nature. The term corpus itself indicates capital nature. Any fund in the nature of building fund, or fund for capital expenditure would constitute capital of the trust to be applied for that specific purpose. In the present case, the development fee is collected and separately credited to a reserve in the balance sheet and is used only for specific purposes. In fact the AO seems to have confused himself over terminology of earmarked funds and corpus fund. In my view both would be same following the logic above. Voluntary donations have no restrictions whatsoever on their uti1isation and could be utilised by the appellant for any purpose including revenue. In the instant matter, there is no such freedom to the appellant. I am therefore of the considered view that development fee charged is corpus donations and therefore out of the purview of income of the appellant”
Thereafter, the Ld. CIT(Appeals) further relied on the decision of the Pune Bench of the Tribunal in the case of Bharatiya Vidyapeeth Medical Foundation (2013) 37 taxmann.com 242 ( Pune.) and have discussed the entire facts and case laws which is on record. However, facts therein were much more critical since donations were anonymous and merely had the word „corpus‟ stamped on the receipts and therefore, the Tribunal held that the donors are not aware as to for what purpose the donations are being
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made. However, in the case of the assessee, the facts are exactly opposite in the sense that the students who get admission pay the development fee and without the same, there would be no admission for them. There is an element of quid pro quo for them and therefore, the students are exactly aware for what purpose their fee is going to be used for. For a moment, even if it is held that development fee is revenue receipts, the same are still eligible for deduction u/s.11 of the Act in the light of the fact that there is no violation of either 11(5) or 13 of the Act in the case of the assessee as has been held by the Pune Bench of the Tribunal in assessee‟s own case in ITA No.892/PN/2012 (supra.) in the 12A matter. Therefore, addition made was deleted by the Ld. CIT(Appeals).
With regard to ground No.4 i.e. depreciation of Rs.78,27,777/- in respect of assets which are already claimed as application of income, at Para 5.2.6, the Ld. CIT(Appeals) has held and observed as follows:
“5.2.6 It now remains to discuss the issue of development fee and the issue of depreciation disallowed by the AO. The issue of claim of depreciation on the capital assets purchased by the appellant and claimed as application of income is now settled squarely in favour of the appellant by the decision of the Hon’ble Bombay High Court in the case of Shri Vile Parle Kelavani Mandal (2015) 58 taxmann.258 (Bom.). Quoting from the same: Section 32, read with section 11, of the Income Tax Act, 1961- Depreciation- Allowability of (Trust)- Assessee trust acquired assets from income of trust- Assessee claimed deduction on account of application of income- It claimed depreciation on use of said assets- Whether such depreciation claim did not mean claim of double deduction and therefore, depreciation was to be allowed- Held Yes. 6. As far as question No.4 is concerned, this Court has repeatedly held that there is nothing like double deduction. When the assessee has acquired an asset from the income of the trust and thereafter the amount that is claimed is the depreciation on the use of the assets, such depreciation claim does not mean double deduction. The deduction earlier claimed is towards application of funds of the trust for acquiring assets. The latter is depreciation and it is permissible deduction considering the use of the assets. This has been clarified repeatedly by this Court. If any reference is required then the case of CIT v. Institution
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of Banking Personnel Selection (IBPS) [2003] 264 ITR 1101131 Taxman 386 (Bom.) is enough. 7. Going by the law laid down by this Court, we are of the opinion that that even the question No.4 in the paper-book cannot be termed as substantial question of law. The appeal thus has no merits and is dismissed. No order as to costs. It is evident from the above that the matter is covered squarely in favour of the appellant on this issue by the decision of the jurisdictional High Court cited above. Respectfully following the same, I delete the disallowance of depreciation of Rs 78,27,777. Ground 9 is accordingly allowed.”
We have perused the case records and given considerable thought to the findings of the Ld. CIT(Appeals) on the issues raised by the Revenue. We find the Ld. CIT(Appeals) has based his findings relying on the decision of the Pune Bench of the Tribunal in assessee‟s own case (supra.) and also other decisions of the Hon‟ble High Courts. Therefore, we do not find any infirmity with the findings of the Ld. CIT(Appeals) on the issues and relief provided to the assessee by the Ld. CIT(Appeals) in respect of these issues are hereby sustained.
In the result, appeal of the Revenue in ITA No.779/PUN/2017 is dismissed.
At the very outset, the Ld. Counsel for the assessee submitted that if the appeal of Revenue is dismissed then the cross objection being supportive of the order of Ld. CIT(Appeals) becomes infructuous. Since we have sustained the relief granted to the assessee by the Ld. CIT(Appeals), cross objection being supportive becomes infructuous and hence, dismissed. Thus, CO No. 18/PUN/2019 filed by the assessee is dismissed.
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In the combined result, appeal of the Revenue and cross objection filed by the assessee are dismissed.
Order pronounced on 02nd day of January, 2020.
Sd/- Sd/- ANIL CHATURVEDI PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 02nd January, 2020. SB आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The CIT(Appeals)-2, Kolhapur. 4. The Pr. CIT-2, Kolhapur. , आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ववभागीय प्रतततनधध ऩुणे / DR, ITAT, “A” Bench, Pune. गार्ड फ़ाइऱ / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
तनजी सधचव / Private Secretary आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune.
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Date 1 Draft dictated on 02.01.2020 Sr.PS/PS 2 Draft placed before author 02.01.2020 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order