SMT.GRACY BABU,ADOOR P.O. vs. THE DCIT CEN-CIRCLE, KOTTAYAM

Per CHANDRA POOJARI, AM:

These appeals filed by different assessees are directed against the different orders

of the CIT(A)-III, Kochi for different assessment years.

were heard together and are being disposed of by this common consolidated order

for the sake of convenience.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019

3.1 The assesses have raised the following common ground of appeals in ITA Nos.

27, 28, 29, 30, 32, 33 & 34/Coch/2019:

of both the assesses for all the assessment years.

The Assessing Officer went wrong in assessing the fee collected by the trustees in their official capacity from the students in excess of what is fixed by the Govt. of Kerala in their hands which was not accounted by the Trust as the income of the trust. The learned commissioner of income- tax(Appeals) has confirmed the assessment ignoring the submission of the assessee.

4.1 Hence, the additional ground raised by the assesses is dismissed as not

pressed.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 5. The facts of the case with regard to the main ground are that the Trust was

running educational institutions in engineering and management courses. The Trust

had 12 trustees as detailed below:

Due to the difficulties in managing the college and also due to the personal

differences, the trustees had decided to discontinue the business and entered into

an agreement with Believers Church on 10/03/2009 whereby the entire trustees

resigned from the trusteeship inducting new trustees from the side of the Believers

Church. The agreement also provided for payment of 37.5 crores to the trustees for

settling their liabilities as well as completing certain construction activities carried

out by them. The agreement also provided for sale of 55.15 acres of land belonging

to the trustees for a consideration of Rs.12.50 crores.

5.1 A search u/s 132 of the Act was conducted at the residence of Jose Thomas,

Smt. GracyBabu and Sri P J Paulose on 04/03/2009 and certain documents were

impounded. An unsigned draft agreement dated 23/02/2009 was also found which

stated the amount for settlement of liabilities at Rs.43.50 crores and the value of

the estate at 6.50 crores. Certain materials where entries were made to the effect

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 that collection fee from students in excess of what was fixed by Govt, investment

details of trustees etc. were seized. The documents so seized included:

i. Copies of accounts of Shri Jose Thomas with the Carmel Educational Trust. ii. Accounts of his Franchisee business. iii.Copy of the deed of creation of St: Thomas Educational Trust,Adoor. iv.Accounts relating his investment in the Travancore Educational Society.

5.2The materials seized from the residence of the other Trustees included:

i. Copy of the deed of creation of the Carmel Educational Trust. ii. Draft of an agreement made among the trustees of the Carmel EducationalTrust before transferring their trusteeship to nominees of the BelieversChurch in March 2009.

iii.Copies of petitions, counter Affidavits etc filed before different Courts by the Trustees in connection with the litigation among the Trustees.Copy of thedecree of the Sub Court,Pathanamthitta in OS No 248/06 etc. (PJP-6).

iv. Copies of accounts with the trust —PJP-5, KRS-2, JTP-4 etc.

5.3The Assessments were made under section 143(3) r.w.s 153A for the A Ys 2003-

04 to 2008-09and under section 143(3) for the A Y 2009-10 in the case of persons

searched namely Smt. GracyBabu, Sri. Jose Thomas and Sri.P. J. Paulose who were

the heads of family comprising of adult members only. No assessments in

consequence to the search by invoking provisions of section 153C were made in the

cases of family members who were trustees.Based on the above seized documents

and records the assessing officer further concluded that the seized materials PJP-5,

JTP-4 and KRS -2 contained the details of donations received by the Governing Body

members from students, the amount given by the Governing Body Members to the

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 Trust and the amount appropriated by them. The Assessing Officer observed that

admission to the management quota seats were done by the three Governing Body

Members together during the period from F.Y. 2002-03 to 2006-07. The Assessing

Officer found that the admission in 2007-08 was controlled by Sri Jose Thomas and

Smt. GracyBabuin 2008-09, Sri Jose Thomas and Smt. GracyBabu together and Sri.

P.J. Poulose independently had filled up the management quota seats. It was

noticed from the accounts of the Trust that no amount of donation received from

students was accounted in its accounts. In the sworn statements recorded u/s 132

of the I.T. Act, it was admitted by the trustees that during management quota

admissions a lump sum fee was collected from the students which was kept with

the trustees and not reflected in the college accounts. Details of the donations

received by the Governing Body Members are as follows:

Assessment Donations from Donations handed Donations Donations shared Percentage of Year students over to the Trust. Accounted by Trustees as per donation shared collected by the seized material. by the trustees. Trust.

2003-04 NIL NIL NIL NIL NIL

2004-05 Rs.47,31,000- Rs. 27,84,000/- Rs.19,04,000/- 33.33% Commission Rs. 25000 Rs. 47,06,000/-

2005-06 Rs.31, 67,000/- Rs.20,63,000/- NIL Rs. 11,04,000/- 33.33%

2006-07 Rs. 15,07,300/- Rs. 7,57,300/- NIL Rs. 7,50,000/- 33.33%

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 2007-08 Rs. 76,92,450/- Rs.67,94,950/- NIL Rs. 8,97,500/- PJ Poulose Rs.7,27,500/- Jose Thomas Rs.1,70,000/- GracyBabu Rs. 0

2007-08 Rs. 17,94,750/- NIL NIL Rs. 17,94,750/- PJ Poulose Lapsed Rs.6,39,000/- Seat Jose Thomas Rs.11,55,750/-

2008-09 No accounts seen

2009-10 Rs.1,93,55,000 NIL NIL Rs.1,93,55,000 GracyBabu 50%

Jose Thomas Rs.2,11,93,500 NIL NIL Rs.2,11,93,500 50%

5.4 The assessing officer further noticed that out of the total seats for admission

50% are filled up by the government and the balance 50% was filled up by the

management. According to the Assessing Officer, the fees that was collected from

students admitted in the management quota were fixed by thegovernment but the

governing body members of the trust comprising of thechairperson, the secretary

and the treasurer used to get amounts in excess ofprescribed fees for giving

admission to the management quota seats and the amounts so collected being

capitation fee or donation was termed by them asadvance fee. It was noticed that

the donation so collected from students in the management quota was not

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 accounted in the accounts of the college and the trust. It was shared among the

governing body members and utilized by them.

5.5 Before the Assessing Officer, the assesseethat the assessee did not personally

receive any donations from students for admission to the Management quota;

donation if any received was received by the trust and utilized by the Trust and

hence, it was assessable in the case of the Trust. The assessee did not receive any

allowance or any other amount from the Trust other than what is specifically

included in the accounts of the Trust. The transactions as entered in the seized

materials PJP-5, JTS-4 and KRS-2 were totally denied by the assessee. According to

the assessee, these accounts had no relevance to the actual accounts of the Trust

and they were only some noting which had no evidentiary value. With regard to the

interest due on AICTE deposit, it was claimed that the interest on the deposit was

due on maturity only, i.e. 25.2.2012. It was explained that the correct rental income

was computed by the assessee and included in the return filed u/s 153A of the IT

Act, 1961. As an explanation for the source of funds for the credits in bank accounts

the assesseestated that he owned 5 acres of Rubber Estate, the trees standing in

those Estates were sold in 1996 for replanting and he had received approximately

Rs.15 lakhs for those rubber trees in 1996 and cash received on sale of rubber trees

was available with him as cash for investments in banks and other expenses.

According to the Assessing Officer other than the mere statement, no evidence of

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 the sale of rubber trees or evidence to show the possession of cash was furnished

by the assessee.Without prejudice to his contention that he did not receive any

donations from students for admission to the Management Quota, he had requested

that ifthe donation received was assessed in hands as proposed the amounts given

by him to the Trust were to be excluded as it had already been utilized for the

benefit of the Trust. But the Assessing Officer noticed that the donations received

by the Trustees were not accounted by the Trust and even part of the amount

which the Trustees had handed over to the Trust for investment was seen not

included in the accounts of the Trust. The Assessing Officer noted that the

accounts of the Trust up to 2006 had been made by the Trustees who had received

the donations i.e., the Chairperson, Secretary and the Treasurer. From the facts

found from the seized materials the accounts maintained by the Trust and the

statements given by the Trustees, the Assessing Officer noticed that the Trustees

had collected donations from students using their official capacity as Trustees for

giving admission to students in Management Quota and they did not consider it as a

receipt of the Trust. Hence, they did not include the donations in the accounts of

the Trust and the funds so received had been kept separately by the Trustees. It

was noticed that part of it has been utilized by them for their personal purposes and

part handed over to the Trust for investment/expenses. Further, some of the funds

received had been drawn as allowances by the Trustees which was also not

accounted in the Trust and part of the fund was utilized for giving to and receiving

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 from the Trust. In short, it was noticed that a separate account of the fund collected

from students was maintained by the assessee and the co-trustees. According to

the Assessing Officer, the claim of the assessee that it did not receive donations

from students in his individual capacity was contrary to his own statements given

consequent to the search. The other trustees, SmtGracyBabu and Sri PJ Poulosehad

also admitted that they had received amounts from students in addition to the

prescribed fees and that they had invested the amounts so received in their new

Trusts/other investment though Shri Jose Thomas and Smt.GracyBabudenied

income from donations received from students. Shri. P.J.Poulose had filed returns of

income admitting income from donations received from students as per the

accounts seized as PJP-5. Shri Jose Thomas in his statement dated 19.3.2009 had

stated that he had approximately Rs.60 lakhs as income from donations received

from students. He had expressed his willingness to declare the income and pay tax

on the amount. Rejecting the contentions of the assessee, the Assessing Officer took the entire amount collected from students and 1/3rd each was taken as the

share of the trustees and added to the income of the trustees.

collection made by Trustees in their individual capacity for specific services provided

to the students, the money had to be allocated amongst other Trustees also as the

so called three trustees are the heads of family and are acting on behalf of other

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 trustees also. It was submitted that no material was in possession of the assessing

officer to prove that the other members of the family had conveyed their right to

the so called benefits from the trust in favor of family heads. Hence, it was

submitted that the assessment of entire donation in the hands of three family heads

was not in order.

6.1 Further, it was submitted that the assessment of excess fee/donation in the

hands of the trustees was solely based on the seized materials PJP-5, TJP-4 and

KRS-2. It was submitted that the amount handed over to the Trust out of collection

shown in the table was ignored by the assessing officer in computing the income of

various years and also the allocation was not made on thebasis of the information

available in the seized materials which were shown in the table in respect of

A.Ys2007-08 to 2009-10 . Further, for the A.Y.2008-09 there was no material seized

evidencing receipt of donation by the Trustees. It was submitted that information

for receipt of Rs.2,11,93,500/- was for AY 2007-08, but a total sum of

Rs.2,11,93,500/- was assessed on estimate basis in the hands of GracyBabu and

Jose Thomas for that assessment year 2008-09 as well. It was submitted that

income part in the seized materials was considered by the department but the

details of distribution/sharing of income available in the same materials was

ignored. It is well settled position of law that once a document is relied on as

evidence, it has to be done in Toto.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 6.2 It was submitted that the total amount collected for A.Ys 2004-05 to 2007-08

as per the seized materials which was shown in the table comes to Rs.1,70,72,750/-

and out of this Rs. 1,23,99,250/- has been handed over to the college/trust in those

years itself as per the same seized materials as was shown in the table prepared by

the assessing officer. The return of substantial part of collection in the year of

collection itself showed that the collection of donation was on behalf of the Trust

only and the gross amount of collection solely belonged to the Trust/college. Hence,

the assessment of donation in the hands of trustees was therefore not in order.

6.3 It was submitted that mere receipt of money would not constitute income in

the hands of recipient. It may be by way of loan, gift or receipt on behalf of others.

It was submitted that the money received by the Trustees was paid by the students

who got admission in the college run by the Trust. It was fee collected for the

courses conducted in the college in excess of the fees fixed by the Government. It

was submitted that in case it cannot be considered as course fee as the fee was

already fixed by the government, it would take the character of donation or

voluntary contribution only by the students. It was submitted that donation or

voluntary contribution did not come under the purview of income chargeable to tax

and provisions of section 56(v) will not attract as there was consideration in the

form of a seat for the student in the college. In case of absence of adequate

consideration, it can be a voluntary contribution. The assessee submitted that

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 voluntary contribution would constitute income within the meaning of section

2(24)(iia) of the Act. But such contribution received by the Trust or any other on

behalf of the Trust can be considered as income of the Trust only and not as income

of the recipient.

6.4 The CIT(A) directed the Assessing Officer to adopt the share of donation as

per the seized material after deducting the expenses and the amount refunded for

the assessment years 2004-05 to 2007-08 and the actual amount received by the

assessee for the assessment year 2009-10 is Rs.62,95,000/-. However, the CIT(A)

observed that on the same page of the seized document, the assessee’s share was

mentioned as Rs. 1,01,88,875/-, out of which he had taken cash of Rs.62,95,000/-

and balance was payable to him. Since the total share was Rs.1,01,88,875/-, the

CIT(A) confirmed the addition to this extent and as no evidence was available on

record for AY 2008-09, the entire estimated addition on account of donation was

deleted.

6.5 Against this, the assessee is in appeal before us. The Ld. AR reiterated the

submissions made before the lower authorities.

6.6 The Ld. DR relied on the order of the CIT(A).

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 6.7 We have heard the rival submissions and perused the record. In our opinion,

the CIT(A) passed a detailed order stating that there is evidence in the form of

seized material marked as TP-4, TP-5 KRS placed in the paper book in pages 77,

78&79. It is also supported by sworn statement of Shri Jose Thomas on

19/03/2009 and also of Smt. GracyBabu on 04/03/2009 placed at paper books at

pages 1-11 and 30-32. Being so, we do not find any force in the argument of the

Ld. AR in pleading that collection of unaccounted fees should be allocated among

the trustees of the Trust. Accordingly, we confirm the findings of the CIT(A). Thus,

the appeals of the assesses in ITA Nos. 27, 28, 29, 30, 32, 33 & 34/Coch/2019 are

dismissed.

ITA Nos. 31 & 35/Coch/2019 :By Jose Thomas & Gracy Babu :AY 2009-10

and ITA No. 35/Coch/2019 in the case of Smt. Gracy Babu for the assessment year

2009-10 is with regard to assessment of extra fee collected from students as the

income of the family head of the trustees instead of equally allocating among the

trustees. The fact that the actual amount received by the family was

Rs.62,95,000/- and the Assessing Officer had adopted the figure of Rs.1,05,96,750/-

at 50% at Rs.2,11,93,500/- was ignored by the officer. The CIT(A) confirmed it at

Rs.1,01,88,875/- ignoring the submission of the assessee.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 7.1 The CIT(A) observed that as per seized material JTP-4 (page 11) the total

amount of donation received was Rs.2,11,93,500/-. Out of this sum a sum of

Rs.31,12,750/- had been incurred towards expenses. The assessee received only

Rs.62,95,000/- as cash during the year and Smt. Gracy Babu was paid a sum of

Rs.6,00,000/- only. The CIT(A) found that the seized material PJP-5, JTP-4 and

KRS-2 contained the details of sharing of donation among the trustees and the

share of donation received by the trustees for the AY 2003-04, 2004-05, 2006-07,

2007-08 was found to be the same. The CIT(A) observed that for AY 2005-06, the

amount actually shared among the trustees as per the seized record was correctly

given by the assessee. For the AY 2009-10, the assessee had taken the actual cash

received by the trustees as their share of donation. The assessee submitted that

the amount received during the year can only be taxed. From the seized records,

the CIT(A) observed that the plea of the assessee was correct for all the years. The

actual amount received by the assessee as per this is as follows:

Jose Thomas GracyBabu AY 2003-04 Nil Nil AY 2004-05 6,33,677 6,33,677 AY 2005-06 3,50,000 3,00,000 AY 2006-07 2,50,000 2,50,000 AY 2007-08 13,25,750 Nil AY 2008-09 Nil Nil AY 2009-10 62,95,000 6,00,000

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 The assessee had also stated that the addition on account of donation received for

the assessment year 2008-09 was made on estimate basis without evidenced by

any seized material or any other records indicating such payment. The CIT(A)

directed the Assessing Officer to adopt the share of donation as per the seized

material after deducting the expenses and the amount refunded for the assessment

years 2004-05 to 2007-08 and the actual amount received by the assessee for the

assessment year 2009-10 is Rs.62,95,000/-. However, the CIT(A) observed that on

the same page of the seized document, the assessee’s share was mentioned as Rs.

1,01,88,875/-, out of which he had taken cash of Rs.62,95,000/- and balance was

payable to him. Since the total share was Rs.1,01,88,875/-, the CIT(A) confirmed

the addition to this extent and as no evidence was available on record for AY 2008-

09, the entire estimated addition on account of donation was deleted.

7.2 Against this, the assessee is in appeal before us. The Ld. AR reiterated the

submissions made before the lower authorities.

7.3 The Ld. DR relied on the order of the CIT(A).

7.4 We have heard the rival submissions and perused the record. In these

appeals, the contention of the assesses is that only actual fees collected by the

assessee is to be assessed and the amount receivable cannot be assessed. In

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 earlier assessment years, the Assessing Officer had taxed only extra fees actually

received and not the receivables. The CIT(A) also considered only the actual receipt

of extra fees received in other assessment years except assessment year, 2009-10.

The CIT(A) only for this assessment year directed the Assessing Officer to take the

entire extra fees both received and receivable. In our opinion, the CIT(A) cannot

follow different yardstick for different assessment years. Accordingly, we direct the

Assessing Officer to consider the actual extra fees received by the assessee to tax

as unaccounted income. Thus, this ground of appeals of the assesses are partly

allowed in both appeals. Accordingly, the appeals of the assessesin ITA Nos. 31 &

35/Coch/2019 are partly allowed.

8.1 These appeals by the revenue in the case of the above assesses are directed

against the order of the CIT(A)-III, Kochi dated 08/10/2018 and pertain to the

assessment year 2009-10.

8.2 The assessees have raised the following grounds of appeals:

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019

8.3. It is observed that the tax effect in this appeal is less than Rs. 20 lakhs and

therefore the Circular No. 3/2018 dated 11.07.2018 issued by the Central Board of

Direct Taxes (CBDT) in exercise of its power vested under Sec. 268A(1) of the I.T.

Act comes into play, wherein, the monetary limit for filing the appeals by the

Revenue before the ITAT and various High Courts as well as Apex Court are revised

with an object of reducing the tax litigation. Vide para 3 of the said circular (supra),

it is stated that in cases where the tax effect in the appeal to be filed before the

Appellate Tribunal does not exceed Rs. 20 lakhs, appeal should not be filed. Thus,

taking a note of CBDT Circular No. 03/2018 dated 11.07.2018 and considering the

fact that the tax effect in the instant appeal is less than Rs. 20 lakhs, the present

appeal deserves to be dismissed as not maintainable. However, we make it clear

that the issue(s) raised in the instant appeal is left open to be examined in the

appropriate proceedings, if arises, in future. At the same time, we also make it clear

that if the appeal falls in any of the exceptions referred to in the above said CBDT

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 Circular, the Revenue is at liberty to move an application for recalling the order, if

so, advised.

8.4 Accordingly in the light of CBDT Circular No. 03/2018 dated 11.07.2018, the

appeals filed by the Revenue stands dismissed. Since we have dismissed the

appeals of the Revenue, we refrain from going into the grounds raised by the

Revenue.

9.1 The first common ground in ITA Nos. 208 & 2011/Coch/2019 is with regard to

re-opening of assessment proceedings u/s. 147 of the Act which was not pressed

before us and hence, is dismissed as not pressed. Thus, this ground of appeals is

dismissed.

treatment of amount received on sale of agricultural property vide registered sale

deed as the amount received for relinquishment of trusteeship in the Trust by the

Assessing Officer and confirmed by the CIT(A).

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 10.1 The facts of the case are that during the year, the Assessing Officer had made

the following additions as consideration received in lieu of relinquishment of

trusteeship and taxed under income from other sources.

Jose Thomas Gracy Babu Surplus consideration from sale 52,02,349 1,57,62,060 of Rubber Estate @Rs.10,40,470 per acre

Contract payment 34,00,000 34,00,000 Total 86,02,349 1,91,62,060

10.2 The said consideration was treated as receipt in lieu of relinquishment of

Trusteeship received in the form of sale consideration of agricultural land and

contract payment was assessed under the head income from other sources.

According to the Assessing Officer, since the trustees had relinquished the right of

Trusteeship in a Trust viz. Carmel Educational Trust and indirectly received

consideration in lieu of transfer, such consideration was chargeable in the hands of

trustees as income under the head other sources.

11.On appeal, the CIT(A) confirmed the findings of the Assessing Officer. With

respect to the excess price received on sale of agriculture land @Rs.10,40,400/- for

5 Acres, the CIT(A) observed that the assessee’s contention that the sale of rubber

plantation is as per registered sale deed may be a valid contention when viewed in

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 isolation. However, when viewed in a holistic manner keeping in view all the 3

transactions- sale of rubber plantation, donation to related trust and payment for

construction, the CIT(A) observed that income had been sought to be diverted

through colorable transactions to create a veil of legitimacy for evading tax accruing

as a result of receipt of income/ benefit for directed and voluntary relinquishment of

his trusteeship. As is evidenced by the unsigned document dated 23.02.2009, the

sale consideration for acquiring the above plantation was 6.5 crores which was

subsequently changed in the registered documents to Rs.12.5 crores. Moreover,

those plots of land which were owned by non trustees were sold at a much lower

rate, similar to that indicated in the unsigned seized document. Since the sale of

rubber plantation was the sale of a capital asset land, the proceeds of sale was not

to attract any tax liability and hence, the assessee had diverted a part of the

receipts for directed and voluntary relinquishment of his trusteeship, through this

route, to provide a garb of legitimacy to the whole transaction, while evading tax.

The CIT(A) observed that the unsigned document seized during the course of

search proceedings may be deficient in its efficacy when used as a primary

evidence but was a valuable corroborative evidence as the total value of the

transaction, including the purchase of rubber plantation and the directed voluntary

relinquishment of trusteeship by the old trustees as evidenced in the seized

document i.e. 50 crore(43.5 for relinquishment of trusteeship + 6.5 crore for rubber

plantation ) exactly matched the amount which is the sum of the colorable

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 transactions (37.5 for construction payment and donation to trust + 12.5 for rubber

plantation) undertaken by the assessee, as an afterthought to evade taxes. The

CIT(A) sustained the assessee’s assessment of income of Rs. 52,02,350/- for the

AY 2009-10 as excess price received on sale of agriculture land @Rs.10,40,400/- for

5 Acres.

11.1 Against this, the assessee is in appeal before us.The Ld. AR submitted that

the assessee had transferred the agriculture land owned through a registered

document in which the value per acre was fixed at Rs.25,40,470/-. Hence, it was

submitted that no part of consideration received can be treated as consideration in

lieu of relinquishment of trusteeship paid by the purchaser. Moreover, it was

submitted that out of the amount Rs. 1,57,62,060/- (15.15 x Rs.10,40,400)

assessed in the hands of Gracy Babu include consideration relating to 6.25 acres

and 8.90 acres of rubber estate owned by her late husband, Babu Joseph who

expired before the date of supplementary deed of the trust(25/03/2009). Hence, it

was submitted that he had not relinquished his right of succession as lifelong

trustee on 25/03/2009 as his right of succession as lifelong trustee extinguished on

the date of death and nobody will acquire or inherit his such right on the date of his

death as the death of the ownerwill put an end to the life of the right as well. It

was submitted that Gracy Babu and her two major sons viz Judy Babu & Frudy Babu

Thomas were the legal heirs of late Babu Thomas. The Ld. AR submitted that the

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 aforesaid 8.90 acres of rubber estate owned by Late Babu Thomas was transferred

for Rs 2,26,10,197 (Rs.25,40,470 per acre) on 25/03/2009 by the aforesaid legal

heirs to Believers Church group vide registered document No.353/1/2009. Hence, it

was submitted that the share of Gracy Babu in 8.90 acres comes to 2.97 acres only.

According to the Ld. AR, if Rs.10,40,400/- out of 25,40,470/-was taken as

consideration in lieu of relinquishment of trusteeship such amount to be considered

in the hands of Gracy Babu comes to Rs. 95,92,490/- [(2.97x 10,40,400) + (6.25 x

10,40,400)] and not Rs 1,57,62,060/- assessed in the hands of Gracy Babu. The

Ld. AR submitted that while holding that Rs 10,40,470/- out of Rs.25,40,470/-

received as sale consideration of rubber estate per acre formed part of

consideration in lieu of relinquishment of trusteeship, the assessing officer and the

CIT(A) had ignored the agreement dated 01/06/2010 where in the parties to the

agreement had decided to amend the clauses in the agreement dated 10/03/2009

relating to the payments to the trustees for relinquishing the trusteeship.

11.2 The ld. AR submitted that the supplementary deed executed on 25/03/2009

showed that the assessee and other trustees possessed a right of succession as

lifelong trustees of Carmel Educational Trust and they relinquished such right on

25/03/2009. The Ld. AR submitted that the aforesaid right constituted a capital

asset within the meaning of section 2(14)(a) of the Act. According to the Ld. AR,

relinquishment of a capital asset or extinguishment of any right therein is defined to

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 be a transfer of capital asset in section 2(47) of the Act. Hence, it was submitted

that consideration if any, received or receivable in lieu of relinquishment of a capital

asset or extinguishment of any right therein would constitute capital receipt only

and not revenue receipt. It was submitted that the profits and gains arising from

the transfer was, therefore, required to be computed under the head capital gains in

the previous year relevant to assessment year 2009-10. No part of consideration

can be considered for assessment in the subsequent assessment years on receipt

basis. With regard to the computation of capital gains u/s. 48 on the transfer and

charging the same u/s. 45, the Ld. AR relied on the judgment of the Apex Court in

the case of CIT vs. B.C. Sreenivasa Shetty (128 ITR 294) wherein it was held that if

the cost of acquisition of the asset transferred is indeterminable no capital gains can

be computed. In the assessee’s case, the cost of acquisition of the asset transferred

was indeterminable or not specified in section 55 of the Act.

11.3 The contention of the Ld. DR is that a person appointed as a trustee in a

public charitable trust shall not acquire any legal or actionable right over the

property owned by the trust which is solely held for attainment of the objective,

charitable purpose. The Ld. DR submitted that the trusteeship in a public charitable

trust is not a right of the trustee and a trustee is not entitled to receive any benefits

from trust other than reasonable remuneration for the services rendered. Hence, it

was submitted that the assessee had no legal right for receipt of compensation in

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 lieu of relinquishment of trusteeship. According to the Ld. DR, in the instant case,

there were compensations which was received indirectly even though the assessee

did not have a legal right to receive any consideration for his relinquishment.

Hence, according to the Ld. DR, the money received by the assessee in the guise of

excess price of agricultural land Rs.10,40,400(25,40,400 – 15,00,000) per Acre for 5

Acres or contract receipt under the head other sources in the hands of the assessee,

as this right being not legally enforceable, cannot be brought into the ambit of

definition of “capital asset” , and hence, could not be income from capital gains.

The Ld. DR contended that the assessee had received consideration for the “ease”

of cessation of his position as trustee in the trust in favour of identified individuals,

which was not enforceable by law but had existence in reality and hence, the

payment received can be accounted for only under the head income from other

sources and the assessee’s plea of attracting the provision of capital gains cannot

be accepted.

11.4 We have heard the rival submissions and perused the record. In the

present case, there was unsigned Agreement dated 23/02/2009 wherein the sale

consideration was shown at Rs.6.5 crores for sale of rubber plantation. Later as per

registered deed, it was changed to Rs.12.5 crores. In other words, in draft

agreement, the sales consideration was at Rs. 15 lakhs per acre. However, in the

registered deed the sales consideration was shown at Rs 25,40,400/- per acre.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 thusthere was different of amount of Rs.15 lakhs per acre. This difference cannot be

considered as a receipt for sale of agricultural property since a similar property was

sold by trustees at around Rs.15 lakhs per acre. According to the Department, the

assessee adopted colourable devices to receive the amount from Believers Church

by way of inflating the value of rubber estate in the sale deed executed by the

assesses since the sale of rubber plantation, being agricultural land is exempted

from tax. The Ld. AR made an alternative argument that even ifit is presumed that

the consideration was received from Believers Church which was for relinquishment

of trusteeship in the Trust wherein these persons were trustees, it is exempted and

not taxable in the hands of the trustees. In our opinion, there is merit in the

argument of the Ld. AR that even if it is a capital receipt, it is to be treated as

consideration for relinquishment of trusteeship in the Trust and the cost of

acquisition is nil and hence, the gainis not taxable on its transfer.The assesses are

life time trustees in Carmel Educational Trust which is a public charitable trust. This

Trust was taken over by Believers Church, Thiruvalla vide agreement dated

23/02/2009 and by that agreement all the assets and liabilities of Carmel

Educational Trust were transferred to Believers Church and the assesses ceased to

be the trustees of Carmel Educational Trust. According to the CIT(A), the right of

trusteeship is not legally enforceable right and it cannot be brought into the ambit

of definition of “capital asset” and the consideration received on transfer cannot be

treated as ‘income from capital gain’. The CIT(A) treated it as “income from other

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 sources” so as to tax the same. This finding of the CIT(A) is not proper. The

assesses herein wereholding trusteeship in the Carmel Educational Trust which was

relinquished in favour of trustees of Believers Church, and this right is nothing but

a capital asset. Had the Carmel Educational Trust survived as it is, then they have

the right to continue as a Trustee throughout their life time. Once it has ceased to

exist and relinquished the right of trusteeship in favour of the new trustees in

Believers Church, the consideration received for such relinquishment is nothing but

a capital receipt and gain on such transaction cannot be considered as ‘income from

other sources’.

11.5 The contention of the Ld. AR is that since there is no cost of acquisition, it is

not possible to compute capital gain as section 55(2) of the I.T. Act does not

include this kind of asset as capital asset. For better understanding, we will

examine the provisions of section 55(2) of the I.T. Act.

S. 55 (2) For the purposes of sections 48 and 49, "cost of acquisition",—

(a) in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carnage permits or loom hours —

(i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price: and (ii) in any other case not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49shall be taken to be nil;

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 (aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee—

(A) becomes entitled to subscribe to any additional financial asset; or

(B) is allotted any additional financial asset without any payment, then, subject to the provisions of sub-clauses (i) and (ii) of clause (b) —

(i) in relation to the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset;

(ii) in relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee;

(iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset; and (iiia) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset;

(ab) in relation to a capital asset, being equity share or share allotted to a shareholder of a recognised stock exchange in India under a scheme for demutilisation or corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange:

Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil;

(b) in relation to any other capital asset —

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 (i) where the capital asset become the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1 st day of April, 1981, at the option of the assessee;

(ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1stday of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee;

(iii) where the capital asset became the property of the assessee on the distribution of the capital asset of a company on its liquidation and the assessee has been assessed to income tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution;

(v) wherethe capital asset, being a share or a stock of a company, became the property of the assesseeon —

(a) the consolidation and division of all or any of the share capital of the company into shares of larger amount** ** **"

11.6 A bare reading thereof would indicate how the legislature contemplates that

income chargeable under head "capital gains" has to be computed. The mode of

computation is laid down by section 48, whereas by section 49, the cost with

reference to certain modes of acquisition has been set out. For the purposes of both

sections, the legislature has devised the scheme in section 55 and sub-section (2)

thereof clarifies that for the purposes of sections 48 and 49. "cost of acquisition" in

relation to a capital asset, being goodwill of a business or a trade mark or brand

name associated with a business or a right to manufacture, produce or process any

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 article or thing or right to carry on any business, tenancy rights, stage carriage

permits or loom hours has to be computed. In this case, the assessee stated that

nothing of these things would cover the relinquishment of trusteeship and in the

absence of aspecific provision, the income shall be taken as Nil.

11.7In the case of Cadell Weaving Mill Co. (P.) Ltd. (273 ITR 1),theargument before

the Supreme Court was arising out of the return of income of the assessee. The

amountreceived by the asessee on surrender of tenancy right, whether liable to

capital gains under section 45 of the Income Tax Act, 1961 was involved in that

appeal before the Supreme Court. There was a lease agreement entered into in the

year 1959 for 50 years, under which, the annual rent was paid by the Lessee to the

Lessor. The lease would have continued till 2009. However, during the relevant

previous year i.e. in March, 1986, the Assessee surrendered tenancy rights

prematurely and received a sum of 35 lacs. That sum was credited to the reserve

and surplus account, which was disallowed by the Assessing Officer, holding that it

was income from other sources. The assessee appealed to the Commissioner, who

came to the conclusion that the assessee was liable to pay tax on capital gains on

the amount of Rs.35 lacs after deducting an amount of Rs.7 lacs as cost of

acquisition. The Department and assessee challenged the decision before the

Tribunal and the Tribunal relied upon the Judgment of the Supreme Court in the

case of CIT v. B.C. Srinivasa Shetty[1981] 128 ITR and the amendment to section

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 55(2) of the Income Tax Act and held that the assesseedid not incur any cost to

acquire the leasehold rights and that if at all any cost had been incurred it was

incapable of being ascertained. It was therefore held that since the capital gains

could not be computed as envisaged in section 48 of the Income Tax Act, therefore,

capital gains earned by the assessee, if any, was not exigible to tax. The

Department's Appeal to the High Court was dismissed and that is how it approached

the Hon'ble Supreme Court. In dealing with the rival contentions, the Hon'ble

Supreme Court held as under:

'(8) In 1981 this court in CIT v. B.C. Srinivasa Shetty(1981) 128 ITR 294; (1981) 2 SCC 460 held that all transactions encompassed by section 45 must fall within the computation provisions of section 48. If the computation as provided under section 48 could not be applied to a particular transaction, it must be regardedas "never intended by section 45 to be the subject of the charge". In that case, the court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The court found that the consideration received for the sale of goodwill could not be subjected to capital gains because the cost of its acquisition was inherently incapable of being determined. Pathak J. as his Lordship then was, speaking for the court said (page 300)

"what is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possess theinherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class it may, on the facts of a certain case, be acquired without the payment of money"

(9) In other words, an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head "Capital gains" as opposed to assets in the acquisition of which no cost at all can be conceived. The principle propounded in B.C. Srinivasa Shetty (1981) 128 ITR 294 (SC)has been allowed by several High Courts with reference to the consideration received on surrender of tenancy rights, ( see among others Bawa Shiv Charan Singh v. CIT

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 (1984) 149 ITR 29 (Delhi); CIT v. Mangtu Ram Jaipuria(1991) 192 ITR 533 (Cal); CIT v., Joy Ice-Creams (Bangalore ) P. Ltd. (1993) 201 ITR 894 (Karn.); CIT v. Markapakula Agamma (1987) 165 ITR 386 (AP); CIT v. Merchandisers P. Ltd. (1990) 182 ITR 107 (Ker.) In all these decisions, the several High Courts held that if the cost of acquisition of tenancy rights cannot be determined, the consideration received by reason of surrender of such tenancy rights could not be subjected to capital gains tax. (10) According to a circular issued by the Central Board of Direct Taxes (Circular No. 684 dated 10th June, 1994 – (1994) 208 ITR (St.) 8 it was to meet the situation created by the decision in B.C. Srinivasa Shetty (128 ITR 294) (SC) and the subsequent decisions of the High Court that the Finance Act, 1994, amended section 55(2) to provide that the cost of acquisition of, inter alia, a tenancy right would be taken as nil. By this amendment, the judicial interpretation put on capital assets for the purposes of the provisions relating to capital gains was met. In other words, the cost of acquisition would be taken as determinable but the rate would be nil.

(11) The amendment took effect from 1st April, 1995 and accordingly applied, in relation to the assessment year 1995-96 and subsequent years. But till that amendment in 1995, and therefore covering the assessment year in question, the law as perceived by the Department was that if the cost of acquisition of a capital asset could not in fact be determined, the transfer of such capital asset would not attract capital gains. The appellant now says that CIT v. B.C. Srinivasa Shetty's case [1981] 128 ITR 294 (SC) would have no application because a tenancy right cannot be equated with goodwill. As far as goodwill is concerned, it is impossible to specify a date on which the acquisition may be said to have taken place. It is built up over a period of time. Diverse factors which cannot be quantified in monetary terms may go into the building of the goodwill, some tangible some intangible. It is contended that a tenancy right is not a capital asset of such a nature that the actual cost on acquisition could not be ascertained as a natural legal corollary.

(12) In A. R. Krishnamurthy v. CIT (1989) 176 ITR 417 this court held that it cannot be said conceptually that there is no cost of acquisition of grant of the lease. It held that the cost of acquisition of leasehold rights can be determined. In the present case, however, the Department’s stand before the High Court was that the cost of acquisition of the tenancy was incapable of being ascertained. In view of the stand taken by the Department before the High Court, we uphold the decision of the High Court.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 (13) In United Commercial Bank Ltd. v. CIT (1957) 32 ITR 688 (SC), it was held that the heads of income provided for in the sections of the Indian Income Tax Act, 1922 are mutually exclusive and where any item of income falls specifically under one head, it has to be charged under that head and no other. In other words, income derived from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate section and no other. It has been further held by this court in East India Housing and Land Development Trust Ltd. v. CIT (1961) (42 ITR 49) that if the income from a source falls within a specific head, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. (See also CIT v. Chugandas and Co. (1965) 55 ITR 17 (SC).

(14) Section 14 of the Income Tax Act, 1961 as it stood at the relevant time similarly provided that "all income shall for the purposes of charge of income tax and computation of total income be classified under six heads of income," namely:— (A) Salaries; (B) Interest on Securities; (C) Income from house property; (D) Profits and gains of business or profession; (E) Capital gains; (F) income from other sources unless otherwise, provided in the Act.

(15) Section 56 provides for the chargeability of income of every kind which has not to be excluded from the total income under the Act, only if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of section 56.

(16) There is no dispute that a tenancy right is a capital asset the surrender of which would attract section 45 so that the value received would be a capital receipt and assessable if at all only under item E of section 14. That being so, it cannot be treated as a casual or non-recurring receipt under section 10(3) and be subjected to tax under section 56. The argument of the appellant that even if the income cannot be chargeable under section 45, because of the inapplicability of the computation provided under section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under section

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 45, it cannot be taxed at all. (SeeS. G. Mercantile Corporation P. Ltd. v. CIT (1972) 83 1TR 700 (SC).

(17) Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or non-recurring receipt under section 10(3) read with section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody v. S.A.L. Narayan Row,CIT (1966) 61 ITR 428 (SC)”.

11.8 Thus, the conclusion of the Supreme Court is that an asset which is capable

of acquisition at a cost would be included within the provisions pertaining to the

head "Capital gains" as opposed to assets in the acquisition of which no cost at all

can be conceived. There was no cost of acquisition, which was determined and on

the basis of which the Assessing Officer could have proceeded to levy and assess

the gains derived as capital gains. Sub-section (2) of section 55 clause (a) having

been amended, there is no stipulation with regard to relinquishment of trusteeship.

However, even in the case of tenancy right, the view taken by the Supreme Court,

after the provision was substituted w.e.f. 1st April, 1995, is as above, which is

squarely applicable to the assessees’ case also. The further argument of the Ld. AR

is that the relinquishment of trusteeship cannot be brought within the tax net

though it was capable of being transferred. The Supreme Court held that it must be

capable of being acquired at a cost or that has to be ascertainable, then only

transfer of capital asset is subject to tax. A specific insertion would therefore be

necessary so as to ascertain its case for computing the capital gains. Since the

assessee had not incurred any cost of acquisition in respect of gain on account of

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 relinquishment of trusteeship in Carmel Educational Trust, it cannot be brought to

tax as capital gains. Accordingly, we hold that capital receipt accrued to the

assessee in AY 2009-10 and in that assessment year on relinquishment of

trusteeship, which being a capital asset was acquired without any cost of

acquisition, the same cannot be brought to tax as held by the Supreme Court in the

case of B.C. Srinivasa Shetty (supra). This ground of appeals of the assesses is

allowed.

ITA Nos. 208, 209, 210 & 211/Coch/2019 : (AY 2009-10 to 2011-12): (Assessee’s

Appeals)

2009-10 to 2011-12 is with regard to assessment of amount received for civil

construction work as income derived by the Trustees from the relinquishment of

public charitable trust which was charged under the head “other sources”and also

ignoring the expenses incurred.

12.1 The facts of the case are that the agreement dated 10/03/2009 has provided

payments in relation to ongoing construction in the college building which is payable

on completion, out of Rs.37.50 crores. A sum of Rs.34 lakhs each had been paid to

GracyBabu and Jose Thomas in March, 2009. According to agreement entered into

between Believers Church and seven outgoing trustees belonging to the families of

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 Gracy Babu and Jose Thomas on 01/06/2010, the construction was completed and

a further sum of Rs.4.50 crores each was payable to Gracy Babu and Jose Thomas

subject to deduction of tax u/s. 194C of the I.T. Act. On enquiry, the college

authorities had stated that no construction work was carried out by the outgoing

trustees. Hence, the total amount of Rs.4.84 crores each received by Gracy Babu

and Jose Thomas was treated as consideration received in lieu of relinquishment of

trusteeship which is assessable as income from other sources.

12.1.1 A sum of Rs.16 crores was paid in June 2010 by Believers Church and six

associate trusts, St. Thomas Educational Trust in which Gracy Babu and Jose

Thomas are trustees. The purpose of this donation was stated to be for reserving

engineering seats for the beneficiaries of the donor trusts. Since no such

reservation was given in the admission and payment of donation was made after

relinquishment of trusteeship the donation received by St. Thomas Educational

Trust was treated as consideration received in lieu of relinquishment of trusteeship

by the outgoing trustees Gracy Babu and Jose Thomas. As such fifty percent of the

donation of Rs.16 crores is chargeable in the hands of Gracy Babu and Jose Thomas

in the AY 2011-12 by treating it as consideration received in lieu of relinquishment

of trusteeship which is assessable as income from other sources.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 12.1.2 In the light of the above, consideration in lieu of relinquishment of

trusteeship received indirectly in the form of contract amount and donation to Trust

was assessed in the hands of Gracy Babu and Jose Thomas on receipt basis in the

following manner:

GracyBabu Excess price of Contract Donation Total Rubber estate Receipts AY 2009-10 1,57,62,060 34,00,000 1,91,62,060 AY 2010-11 4,50,00,000 4,50,00,000 AY 2011-12 8,00,00,000 Jose Thomas AY 2009-10 52,02,349 34,00,000 AY 2010-11 4,50,00,000 4,50,00,000 AY 2011-12 8,00,00,000 8,00,00,000

12.2On appeal, the CIT(A) observed that from all the evidences gathered during the

course of search proceedings and assessments and appellate proceedings, it was

borne out that no construction work had actually been undertaken by the assessee

or any of the trustees, against the payment which was made to them in advance or

in finality and the assessee had not brought out any evidence in support of the

claim of having undertaken any construction activity. Further,it was observed that

the assessee had claimed to have received payment of Rs.4.84 crores spread over

assessment year 2009-10, 2010-11, 2011-12 and as mandated by law, not only the

assessee is supposed to maintain his books of accounts but also have the same

audited. The CIT(A) observed that the assessee had not been able to produce any

audit report for any of the relevant years. It was observed that even the bank 39

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 account was indicative of only cash withdrawals (including those over Rs.20,000/-)

and there was no cheque payment to any party for any purchase or service and

there was no TDS deduction to support any sub contract work. According to the

CIT(A), these findings showed that no construction work had actually been

undertaken and the payments shown as contractual receipts were nothing but

payment received for the easy and voluntary relinquishment of trusteeship in

payment in favour of identified individuals. According to the CIT(A), the Carmel

Trust had not deducted any TDS on the payments made to the assessee and other

old trustees for construction work during the assessment years 2009-10 & 2010-11,

when the payment of Rs.4.84 crores had been received by the assessee, instead the

Carmel Trust had deducted TDS for the aforesaid amount during assessment year

2011-12, which was not claimed by the assessee and is a clear case of after

thought. According to the CIT(A), the total amount of payment made to the

assessee including the TDS amount (unclaimed) does not match in the amount

reflected inthe agreement. The CIT(A) found that there was a credit of Rs.8.68

lakhs in the books of accounts of Carmel Trust which had gone into the TDS

account of Gracy Babu for AY 2011-12 and had not been claimed by her so far and

hence, the protective addition in the hands of the assessee for AY 2011-12 was

reduced from Rs.4.84 Crores to Rs.8.68 lakhs. Hence, the CIT(A) sustained only

substantive addition of Rs.34,00,000/- in the AY 2009-10 and Rs.4,50,00,000/- in

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 the AY 2010-11 and also brought into tax the amount of Rs.8.68 lakhs in the AY

2011-12.

12.3 Against this, the assessee is in appeal before us. The Ld. AR submitted that

according to this agreement the cost of ongoing construction agreed Rs.9.68 was

only payable to Jose Thomas and Gracy Babu who are the family heads and after

the execution of this agreement dated 1/06/2010 the amount shown as payable in

the agreement dated 10/03/2009 Rs.37.50 crores had no relevance. The Ld. AR

submitted that a sum of Rs.34 lacs and Rs.4.50 crores each had been assessed in

the case of both assessees in A.Y 2009-10 and 2010-11 respectively under the head

other sources being fifty percent of Rs 9.68 crores.The amounts of Rs.34 lakhs in

the A.Y.2009-10 and 4.50 crores in the A.Y.2010-11 received by the assessee from

Carmel Engineering College were, in fact, payments towards the ongoing

construction works as mentioned in paragraph 5 of the agreement dated

10/03/2009 and pages 4 & 5 of the deed of .agreement dated 01/06/2010 entered

into between Believers Church and Gracy Babu and her two sons and Jose Thomas

and his three family members. The parties to the agreement (7 persons) together

had completed the construction in the F.Y 2010-11 as evidenced by clause 2 of the

agreement dated 01/06/2010 for a total amount of Rs 9.68 crores and vide

paragraph 3 of the said agreement it was agreed to appropriate the contract

amount from the amount already paid to the parties (7 persons}. The assessing

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 officer had relied on the unsigned agreement and the agreement dated 10/03/2009,

but had ignored the agreement dated 1/06/2010 which clearly confirmed the

construction.It was submitted that the amount of Rs. one crore (Issue in Revenue’s

appeal) given to the assessee on 11/03/2009 and assessed in their hands in the

original assessment for A.Y.2009-10 forms part of the total amount of Rs.4.84

crores. Hence,it was submitted that the addition made in the original assessment is

to be deleted as the same amount is included in the total amount of Rs.4.84 crores.

12.4 The Ld. AR submitted that construction was carried out by all the seven

persons who are parties to the agreement dated 01/06/2010 and a statement to

that effect was given as was agreed in clause 6 of that agreement. Tax was also

deducted in the F Y 2010-11 u/s 194 C @ 2 percent as the construction was over

and the amount had been brought under the fixed asset schedule of the Carmel

Educational Society. It was submitted that in addition to the receipt of 9.68 crores,

the CIT(A) had directed that the tax deducted on this amounting to Rs.8.68 lakhs

also forms part of the contract receipts to be considered in the assessment for the

A.Y.2011-12. The assessee actually incurred loss on this work and by inadvertence

had omitted to claim such loss in the return.With regard to the denial of

construction by the college authorities (Believers Church) it was evident from their

Balance sheet as at 31/03/2010 that they had accounted the entire sum Rs.9.68

crores in A.Y.2010-11 and shown this amount as advance for work in progress in its

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 balance sheet as on 31.03.2010. On completion of the work this amount was taken

by the college in its balance sheet as on 31.03.2011 under fixed asset schedule. The

assessing officer has without proper inquiry and without appreciating full facts

stated that no work had been done at the college. According to the Assessing

Officer, the college authorities had reported that they had not done any

construction activity during the year and not mentioned anything about the work

done by the assessee. The reason for making such a statement by the college

authorities (BELIEVERS CHURCH GROUP) before the assessing officer is not known

to the assessee especially when their audited financial statements showed

otherwise. The statement of college authorities may be with regard to any new

work entrusted where as the payment of Rs 9.68 crores to the appellant and 6

others was for the ongoing work.

12.5 The Ld. AR submitted that the assessee had not earned this income as the

entire money had been spent on construction. The question and principle of taxing

real income needs to be mentioned here. The assessing officer had no evidence in

hand other than the statement by college authorities to say that the assessee had

not done any construction or had no proof to show that the assessee had kept the

entire receipts in tact without spending for the construction. The agreements dated

10/03/2009 (clause 5) and 01/06/2010 (clause 2 to 6) clearly proved that the

ongoing construction was completed by the assessees during the financial year

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 2010-11, i.e. A.Y.2011-12.It was submitted that as such the amount of Rs 4.84

crores cannot be assessed as income under the head income from other sources

and if any income is derived from the construction work, it has to be assessed as

business income in the assessment year 2011-12. Hence, it was submitted that the

profit derived from the work can only be charged to tax and no profit was derived

by the assessee from the work as equal expenses were incurred in the execution of

ongoing construction.

12.6 The Ld. DR relied on the order of the CIT(A).

12.7 We have heard the rival submissions and perused the record. The amounts

of Rs.34,00,000/- in AY 2009-10 and Rs.4.50 crores in AY 2010-11 each received by

Gracy Babu and Jose Thomas from which is said to be towards the on-going

construction work as mentioned in clause 5 of the agreement dated 10/03/2009

and pages 4 & 5 of the deed of agreement dated 01/06/2010 entered into between

Believers Church and Gracy Babu and her two sons and Jose Thomas and his three

family members. The parties to the agreement (7 persons) together had completed

the construction in the F.Y. 2010-11 as evidenced by clause 2 of the agreement

dated 01/06/2010 for a total amount of Rs.9.68 crores and vide clause 3 of the said

agreement it was agreed to appropriate the contract amount from the amount

already paid to the parties. Contrary to this, the Assessing Officer had relied on the

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 unsigned agreement and the agreement dated 10/03/2009, but had ignored the

agreement dated 01/06/2010 which confirmed the construction. Clause 5 of the

agreement dated 10/03/2009 reads as follows:

“5. It is agreed by the first and second parties together that they with the help of their Chartered Accountants shall prepare all the debts and liabilities during the above said period of within six months since from the execution of this agreement in order to clear it by receiving the above said amount of 37.50 crores (Rupees thirty seven Crores and Fifty lakhs only) in different instalments and the first parties agree that they will release such funds without any delay as per the demand of the second parties. It is further agreed by the second parties that they shall complete the ongoing constructions of buildings, landscape, hostels, play grounds etc. with approve estimates and supporting bills within the said period and the 1st party shall release the said amount on the basis of such records from the said amount of Rs.37.50 Crores (Rupess Thirty seven Crores and Fifty lakhs only) proportionately to each three groups among the 2nd parties.”

Clause 2 to 6 of the agreement dated 01/06/2010 reads as under:

“2. The statement of debts and liabilities as prepared pursuant to clause 5 of the agreement does not disclose any debts or liability as on the date of agreement and the 2nd party is not eligible for any further amount for the said purpose as envisaged in the agreement dated 10/03/2009. 3. The 2nd Parties i.e. parties 1 to 3 and Parties 8 to 11 in the agreement dated 10-03-2009 can appropriate from the payment of Rs.9.68 Crores already made to them, subject to deduction of tax at Source under section 194C of the Income Tax Act, towards the cost of the said construction as per clause above which will be accounted by the first party in the books of accounts of the Trust. 4. The 2nd party i.e. parties 1 to 3 and 8 to 11 confirm that they have no further claim from the amount of Rs.37.5 crores as per clause 4 of the agreement other than the amount already appropriated towards the cost of construction.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 5. The 2nd parties 1 to 3 and 8 to 11 will settle the accounts in respect of the balance amount due to the 1st party from the payment of Rs.9 crores in the event if requires so. 6. The 2nd party i.e. parties 1 to 3 and (8,9,10 and 11) in the said agreement has undertaken the construction as per clause 5 of the Deed dated 10.03.2009, incurring a cost of Rs.9.68 Crores for which the statement will be filed by the said parties 1 to 3 and 8 to 10 to the first party in the agreement dt.10.03.2009 within one month from today.”

12.8 The Believers Church had disclosed this construction in its Balance Sheet as

on 31/03/2010 and 31/03/2011. Being so, there was construction activity and the

Believers Church paid the contract amount to these two assesses. By any stretch of

imagination, it cannot be considered as an amount paid towards relinquishment of

trusteeship in Carmel Educational Society. In our opinion, it is appropriate to

estimate the income fromconstruction contract amount at 8% for these assessment

years. Directed accordingly. Thus the appeals of the assessee in ITA Nos. 208,209,

210 & 211/Coch/2019 are partly allowed.

ITA Nos. 210 & 213/Coch/2019 :(AY 2011-12)[Assessee’s appeals]

deduction by Believers Church in respect of Rs.8.68 lakhs relating to assessment

year 2011-12. The CIT(A) sustained the addition of Rs.8.68 lakhs. In our opinion,

there is no reason for sustaining the entire addition of TDS amount as income of the

assessee in the assessment year 2011-12. We direct the Assessing Officer to

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 consider 8% of Rs.8.68 lakhs as income of the assessee as discussed earlier in para

no. 12.8 of this order for AYs 2009-10 and 2010-11. This ground of appeals of the

assesses are partly allowed. In the result, the appeals of the assesses in ITA No.

208 to 213/Coch/2019 are partly allowed.

ITA Nos.238/Coch/2019:Revenue Appeal:JoseThomas:AY 2011-12 ITA No. 239/Coch/2019:Revenue Appeal:Gracy Babu :AY 2011-12

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 tax Department by virtue of the recovery of the draft agreement dated 23/02/2009 during the search proceedings against the assessee.

14.1 The crux of the above ground in ITA Nos. 238 & 239/Coch/2019 is with

regard to deletion of addition by the CIT(A)of Rs.8 crores in each assessment year

received by St. Thomas Educational Society in which the assessees were Trustees.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 14.2 The facts of the case are that during the year St. Thomas Educational Trust

in which the assessee and GracyBabu were trustees received donation of Rs.16

crores from seven trusts for promoting the educational objectives of the trust. The

Assessing Officer had taken 50% of this, i.e., 8 crores as income of the assessee

since the said amount was received as compensation for relinquishment of

trusteeship. The amount of Rs.8 crores each was assessed under the head “other

sources” in the hands of assessees. According to the Assessing officer such donation

can be treated as consideration received in lieu of relinquishment of trusteeship of

Carmel Education Trust which is managed by the Believers Church group after the

relinquishment of the right of succession of lifelong trusteeship by the assessees as

per the Supplementary deed of the trust executed on 25/03/2009.

14.3 On appeal, the CIT(A) held that amount of Rs.8,00,00,000/- received as

donation by the trust in which the assessee was a trustee i.e. St Thomas

Educational Society, cannot be considered as income in the hands of assessee as no

money had been received by the assessee or any benefit accrued to her out of the

aforesaid donation. The CIT(A) observed that the giving of donation by the donor

trust to the donee trust, could have been done as a part of the arrangement for the

voluntary and easy exit of the assessee from the trusteeship, but the very fact that

the money had gone into a donee trust for a charitable objective, which is in receipt

of exemption of income u/s. 12AA of the I.T. Act, 1961, is indicative of the fact that

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 no benefit can accrue to the assessee in the future without the receipt getting taxed

and the fact that no money or benefit of any kind was accrued to the assessee by

virtue of the aforesaid donation, no addition in the hands of the assessee was

possible and if ever any benefit were to be passed by the donee trust to its trustee,

it would be at the risk of not only being taxed but also losing its exemption of

income status. Hence the addition of Rs.8,00,00,000/- for the AY 2011-12 was

deleted by the CIT(A).

14.4 Against this the Revenue is in appeal before us. The Ld. DR relied on the

above grounds.

14.5 The Ld. AR submitted that receipt of money by St. Thomas Educational Trust

as donation would constitute income in the hands of St. Thomas Educational Trust

within the meaning of section2(24)(iia) of the Act. Such donation will not constitute

income in the hands of trustees and if it was taken as income of the trustees, such

an action would amount to double assessment which is not contemplated in scheme

of assessment of income under the IT Act. The Ld. AR submitted that in case the

donation received by St. Thomas Educational Trust is treated as consideration

received by the assessee for relinquishment of their trusteeship in Carmel

Educational Trust in March 2009, the amount received can only be treated as capital

receipt which is received or receivable as on the date of relinquishment of

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 trusteeship. This is because the right of succession of lifelong trusteeship can be a

capital asset within the meaning of section 2(14) and its exchange or relinquishment

or extinguishment of therein amounts to transfer u/s 2(47) of the Act and the

transfer took place on 25/03/2009. Hence, it was submitted that no income, in this

regard can be assessed under the head other sources or capital gains for the AY

2011-12. The Ld. AR submittedthat no benefit had accrued to the assessee or

received by the assessee from the donation received by St Thomas Educational

Trust.

14.6 We have heard the rival submissions and perused the record. This amount

of Rs.8 crores each was treated as income in the hands of these two assesses which

was paid by Believers Church to St. Thomas Educational Trust where Shri Jose

Thomas and Smt. Gracy Babu were trustees. The Assessing Officer assessed the

amount of Rs.8 crores in the hands of these two assesses as ‘income from other

sources’ as the receipt was in lieu of relinquishment of trusteeship in Carmel

Educational Trust which was managed by Believers Church after the relinquishment

of trusteeship by these two parties. The amount of Rs.8 crores was not received by

these two assesses but by St. Thomas Educational Trust, hence, it cannot be

treated as income of these two assesses, as these assessees are different from

Trust. Being so, we do not find any infirmity in the order of the CIT(A) and the

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 same is confirmed. Thus, the appeals of the Revenue in ITA Nos. 238 &

239/Coch/2019 are dismissed.

ITA No.207/Coch/2019 :Reena Jose: AY 2009-10: (Assessee Appeal)

15.1 As discussed in ITA No. 208 & 211/Coch/2019 in para 11.4 to 11.8, this

appeal is disposed off accordingly. Thus, the appeal of the assessee in ITA

No.207/Coch/2019 is allowed.

ITA Nos.304 t0 310/Coch/2019 : Carmel Educational Trust: AY 2004-05 to 2010-11[Assessees’ appeals]

CIT(A)-III, Kochi dated 25/02/2019 and pertain to the assessment years 2004-05 to

2010-11.

16.1 The assessee has raised the following commongrounds of appeals:

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 1. The CIT(A) erred in making an addition of Rs.27,84,000/- to the income of the Trust which was assessed on a protective basis in the hands of the trust and on a substantive basis in the hands of the trustees.

a) Trust is not responsible for the illegal collection made by the Trustees which were shared by them and never accounted in the books of the trust. Therefore, the addition of such income if at all made could be only in the names of the trustees and not in the hands of the trust.

b) The Assessing Officer has not pointed out a single case where any accounted income of the trust has been misutilised or diverted by the Trustees for personal use.

16.2 The facts of the case are that a search u/s. 132 of the I.T. Act was conducted

at the residences of Smt. Gracy Babu, Shri Jose Thomas and Shri P.J. Poulose, the

Chairperson, Treasuer and Secretary of the Trust. During the course of search,

document/account relating to Carmel Education Trust were seized. As per the

account of Trust received from the Carmel Educational Trust the amount advanced

by the Trustees to the Trust for the different years are as under:

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 Financial Smt. Gracy Shri Jose Shri P.J. Smt. Lizzy Estate Loan Year Babu (Rs.) Thomas Poulose Poulose (Rs.) (Rs.) (Rs.) 31.03.2003 17,74,097 41,04,994 95,416 5,00,000 24,76,000 31.03.2004 5,87,623 50,26,658 11,75,000 3,00,000 23,34,808 31.03.2005 6,49,235 57,61,501.50 13,16,299.74 3,00,000 14,80,756 31.03.2006 0 54,61,501.50 18,06,299.74 0 22,28,756 31.03.2007 0 46,31,488.50 16,93,799.74 0 6,78,270 31.03.2008 0 44,06,488.50 16,47,879.74 0 4,35,270 31.03.2009 0 41,98,118.50 12,15,851.74 0 50,730

16.3 These books of accounts/documents belonged to/contained accounts relating

to the Carmel Educational Trust, Adoor. The accounts so found/seized indicated that

the Trust had received amounts from students in addition to the fee prescribed by

the Government included in accounts of the Trust, and earned income which was

not correctly reflected in the accounts. The governing body members were also

withdrawing the money from the trust without proper records/accounts. Hence, a

notice u/s 153C r.w.s 153A of the I T Act was issued to the assessee on 31.08.2010.

In response to the above notice, the Trust filed its return of income on 15.11.2010.

During the relevant years, as per the seized records, the assessee Trust was in

receipt of undisclosed amounts, received as part of the capitation fee collected by

the trustees and they had also advanced payments to the trustees in excess of the

prescribed bylaws. Since the composition of the Trust was totally changed post

action u/s 132 and the consideration involved for undertaking such a change was a

part of the seized records, but the change of guards happened much after, the issue

pertaining to undisclosed compensation received for relinquishment of trusteeship 54

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 could not be determined in the orders u/s 153A of the IT Act and subsequently

when the compensation amount were not disclosed in the return of income of the

trustees and the Trust, the cases for the relevant years were assessed u/s 143(3) of

the IT Act 1961.

16.4 On the basis of an agreement dated 10.03.2010 the Trustees of the Carmel

Educational Trust, handed over the possession of the Carmel Engineering College

and all other assets of the Trust to a set of new Trustees who were nominees of the

Believers Church. As per the above agreement the Believers Church agreed to pay

37.5 crores to the erstwhile Trustees on handing over of the assets of the Trust and

on execution of a supplementary deed of Trust whereby all the existing Trustees

were substituted by persons who are nominated by the Believers Church (new

Trustees).As per the above agreement the amount handed over to the erstwhile

trustees was for meeting the liabilities of the Trust. Out of the above 37.5

crores,Rs.1 crore each totaling to Rs.3 crores was given to Smt. Gracy Babu, Sri

Jose Thomas and Sri P J Poulose in March 2009. The balance amount was agreed to

be paid within 6 months on fulfilling the other conditions namely discharging of all

liabilities of the Trust and carrying out of the remaining constructions of the

Engineering College. It was noticed that no further construction work had been

carried out by the erstwhile Trustees to the college building.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 16.5 By the substitution of the erstwhile trustees by the new Trustees and the

handing over and taking over of the assets of the college and the Trust, the

erstwhile trustees had in fact, sold the assets of the trust to new trustees for a

consideration of Rs. 37.5 crores as per executed agreement, but was much

more(43.5 crores) as per the seized records. At the same time, when the

composition of the Trust was being changed, the trustees decided to sell an

adjacent piece of land to Believers Church and its associated churches. A part of the

compensation for relinquishment of trusteeship was sought to be passed on to the

trustees by increasing the sale consideration, which would otherwise have been

received by them as the fair market value. This was more so since the land in

question was an agricultural land and hence its sale was not chargeable to capital

gains. The original agreed sale consideration for the total plot of land was increase

from Rs.6.5 crore to 12.5 crores. Those land owners who owned a part of the plot

of land in question but were non trustees received much lesser amount. Since

legally the trustees could not sell the trust, the old trustees surrendered their

trusteeship in favour of the new trustees and received the sale/compensation

consideration by camouflaging the consideration received by:-

A. Claiming it as the sale consideration for land owned by the trustees in their personal capacity and of a value much higher than the fair market value.

B. Claiming it for non existent construction work done by them

C. Donation to their new trusts formed by them

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 16.6 The details of income and the exemption claimed on accounts of expenses on

charitable purposes as per returns filed u/s 139 and u/s 153C are given below:

As Income as per Income & Addition of fixed assets during the per Expenditure Statement year claimed as utilized Returns for charitable purposes filed u/s 153C

2003-04 15,51,297 (-) 4,21,36,687

2004-05 10,50,980 (-) 1,44,25,959

2005-06 41,82,731 1,36,73,316

2006-07 64,91,222 1,42,03,803

2007-08 2,40,34,444 1,90,76,299

2008-09 2,99,17,018 2,59,85,137

2009-10 2,64,46,323 1,39,37,615

As per Original Returns Income as per Income Amount claimed as filed u/s 139 & utilized for charitable Expenditure purposes Statement

2003-04 2,41,97,800 2,41,97,800

2004-05 1,91,27,477 1,87,73,094

2005-06 2,57,11,373 2,57,11,373

2006-07 64,91,220 1,52,03,803

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 2007-08 5,87,81,220 5,87,81,220

2008-09 6,88,77,429 6,88,77,429

2009-10 8,25,96,750 1,39,37,635

The assessment in the case of the assessee Trust was completed u/s 143(3) r.w.s.

153C of the IT Act, 1961, on 31.12.2010 for AY 2003-04 to 2009-10.

16.7 The Assessing Officer found that as per the accounts of the Trust found and

seized from the residential premises of Sri PJ Poulose, Smt Gracy Babu and Sri Jose

Thomas , they, as governing Body members, had received donations from students

for giving admission to the Management quota seats. They were also drawing

allowances from the Trust. Further they were frequently drawing money from the

trust and partly returning it as if in a proprietary business. But these transactions

are not included in the accounts of the trust which have been filed in the Income

tax Office. Shri PJ Poulose, in his statement dated 26.02.2009 given before the

authorized officer has stated that the Governing Body members were collecting

approximately Rs.40,000 from each students admitted to the management quota

seats and that the same has been appropriated by the governing bodymembers by

sharing it. During the early years, part of the above donation was paid to the Trust

for expenses/investment. Shri Jose Thomas in his statement dated 19.03.2009

given before the Deputy Director of IT Inv-ll,Ernakualm u/s 131 of the IT Act had in 58

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 answer to question no.21 stated that the entries in JTP-4 relate to the advance fees

(donation) received from students admitted to the management quota seats. He

had admitted that for the year 2008-09 the advance fees collected was

Rs.2,11,93,500/- which was divided between himself and Smt. Gracy Babu equally.

It was admitted that this amount was not reflected in the college accounts. In

answer to question No.25 he had stated as under:

"I declare that I have received Rs.1,01,88,875/- as my share during FY 2008- 09. This comprises 'advance fees' received from students who secured admission to management quota seats. A portion of this is remitted to college. Against the receipt mentioned above, I consider Rs.60,00,000/- will be income to the best of my knowledge and belief. This is however subject to detail verification to arrive at the actual figure. I am willing to pay tax on this declared income. I request that I may be granted immunity from the penal consequences",

Smt. Gracy Babu in her statement given before the Dy. Director of income tax on

30.03.2009 in answer to question No. 10 had admitted that amount in excess of the

fees prescribed by the Govt. were collected from management quota students and

that the amount so collected was not reflected in the accounts of the college.

According to her the admission for the year 2008-09 was managed by Shri Jose

Thomas and the amount collected on her behalf is kept by Shri Jose Thomas. Out of

the amount so collected Rs.40 lakhs has been invested in St. Thomas Educational

Society. As per her statement admission during the year 2007-08 was done by Shri

Jose Thomas himself and its accounts are available with him only.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 16.8 The seized material PJP-5, KRS-2, contained the details of donations received

from students, the amount given by the Governing Body Members to the trust and

the amount appropriated by them. It was noticed from the account of the Trust that

no amount of donation received from students was accounted in its accounts.

Details of the donations received by the Governing Body Members are as under:

Assessment Donations from Donations handed Donations Donations shared Percentage of Year students over to the Trust. Accounted by Trustees as per donation shared collected by the seized material. by the trustees. Trust.

2003-04 NIL NIL NIL NIL NIL

2004-05 Rs. 47,31,000 - Rs. 27,84,000/- Rs.19,04,000/- 33.33% Commission Rs. 25000 Rs. 47,06,000/-

2005-06 Rs.31, 67,000/- Rs.20,63,000/- NIL Rs. 11,04,000/- 33.33%

2006-07 Rs. 15,07,300/- Rs. 7,57,300/- NIL Rs. 7,50,000/- 33.33%

2007-08 Rs. 76,92,450/- Rs.67,94,950/- NIL Rs. 8,97,500/- PJ Poulose Rs.7,27,500/- Jose Thomas Rs.1,70,000/- Gracy Babu Rs. 0

2007-08 Rs. 17,94,750/- NIL NIL Rs. 17,94,750/- PJ Poulose Lapsed Rs.6,39,000/- Seat Jose Thomas Rs.11,55,750/-

2008-09 No accounts seen

2009-10 Rs.1,93,55,000 NIL NIL Rs.1,93,55,000 Gracy Babu 60

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 50%

Rs.2,11,93,500 NIL NIL Rs.2,11,93,500 Jose Thomas 50%

16.9 The Assessing Officer noticed that out of the total seats for admissions to the

courses in the Carmel Engineering College, 50% are filled up by the government

and the balance 50% is filled up by the management. The fees that can be collected

from students admitted in the management quota are fixed by the government, but

the governing body members of the trust comprising of the chairman, the secretary

and the treasurer used to get amount in excess of prescribed fees for giving

admissions to the management quota seats. The amounts so collected from

students in the management quota is not accounted in the accounts of the college

and the trust. It is shared among the governing body members and utilized by

them. During the year 2006-07, the Assessing Officer noticed that M/s Carmel

Educational Trust had collected Rs. 94,87,200/- from students as donation for

admission to the Engineering College as evidenced by the accounts relating to

admission seized as item No. KRS-2, from the residence of Smt Gracy Babu. The

total donation received for the year 2008-09 was Rs.3,97,32,750/-. Since no

account was maintained for this year, an amount of Rs.21193500/- (average of

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 Rs.9487200 and Rs.39732750/-) was considered as the donation received for the

year 2007-08.

16.9.1 As per the above accounts, the allowance due to the governing body

members are as under. They have drawn the amounts on different dates:-

Assessment year Allowance due to Governing Body Members as per the Account Gracy Babu Rs. Jose Thomas Rs PJ Poulose Rs 2003-04 75000 .75000 225000 2004-05 300000 300000 300000 2005-06 300000 300000 300000 2006-07 475000 475000 475000 2007-08 600000 600000 600000 2008-09 600000 600000 600000 2009-10 300000 300000 300000

16.9.2 The details of income and the exemption claimed on account of expenses on

charitable purpose as per returns filed u/s 139 and u/s 153C are given below:

As per Returns filed u/s 153C Income as per Income & Addition affixed assets Expenditure Statement during the year claimed as utilized for charitable purposes

2003-04 15,51,297 (-) 4,21,36,687

2004-05 10,50,980 (-) 1,44,25,959

2005-06 41,82,731 1,36,73,316

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 2006-07 64,91,222 1,42,03,803

2007-08 2,40,34,444 1,90,76,299

2008-09 2,99,17,018 2,59,85,137 2009-10 2,64,46,323 1,39,37,615 '

As per Original Returns filed Income as per Income & Amount claimed as u/s 239 Expenditure Statement utilized for charitable purposes 2003-04 2,41,97,800 2,41,97,800

2004-05 1,91,27,477 1,87,73,094

2005-06 2,57,11,373 2,57,11,373

2006-07 64,91,220 1,52,03,803

2007-08 5,87,81,220 5,87,81,220

6,88,77,429 6,88,77,429 2008-09 2009-20 8,25,96,750 1,39,37,635

16.9.3 From the above facts, the Assessing Officer found that the administration

and management of the Trust and its College and financial management were not

carried out as expected of a Trust The financial transactions were carried out as if

the Governing Body Members were earning on their own personal business and the

amounts collected from students as donation was kept separately in a parallel secret

account without disclosing it in the regular accounts of the college/ Trust. They

were drawing allowances without fully accounting in the Trust. Also money was 63

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 taken out without proper accounting. The Trustees were using the Trust for their

personal profit and not for the charitable objectives of the Trust. In these

circumstance, the Assessing Officer held that the Trust cannot be considered as a

charitable one. As the funds of the Trust have been misutilized by the trustees and

they were making profit out of the activities of the Trust, the Trust cannot be given

exemption u/s 11 as per provisions of section 13(i)c(ii) of the IT Act, 1961. Thus, it

was assessed as on AOP doing business in running of the college and the Trustees

were doing business in the guise of charity.

Ground No. 1 : Denial of exemption u/s. 11: A.Ys 2004-05 to 2010-11

was evident that the administration and management of the Trust and its College

and financial management were not carried out as expected of a Trust. The financial

transactions were carried out as if the Governing Body Members were carrying on

their own personal business. The amount collected from students as donation was

kept separately in a parallel secret account without disclosing it in the regular

accounts of the College/Trust. According to the CIT(A), they were drawing

allowances without fully accounting in the Trust and also money was taken out

without proper accounting. The Trustees were using the Trust for their personal

profit and not for the charitable objectives of the Trust. In these circumstances, it

was observed that the Trust cannot be considered as a 'charitable one'. As the

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 funds of the Trust had been misutilized by the trustees and they were making profit

out of the activities of the Trust, the CIT(A) held that Trust cannot be given

exemption u/s 11 as per the provisions of section 13(1)(c)(ii) of the IT Act, 1961,

and hence, the CIT(A) confirmed the finding of the AO that the activity of the trust

was being carried out in contravention to the provisions of section 11 & 12 of the IT

Act, 1961. Hence, the CIT(A) held that it is to be assessed as an AOP doing

business in running of the College, and the Trust was doing business in the guise of

charity.

17.1 Against this, the assessee is in appeal before us. The Ld. AR submitted that

no search was conducted in the premises of assessee Trust. Based on materials

found in the search on erstwhile trustees, assessment u/s. 143(3) r.w.s. 153C made

in the hands of trust for A.Ys.2004-05 to 2008-09 and u/s. 143(3) for A.Ys.2009-10

and 2010-11. The Ld. AR submitted that Assessing Officer had denied exemption

u/s. 11 for violation of section 13(1)(c)for the reason that unaccounted donations

from students were collected by erstwhile Trustees and further erstwhile Trustees

were drawing allowances without fully accounting in the Trust, thereby assessing

Trust as AOP and protectively added entire donations collected by erstwhile

Trustees in the hands of Trust. It was submitted that loose papers and computers

prints do not have evidentiary value and assessment made solely based on same is

not valid. Reliance was placed on Common Cause v UOI [2017] 77 taxmann.com

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 245 (SC). It was submitted that illegal donations were submitted by the erstwhile

trustees and not the Trust. Therefore, there was no violation of section 13(l)(c). It

was submitted that the incriminating materials which were found in the residence of

3 erstwhile Trustees and the whole of donations had been assessed substantively in

the hands of 3 erstwhile Trustees proved that the Trust including other erstwhile

Trustees were not party to such collections by the 3 erstwhile Trustees. Hence,

protective assessment of donations collected by erstwhile Trustees in the hands of

Trust was not valid.

17.2 The Ld. AR submitted that no discrepancies were found in the allowances to

erstwhile Trustees accounted in the books of the assessee and the Trust was not

responsible for the donations or the amount of allowances shared by the 3 erstwhile

Trustees from such donations. It was submitted that the act of the erstwhile

trustees collecting capitation fees was illegal and the Trust cannot be fastened with

the liabilities for the illegal deeds of three among eleven erstwhile Trustees. The

illegality is manifest from the following:

i. Section 6(1) of the Kerala Self Financing Professional Colleges (Prohibition Of

Capitation Fees And Procedure For Admission And Fixation Of Fees) Act,

2004 prohibits collection of capitation fees from any candidate or student.

Section 6( 1) of the Act is stated below

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 "Collection of capitation fee prohibited. (1) No capitation fee Shall be collected by or on behalf of any self-financing, professional college or by any person who is in charge of or is responsible for the management of such college from or in relation to any candidate/student in consideration of his admission to, or prosecution of any course of study, or hispromotion to a higher class in such college or an institution under such management”.

17.3 The Ld. AR relied on the judgment of the Apex Court in the case of Miss

Mohini Jain vs State Of Karnataka And Ors( 1992 AIR 1858) wherein it washeld that

"... ...capitation fee in consideration of admissions to educational

institutions is wholly arbitrary' and as such infracts Article 14 of the

Constitution........... We, therefore, hold and declare that charging of capitation fee

by the private educational institutions as a consideration for admission is wholly

illegal and cannot be permitted...... " . The Ld. AR submitted that Trusteeship being

fiduciary in nature, it calls for due care., especially so, in a public Trust. It was

submitted that the erstwhile trustees had involved in illegal activities for their own

profits. Section 51 of the Indian Trusts Act, 1882 clearly stated that "A trustee may

not use or deal with the trust-property for his own profit or for any other purpose

unconnected with the trust". Capitation Fees collected, if any, by few of the

erstwhile trustees from the candidates/students were illegal and this has nothing to

do with the trust which had only lawful objects. Such illegal collection done by few

of the Trustees were neither income of the Trust nor part of its receipts. Trust

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 cannot be penalized for the illegal activities performed by the three among the

eleven erstwhile trustees.

17.4 The Ld. AR relied on the judgment of the Kerala High Court in the case of

Pratheesh V v State of Kerala(Case no. WP(C) No. 33278 of 2016 & W.A. Nos. 71 &

72 of 2017 dated 24 January 2017 that "It is the settled position of law that a

registered trust is a legal entity and juristic person entitled to hold property by

itself”. It was submitted that similar to the trust mentioned in the abovecited case,

the assesseeis also a Trust which was given affiliation to run an educational

institution and therefore, has to be deemed as a legal entity different from its

trustees. It was submitted that the trust was running an engineering college which

was affiliated to All India Council For Technical Education (A statutory body of the

Government of India) and hence, it had its own separate legal existence. Thus, it

was submitted that the Trust should not be put on peril for the illegal activities

committed by few of the Trustees of the Trust running an affiliated college.

17.5 The Ld. AR submitted that section 13(1) (c) had no applicability here. The Ld.

AR reproduced the said subsection as below:

"Section 13(1) Nothing contained in section II or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof— (a): ... ... ... ... (b): ... ... ... ...

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 (c): in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof— (i) ... ... ... (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub- section (3) "

According to the Ld. AR, this section restricted exclusion of certain income from

total income, to the extent such income had been applied directly or indirectly for

the benefit of the trustees. Here, the Ld. AR submitted that no income had been

received by the Trust as capitation fees and there was no claim for exclusion of any

non-existent income under section 11 or section 12 and hence section 13(1) has no

applicability here. Capitation fees, if any, were collected by the Erstwhile Trustees

and was never a part of the income of the Trust.

17.6 The Ld. AR submitted that no seized material was found for A.Y.2008-09.

However, it was submitted that the AO had taken average of preceding and

subsequent years' donation to arrive at amount collected by the erstwhile Trustees.

Where no seized material is available no addition can be made. It was submitted

that the consolidation of seized materials reflected some amounts as donations

collected by Trustees and handed over to the Trust in A.Ys.2004-05 to 2007-08. It

was submitted that if at all, only this amount can be considered in the hands of

Trust this, however, would still not result in denial of exemption u/s. 11 of the Act.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 17.6.1 The Ld. AR relied on the following case laws:

17.7 The Ld. DR relied on the order of the lower authorities.

17.8 We have heard the rival submissions and perused the record. In this case,

exemption u/s. 11 of the I.T. Act was denied on the reason that the trustees

collected the excess fees from the students and they themselves were managing

the financial affairs of the assessee-Trust as their own personal business. Hence,

the amounts collected from the students were kept by themselves without disclosing

in the books of accounts of the Trust. They were drawing allowances without

accounting the same in the books of accounts of the Trust. They used the Trust for

their personal benefit and not for the objectives of the Trust. Hence, exemption

u/s. 11 of the I.T. Act was denied by invoking the provisions of section 13(1)(c)(ii)

of the Act and the income of the assessee-Trust was assessed as AOP. However, in

thiscase, there was no allegation that the Trust was not established for imparting

education. The records show that the Trust has established educational institutions

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 and conducted engineering and management courses. Huge investments were

made for construction of building for housing the college and to provide other

facilities to the students who were studying in the college. The college is

recognized by competent authority. Therefore, it cannot be said that the Trust is

not genuine. Admittedly, the students are being admitted every year and the

students are studying in the Trust-owned college. Thus, the object of establishment

of the Trust is for imparting education which is going on uninterruptedly.

Therefore, it cannot be said that the activities of the Trust are not being carried out

in accordance with the objectives of the Trust. When these conditions are fully

satisfied, it cannot be said that the Trust is misappropriating funds of the Trust and

hence exemption u/s. 11 of the Act cannot be denied. In the present case, the

trustees admitted that they have collected excess fees in their personal capacity and

paid a portion of it to the Trust. However, the Department has not found any

incriminating material in the case of the Trust. The accounts of the assessee-Trust

shows that the assessee carried on educational activities by running various

institutions within the domain of Central and State laws. The assessee-Trust has

been maintaining regular books of accounts and they were audited under the

relevant provisions of the Act. The lower authorities have not found any error in the

books of accounts of the assessee-Trust. The only allegation is that a portion of the

extra fees collected by the Trustees has been handed over to the assessee-Trust

which is unaccounted for. Since there were no defects found in the books of

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 accounts of the assessee and also the assessee is imparting education, having valid

registration u/s. 12AA of the Act, it is not proper to total denial of exemption u/s.

11 of the I.T. Act by alleging the violation of section 13(1)(c)(ii) of the I.T. Act. The

only allegation is that the excess fees collected by the Trustees have been used for

the benefit of the Trustees and as such, the provisions of section 13(1)(c)(ii) of the

I.T. Act is applicable. In our opinion, if the Trustees have collected excess fees

from the students or parents of the students, the Trust cannot be held responsible

for such activities of the trustees and the Trustees are individually liable for

collection of excess fees as this was collected by them without authorization from

the Trust. The misconduct of the trustees of the assessee-Trust, if any, could not

be made to lose benefit of exemption u/s. 11 of the I.T. Act on that count. For the

wrong doing of some trustees of the Trust, the assessee cannot be blamed or

penalised if the trustees have collected fees unauthorizedly and kept it with them.

It cannot be said that there is violation of section 13(1)(c)(ii) of the I.T. Act. If the

Trustees themselves collected extra fees from the students for admission and

retained it without authority, the Trust has nothing to do with thataction of the

Trustees and it cannot be said that the Trustees have been given any benefit or

fruits of the Trust. The Trustees have unauthorizedlyused the name of the Trust for

the personal benefit of the Trustees and if the Trustees have failed to discharge

their duty, with bona fide and earned certain benefit from the Trust, the Trust is not

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 aware of that fact, the benefit of exemption u/s. 11 of the Act cannot be denied to

the valid Trust.

17.9 The Trust is only liable for the amount received from the Trustees out of the

excess fees collected by them. If the excess fees collected by the Trustees was

received by the Trust which was not accounted, the department can tax the same in

the hands of the Trust and exemption u/s. 11 of the Act can be denied on that

amount and total denial of exemption u/s 11 is not possible. In the present case,

the extra fees received by the assessee-Trust from the trustees was not accounted

in the books of accounts of the assessee and also there is no evidence to show that

it was applied for the purpose of charitable activities of the assessee-Trust. Thus, it

is deemed that it was applied for purposes other than charitable purpose of the

assessee-Trust. Being so, only that part of income is liable to be taxed at maximum

marginal rate as envisaged in section 164(3) of the I.T. Act which reads as follows:

(3) In a case where the relevant income which is derived from property held under trust in part only for charitable or religious purposes(or is of the nature referred to in sub-clause (iia) of clause (24) of section 2) or is of the nature referred to in sub-section (4A) of section 11) and either the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are indeterminable or unknown, the tax chargeable on the relevant income shall be the aggregate of –

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 (a) tax which would be chargeable on that part of the relevant income which is applicable to charitable or religious purposes (as reduced by the income, if any, which is exempt under section 11) as if such part (or such part as so reduced) were the total income of an association of persons; and

(b) the tax on that part of the relevant income which is applicable to purposes other than charitable or religious purposes, and which is either not specifically receivable on behalf or for the benefit of any one person or in respect of which the shares of the beneficiaries are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as “relevant income”, “part of relevant income” and “beneficiaries”, respectively, (tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate)”

17.9.1 For this proposition, we rely on the following case laws:

Accordingly, that portion of extra fees received by the assessee-Trust is to be taxed

at maximum marginal rate. The other income of the Trust is entitled to exemption

u/s. 11 of the I.T. Act. And directed accordingly.This ground of appeals of the

assessee is partly allowed.

Ground No. 2 – Enhancement by CIT(A) : AYs 2004-05 to 2007-08

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 18. Regarding addition made in the hands of the Trust, the CIT(A) observed that

trustees of the assessee trust were collecting capitation fees from the students, part

of which they were pocketed and the remaining was being handed over to the trust

which was undisclosed in the books of accounts of the trust and hence, the CIT(A)

held that the contention of the assessee Trust was not maintainable.

18.1 The CIT(A) confirmed the findings of the Assessing Officer that the details

gathered from the seized documents showed that the funds of the trust have been

misutilized and diverted for the personal use of trustees. Further, the trustees

namely Gracy Babu, Jose Thomas and P.J. Paulose, during the relevant years, had

withdrawn amounts in excess of the receipts and allowances allowable to them as

per the bylaws of the Trust and this additional amount withdrawn had been

correctly added in the hands of the trustees by the AO in each of the relevant

assessment years.

18.2 The CIT(A) observed that a part of the capitation fees collected by the

trustees had been passed on to the trust, as per the seized documents, but have

not been accounted for in the books of accounts of the appellant trust, during AY

2004-05, 2005-06, 2006-07 and 2007-08. According to the CIT(A), these amounts

had been collected by the trustees from the students during the relevant

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 assessment years and are evidenced in the seized documents and the assessee

Trust had not been able to substantiate and produce evidence for denial of receipts

of the same and thus, as per the presumption arising out of section 132(4A), the

same is to be added in the hands of the assessee Trust. The CIT(A) directed the AO

to enhance the income of the Trust, after treating as AOP on a substantive basis as

follows:

AY Amount 2004-05 Rs.27,84,000/- 2005-06 Rs.20,63,000/- 2006-07 Rs. 7,57,300/- 2007-08 Rs.67,94,950/-

The difference of the "Donation from students collected" and "Donation handed

over to the trust" was to be protectively added in the case of the assessee.

Accordingly, the CIT(A) enhanced the income.

18.3 Against this, the assessee is in appeal before us. The Ld. AR submitted that

the CIT(A) upheld the protective assessment to the extent of amount shared by

erstwhile Trustees as per seized material while substantively assessing the donation

handed over to Trust. However while doing so, the CIT(A) had wrongly enhanced

the income of Trust. It was submitted that the enhancement amounts to double

addition and AO has already added the entire donations collected by erstwhile

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 Trustees which includes the donations purportedly handed over to trust. Hence, it

was submitted that enhancement is to be deleted.

18.4 On the substantive sustainment of addition in respect of donation handed

over to Trust, that the incriminating materials were found in the residence of 3

erstwhile Trustees and the whole of donations had been assessed substantively in

the hands of 3 erstwhile Trustees, proved that the Trust including other erstwhile

Trustees were not party to such collections by the 3 erstwhile Trustees. It was

submitted that if at all the donation handed over to Trust can only be considered as

loan from erstwhile Trustees and would not form part of income of Trust. It was

submitted that if the donation handed over to Trust is considered as income, the

Trust having applied the entire such amount for its application purpose, no further

addition would be warranted in this regard.

18.5 The Ld. AR submitted that it cannot be said that Rs.1.23 Crs (i.e., that

amounts purportedly handed over by the erstwhile trustees to the Trust) should be

added as income but the same should be taken as part of gross receipts &

thereafter it should be seen if 85% application had been met by the Trust, in which

case the Trust will enjoy full exemption, else such shortfall in application alone can

constitute income.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 18.6 The Ld. DR relied on the order of the lower authorities.

18.7 We have heard the rival submissions and perused the record. In view of our

findings in para 17.8 of this order wherein we have observed that only unaccounted

income received by the assessee-Trust from the Trustees is to be taxed at

maximum marginal rate, there cannot be any enhancement of income so as to

assessee the entire amount collected by the Trustees in the hands of the assessee-

Trust. More so, the amount retained by the Trustees has been assessed in their

respective hands. Thus, there cannot be any double addition. This enhancement

was also made by the CIT(A) without giving any opportunity of hearing to the

assessee which is violation of principle of natural justice. Thus, this ground of

appeals of the assessee is allowed.

Ground No. 3 : Enhancement by CIT(A) – Amount paid for construction of building Rs.14.55 crores : For AY 2010-11

sheet for AY 2010-11 which has in the subsequent years been clubbed in the

building expenditure undertaken by the assessee Trust during the relevant year and

hence, an enhancement notice was given to the assessee in reply to which the

assessee submitted that it was the old trustees who have benefited from the various

transactions and none of the capitation fees collected by them was passed on to the

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 trust. Further, it was stated that a payment of Rs.14,54,59,169/- was made to the

old trustees as per agreement and repeated request from them stating that they

have constructed the building and supporting vouchers and bills shall be submitted

to the trust for the construction made. It was submitted that the payment was

made and remitted the TDS portion u/s 194C also on the payment towards

expenses incurred by them for constructing the building. It was submitted that the

advance given was not shown as utilization in the computation of income of the

Trust and a journal entry only was made in the books of accounts of the Trust

transferring the advance amount to the building account without claiming it as

utilization. Rejecting the contentions of the assessee the CIT(A) added the amount

of Rs.14,54,59,169/- to the income of the assessee-Trust, which is to be assessed

as AOP.

19.1 Against this, the assessee is in appeal before us. It was submitted that the

CIT(A) had enhanced the income of the Trust by amount of Rs. 14,54,59,169/- for

the reason that the Trust has paid the amount for the purpose of construction of

building to erstwhile trustees but had failed to produce bills and invoices to

substantiate the same. It was submitted that the CIT(A) had acted beyond

jurisdiction by going into new addition not at all in the realm of the assessment

order. The Assessing Officer denied exemption u/s.11 for the reason of violation of

section 13(1)(c) and protectively added the amounts purportedly in violation i.e.,

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 donations. The issue of amount given for construction was an entirely new issue

which was not at all considered by AO and the jurisdiction to deal with the same is

only u/s..147 / 148 / 263. Reliance in this connection was placed on the decision of

Full Bench of Delhi High Court in CIT v Sardarilal & Co (2011 251 ITR 684 (Del)

(FB).

19.2 It was submitted that the building existed and a college was running is

testimony of the construction having taken place and the total built-up area of the

buildings totals to 236,999.78 Square Feet (220,118.57 Square Meter). It was

submitted that even considering a conservative per square feet rate of of Rs.1400

per Square Feet, the total cost comes to Rs.33.18 Crores. The Ld. AR submitted that

as per the Audited balance sheet of AY 2018-19, the gross building value (without

depreciation) was Rs.24,38,23,931.53 and this amount was inclusive of

Rs.14,54,59,169/- given to the erstwhile trustees who constructed the buildings for

the Trust which clearly showed that there had been no overstatement of building

value and the amount paid was for the buildings constructed by them. Thus, there

was no violation of section 13(1)(c). The amount paid to the erstwhile trustees

werefor the construction of infrastructure. It was submitted that no benefit arises to

the erstwhile trustees through the payment of Rs. 14,54,59,169/- made to them by

the Trust. Such benefit would have been there, if it was diversion of Trust funds by

virtue of section 13(2)(g). It was submitted that the payments were made to offset

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 the cost of construction of building done by the erstwhile Trustees and hence, there

was no diversion.

19.3 The Ld. AR submitted that the Trust did not claim Rs. 14.55 crores as

expenditure or application and hence, the same cannot be added to income of the

Trust (copy of Balance Sheet and Income and Expenditure account for year ended

31.03.2009, 31.03.2010 and 31.03.2011 along with enclosures placed before the

Bench in Serial Number 11 to 12 of the Paper Book). Even otherwise, it was

submitted that the total value of the building with the built up area of 236,999.78

Square feet would not be less than Rs.33.18 Crores against the balance sheet value

as on 31.03.2018 is only Rs.24,38,23,931.53 and this will offset the difference. It

was submitted that the assessee had given construction contract to erstwhile

Trustees who carried out the same and since the assessee did not undertake

construction it was not in possession of bills and invoices. It was submitted that if

at all only the income over expenditure for the A.Y.2010-11 amounting to

Rs.2,31,78,710/-can be taxed subject to set off of excess application of earlier

years.

19.4 The Ld. DR relied on the order of the lower authorities.

19.5 We have heard the rival submissions and perused the record. As discussed in

the case of Jose Thomas and Gracy Babu in ITA Nos. 238 & 239/Coch/2019 in para

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 12.7 and 12.8 of this order, wherein it was held that there was construction activity

carried out by those two assesses as evidenced by the agreements cited supra and

the construction was reflected in the balance sheet of the present assesses which

was subjected to TDS. Thus, by any stretch of imagination, it cannot be said that

there was no construction activity carried out by the assesses and it cannot be said

that payments were not made towards construction of building which was for the

establishment of educational institution. Thus, this ground of appeals of the

assessee is allowed.

Ground No. 4 : Set off of excess application of earlier years

before computing the income of the Trust as AOP, the CIT(A) observed that once

the status of the assessee is changed to that of an AOP, the carry forward of deficit

of earlier years cannot be allowed as the same was eligible only for the status in

which valid return of income was filed within the prescribed time. Hence, the

CIT(A) confirmed the finding of the Assessing Officer.

20.1 The Ld. AR submitted that excess application of earlier years can be set off

against deficits in subsequent year. Reliance was placed on following case laws:

• CIT (Exemption) v Subros Educational Society 2018 (4) TMI 1622 (SC),

• CIT v Matriseva Trust [2000] 242 ITR 0020 (Mad)

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 • Gonvindu Naicker Estate v ADIT [2001 ] 248 ITR 0368 (Mad)

• CIT v Shri Plot Swetamber Murti Pujak Jain Mandal [1995] 211 ITR 0293 (Guj)

• CIT v Maharana of Mewar Charitable Foundation [1987] 164 ITR 0439 (Raj)

It was submitted that the AO and the CIT(A) had not allowed set off for the reason

that the Trust has lost its status on account of denial of exemption u/s. 11 due to

which it was assessed as AOP.

20.2 The Ld. DR relied on the order of the lower authorities.

20.3 We have heard the rival submissions and perused the record. Since we have

held that the assessee is entitled for exemption u/s. 11 of the Act, excess

application of earlier years could be set off against deficits in the next assessment

year. This view of ours is supported by various judgments in the cases cited by Ld.

AR wherein it was held that the expenditure incurred by the Trust on

religious/charitable purposes in earlier year or years can be adjusted against the

income of the subsequent year irrespective of the head of income under which it

was incurred. Accordingly, the Assessing Officer has to re-compute the income.

Thus, this ground of appeals of the assessee is allowed. Thus, the assesse’s appeals

in ITA no. 304 to 310/Coch/2019 are partly allowed.

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019 21. In the result, the appeals of the assessesin ITA no. 27 to 30/Coch/2019 and 32

to 34/Coch/2019 are dismissed. The appeals of the assesses in ITA no. 31 &

35/Coch/2019, 208 to 213/Coch/2019 and 304 to 310/Coch/2019 are partly

allowed.The appeal of the assesse in ITA no. 207/Coch/2019 is allowed. The

appeals of the revenue in ITA no. 54, 55/Coch/2019, 238 and 239/Coch/2019 are

dismissed. Order pronounced in the open Court on this 30th September, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 30th September, 2019 GJ Copy to: 1.Jose Thomas, Padijareveettil, Puthenveedu, Adoor P.O., Pathanamthitta-691 523. 2. Smt. GracyBabu, Padijareveettil, Puthenveedu, Adoor P.O., Pathanamthitta-691 523. 3. Smt. Reena Jose, Padijareveettil, Puthenveedu, Adoor P.O., Pathanamthitta-691 523. 4. M/s. Carmel Educational Trust, Koonamkara P.O., Perunad, Ranni, Pathanamthitta-689 711. 5. The Deputy Commissioner of Income-tax, Central Circle, Kottayam. 6. The Assistant Commissioner of Income-tax, Central Circle, Kottayam. 7. The Commissioner of Income-tax(Appeals)-III, Kochi. 8. The Commissioner of Income-tax, Central Circle, Kochi. 9. D.R., I.T.A.T., Cochin Bench, Cochin. 10. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin 84

I.T.A. Nos.27-35/Coch/2019, 54&55/Coch/2019, 208-213/Coch/2019, 238&239/Coch/2019, 207/Coch/2019 & 304-310/Coch/2019