RASTRIYA CHETNA COLLEGE OF EDUCATIONAL SOCIETY,DEHRADUN vs. ITO (EXEMPTION), DEHRADUN

The grounds of appeal

The assessee society is registered u/s 12AA of the Income Tax Act, 1961 by the Commissioner of Income Tax, Dehradun vide order dated 29.09.2006. The society is also registered with the Registrar of the Society vide Registration No. 1104/2003-04 dated 30.01.2004 which was renewed. The return of income declaring Nil income was filed on 27.09.2015. The case was selected for limited scrutiny for examination of issues “Transaction of trust with specified persons”. Accordingly, notice u/s. 143(2) of the Act was issued on 26.07.2016 which was duly served upon the assessee. In compliance to notices issued, the Chartered Accountant of the assessee attended and submitted replies during the assessment proceedings. The case was discussed with him from time to time. Books of Accounts were produced by the assessee during the assessment proceedings. The Assessing Officer observed that in the Audit Report submitted in Form No. 10B, the auditor mentioned that the assessee did not paid sale consideration at Rs. 48,12,000/- to the sellers and the same are still outstanding as on 31.03.2015. The Balance Sheet of the assessee shows that the payment against land at Rs. 5,68,800/- only and was categorized as Net payment. The Assessing Officer further observed that in the Balance Sheet no detail of such asset was booked neither the value of asset purchased not the liability towards its cost. The assessee submitted copy of sale deed and land was registered in the name of the Society after paying 48,12,000/- in respect of Land at Mauza Manduwala, Dehradun from Smt. Sushila Devi. The details of payment are as under: i. Rs. 10,00,000/- via cheque no. 671141 dated 14.09.2015 Punjab & Sindh Bank, Garhi Cantt, Dehradun ii. Rs. 10,00,000/- via cheque no. 671142 dated 14.09.2015 Punjab & Sindh Bank, Garhi Cantt, Dehradun iii Rs. 10,00,000/- via cheque no. 671143 dated 14.09.2015 Punjab & Sindh Bank, Garhi Cantt, Dehradun The Assessing Officer called for the detail of Bank Account of Smt. Sushila Devi which shows that the said cheques were not presented to the Bank for payment. Statement of the Secretary of the Society and one of the seller Smt. Sushila Agarwal was recorded. The Assessing Officer issued show cause notice to the assessee and the assessee society submitted its reply. The Assessing Officer observed that one of the seller Smt. Sushila Devi stated that they never presented the cheques in Bank for payment of sale consideration and have not enforced the payment of sale consideration by filing suit in any court till that date. As no fresh claim was made by the sellers after the cheques lost its validity, the liability for the financial year also vanished and therefore, the assessee society reduced its liability to nil in the individual ledger account of Smt. Sushila Devi which was evident from the ledger of Land & Building Account. Thus, the Assessing Officer concluded that the assessee had no liability of payment of sale consideration towards the seller as the cheques of Rs. 48,12,000/- which were issued by the Society in favour of the sellers on the date of execution of sale deed. The Assessing Officer treated the monetary value of the property being the circle rate of the property at Rs. 1,11,12,000/- as voluntary donation to the assessee society.

Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

By way of ground No.1, the assessee has disputed the treating of the transaction of purchases of land as voluntary contribution in the form of donation by the Assessing Officer. We find that learned CIT(A) has considered the same and rejected the assessee’s claim with the following finding :-

At the time of hearing before us, the assessee reiterated his arguments advanced before the lower authorities i.e., the sale deed with regard to the plot was registered and which was not cancelled so far and that the payment against such sale deed was made by post-dated cheques though the same were not encashed. He, however, stated that the seller has a right to recover the amount from the buyer. But, on a question from the Bench, he fairly admitted that even till date, no payment has been made by the assessee to the seller.

Learned DR, on the other hand, relied upon the orders of authorities below and he stated that in this case, the substance is to be looked into and not the form. He stated that the seller has fairly admitted before the Assessing Officer that she intended to donate the property to the assessee trust but since the permission for donation was not received, she sold the property. Thus, the intention of the parties is clear. Though the sale deed was executed but the sale consideration which was supposed to be paid by post-dated cheques were never presented for encashment by the seller. The cheques were allowed to be lapsed and thereafter no claim is made by the seller from the assessee in respect of sale consideration. Thus, the intention of the parties is clear that it was only the donation of the plot which was given the form of sale deed because the permission of the gift was not received from the concerned authorities.

We have carefully considered the arguments of both the sides and perused the material placed before us. After considering the facts of the case and submissions of both the sides, we do not find any justification to interfere with the order of learned CIT(A). It is undisputed that the seller initially wanted to gift the said plot of land to the assessee trust. Since permission of gift was not received from the concerned government authorities, the sale deed was executed. The sale consideration is purportedly paid by post-dated cheques which were never presented for encashment. Thereafter, the seller did not claim the outstanding amount of sale consideration. In the balance sheet of the assessee in the relevant year, the amount is not shown as payable to the seller of the land. These facts clearly establish that the transaction of transfer of plot of land is in substance the gift which has been given the form of sale. In view of the above, we uphold the finding of learned CIT(A) that it is in effect the donation of the plot by the alleged seller to the assessee trust. Accordingly, ground No.1 of the assessee’s appeal is rejected.

As regards to Ground No. 2, the Ld. AR submitted that the Assessing Officer wrongly adopted the value as per circle rate at Rs.1,11,12,000/-. In the apparent consideration is Rs.48,12,000/-. The circle rate valuation is Rs. 1,11,12,000/-. The Assessing Officer, at the end of Assessment Order mentioned for adopting circle rate at Rs. 1,11,12,000/-. The Ld. AR submitted that the assessee is a society (AOP) and not an individual or Hindu Undivided family (HUF). Sec.56 (2) (vii) provided for adopting circle rate in case of purchaser / donee. However this section is applicable only where the purchaser / donee assessee is either individual or HUF. The scope of this provision got enlarged by including all persons (including AOP) only for transactions which takes place on or after 01.04.2017 vide Sec.56 (1) (x) inserted in the statue vide Finance Act, 2017, w.e.f. 01.04.2017. Further, even w.e.f. 01.04.2017 it is not applicable on educational institutions as provided in Sec.56 (1) (x) proviso (VIII). The Ld. AR further submitted that without referring to DVO and without any SCN, the apparent consideration cannot be disturbed, more so, when there is no evidence on record to show that apparent consideration is not the real consideration.

The Ld. DR relied upon the Assessment Order and the order of the CIT(A).

We have heard both the parties and perused all the material available on record. The Assessing Officer adopted circle rate of property without assigning any reasons or findings to that extent by simply holding that the monetary value of the property being the circle rate of the property at Rs. 1,11,12,000/- and treated it as voluntary donation to the assessee society. It is an admitted position that the assessee society is registered trust under Section 12AA of the Income Tax Act, 1961. By adopting the circle rate of property, the Assessing Officer applied Section 56 of the Income Tax Act, 1961 to the assessee trust which is not at all applicable to the trust in the particular scenario when the section 56 (2)(vii) is applicable to individuals and HUF only. Besides section 56 (2)(x) will also be not applicable as the same is w.e.f. 01.04.2017 and the Assessment year before us is A.Y. 2015-16. In fact, Section 56(2)(x) of the Act is not applicable to the educational institutions. Therefore, the Assessing Officer wrongly invoked Section 56 of the Act and wrongly adopted circle rate of property in the present case. Thus, Ground No. 2 of the appeal is allowed.

As regards to Ground No. 3, the Ld. AR submitted that without prejudice, even in case of donation, whatever value of property is taken, it should be held as being applied in the same year. The Ld. AR submitted that the value in kind cannot be applied. The Assessing Officer adopted the value of alleged donation at Rs. 1,11,12,000/- as per circle rate and by holding the non application of donation amount to the extent of 85%, held Rs.87,55,232/- as taxable, as per calculations in Assessment Order. At the outset, it is not a case of donation but case of purchase of property. For argument sake, even if considered as a case of donation, then it is not cash /chq. but land on which educational institution is to be constructed. Hence under the facts, the value of the land should be deemed as has been applied for the causes of society in the same year and immediately on its receipt. The Ld. AR submitted that the value of the land, being in kind under the facts, cannot be applied for purposes of society in any other manner. The Ld. AR relied upon the decision of the Tribunal in case of ITO Vs. Shri Sachyaya Mataji Trust Osian, Jodhpur (Jodhput ITAT Order Dtd.09.05.14 in ITA No.538/JODH/2013).

The Ld. DR relied upon the order of the CIT(A) and Assessment Order.

We have heard both the parties and perused all the relevant material available on record. As we have dismissed Ground No. 1 of the assessee’s appeal it amounts to donation which is received in kind i.e. in property. The Assessing Officer has applied the circle rate to the land which is also not as per law and we have allowed Ground No. 2 of the assessee’s appeal. In fact, the revenue’s case was that the assessee received land without any consideration which amounts to donation/gift. The Ld. AR relied upon the decision of the Tribnal in case of Shri Sachyaya Mataji Trust Osian, Jodhpur (supra) which is an apt decision in present assessee society’s case. In the present case also, it is an admitted fact that the assessee received the donation in kind i.e. land and the same could not be applied, accumulated or invested, therefore it cannot be treated as income. The donation received in kind did not come under the definition of income u/s 2(24) of the Act, therefore, it could not be the income of the trust u/s 12(1) of the Act and the acceptance of donation in kind does not come under the purview of income u/s 2(24)(iia) for the purpose of Section 11 of the Act. Therefore, the findings of the CIT(A) is not correct and we allow Ground No. 3 of the appeal.

In result, appeal of the assessee is partly allowed. Order pronounced in the Open Court on 10th January, 2019.