VELLORE INSTITUTE OF TECHNOLOGY,VELLORE vs. DCIT, CC IV(1), CHENNAI

आदेश / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

These are cross appeals filed by the assessee and Revenue

respectively directed against an order dated 19.06.2017 of ld.

Commissioner of Income Tax (Appeals)-18, Chennai, for the impugned

assessment years.

Issues raised in all these appeals mainly involve exemption 2.

claimed by the assessee u/s.11 of the Income Tax Act, 1961 (in short

‘’the Act’’). Before adjudicating the grounds taken by both parties, it is

important to capture the facts.

09.07.1984 was subjected to a search u/s.132 of the Act on

06.06.2007. Assessee is running an engineering college named M/s.

Vellore Institute of Technology (VIT) and it became a deemed

university on 19.6.2001. Being registered u/s.12A of the Act, assessee

was regularly claiming exemption u/s.11 of the Act. In the returns

filed in response to notices u/s.153A of the Act also, assessee

admitted ‘’Nil’’ income after claiming exemption u/s.11 of the Act.

ITA Nos2125 to 2128 :- 3 -: & 2219 to 2222 /2017

Assessing Officer, however denied the claim citing the following

reasons:-

(i) Assessee was collecting amounts in excess of the prescribed

fees from students, which was nothing but capitation fee.

Such donations were not voluntary but given by parents of

the students admitted to the institution, as a quid-pro-quo.

(ii) Capitation fee accepted in the garb of donation was claimed

as corpus donations.

(iii) Donations were increasing on an year to year basis and

corresponding increase in corpus fund were as under:

Asst. Year Amount Increase

2002-03 5,38,39,500 Not applicable

2003-04 6,32,90,925 94,51,425

2004-05 8,71,65,250 2,38,74,325

2005-06 12,41,75,600 3,70,10,350

2006-07 14,04,38,300 1,62,62,700

2007-08 17,96,60,001 3,92,21,701

2008-09 29,22,25,001 11,25,65,000

ITA Nos2125 to 2128 :- 4 -: & 2219 to 2222 /2017

(iv) A large number of parents had confirmed that donations

paid by them were nothing but capitation fee.

(v) Surplus generated by the assessee for the various years,

reflected its activity to be more in the nature of business

than any charity. Such surplus for various years were as

under:-

Assessment Surplus Corpus fund Total Surplus year donation 2008-09 46,18,18,672 29,22,25,001 75,40,43,673

2007-08 53,99,91,718 17,96,60,001 71,96,51,719

2006-07 39,26,91,624 14,04,38,300 53,31,29,924

2005-06 34,94,44,857 12,41,75,600 47,36,20,457

2004-05 25,83,90,789 8,71,65,250 34,55,56,039

2003-04 17,82,68,087 6,32,90,925 24,15,59,012

2002-03 10,39,86,238 5,38,39,500 15,78,25,738

2001-02 6,80,23,195 12,65,00,000 19,45,23,195

2000-01 5,19,32,115 5,97,65,000 11,16,97,115

1999-00 2,71,55,378 5,50,06,760 8,21,62,138

1998-99 1,99,85,049 3,54,08,920 5,53,93,969

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(vi) Hon’ble Apex Court in the case of Mohini Jain (Miss) vs. State

of Karnataka and others (1992) 2 SCC 666 had held that

capitation fee collected by private education institutions was

nothing but a price for selling education and this was

contrary to the edicts in Constitution of India

(vii) There were large number of instances of violations coming

within the ambit of Section 13(1) (c) of the Act, where

income and property of the trust were diverted for the

benefit of the trustees and their relatives.

(viii) Expenses for land development were inflated and such

amounts were diverted for personal benefit of the trustees

and their relatives, attracting Section 13(1) ( c) of the Act.

(ix) Repayments of advance fees and tuition fees in cash, had no

reliable confirmation from the parents of the students, and

this was nothing but diversion of funds of the Trust for

personal benefit of the Trustees. Refunds considered by the

ld. Assessing Officer as diversion of funds were as under:-

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(a)Student Advance refunds

A.Y.2006-07 �8,00,31,224

A.Y. 2007-08 �20,67,49,998

A.Y. 2008-09 �24,58,22,000

(b) Tuition fee refunds

A.Y.2006-07 �1,22,26,537

A.Y. 2007-08 �1,90,71,353

A.Y. 2008-09 �36,22,227

exemption claimed under Section 11 of the Act, ld. Assessing Officer

had cited certain specific instances which, according to him, attracted

the rigours of Section 13(1) (c) of the Act. These are listed

hereunder:-

(i) An agreement for purchase of 22.34 acres of land at

Brahmapuram, Katpadi executed by the trust with one

Smt. B. Ramani, daughter-in-law of the Managing Trustee

was seized during the search. As per this, the agreed

consideration was �1,00,00,000/-. However in the draft

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sale deed the agreed consideration was mentioned as

�55,84,600/-. In the conveyance deed registered in

favour of the assessee on 03.06.2004, consideration

mentioned was �33,51,000/-. Assessee had paid the

difference, which was on-money, to Smt.B. Ramani and

this was a violation of the nature mentioned in Section

13(1) (c) of the Act.

(ii) A sum of �22,34,000/- was paid again to Smt. B. Ramani

for purchasing 6.32 acres of land, based on an

agreement for sale dated 04.06.2004. The sale did not go

through but was cancelled, without any specific reason.

Though the amount of �22,34,000/- was returned by Smt.

B. Ramani, there was diversion of funds of the trust for

the benefit of a specified person coming within the

meaning of Section 13(3) of the Act, resulting in a

violation of the nature mentioned in Section 13(1) (c) of

the Act.

(iii) An advance of �1,00,00,000/- was paid during previous

year relevant to assessment year 2006-07 and

�50,00,000/- was paid during previous year relevant to

assessment year 2007-08 to one Shri. Arjunlal Sunderdoss,

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but these were not supported by any agreement or

security nor were there any stipulation for payment of

interest, again constituting violation of a nature mentioned

in Section 13(1 ) (c) of the Act.

(iv) Smt. S. Preetha, daughter in law of Managing Trustee had

purchased a land at No.85, Second East Main Road,

Gandhi Nagar, Katpadi, Vellore for an apparent

consideration of �40,00,000/- on 09.04.2007. The said

sum was paid by Smt.S. Preetha through cheques dated

18.08.2006 and 09.04.2007 for �10,00,000/- and

�30,00,000/- respectively. However one of the seized

documents revealed that Smt. S. Preetha had applied for a

loan of �85,00,000/- from M/s.Indian Bank for purchasing

this property. In the application filed by Smt. S. Preetha

to Indian Bank, cost of the property was shown as

�1,25,00,000/-. Almost contemporaneously there were

drawings of imprest cash by Shri. Prakash, Finance Officer

of the assessee, on 14.08.2006, 23.08.2006 and

30.08.2006 aggregating to �80,14,250/- from the trust

account. This money was obviously used for paying the

difference between actual purchase amount of

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�1,25,00,000/- and apparent consideration of �40,00,000/.

Thus there was violation of a nature specified u/s.13(1)

(c) of the Act.

(v) During the previous year ended 31.03.2007, loans were

raised by the assessee on the security of its fixed deposits

and immovable property, out of which a sum of

�10,00,00,000/- was paid to five trustees and a sum of

�17,87,27,500/- was paid to a firm called M/s. Global

Infrastructure Enterprises (in short ‘’GIE’’). Managing

Trustee of the assessee, was having 40% interest and his

four sons who were trustees had 15% interest each in this

firm. Though the claim of the assessee was that these

payments were made for acquiring a land and building at

138, Chamiers Road, Chennai, this could not be accepted

since the land was finally acquired by GIE. Thus, there

was a violation of the nature specified u/s. 13(1) (c) of the

Act.

(vi) Loans aggregating to �1,00,00,000/- was raised on the

security of fixed deposits, and this was given to Shri.

Sampath, one of the trustees. Claim of the assessee that

the amount was given to Shri. Sampath for acquiring a

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property at No. 56 and 56A, Thirumalai Pillai Road,

Chennai could not be accepted. This property was never

intended to be purchased by the trust and therefore

there was a violation of the nature specified in Section

13(1) (c) of the Act.

(vii) Diversion of funds for the benefit of the trustees and their

relatives, was substantiated by the additional income

disclosed by the following persons who were either

trustees or their close relatives :

Name of the assessee Additional income S/Shri. disclosed (�) Sankar/Ramani 1,35,78,153

Sampath/ Anitha 5,69,32,956

Selvam/ Preetha 82,10,279

Total 7,87,21,388

assessee starting from the surplus shown by it in its Income and

Expenditure account for the respective assessment years, after making

disallowance for loss on sale of assets, write- off of advances,

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payment of interest, payments of donations and adjustments for

change in method of accounting.

Commissioner of Income Tax (Appeals) for all the impugned

assessment year. Assessee challenged the denial of exemption u/s.11

of the Act and also various additions made while computing total

income, apart from challenging the legality of notice issued u/s.153A

of the Act.

and assessing the surplus under the head ‘’profits and gains of

business’’, ld. Commissioner of Income Tax (Appeals) held in favour of

the assessee, relying on an order of a Co-ordinate Bench in assessee’s

own case for assessment year 2001-02 in ITA No.165/Mds/2008, dated

28.05.2010 and for assessment years 2002-03 to 2004-05 in ITA

Nos.294 to 296/Mds/2014, dated 22.06.2016. As per the ld.

Commissioner of Income Tax (Appeals) by virtue of the above orders,

it was clear that donations received by the assessee from the parents

of the students could not be considered as Capitation fee and the

surplus income could not be assessed under the head ‘’income from

profits and gains of business’’. According to the ld. Commissioner of

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Income Tax (Appeals) exemption under Section 11 of the Act could not

be denied for this reason.

were violation of nature specified u/s.13(1)(c) of the Act on account of

inflated land development expenditure, ld. Commissioner of Income

Tax (Appeals) was of the opinion that ld. Assessing Officer could not

establish any direct nexus of such alleged inflation with any benefit

which accrued to the trustees or any specified persons. According to

the ld. Commissioner of Income Tax (Appeals), expenditure for land

development incurred by the assessee at its properties at Chennai and

Vellore averaged to �24.86 lakhs per acre and 11.60 lakhs per acre

respectively, whereas such expenditure for Bangalore, where there

were no cash payments came to �32.28 lakhs per acre. According to

him, just for a reason that land development expenditure incurred out

of the imprest money taken by Shri. Prakash, Finance Officer of the

assessee, was not evidenced by vouchers complete in all respects, the

claim could not be disallowed in full. Further, as per ld. Commissioner

of Income Tax (Appeals), ld. Assessing Officer had no evidence to

show that any such amount had reached the trustees or any specified

person. Nevertheless, the ld. Commissioner of Income Tax (Appeals)

held that a disallowance of 10% such expenditure could be sustained

for the failure of the assessee to produce complete evidence in support

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of the claim. Ld. Assessing Officer was directed by the ld.

Commissioner of Income Tax (Appeals) to tax such disallowance at

maximum marginal rate.

were concerned, ld. Commissioner of Income Tax (Appeals) sought a

remand report from the ld. Assessing Officer, since assessee

produced affidavits from the parents, who had earlier stated to have

received no such refunds. In such affidavits, it seems they affirmed

receipt of such refunds. Ld. Commissioner of Income Tax (Appeals)

took this approach since statements of the parents of the students,

relied on by the ld. Assessing Officer for disbelieving the claim of

refund of fee, were never put to the assessee during the assessment

proceedings. From the remand report so obtained from the ld.

Assessing Officer, ld. Commissioner of Income Tax (Appeals) found

that ld. Assessing Officer had not summoned the concerned parents

for verifying the veracity of their confirmation but had directed the

assessee to produce them. As per the ld. Commissioner of Income Tax

(Appeals), ld. Assessing Officer did not use the powers vested on him

for ensuring the attendance of the concerned parents, and had ignored

the evidence filed by the assessee. Further, as per the ld.

Commissioner of Income Tax (Appeals), refund of such advances and

fees were only against donations received from students admitted in

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management quota and such refunds stood reasonably corroborated

by the assessee. In any case, as per the ld. Commissioner of Income

Tax (Appeals) there was no evidence on record to show that any of

the alleged refunds were used for the benefit of any trustees or any

specified person. According to him, ld. Assessing Officer himself had

admitted in the assessment order that funds withdrawn were used

for the purpose of meeting college expenditure.

Ld. Commissioner of Income Tax (Appeals) also analyzed the 10.

specific violations alleged by the ld Assessing Officer falling within

Section 13(1) ( c) of the Act of a nature mentioned in the Act. Viz-a-

viz purchase of 22.34 acres of land at Brahmapuram, Katpadi from

Smt. B. Ramani on 11.03.2004, ld. Commissioner of Income Tax

(Appeals) noted that consideration mentioned in the registered

document was �33,51,000/- only. Further, as per the ld.

Commissioner of Income Tax (Appeals) in the individual assessment

of Smt. B. Ramani, made u/s.153C of the Act, the sale price of

�33,51,000/- was accepted and the ld. Assessing Officer had dropped

a proposed addition of �66,49,000/-. According to him, there was

nothing on record to show that there was any diversion of trust funds

to Smt. B. Ramani.

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for acquiring 6.23 acres of land at Kangaeyanallur was concerned, ld.

Commissioner of Income Tax (Appeals) noted that both the advance

as well as refund of the advance were through cheques and

supported by duly stamped cancellation agreement which were found

during the course of search. According to him, these records ought not

have been disbelieved. Further, as per the ld. Commissioner of

Income Tax (Appeals) there was no benefit arising to Smt. B. Ramani,

since the sale did not eventually come through.

In so far as payment of advance to Shri. Arjunlal Sunderdoss 12.

was concerned, ld. Commissioner of Income Tax (Appeals) noted that

transactions clearly indicated squaring off of such advance within a

short period of time. Ld. Commissioner of Income Tax (Appeals)

brought out the transactions assessee had with Shri. Arjunlal

Sunderdoss as under:-

Date Debit Credit 24.10.2005 50,00,000 15.12.2005 50,00,000 19.01.2006 50,00,000 14.03.2006 50,00,000 11.05.2006 50,00,000 16.12.2006 50,00,000

Further, as per the ld. Commissioner of Income Tax (Appeals) Shri.

Arjunlal Sunderdoss was not a trustee or a specified person and

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financial statements of Shri. V. Sankar and Shri. V.Sampath sons of the

founder trustee of the assessee trust clearly indicated that they had

not borrowed any funds from Shri. Arjunlal Sunderdoss.

daughter-in-law of Managing Trustee at 85, Second East Main Road,

Gandhi Nagar, Katpadi, Vellore was concerned, ld. Commissioner of

Income Tax (Appeals) noted that the property was acquired by Smt. S.

Preetha and not the assessee. According to him, there was nothing on

record to link the payments effected by her for purchase of such

property with the imprest money drawn by Shri. D. Prakash, Finance

Officer from the assessee trust. Further, as per the ld. Commissioner of

Income Tax (Appeals) addition made in the hands of Smt. S. Preetha

for alleged on-money payment stood deleted by ld. Commissioner of

Income Tax (Appeals) in her appeal.

five trustees of the assessee trust, and �17,87,27,500/- to M/s.GIE, a

firm in which such trustees were partners, ld. Commissioner of Income

Tax (Appeals) noted that such payments were recorded in the Balance

Sheet of the assessee as an asset. According to him, assessee was

saved from a potential loss of �1,00,00,000/- which was the damage,

it was bound to pay, if the sale was not registered within stipulated

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date. As per ld. Commissioner of Income Tax (Appeals) assessee by

giving the amount had effectively avoided the loss by facilitating

acquisition of property at Chamiers Road, Chennai by M/s. GIE, and it

was the assessee which had benefited from the transaction and not

other way round. Ld. Commissioner of Income Tax (Appeals) also

verified the financial statements of GIE and found that they had

incurred substantial loss of sale of this property. As per the ld.

Commissioner of Income Tax (Appeals) M/s. GIE had also gifted 15.79

acres of land near Madras to the assessee on 07.10.2008. Thus, as

per the ld. Commissioner of Income Tax (Appeals) there was no

benefit for the trustees or M/s. GIE on account of such payments.

As for alleged withdrawal of �1,00,00,000/- made by Shri. 15.

Sampath, one of the trustees, for acquiring property at 56 & 56A,

Thirumalai Pillai, Chennai, finding of the ld. Commissioner of Income

Tax (Appeals) was that said Shri. Sampath was endeavoring to acquire

the said property for the trust. According to him, when he failed due

to zone conversion rules, the plan was dropped and he promptly

refunded the money to the trust. Thus, as per the ld. CIT(Appeals)

there was no diversion of fund for the benefit of this trustee.

Ld. Commissioner of Income Tax (Appeals) also held that 16.

loss on sale of asset, payment of interest and payment of donations by

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the assessee, were nothing but part of application of its income.

Similarly, according to him, surplus on sale of flats at Bangalore and

Chennai could not be assessed under the head ‘’profits and gains of

business’’ and was to be considered as part of income from the

property of the trust.

method of accounting was concerned, ld. Commissioner of Income Tax

(Appeals) held that such change was effected only in financial year

ending 31.03.2008, based on accounting standard of Chartered

Accountant of India. According to him, it was a legitimate change,

consistently followed thereafter. He thus held that such addition was

not justified.

Effectively ld. Commissioner of Income Tax (Appeals) 18.

sustained only 10% of the disallowances made for land development

cost incurred in cash, while allowing the claim of exemption made by

the assessee u/s.11 of the Act, for the impugned assessment years.

listed in the table given hereunder through its various grounds.

ITA Nos2125 to 2128 :- 19 -: & 2219 to 2222 /2017 Sl. Summary of grievance against ITA No.2219/ ITA No.2220 ITA No.2221/ ITA No.2222/ No. CIT(A) order raised through CHNY/2017, /CHN/2017, CHN/2017, CHN/2017, various grounds A.Y. 05-06 - A.Y. 06-07 - A.Y. 07-08 – A.Y. 08-09 - Ground Ground Ground Ground number number number number

1 General 1,10 & 10.1 1,11 & 11.1 1, 13.8 & 14 1, 14

2 Erroneously held assessee had 2 & 2.1 2 & 2.1 2 & 2.1 13 to 13.2 followed cash system against mercantile system considered by AO, & deleted addition of �8,13,57,271/- for A.Y. 2008-09.

3 Erroneously held assessee to be 3 & 3.1 3 & 3.1 3 & 3.1 2 & 2.1 eligible for exemption u/s. 11 and allowed the claim. 4 Erroneously held that collection of 3.2 & 3.3 3.2 & 3.3 3.2 & 3.3 2.2 & 2.3 fees above prescribed limits from students was not capitation fee & these were voluntary in nature.

5 Though refund of advance 3.4 3.4 3.4 2.4 fees were denied by parents, payment of capitation fee confirmed and quid-pro-quo proved and still CIT(A) allowed exemption u/s.11 of the Act. 6 Higher profits earned year after year 3.5 3.5 3.5 2.5 proved profiteering and by virtue Hon'ble Supreme Court judgment in Modern Dental College Research Centre vs. State of MP (LA No.4060/09) exemption under Section 11 cannot be allowed. However CIT(A) allowed the claim.

7 Instances of violation u/s.13(1) 3.6 3.6 3.6 2.6 (c)by diversion of income/ property of trust ignored by CIT(A)

ITA Nos2125 to 2128 :- 20 -: & 2219 to 2222 /2017 8 Purchase of 22.34 acres at 4, 4.1 &4.2 --- --- --- Brahmapuram from Smt. B. Ramani, a specified person for �33,51,000/-, though it corroborated diversion of trust funds, CIT(A) held Section 13(1) ( c) cannot be invoked, despite seized document reflecting purchase consideration of �55,84,600/-. 9 Purchase of 6.23 acres of land --- --- --- again from Smt. B. Ramani 5 & 5.1 at Kankaya Nallur for which 22.35 lakhs was paid, though a violation coming u/s.13(1) (c), not considered by ld.CIT(A) despite advance payment of 42% of total consideration.

10 Inferences drawn by ld. AO on indirect diversion of funds, land 6 to 6.2 7 to 7.2 5 & 5.1 7 to 7.2 purchases from (Connected ( Connected B. Ramani, cancellation of issues issues purchase agreement due to repeated in repeated in legal hitches resulting in grounds grounds repayment of advances to mentioned mentioned trustees, sale deed against Sl. against in Sl. No. executed by Preeta, daughter- Nos.18, 19 20) in-law of Managing Trustee for & 20) �40 lakhs, erroneously overruled by CIT(A). Loan application filed by Preeta showed the value at �1.2 Cr. and there was pcontemporaneous drawings of �85 lakhs by Prakash, the Finance Manager, but ignored by ld.CIT(A) 11 CIT(A) erroneously ruled that no nexus was established by 7 to 7.2 8,9.1 & 9.2 11, 11.1, 8 to 8.2 ld. AO to prove perceived 13.1 & 14 diversion of funds to be beneficial for specified persons and ignored the additional income offered by such persons in their individual assessments as well as their statements under Section 132(4A) of the Act. CIT(A) erroneously held that diversion should bring direct benefit and indirect benefit was not sufficient.

ITA Nos2125 to 2128 :- 21 -: & 2219 to 2222 /2017 12 Incorrectly directed application of maximum 8 & 8.1 10 & 10.1 12 & 9 & 9.1 marginal rate of tax on 10% of land 12.1 development expenses sustained. 13 Incorrectly held that assessee was entitled to exemption on 9 ---- ---- 12 �2,13,186/- surplus arising on sale of a plot at Bangalore for A.Y. 05-06 and �9,41,89,923/- arising on sale of flat at Chennai for A.Y. 2008-09 14 Erroneously directed to treat loss on sale of assets, donations paid, 10 11 13 10 & 10.1 interest payment as application of income.

15 Erroneously held that �1 Cr advanced to Arjunlal Sunderdoss did --- 4 to 4.2 4 to 4.2 ----- not attract 13(1) ( c) since he was not a related party though there was no security or interest and sons of the Managing Trustee had taken loans from Arjunlal Sunderdoss. 16 Erroneously restricted to 10% disallowance of land development --- 5 & 5.1 8 & 8.1 5 & 5.1 expenses in cash, through imprest account of Finance Manager, Prakash.

17 Erroneously held that there was --- 6 to 6.3 9 to 9.3 6 to 6.3 no diversion of funds & violation of 13(1) (c) though Assessing Officer proved that cash refund of advance fees & tuition fees were not confirmed by parents and despite failure of the assessee to produce the parents who affirmed refunds through affidavits even though receipts were said to be corpus donation from parents.

ITA Nos2125 to 2128 :- 22 -: & 2219 to 2222 /2017 18 CIT(A) erroneously held that --- 7 to 7.2 6 to 6.3 3 to 3.3 payments made for acquiring property at Chamiers Road, Chennai was not for the benefit of the trustees and the firm GIE in which they were partners, though the property was acquired by GIE and this constituted violation of a nature specified in Sec. 13(1) (c) of the Act.

19 CIT(A) erroneously held that --- 7 to 7.2 7 to 7.2 4 & 4.1 payment made for purchase of property at 56 & 56A, Thirumalai Pillai though Shri.Sampath a trustee was not a violation falling under Section 13(1) (c) of the Act.

20 CIT(A) erroneously held that --- 7 to 7.2 5 to 5.2 10.2 Purchase of property by Preetha, daughter-in-law of Managing Trustee for 40 lakhs, though a loan application showed the value as 1.25 crore, and there were withdrawals by Prakash, Finance Manager from the trust as cash imprest tallying with the alleged onmoney, did not constitute a violation falling in Section 13(1) ( c) of the Act.

:- 23 -: ITA Nos2125 to 2128 & 2219 to 2222 /2017

Commissioner of Income Tax (Appeals) holding the notice issued

u/s.153A of the Act as valid and partial sustenance of the land

development cost.

Submissions made by the ld. Departmental Representative, 21.

in support of the Revenue appeals are summarized here under:-

(i) Though the Co-ordinate Bench of the Tribunal in its order for

earlier years had held the fees received by the assessee to be

not in the nature of capitation fees, for the impugned

assessment years there were number of others reasons also

for denying exemption claimed by the assessee u/s.11A of the

Act. These were not considered by ld. Commissioner of Income

Tax (Appeals).

(ii) Withdrawal of cash shown by the assessee as refund of

advance fees and tuition fees were nothing but siphoning of

funds, and such funds indirectly went to the benefit of specified

persons. This was taken cognizance by ld. Commissioner of

Income Tax (Appeals), but not given due importance.

(iii) Ld. Assessing Officer had recorded statements from large

ITA Nos2125 to 2128 :- 24 -: & 2219 to 2222 /2017

number of parents, denying receipt of any refunds, and these

were ignored by ld. Commissioner of Income Tax (Appeals)

(iv) Shri. Prakash, Finance Officer, of the assessee had withdrawn

large amounts in cash as imprest and claimed such amounts

to have been incurred for land development, which was

erroneously accepted by ld. Commissioner of Income Tax

(Appeals).

(v) Land development expenditure directly recorded in the books of

the assessee had perfect and correct vouchers, whereas such

expenditure incurred out of cash drawings made by Shri.

Prakash was not supported by any meaningful vouchers. This

difference was not appreciated by ld. Commissioner of Income

Tax (Appeals).

(vi) There were no land development expenditure incurred in cash

at Bangalore, but such expenditure was incurred at Vellore and

Chennai and this was highly improper.

(vii) All fees including the donations received by the assessee were

by Demand Drafts, whereas refund of advance fees was in

cash and such refunds were made only to students admitted

under management quota.

ITA Nos2125 to 2128 :- 25 -: & 2219 to 2222 /2017

(viii) Even after such refunds, concerned students were continuing

in the institution.

(ix) Money received from the students at the time of admission as

donation, through a single instrument was bifurcated by the

assessee in its accounts as corpus donations and advance fees

without any rhyme and reason.

(x) Refund of advance fees claimed by the assessee were made

within a short period of admission and this was highly

improbable.

(xi) Forms filled by the parents of students at the time of admission,

found during the course of search, clearly indicated the

amounts given by them were donations and there was no

indication as to any future refund due from the assessee.

(xii) Ld. Assessing Officer could establish a pattern in the cash

refund of fees to a large number of students, as indicated in

page No.40 of the assessment order, but this was ignored by

ld. Commissioner of Income Tax (Appeals).

(xiii) Assessee could not produce any of the parents from whom it

filed confirmation of receipt of refund through affidavits, even

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during the remand proceedings.

(xiv) Cash drawings made by Shri. Prakash indicating siphoning of

funds and bogus claim of refund of fees, all clearly proved

diversion of funds to specified persons and Section 13(1) (c) of

the Act stood attracted.

Viz-a-viz, alleged specific instances falling within Section 22.

13(1) (c) of the Act, arguments taken by the ld. Departmental

Representative are summarized here under:-

(i) As for the payment of advance to Smt. B. Ramani, one of the

trustees, there was no receipt of interest and Section 13(1) (c)

of the Act stood attracted.

(ii) For the acquisition of property of Smt. S. Preetha, daughter-

in-law of the Managing Trustee, on money was paid out of cash

drawings made by Shri. Prakash, Finance Officer from

assessee’s trust.

(iii) Though Shri. Arjunlal Sunderdoss to whom loans/advances

were given was not a related party, sons of the Managing

ITA Nos2125 to 2128 :- 27 -: & 2219 to 2222 /2017

Trustees had received loans from him.

(iv) Payments made to M/s.GIE for property at Chamiers Road,

was claimed to have been done based on a Memorandum of

Understanding between the assessee and its trustees but such

MOU, produced by the assessee before ld. Assessing Officer,

was never found during the search. Such documents were all

make believe in nature and manufactured for supporting the

contention of the assessee that payment of trust funds to GIE

was not for the benefit of the trustees.

(v) Ld. Commissioner of Income Tax (Appeals) went wrong in

observing that payment made by assessee to GIE having been

shown as an asset in the Balance sheet of the assessee, there

was no diversion of income.

(vi) What is required to be proved by the Revenue is that there was

diversion of funds or income of the assessee trust to the

specified persons and this stood demonstrated. Section 13(1)

(c) of the Act was therefore automatically triggered.

(vii) Payment to Shri. Sampath for acquiring property at No.56 and

56A, Thirumalai Pillai Road, Chennai never reached the logical

end of acquisition in assessee’s name and refund of the amount

ITA Nos2125 to 2128 :- 28 -: & 2219 to 2222 /2017

by Shri. Sampath, did not take the transaction out of in

purview of Section 13(1) ( c) of the Act.

(viii) Ld. Commissioner of Income Tax (Appeals) fell in error in

holding that specific payments made for benefiting the

trustees did not result in a violation of the nature specified

u/s.13(1) (c) of the Act.

In support of his arguments, ld. Departmental 23.

Representative placed reliance on the following judgments/decisions.

(i) Deputy Director of Income Tax (Exemptions) – I vs. India Cements Educational Society, (2016) 46 ITR (Trib) 80.

(ii) DIT (Exemption) vs Charanjiv Charitable Trust, (2014) 267 CIT 305 (Del)

(iii) Free Trade Union Multipurpose Project Trust vs. ITO, (2018) 95 Taxmann.Com 297

supporting the order of the ld. Commissioner of Income Tax (Appeals),

in so far as it concerned the reliefs given by him, submitted at the

outset that it was necessary for him to capture the history of the

assessee and the institutions run by it, for properly understanding the

issues before this Tribunal. According to him, assessee, commonly

known as Vellore Institute of Technology or VIT was started in 1984 by

Shri. G. Viswanathan, founder trustee who was the fifth son of a

ITA Nos2125 to 2128 :- 29 -: & 2219 to 2222 /2017

farmer in Vellore. From 1991, the said Shri. G. Viswanathan, according

to the ld. Authorised Representative dedicated his life for running this

institution. As per the ld. Authorised Representative, the trustees of

the assessee trust were Shri. G. Viswanathan and his Sons Shri. Sankar

Viswanathan, Shri. G.V. Sampath, Shri. Sekar Viswanathan, Shri. G.V.

Selvam Smt.Sandhya Pentareddy w/o. of Shri. V. Sankar and M.A.

Reddy father of Smt. Sandhya Pentareddy. According to him,

allegation made by the Department all through these assessment was

that Shri. G. Viswanathan and his sons were siphoning money of the

trust. According to him, this was unbelievable since donations were

received from students or the parents only through Demand Drafts.

According to him, if the intention of the trustees were to siphon off

the funds or generate funds by illicit means using the educational

institution as a tool, they could very well have collected the

donations in cash and not as demand drafts. Contention of the ld.

Authorised Representative was that assessee from the very start of its

operations had accepted only demand drafts from students and kept

the identity proof of each of the parent and student on record for

inspection by any authority.

Coming to the specific allegations raised by the Revenue, ld. 25.

Counsel submitted that the question whether donations received by

the assessee from students and parents constituted capitation fee and

ITA Nos2125 to 2128 :- 30 -: & 2219 to 2222 /2017

whether the surplus arising to the assessee disentitled it from claiming

exemption under Section 11 of the Act, stood decided in favour of the

assessee through Tribunal’s order in ITA 294 to 296/Mds/2014 in

assessee’s own case for assessment year 2002-03 to 2004-05.

Coming to the issue of land development expenditure, 26.

contention of ld. Authorised Representative, was that it had to be

considered in light of the circumstances under which it was incurred.

According to him, Vellore campus of the institution came to 300 acres,

Madras campus came to 100 acres and Bangalore campus came to 60

acres. As per the ld. Authorised Representative, all these land were

agricultural and under cultivation, when these were acquired for

constructing the colleges. Submission of the ld. Authorised

Representative was that assessee had to purchase Murambu or soil, fill

up the land and allow sufficient time for settling, before starting

construction. According to the ld. Authorised Representative all the

development works were carried out based on the instructions of a

reputed Architect. Area that could not be used for building structures,

even after filling and leveling the land were used, as per ld.

Authorised Representative, for play grounds, open air auditorium etc.

Contention of the ld. Authorised Representative was that it was

necessary to engage local people and local JCB owners in the

respective places for development of the land so as to enable smooth

ITA Nos2125 to 2128 :- 31 -: & 2219 to 2222 /2017

transitioning and cooperation. In so far as Bangalore premises were

concerned, as per the ld. Authorised Representative, the acquired land

was still under aggregation.

submitted that all the vouchers for land development expenditure

including vouchers for expenditure met out of cash imprest, drawn by

the Finance Officer Shri. Prakash were available when the Department

searched the premises on 06.06.2007. According to him, books of

accounts were also available at the premises. As per the ld.

Authorised Representative, the Department chose not to seize such

materials, despite its availability, considering the voluminous nature

thereof. This as per the ld. Authorised Representative was pointed out

by the assessee through a letter dated 06.01.2008, addressed to the

Member (Investigation) CBDT. Contention of the ld. Authorised

Representative was that land development expenditure were

disbelieved only for a reason that these were incurred in cash, ignoring

the legitimate nature of such expenditure and ground realities.

Vouchers were rejected citing flimsy reasons without understanding

the nature of payments effected. Relying on a judgment of Hon’ble

High Court of Kerala in the case of CIT vs. Damac Holdings (P) Ltd,

(2018) 401 ITR 495, ld. Authorised Representative submitted that type

of evidence submitted by the assessee was sufficient for proving land

ITA Nos2125 to 2128 :- 32 -: & 2219 to 2222 /2017

development expenditure. Reliance was also placed on a judgment of

Hon’ble Jurisdictional High Court in the case of CIT vs. VGP Housing

(P) Ltd, (2014) 368 ITR 565, for supporting his argument that land

development expenditure could be proved through indirect evidence.

In any case as per ld. Authorised Representative, there was nothing

on record with the lower authorities to show that any such amount

was diverted or used by the trustees for their benefit.

On the cash refunds made against advance receipts from 28.

students, ld. Authorised Representative submitted that assessee had

become a deemed university in 2001. According to him, seats in

VIT was sought after by students all over India and for the entrance

test for admission to 2100 seats available for the engineering stream,

more than one lakh students regularly applied. Out of this, as per ld.

Authorised Representative, about 10000 to 15000 students were

invited for counseling, based on the marks obtained in the examination

and such counseling was completed over a period of four days.

According to him, there was unimaginable rush of people during this

period and multiple forms were signed by the parents and kept for

future use. Further, according to him, large number of parents used to

send donations as demand draft, well before the admission process

was on, under a wrong impression that such pre-payments would help

them get admission easily. Since assessee was not interested in

ITA Nos2125 to 2128 :- 33 -: & 2219 to 2222 /2017

keeping any amount other than the normal donations, as per the ld.

Authorised Representative, such amounts were refunded. According to

him, these refunds were genuine. Contention of the ld. Authorised

Representative was that the Department had obtained statements

from parents of the students coercing them to say that no refunds

were received by them. These statements, as per the ld. Authorised

Representative were never put to the assessee any time. According to

the ld. Authorised Representative, at the time of the remand

proceedings, assessee had produced affidavits from substantial

number of parents affirming that they had indeed received such

amount in cash, but Department chose not to summon them for

examination. As per the ld. Authorised Representative, to require the

assessee to produce each of the parent who were located at disparate

places of India was a burden not commensurate with the requirement

to substantiate the refunds. Contention of the ld. Authorised

Representative was that affidavits affirming receipt of the refunds were

ignored for no reasons. That apart, according to him, there was

nothing on record to show that any trustee or any specified person had

benefitted out of such money.

Coming to the aspect of tuition fees, contention of the ld. 29.

Authorised Representative was that at the time of counseling every

aspirant had to pay a sum of �10,000/- as initial fees. According to

ITA Nos2125 to 2128 :- 34 -: & 2219 to 2222 /2017

him, it was necessary for the assessee to refund such fees to the

candidates who were ultimately not selected. As per the ld. Authorised

Representative, intention of the assessee was to keep the students

and parents happy on their visit to its premises and never keep them

waiting for refund. This as per ld. Authorised Representative was the

main reason for refunds being made in cash. According to him,

Revenue was unable to show any money to have reached any

trustees or any specified person and Section 13(1) (c) of the Act had

no applicability. Relying on a judgment of Hon’ble Allahabad High

Court in the case of CIT vs. Kamla Town Trust, 279 ITR 89, ld.

Authorised Representative submitted that unless Department could

show the alleged siphoning of funds had reached trustees or

specified persons, Section 13(1) (c) of the Act could not be applied.

Reliance was also placed on the judgment of Hon’ble Delhi High Court

in the case of Council for the Indian School Certificate Examinations vs.

Director General of Income Tax, (2014) 364 ITR 508 and that of

Hon’ble Gujarat High Court in the case of Surat City Gymkhana vs.

DCIT, (2002) 254 ITR 733.

the ambit of Section 13(1) (c) of the Act, ld. Authorised Representative

submitted that the first one related to acquisition of a property by the

assessee from Smt. B. Ramani, daughter-in-law of Managing Trustee.

ITA Nos2125 to 2128 :- 35 -: & 2219 to 2222 /2017

According to him, paper book page Nos.140 to 142 was the copy of

the agreement. As per the ld. Authorised Representative, the value for

which this property the measuring 22.34 acres of land at

Brahmapuram, Katpadi was acquired was �33,51,000/-. This, alone

was paid by the assessee and shown in its books. As per the ld.

Authorised Representative, the transaction was done at the guideline

value, and hence Department could not say that any benefit was

derived by Smt. B. Ramani from it. What was received by her, as per

ld. Authorised Representative, was the value of the property and

receipt of a fair price cannot be termed as a benefit.

Smt. B. Ramani for acquiring 6.23 acres of land at Kangaeyanallur, ld.

Authorised Representative submitted that both the sale agreement

dated 04.06.2004 as well as cancellation agreement dated 20.9.2004

were found during the search. Assessee, as per the ld. Authorised

Representative, had every intention of acquiring the said land but

since the purchase could not go through, the agreements were

cancelled. As per the ld. Authorised Representative, the amounts were

refunded by Smt. B. Ramani. Thus, according to him, there was no

benefit arising to Smt. B. Ramani.

ITA Nos2125 to 2128 :- 36 -: & 2219 to 2222 /2017

Authorised Representative submitted that the said party was not

associated with the trustees nor a specified person. According to

him, sons of the Managing Trustee had not received any amount, from

the said Shri. Arjunlal Sunderdoss and what the Revenue had raised

was only an allegation without evidence. As per the ld. Authorised

Representative, assessee had filed financial statement for each of the

two sons namely Shri. V. Sampath and Shri. V. Sankar and these

reflected no loan from Shri. Arjunlal Sunderdoss. Thus, according to

him, conclusion drawn by the Assessing Officer that there were some

benefits accruing to the trustees or specified person was not correct.

Coming to the purchase of property at No.85, Second East 33.

Main Road, Gandhi Nagar, Katpadi, Vellore by Smt. S. Preetha wife of

one of the trustees, ld. Authorised Representative submitted that this

was a personal purchase done by Smt. S. Preetha, out of her own

funds and it had nothing to do with the assessee trust. As per the ld.

Authorised Representative, Shri. Prakash, Finance Officer of the

assessee trust had never stated anywhere that any amount was given

by him to Smt. S.Preetha for purchasing this property. Just because

Smt. S. Preetha had filed a loan application with a Bank, wherein the

value of the property was shown as �1,25,00,000/- would not, as per

ITA Nos2125 to 2128 :- 37 -: & 2219 to 2222 /2017

the ld. Authorised Representative show any diversion of funds from the

assessee .

Authorised Representative submitted that assessee intended to acquire

this land measuring 10 ½ grounds for running MBA course. Placing

reliance on paper book page 238 which was a resolution passed by

Board of the Trustees, ld. Authorised Representative submitted that

trust had authorized Shri. G. Viswanathan, Shri. Sankar Viswanathan,

Shri. G.V. Sampath, Shri. Sekar Viswanathan and Shri. G.V. Selvam, all

of whom were trustees, to negotiate on behalf of the assessee trust for

acquiring the said property. As per ld. Authorised Representative, agreement with the vendors entered on 3rd January, 2007 clearly

showed that advance of �10,00,00,000/-, out of the agreed

consideration of �34,77,50,000/-, was paid through pay orders issued

from M/s. Indian Bank account of the assessee trust. According to him,

all payments had directly gone from the assessee’s bank account to

the vendors. Relying on a Memorandum of Understanding entered between assessee and its trustees on 26th December, 2006, ld.

Authorised Representative submitted that property was to be acquired

by the trustees for the assessee and the mechanism of acquisition

through trustees, was adopted to avoid elevated prices, if the vendors

identified the assessee as the buyer. As per the ld. Authorised

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Representative, on recognizing that the property had an inchoate

title, assessee had deemed it fit not to acquire it. Reliance was placed

on the legal opinion of Advocate Shri. S. Giritharan placed at paper

book pages 247 to 250. According to him, so as to avoid the loss that

would have arisen, had the assessee resorted to a cancellation of the

agreement for purchase, the property was acquired by the trustees in

their personal name. Further, according to him, money given by the

assessee for purchase was shown as asset in its Balance Sheet as

advance for Chamiers Road property. In any case, as per ld.

Authorised Representative, assessee had filed documents relating to

M/s.GIE, which was the partnership firm which ultimately acquired

property and in which the trustees were partners, proving that they

had suffered a loss out of the said transaction and never benefited

from it.

Adverting to the property at No.56 & 56A, Thirumalai Pillai 35.

Road, Chennai for which a sum of �1,00,00,000/- was paid by the

assessee to one of its trustees Shri. V. Sampath, ld. Authorised

Representative submitted that the said V. Sampath had on

16.02.2007, when the money was advanced to him, nominated

assessee as the eventual buyer. Reliance was placed on an agreement

for nomination placed at paper book pages 266 to 271. However,

according to him, the acquisition could not come through, due to zone

ITA Nos2125 to 2128 :- 39 -: & 2219 to 2222 /2017

conversion problem. As per the ld. Authorised Representative,

intention of the assessee was to start its MBA course in this property,

since Chamiers Road property was not available. According to him

Shri. V. Sampath had refunded the money on 13.08.2007 by cheque.

As per ld. Authorised Representative, there was no benefit acquiring to

Shri. V. Sampath on account of this.

As for the direction of the ld. Commissioner of Income Tax 36.

(Appeals) to treat loss on sale of assets, donations paid and interest

payments as application of income, ld. Authorised Representative

submitted that this was right course to be followed under law.

Similarly according to him, surplus of �2,13,186/- arising out of sale of

property at Bangalore during the previous year relevant to assessment

year 2005-06 and �9,41,89,923/- arising out of a flat at Chennai

during previous year relevant to assessment year 2008-09 were also

rightly considered as income eligible for exemption u/s.11 of the Act.

Commissioner of Income Tax (Appeals), after finding that the land

development expenditure claimed was reasonable, fell in error in

upholding a disallowance to the extent of 10%. In any case, according

to him, maximum marginal rate of tax, if applied could only be on such

amount which came within purview of violation of Section 13(1) ( c) of

ITA Nos2125 to 2128 :- 40 -: & 2219 to 2222 /2017

the Act and there cannot be a blanket denial of exemption under

Section 11 of the Act.

that benefit was derived by the trustees of the assessee, or their close

relatives through the various land transactions. According to him,

benefit did not mean that there should be a pecuniary surplus. As per

the ld. Departmental Representative, on the question of the legitimacy

of the claim for land development expenditure, answers given by Shri.

Prakash, Finance Officer in the statements recorded from him on

16.11.2007 and 29.11.2007, were very relevant. According to him, Shri

Prakash had clearly admitted that he was not aware about the persons

to whom he had paid the money, though he admitted such

disbursements to have been made by him personally to various lorry

owners and other parties. According to ld. Departmental

Representative , answers to various questions given by Shri. Prakash

clearly indicated that he was not aware of soil filling expenditure being

incurred with regard to land development. Further, according to him,

the claim of the Department was that land development expenditure

claimed was entirely bogus and therefore the question of limiting the

disallowance to such amounts did not arise. According to him,

assessee clearly lost the benefit of Section 11 of the Act. Submission

of the ld. Departmental Representative was that even a small benefit

ITA Nos2125 to 2128 :- 41 -: & 2219 to 2222 /2017

derived by the trustees was enough to deprive the trust the

exemption claimed u/s.11 of the Act. For this proposition he relied on

the judgment of Hon’ble Kerala High Court in the case of Agappa Child

Centre vs. CIT, (1997) 226 ITR 211, that of Andhra Pradesh High

Court in the case of Action for Welfare and Awakening in Rural

Environment (AWARE) vs. DICT (2003) 263 ITR 13 and that of Hon’ble

Supreme Court in the case of Director of Income Tax vs. Bharat

Diamond Bourse (2003) 259 ITR 280. Reliance was also placed on a

judgment of Hon’ble Delhi High Court in the case of DIT vs.vs.

Charanjiv Charitable Trust (2014) 267 CTR 305

the orders of the authorities below. There are nine crucial issues

coming out of the grounds raised by the Revenue, apart from certain

minor questions regarding loss/ surplus on sale of certain assets,

interest charges and change of method of accounting. These crucial

issues can be summarized as under:-

(i) Whether donations received by the assessee from the students/

parents were capitation fee and if so, did the resultant

surplus every year render the assessee ineligible for claiming

exemption u/s.11 and 12 of the Act.

ITA Nos2125 to 2128 :- 42 -: & 2219 to 2222 /2017

(ii) Whether the land development expenditure incurred in cash at

Chennai and Vellore centers of the assessee can be considered

as not properly vouched and if so, can it be construed as funds

diverted for the use of trustees or specified persons,

indirectly benefiting them, thereby attracting Section 13(1) ( c)

of the Act.

(iii) Are refund of advance fees / tuition fees to students/parents

properly evidenced, if not, could it be construed as funds

diverted for the benefit of trustees/ specified persons, thereby

attracting Section 13(1) ( c) of the Act.

(iv) Whether acquisition of 22.34 acres of land at Brahmapuram,

Katpadi from Smt. B. Ramani for �33,51,000/-, for which

agreed consideration was Rs.1,00,00,000/-, gave rise to a

presumption that the difference amount was coming out of

trust funds, resulting in a benefit to Smt. B. Ramani who fell

within the meaning of ‘’specified person’’, thereby attracting

Section 13(1) ( c) of the Act.

(v) Whether advance payment of Rs. 22,34,000/- to Smt. B.

Ramani for acquiring 6.23 acres of land at Kangaeyanallur,

though later cancelled and refunded, resulted in a benefit to

Smt. B. Ramani attracting Section 13(1) ( c) of the Act.

ITA Nos2125 to 2128 :- 43 -: & 2219 to 2222 /2017

(vi) Whether advance of Rs.1,00,00,000/- paid to Shri. Arjunlal

Sunderdoss during previous year relevant to assessment year

2006-07 and Rs.50,00,000/- during previous year relevant to

assessment year 2007-08, were diversion of income/property of

the trust attracting Section 13(1) ( c) of the Act.

(vii) Whether acquisition of property at No.85, Second East Main

Road, Gandhi Nagar, Katpadi, Vellore by Smt. S. Preetha,

daughter-in-law of Managing Trustee, for a sum of

Rs.40,00,000/-, in which there was an application for loan

showing its value as �1,25,00,000/-, indicate that trust had

advanced the difference amount through Shri. Prakash, Finance

Officer, for facilitating such purchase, attracting Section 13(1)

( c) of the Act.

(viii) Whether payment of Rs.34,77,50,000/- for acquiring property

at Chamiers Road, Chennai, which was finally acquired by a

firm called M/s.GIE, in which the partners were the trustees,

result in a benefit coming within the purview of Section 13(1)

( c) of the Act.

(ix) Whether the sum of Rs.1,00,00,000/- paid to Shri. Sampath for

acquiring a property at 56 & 56A. Thirumalai Pillai Road,

Chennai, which was later returned by Shri. Sampath when the

ITA Nos2125 to 2128 :- 44 -: & 2219 to 2222 /2017

acquisition did not go through, result in a benefit to Shri.

Sampath coming within the purview of Section 13(1) ( c) of

the Act.

whether the donations received by the assessee from the students/

parents were capitation fee and if so, whether such receipts, resulting

in annual surplus, made the assessee ineligible for claiming exemption

u/s.11 and 12 of the Act. We find that this question already stands

answered in favour of this assessee by this Tribunal through an order

in assessee’s own case for assessment years 2002-03 to 2004-05 in

ITA Nos.294 to 296/Mds/2014. Relevant portions of the Tribunal order

are reproduced hereunder:-

‘’13. We have considered the rival submissions and have carefully considered the material available on record, including the paper books filed by the assessee trust. On perusing the aforesaid documents at length, we find substantial force in the submissions by the assessee. Apparently, the main source of income for the institution is fees received from students and donations collected. The fee receipts would depend upon the number of students admitted and the fees charged. The documents referred to above clearly establish that both the number of students and the fees chargeable from them are regulated and controlled by AICTE / DOTE through the University of Madras. Hence, the assessee could not have engaged in 'profiteering' as alleged by the Revenue by increasing the students strength nor could it have charged a higher fee. We find from page 36 of statement of facts that the Government Notification prescribing fees for unaided self financing engineering colleges prescribes 3 different scales of fees with the nomenclatures of (a) Free seat category (b) Payment seat category (c) Non resident

ITA Nos2125 to 2128 :- 45 -: & 2219 to 2222 /2017

Indian students We find that there is a significant difference in the scale of fees for each category of students. Obviously, this is because the Government, in its wisdom, recognizes that unaided self financing educational institutions cannot be run by charging the lower fees charged by aided financial institutions. Therefore, the Government has permitted them to charge higher fees for the different categories. We find from the admission regulations and other documents submitted that 5% of the seats sanctioned by the University of Madras can be given to NRI students who are required to pay the highest scale of fees of ' 39200/- + 1000 Dollars. Out of the remaining seats 50% is under the "Free seats category" for which the fee prescribed is only Rs 12800/-, the remaining 50% falls under "Payment seat category" which attracted a much higher fee of Rs. 47200/-. The reason for narrating the above facts is to appreciate the bigger picture in the field of education in our country. Tredltionellv education and health were considered the exclusive obligations of the State and was expected to be provided free of cost; subsidized rates or, at cost, to the different segments of the society, depending on their need for support from the State. However, over a period of difficult financial times, and population explosion, when the State was unable to find the necessary resources to discharge its traditional or constitutional obligations, the State found new ways of catering to its citizens in the fields of education and health. One of the ways is what is popularly called as "Public private partnership" in which the State's function is outsourced to the private sector. While doing this, the Government had to take into account the fact that, while its ability to raise resources by tax and borrowings was unlimited, at least in theory, the resources of the private sector were limited. The State had faced one more difference between the motivation for investments by the State and the Private Sector; ie. - while the State can look at the aforesaid services ss a mere "Cost Centre" the "Private Sector" neither can, nor be expected, to look at these functions as a cost centre. Hence, the Government devised ways by which the revenues of such private sector unaided educational institutions could be augmented so as to provide adequate revenues to recoup the investment, provide reasonable return on investment and to provide adequate surpluses to facilitate expansion and modernization. The three tier fee structure prescribed by the Government for different categories of students is a means to achieve the above objective. 14. The reason for presenting and analyzing the macro view on the subject is to appreciate the point that the Government, in its wisdom, has . consciously permitted charging higher fees from some students in the case of unaided colleges to achieve its aforesaid objectives. This policy is nothing but a "Cross subsidy" by the affluent students to the needy students, as the State, which was traditionally /constitutionally bound to

ITA Nos2125 to 2128 :- 46 -: & 2219 to 2222 /2017

provide these services, could not do so. Hence, the charging of higher fees from a certain percentage of students will not be detrimental to the "Charitable" nature of the institutions as this charging of higher fees from the affluent students is done only to subsidise the cost of education of the needy students especially when this scheme of "Public private partnership" is an instrument of State policy. We find support for our above view from CIT vs Pulikkal Medical Foundation Private Limited, 210 ITR 299 (Ker) and Breach Candy Hospital Trust vs Chief CIT 322 ITR 246 (Bom). A careful appreciation of the aforesaid macro view can only lead to the irresistible conclusion that charging of higher fees from affluent students or raising funds for the laudable object of education, which is traditionally a State function, through donations, by an unaided self tinencinq educational institutions cannot deter the "charitable" nature of the activity and in any view make such activity "Commercial" in nature. 15. There is one more angle from which the present case can be approached. Although, charitable institutions earn surplus, if the promoters or the trustees or members of such a charitable institutions are precluded from and did not in fact participate or gain distribution of the surplus and the entire surplus is only applied or accumulated for charitable purposes, then occurrence of the surplus will not in any way militate against the claim of "Charitable" nature of the institutions or make it a commercial venture - CIT vs Pulikkal Medical Foundation Private Limited 210 ITR 301 (Ker). 16. We find from clauses 19 and 20 of the trust deed placed at pages No.6 to 17 of the statement of facts that, . there is an absolute embargo on any benefits or remuneration to the trustees or their relatives. It is not a/so the case of the Revenue that any such benefits have been conferred by the assessee during the year. Hence, for this reason too, the occurrence or recurrence of surplus of the assessee through its educational activity will not affect its eligibility for being considered as a charitable trust entitled to exemption u/s 11. Similarly, the assessee's submission that it could not have obtained donations through coercion as alleged by the Revenue also deserves to be accepted, as we find from the admission regulations of AICTE that there were only two defined areas of discretion in the matter of admission viz. 5% of the sanctioned seats for NRls and filling up of 'lapsed seats'. We find from the breakup of admissions given that, out of the 5%, only 3% of seats were allotted to NRIs and further that out of the total corpus fund donation of '1,26,50,000/- there was no donation received from outside India. Hence, the discretion available in this regard could not have led to collection of the aforesaid donations. The letter along with list of students admitted with the date of admission of students reveal that the last student admitted was on 25.10.2000 as per the direction of the University of Madras, copy of which has also been filed. As there was no 'lapsed

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seat' which could be filled at the discretion of the assessee no donations could have been collected in this area also. Finally, we find from the aforesaid documents that while the seats sanctioned by the University of Madras was 535, only 500 students were actually admitted leaving 35 of the sanctioned seats vacant. When the assessee Us unable to get students to fill up even the sanctioned strength, we fail to understand as to how it would be in a position to demand and get donations at the time of admission.' 17. For the reasons aforesaid, we have no reservations in holding that the assessee had very little discretion in the matter of admission or charging of' fees during the year and therefore, have no hesitation in holding that the corpus donations received cannot be treated as capitation fees and that the surplus earned by the assessee cannot be on account of "profiteering" warranting the assessment of assessee's surplus as 'income from business' and therefore, we dismiss Ground Nos. 1.d and Le raised by the Revenue. " By earning surplus, it cannot be said that the assessee is carrying on business activity. "23. Not being content with defending the order of the Id. CIT(A) restoring the exemption u/s 11 and assailing the Revenue's grounds of appeal, the Id.AR advanced erudite arguments on law to justify the grant of exemption u/s 11 which are dealt with hereunder: I. Exemption not anathema to "Surplus" arising out of charitable activity - if "surplus" is applied for "charitable" purposes. a. That the Revenue is importing the language of sec. 10(22) (deleted on 1.4.1999) that the educational institution should "exist solely for education purposes and not for purposes of profit" into sec.11 which has no such conditions and therefore, the generation of 'surplus' within the frame work of regulations of the competent authorities cannot be construed as a 'business' activity or 'profiteering' so as to deny exemption u/s 11. b. When the CIT, highest functionary of the Revenue had himself examined the very same aspect on 18.9.1998 (copy of this letter is filed in page 35 of Volume I of Paper book) and concluded in favour of the assessee, no new facts or circumstances have been brought q!h record for the year relating to 2001-02 a/y to change the Commissioner of Income Tax's view in 1998.

c. Eleemosynary and altruism are irrelevant for claiming exemption u/s 11 - relying on the commentary in the law and practice of income tax in Kanga and Palkhiwala and the cases cited therein (page 392). d. CBDT Circular F.No.194116-17-IT{AI) reproduced in 212

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ITR 462 (KER) - "The question for consideration is whether an educational institution existing solely for educational purpose but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational institution will be subject to tax. However, there may be cases where the educational institutions may be owned by the trusts of societies to whom the provisions of section 11 may be applicable. Where all the objects of these trusts are educational, and the surplus, if any, from running the educational institution is used for educational purposes only, it can be held that the institution is existing for educational purposes and not for purposes of profit. " 24. The aforesaid propositions were again buttressed by the Id.AR by a line of cases as under: Aditanar Educational Institution vs. ACIT - 224 ITR 310 (SC) " .. .running, managing or assisting schools and colleges - is an educational institution entitled to exemption available each year on surplus over expenditure, if the institution existed solely for educational purposes - overall view to be taken - Income Tax Act. .. " " ... availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. After meeting the expenditure, jf any surplus results incidentally ... " " ... it will not cease to be one existing solely for educational purposes, since the object is not one to make profit. The decisive or acid test is whether, on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction difference between the corpus, the objects and the powers of the concerned ... " " ... 10(22) should be evaluated or investigated every year and only if it was found that the 'institution' existed for educational purposes in the relevant year and even if any profit resulted which was only incidental to the purpose of education, the income would be ... ". American Hotel & Lodging Association Educational Institutes vs. CBDT - 301 ITR 86 (SC) " ... The mere existence of profit I surplus did not disqualify the institution ... ". ACIT vs. Surat Art Silk Cloth Manufacturers Association - 121 ITR 1 (SC) - 5 member bench " ... Not involving any activity for profit -meaning and scope ... " " ... So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be - it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not ... " CIT vs. Indian Institute of Computer Technology - 244 ITR 371 (KER) Birla Vidya Vihar Trust vs. CIT - 136 ITR 445 (CAL) " ... Educational Institution condition precedent - must exist solely for educational purposes and not for purposes of profit - position to be determined with

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reference to cumulative effect of all relevant facts ... " " ... Neither the fortuitous factor of having a large surplus in any particular year nor the solitary fact of diverting some of the income to objects charitable but not educational would .be decisive of the matter ... " ••• a solitary instance of application of income from the schools for non-educational purposes in a prior year was not very material. The fact that the assessee trust had objects other than educational objects was also not material ... n Pinegrove International Charitable Trust vs. Union of India and Others - 327 ITR 73 (P&H) " ... Merely because profits have resulted from the activity of imparting education that would not change the character of the institution existing solely for educational purpose ... " " ... Merely because there are surpluses in the hands of the educational institution that would not ipso facto lead to an inevitable conclusion that such an educational institution exists for making profits and not solely for educational purposes ... n " ••• Accordingly, it had to be ascertained whether the educational institution had been applying its profit wholly and exclusively to the object for which the institution was established. Merely because an institution had earned profit that would not be the deciding factor to conclude that the educational institution existed for profit ... " Vanita Vishram Trust vs. Chief Commissioner of Income - Tax and Another - 327 ITR 121 (BOM) " ... the fact that a surplus may incidentally arise from the activities of the trust, after meeting the expenditure incurred for conducting educational activities would not disentitle the trust of the benefit of the provisions of section 10(23C) ... " Maa Saraswari Educational Trust vs. UOI (HP) - " ... Therefore, it is not as if the educational institution cannot generate any surplus. Generating surplus and accumulation of income will not disqualify an institution for the benefits of section 10(23). Surplus is to be understood in contradistinction to generation of income with the sole motive of profit if one has to properly understand the legislative intent of section 10(23C)(vi) ... "... Though charity is a laudable object, that consideration is irrelevant under the said provision. What is relevant is purpose and administration of the institution only for education and nothing more or nothing less or anything else ... " Breach Candy Hospital Trust vs. Chief Commissioner (BOM) - 322 ITR 246 (BOM) 25.

On a thorough reading of the judgments relied on, extracts from which are given above, we find that they apply in greater force to the assessee, whose claim for exemption is u/s 11, although most of the judgments have been rendered under sec. 10(22). We notice that, while sec 10(22) had an express condition that the institution should exist "not for purposes of profit" sec.11 does not impose any such condition. If the incidence of profit is not an impediment for allowing exemption u/s 10(22), as

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decided by the above line of cases and CBDT Circular, we fail to see the Revenue's claim that the surplus would militate the assessee's claim for exemption u/s 11 . We therefore, hold that the incidence of surplus during the course of activity of running the educational institution would not be a ground to state that the assessee is carrying on a business activity so as to forfeit exemption u/s 11. ". .... Therefore, for the relevant assessment years 2002-03, 2003-04 and 2004-05 where the assessments are based on the same search materials, in the same search proceedings and based on the same facts, we are bound to follow the decision of the coordinate Bench of the Tribunal mentioned supra." The Honourable ITAT had given the following decision for 2002-03 to 2004- 05 a/s on the issue of considering Donations received as Capitation fess and assessing the income as 'profits and gains of business and thereby denying exemption u/s 11, after considering all the factual materials found during the search and statements recorded, which were relied on in the Assessment order, in the following words: "16. Further, we find in the paper book filed by the learned Departmental Representative containing 1 to 270 pages that:- a) In page no.124 sworn statements of the parents / otttciels of the trust are enclosed and they were taken into consideration while deciding the issue by the Tribunal for the assessment year 2001-02. Moreover the Revenue itself has admitted that most of the parents have retracted their statements. The grievance of the Revenue is that the assessee has not produced those parents before them but the fact remains that the Revenue has failed to invoke their powers to summon them to find out the truth. Page no.85 to 89 refers to seized materials showing payment of Rs.8,00,000/- for granting admission on agreed basis. From these letters it cannot be conclusively said that they are capitation fees or forced payments for admissions, though an air of suspicion may arise. Page no.90 refers to list of donations paid as cash by parents. Donations "are not prohibited to be collected by the charitable institutions. In fact, sustenance of the institutions depends on the donations received as charity. Page no.91 to 98 refers about the name of candidates and the name of the persons who have referred the candidates. In the remarks column, it is mentioned "To Pay, NRI quota, Nil etc. This also does not conclusively prove that the assessee is receiving donation by force or capitation fee.

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Page No.99 tol01 contains details of admission such as merit candidates, NRI candidates, management quota admissions etc., this also does not suggest any violation of law. Page 102 to 109 contains Xerox copy of the management admission register of post-graduation courses. In one column we find reference of figures such as 1.5, 0.5, 6, 4 etc., which may suqqest that 1,50,000/-1,00,000/- etc., are amount receivables but that is also not a conclusive proof for receipt of capitation fee. Similar Xerox copy of registers pertaining to management admission for PG courses are found in the pages, 110 to 139, 140 to 169 of the paper book from which no conclusive adverse inference can be made out. Page no.170 to 175 also refers to payment such as Rs.8,00,000/- 2,00,000/- 1,00,000/- and 4,00,000/-, however no conclusive inference can be made that they are capitation fees. Page No.176 to 193 contain sheets wherein the remark column it is mentioned as "To Pay 2" To Pay 3 "To Pay 4" Nil Payment etc., however no conclusive inference can. be made that they are capitation fees. Page 194 to 199 contains letters for refund of donations but there is nothing to suggest that they are forced payments though an air of suspicion may arise.

Page No.200 to 238 also contains certain requests for refunds from candidates and letters from companies such as Sundaram Finance, Brakes India Ltd., etc.,requesting for their candidates to be accommodated on sponsorships. We do not find this practice to be in violation of any law. In Page NO.239 & 240 there are reference about some payments, admissions etc., but they cannot be conclusively said that it is capitation fee though it may raise an air of suspicion.

Page NO.241 shows course-wise summary of donation which cannot be concluded that they are capitation fees. Page no.242 to 244 shows that the institution has collected some special fee and made certain refund. No specific inference of violations can be made out from these official notes. Page Nos.245 to 255 contains Xerox copy of letters from

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parents regarding payment made for tuition fee, hostel fee, advance and donations. Again these do not suggest that the assessee is receiving capitation fees. The above paper book filed by the Revenue has also been taken into consideration by the Tribunal while deciding the appeal for the assessment year 2001-02. Further, on perusing the above mentioned paper book filed by the learned Departmental Representative, we are of the considered view that based on surmises and conjectures, it cannot be presumed that the donations received by the assessee are capitation fees or forced extortion of money from the students for granting admission. Therefore, even though the learned Departmental Representative has cited certain search materials belonging to relevant assessment years in para no.13 hereinabove to establish that the assessee was collecting capitation fee, we do not find any merit in the same. Further, we find the decision of the Hon'ble jurisdictional High Court and the Hon'ble Apex Court cited by the learned assessee's Representative to be very much relevant and they are reproduced herein below for reference. i) In CIT Vs. Balaji Educational & Charitable Public Trust (Mad) reported in 374 ITR 274, the Hon'ble Madras High Court held as follows:- "Held, dismissing the appeal, (i) that the Commissioner (Appeals) and the Tribunal had come to the conclusion that the donations received did not partake of the character of capitation fee. There was no element of involuntary nature in the donations. A specific finding was given that no investigation had been done to show that any parent or student had complained about the nature of the donation. The Department had failed to dispel the finding of fact. For the assessment years 2002- 03 and 2003-04 as the Chief Commissioner having jurisdiction over the case had notified under section 10(23C)(vi) there was no applicability of section 11 or section J3 in those two years. The Department had not produced any evidence of breach of section 10(23C)(vi) of the Act and, therefore, the assessee-trust would be entitled to the benefit of exemption contained therein. The Department had proceeded on a wrong premise without any basic materials t o establish a case of violation of section

13 of the Act. Therefore, the Tribunal was right in deleting the addition of capitation Fees.

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(ii) That the Assessing Officer had accepted the disclosure of the seized cash as the income of the individual and, therefore it could not be said that assessee-trust had violated the provisions of section 13(l)(d)." ii) In Queen's Educational Society Vs. CIT reported in 372 ITR 699(SC) the Hon'ble Supreme Court held as follows:- "The law common to sub-clauses (iiiad) and (vi) of section 10(23C) of the Income-tax Act, 1961, may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied-the purpose of education should not be submerged by a profit-making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year in question the object is to make profit as opposed to educating persons. These tests would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit.ADDL. CIT v. SURA T ART SILK CLOTH 121 ITR 1 MANUFACTURERS ASSOCIATION [1980] (SC),ADITANAR EDUCATIONAL INSTITUTION v. ADDL. CIT [1997] 224 ITR 310 (SC) and AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE v. CBDT [2008] 301 ITR 86 (SC) applied. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit. S. RM. M. CT. M. TIRUPPANI TRUST v. CIT [1998] 230 ITR 636 (SC) relied on The tests laid down in SURA T ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC), ADITANAR EDUCATIONAL INSTITUTION [1997] 224 ITR 310 (SC) and AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE [2008] 301 ITR 86 (SC) would apply to determine whether an educational institution exists solely for educational purposes and not for

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purposes of profit. The thirteenth proviso to section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn." 19. Based on our above discussions, the facts of the case and the decisions cited by the learned Assessee's Representative, we hereby hold that the same decision of the earlier Order of the Tribunal in ITANo.1332/Mds/2010 and C.O.No.94/Mds/2010 for the assessment year 2001-2 will prevail for the assessment years 2002-03, 2003-04 and 2004-05 also, which is as follows:- "Corpus donations" received by the assessee cannot be treated as "capitation fees" and the surplus earned cannot be treated as "income from business". The employees of the assessee could not have knowledge on the assessee's affairs. By earning surplus, it cannot be said that the assessee is carrying on business activity. The assessee is entitled to the benefit of section 11 (4A) of the Act. Corpus donation received cannot be treated as capitation fee and therefore assessee cannot be denied benefit under section 11.

Accordingly, we hereby direct the learned Assessing Officer to grant the benefit of section 11 to the assessee and delete the addition made by denying such benefits for all the relevant assessment years 2002-03, 2003-04 & 2004-05. Thus, the ground nos. 2 & 4 is decided in favour of the assessee.".

We also find that the question was answered by the Tribunal, in

favour of the assessee, for assessment years 2002-03 to 2004-05,

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based on records, found during the search held on 06.06.2007 and the

statements of various parties, which were the same documents relied

on by the ld. Assessing Officer for impugned assessment years also.

Judicial discipline requires us to follow the orders of the Co-ordinate

Benches unless there are very strong reasons to express a dissent. No

such strong reasons were brought to our attention by the ld.

Departmental Representative. We therefore hold that donations

received by the assessee could not be considered as capitation fee and

generation of surplus did not render it ineligible for claiming exemption

u/s.11 and 12 of the Act.

Next question is whether the land development expenditure 41.

incurred in cash at Chennai and Vellore centers of the assessee can be

considered as not properly vouched and if so, whether it can be

construed as funds diverted for use of trustees or specified persons

indirectly benefiting them, thereby attracting Section 11(1) ( c) of the

Act. The findings of the ld. Commissioner of Income Tax

(Appeals) on the land development expenditure as appearing at para

13.1.2 of his order is reproduced hereunder:-

13.1.2 I have gone through the elaborate discussions by the Assessing Officer to arrive at his conclusions extracted above and also the explanations and

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submissions of the appellant extracted above. While the Aa himself admits and accepts that in respect of certain expenditure, vouchers relating to cash payments were properly maintained and filed. In respect of certain expenditure, for example, payment to JCB operators like M/s. Radhamani Transports, GVR Transports, SS BM Transports, KVM Transports and Mani Transports, the vouchers do not contain the address of the persons to whom such charges were paid. On going through the assessment order and the submissions of the Appellant, I am of the considered view that the action of the AO in this regard cannot be entirely upheld as correct for the following reasons:

i. The AO has not rejected the books of accounts or the results there from, which were the subject matter of an audit and report u/s 12A(b) of the Act. The AR was at pains to point out that the income returned as per the books of account has been accepted and adopted in the assessment making adjustments only on legal issues. No addition whatsoever has been made for any concealed income or disallowance of any false claim of expenditure in the assessment order.

ii. The AO has not totally brushed aside the documentary evidences produced by the appellant in regard to the claim of land development expenditure. Although he has expressed reservations on the genuineness of the cash expenditure, he has also stated elsewhere in the assessment order that vouchers in respect of certain items of expenditure such as wages paid to coolies, JCB operations etc., were properly maintained. His main contention is that the total expenditure claimed under this head is disproportionate compared to the corresponding extent of land value.

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iii. The only basis to come to this conclusion is the fact that the expenditures have been incurred in cash, with the AO's reservations on the vouchers supporting the cash expenditure. It is noted that the AO has not alleged that the Land development expenditure is NOT supported by any vouchers at all - he was only unconvinced about the genuineness of the vouchers produced. Even accepting that the expenditure claimed under this head is excessive as held by the AO, it is unreasonable on his part to disallow the expenditure in entirety which means there was no land development work at all undertaken by the appellant. The appellant's submissions in paras 1.3 to 1.6 extracted above definitely have to be accepted that agricultural lands do in fact need substantial development expenditure to enable construction of multistorey concrete structures. The Ar produced copies of all land purchase documents to prove that all the lands bought by the Appellant were in fact only agricultural lands and were described as such in the sale deeds with S.No., Kisth etc.

iv. As for the reasons for incurring the said expenditure in cash, it is an accepted principle that judicial notice needs to be taken of the realities of life pointed out in para 1.7 of Appellant's submissions and cannot be ignored in its entirety.

v. The Appellant's submissions in paras 1.8 to 1.10 extracted above are also acceptable as the Appellant had carried out the Land development in a prudent and rational way by obtaining estimates therefor from. a firm of reputed Architects in Chennai (copies of which, alongwith the relevant site plans for the areas to be developed were filed and examined) and then controlling its costs incurred in cash with the above estimate from a reputed professional.

vi. It requires special mention that while the Appellant had carried out the Land development work at Vellore

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& Madras on its own by employing labour directly to control the costs, the Land development work at Bangalore was given on contract, because of the distance, language problem and absence of reliable resources to deploy and manage from the distance. Special emphasis is also to be made to the fact that all payments to the contractors at Bangalore for all 3 years and some given on contract at Chennai (falling in 20013-09 a/y) were made only by cheques after TDS u/s 194C.

vii. Whereas contrary to this, in Chennai and Vellore these works were directly supervised by the appellant itself, the reason being the lands are situated nearby and could be easily accessible. Thus when the payments were to be made to coolies, JCB operators and lorry drivers they would not accept cheque payments and necessarily payments were to be made by cash only. Had the intention of the appellant was to avoid cheque payment, then this modus operandi would have been adopted in the land development work at Bangalore also. It is not the intention of the Appellant to avoid cheque payment. Further, even if for argument sake, it is presumed that the appellant wantonly made cash payment to thwart the department's attempt to verify the veracity of the claim, it is unreasonable to reject the entire expenditure in toto. Without incurring any expenditure, such a massive work could not have been carried out. To have clarity on such expenditure incurred in cash and cheque at each of the 3 places AR has produced a table of the Land development expenditure at the 3 places, which is reproduced hereunder to bring clarity to decide this issue:

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VELLORE INSTITUTE OF TECHNOLOGY DETAILS OF LAND DEVELOPMENT EXPENSES

Total Vellore & Chennai Vellore Chennai Banga. expenses considered as diversion by AO 1 2 3 4 5 (1+2+3) (1+ 2) 05-06 A/C. Cheque 28987 0 0 28987 28987

Cash 10095824 27945196 0 38041020 38041020

Total 10124811 27945196 0 38070007 38070007

06-07 A/C. 0 0 0 0 Cheque 0

Cash 82711544 75039600 0 157751144 157751144

Total 82711544 75039600 0 157751144 157751144

07-08 A/C. 15340500 68674575 85808760 17134185 Cheque 1793685

Cash 47314562 98474942 12522000 1474041704 145789504

Total 49108247 113815442 69926775 232850464 162923689

Grand 141944602 216800238 69926775 428671615 358744840 Total

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viii. I am also inclined to agree with submission of the Appellant that, to assess the genuineness of the Land development expenditure, the AO erred in comparing it with the cost of the lands. The more rational approach would be to compare the expenditure incurred with cost per acre at the 3 dif1Ferent locations in Vellore, Chennai and Bangalore to assess possible excess claims, when the genuineness of the cash vouchers are being questioned by the AO. I find that the Land development cost per acre at Bangalore (which were paid by cheque after TDS) was Rs.32.28 lakhs in 2007-08, while the average cost per acre at Madras was Rs.24.86 lakhs (for 2005-06; 2006-07 & 2007-08) and that at Vellore was Rs.11.60 lakhs (for 2005-06; 2006-07 & 2007-08). Comparing the average costs above, I find· that: the cost incurred in cash at Madras & Vel.ere are much lower than the cost: incurred by Cheque at Bangalore. ix. Another way of comparing the reasonableness of the expenditure would be to compare the cost per acre at Madras for which payment was made by cheque after TDS and that incurred in cash. The cost per acre of expense paid by cheque at Madras comes to Rs.34.94/acre [Rs.15340500 for 4.39 acres) and that in cash Rs.35.43/acre [Rs.98474942 for 27.80 acres]. Hence, the cost per acre incurred in cash at Madras in the same year is higher by 2.9% than the cost incurred by cheque. x. As rightly pointed out by the Appellant the AO has erroneously considered even the expenditure of about Rs.18 lakhs at Vellore & RS.153.41 lakhs during 2008-09 a/y, paid by cheques after TDS, at Vellore and Chennai have been treated as not genuine and as diversion to the Trustees! xi. Considering all the above facts and that wherever it was possible the appellant had made cheque payment also and wherever it was not possible it made cash payment and further considering the fact that the cash expenditure is higher than that incurred by cheque is only 2.9% (as in para ix above) higher than that

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incurred by cheque, I am of the view that it would be fair to estimate the Land development expenditure not supported by evidence or as excessive at 10% of the said expenditure incurred in cash in the respective years to meet the ends of justice. Accordingly this ground of appeal is partly allowed.

above expenditure, apart from pointing out that these were incurred

in cash, was that vouchers in support did not carry the address of the

recipient, for supply of mormbu soil during the period 15.08.2005 to

20.08.2005. As per the ld. Assessing Officer, the rate per load was

uniform at Rs.1,500/-. However, in our opinion, these could have

been hardly a reason for rejecting the claim of expenditure. It may

be true that expenditure directly accounted in the books other than

through the cash imprest drawn by Shri. Praksh had better vouchers.

But this, is in our opinion could not be a reason to reject the vouchers

which were otherwise available. We have to look at this, in

conjunction with the contention of the assessee that all these vouchers

were available at the time of search but Revenue had not seized it,

considering its voluminous in nature. Coming to the nature of evidence

required to support land development expenditure, the Cochin Bench

of the Tribunal in the case of Damac Holdings (P) Ltd (supra) had

held that general evidence was sufficient to prove such expenditure.

ITA Nos2125 to 2128 :- 62 -: & 2219 to 2222 /2017

This view gets roboranted by Hon’ble Jurisdictional High Court

through its judgment in the case of VGP Housing (P) Ltd (supra). In

any case, there is nothing on record nor anything coming out of the

statements given by Shri.Prakash who had drawn the cash imprest,

which can corroborate the finding of the ld. Assessing Officer that land

development expenditure claimed to have been incurred in cash, had

gone to the hands of any of the trustees or any specified person

coming under Section 13(1) (c) of the Act. In our opinion, ld.

Commissioner of Income Tax (Appeals) correctly understood the

nature of expenses and its quantum after comparing the per acre rate

at different places. Nevertheless, he fell in error in sustaining a

disallowance to the extent of 10%. Ld. CIT(A) did not give any

specific reason for sustaining a disallowance to the extent of 10% of

the claim. More so since ld. Commissioner of Income Tax (Appeals)

himself had given a finding that per acre land development

expenditure incurred in Chennai and Vellore were lower than what was

incurred in Bangalore, where admittedly the payments were effected

through bank. There is also no case for the Revenue that the land in

question was not developed and was not an agricultural in nature

when the assessee acquired it. In such circumstances, we are of the

opinion that the disallowance of any land development expenditure

was not warranted. Ex-consequenti there can be no question of any

ITA Nos2125 to 2128 :- 63 -: & 2219 to 2222 /2017

benefit accruing to the trustees or specified persons for applying

Section 13(1) (c) of the Act.

tuition fees to students/parents were properly evidenced, and if not,

could it be construed as funds diverted for the benefit of trustees/

specified persons, thereby attracting Section 13(1) (c) of the Act. The

findings of the ld. Commissioner of Income Tax (Appeals) on refunds

as it appear at paras 13.2.4 to 13.2.11 of his order are reproduced

hereunder:-

‘’13.2.3 The facts presented and the observations & inferences of the AO in concluding that the refunds of Student advance fees and Advance tuition fee claimed to have been made to the students were not genuine were examined in detail. The submissions of the AR contesting the conclusion of the AO were also gone through.

13.2.4 It is seen that when the AO raised this issue and exemplified his inclination to reject the claim of the appellant during assessment proceedings, as per the appellant it took up the matter with the respective parents, obtained affidavits from the parents confirming the receipt of refunds from the appellant college. The appellant pleaded that unfortunately the AO rejected the same, on the plea that since the students were studying during the relevant time when their parents were giving such affidavits, they were under pressure not to say anything contrary to the appellant's claim. 13.2.5 I also find that the Department had recorded statements from some parents, regarding the alleged

ITA Nos2125 to 2128 :- 64 -: & 2219 to 2222 /2017

repayment of Student advance fees as per the Annexure to the Assessment orders, all of whom have purported to have stated in the negative. It is the allegation of the Appellant that none of these statements were ever put forth during the course of assessment and that it became aware of the purported statements only on receipt of the assessment order and being in violation of the principles of natural justice cannot be acted upon or taken cognizance of in deciding the issue. 13.2.6 On coming to know of such purported statements denying the refunds on receipt of the assessment order, the appellant had approached the parents, who had furnished fresh affidavits that the statements r:ecorded by the Department were under duress and that in retraction of such statements they affirmed having received the refund of student advance fees. The Appellant wanted to produce the fresh affidavits obtained by it during the Appellate proceedings. 13.2.7 As these were fresh evidence, as the appellant was objecting to the addition made by the AO by on the basis of statements recorded by the Department '(which were not furnished to the Appellant during the course of assessment), it was felt necessary to obtain a remand report from the AO and the AO was accordingly directed to submit his remand report after verifying the veracity of the fresh affidavits claimed to have been obtained by the appellant after receipt of the assessment order. 13.2.8 The appellant's AR submits that the AO, instead of summoning the deponents to verify the veracity of the retracting affidavits, summoned the appellant and directed it to produce the deponents before the AO for cross-examination, which is again contrary to the principle of natural justice and Law on evidences 13.2.9 As the Appellant did not have the power to enforce attendance, unlike the AO, the deponents from all across India refused to take the trouble of spending time and money to travel all the way to Chennai for this purpose, especially since by this time, the respective

ITA Nos2125 to 2128 :- 65 -: & 2219 to 2222 /2017

students had completed the course and left the institution and employed elsewhere. However, Appellant complied with the direction of the AO in the best way possible in the circumstances, by obtaining confirmatory letters from most of the deponents and filing them with the AO. The AR submitted that in spite of accomplishing this herculean task, the AO did not give any weightage to the confirmations and gave a remand report against the appellant, brushing aside the same without assigning any reason. 13.2.9 After going through the entire materials, I am of the view that there is some sense and reasoning in the submissions of the appellant. Since the onus to disprove the affidavits was on the part of the AO, he himself ought to have summoned the deponents instead of entrusting the task to the appellant. With the powers vested on him under the provisions of the Act, he was obliged to and it would have been easier for him to enforce attendance to verify the veracity of the affidavits as per the Directions of this office in the Remand order. Having not done so, the action of the AO in brushing the affidavits and the subsequent confirmations aside does not appear to be reasonable. 13.2.10 Hence, without getting into unnecessary facts and legal quibblings the entire issue can resolved in a fair manner as under: i. In its written submissions, Appellant has furnished the table below as Annexure 16 & 17, respectively.

STATISTICS OF STUDENT FEE ADVANCES RECEIVD, AJUSTED AND REPAID YEAR ENDED 31.03.2006 31.03.2007 31.03.2008 No. of students who 43732 82980 88446 qualified in VITEE No. of students who 1965 2159 2220 attended counselling No. of student fee 514 902 1285 advances received. No. of student fee 88 165 745 advances adjusted towards

ITA Nos2125 to 2128 :- 66 -: & 2219 to 2222 /2017

fee 17% 18% 58% No. of student fee advances repaid by CH/DD 157 222 132 31% 25% 10% No. of student fee 269 516 408 advances repaid by cash 52% 57% 32%

SUMMARY OF TUITON FEE ADVANCES RECEIVED, AJUSTED AND REPAID YEAR ENDED 31.03.2006 31.03.2007 31.03.2008 No. of students who 43732 82980 88446 qualified in VITEE No. of students who 1965 2159 2220 attended counselling No. of Tuition fee advance 854 1115 211 received. No. of Tuition fee advances 210 234 81 repaid by CH/DD 25% 21% 38% No. of student fee 644 881 130 advances repaid by CH/DD 75% 79% 62%

ii. Appellants submission in paras 2.1 to 2.13 extracted above/ explaining the need for repayment of Student advances & Advance tuition fees in cash can be appreciated in the light of the above statistics for the 3 years in question. There is no doubt that any institution worth its salt would strive to uplift and maintain its credibility in honouring its commitments. When tens of thousands of students qualify in its entrance examinations and when thousands of such qualified students pay advance fees in anticipation of admission or after admission/ when the student/parent request for the refund of such advances/ any person and all the more reputed institutions would strive to repay the advance at the time and the mode in which the payer demands back the money. So/ appellant's submission that is refunded Students advances and fees in cash is quite acceptable, especially when the number & % of students who have

ITA Nos2125 to 2128 :- 67 -: & 2219 to 2222 /2017

been repaid in cheque and cash are compared with the total aspiring students and applicants who paid for admission and withdrew later. The reason for higher repayment % of Tuition fee is also adequately and satisfactorily explained in para 2.15 above.

Ill. Regarding the issue of statements from Parents recorded by the Department; affidavits produced from parents by the Appellant during assessment proceedings; retraction affidavits produced by the Appellant during remand proceedings before the AO & the remand report, I am convinced by the facts relating to these issues set forth in para 2.16 to 2.21 of the Appellant's written submissions, reproduced above to accept therefunds of Student Advances & tuition fees in cash as genuine, notwithstanding the views of the AO through coloured glasses. In the view that I have taken on being convinced about the genuineness of repayments in cash there is no material prejudice to the Appellant on account of the violation of principles of natural justice in the AO not providing copies of the alleged statements against the Appellant prior to the assessment. The summary of statistics of statements referred to in the above paras, furnished as Annexure 18 to Appellant's written submissions reproduced below will speak loudly in support of my decision on this matter.

SUMMARY ACIT ADIT TOTAL Asst. Summ Resp Bala Summ Resp Bala Summ Resp Bala year oned oned nce oned oned nce oned oned nce

0 0 0 0 0 0 0 0 0 02-03 0 0 0 0 0 0 0 0 0 03-04 0 0 0 39 16 23 39 16 23 04-05 22 13 9 0 0 0 22 13 9 05-06 37 28 0 0 0 65 37 28 65 06-07

ITA Nos2125 to 2128 :- 68 -: & 2219 to 2222 /2017

0 0 0 2 2 0 2 2 0 07-08 0 0 0 45 30 15 45 30 15 08-09

15 9 6 0 0 0 0 0 0 Repea t A.Y 02-03 to 08-09 59 43 86 48 38 173 98 75 Total 102 58% 42% 56% 44% 57% 43%

iv. There is another angle from which the refund matter can be viewed. The refunds that are disbelieved by the AO are 'advances' received and not the 'income' of the Appellant. No sane parent is going to rest if the advance money was not repaid to him, as alleged by the AO, especially when the Department had recorded statements from hundreds of parents. At least thereafter the Department's action should have created an onslaught of requests from parents against the Appellant and complaints to the Department, State and Central Government authorities and concerned regulatory bodies for the enforcement of refund of the advances, which according to the AO were never made and siphoned away by the Trustees! There is no evidence of such complaints that is on record inspite of lapse of nearly a decade from the date of the search. This is further testimony to my conclusion that the genuineness of the refund of Student advances & Tuition fees cannot be faulted merely because they were made- in cash. v. On account of my findings and conclusions above; the appellant's aforesaid submissions accepted by me; circumstantial evidence; the confirmations by parents independently obtained, which were brushed aside by the AO and the affidavits from parents whose statements recorded by the Department were purportedly against,

ITA Nos2125 to 2128 :- 69 -: & 2219 to 2222 /2017

confirming that they had .in fact received the refunds, which again was brushed aside by the AD in his remand report, I am convinced that the conclusion of the AD to treat the refund of Students advance fees & Tuition fee advances refunds in cash as not genuine cannot be endorsed or countenanced. vi. Finally in paras 77 & 83 of the assessment order reproduced above the AD's conclusion on disbelieving the cash refunds of student advances & Tuition fees is that it: "has to be treated as funds withdrawn by the trustees for the purpose of college expenses and said expenses were not proved and the proof adduced is treated as not genuine and therefore it has to be inferred that such cash refunds under the garb of refund of advance fees received has to be treated as funds diverted for the benefit of specified persons which constitutes violation under section 13(1) (c) of the Act" When the AD has concluded that he has to treat the cash refunds as withdrawals for the purpose of college expenses, merely because proof adduced for such expenses is 'treated as not genuine' by the AO, cannot automatically lead to the conclusion of violation of sec.13(1)(c), unless the AO by a positive act and with evidence traces the money to the 'specified persons' listed in sec.13( 1)( c). 13.2.11 For all the reasons aforesaid, I hold that that there was no diversion or 'application' of the trust funds for the benefit of the prohibited persons u/s 13(3) as far as the repayment of Student advances and tuition fees in cash for 2006-07 to 2008-09 aYS and hold that sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s 11 on this score. Hence this ground of appeal relating to AYs 2006-07, 2007-08 & 2008-09 is Allowed’’.

ITA Nos2125 to 2128 :- 70 -: & 2219 to 2222 /2017

that a large number of parents had denied receipt of any refund, and

noting certain irregularities in the forms signed by the

students/parents. As per the ld. Assessing Officer, the refunds were all

made within a short period of admissions and could not be believed.

Ld. Assessing Officer had cited instance of one Shri. T. V. Karthik, ,

Shri. S. Arun, Shri. Sunil Sharma, Shri. J. Vinoth, Shri. Gaurav

Bhattacharja, Shri. Praneeth Rao, Shri. Pradek Singla, Shri. Ena Negi,

Shri. Harsh Raghava, Shri. Punkit Jain, Ms. Radhika, Shri. R.

Jegannathan, Ms. Meera George Palackan, Shri.Abishkek Gupta, Shri.

Amitesh Anand, Shri. Haider Chandu, Shri. G.V. Dinesh, Shri. S.

Karthick, Shri. K. Balaganapathy, Shri. Rohit Seth, Shti. Koshy Mathew,

Shri. V. Vishal, Shri. K.S. Dinesh, Shri. Vishesh Kalra, Ms. A. Srimathi,

Shri. Deepan Thangaraj and Shri. Yeswanth Kumar in this regard.

Numerous instances where parents had given statements denying

receipt of any refund had persuaded the ld. Assessing Officer to take

a view that claim of refund of advance of Rs.8,00,31,224/- and

tuition fees of Rs.1,22,26,537/- for assessment year 2006-2007 and

similar claims for other years were incorrect. As against this,

contention of the ld. Authorised Representative is that seats in the

assessee institution was much sought after and parents used to send

advance demand draft even before theadmission process started,

ITA Nos2125 to 2128 :- 71 -: & 2219 to 2222 /2017

compelling the assessee to effect refunds whey they visited the college

premises. Further, as per the ld. Authorised Representative receipts

were not issued for such amounts, which were all received in demand

drafts except for that part considered as corpus donation. In any case,

it is not disputed by the Revenue that during the remand proceedings,

assessee had produced affidavits from a substantial number of

parents acknowledging the refunds and had filed them before the ld.

Assessing Officer. In our opinion, ld. Assessing Officer, if he chose

not to believe these affidavits ought have summoned such persons

and examined them. It was unfair on his part to require the assessee

to accomplish an almost impossible task of producing all such parents.

Especially so, when the ld. Assessing Officer had powers vested on

him under the Act, to ensure their attendance or to get statements

through commissions. Having not done it, in our opinion, ld. Assessing

Officer fell in error in disbelieving the affidavits filed by the assessee.

the time of counseling, a sum of Rs.10,000/- was collected from each

aspirant for ensuring their earnestness but later refunded when seats

were not allotted to them. This explanation was never found to be

incorrect by the ld. Assessing Officer. It is not a case where no

evidence was there to prove the refunds. Ld. Assessing Officer had

simply refused to believe the evidence filed by the assessee,

ITA Nos2125 to 2128 :- 72 -: & 2219 to 2222 /2017

considering the refunds to been effected in cash. We find much

strength in the argument of ld. Authorised Representative, that if the

assessee wanted to siphon off the funds, it need not have received

the donations through demand drafts but could have opted to receive

it in cash and diverted at source. Considering all these, in our opinion,

the preponderance of probability, is in favour of the assessee that the

refunds were actually effected. In our opinion the question of any

benefit arising to the trustees or specified persons will not arise, once

the payments are accepted as accounted correctly.

Now coming to the question, whether acquisition of 22.34 46.

acres of land at Brahmapuram, Katpadi from Smt. B. Ramani for

�33,51,000/-, for which agreed consideration was Rs.1,00,00,000/-

gave rise to a presumption that the difference amount was coming out

of trust funds, resulting in a benefit to Smt. B. Ramani which fell

within the meaning of specified person thereby attracting Section

13(1) ( c) of the Act. The findings of the ld. Commissioner of Income

Tax (Appeals) with regard to the above, as it appear at para 9.13 to

9.17 of his order are reproduced hereunder:-

‘’9.1.3 After going through the discussions made by the AO in the assessment order as to how he came to the conclusion that funds of the appellant were diverted for the benefit of specified persons as contemplated in section 13(1)(c) and the submissions made by the appellant, extracted above, as to how the AO went wrong in coming to

ITA Nos2125 to 2128 :- 73 -: & 2219 to 2222 /2017

this erroneous conclusion, I am of the considered view that there is considerable force in the argument of the appellant in that if at all there was any advance payment in the land of RS.l0 lakhs by the Appellant and it was not reflected in its books, it should have been assessed in the relevant AY i.e., 2004-05, which has not been done. Likewise, if at all any on- money was involved in the transaction it should have been assessed as the income of the Appellant u/s 69B in the relevant AY i.e. 2005-06. On the contrary, I found from the notices and replies submitted during assessments that the AO himself had dropped the proposal of assessing the alleged on-money, after proposing the same. 9.1.4 Moreover, the seized so-called agreement for sale of land, contains only the signature of Ms. Ramani and none on behalf of the Appellant, which was observed by the AO also as such in the assessment order. Hence, no credence ought to have been placed by the AO on this document, wherein there were no signatures of the two parties for the agreement [but only one i.e. of Ms. Ramani] for concluding that the land was sold at Rs.1 crore. If at all the transaction involved payment of on-money, certainly the appellant would have destroyed it and would not have kept the same, to be unearthed by the search party. 9.1.5 Further as per appellant, the subject matter of land is agricultural land. It is also to be mentioned here that a land which cost Rs.17.58 lakhs will fetch Rs.1 crore in just a period of three years is also unimaginable and unbelievable.

9.1.6 Finally, as has been held repeatedly by number of cases of the Honourable Madras ITAT cited in detail elsewhere in this order, to invoke sec. 13(1)(c), the Department must prove that the diverted funds of the trust has reached the persons prohibited by sec.13(3). The AO has not proved that any amounts in excess of the amount stated in the registered sale deed has either been paid by the Appellant or reached the prohibited person - B.Ramani, nor even assessed the alleged diversion either in the hands of the alleged recipient nor in the hands of the alleged payer. Accordingly it is held that the action of the AO in treating the transaction as diversion of funds in favour of the trustee is unwarranted and legally untenable.

9.1. 7 For all the reasons above, I have no hesitation to

ITA Nos2125 to 2128 :- 74 -: & 2219 to 2222 /2017

agree with the factual and legal submissions made by the Appellant as extracted-above to hold that there has been no diversion u/s 13(1)(c) by the Appellant to the said B.Ramani, as the AO has not made any additions in respect of the same u/s 69B on the appellant in respect of the alleged payment of excess consideration, nor has he assessed such excess in the hands of the alleged recipient B.Ramani. Hence, sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s lion this score and this ground of appeal relating to 2005-06 is allowed’’.

the assessee from Smt. B. Ramani, who was the daughter-in-law of

the Managing Trustee and the price stated in the registered sale deed

was Rs.33,51,000/-. It may be true that seized records revealed an

agreement mentioning the consideration as Rs.1,00,00,000/-.

However, it is not disputed that what was accounted by the assessee

in its books was Rs.33,51,000/- only. Nothing more was paid by the

assessee for this acquisition in it’s books. It is also mentioned by the

ld. Assessing Officer that the amount of Rs.33,51,000/- was the

guideline value of the property. In other words, nothing more than

the guideline value was paid by the assessee to Smt. B Ramani. At

this juncture, it is necessary to have a look at Section 13 (1) ( c) of

the Act and Section 13 (3) of the Act, which have been applied by the

ld. Assessing Officer on various transactions.

ITA Nos2125 to 2128 :- 75 -: & 2219 to 2222 /2017

Section 13(1) (c) :

1) Nothing contained in section 11 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................. c) in the case of a trust for charitable or religious purposes or a charitable or religious institu?tion, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or 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) :

Section 13(3):

(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :- (a) the author of the trust or the founder of the institution ; (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees ; (c) where such author, founder or person is a Hindu undivided family, a member of the family ; (cc) any trustee of the trust or manager (by whatever name called) of the institution ; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid ; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest.

ITA Nos2125 to 2128 :- 76 -: & 2219 to 2222 /2017

Smt. B.Ramani being the daughter-in-law of the Managing Trustee was

without doubt a specified person. However by selling a property at

guideline value, we cannot say that any benefit had accrued to the

seller. Word ‘’benefit’’ indicates gaining of an advantage not

commensurate with the value of the property. In other words, there

can be an advantage to the seller only if he gains something more

than its value. Such a benefit can arise to a trustee only if the

transactions by him/her entered with the trust, was with the intention

to get an advantage and such advantage was not commensurate with

the value of the property transferred. Just because a transaction is

entered between a trust and trustee, we cannot say that it resulted in

a benefit to the trustee. We are therefore of the opinion that ld.

Commissioner of Income Tax (Appeals) was justified in taking a view

that there was no violation of Section 13(1) (c) of the Act on the

above transaction.

Rs. 22,34,000/- to Smt. B. Ramani for acquiring 6.23 acres of land at

Kangaeyanallur, which was later cancelled and refunded resulted in

any benefit to Smt. B. Ramani attracting Section 13(1) ( c) of the Act.

The findings of the ld. Commissioner of Income Tax (Appeals) with

ITA Nos2125 to 2128 :- 77 -: & 2219 to 2222 /2017

regard to the this issue as it appear at para 9.23 of his order is

reproduced hereunder:-

‘’9.2.3 It is found that the advance for the purchase of land was paid by a cheque; the advance paid is evidenced by a duly stamped instrument of sale agreement; the advance was repaid by the said B.Ramani by a cheque, pursuant to a duly stamped cancellation agreement and most importantly the aforesaid agreements were found at the time of search and seized which is a clear contemporaneous evidence for the said transaction. In addition both before the DDI(Inv) and the AO, both parties have affirmed the aforesaid transaction as towards the purchase of the above land. All these things as discussed above, together with the existence of duly stamped and executed agreements even at the time of search, which have been seized, clearly demonstrate the genuineness of the transaction for purchase and subsequent cancellation thereof and disproves the suspicion of the AG. Hence, sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s 11 on this score. Hence this ground of appeal relating to 2005-06 is allowed’’.

What we find is that both agreement for sale and 49.

cancellation agreement were registered and both these documents

were found at the time of search. Assessee trust had paid a sum of

Rs.22,34,000/- to Smt. B.Ramani through cheque dated 03.06.2004

and the amount was returned by Smt. B. Ramani on 20.9.2004, on

cancellation of the proposal. Hence the period for which Smt.

B.Ramani had the money with her was 3.6.2004 to 20.09.2004.

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Intention of the trust to acquire the property from Smt. B.Ramani is

clear in that the agreement was registered. There is no case for the

Revenue that agreed price of Rs.52,46,570/- was more than the fair

market price. Just because the sale did not go through and the

amount was returned by Smt.B. Ramani would not be sufficient to hold

that she benefited from such transaction. The intention in entering

the transaction was not to benefit Smt. B. Ramani, but for acquiring

the property for the assessee trust. We cannot say that Section 13(1)

(c) of the Act stood attracted. We are of the opinion that ld.

Commissioner of Income Tax (Appeals) was justified in taking a view

that there was no violation of Section 13(1) ( c) of the Act on this

transaction as well.

paid to Shri. Arjunlal Sunderdoss during previous year relevant to

assessment year 2006-07 and Rs.50,00,000/- paid during previous

year relevant to assessment year 2007-08, were diversion of

income/property of the trust attracting Section 13(1) ( c) of the Act.

The findings of the ld. Commissioner of Income Tax (Appeals) on the

above payments as it appear at para 10.4 of his order is reproduced

hereunder:-

ITA Nos2125 to 2128 :- 79 -: & 2219 to 2222 /2017

‘’10.A After going through the said transaction, account copies of statements and copy of the above agreement I am convinced that the transactions seem to be genuine. It is not the case of the Department that Arjunlal Sunderdoss is a 'prohibited person' u/s 13(3) not entitled to be paid any amount from the Trust. He isa Sindhi and the Trustees are Mudaliars id they are not et 'related'. The allegation of the AO that sons of the Founder Trustee, V.Sankar & V.Sampath have obtained loans from the said Arjunlal Sunderdoss is disproved from copies of the financial statements of V.Sankar & V.Sampath, a perusal of which is obvious that they have not borrowed any loans from Arjunlal Sunderdoss during the relevant period. The AO's conclusion that the monetary transaction of the trustees with the above financier, have nexus with the above contract involving Rs.50,OO,OOO/- is contrary to the facts and not acceptable just on the face of it. Hence, sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s 11 on this score. Hence this ground of appeal relating to AYs 2006-07 & 2007-08 is allowed’’.

It is not disputed that the money given to Shri. Arjunlal 51.

Sunderdoss was returned by him within a period of two to eight

months. There were three transactions of Rs.50,00,000/- each and all

of these were returned by the said person. Case of the ld. Assessing

Officer is that no security was given for such advances nor any interest

received from Shri. Arjunlal Sunderdoss. As against this, case of the

assessee is that money was intended for developing a property owned

by Shri. Arjunlal Sunderdoss, which was to be used by the assessee

for its activities. Thus, we cannot say that the advances were given

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for no reason. In any case, Shri. Arjunlal Sunderdoss is neither a

trustees nor a specified person coming within the meaning of Section

13(3) of the Act. We are therefore of the opinion that ld.

Commissioner of Income Tax (Appeals) was justified in taking a view

that Section 13(1) ( c) of the Act could not be invoked here.

Next we have to answer whether the acquisition of a 52.

property at No.85, Second East Main Road, Gandhi Nagar, Katpadi,

Vellore by Smt. S. Preetha, daughter-in-law of Managing Trustee, for a

sum of Rs.40,00,000/- in which there was an application for loan

indicating the value of the property as �1,25,00,000/- meant that

assessee had advanced the difference sum through Shri. Prakash,

Finance Officer to Smt. S. Preetha, attracting Section 13(1) ( c) of the

Act. Findings of the ld. Commissioner of Income Tax (Appeals) on the

above mentioned property of Smt.Preetha, as it appear at para 11.3

of his order is reproduced hereunder:-

‘’11.3 The AO's conclusion that Appellant's money was diverted and paid as on-money by Mrs.S.Preetha, daughter in law of the Managing Trustee, stands disproved by the CIT(A)'s order (which was later confirmed by ITAT without any further appeal by the Department, as extracted above) which has not only deleted the addition u/s 69B in the file of S.Preetha on account of alleged payment of on money, but also giving a finding that there is no evidence whatsoever that any such on money was paid or that the Appellant's funds were used by her for the payment of the

ITA Nos2125 to 2128 :- 81 -: & 2219 to 2222 /2017

said sum of Rs.85 lakhs. Hence, I have no hesitation to hold that sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s lion this score. Hence this ground of appeal relating to AY 2007-08 is Allowed’’.

Apart from the reasons cited by the ld. Commissioner of Income Tax

(Appeals), for holding in favour of the assessee, we also find that there

is nothing on record to link the acquisition made by Smt. Preetha with

the assessee. Just because Finance Office, of the assessee Shri.

Prakash had drawn imprest money from the trust would not mean that

such money reached the hands of Smt. Preetha. Especially so, when

no such admission was made by Shr. Prakash in any of the statements

recorded from him. We therefore find no reason to interfere with the

order of the ld. Commissioner of Income Tax (Appeals) in this regard.

Rs.34,77,50,000/- for a property at Chamiers Road, Chennai, which

was acquired by GIE in which partners were trustees of the assessee

trust, resulted in a benefit to a specified person coming within the

purview of Section 13(1) ( c) of the Act. Findings of the ld.

Commissioner of Income Tax (Appeals) on this issue, as it appear at

paras 12.1.5 to 12.1.9 of his order are reproduced hereunder:-

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‘’12.1.5 As far as purchase of the property at Chamiers Road is concerned, the appellant stated that the said property was planned to be purchased for the use of the trust to construct a training centre. As per the practice in vogue, the Trust passed a resolution and authorised one of the trustees to negotiate the transaction and enter into an agreement for purchase of the said property. After paying advance, the copy of the documents were received from the prospective seller and in turn given to the appellant's advocate for legal opinion. It came to light that there was a legal hitch and pursuing the matter by the trust would be detrimental. Getting back the advance was also a problem since there were several owners in respect of the property and they would return the advance only after finding a suitable buyer, apart from the possible liquidated damages of Rs.1 crore in the absence of specific performance. At this juncture the trustees decided to form a partnership in the name of Global Infrastructure Enterprises and bought the property. The said firm later returned the advance which was paid by the appellant to the seller, thus saving the trust from incurring loss.

12.1.6 Now what requires to be examined is as to whether the advance paid by the Appellant to the sellers of the property can be considered as a loan to the Trustees in whose names the agreement was entered into. The answer to this question is an emphatic NO, because the money was paid by the Appellant trust and recorded in its books of accounts as an asset and duely reflected in its balance sheet as an asset. When the money paid by the trust to another person for the purchase of a property for the trust, albeit in the name of the Trustees, is entered in its books of accounts and shown as an asset in its Balance sheet, by no stretch of fiction or imagination can the said amount be treated as a diversion' or amount 'applied' for the benefit of the persons specified u/s 13(3). Reliance is placed on the following legal submission by the Appellant: "1.3 It has been held in BTM education trust vs ACIT 6 SOT 716 (Bang) - copy enclosed [ANNEXURE 37J - that when a trust purchased a property in the name of the trustee and books of account reflected the property as that of trust, it could NOT be treated as a loan or advance by the trust to a trustee. Similarly held in DIT vs N.H.Kapadia education trust 136 ITD 111 (Ahd)."

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12.1. 7 In fact a trust is NOT a 'living person' legal entity so as to purchase property in its own name as may be evident from the definition of 'trust' below under the Indian Trusts act, 1882 "3. Interpretation clause- "trust" A "trust" is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner: In this section "living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals." And the following definition of 'transfer of property' under the Transfer of Property Act, 1882, reproduced below "5. Transfer of property defined

In the following sections "transfer of property" means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and "to transfer property" is to perform such act. In this section "living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals." A Trust being neither a company or association or body of individuals can not be a 'living person' as defined above by the TOP Act and therefore properties for a Trust have to be necessarily be purchased in the names of the Trustee, albeit to be held by the Trustees in obligation, for and on behalf of the Trust. Hence, it is clear that in the eyes of Law the advance paid for purchase of property in the name of the trustees which is reflected in the accounts and the Balance sheet of the trust, is legal and only a trust property and can lead to no 'diversion' u/s 13(1)(c) solely for that reason.

12.1.8 The next issue that requires examination is, as to whether the final registration of the property in the name of a firm, in which only the Trustees are partners can lead to the same legal conclusion as above. To make a fair assessment of the situation, an over all view of the facts and circumstance of the facts narrated above, the detriment if any to the trust as a consequence of such registration and the possible benefits or prevention of opportunity costs and liabilities to the trust have to be evaluated. On a fair view of the events and circumstances leading to the registration of the property in the name of the firm Global infrastructure enterprises {GIE}, in which only the 5 trustees were partners, I am convinced that there is no 'diversion' or

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application' of the income or properties of the trust for the benefit of the prohibited persons u/s 13(3) for the following reasons: .

i. The overall' facts and circumstance narrated by' the Appellant, extracted above, which appear to be practical and acceptable on the basis of preponderance of human probabilities and not merely viewed in a hyper technical angle;

ii. The Appellant was saved from the ownership of a property with a defective title;

iii. The Appellant was saved from a potential loss of Rs.l crore in payment of liquidated damages as per the registered sale agreement; iv. The Appellant was saved from a potential loss or possible extraordinary delay in the recovery of the balance Rs.9 crore advance paid to the 8 eo-owners of the property, as they are practically likely to have repaid the amount only after another buyer was located.; v. The Appellant had, as narrated above, attempted to find another buyer to whom the said property could be transferred as its nominee under the purchase agreement and it was only after failing to find such a buyer that the Trustees decided on 9.2.2007, to relieve the Appellant from the purchase of a onerous property, by entering into MOU. vi. Appellant had agreed to pay the balance purchase price and other costs for the property on the condition, as per the MOU dt.9.2.2007 on the condition that all the said advances would be repaid by GIE on arranging the funds at the earliest, as the 5 Trustees did not intend to purchase the property nor could they arrange for the finances within the 3 remaining weeks to go through the transaction and to save itself from the financial loss to the tune of RS.l0 crore. vii. The defect in the title to the property was real as even GIE who purchased the property was not able to rent it or develop it and ultimately sold it at a huge loss after a number of years;

VIII. Appellant, contrary to what the AO has stated in para 71 of his order, did not incur any of the expenditure, (including interests on the loan taken for payment of the advances upto the date of repayment of the loan) related to the purchase of the property, all of which were debited only to the account of GIE and recovered in full as per the ledger account copies furnished and examined. ix. The delay in the purchase of the property by GIE was because the trustees could not have the need or the resources to raise the

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funds to complete the purchase and ultimately could do so from Indian bank and repaid the advance given by the appellant immediately on obtaining the loan. x. Appellant has filed the financial statement of GIE (which did not have any other business, income, asset or liabilities other than relating to the property at Chamiers road) from its inception in A.y.2008-09 upto A.y.2016-17 to prove that the said firm, INSTEAD of gaining any benefit as concluded by the AO had in fact been saddled with a losses and a debt of Rs.S.2S crores as at 31.3.2016, after havlnqsold the Chamiers road property at a loss. Thus the Appellant was saved from the above debt burden of ₹8.25 crores as a result of the purchase of the property by the GIE. As the related person did not earn a single pie from the alleged diversion, but was only saddled with a huge loss as above, sec.13(1)(c) cannot be invoked. Reliance is place on Appellant's legal submissions below: Reliance is placed on the decision of the Madras Tribunal in "1.4 Soorya educational trust vs ITO in ITA No.579/Mds/2012 - copy enclosed [ANNEXURE 38J, where, in para 13.2, the ITAT has netd that if the specified person has not earned any income from out of the funds alleged to have been diverted from the Trust, then sec. 13(l)(c) is not applicable. 1.5Reliance is also placed on the decision of the Madras Tribunal in Merit international education vs DCIT - ITA No.35/Mds/2012 - copy enclosed [ANNEXURE 39 J - holding that in case of lease advance by a trust to a trustee without payment of rent, there is no case of diversion and in fact the trust gained by nonpayment of rent and therefore sec.13(1)(c) could not be invoked. Similarly in VIT's case, VIT was saved from huge losses on account of the onerous purchase of properties and therefore there is no case for invoking sec. 13(l)(c). 1.6Reliance is further placed on the Madras Tribunal's decision in ACIT vs Harshad Doshi 130 ITD 137 (Chennai) - copy enclosed [ANNEXURE 40J - similarly holding in the context of deemed dividend u/s 2(22)(e)." xi. The gift of of 15.791/4 acres valued at Rs.1.26 crores near Madras by GIE to the Appellant on 7.10.2008, (apart from reimbursement of all expenses including interest on loan taken to pay the advances) is more than adequate consideration for the payment of the aforesaid advances for the purchase of the property by the Appellant under bona fide and genuine circumstances.

12.1.9 For all the reasons aforesaid, I hold that that there was no diversion or 'application' of the trust funds for the benefit of the prohibited persons u/s 13(3) as far as the dealing in immovable property at Chamiers Road is concerned and hold that sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s lion

ITA Nos2125 to 2128 :- 86 -: & 2219 to 2222 /2017

this score. Hence this ground of appeal relating to A.Ys.2007-08 & 2008-09 is Allowed’’.

that copy of the Board resolution and Memorandum of Understanding

between the trustees and the assessee were all available at the time

of search, but were not examined nor seized by the Department. This

submission was not effectively rebutted by the Revenue.

Memorandum of Understanding dated 26.12.2006 placed at paper

book pages 231 to 233 clearly show that Shri. G.Viswanthan, Shri. V.

Sankar, Shri. V.Sampath, V. Sekar and Shri. V.Selvam, trustees were to

act under the directions of assessee and acquire the said property.

In our opinion, argument of the ld. Authorised Representative that if

the acquisition was attempted directly, the prices would have been

jacked up cannot be brushed aside. We also find that agreement for

sale dated 03.01.2007 placed at paper book pages 238 to 246 show

the advance payment of Rs.10,00,00,000/- as to have been made from

the bank account of the assessee trust directly to the vendors. Thus

it is not a case where any money of the assessee trust had flowed

into accounts of the trustees. Legal opinion of Shri S. Giritharan,

advocate, placed at page book 247 to 250 does show that there were

some defects in the title. Ld. Assessing Officer had disbelieved this

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legal opinion citing that the mobile number of Shri. S. Giritharan

mentioned in the certificate issued was incorrect. However, we find

that the document gave the address of the advocate, for his office,

for his residence and for his chamber. No doubt the property was

eventually purchased by the firm M/s.GIE in which trustees of the

assessee trust were the partners. Nevertheless, contention of the

assessee that such a step had to be taken, for avoiding the loss that

would have been arisen, if it had cancelled the agreement, cannot in

our opinion be ignored. Intention of the assessee was to acquire the

property and this is clear from the narration in its Balance Sheet which

indicated the advance to have been given for Chamiers Road property.

That apart, it is clear from the order of the ld. Commissioner of Income

Tax (Appeals) that GIE had gifted 15.79 acres of land at Chennai on

7.10.2008. Further, Section 13(1) (c) of the Act is attracted only

where any income or property of the trust is directly or indirectly used

for the benefit of a specified person. Assessee has also mentioned

before the ld. CIT(A) that atleast �22 Crores given by the assessee

were out of loans raised on the security of fixed deposits and

mortgages and this had not been rebutted by the ld. DR. Loan is a

liability and cannot be considered as a property or income of the

assessee. It is also not disputed that interest on the loans taken by

the assessee for providing the funds were paid by GIE. Ld.

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Commissioner of Income Tax (Appeals) has also given a finding that

GIE had suffered a loss on sale of Chambiers Road property and they

had derived no benefit.

This finding was not rebutted by the ld. Departmental Representative.

Thus we cannot say that the payments were made by the assessee

with any intention of benefitting its trustees or the firm M/s. GIE, nor

can we say that they benefitted from it. We thus do not find any

reason to interfere with the order of the ld. Commissioner of Income

Tax (Appeals) on this issue.

Next question we have to answer is whether the sum of 55.

Rs.1,00,00,000/- paid to Shri. Sampath, one of the trustees for

acquiring a property at 56 & 56A, Thirumalai Pillai Road, Chennai

which was later returned by the said Shri. Sampath, when the

acquisition did not go through, resulted in any benefit to Shri.

Sampath, coming within the purview of Section 13(1) ( c) of the Act.

Findings of the ld. Commissioner of Income Tax (Appeals) on the

above issue, as it appear at paras 12.2.3 and 12.2.4 of his order are

reproduced hereunder:-

‘’12.2.3 Here again, to make a fair assessment of the situation, an over all view of the facts and circumstance of the facts narrated above, the detriment if any to the trust as a consequence of

ITA Nos2125 to 2128 :- 89 -: & 2219 to 2222 /2017

such payment of advance and the possible benefits or prevention of opportunity costs and liabilities to the trust have to be evaluated. On a fair view of the events and circumstances leading to the payment of RS.l crore as further advance for the property at Thirumalai Pillai road, Chennai, I am convinced that there is no 'diversion' or application' of the income or properties of the trust for the benefit of the prohibited persons u/s 13(3) for the following reasons: i. Shri Sampath, trustee, had entered into a registered agreement for the purchase of the property at Thirumalai Pillai Road, Chennai by paying an advance of ₹10,00,000/- ii. As the transaction in respect of Chamiers Road property was not fructified, as narrated above, .... the appellant was in search of another property to start the training centre and as ths Thirumalai Pillai road property construction was substantially completed and Appellant could quickly commence its training centre, appellant had requested Shri Sampath to allow it to purchase the property for its training centre, pursuant to which an agreement was entered into by which Shri Sampath nominated the Appellant as the ultimate purchased, after which Appellant paid the sum of ₹.1 crore as further advance. Ill. Having paid a substantial portion of the agreed price, when the Appellant commenced the task of applying for approvals to the Corporation it came to light: that the owner had deviated from the original plan which was permitted by the appropriate authority and this deviation was later regularized by paying the necessary regularisation fee and obtaining consent for zone conversion to commercial

ITA Nos2125 to 2128 :- 90 -: & 2219 to 2222 /2017

space in the Ground floor and Residential only in the floors above. Copies of the fees paid for regularisation of the deviation etc. which were filed have been examined. iv. When the Appellant sought permission for construction of the training center after the nomination agreement and the payment of advance, it was informed by the Authority concerned that zone conversion will not be allowed for the 2nd time after payment of the 'regularisation fee' for regularisation of the first deviation. It was only then that the Appellant realised that it could never convert the semi finished structure into a training centre. v. Having no other go, the appellant dropped the idea of buying this property and the advance was returned to the Appellant by the Shri Sampath, trustee.

vi. Thus from the above discussion it may be noted that there was no diversion or 'application' of the Trust funds as such, to interested parties asthe amount was paid for purchasing a property for the Trust and not to financially benefit the trustee. The transaction is through banking channels and is backed by resolution passed by the Board of Trustees. The payment to the trustees and the repayment by the trustees to the appellant are all by cheques only and are reflected in the accounts and the Balance sheet of the Appellant as advance for purchase of Thirumalai Pillai road property and not as an loan to a Trustee. 12.2.4 Based on the above discussion and evidences produced, I am of the considered view that there is no element of any diversion of trust funds to the interested persons in respect of

ITA Nos2125 to 2128 :- 91 -: & 2219 to 2222 /2017

the advance of RS.1 crore paid for the nomination and purchase of the Thirumalai Pillai Road property and hold that sec.13(1)(c) cannot be invoked against the Appellant to deny exemption u/s 11 on this score. Hence this ground of appeal relating to A.Ys. 2007-08 & 2008-09 is Allowed’’.

�1,00,00,000/- to Shri. V. Sampath who was a trustee. However, there

was a nomination of the assessee trust, as the beneficiary through a

nomination deed dated 16.02.2007 placed at paper book pages 266 to

when he entered into the agreement for acquiring the property from

M/s. Bommidala Realty, was to acquire the property for the assessee.

Argument of the ld. Authorised Representative that this acquisition

was planned as an alternative to the proposal for acquiring the

Chamiers Road property which fell through due to defects in title,

carries much strength. The question of benefit arising to a trustee or

specified person would arise only if the transactions were entered with

the intention of benefiting such person. Flow of events clearly indicate

that Shri. Sampath had not benefited himself, by using the money of

the trust. His intention was only to acquire the property for the trust.

Just because the transaction did not go through, would not mean that

ITA Nos2125 to 2128 :- 92 -: & 2219 to 2222 /2017

Shri. Sampath, had directly or indirectly benefited from it. We are

therefore of the opinion that ld. Commissioner of Income Tax

(Appeals) was justified in holding that there was no violation of the

nature mentioned in Section 13(1) (c) of the Act.

Before parting, we will be failing in our duty if we do not 57.

address certain general arguments taken by the ld. Departmental

Representative. First one is that the moment funds were placed at the

disposal of the trustees or any specified person, Section 13(1) (c) of

the Act stood attracted. Second one is that once there was a violation

u/s.13(1) (c) of the Act entire exemption available under Section 11

stood ousted. For these propositions, ld. Departmental Representative

has placed reliance on a judgment of Hon’ble Delhi High Court in the

case of Charanjiv Charitable Trust (supra), that of Hon’ble Kerala

High Court in the case of Agappa Child Centre (supra), that of

Hon’ble Andhra Pradesh High Court in the case of Action for welfare

and awakening in rural environment (supra) and that of Hon’ble Apex

Court in the case of Bharat Diamond Bourse (supra). In our opinion

there can be no quarrel on the propositions of law sought to be

canvassed by the ld. Departmental Representative based on the

above judgments. However, in the case before us, what we find is

that there were no benefits to the trustees or any specified person

coming within the meaning of Section 13(1) (c) of the Act, on account

ITA Nos2125 to 2128 :- 93 -: & 2219 to 2222 /2017

of any of the alleged transactions on land/purchase or on account of

land development expenditure claimed by the assessee or on account

of refund of fees. As already mentioned by us mere receipt of funds by

a trustee is not sufficient to attract Section 13(1) (c) of the Act. There

has to be an intention to benefit the trustee and some real benefit

arising to the trustee. These should manifested in actions of the trust

and the trustee. Since, there has been no such benefit arising to the

trustees or any specified person here, these judgments in our opinion

have no application on facts. As against this, there is considerable

force in the argument of the ld. Authorised Representative that

burden of proof was on the Revenue to prove any benefit to have

been accrued to the trustees, at the expense of the trust, and this was

never discharged. We are alive to the fact that in the statements

recorded during the search, trustee /related parties had admitted

personal income aggregating to 7.87 crores. However, at no point did

they say that this was part of trust funds. Shri. Sampath and his wife

who had admitted �5.69 crore out of 17.87 crores, were admittedly

having their own business and independent source of income. That

apart aggregate of funds alleged to have been diverted came to 98.66

crores and what were admitted as personal income by

trustees/relatives were only �7.87 crores. Revenue was unable to

bring on record any unexplained investments or asset held by the

ITA Nos2125 to 2128 :- 94 -: & 2219 to 2222 /2017

trustees and their relatives, which could reflect such diversion of

income. Thus the onus which was on the Revenue to show diversion

of income or property of the trust for the benefit of trustees or

specified persons was not discharged.

u/s.11 of the Act, there are certain others grounds raised by the

Revenue in its appeals for various years. These grounds are dealt with

hereunder:-

Through its ground No. 8 for assessment year 2005-06, 59.

ground No.10 for assessment year 2006-07, ground No.12 & 12.1 for

assessment year 07-08 and ground No.9 and 9.1 for assessment year

08-09, Revenue assails the direction of the ld. Commissioner of

Income Tax (Appeals) to tax the assessee at maximum marginal rate

on the disallowed part of land development expenditure alone. We

have already held at paras 41 & 42 above, there were no reasons to

make any disallowance for land development expenditure claimed by

the assessee. Hence these grounds have become infructuous.

ITA Nos2125 to 2128 :- 95 -: & 2219 to 2222 /2017

ground No.12 for assessment year 2008-09, Department has raised a

grievance with regard to the directions of the Commissioner of

Income Tax (Appeals) to give the assessee benefit of exemption u/s.11

of the Act on surplus of �2,13,186/- arising out of sale of Bangalore

flat and �9,41,89,923/- for sale of plot at Chennai. Relevant findings

of the ld. Commissioner of Income Tax (Appeals) are reproduced

hereunder:-

Assessment year 2005-2006 :

‘’Appellant had sold a flat purchased on 16.2.2000 for Rs.2786814 during the year (17.4.2004) for Rs.300000, resulting in capital gain of Rs.213186, which was credited to the corpus fund account. The AO has assessed this gain as 'profits and gains of business' without any discussion in his order, probably because exemption u/s 11 was denied by him. Appellant is not in the business of real estate and the Department cannot convert the aforesaid gain as 'profits and gain of business'. It is assessable under the head capital gain only, in which case the sale results in Long term capital loss of Rs.438742 as per Appellant's computation submitted. Further, as I have held that the Appellant is entitled to exemption u/s 11, the capital gain of RS.213186 is exempt u/s 11(lA) as it is found that the Appellant has acquired another capital asset during the year. Hence, this ground for 2005- 06 a.y is ALLOWED’’.

Assessment year 2008-2009 :

Appellant had sold a plot purchased on 13.3.2006 for RS.90810067 during the year (20.3.2008) for Rs.185000000, resulting in capital gain of Rs.94189933,

ITA Nos2125 to 2128 :- 96 -: & 2219 to 2222 /2017

which was credited to the corpus fund account. The AO has assessed this gain as 'profits and gains of business' without any discussion in his order, probably because exemption u/s 11 was denied by him. Appellant is not in the business of real estate and the Department cannot convert the aforesaid gain as 'profits and gain of business'. It is assessable under the head capital gain only, in which case the sale results in Short term capital gain of Rs.94189933 as per Appellant's computation submitted. Further, as I have held that the Appellant is entitled to exemption u/s 11, the capital gain of Rs.94189933 Is exempt u/s 11(lA) as it is found that the Appellant has acquired other capital assets during the year. Hence, this ground for A.Y.2008-09 is ALLOWED’’.

Ld. Commissioner of Income Tax (Appeals) had allowed the above

claims since assessee was entitled for exemption u/s. 11 of the Act.

Ld. Commissioner of Income Tax (Appeals) held that there was no

reason for the Revenue to take a view that the sale of the flat/plot was

part of any business in real estate, done by the assessee. Nothing has

been brought before us by the ld. Departmental Representative to

take a different view.

Revenue assails the deletion of an addition of �8,13,57,271/- made by

the ld. Assessing Officer for change in method of accounting from cash

ITA Nos2125 to 2128 :- 97 -: & 2219 to 2222 /2017

to mercantile. Findings of the ld. Commissioner of Income Tax

(Appeals) on this issue is reproduced hereunder:-

‘’21.1 In his computation of income for A.Y.2008-09, the AO has added Rs.81357271 as: '''Adjustment by way of change in method of accounting:" By concluding that the accounts of earlier years were also maintained on accrual basis and therefore there is no change in the method of accounting to accrual basis during A.Y.2008-09.

21.2 The AR has furnished copies of the "NOTES TO THE ACCOUNTS - SIGNIFICANT ACCOUNTING POLICIES" attached to the Balance sheet as at 31.3.2008 and copies of the Audit report u/s l2.A(b) filed along with the return. It is seen from para 1 of the "NOTES TO THE ACCOUNTS - SIGNIFICANT ACCOUNTING POLICIES" and para (iv)(e) of the Audit report u/s 12A(b) for the year ended 31.3.2008 (A.Y. 2008-09) that the Appellant trust has changed its method of accounting only during this year from' cash' to 'mercantile' and that as required by the Standards of auditing issued by the Institute of Chartered Accountants of India, the Auditor has reported in para (iv)(e) of the report u/s 12(A)(b) aforesaid, the above change and has further quantified the effect of the above change on the income of the year at Rs.81357271 - which is the figure added by the AO to the income of the year.

21.3 The ITAT has already held that the only the 'cash'

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system of accounting is being followed by the Appellant for A.Ys. 2002-03 to 2004-05. Respectfully following ITAT's order in the Appellant's case for A.Yrs.2002-03 to 2004-05, I have held that the Appellant was only following the 'cash system’’ of accounting during A.Y.s. 2005-06 to 2007-08 in para 6 above. 21.4 The Appellant has changed its method to the' mercantile' system of accounting only from the year ended 31.3.2008 (A.Y.2008-09) which I find has been consistently followed till date, from the financial statements for the subsequent years produced before me. As this is a bonafide change in the method of accounting for A.Y. 2008-09, which has been consistently followed till date, the income of the Appellant has to be computed only ,according to the books of account maintained and audited by the Appellant. Accordingly I direct the AO to delete the addition of Rs.81357271 made on this score. Hence, this ground is treated as allowed’’.

What we find is that ld. Commissioner of Income Tax (Appeals) had

followed the Tribunal order in assessee’s own case for assessment

years 2002-03 and 2004-05 in ITA No.294 to 296/Mds/2014, dated

20.06.2016. There is nothing on record to show that assessee had

changed its method of accounting with any sinister motive or had not

consistently followed the changed method. Ld. Departmental

Representative could not place anything to take a different view

from that of ld. Commissioner of Income Tax (Appeals).

Grounds 1, 10, 10.1 for assessment year 2005-06, grounds 62.

1, 11 and 11.1 for assessment year 2006-07, grounds 1, 13.1, 14 for

ITA Nos2125 to 2128 :- 99 -: & 2219 to 2222 /2017

assessment year 2007-08 and grounds 1 & 14 for assessment year

2008-09 raised by the Revenue are general in nature needing no

specific adjudication.

all the assessment years. These assail the order of the ld.

Commissioner of Income Tax (Appeals) upholding the validity of

notice issued u/s.153A of the Act, and sustenance of disallowance to

the extent of 10% of land development expenditure.

Viz-a-viz, validity of notice issued u/s.153A of the Act, we 65.

find that ld. Commissioner of Income Tax (Appeals) had followed the

order of the Tribunal in assessee’s own case for assessment years 2002-03 to 2004-05 in ITA Nos.294 to 296/Mds/2014, dated 22nd June,

2016. What was held by this Tribunal in the said decision is reproduced

hereunder:-

"After hearing both sides, we are of the considered view that initiation of proceedings under section 153A of the Act by the learned Assessing Officer is in accordance with law because from the search proceedings various materials revealed that there is a possibility of the assessee having undisclosed /

ITA Nos2125 to 2128 :- 100 -: & 2219 to 2222 /2017

concealed income due to furnishing of incorrect particulars. Therefore, as pointed out by the learned Departmental Representative and the decisions relied upon by him, we find that issuance of notice under section 153A in the case of the assessee is valid in law for all the three assessment years. Accordingly, this ground raised by the assessee is devoid of merits and accordingly dismissed for all the three assessment years.

We are therefore of the opinion that challenge to the notice issued

u/s.153A of the Act was rightly rejected by the ld. Commissioner of

Income Tax (Appeals).

had already held at paras 41 and 42 above, in relation to Revenue’s

appeal that there was no reason for disallowing any part of such

expenditure. For the reasons stated therein, we delete the

disallowance of land development expenditure.

For assessment years 2007-08 and 2008-09, assessee is also 67.

aggrieved on credit being not given for the tax deducted at source.

We direct the ld. Assessing Officer to verify the claim of the assessee

and give credit, if due.

u/s.234A and 234B of the Act. These are consequential in nature

needing no specific adjudication.

ITA Nos2125 to 2128 :- 101 -: & 2219 to 2222 /2017

Order pronounced on Wednesday, the 14th day of November, 2018, at Chennai.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (अ�ाहम पी. जॉज�) (DUVVURU RL REDDY) (ABRAHAM P. GEORGE) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:14th November, 2018. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF