ACIT, CHENNAI V. M/s. Padanilam Welfare Trust, Kulasekaram

ITA 1772/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61224 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAJI P J ACOB IRS ACIT
• Assessee Lawyers: G BASKAR
• Keywords: Charitable institution; Valuation report; Cancellation of registration
• Section: 143(3); 153A; 260A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI V.DURGA RAO, JUDICIAL MEMBER ITA NOS.1766 TO 1772(MDS)/2011 ASSESSMENT YEARS : 2002-03 TO 2008-09 AND C.O. NOS.59 TO 64(MDS)/2012 IN ITA NOS.1766 TO 1771(MDS)/2011 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE II(5), CHENNAI. VS. M/S.PADANILAM WELFARE TRUST, VELAYUTHAM PILLAI MEMORIAL HOSPITAL, PADANILAM, KULASEKARAM. PAN AAATP1496R. (APPELLANT) ( RESPONDENT/CROSS OBJECTOR) APPELLANT BY : SHRI SHAJI P J ACOB, IRS, ACIT RESPONDENT BY: SHRI G.BASKAR, ADVO CATE DATE OF HEARING :19 TH JUNE, 2012 DATE OF PRONOUNCEMENT :19 TH JUNE, 2012 O R D E R PER BENCH: THIS IS A BUNCH OF SEVEN APPEALS AND SIX CROSS OBJECTIONS. ALL THE SEVEN APPEALS ARE FILED BY THE REVENUE. THE CROSS OBJECTIONS ARE FILED BY THE ASSESSEE. THE RE LEVANT - - ITA 1766 TO 1772 OF 2011, ETC. 2 ASSESSMENT YEARS ARE 2002-03, 2003-04, 2004-05, 200 5-06, 2006-07, 2007-08 AND 2008-09. 2. THE APPEALS AND CROSS OBJECTIONS ARE DIRECTED AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME-TA X(APPEALS)- II, CHENNAI, ALL DATED 11-7-2011. 3. OUT OF THE SEVEN APPEALS, SIX APPEALS FILED BY THE REVENUE ARISE OUT OF THE ASSESSMENTS COMPLETED UNDE R SECTION 143(3), READ WITH SECTION 153A OF THE INCOME-TAX AC T, 1961. SIX APPEALS RELATE TO THE FIRST SIX ASSESSMENT YEARS FR OM 2002-03 TO 2007-08. THE CORRESPONDING CROSS OBJECTIONS FILED BY THE ASSESSEE, SIX IN NUMBERS, ALSO RELATE TO THE SAME S IX ASSESSMENT YEARS FROM 2002-03 TO 2007-08 AND ARISE OUT OF THE SAME ASSESSMENT ORDERS PASSED UNDER SECTION 143(3), READ WITH SECTION 153A OF THE ACT. 4. THE APPEAL FILED BY THE REVENUE FOR THE ASSESSM ENT YEAR 2008-09 IN ITA NO.1772(MDS)/2011 ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE IN COME-TAX ACT, 1961. NO CROSS OBJECTION IS FILED BY THE ASSE SSEE FOR THIS ASSESSMENT YEAR. - - ITA 1766 TO 1772 OF 2011, ETC. 3 5. THE ASSESSEE IS A PUBLIC CHARITABLE TRUST REGIS TERED FOR THE PURPOSE OF CARRYING ON EDUCATIONAL ACTIVITI ES. THE ASSESSEE IS RUNNING MEDICAL, DENTAL AND NURSING COL LEGES. 6. AS THE ACTIVITIES CARRIED ON BY THE ASSESSEE TR UST RELATED TO ITS OBJECTS CONCERNING EDUCATION, THE RE VENUE ACCEPTED ITS CLAIM FOR REGISTRATION AS WELL AS THE CONSEQUENTIAL BENEFITS OF REGISTRATION. 7. A SEARCH WAS CARRIED OUT IN THE CASE OF THE ASSESSEE ON 4-5-2007. CONSEQUENT ON THE SEARCH, TH E REVENUE CAME TO A CONCLUSION THAT THE ASSESSEE WAS NOT CARR YING ON ANY CHARITABLE ACTIVITY AND ALL ITS ACTIVITIES ARE DIRE CTED TOWARDS EARNING PROFIT AND, THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR REGISTRATION UNDER SECTION 12AA OF THE ACT. IN THE LIGHT OF THE ABOVE FINDING, THE COMMISSIONER OF INCOME-TAX, CENT RAL-II AT CHENNAI HAD CANCELLED THE REGISTRATION OF THE ASSES SEE TRUST UNDER SECTION 12AA OF THE ACT, THROUGH HIS ORDER DA TED 16-3-2010. 8. THE SAID ORDER WAS TAKEN IN APPEAL BEFORE THE INCOME-TAX APPELLATE TRIBUNAL, A-BENCH, CHENNAI. T HE TRIBUNAL DISPOSED OF THE SAID APPEAL IN ITA NO.444(MDS)/2010 THROUGH ITS - - ITA 1766 TO 1772 OF 2011, ETC. 4 ORDER DATED 24-12-2010, HOLDING THAT THE ASSESSEE I S A TRUST CARRYING ON CHARITABLE ACTIVITIES AND THAT THE ASSE SSEE IS ENTITLED FOR REGISTRATION UNDER SECTION 12AA OF THE ACT. AC CORDINGLY, THE TRIBUNAL HELD THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX, CANCELLING THE REGISTRATION UNDER SECTION 12AA OF T HE ACT, WAS NOT SUSTAINABLE IN LAW. THE TRIBUNAL VACATED THE O RDER OF THE COMMISSIONER OF INCOME-TAX WITH A DIRECTION TO REST ORE THE REGISTRATION GRANTED TO THE ASSESSEE UNDER SECTION 12AA OF THE ACT. 9. THE ABOVE PREFACE IS NECESSARY TO DEAL WITH THE IMPUGNED APPEALS, AS THE GROUNDS RAISED IN ALL THES E APPEALS HAVE ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ITS EARLIER ORDER DATED 24-12-2010 IN ITA NO.444(MDS)/2010 WHILE CONS IDERING THE ISSUE OF CANCELLATION OF REGISTRATION UNDER SEC TION 12AA OF THE ACT. THE ASSESSMENTS FOR THE SIX ASSESSMENT YEARS 2002-03 TO 2007-08 IN THESE CASES HAVE ALSO BEEN MADE ON THE V ERY SAME GROUND OF SEARCH CARRIED OUT BY THE DEPARTMENT ON 4 -5-2007 AT THE PREMISES OF THE ASSESSEE TRUST. THE SAID SIX A SSESSMENTS HAVE BEEN COMPLETED ON THE BASIS OF THE FINDINGS RE FLECTED IN THE ORDER OF THE COMMISSIONER OF INCOME-TAX CANCELLING THE - - ITA 1766 TO 1772 OF 2011, ETC. 5 REGISTRATION OF THE ASSESSEE TRUST. ACCORDINGLY, T HE ASSESSING AUTHORITY TREATED THE ASSESSEE AS AN ASSOCIATION OF PERSONS (AOP), NOT CARRYING ON ANY CHARITABLE ACTIVITIES AN D BROUGHT THE SURPLUS COMPUTED FOR THE ASSESSMENT YEARS TO TAX AS ITS INCOME. THE ASSESSMENT FOR THE ASSESSMENT YEAR 2008-09 WAS ALSO COMPLETED FOLLOWING THE FOOTSTEPS OF THE ASSESSMENT S MADE FOR THE EARLIER SIX ASSESSMENT YEARS 2002-03 TO 2007-08 . 10. IN ALL THESE APPEALS FILED BY THE REVENUE, IT IS ADMITTED THAT THE ISSUES HAVE BEEN DECIDED BY THE COMMISSIONER OF INCOME-TAX(APPEALS) MAINLY RELYING ON THE EARLIER MENTIONED ORDER OF THE TRIBUNAL DATED 24-12 -2010 PASSED IN ITA NO.444(MDS)/2010. BUT THE REVENUE IS AGITAT ING THE ISSUES ON THE GROUND THAT THE DECISION OF THE TRIBU NAL IN THE SAID ORDER HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND T HE ISSUES HAVE BEEN RAISED BEFORE THE HONBLE JURISDICTIONAL HIGH COURT IN APPEAL FILED UNDER SECTION 260A OF THE INCOME-TAX A CT, 1961. 11. AS THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS PASSED ORDERS IN THESE CASES, FOLLOWING THE ORDER O F THE TRIBUNAL MENTIONED EARLIER, IT IS NOT NECESSARY FOR US TO CO NSIDER THE ISSUES IN DETAIL AND IT WOULD BE SUFFICIENT TO MAKE A USEFUL - - ITA 1766 TO 1772 OF 2011, ETC. 6 REFERENCE TO THE FINDINGS RECORDED IN THE EARLIER O RDER OF THE TRIBUNAL MENTIONED ABOVE. IN THE ABOVE BACKGROUND, WE ARE PROCEEDING TO DISPOSE OF THE APPEALS AND CROSS OBJE CTIONS IN THE FOLLOWING PARAGRAPHS. 12. THE FACTS AND CIRCUMSTANCES BEING SIMILAR AND THE ISSUES ARE IDENTICAL, THE GROUNDS RAISED BY THE REV ENUE IN ALL ITS APPEALS ARE COMMON, BUT FOR CERTAIN ADDITIONAL ISSU ES RAISED FOR CERTAIN ASSESSMENT YEARS, MOST OF THE ISSUES ARE RE PEATED IN ALMOST ALL THE ASSESSMENT YEARS. THEREFORE, WE ARE PROCEEDING TO DISPOSE OF THE APPEALS ON ISSUE-WISE, RATHER THA N ASSESSMENT YEAR-WISE. 13. THE FIRST ISSUE RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN GR ANTING RELIEF RELATING TO THE ADDITION MADE BY THE ASSESSI NG AUTHORITY TOWARDS CAPITATION FEES. IT IS THE CASE OF THE REVE NUE THAT CAPITATION FEE BEING INVOLUNTARY, THE SAME IS TAXAB LE. IT IS THE CASE OF THE REVENUE THAT THE COMMISSIONER OF INCOME - TAX(APPEALS) HAS ERRED IN OBSERVING THAT THERE IS O VERLAP OF FUNDS RELATING TO BUILDING FUND AND CAPITATION FEE. THE REVENUE ARGUES THAT EVEN ASSUMING THAT CAPITATION FEE IS BOOKED UN DER THE - - ITA 1766 TO 1772 OF 2011, ETC. 7 BUILDING FUND, THE CHARACTER OF THE RECEIPT IS BUSI NESS INCOME AND NOT THAT OF DONATION OR CORPUS DONATION. 14. THE REVENUE HAS RELIED ON A JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF P.S.GOVIND ASAMY NAIDU AND SONS VS. ACIT, 324 ITR 44 AND THAT OF THE HONBLE SUPREME COURT IN THE CASE OF TMA PAI FOUNDATION & O THERS VS. STATE OF KARNATAKA & OTHERS, IN WP CIVIL NO.317 OF 1993 SC. THE REVENUE HAS ALSO PLACED RELIANCE ON THE DECISIO N OF THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN T HE CASE OF VODITHALA EDUCATION SOCIETY VS. ADIT(EXEM), 20 SOT 353. THE NATURE OF RECEIPT IN THE HANDS OF THE ASSESSEE, ALL EGED AS CAPITATION FEE, HAS BEEN CONSIDERED IN DETAIL BY TH E TRIBUNAL IN ITS EARLIER MENTIONED ORDER PASSED IN ITA NO.444(MDS)/2 010 AT PAGES 18, 19 AND 20. IN THE LIGHT OF THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF DIRECTOR OF INC OME-TAX (EXEMPTIONS) & ANOTHER VS. SRI BELIMATHA MAHASAMSTH ANA SOCIO CULTURAL & EDUCATIONAL TRUST, 46 DTR (KAR) 29 0 AND ALSO RELYING ON THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCH-A IN THE CASE OF MAHARASHTRA ACADEMY OF ENGINEERING AND EDUCATIONAL RESEARCH (MAEER) VS. CI T, THE - - ITA 1766 TO 1772 OF 2011, ETC. 8 TRIBUNAL HAS HELD THAT ACCEPTING CAPITATION FEES BY A CHARITABLE EDUCATIONAL INSTITUTION DOES NOT AFFECT THE CHARITA BLE AND EXEMPTED STATUS OF THE INSTITUTION UNDER THE PROVIS IONS OF INCOME-TAX LAW. THE TRIBUNAL HELD THAT THE GENESIS AND CHARACTER OF MONEY AVAILABLE IN THE HANDS OF THE DO NORS TO PAY CAPITATION FEES HAVE TO BE EXAMINED IN THE HANDS OF THOSE DONORS. THE ASSESSEE HAS NOTHING TO DO WITH THE LE GALITY OR ILLEGALITY OF THE SOURCES IN THE HANDS OF THOSE DON ORS. THE CAPITATION FEE COULD BE EXPLAINED ONLY IN THE HANDS OF THE PERSONS MAKING THE DONATIONS. THE TRIBUNAL HELD TH AT EVEN IF THE ASSESSEE HAD ACCEPTED THE CAPITATION FEES, IT HAS V IOLATED THE PROVISION S OF ANTI CAPITATION FEES ACT, WHICH DOES NOT AMOUNT TO VIOLATION OF LAW STATED IN THE INCOME-TAX ACT, 1 961. THE ASSESSEE MIGHT BE LIABLE FOR PROCEEDINGS PERMISSIBL E UNDER TAMILNADU PROHIBITION OF CAPITATION FEES ACT. BUT THE SAME DOES NOT MAKE THE STATUS OF THE ASSESSEE VULNERABLE FOR THE PURPOSE OF INCOME-TAX LAW. THE TRIBUNAL HELD THAT THERE IS NO APPARENT DISTINCTION BETWEEN LEGAL AND ILLEGAL INCO ME UNDER THE PROVISIONS OF THE INCOME-TAX ACT. IF THE INCOME IS TAXABLE, IT SHOULD BE TAXED. IF THE ASSESSEE HAS NOT APPLIED T HE CAPITATION - - ITA 1766 TO 1772 OF 2011, ETC. 9 FEES COLLECTED EVEN IN VIOLATION OF THE PROHIBITION ACT FOR THE PURPOSES FOR WHICH THE TRUST WAS ESTABLISHED, THERE IS A CASE FOR REVENUE. IF THE ASSESSEE HAS APPLIED ITS ENTIRE IN COME INCLUDING CAPITATION FEES EXCLUSIVELY FOR THE PURPOSES FOR WH ICH IT IS ESTABLISHED, THE REVENUE HAS NO CASE. 15. WHILE DISCUSSING THE ABOVE CRUCIAL ISSUE OF CAPITATION FEE IN ASSESSEES OWN CASE, THE TRIBUNAL HAS MADE A FINDING THAT THE ASSESSEE HAS SPENT ITS ENTIRE RECE IPTS FOR THE PURPOSE OF CREATING INFRASTRUCTURE FACILITIES TO RU N ITS EDUCATIONAL INSTITUTIONS. THE ASSESSEE HAS SPENT ITS ENTIRE CO LLECTION OF DONATIONS FOR CONSTRUCTION OF BUILDINGS AND OTHER F ACILITIES. THE TRIBUNAL OBSERVED THAT AS SUCH EXPENDITURE INCURRED BY THE ASSESSEE HAS EXCEEDED THE COLLECTIONS MADE BY THE A SSESSEE- TRUST BY WAY OF THE ALLEGED CAPITATION FEES, DONATI ONS, CORPUS DONATIONS AND ALSO FEES COLLECTED FROM THE STUDENTS , THERE CANNOT BE A CASE AGAINST THE ASSESSEE THAT THE INCO ME HAS NOT BEEN APPLIED FOR EDUCATIONAL ACTIVITIES. 16. IN THE LIGHT OF THE ABOVE IT IS TO BE SEEN THA T EVEN IF THE COLOUR OF CERTAIN RECEIPTS IS CHARACTERIZED AS CAPITATION FEES, IF THOSE RECEIPTS ARE APPLIED FOR THE PURPOSE OF TH E ASSESSEE - - ITA 1766 TO 1772 OF 2011, ETC. 10 TRUST, THE COLOUR ATTACHED TO THE RECEIPTS DOES NOT VITIATE THE STATUS OF THE ASSESSEE AS A TRUST ELIGIBLE FOR EXEM PTION UNDER SECTION 11 OF THE INCOME-TAX ACT, 1961. AS THE ASS ESSEE HAS APPLIED THE ENTIRE SUCH RECEIPTS CHARACTERISED AS C APITATION FEES FOR THE PURPOSES OF CARRYING ON ITS EDUCATIONAL ACT IVITIES, SUCH RECEIPTS CANNOT BE TREATED AS INCOME IN THE HANDS O F THE ASSESSEE. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING AUTHORITY. 17. THE ABOVE ISSUE OF CAPITATION FEES IS RAISED B Y THE REVENUE IN ITS APPEALS FILED FOR THE SIX ASSESSMENT YEARS 2002-03 TO 2007-08. THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 18. THE NEXT ISSUE RAISED BY THE REVENUE IS THAT T HE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN GR ANTING EXEMPTION OF INCOME TOWARDS BUILDING FUND. IT IS T HE CASE OF THE REVENUE THAT THE COMMISSIONER OF INCOME-TAX(APPEALS ) HAS FAILED TO NOTE THAT FOR SATISFYING APPLICATION OF I NCOME, THE INVESTMENTS OF THE TRUST MUST COME OUT OF CURRENT Y EARS INCOME AS PER THE RATIO OF JUDGMENT IN THE CASE OF CIT VS. INDIAN NATIONAL THEATRE TRUST, 305 ITR 149 (DELHI) AND THAT THE ASS ESSEE HAS - - ITA 1766 TO 1772 OF 2011, ETC. 11 NOT PROVED THE NEXUS AS PER ACCOUNTS BY PRODUCING B OOKS OF ACCOUNTS, VOUCHERS, ETC. BEFORE THE ASSESSING AUTHO RITY. 19. IN FACT, THE TRIBUNAL IN ITS EARLIER ORDER HAS CONSIDERED THE CHARACTER OF BUILDING FUND WHILE EXA MINING THE CHARACTER OF CAPITATION FEES. THE FINDINGS ARRIVED AT IN PARAGRAPHS ABOVE IN DEALING WITH CAPITATION FEES AR E EQUALLY APPLICABLE TO THE ISSUE OF BUILDING FUND AS WELL. IN FACT THE CASE OF THE REVENUE IS THAT THE RECEIPTS IN THE HANDS OF THE ASSESSEE ARE CAPITATION FEES, WHEREAS THE CONTENTION OF THE ASSESSEE IS THAT THE RECEIPTS ARE DONATION TOWARDS BUILDING FUN D. THEREFORE, AS RIGHTLY HELD BY THE TRIBUNAL IN ITS EARLIER ORDE R AND AS FOLLOWED BY THE COMMISSIONER OF INCOME-TAX(APPEALS) IN THE I MPUGNED FIRST APPELLATE ORDERS, THERE IS COMPLETE OVERLAPPI NG BETWEEN THE QUESTION OF CAPITATION FEES AND THE QUESTION OF BUI LDING FUND. THE TRIBUNAL HAS MADE A DEFINITE FINDING IN ITS EAR LIER ORDER THAT THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE INCLUDIN G CAPITATION FEES WAS APPLIED ONLY FOR THE PURPOSE OF BUILDING I NFRASTRUCTURAL FACILITIES TO RUN THE EDUCATIONAL INSTITUTIONS OF T HE ASSESSEE. BUILDING FUND IS USED ONLY FOR THE PURPOSE OF CONST RUCTING BUILDINGS. THEREFORE, THERE IS NO JUSTIFICATION IN TREATING THE - - ITA 1766 TO 1772 OF 2011, ETC. 12 RECEIPTS TOWARDS BUILDING FUND IN A DIFFERENT WAY, AS THEY ARE APPLIED FOR EDUCATIONAL PURPOSES WHICH IS TO BE TRE ATED AS APPLICATION FOR CHARITABLE PURPOSES AND AS SUCH NOT TAXABLE IN THE HANDS OF THE ASSESSEE. IT IS ALSO A FACT THAT THE ASSESSEE TRUST HAS SPENT MUCH MORE THAN THE FUNDS COLLECTED FOR TH E PURPOSE OF BUILDING INFRASTRUCTURE FACILITIES. THEREFORE, IN FACT THERE IS NO QUESTION OF DEFICIENCY IN APPLICATION OF FUNDS TOWA RDS CHARITABLE ACTIVITIES. 20. THIS ISSUE OF BUILDING FUND IS RAISED BY THE R EVENUE FOR ALL THE SEVEN ASSESSMENT YEARS FROM 2002-03 TO 2008-09. THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 21. THE NEXT COMMON ISSUE RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ER RED IN DELETING THE ADDITION MADE BY THE ASSESSING AUTHORI TY TOWARDS SUNDRY CREDITORS. IT IS THE CASE OF THE REVENUE TH AT NO OPPORTUNITY WAS GIVEN BY THE COMMISSIONER OF INCOME - TAX(APPEALS) TO THE ASSESSING AUTHORITY AND, THEREF ORE, HE HAS VIOLATED RULE 46A OF INCOME-TAX RULES, 1962. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT PROVED THE CR EDITORS BEFORE THE ASSESSING AUTHORITY. THIS ISSUE HAS BEE N CONSIDERED - - ITA 1766 TO 1772 OF 2011, ETC. 13 BY THE COMMISSIONER OF INCOME-TAX(APPEALS) IN A DET AILED MANNER. FOR THE PURPOSE OF REFERENCE, IT MAY BE SE EN THAT THE DISCUSSION IS MADE IN PARAGRAPHS18, 19 AND 20 IN PA GES 9 AND 10 OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A PPEALS), PASSED FOR THE ASSESSMENT YEAR 2002-03. THE COMMIS SIONER OF INCOME-TAX(APPEALS) HAS MADE A FINDING THAT THE LIS T OF SUNDRY CREDITORS ALONGWITH THEIR ADDRESSES WERE FURNISHED BEFORE THE ASSESSING AUTHORITY. THE ASSESSEE HAS ALSO EXPLAIN ED THAT THOSE AMOUNTS ARE CLOSING BALANCES IN RUNNING ACCOU NTS WITH SUPPLIERS. THE TRANSACTIONS HAVE BEEN MADE THROUGH CHEQUES. AS ALREADY STATED, THERE WAS A SEARCH. NOTHING WAS BROUGHT OUT IN THE COURSE OF SEARCH TO SHOW THAT THE SUNDRY CRE DITORS REFLECTED IN THE ACCOUNTS WERE NOT GENUINE. IT IS ONLY IN THE LIGHT OF THE ABOVE FINDINGS THAT THE COMMISSIONER OF INCO ME- TAX(APPEALS) HAS DELETED THE ADDITION MADE BY THE A SSESSING AUTHORITY AGAINST SUNDRY CREDITORS. WE AGREE WITH THE FINDING OF THE COMMISSIONER OF INCOME-TAX(APPEALS). THEY ARE ALL YEARLY CLOSING BALANCES OF RUNNING ACCOUNTS MAINTAINED BY THE ASSESSEE IN THE NAMES OF DIFFERENT CREDITORS WHO SU PPLIED MATERIALS AND SERVICES. ALL THE RELEVANT DETAILS W ERE SUBMITTED - - ITA 1766 TO 1772 OF 2011, ETC. 14 BEFORE THE ASSESSING OFFICER. THEREFORE, IN SUCH C IRCUMSTANCES, WHEN NO ADVERSE MATERIALS ARE FOUND AGAINST THE ASS ESSEE, THERE IS NO REASON TO DISBELIEVE THE CLOSING CREDIT BALANCES AND MAKE CORRESPONDING ADDITIONS. THE ORDER OF THE COM MISSIONER OF INCOME-TAX(APPEALS) ON THIS POINT IS UPHELD. 22. THIS ISSUE OF SUNDRY CREDITORS HAS BEEN RAISED BY THE REVENUE FOR ALL THE SEVEN ASSESSMENT YEARS FROM 2002-03 TO 2008-09. THE ISSUE IS DECIDED IN FAVOUR OF THE ASS ESSEE. 23. THE FOURTH ISSUE RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DE LETING THE ADDITIONS MADE BY THE ASSESSING AUTHORITY AGAINST L EASE DEPOSITS. IN PARAGRAPH 23 OF THEIR ORDER, THE TRIB UNAL HAS CONSIDERED THIS ISSUE IN A VERY DETAILED MANNER AND HAS HELD THAT THOSE LEASE DEPOSITS ARE MADE IN THE NATURE OF APPL ICATION OF FUNDS FOR THE PURPOSE OF EDUCATIONAL ACTIVITIES AND THEY WERE MADE IN FACT TO IMPROVE THE INFRASTRUCTURAL FACILIT IES OF THE INSTITUTIONS RUN BY THE TRUST. IT IS RELYING ON TH E ABOVE FINDING OF THE TRIBUNAL THAT THE COMMISSIONER OF INCOME-TAX(AP PEALS) HAS DELETED THE ADDITIONS. WE UPHOLD THE FINDING OF TH E COMMISSIONER OF INCOME-TAX(APPEALS) ON THIS POINT. - - ITA 1766 TO 1772 OF 2011, ETC. 15 24. THE REVENUE HAS RAISED THIS ISSUE FOR THREE ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05. THI S ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 25. THE FIFTH ISSUE RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DE LETING THE DISALLOWANCE OF EXPENSES MADE BY THE ASSESSING AUTH ORITY. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT P RODUCED THE RELEVANT MATERIALS FOR VERIFICATION OF THE ASSESSIN G AUTHORITY AND THE EXEMPTION CANNOT BE GRANTED UNDER SECTION 11 ON LY ON THE BASIS OF THE AUDIT REPORT FILED BY THE ASSESSEE. W E CONSIDERED THIS ISSUE. IT IS SEEN THAT ALL THESE IMPUGNED ASS ESSMENTS HAVE BEEN INITIATED IN THE LIGHT OF THE SEARCH CARRIED O UT BY THE DEPARTMENT. BOOKS OF ACCOUNT WERE AVAILABLE AT THE TIME OF SEARCH AND THEY WERE EXAMINED AND VERIFIED AND THE OTHER MATERIALS FOUND IN THE COURSE OF SEARCH WERE ALSO E XAMINED. NO MATERIALS WERE FOUND IN THE COURSE OF SEARCH TO DIS CREDIT THE ENTRIES OF EXPENSES MADE BY THE ASSESSEE TRUST IN I TS BOOKS OF ACCOUNT. A MAJOR EXPENDITURE OF THE ASSESSEE TRUST IS IN THE CONSTRUCTION OF BUILDINGS AND THE OTHER INFRASTRUCT URAL FACILITIES. THE EXPENSES INCURRED FOR SUCH BUILDINGS AND INFRAS TRUCTURAL - - ITA 1766 TO 1772 OF 2011, ETC. 16 FACILITIES ARE NOT ONLY SUPPORTED BY REGULAR ACCOUN TS, BUT ALSO BY VALUATION REPORTS FURNISHED BY QUALIFIED VALUERS. THEREFORE, AS HELD BY THE COMMISSIONER OF INCOME-TAX(APPEALS), TH E EXPENSES NEED TO BE CONSIDERED AS APPLICATION OF FUNDS FOR E DUCATIONAL PURPOSES AND AS SUCH THERE IS NO REASON TO MAKE ANY DISALLOWANCE. WE UPHOLD THE FINDING OF THE COMMISS IONER OF INCOME-TAX(APPEALS). 26. THIS ISSUE IS RAISED BY THE REVENUE FOR ALL TH E SEVEN ASSESSMENT YEARS FROM 2002-03 TO 2008-09. THE ISSU E IS DECIDED IN FAVOUR OF THE ASSESSEE. 27. THE SIXTH COMMON ISSUE RAISED BY THE REVENUE I S THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ER RED IN GRANTING THE ASSESSEE THE STATUS OF A TRUST, RELYIN G ON THE ORDERS OF THE INCOME-TAX APPELLATE TRIBUNAL, WITHOUT NOTIN G THAT THE ORDER OF THE TRIBUNAL HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL UNDER SECTION 260A IS PENDING BEFORE THE HONBLE HIGH COURT. ACCORDING TO THE REVENUE, THE STATUS S HOULD BE AOP. IN THE ORDER REFERRED TO ABOVE, THE TRIBUNAL , WITH REFERENCE TO THE REGISTRATION MATTER OF THE ASSESSE E, HAS HELD THAT THE ASSESSEE IS ENTITLED FOR REGISTRATION UNDE R SECTION 12AA - - ITA 1766 TO 1772 OF 2011, ETC. 17 OF THE ACT. THEREFORE, THERE IS NO REASON FOR THE COMMISSIONER OF INCOME-TAX(APPEALS) TO HOLD THAT THE ASSESSEE IS AN AOP BY STATUS. 28. THIS ISSUE IS RAISED BY THE REVENUE FOR ALL TH E SEVER ASSESSMENT YEARS. THIS ISSUE IS DECIDED AGAINST TH E REVENUE. 29. THE SEVENTH COMMON ISSUE RAISED BY THE REVENUE IS THAT THE ACTIVITIES OF THE ASSESSEE ARE BEING CA RRIED OUT WITH PROFIT MOTIVE AND THE COMMISSIONER OF INCOME-TAX(AP PEALS) HAS ERRED IN HOLDING THAT THE ASSESSEE IS A CHARITABLE INSTITUTION ENTITLED FOR THE BENEFIT OF SECTION 11 ON THE GROUN D THAT THE ASSESSEE TRUST IS CARRYING ON A NUMBER OF EDUCATION AL INSTITUTIONS. THIS ISSUE IS ALSO DECIDED BY THE EA RLIER ORDER OF THE TRIBUNAL, WHICH HAS BEEN RIGHTFULLY FOLLOWED BY THE COMMISSIONER OF INCOME-TAX(APPEALS) 30. THIS ISSUE IS RAISED BY THE REVENUE FOR ALL TH E ASSESSMENT YEARS IN GENERAL, BUT MORE PARTICULARLY FOR THE ASSESSMENT YEARS 2002-03, 2004-05, 2005-06, 2006-07 , 2007-08 AND 2008-09. THIS ISSUE IS DECIDED AGAINST THE REVENUE. - - ITA 1766 TO 1772 OF 2011, ETC. 18 31. THE EIGHTH COMMON ISSUE IS THAT THE COMMISSION ER OF INCOME-TAX(APPEALS) HAS ERRED IN GRANTING RELIEF TOWARDS THE FINE COLLECTED BY THE ASSESSEE FROM ITS STUDENTS ME RELY ON THE BASIS OF THE SUBMISSION MADE BY THE ASSESSEE BEFORE HIM. THE ASSESSEE HAS CLEARLY EXPLAINED BEFORE THE COMMISSIO NER OF INCOME-TAX(APPEALS) THAT THE FINE COLLECTED BY THE ASSESSEE FROM THE STUDENTS HAS ALREADY BEEN INCLUDED IN THE TOTAL FEE COLLECTION ACCOUNTED BY IT. THE ABOVE POSITION HAS BEEN EXPLA INED BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME-TAX(APPE ALS) ON THE BASIS OF THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. WE FIND THAT THE COMMISSIONER OF INCOME-TAX(APPEALS ) HAS ARRIVED AT A CORRECT FINDING AFTER VERIFYING THE BO OKS OF ACCOUNT AND THE SUPPORTING MATERIALS. THEREFORE, THERE IS N O NEED TO TREAT THE FINE COLLECTION UNDER A SEPARATE HEAD. THE COM MISSIONER OF INCOME-TAX(APPEALS) IS JUSTIFIED IN HIS FINDING. 32. THIS ISSUE IS RAISED BY THE REVENUE FOR THE ASSESSMENT YEARS 2002-03, 2004-05, 2005-06 AND 2006 -07. THIS ISSUE IS DECIDED AGAINST THE REVENUE. 33. THE NINTH GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN GR ANTING - - ITA 1766 TO 1772 OF 2011, ETC. 19 RELIEF TO THE ASSESSEE TOWARDS PAYMENT FOR MEDICAL SEAT FOR TRUSTEES DAUGHTER AMOUNTING TO ` 18,23,000/- BY RELYING ON THE ORDERS OF THE INCOME-TAX APPELLATE TRIBUNAL IN THIS REGARD. AGAIN, IT IS THE ARGUMENT OF THE REVENUE THAT THE D ECISION OF THE TRIBUNAL HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 34. THIS ISSUE IS RAISED BY THE REVENUE ONLY FOR T HE ASSESSMENT YEAR 2004-05. IN THE ORDER OF THE TRIBU NAL MENTIONED ABOVE, THE ISSUE HAS BEEN CONSIDERED IN D ETAIL. THE TRIBUNAL HAS ARRIVED AT A FINDING THAT THE PAYMENTS WERE MADE BY THE TRUSTEE DR. C.K.VELAYUTHAN NAIR PERSONALLY. DR . VELAYUTHAN NAIR HAS FURNISHED THE DETAILS OF THE PAYMENTS MADE BY HIM TO SECURE A MEDICAL SEAT FOR HIS DAUGHTER AND THE NECE SSARY FUNDS WERE WITHDRAWN FROM THE ACCOUNTS MAINTAINED WITH TH E TAMILNAD MERCANTILE BANK LTD. THOSE FUNDS HAVE NOTHING TO D O WITH THE FUNDS OF THE ASSESSEE TRUST. IT IS IN THE LIGHT OF THOSE EVIDENCES THAT THE TRIBUNAL HAS HELD THAT THERE WAS NO JUSTIF ICATION IN TREATING THE PAYMENTS MADE BY THE TRUSTEE AS APPLIC ATION OF FUNDS OF THE TRUST FOR PURPOSES OTHER THAN FOR ITS OBJECTS. THEREFORE, THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RIGHTLY - - ITA 1766 TO 1772 OF 2011, ETC. 20 DELETED THE ABOVE ADDITION. THIS ISSUE IS DECIDED AGAINST THE REVENUE. 35. THE NEXT ISSUE RAISED BY THE REVENUE IS THAT T HE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DE LETING THE ADDITION MADE TOWARDS SUPPRESSION IN FEE RECEIPTS A MOUNTING TO ` 42,77,000/- MERELY BASED ON THE SUBMISSION MADE BY THE ASSESSEE. THIS ISSUE IS RAISED FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSEE HAD SHOWN A FEE RECEIPT OF ` 7,27,76,485/- IN THE RETURN OF INCOME FILED BY IT, ON THE BASIS OF WHICH THE ASSESSMENT HAS BEEN COMPLETED. THE FEE COLLECTION ADMITTED BY THE ASSESSEE IN THE RETURN OF INCOME IS MORE THAN THE G ROSS FEE COLLECTION REFLECTED IN THE SEIZED MATERIAL. IT IS IN THESE CIRCUMSTANCES THAT THE COMMISSIONER OF INCOME-TAX(A PPEALS) HAS HELD THAT THERE IS NO NEED OF ANY SEPARATE ADDI TION TOWARDS SUPPRESSION, AS THE SITUATION HAS BEEN COVERED BY A HIGHER AMOUNT OF FEE DISCLOSED BY THE ASSESSEE IN ITS RETU RN OF INCOME. WE FIND THAT THE COMMISSIONER OF INCOME-TAX(APPEALS ) HAS DELETED THE ADDITION ON THE BASIS OF A VALID REASON . ACCORDINGLY, THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS ) ON THIS POINT IS UPHELD. THIS ISSUE IS DECIDED AGAINST THE REVENUE. - - ITA 1766 TO 1772 OF 2011, ETC. 21 36. THE TENTH AND LAST ISSUE RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ER RED IN DELETING THE ADDITION MADE AGAINST CASH FOUND IN TH E COURSE OF SEARCH AT ` 18,84,730/-. THIS ISSUE IS RAISED ONLY FOR THE ASSESSMENT YEAR 2008-09. THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE ORDER MENTIONED ABOVE. THE TOTAL C ASH BALANCE AVAILABLE ON THE DATE OF SEARCH WAS MORE THAN ` 90 LAKHS. AN AMOUNT OF ` 10 LAKHS ALONE WAS FOUND IN THE REGISTERED OFFICE OF THE TRUST. THE REGISTERED OFFICE OF THE TRUST IS T HE RESIDENCE OF THE TRUSTEE. IN ONE WAY OR THE OTHER WAY, THE ENTIRE C ASH HAS BEEN KEPT IN THE SAME PREMISES IDENTIFIED AS THE RESIDEN CE OF THE TRUSTEE AND REGISTERED OFFICE OF THE TRUST. THE TR USTEE WAS OTHERWISE LIABLE FOR ACCOUNTING AND SAFE CUSTODY OF CASH. THEREFORE, THE TRIBUNAL HELD THAT IT WAS VERY PREMA TURE TO HOLD THAT THE CASH FOUND IN THE REGISTERED OFFICE/RESIDE NTIAL HOUSE AMOUNTED TO DIVERSION OF FUNDS. THE TRIBUNAL HELD THAT THE ASSESSEE TRUST WAS ONLY HOLDING FUNDS PROPERLY ACCO UNTED AND IT WAS NOT AN APPLICATION OR DIVERSION OF FUNDS. ALL T HE BALANCE CASH REMAINED WITH DIFFERENT EDUCATIONAL INSTITUTIONS. IN THOSE CIRCUMSTANCES THE TRIBUNAL HELD THAT THE CASH FOUND AND SEIZED - - ITA 1766 TO 1772 OF 2011, ETC. 22 IN THE COURSE OF SEARCH IS NOT A GROUND TO MAKE AN ALLEGATION THAT THE TRUSTEES HAVE DIVERTED THE FUNDS OF THE ASSESSE E-TRUST FOR ACTIVITIES OTHER THAN ITS OBJECTIVES. IT IS ON THE BASIS OF THE ABOVE FINDING OF THE TRIBUNAL THAT THE COMMISSIONER OF I NCOME- TAX(APPEALS) HAS DELETED THE ADDITION. THE COMMISS IONER OF INCOME-TAX(APPEALS) HAS RIGHTLY DELETED THE ADDITIO N AND THE ISSUE IS ACCORDINGLY DECIDED AGAINST THE REVENUE. 37. AFTER CONSIDERING THE GROUNDS RAISED BY THE REVENUE IN ALL ITS APPEALS, WE FIND THAT THOSE APPE ALS ARE LIABLE TO BE DISMISSED. 38. NEXT WE WILL CONSIDER THE CROSS OBJECTIONS FIL ED BY THE ASSESSEE CORRESPONDING TO THE APPEALS FILED BY THE REVENUE FOR THE SIX ASSESSMENT YEARS INVOLVED IN SECTION 15 3A ASSESSMENTS. 39. THE COMMON GROUND RAISED BY THE ASSESSEE IN AL L THESE CROSS OBJECTIONS IS THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) HAS ERRED IN UPHOLDING THE VALIDITY OF JURISDICTION OF THE ASSESSING OFFICER IN ISSUING THE NOTICE UNDER S ECTION 153A OF THE INCOME-TAX ACT, 1961. IT IS THE CASE OF THE ASS ESSEE THAT THERE WAS NO SEARCH WARRANT AGAINST THE ASSESSEE TR UST AND AS - - ITA 1766 TO 1772 OF 2011, ETC. 23 SUCH NO NOTICE UNDER SECTION 153A COULD BE ISSUED A GAINST THE ASSESSEE. THE ASSESSEE CONTENDS THAT IF THE DEPART MENT FOUND ANY INCRIMINATING MATERIAL IN THE COURSE OF SEARCH, A NOTICE UNDER SECTION 153C ALONE COULD BE ISSUED AFTER RECORDING THE NECESSARY SATISFACTION AS HELD BY THE HONBLE APEX COURT IN THE CASE OF MANISH MAHESWARI VS. ACIT, 289 ITR 341. 40. THE CASE OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE IS THAT THE WARRANT WAS ISSUED IN THE NAME OF DR. C.K.VELAYUTHAN NAIR, WHO IS ONE OF THE TRUSTEES, AN D THERE WAS NO WARRANT AGAINST THE NAME OF THE ASSESSEE TRUST I TSELF. IT IS ON THE BASIS OF THE ABOVE THAT THE LEARNED COUNSEL IS ARGUING THAT THE SEARCH WARRANT WAS ISSUED ONLY AGAINST DR.VELAY UTHAN NAIR AND SEARCH WAS MADE IN HIS OWN CASE AND, THEREFORE, THERE CANNOT BE A NOTICE UNDER SECTION 153A IN THE CASE O F THE ASSESSEE TRUST. 41. SHRI SHAJI P JACOB, THE LEARNED COMMISSIONER O F INCOME-TAX, APPEARING FOR THE REVENUE, CONTENDED TH AT THE OFFICE OF THE ASSESSEE TRUST AND THE RESIDENCE OF T RUSTEE BOTH ARE THE SAME BUILDING AND THE PLACE OF SEARCH WAS CLEAR LY MENTIONED IN THE WARRANT AS THAT OF THE BUILDING ITSELF AND T HE NAME WAS - - ITA 1766 TO 1772 OF 2011, ETC. 24 GIVEN AS DR. C.K.VELAYUTHAN NAIR, PADANILAM WELFARE TRUST AT KULASEKARAM. THE NAMES OF BOTH THE ASSESSEE TRUST AS WELL AS ITS TRUSTEE ARE VERY MUCH MENTIONED IN THE SEARCH W ARRANT AND, THEREFORE, THERE IS NO REASON TO ARGUE THAT THERE W AS NO WARRANT ISSUED AGAINST THE ASSESSEE. 42. IN SUPPORT OF HIS ARGUMENTS, THE LEARNED COMMISSIONER OF INCOME-TAX RELIED ON THE DECISION O F THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF C IT VS. K.M.GANESAN, 333 ITR 562. 43. WE CONSIDERED THE MATTER IN DETAIL. THE SEARC H WAS CONDUCTED IN THE RESIDENTIAL PREMISES OF THE TRUSTE E, WHICH IS ALSO THE REGISTERED OFFICE OF THE ASSESSEE TRUST. THE SAID BUILDING WAS SQUARELY COVERED BY THE WARRANT ISSUED FOR THE SEARCH. THE WARRANT ALSO REFLECTED THE NAME OF DR. VELAYUTHAN N AIR AS WELL AS THE ASSESSEE TRUST. IN FACT IT IS VERY CLEAR FROM A NORMAL READING OF THE WARRANT AND PANCHANAMA THAT THE SEARCH WAS M EANT TO COVER THE ASSESSEE TRUST AND ITS INSTITUTIONS. THE RE WERE SURVEY ACTIONS IN SOME OF THE INSTITUTIONS AS WELL. ALL T HE INSTITUTIONS ARE WORKING UNDER THE COMMON UMBRELLA OF THE ASSESSEE T RUST. THEREFORE, THE SEARCH CARRIED OUT IN THE REGISTERED OFFICE OF THE - - ITA 1766 TO 1772 OF 2011, ETC. 25 TRUST ITSELF TAKES CARE OF THE ENTIRE INSTITUTIONS. IF THE TRUST WAS NOT THE TARGET OF THE SEARCH, THERE WAS NO NEED OF ANY SEARCH AT ALL, AS THE INTENTION OF THE DEPARTMENT WAS NOT TO SEARC H DR.VEALAYUTHAN NAIR AS SUCH, BECAUSE HE BECOMES REL EVANT ONLY IN HIS STATUS AS A TRUSTEE OF THE ASSESSEE TRUST. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. K.M.GANESA N, 333 ITR 562, HAS CLEARLY HELD THAT NON MENTIONING OF SECTIO N 158BD BY ITSELF WOULD NOT INVALIDATE THE ISSUE OF NOTICE. H ERE THE CASE IS MUCH EASIER. HERE THE CASE IS OF A LESSER GRAVITY. AT THE MAXIMUM, THERE IS ONLY AN OMISSION OF A PUNCTUATION OR A CONJUNCTION BETWEEN DR. VELAYUDHAN NAIR AND PADANIL AM WELFARE TRUST. THESE TYPES OF DOTS AND GAPS SHOULD NOT BE ALLOWED TO DEFEAT A LAWFULLY EXECUTED WARRANT BY MA KING THE ISSUE UNNECESSARILY COMPLICATED AND MAKING FEEBLE A RGUMENTS OF LAW ON THAT ARTIFICIALLY MADE COMPLEXITIES. WE DO NOT FIND ANY MERIT IN THE CONTENTION RAISED BY THE ASSESSEE IN T HIS REGARD. 44. THE CROSS OBJECTIONS ARE, THEREFORE, LIABLE TO BE DISMISSED. 45. IN RESULT, THE APPEALS FILED BY THE REVENUE AN D THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSE D. - - ITA 1766 TO 1772 OF 2011, ETC. 26 ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME O F HEARING ON TUESDAY, THE 19 TH OF JUNE, 2012 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 19 TH JUNE, 2012. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.