DCIT, Calicut V. M/sMalabar Hotel Management & Catering promotion Trust, Calicut

ITA 233/COCH/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81350 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 03-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K K JOHN SR DR SHRI G SARANGAN
• Assessee Lawyers: PASS ROAD CALICUT PAN AAATMA
• Keywords: Depreciation; Charitable institution; Capital expenditure
• Section: 12AA; 11

Judgement Text

1 ITA NO. 233 TO 236/COCH/2012 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 233 TO 236/COCH/2012 (ASSESSMENT YEARS 2005-06 TO 2008-09) DY.CIT, CIR.2(1) VS M/S MALABAR HOTEL & MANAGE- KOZHIKKODE MENT & CATERING PROMOTION TRUST, 5/2, 888B, EMIL & ERIC TOWER, ARAYIDATHUPALAM BY PASS ROAD, CALICUT 4 PAN : AAATM3775A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.K. JOHN, SR DR RESPONDENT BY : SHRI G SARANGAN DATE OF HEARING : 11-08-2014 DATE OF PRONOUNCEMENT : 17-10-2014 O R D E R PER N.R.S. GANESAN (JM) ALL THE APPEALS OF THE REVENUE ARE DIRECTED AGAINS T THE COMMON ORDER PASSED BY THE CIT(A)-I, KOZHIKODE DATED 19-06 -2012. SINCE COMMON ISSUE ARISES FOR CONSIDERATION, WE HEARD ALL THE APPEALS TOGETHER AND DISPOSE OF THE SAME BY THIS COMMON ORDER. 2. SHRI K.K. JOHN, THE LD.DR SUBMITTED THAT THE ASS ESSEE, A CHARITABLE TRUST REGISTERED U/S 12AA OF THE ACT ESTABLISHED AN D IS MANAGING AN 2 ITA NO. 233 TO 236/COCH/2012 EDUCATIONAL INSTITUTION FOR AWARD OF DIPLOMA / DEGR EE IN HOTEL MANAGEMENT. ACCORDING TO THE LD.DR, THE INSTITUTE RUN BY THE AS SESSEE IS APPROVED BY AICTE, THE APEX REGULATORY BODY AND ALSO AFFILIATED TO CALICUT UNIVERSITY. ACCORDING TO THE LD.DR, FOR THE ASSESSMENT YEARS 20 05-06 TO 20-08-09, THE ASSESSING OFFICER DID NOT ALLOW EXEMPTION U/S 11 OF THE ACT ON THE GROUND THAT THE ASSESSEE IS NOT CONDUCTING ANY CHARITABLE ACTIVITY. ACCORDING TO THE LD.DR, THE ASSESSEE WAS COLLECTING SUBSTANTIAL AMOUNT AS FEE FROM THE STUDENTS. ON SEEING THE BALANCE-SHEET, ACCORDING T O THE LD.DR, AS ON 31- 03-2004 THE FEE COLLECTED IS RS.91,18,428. FOR THE FINANCIAL YEAR ENDED 31-03-2005, THE ASSESSEE HAD COLLECTED NEARLY RS.86 ,42,104 AS FEES FROM THE STUDENTS. SIMILARLY, FOR THE YEAR ENDED 31-03- 2006, THE ASSESSEE COLLECTED RS.1,55,37,014 AND FOR THE YEAR ENDED 31- 03-2007 THE ASSESSEE HAD COLLECTED RS.1,49,36,493 TOWARDS FEES FROM THE STUDENTS. ACCORDING TO THE LD.DR, THE ASSESSEE IS NOT OFFERING EDUCATIO N TO POOR OR BACKWARD COMMUNITY STUDENTS. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE IS OFFERING SUBSIDIZED EDUCATION OR SUPPOR TING FINANCIALLY TO THE POOR PEOPLE. THE LD.DR FURTHER SUBMITTED THAT THOU GH THE ASSESSEE CLAIMS THAT IT COLLECTS FEES PRESCRIBED BY THE COMMITTEE N OMINATED BY STATE GOVERNMENT, THE ASSESSING OFFICER ON EXAMINATION FO UND THAT IN RESPECT OF CERTAIN AFFILIATED COURSES, THE ASSESSEE IS COLLECT ING THE FEES PRESCRIBED BY THE COMMITTEE. IN RESPECT OF CERTAIN DIPLOMA COURS E AND THE OPTIONAL COURSE NO FEE WAS PRESCRIBED BY THE COMMITTEE. IN THE ABSENCE OF ANY FEE 3 ITA NO. 233 TO 236/COCH/2012 FIXED BY THE COMMITTEE, ACCORDING TO THE LD.DR, THE ASSESSEE WAS COLLECTING HUGE MONEY TOWARDS FEES AND ACCORDINGLY LARGE AMOUNT AS PROFIT. 3. THE LD.DR FURTHER SUBMITTED THAT IN THE AUDIT RE PORT FURNISHED BY THE ASSESSEE IN FORM 10B, THE ASSESSEE CLAIMS THAT THE TOTAL INCOME RECEIVED TO THE EXTENT OF RS.37,42,04,207 WAS USED FOR CHARI TABLE PURPOSE OF THE TRUST. ACCORDING TO THE LD.DR, IT IS NOT CLEAR HOW THE MONEY WAS USED. THE LD.DR FURTHER SUBMITTED THAT THE ASSESSEE UTILIZED THE SERVICES OF THE FIRM / COMPANY IN WHICH THE TRUSTEES OF THE ASSESSEE HAVE SUBSTANTIAL INTEREST. ACCORDING TO THE LD.DR, IN THE CASE OF GREESHMAM RE SORTS PVT LTD, THE ASSESSEE HAS MADE ADVANCE OF RS.1.94 CRORES IN PURS UANCE TO A TRIPARTITE AGREEMENT EXECUTED ON 28-08-2001. REFERRING TO THE AGREEMENT, THE COPY OF WHICH IS AVAILABLE ON FILE, THE LD.DR SUBMITTED THAT THE ASSESSEE AGREED TO PURCHASE 3 COTTAGE BLOCKS CONSISTING OF 36 ROOMS BEARING DOOR NO.VP VIII 141E2, 142P, 142Q2, 142Y, 143A TO 143L. REFER RING TO CLAUSE 5 OF THE AGREEMENT, THE LD.DR SUBMITTED THAT ON PAYMENT OF RS.20 LAKHS ADVANCE, THE ASSESSEE IS ENTITLED TO TAKE POSSESSIO N OF THE PROPERTY. THEREFORE, ACCORDING TO THE LD.DR, THE ASSESSEE IS IN POSSESSION OF THE PROPERTY OWNED BY GREESHMAM RESORTS PVT LTD; HENCE THERE IS NO NECESSITY FOR MAKING FURTHER PAYMENT FOR TRAINING T HE STUDENTS IN THE PROPERTY OWNED BY THE ASSESSEE. REFERRING TO REMAN D REPORT FILED BY THE 4 ITA NO. 233 TO 236/COCH/2012 ASSESSING OFFICER, THE LD.DR SUBMITTED THAT THE ASS ESSEE COLLECTED FEES PRESCRIBED BY THE CALICUT UNIVERSITY FOR BHM COURSE . IN RESPECT OF DIPLOMA AND OTHER OPTIONAL COURSES NO FEES WAS PRESCRIBED. IN RESPECT OF BSC DEGREE COURSE, NO FEES WAS PRESCRIBED BY THE GOVERN MENT SO FAR. REFERRING TO THE PROVISIONS OF SECTION 13 OF THE AC T, ACCORDING TO THE LD.DR, THE ASSESSEE HAS PAID TRAINING FEE TO GREESHMAM RES ORTS PVT LTD AND YENKY COLLEGE PVT LTD. THE ASSESSEE THOUGH CLAIMS THAT THE PAYMENT WAS REASONABLE AT MARKET RATE, ACCORDING TO THE LD.DR, THEY ARE ALL SISTER CONCERNS, WHERE THE INTERESTED PERSONS / TRUSTEES H AVE SUBSTANTIAL INTEREST IN THOSE COMPANIES. THEREFORE, ACCORDING TO THE LD .DR, THE PAYMENT MADE TO GREESHMAM RESORTS PVT LTD AND YENKY COLLEGE PVT LTD CANNOT BE TREATED AS APPLICATION OF INCOME U/S 11 OF THE ACT. THE LD.DR SUBMITTED THAT THE DEPARTMENT HAS TAKEN AN ADDITIONAL GROUND OF APPEAL CHALLENGING THE CORRECTNESS OF THE DECISION OF THE CIT(A) REGAR DING REASONABLENESS OF THE PAYMENT MADE BY THE ASSESSEE. 4. REFERRING TO RENT PAID TO M/S RUBY ENTERPRISES P VT LTD, THE LD.DR SUBMITTED THAT YEAR AFTER YEAR ADDITION WAS MADE TO THE BUILDING INCLUDING THE FIXED ASSET OF THE TRUST. THEREFORE, THERE IS NO NECESSITY FOR THE ASSESSEE TO ACQUIRE ANY OTHER BUILDING ON RENT / LE ASE. HENCE, THE PAYMENT MADE TO RUBY ENTERPRISES PVT LTD MAY NOT BE NECESSARY FOR CONDUCTING THE EDUCATIONAL ACTIVITY OF THE ASSESSEE . ON A QUERY FROM THE 5 ITA NO. 233 TO 236/COCH/2012 BENCH, WHEN THE TRIBUNAL SPECIFICALLY ASKED THE ASS ESSING OFFICER TO EXAMINE AND REPORT IN RESPECT OF THE FEE COLLECTED BY THE ASSESSEE AND THE FEE PRESCRIBED BY THE HIGH POWER COMMITTEE NOMINATE D BY THE GOVERNMENT FOR THE RESPECTIVE COURSES, THE ASSESSING OFFICER H AS NOT FOUND ANY EXCESS COLLECTION OF FEES, HOW CAN THE DEPARTMENT NOW CLAI M THAT THE ASSESSEE COLLECTED EXORBITANT FEES FROM THE STUDENT? THE LD .DR FAIRLY SUBMITTED THAT THE ASSESSING OFFICER HAS NOT FOUND ANY EXCESS COLL ECTION OF FEE IN RESPECT OF COURSES FOR WHICH THE FEES WAS FIXED BY THE COMM ITTEE. HOWEVER, IN RESPECT OF COURSES WHERE NO FEES WAS PRESCRIBED BY THE COMMITTEE, THE ASSESSEE COLLECTED EXORBITANT FEES FROM THE STUDENT S. REFERRING TO THE PAYMENT MADE TO THE INTERESTED PARTIES, WHO HAVE SU BSTANTIAL INTEREST IN THE COMPANIES TO WHOM THE TRAINING FEE AND RENT WAS PAID, THE TRIBUNAL SPECIFICALLY ASKED THE ASSESSING OFFICER TO EXAMINE WHETHER THE PAYMENTS MADE BY ASSESSEE ARE ON PAR WITH MARKET RATE. THE ASSESSING OFFICER HAS NOT EXPRESSED ANY OPINION WHETHER THE RENT / FEE PA ID BY THE ASSESSEE IS ON PAR WITH THE MARKET RATE. THE LD.DR SUBMITTED T HAT THE REPORT FILED BY THE ASSESSING OFFICER CONSEQUENT TO THE DIRECTION O F THE TRIBUNAL IS PLACED ON RECORD. ACCORDING TO THE LD.DR SINCE THERE WAS A VIOLATION OF SECTION 13(3) WITH REGARD TO PAYMENT MADE TO COMPANIES IN W HICH THE TRUSTEES ARE HAVING SUBSTANTIAL INTEREST, THE ASSESSEE IS NOT EN TITLED FOR ANY EXEMPTION U/S 11 OF THE ACT. 6 ITA NO. 233 TO 236/COCH/2012 5. ON THE CONTRARY, SHRI G SARANGAN, THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT U/S 2(15) OF I.T. ACT, EDUC ATION BY ITSELF IS A CHARITABLE ACTIVITY. REFERRING TO SECTION 2(15) OF I.T. ACT, THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS AN IN CLUSIVE DEFINITION SINCE THE DEFINITION OF CHARITABLE PURPOSE STARTS WITH INCLUDES. ACCORDING TO THE LD.SENIOR COUNSEL FOR THE ASSESSEE RELIEF OF PO OR, EDUCATION, MEDICAL RELIEF, PRESERVATION OF ENVIRONMENT, PRESERVATION O F MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, WOULD INDEPENDENT LY FALL WITHIN THE DEFINITION OF CHARITABLE PURPOSE. IN THIS CASE, ACCORDING TO THE LD.SENIOR COUNSEL, THE ASSESSEE TRUST WAS CARRYING ON EDUCATIONAL ACTIVITY . THEREFORE, THE EDUCATION ITSELF WOULD BE A CHARITABLE ACTIVITY. H ENCE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN SAYING THAT THE ASSESSEE IS NOT DOING ANY CHARITABLE ACTIVITY. IT IS NOT NECESSARY FOR THE ASSESSEE TO GIVE EDUCATION AT FREE OF COST. ONCE THE ASSESSEE TRUST OFFERS EDUCATION AT THE FEES PRESCRIBED BY THE GOVERNMENT OR GOVERNMENTAL AGENCY, THEN THE ACT IVITY OF THE ASSESSEE SHALL DEFINITELY FALL WITHIN THE DEFINITION OF SECT ION 2(15) OF THE ACT AS CHARITABLE PURPOSE. THEREFORE, THE DEPARTMENT IS N OT JUSTIFIED IN SAYING THAT THE ASSESSEE IS NOT DOING ANY CHARITABLE ACTIVITY. REFERRING TO THE OBSERVATIONS MADE BY THE ASSESSING OFFICER THAT THE ASSESSEE IS ENGAGED IN CONDUCTING BEAUTICIAN COURSE, HEALTH CLINICS AS ALSO CONDUCTING COURSE ON INTERIOR DECORATION, FLOWER MANAGEMENT AND DRESS MAKING, ETC. THE 7 ITA NO. 233 TO 236/COCH/2012 LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE IS RUNNING AN EDUCATIONAL INSTITUTION IN THE TOURISM / HOSPITA LITY FIELD. THE COURSE CONDUCTED BY THE INSTITUTION RUN BY THE ASSESSEE IS APPROVED BY THE ALL INDIA COUNCIL OF TECHNICAL EDUCATION AND AFFILIATED TO CALICUT UNIVERSITY. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED I N SAYING THAT THE COURSE CONDUCTED BY THE ASSESSEE WOULD NOT FALL WITHIN THE DEFINITION OF EDUCATION. THE OBJECT OF THE TRUST DEED ENABLES THE ASSESSEE TO CONDUCT FURTHER COURSES IN BEAUTICIAN COURSE, HEALTH CLINIC S AND ALSO COURSE ON INTERIOR DECORATION, FLOWER MANAGEMENT AND DRESS MA KING, ETC. HOWEVER, AS OF TODAY, ACCORDING TO LD.SENIOR COUNSEL BEAUTIC IAN COURSE, HEALTH CLINICS AND ALSO TO CONDUCT COURSE ON INTERIOR DECORATION, FLOWER MANAGEMENT AND DRESS MAKING, ETC. WERE NOT CONDUCTED BY THE ASSESS EE. THESE COURSES ARE CONNECTED WITH THE HOSPITALITY / TOURISM EDUCAT ION. EVEN IF THE ASSESSEE CONDUCTS SUCH COURSES IN THE INSTITUTION R UN BY THE ASSESSEE, IT CANNOT BE TREATED AS BUSINESS ACTIVITY. ACCORDING TO THE LD.SENIOR COUNSEL FOR THE ASSESSEE, THESE COURSES ARE PART OF THE HOS PITALITY / TOURISM COURSE; HENCE IT WILL DEFINITELY FALL WITHIN THE DEFINITION OF CHARITABLE PURPOSE U/S 2(15) OF THE ACT AS EDUCATION. REFERRING TO THE OBSERVATIONS MADE BY THE ASSESSING OFFICER THAT THE ASSESSEE INSTITUTION IS DEMANDING SUBSTANTIAL AMOUNT AS FEES FROM THE STUDENTS, THE LD.SENIOR COU NSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO ALLEGATION THAT THE ASSE SSEE IS COLLECTING CAPITATION FEES FOR ADMISSION OF THE STUDENTS. THE ASSESSEE IS COLLECTING 8 ITA NO. 233 TO 236/COCH/2012 THE FEES PRESCRIBED BY THE COMMITTEE NOMINATED BY T HE GOVERNMENT. WHEREVER THE COMMITTEE HAS NOT PRESCRIBED THE FEES THE INSTITUTE ITSELF PRESCRIBES FEE FOR THE COURSE AND THEY ARE COLLECTI NG ONLY THE PRESCRIBED FEES. THEREFORE, THE GENERALIZED ALLEGATION MADE B Y THE ASSESSING OFFICER THAT SUBSTANTIAL AMOUNT WAS COLLECTED FROM THE STUD ENTS IS NOT JUSTIFIED. 6. REFERRING TO THE OBSERVATIONS MADE BY THE ASSESS ING OFFICER THAT THE ASSESSEE IS SYSTEMATICALLY BUILDING UP PROFIT, ACCO RDING TO THE LD.SENIOR COUNSEL, THE ASSESSEE IS NOT GETTING ANY PROFIT. T HE ASSESSEE IS COLLECTING ONLY THE FEES PRESCRIBED BY THE COMMITTEE IN RESPEC T OF APPROVED COURSES. WHEREVER FEE IS NOT FIXED, THE ASSESSEE FIXES THE F EE AND NO AMOUNT WAS COLLECTED OVER AND ABOVE THE PRESCRIBED FEES. THE BALANCE AMOUNT AS AT THE END OF THE YEAR IS INVESTED FOR CONSTRUCTION OF BUILDING FOR INSTITUTION. ACCORDING TO THE LD.SENIOR COUNSEL, WHEN THE ASSESS EE INVESTED THE SURPLUS FUNDS IN THE CONSTRUCTION OF BUILDING FOR T HE USE OF THE STUDENTS FOR RUNNING THE COURSE, IT HAS TO BE ALLOWED AS APPLICA TION OF INCOME, AND IT CANNOT BE CONSTRUED AS INCOME OF THE ASSESSEE. ACC ORDING TO THE LD.SENIOR COUNSEL, MORE THAN 85% OF THE GROSS RECEI PT WAS UTILIZED FOR THE PURPOSE OF EDUCATION AND WHAT REMAINS IS ONLY LESS THAN 15% WHICH IS ACCUMULATED FOR THE PURPOSE OF USING THE SAME FOR E DUCATION PURPOSE ONLY. THEREFORE, ACCORDING TO THE LD.SENIOR COUNSEL FOR T HE ASSESSEE, IT IS NOT CORRECT TO SAY THAT THE ASSESSEE IS SYSTEMATICALLY BUILDING UP PROFIT. 9 ITA NO. 233 TO 236/COCH/2012 REFERRING TO THE GROUNDS OF APPEAL, THE LD.SENIOR C OUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR THE ASSESSMENT YEAR 2005-06 THE DEPARTMENT CLAIMS THAT NET PROFIT WAS 22.86%. THIS PROFIT ARRIVED AT BY THE DEPARTMENT IS BEFORE USING OR APPLYING THE INCOME FOR CONSTRUCTIO N OF BUILDING. ONCE THE FUNDS USED FOR CONSTRUCTION OF THE BUILDING FOR THE PURPOSE OF RUNNING THE INSTITUTION IS EXCLUDED AS APPLICATION OF INCOME U/ S 11 THEN NO NET PROFIT REMAIN AS CLAIMED BY THE DEPARTMENT. REFERRING TO THE ADDITIONAL GROUND FILED BY THE DEPARTMENT, THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ABSENCE OF ANY ALLEGATION THAT THE ASSE SSEE HAS PAID OVER AND ABOVE THE REASONABLE PRICE / RENT, THERE CANNOT BE ANY VIOLATION OF SECTION 13(1) OF THE ACT. REFERRING TO SECTION 13 OF THE I NCOME-TAX ACT, MORE PARTICULARLY, SUB CLAUSE (2), THE LD.SENIOR COUNSEL FOR THE ASSESSEE POINTED OUT THAT INCOME-TAX ACT DOES NOT FORBID ANY TRANSAC TION WITH RELATED PARTIES / INTERESTED PARTIES. SECTION 13(2) CLEARLY SAYS T HAT IF THERE IS ANY TRANSACTION OF LEASE / RENT IN RESPECT OF PERSON, W HO IS SUBSTANTIALLY INTERESTED IN THE PROPERTY, THEN IT HAS TO BE ENSUR ED THAT THE CONSIDERATION IS ADEQUATE. ONCE THE CONSIDERATION IS ADEQUATE, A CCORDING TO THE LD.SENIOR COUNSEL FOR THE ASSESSEE, THE TRANSACTION CANNOT BE FAULTED WITH. IN THIS CASE, ACCORDING TO THE LD.SENIOR COUNSEL FO R THE ASSESSEE, EVEN THOUGH THIS TRIBUNAL SPECIFICALLY DIRECTED THE ASSE SSING OFFICER TO EXAMINE WHETHER THE RENT / LEASE AMOUNT PAID TO THE INTERES TED PERSONS IS ON PAR WITH MARKET RATE, THE ASSESSING OFFICER COULD NOT S AY THAT THE ASSESSEE HAS 10 ITA NO. 233 TO 236/COCH/2012 PAID ANY AMOUNT OVER AND ABOVE THE MARKET RATE. TH EREFORE, ACCORDING TO THE LD.SENIOR COUNSEL FOR THE ASSESSEE, THE AMOUNT PAID BY THE ASSESSEE TO THE COMPANY IN WHICH THE TRUSTEES ARE HAVING SUBSTA NTIAL INTEREST ARE ADEQUATE WHEN COMPARED TO THE MARKET RATE, THEREFOR E, THERE IS NO VIOLATION OF SECTION 13(2) OR 13(3) OF THE ACT. RE FERRING TO THE TRANSACTION OF THE ASSESSEE WITH THE GREESHMAM RESORTS PVT LTD, TH E LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE ENTERE D INTO A TRIPARTITE AGREEMENT FOR PURCHASE OF 3 BLOCKS OF COTTAGES. AC CORDING TO THE LD.SENIOR COUNSEL FOR THE ASSESSEE, THE BUSINESS OF HOTEL IND USTRY IS RUN BY GREESHMAM RESORTS PVT LTD AND WHAT WAS AGREED TO BE PURCHASED IS 36 ROOMS OF THREE BLOCKS FOR THE PURPOSE OF PROVIDING HOSTEL ACCOMMODATION TO THE STUDENTS. ACCORDING TO THE LD.SENIOR COUNSE L FOR THE ASSESSEE, THE BUSINESS OF THE HOTEL IS RUN BY GREESHMAM RESORTS P VT LTD. 7. THE LD.SENIOR COUNSEL FOR THE ASSESSEE FURTHER S UBMITTED THAT AS PART OF EDUCATIONAL CURRICULUM IN-HOUSE TRAINING HAS TO BE PROVIDED TO THE STUDENTS IN THE HOTEL INDUSTRY. SINCE THE ASSESSEE IS NOT HAVING OWN HOTEL IT HAS TO NECESSARILY ENGAGE THE SERVICES OF OTHER HOTELS TO PROVIDE TRAINING TO THE STUDENTS SO AS TO ENABLE THEM TO COMPLETE TH E DEGREE COURSE. INSTEAD OF ENGAGING A THIRD PARTY HOTEL, THE ASSESS EE PREFERRED TO PROVIDE TRAINING IN THE HOTEL / RESORT WHERE THE TRUSTEES H AVE SUBSTANTIAL INTEREST AND PAID ADEQUATE CHARGES ON PAR WITH THE MARKET RA TE. IN THE ABSENCE OF 11 ITA NO. 233 TO 236/COCH/2012 ANY PROHIBITION IN THE INCOME-TAX ACT TO HAVE TRANS ACTION WITH RELATED PARTIES / INTERESTED PARTIES AND THE PAYMENT OF CHA RGES IS ON PAR WITH MARKET RATE, ACCORDING TO THE LD.SENIOR COUNSEL FOR THE ASSESSEE, THERE IS NO VIOLATION OF EITHER SECTION 13(2) OR SECTION 13( 3) OF THE ACT. THE LD.SENIOR COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CLAI M OF EXEMPTION U/S 11 OF THE ACT WAS REJECTED BY THE ASSESSING OFFICER ON TH E GROUND THAT THE ASSESSEE IS NOT CONDUCTING ANY CHARITABLE ACTIVITY AND THERE WAS A VIOLATION OF THE PROVISIONS OF SECTION 13 OF THE ACT. THE AS SESSING OFFICER ALSO FOUND THAT THE ASSESSEE SYSTEMATICALLY BUILDING UP PROFIT YEAR AFTER YEAR. ADMITTEDLY, THE ASSESSEE PAID LEASE / RENTALS TO TH E COMPANY IN WHICH THE TRUSTEES ARE HAVING SUBSTANTIAL INTEREST. THEREFOR E, IN ORDER TO FIND OUT WHETHER THE RENT / LEASE RENT PAID BY THE ASSESSEE IS REASONABLE AND ON PAR WITH THE MARKET RATE, THIS TRIBUNAL CALLED FOR THE REMAND REPORT FROM THE ASSESSING OFFICER. THIS TRIBUNAL HAS ALSO DIRECTED THE ASSESSING OFFICER TO EXAMINE WHETHER THE ASSESSEE COLLECTED ANY MONEY OV ER AND ABOVE THE FEES PRESCRIBED FOR ADMISSION OF THE STUDENTS AS A CAPITATION FEE OR OTHERWISE. FOR THE PURPOSE OF CONVENIENCE, THE ORD ER PASSED BY THIS TRIBUNAL CALLING FOR THE REMAND REPORT IS REPRODUCE D HEREUNDER: 12 ITA NO. 233 TO 236/COCH/2012 ALL THE FOUR DEPARTMENTAL APPEALS FOR THE ASSESSME NT YEARS 2005-06, 2006-07, 2007-08 AND 2008-09 CAME UP FOR F INAL DISPOSAL TODAY. DURING THE COURSE OF HEARING, THE LD.SENIOR COUNSEL, SHRI G SARANGAN APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT COLLECTED ANY M ONEY OVER AND ABOVE THE FEES PRESCRIBED BY THE COMMITTEE HEAD ED BY RETIRED HIGH COURT JUDGE WHICH WAS CONSTITUTED BY S TATE GOVERNMENT AND THAT WHEREVER THE COMMITTEE HAS NOT FIXED ANY FEE, THE ASSESSEE ITSELF FIXED THE FEE AND NO M ONEY WAS COLLECTED BY THE ASSESSEE OVER AND ABOVE THE PRESCR IBED FEE. THE ASSESSEE HAS FILED THE DETAILS OF THE PRESCRIBE D FEES AND THE FEES COLLECTED FROM THE STUDENTS. HOWEVER, THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, MORE PARTICULARLY, ON PAGE 3, PARAGRAPH 3 CLAIMS THAT THE INSTITUTION IS DEMANDIN G SUBSTANTIAL AMOUNT FROM THE STUDENTS. IN VIEW OF T HE EXPLANATION OF THE ASSESSEE THAT THE AMOUNTS COLLEC TED BY THE ASSESSEE IS THE PRESCRIBED FEE, THIS TRIBUNAL IS O F THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE CONS IDERED BY THE ASSESSING OFFICER ON THE BASIS OF THE DETAILS F URNISHED BY THE ASSESSEE BEFORE THIS TRIBUNAL. 2. REFERRING TO THE EXPENDITURE WITH REGARD TO LEAS E RENT PAID TO RUBY ENTERPRISES; TRAINING FEE PAID TO GREE SHMAM RESORTS P. LTD; AND YENKEY COMPLEX P LTD, THE LD.SE NIOR COUNSEL SUBMITTED THAT THESE ARE THE AMOUNTS PAID T O THE RESPECTIVE INSTITUTION AT THE MARKET RATE. THE LD. SENIOR COUNSEL SUBMITTED THAT THE ASSESSEE HAS TO OFFER TRAINING A S A PART OF EDUCATIONAL CURRICULIM TO THE STUDENTS. THEREFORE, INSTEAD OF 13 ITA NO. 233 TO 236/COCH/2012 SENDING THE STUDENTS TO OTHER INSTITUTIONS THE STUD ENTS ARE SENT TO THE INSTITUTIONS RUN BY THE TRUSTEES AND PAID FE E AT THE MARKET RATE FOR THE SERVICES AVAILED FROM THEM. ON CE THE FEE WAS PAID AT THE MARKET RATE, IT CANNOT BE SAID THAT ANY INTERESTED PERSON BENEFITTED OUT OF THE INCOME OF T HE TRUST. 3. IN VIEW OF THE ABOVE SUBMISSION, THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS T O EXAMINE THE ABOVE CONTENTIONS OF THE ASSESSEE AND FILE A RE PORT BEFORE THIS TRIBUNAL. IN OTHER WORDS, THE ASSESSING OFFIC ER SHALL EXAMINE THE DETAILS OF THE FEES COLLECTED FROM EACH STUDENT AND THE FEES PRESCRIBED BY THE COMMITTEE CONSTITUTE D BY THE STATE GOVERNMENT FOR EACH COURSE OFFERED BY THE ASS ESSEE TRUST AND FIND OUT WHETHER THE ASSESSEE HAS COLLECT ED ANY MONEY OVER AND ABOVE THE PRESCRIBED FEE FOR ADMISSI ON OF THE STUDENTS. THE ASSESSING OFFICER SHALL ALSO EXAMINE WHETHER THE PAYMENTS MADE TO RUBY ENTERPRISES; TRAINING FEE PAID TO GREESHMAM RESORTS P. LTD; AND YENKEY COMPLEX P LTD WERE AT THE PREVAILING MARKET RATE AT THE RELEVANT POINT OF TIME. 4. THE ASSESSING OFFICER SHALL EXAMINE ABOVE FACTS AND AFTER GIVING OPPORTUNITY TO THE ASSESSEE AND FILE A REPORT BEFORE THIS TRIBUNAL ON OR BEFORE 24-06-2013 AFTER SERVING A COPY OF THE REPORT TO THE ASSESSEE. IT IS OPEN TO THE ASSESSEE TO FILE AN OBJECTION AGAINST THE REPORT FILED BY TH E ASSESSING OFFICER, IF SO ADVISED, ON OR BEFORE 04-07-2013. 14 ITA NO. 233 TO 236/COCH/2012 9. IN PURSUANCE TO THE ORDER OF THIS TRIBUNAL CALLI NG FOR THE REMAND REPORT, THE ASSESSING OFFICER HAS SUBMITTED THE REM AND REPORT AS FOLLOWS: F.NO./ACIT/C-2(1)/KKD/13-14 DATED : 22/08 /2013 TO THE ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, 1 ST FLOOR, C-2 BLOCK, KENDRIYA BHAVAN, SEAPORT AIRPORT ROAD, OPP. CSEZ, KAKKANAD, KOCHI. SIR, SUB:- APPEALS IN THE CASE OF MALABAR HOTEL MANAGEMENT & CATERING PROMOTION TRUST IN ITA NO.233 TO 23/C/12 SUBMISSION OF REMAND REPORT. REF:- YOUR LETTER IN NO.ITA 233 TO 236/C/12 DATED 11/07/2013. **************** KIND REFERENCE IS INVITED TO THE ABOVE. 2. CONSEQUENT TO THE ORDER OF THE ITAT IN ITAS NO. 233 TO 236/COCH/2012 DATED 27/05/2013 AND MODIFIED ON 10/0 7/2013 IN THE CASE OF M/S MALABAR HOTEL MANAGEMENT & CATER ING PROMOTION TRUST, CALICUT, THE REMAND REPORT IS SUBM ITTED S UNDER. I. A LETTER WAS ISSUED TO THE ASSESSEE TO FURNISH T HE DETAILS OF FEES COLLECTED FROM EACH STUDENT FOR THE FY 2004-05 TO 2007-08 AND DETAILS OF FEES PRESCRIBED BY THE COMMITTEE CONSTITUTED BY THE STATE GOVERNMENT FOR EACH COURSE FOR THE ACADEMIC YEAR RELATING TO THE ABOVE FINANCIAL YEAR. IN RESPONSE, THE ASSESSEE HAS FURNISHED THE FOLLOWING INFORMATION. 15 ITA NO. 233 TO 236/COCH/2012 A. BHM COURSE : FOR THE FY 2004-05 TO 2007-08, THE FEES COLLECTED AS PRESCRIBED BY THE CALICUT UNIVERSITY. B. FOR THE DIPLOMA COURSE IN HOTEL MANAGEMENT (DHM), NO FEES HAS BEEN PRESCRIBED. C. SIMILARLY FOR THE OPTIONAL COURSES FEE CONDUCTED BY THE AMERICAN HOTEL & LODGING ASSOCIATION NO FEES HAS BEEN PRESCRIBED. D. FROM THE FY 2005-06 THE TRUST HAS CONDUCTED THE BSC DEGREE COURSE IN HOTEL MANAGEMENT & CATERING SCIENCE. THE COURSE FEE WAS HOWEVER STATED TO BE FINALIZED BY THE GOVT. ONLY IN 2010. E. SIMILARLY FOR BSC HOSPITALITY AND HOTEL ADMINISTRATION NO FEES HAS BEEN PRESCRIBED. 3. IT IS PERTINENT TO NOTE THAT THIS A CASE WHERE T HE PROVISION OF SEC 13(1) ARE SQUARELY APPLICABLE WHIC H MEANS THAT EVEN IF A PARTICULAR INCOME IS OTHERWISE EXEMP T BY VIRTUE OF SEC 11 AND OF SEC 12, THE INCOME WILL FORFEIT TH E EXEMPTION IN VIEW OF THE CONTRAVENTION U/S 13(3). THE FOLLOW ING FITS NEED TO BE TAKEN INTO COGNIZANCE:- THE TRUSTEES INTEREST IN THE FOLLOWING COMPANIES W HOSE TRANSACTIONS ARE LIABLE TO ATTRACT THE PROVISIONS O F SECTION 13(1) ARE AS UNDER:- NAME OF THE TRUSTEE RELATIONSHIP WITH GREESH MAM RESORTS PVT LTD YENKE Y COMPL EX PVT LTD RUBY ENTERPRIS ES PVT LTD N.K. MOHAMMED 28.5% 24.5% NIL SAFEENA MOHAMMED 2.33% 4.10% NIL TAZNIN MOHAMMED 5.24% 4.00% NIL T.K. IBRAHIMKUTTY 45.92% 28.60 % 89.10% M.A. SAFIYA 17.55% 12.40 % 10.90% 16 ITA NO. 233 TO 236/COCH/2012 4. AS REGARDS PAYMENTS BY WAY OF TRAINING FEES MADE TO GREESHMAM RESORTS PVT LTD AND YENKEY COMPLEX PVT LT D THE CONTENTION OF LEARNED CIT(APPEALS) THAT THE PAYMENT S ARE REASONABLE, IS WITHOUT ANY BASIS AND WITHOUT TAKING INTO CONSIDERATION THE FACT THAT THEY ARE SISTER CONCERN S OF HE TRUSTEES HAVING SUBSTANTIAL INTERESTS IN THE COMPAN IES. WHAT IS PERTINENT HERE IS THAT THESE EXPENSES ARE NOT TO BE TREATED AS APPLICATION OF INCOME U/S 11 SINCE THE PAYMENTS FALL WITHIN THE AMBIT OF SECTION 13(1). 5. IN FACT CLAUSE 5 IN PAGE 3 OF THE TRIPARTITE AGR EEMENT EXECUTED ON 28/09/2001 BETWEEN M/S GREESHMAM RESORT S (P) LTD & MALABAR HOTEL MANAGEMENT AND CATERING PRO MOTION TRUST (COPY ENCLOSED) CLEARLY VETS THE POSSESSION O F GREESHMAM RESORTS (P) LTD WITH THE ASSESSEE TRUST I TSELF ON PAYMENT OF THE FIRST ADVANCE OF RS.20 LAKHS. THERE FORE, THE QUESTION OF PAYING TRAINING FEES DOES NOT ARISE AT ALL. THOUGH THE PROPERTY HAS NOT BEEN BROUGHT INTO THE BOOKS OF THE TRUST, AN AMOUNT OF RS.1,95,73,106 HAS BEEN CLAIMED AS ADV ANCES PAID TO GREESHMAM RESORTS PVT LTD FOR THE YEAR ENDI NG 31/03/2008. THE AGREEMENT ALSO INDICATES THAT THE COMPANY WAS MORTGAGED WITH KERALA STATE INDUSTRIAL DEVELOPM ENT CORPORATION. THESE TRANSACTIONS PROVE BEYOND DOUBT THAT THE RECEIPTS OF THE TRUSTS ARE BEING UTILIZED TO FURTHE R THE BUSINESS INTEREST OF THE TRUSTEES LIKE PROVIDING INTEREST FR EE LOANS IN THE GUISE OF ADVANCES / EXPENSES ETC. TO SISTER CONCERN S CLEARLY ATTRACTING THE PROVISIONS OF SECTION 13(1). 6. THE CONTENTION OF THE LEARNED CIT(APPEALS) THAT LEASE RENT PAID TO M/S RUBY ENTERPRISES PVT LTD IS REASON ABLE IS ALSO DEVOID OF ANY REASONING. CONSIDERING THE FACT THAT YEAR AFTER YEAR, THE ADDITIONS TO BUILDINGS INCLUDED IN THE FI XED ASSETS OF THE TRUST ARE APPROXIMATELY AROUND RS.50 LAKHS EACH YEAR, THE QUESTION OF ACQUIRING ANOTHER PROPERTY ON RENT / LE ASE DOES NOT ARISE AT ALL. HENCE THIS TRANSACTION IS ALSO NOT I N THE NATURE OF APPLICATION OF INCOME U/S 11 BUT A PURELY FINANCIAL TRANSACTION TO SUIT THE BUSINESS INTEREST OF THE TRUSTEES. 7. FROM THE ABOVE FINDINGS, IT IS EVIDENT THAT THE TRANSACTION WITH SISTER CONCERNS ARE CLEARLY WITHIN THE AMBIT OF 17 ITA NO. 233 TO 236/COCH/2012 SECTION 13(1) AND THE ORDER OF THE LEARNED CIT(APPE ALS) IS THEREFORE BAD IN LAW. YOURS FAITHFULLY SD/- (NAZEERA MOHAMMED) ASST.COMMISSIONER OF INCOME TAX, CIRCLE 2(1), KOZHIKODE. COPY TO : THE SR.AUTHORISED REPRESENTATIVE, ITAT, KOCHI 10. THE ASSESSEE HAS ALSO FILED ITS REPLY BY WAY OF A REJOINDER WHICH READS AS FOLLOWS: S. PARTHSRATHI NO.3/1, PRANAVA COMPLEX ADVOCATE 5 TH CROSS, MALLESWARAM BANGALORE 560 003 PH.NO.23312660 / 23310972 FAX: [phone] DATE : 13.11.2013 BEFORE THE INCOME TX APPELLATE TRIBUNAL COCHIN BENCH: KOCHI SUB : REJOINDER TO THE REMAND REPORT ITA NOS.233 TO 236/COCHIN/2012 A.YS: 2005-06 TO 2008-09 IN THE CASE OF DCIT VS M/S MALABAR HOTEL MANAGEME NT & CATERING PROMOTION TRUST, CALICUT REF:- REMAND REPORT DT.22.08.2013 THE ASSESSEE-RESPONDENT HAS BEEN SERVED WITH A COP Y OF THE REPORT FILED BY THE ASSESSING OFFICER AS PER TH E DIRECTIONS OF THIS HONBLE COURT. IN RESPONSE TO THE SAID REPORT, THE ASSESSEE- RESPONDENT IS PLACING THE FOLLOWING FACTS COUPLED W ITH DOCUMENTS ALREADY PLACED IN THE PAPER BOOKS FILED BEFORE THE HONBLE APPELLATE TRIBUNAL AS PART OF THE REJOINDER. 18 ITA NO. 233 TO 236/COCH/2012 1. IT IS SUBMITTED THAT THE ASSESSEE-RESPONDENT PLA CED ALL DOCUMENTS AND MATERIALS BEFORE THE ASSESSING OFFICE R DURING THE REMAND PROCEEDINGS, BUT UNFORTUNATELY THE ASSESSING OFFICER EXCEPT ISSUING A LETTER (DT.7.8.2013) DID NOT CALL FOR THE ASSESSEE- RESPONDENT NOR EVEN DID HE CALL FOR ANY EXPLANATION . THE ASSESSING OFFICER ALSO DID NOT GIVE ANY OPPORTUNITY TO THE ASSESSEE-RESPONDENT TO EXPLAIN THE ABOVE ALLEGED IS SUE OF VIOLATION OF SEC.13(1) OF THE INCOME-TAX ACT, 1961. 2. IT IS SUBMITTED, AT THE OUTSET THAT THE ASSESSIN G OFFICER SEEMS TO BE IN AGREEMENT WITH THE FINDINGS OF THE LEARNED CO MMISSIONER OF INCOME-TAX (A) AND THE PLEA OF THE ASSESSEE-RESPOND ENT THAT THE COLLECTION OF FEES FROM STUDENTS ADMITTED IN VARIOU S COURSES OFFERED BY THE TRUST IS NOT EXCESS AND IS STRICTLY IN CONFORMITY WITH THE FEES PRESCRIBED / RECOMMENDED BY THE CALICUT UN IVERSITY OR AICTE OR NCHMCT, AS THE CASE MAY BE. 3. THE ASSESSING OFFICER HAS ALLEGED THAT BECAUSE O F TRUSTEES INTEREST IN (1) GRESSHMAM RESORTS PVT LTD; (2) YENK EY COMPLEX PVT LTD, AND (3) RUBY ENTERPRISES PVT LTD, WITH WHO M THE ASSESSEE-RESPONDENT HAS TRANSACTIONS, ATTRACTED THE PROVISIONS OF SEC.13(1) OF THE INCOME-TAX ACT, 1961. IT IS SU BMITTED THAT SEC.13(1) IS OMNIBUS CLAUSE AND THE ASSESSING OFFIC ER HAS NOT SPECIFICALLY BROUGHT ON RECORD AS TO WHICH SUB-CLAU SE THAT HAS BEEN SPECIFICALLY VIOLATED NOR DOES THE ASSESSING O FFICER BRING ON RECORD ANY MATERIAL EVIDENCE TO SUPPORT HIS ALLEGAT IONS AS TO THE VIOLATION OF PROVISIONS OF SEC.13(1) OF THE ACT. I T MAY BE APPRECIATED HERE THAT THE ALLEGATION HOWSOEVER STRO NG OR GRAVE WILL NOT TAKE THE PLACE OF PROOF UNLESS THERE IS SU PPORTING DOCUMENTARY EVIDENCE. IN THE ENTIRE REMAND REPORT THE 19 ITA NO. 233 TO 236/COCH/2012 ASSESSING OFFICER HAS ONLY ALLEGED THAT .. THEY ARE SISTER CONCERNS OF THE TRUSTEES HAVING SUBSTANTIAL INTERES TS IN THE COMPANIES. THIS LACK OF EVIDENCE COUPLED WITH THE COLLECTION OF FEES WITHIN THE PARAMETERS PRESCRIBED BY THE CONCER NED AUTHORITIES WOULD ONLY SUPPORT THE CASE OF THE ASSE SSEE- RESPONDENT IN JUSTIFYING ITS STAND AND THE FINDINGS OF THE LEARNED COMMISSIONER (A) WHICH IS ONLY REQUIRED TO BE UPHE LD. 4. WITHOUT PREJUDICE, IT IS SUBMITTED IN THE CASE O N HAND THAT THE ASSESSEE TRUST HAS SPENT BY WAY OF EXPENDITURE A SU M OF MONEY WHICH ACCORDING TO THE ASSESSING OFFICER WAS IN VI OLATION OF PROVISIONS OF SEC.13(1) OF THE ACT. THE LEARNED CO MMISSIONER (A) HAS GIVEN A CATEGORICAL FINDING THAT THE EXPEND ITURE INCURRED BY THE TRUST WAS REASONABLE AND ARE WELL COMPARED W ITH THE PREVAILING MARKET RATES. THIS CRUCIAL FACT HAS ALS O NOT BEEN COUNTERED BUT FOR A MERE SWEEPING REMARKS NAMELY W ITHOUT ANY BASIS. THE ASSESSING OFFICER EVEN WHILE ALLEGING WITHOUT ANY BASIS HAS NOT BROUGHT OUT ANY INDEPENDENT PIECE OF EVIDENCE IN HIS SUPPORT. IT MAY BE APPRECIATED THAT AS PER THE SYLLABUS APPROVED BY THE CALICUT UNIVERSITY AND THE AICTE, 22 WEEKS OF INDUSTRIAL EXPOSURE TRAINING WILL HAVE TO BE PROVID ED TO THE STUDENTS OF BOTH BSC IN HOTEL MANAGEMENT AND CATERI NG SCIENCE COURSE AND BSC IN HOTEL MANAGEMENT AND CULINARY ART S. THE INDUSTRIAL EXPOSURE TRAINING IS LIKE AN INTERNSHIP WHICH IS MEANT TO DEVELOP COMPETENCE IN PRACTICAL SITUATIONS IN TH E VARIOUS DEPARTMENTS OF A HOTEL AND DEVELOP SUITABLE SKILLS FOR APPLYING THEIR KNOWLEDGE. SUCH TRAINING HAS TO BE PROVIDED BY A STAR CATEGORY HOTEL. FURTHER, AS THE NAME OF THE ASSESSE ES CATERING COLLEGE WAS GAINING ACCEPTANCE AMONG MAJOR HOTELS D URING THE PERIOD, THE ASSESSEE WAS FINDING IT VERY DIFFICULT TO PLACE ALL THE 20 ITA NO. 233 TO 236/COCH/2012 STUDENTS WITH PROPER INSTITUTIONS OF REPUTE IN THE HOSPITALITY INDUSTRY. LACK OF SUFFICIENT NUMBER OF STAR CATEGO RY HOTELS IN NORTH KERALA MADE IT DIFFICULT TO FIND SUITABLE PLA CEMENTS FOR THE STUDENTS WHO WERE REQUIRED TO UNDERGO MANDATORY PRA CTICAL TRAINING AS PART OF CURRICULUM. UNDER THESE CIRCUM STANCES, THE ASSESSEE-RESPONDENT HAD TO SEEK THE HELP OF TWO RES ORTS, ONE IN VYTHIRI AND THE OTHER NEAR CALICUT TO PLACE ITS STU DENTS FOR PRACTICAL EXPOSURE. THUS, CONSIDERING THESE ASPECT S THE PAYMENTS MADE BY THE TRUST WERE ACTUALLY IN THE ASS ESEES RESPONDENTS OWN INTEREST AND NOT VISA-VERSA. 5. THE ASSESSING OFFICER HAS OBSERVED IN HIS REPORT THAT THE TRUST HAD MADE AN ADVANCE OF RS.1,95,73,106/- TO GREESHMA M RESORTS PVT LTD, AND ALSO OBSERVES THAT THE TRUST W AS IN POSSESSION OF THE SAID RESORTS IN TERMS OF CLAUSE 5 OF THE TRIPARTITE AGREEMENT DT. 28.09.2001. IT IS SUBMITT ED THAT THE PAYMENTS MADE TO THE SAID RESORTS WAS TOWARDS THE P URCHASE OF THE PROPERTY AND NOT ON ACCOUNT OF ANY LEASE. THE T RUST ENTERED INTO AGREEMENT FOR BUYING A PART OF THE PROPERTY OF THE RESORT WHICH WAS TO BE USED AS A HOSTEL FOR THE STUDENTS W ITH THE TRAINING BEING PROVIDED IN THE RESORTS RUN BY GREES HMAM RESORTS PVT LD. FURTHER, THE COMPANY HAS TAKEN LOAN FROM K ERALA STATE INDUSTRIAL CORPORATION LTD., (KSIDC) FOR THE CONSTR UCTION OF THE PROPERTY AND THE MORTGAGE WAS DONE BEFORE THE AGREE MENT WAS ENTERED INTO WITH THE TRUST. AS PER THE AGREEMENT, THE ASSESSEE TRUST WAS MAKING THE PAYMENTS IN INSTALMENTS TO KSI DC AND NOT TO THE COMPANY DIRECTLY. 6. WITH REGARD TO THE PAYMENTS MADE BY WAY OF EXPEN DITURE TO M/S RUBY ENTERPRISES PVT LTD, THE ASSESSING OFFICER ONL Y RELIES ON HIS ALLEGATION, AGAIN, WITH NO SUPPORT OF ANY MATERIAL EVIDENCE. IT IS 21 ITA NO. 233 TO 236/COCH/2012 SUBMITTED THAT THE TRUST ACCOMMODATES ON AN AVERAGE ABOUT 400- 500 STUDENTS STUDYING IN VARIOUS COURSES AND ALL TH E COURSES OFFERED BY THE TRUST ARE RESIDENTIAL. THE ASSESSEE -RESPONDENT, THEREFORE HAS TO ACCOMMODATE ABOUT 400-500 STUDENTS . WHILE THE ASSESSEE-RESPONDENT HAS CONSTRUCTED THE REQUIRE D INFRASTRUCTURE FOR THE COLLEGE, IT WAS NOT ABLE TO COMPLETE THE ADEQUATE HOSTEL FACILITY FOR THE STUDENTS AND THERE FORE, THE NEED AROSE TO ACCOMMODATE GOOD NUMBER OF STUDENTS IN HOS TEL FACILITY LEASED FROM THIRD PERSON. ACCORDINGLY, THE ASSESSE E-RESPONDENT TOOK ON LEASE A BUILDING WITH 36 FURNISHED ROOMS WI TH THE FACILITY OF THE PLAYGROUND ETC., FROM M/S RUBY ENTERPRISES P VT LTD. THEREFORE, IT IS SUBMITTED THAT CONSIDERING THE PAY MENT VIS--VIS THE STUDENTS, THE EXPENDITURE WOULD BE AROUND RS.10 00/- PER MONTH PER STUDENT WHICH IS FOR BELOW THE MARKET RAT E IN ANY HOTEL WHERE THE SAME WOULD NOT BE LESS THAN RS.500/- PER DAY. 7. IT IS THEREFORE SUBMITTED THAT MERE ALLEGATIONS IS NOT SUFFICIENT OR CANNOT TAKE THE PLACE OF PROOF OF VIOLATION OF PROV ISIONS OF SEC.13(1) OF THE ACT AND THE FACT OF REASONABLENESS ON THE PAYMENT OF LEASE RENT, THE DEPARTMENTAL APPEAL DESE RVES TO BE DISMISSED IN THE INTEREST OF JUSTICE AND EQUITY. SD/- (S. PARTHASARTHI) 10. IN VIEW OF THE ABOVE LET US NOW EXAMINE WHETHER THE ASSESSEE IS COLLECTING ANY CAPITATION FEE FOR ADMISSION OF STUD ENTS OVER AND ABOVE THE FEES PRESCRIBED OR NOT. FROM THE REMAND REPORT FI LED BY THE ASSESSING OFFICER IT IS APPARENT THAT THE STATE GOVERNMENT HA S PRESCRIBED FEE ONLY FOR 22 ITA NO. 233 TO 236/COCH/2012 BHM COURSE ALONE. IT IS ALSO THE OBSERVATION OF TH E ASSESSING OFFICER THAT THE ASSESSEE COLLECTED ONLY THE FEES PRESCRIBED BY THE CALICUT UNIVERSITY. IN RESPECT OF OTHER COURSES, VIZ. DIPLOMA COURSE, B SC IN HOTEL MANAGEMENT AND CATERING SERVICES, BSC IN HOSPITALITY & HOTEL A DMINISTRATION, NO FEES WAS PRESCRIBED BY ANY AUTHORITY FOR THE YEARS UNDER CONSIDERATION. WHEN NO FEES WAS PRESCRIBED BY ANY AUTHORITIES, IT IS OP EN TO THE PRIVATE INSTITUTIONS TO PRESCRIBE THEIR OWN FEE TILL THE ST ATE GOVERNMENT NOMINATES A COMMITTEE FOR FIXING THE FEE AS PER THE DIRECTIONS / GUIDELINES OF THE APEX COURT. HOWEVER, SUCH FEE FIXED BY THE PRIVATE INST ITUTION COMMENSURATE WITH THE INFRASTRUCTURE FACILITY PROVIDED TO THE ST UDENTS SHALL NOT BE EXORBITANT OR ARBITRARY. ONCE THE PRIVATE INSTITUT ION FIXES THE FEE, THEN IT CANNOT COLLECT ANY MONEY OVER AND ABOVE THE FEE PRE SCRIBED FOR ADMISSION OF STUDENTS. IN OTHER WORDS, THE INSTITUTION SHALL COLLECT ONLY THE PRESCRIBED FEE. THERE IS NO ALLEGATION FROM THE ASSESSING OFF ICER THAT THE ASSESSEE COLLECTED ANY MONEY OVER AND ABOVE THE FEES PRESCRI BED BY THE COMMITTEE NOMINATED BY THE STATE GOVERNMENT. WHEREVER NO COM MITTEE WAS NOMINATED BY THE STATE GOVERNMENT, THE ASSESSEE COL LECTED THE FEE AS PRESCRIBED BY THE INSTITUTION ITSELF. THERE IS NO MATERIAL AVAILABLE ON RECORD TO SHOW THAT THE ASSESSEE IS COLLECTING ANY MONEY O VER AND ABOVE THE PRESCRIBED FEE FOR ADMISSION OF STUDENTS. IN OTHER WORDS, NO MATERIAL IS AVAILABLE ON RECORD TO SHOW THAT THE ASSESSEE WAS C OLLECTING CAPITATION FEE FOR ADMISSION OF STUDENTS FOR THE COURSES CONDUCTED BY THE ASSESSEE. 23 ITA NO. 233 TO 236/COCH/2012 11. NOW COMING TO THE ALLEGATION OF VIOLATION OF SE CTIONS 13(2) AND 13(3) OF I.T. ACT, THE CONTENTION OF THE LD.DR IS THAT TH E PAYMENTS WERE MADE TO THE CONCERNS IN WHICH THE TRUSTEES ARE INTERESTED. IT IS ALSO AN ADMITTED FACT THAT THE PAYMENTS WERE MADE TO THE CONCERNS IN WHICH THE TRUSTEES ARE INTERESTED. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 13(2) AND 13(3) OF THE ACT. AS RIGHTLY CONTENDED B Y THE LD.SENIOR COUNSEL FOR THE ASSESSEE, THERE IS NO PROHIBITION FOR HAVIN G TRANSACTION WITH INTERESTED PERSON. THE STATUTE HAS PROVIDED ADEQUA TE SAFEGUARD WHENEVER THE CHARITABLE INSTITUTION MADE TRANSACTIO NS WITH INTERESTED PERSONS. IF THE PAYMENT OF RENT OR COMPENSATION IS ON PAR WITH MARKET RATE FOR USE OF THE BUILDING BELONGING TO THE INTERESTED PERSON, THEN, WE CANNOT SAY THERE IS A VIOLATION OF SECTIONS 13(2) OR 13(3) OF THE ACT. WHAT IS REQUIRED IS THAT THE PAYMENT SHALL BE AT THE MARKET RATE. IT SHALL NOT BE IN EXCESS OF THE MARKET RATE. ADMITTEDLY, THE ASSESSE E HAS PAID TRAINING FEE TO GREESHMAM RESORTS PVT LTD AND YENKY COLLEGE PVT LTD. THE ASSESSEE HAS ALSO PAID LEASE RENT TO RUBY ENTERPRISES PVT LT D. ADMITTEDLY, THE TRUSTEES HAVE ALSO SUBSTANTIAL INTEREST IN THE ABOV E THREE CONCERNS. THE CONTENTION OF THE LD.DR IS THAT IN THE CASE OF GREE SHMAM RESORTS PVT LTD, THE ASSESSEE HAS MADE ADVANCE FOR PURCHASE OF THE P ROPERTY OF GREESHMAM RESORTS PVT LTD. THEREFORE, THERE IS NO NECESSITY FOR MAKING ANY PAYMENT. FROM THE AGREEMENT PRODUCED BEFORE TH IS TRIBUNAL IT APPEARS THAT THE ASSESSEE INTENDED TO PURCHASE THRE E BLOCKS IN THE RESORT 24 ITA NO. 233 TO 236/COCH/2012 CONSISTING OF 36 ROOMS. THE BUSINESS OF RESORT CON TINUES TO BE RUN BY GREESHMAM RESORTS PVT LTD. THE FEE SO PAID TO GREE SHMAM RESORTS PVT LTD AND YENKY COLLEGE PVT LTD WAS FOR TRAINING THE STUDENTS AS PART OF THE CURRICULUM. THE CONTENTION OF THE ASSESSEE IS THAT 22 WEEKS OF INDUSTRIAL EXPOSURE TRAINING HAS TO BE NECESSARILY PROVIDED FO R STUDENTS OF HOTEL MANAGEMENT AND CATERING STREAM. WHEN THE RESORT WA S RUN BY GREESHMAM RESORTS PVT LTD AND THERE IS NO ALLEGATIO N THAT PAYMENT WAS EXCESSIVE OF MARKET RATE, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THERE IS NO VIOLATION OF SECTION 13(2) OR SECTION 1 3(3) OF THE ACT. THIS TRIBUNAL SPECIFICALLY CALLED FOR A REPORT FROM THE ASSESSING OFFICER AFTER EXAMINING WHETHER THE PAYMENT MADE BY THE ASSESSEE WAS ON PAR WITH MARKET RATE OR NOT? THE ASSESSING OFFICER COULD NO T FIND ANY MATERIAL EXCEPT SAYING THAT THE TRUSTEES OF THE ASSESSEE HAV E INTEREST IN THE ABOVE CONCERNS. IT IS NOT THE CASE OF THE ASSESSING OFFI CER THAT THE PAYMENT OF TRAINING FEE AND THE RENT WAS IN EXCESS OF MARKET R ATE WHICH PREVAILED AT THE RELEVANT PERIOD. THIS TRIBUNAL IS OF THE CONSID ERED OPINION THAT MERELY BECAUSE THE TRUSTEES OF THE ASSESSEE HAVE INTEREST IN THOSE CONCERNS, THE PAYMENTS MADE TO THEM, WHICH DO NOT EXCEED THE MARK ET RATE FOR THE SERVICES AVAILED BY THE ASSESSEE, IT CANNOT BE SAID THAT THERE IS VIOLATION OF SECTION 13(2) OR SECTION 13(3) OF THE ACT. 25 ITA NO. 233 TO 236/COCH/2012 12. NOW COMING TO THE PAYMENT MADE TO RUBY ENTERPRI SES PVT LTD, THE ASSESSEE ADMITTEDLY PAID LEASE RENT TO RUBY ENTERPR ISES PVT LTD. THE CONTENTION OF THE ASSESSING OFFICER IS THAT THE ASS ESSEE KEEPS ON MAKING ADDITION TO THE BUILDING YEAR AFTER YEAR, THEREFORE , THE QUESTION OF ACQUIRING ANY OTHER PROPERTY DOES NOT ARISE FOR CONSIDERATION . IT IS NOT THE CONCERN OF THE ASSESSING OFFICER WHETHER THE ACQUISITION OF TH E BUILDING IS NECESSARY FOR RUNNING THE INSTITUTION OR NOT? IT IS AT THE S OLE DISCRETION OF THE ASSESSEE TO DECIDE WHETHER ANY FURTHER STEP IS REQUIRED FOR PROVIDING INFRASTRUCTURE TO THE STUDENTS. THE ASSESSEE CLAIMS THAT FOR PROVIDI NG HOSTEL ACCOMMODATION TO THE STUDENTS OF THE INSTITUTION IN FRASTRUCTURE IS REQUIRED. THEREFORE, WHAT IS REQUIRED TO BE SEEN IS WHETHER T HE LEASE RENT PAID BY THE ASSESSEE TO M/S RUBY ENTERPRISES PVT LTD IS ON PAR WITH MARKET RATE OR NOT? EVEN THOUGH THIS TRIBUNAL DIRECTED THE ASSESS ING OFFICER SPECIFICALLY TO FIND OUT WHETHER THE PAYMENT OF LEASE RENT IS ON PAR WITH MARKET RATE, THE ASSESSING OFFICER COULD NOT FIND OUT ANY DETAIL S EXCEPT TO SAY THAT THERE IS NO NECESSITY FOR THE ASSESSEE TO ACQUIRE THE BUI LDING. AS OBSERVED EARLIER, THE ASSESSING OFFICER CANNOT DICTATE TERMS WHETHER BUILDING IS REQUIRED FOR THE INSTITUTION OR NOT? IT IS FOR THE INSTITUTION TO DECIDE WHETHER FURTHER INFRASTRUCTURES ARE REQUIRED. ONCE THE INS TITUTION DECIDES THEN THE OBLIGATION OF THE ASSESSING OFFICER WOULD BE THAT O F FINDING OUT WHETHER THE PAYMENT WAS ON PAR WITH THE MARKET RATE OR NOT?. I F IT IS ON PAR WITH MARKET RATE, THERE CANNOT BE ANY DISALLOWANCE U/S 13(1) OR U/S 13(3) OF THE ACT. 26 ITA NO. 233 TO 236/COCH/2012 SINCE THE PAYMENT MADE BY THE ASSESSEE DOES NOT EXC EED THE MARKET RATE OF RENT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE IS NO VIOLATION OF SECTION 13 OF THE ACT. 13. THE NEXT CONTENTION OF THE LD.DR IS THAT THE AS SESSEE IS CONDUCTING BEAUTICIAN COURSE, HEALTH CLINIC, INTERIOR DECORATI ON COURSE, FLOWER MANAGEMENT COURSE AND WREATH MAKING COURSE. IT IS NOT KNOWN WHETHER THESE COURSES ARE PART OF THE CURRICULUM APPROVED B Y AICTE AND THE CALICUT UNIVERSITY. SECTION 2(15) OF THE INCOME-TA X ACT DEFINES CHARITABLE PURPOSE. NO DOUBT, IT IS AN INCLUSIVE DEFINITION. EDUCATION BY ITSELF IS ALSO A CHARITABLE ACTIVITY WITHIN THE MEANING OF SE CTION 2(15) OF THE ACT. EDUCATION IS NOTHING BUT ACQUIRING / IMPARTING OF K NOWLEDGE. HOWEVER, ALL MODES OF ACQUISITION OF KNOWLEDGE DO NOT FALL WITHI N THE TERM EDUCATION. EDUCATION AS REFERRED IN SECTION 2(15) OF THE ACT I S ONLY A FORMAL EDUCATION BY WAY OF NORMAL SCHOOLING. THE EDUCATION BY NORMA L SCHOOLING USUALLY RESULTS IN CONFERMENT OF A DEGREE OR DIPLOMA BY THE UNIVERSITY OR GOVERNMENTAL AGENCY. THE APEX COURT IN THE CASE OF SOLE TRUSTEE, LOKA SHIKSHANA TRUST VS COMMISSIONER OF INCOME-TAX (1975 ) 101 ITR 234 (SC), AFTER CONSIDERING THE PROVISIONS OF SECTIONS 2(15) OF THE ACT FOUND THAT ALL KINDS OF ACQUIRING KNOWLEDGE WILL NOT COME WITHIN T HE MEANING OF EDUCATION. WHAT EDUCATION. CONNOTES IN SECTION 2(15) IS THE PROCESSING 27 ITA NO. 233 TO 236/COCH/2012 OF TRAINING AND DEVELOPING THE KNOWLEDGE, SKILL, MI ND AND CHARACTER OF STUDENTS BY NORMAL SCHOOLING. IN FACT, THE APEX CO URT HAS OBSERVED AS FOLLOWS AT PAGE 241 OF THE ITR: THE SENSE IN WHICH THE WORD EDUCATION HAS BEEN USED IN SECTION 2(15) IS THE SYSTEMATIC INSTRUCTION, SCH OOLING OR TRAINING GIVEN TO THE YOUNG IS PREPARATION FOR THE WORK OF LIFE. IT ALSO CONNOTES THE WHOLE COURSE OF SCHOLASTIC INSTRU CTION WHICH A PERSON HAS RECEIVED. THE WORD EDUCATION HAS NO T BEEN USED IN THAT WIDE AND EXTENDED SENSE, ACCORDING TO WHICH EVERY ACQUISITION OF FURTHER KNOWLEDGE CONSTITUTES EDUCATION. ACCORDING TO THIS WIDE AND EXTENDED SENSE, TRAVELLI NG IS EDUCATION, BECAUSE AS A TRAVELLING YOU ACQUIRE FRES H KNOWLEDGE. LIKEWISE, IF YOU READ NEWSPAPERS AND MA GAZINES, SEE PICTURES, VISIT ART GALLERIES, MUSEUMS AND ZOOS , YOU THEREBY ADD TO YOUR KNOWLEDGE. AGAIN, WHEN YOU GRO W UP AND HAVE DEALINGS WITH OTHER PEOPLE, SOME OF WHOM ARE N OT STRAIGHT, YOU LEARN BY EXPERIENCE AND THUS ADD TO Y OUR KNOWLEDGE OF THE WAYS OF THE WORLD. IF YOU ARE NOT CAREFUL, YOUR WALLET IS LIABLE TO BE STOLEN OR YOU ARE LIABL E TO BE CHEATED BY SOME UNSCRUPULOUS PERSON. THE THIEF WHO REMOVES YOUR WALLET AND THE SWINDLER WHO CHEATS YOU TEACH YOU A LESSON AND IN THE PROCESS MAKE YOU WISER THOUGH POORER. I F YOU VISIT A NIGHT CLUB, YOU GET ACQUAINTED WITH AND ADD TO YO UR KNOWLEDGE ABOUT SOME OF THE NOT MUCH REVEALED REALI TIES AND MYSTERIES OF LIFE. ALL THIS IN A WAY IS EDUCATION IN THE GREAT SCHOOL OF LIFE. BUT THAT IS NOT THE SENSE IN WHICH THE WORD 28 ITA NO. 233 TO 236/COCH/2012 EDUCATION IS USED IN CLAUSE (15) OF SECTION 2. W HAT EDUCATION CONNOTES IN THAT CLAUSE IS THE PROCESS OF TRAINING AND DEVELOPING THE KNOWLEDGE, SKILL, MIND AND CHARA CTER OF STUDENTS BY NORMAL SCHOOLING. 14. APPLYING THE ABOVE LAW LAID DOWN BY THE APEX CO URT, IF THE CONTENTION OF THE ASSESSEE THAT BEAUTICIAN COURSE, HEALTH CLINIC, INTERIOR DECORATION, FLOWER MANAGEMENT COURSE, DRESS MAKING, ETC. WHICH ARE NOT PART OF CURRICULUM OF THE APPROVED DEGREE OR DIPLOM A COURSE, THEN, SUCH ACTIVITY OF THE ASSESSEE MAY IMPART FURTHER KNOWLED GE TO THE STUDENTS. SINCE THESE COURSES ARE DIRECTLY OR INDIRECTLY CONN ECTED WITH HOTEL / HOSPITALITY INDUSTRY, FURTHER KNOWLEDGE ACQUIRED BY THE STUDENTS WOULD ENHANCE THEIR SUITABILITY FOR EMPLOYMENT AFTER COMP LETION OF THE COURSE. THEREFORE, IN ORDER TO MAKE THE STUDENT OF THE APPR OVED COURSES SUITABLE FOR EMPLOYMENT, SUCH COURSES ARE CONDUCTED, THEN, T HIS MAY BE CONSIDERED AS PART OF EDUCATION. HOWEVER, IF THE ASSESSEE CONDUCTS SUCH COURSES INDEPENDENTLY APART FROM APPROVED / AF FILIATED COURSES FOR STUDENTS OTHER THAN THOSE ENROLLED IN THE ASSESSEE S INSTITUTE FOR APPROVED DEGREE / DIPLOMA COURSES, THEN, IT MAY NOT FALL WIT HIN THE DEFINITION OF EDUCATION IN VIEW OF THE JUDGMENT OF THE APEX COU RT IN SOLE TRUSTEE, LOKA SHIKSHANA TRUST (SUPRA), HENCE THAT ACTIVITY C ANNOT BE CONSIDERED TO BE EDUCATION WITHIN THE MEANING OF SECTION 2(15) OF THE ACT. 29 ITA NO. 233 TO 236/COCH/2012 15. THE MAIN GROUNDS OF APPEAL OF THE DEPARTMENT BE FORE THIS TRIBUNAL IS THAT THE ASSESSEE IS SYSTEMATICALLY / BUILDING UP A CCUMULATING NET PROFIT CONTINUOUSLY YEAR AFTER YEAR. FOR THE ASSESSMENT Y EAR 2005-06 THE ACCUMULATION OF NET PROFIT IS 22.86%; FOR THE ASSES SMENT YEAR 2006-07 33.38%; FOR THE ASSESSMENT YEAR 2007-08 IT WAS 28.6 7%; AND FOR ASSESSMENT YEAR 2008-09 IT WAS 38.18%. THE CONTENT ION OF THE LD.SENIOR COUNSEL FOR THE ASSESSEE IS THAT THE ASSESSING OFFI CER HAS TAKEN THE FIGURE WITHOUT CONSIDERING THE EXPENDITURE INCURRED FOR CO NSTRUCTION OF THE BUILDING. ACCORDING TO THE LD.SENIOR COUNSEL, ONCE CONSTRUCTION OF THE BUILDING IS TAKEN AS APPLICATION OF INCOME, THE NET PROFIT WILL BE LESS THAN 15%. THE ASSESSING OFFICER FINDS THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11 ON THE FOLLOWING GROUNDS: (I) THE ASSESSEE IS MAKING PROFIT YEAR AFTER YEAR B Y RUNNING THE INSTITUTE OF HOTEL MANAGEMENT; (II) THE ASSESSEE IS NOT CONDUCTING THE COURSE DIRE CTLY BUT ENGAGES FIRMS / COMPANIES IN WHICH THE TRUSTEES ARE SUBSTANTIALLY INTERESTED. 16. IN RESPECT OF THE SECOND GROUND ON WHICH THE AS SESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE, WE HAVE ALREA DY OBSERVED THAT 30 ITA NO. 233 TO 236/COCH/2012 EDUCATION AS OBSERVED BY THE APEX COURT SHALL BE A FORMAL SCHOOLING WHICH RESULTS IN CONFERMENT OF DEGREE OR DIPLOMA BY A UNIVERSITY OR GOVERNMENTAL AGENCY. THE COURSE SHALL BE RUN BY TH E INSTITUTION ITSELF. IN OTHER WORDS, THE COURSE SHALL BE CONDUCTED BY THE A SSESSEE DIRECTLY. AT THE VERY SAME TIME, AS A PART OF CURRICULUM, IF TRA INING IS REQUIRED AND SUCH TRAINING IS PROVIDED IN THE INSTITUTION / CONCERN W HICH BELONGS TO THE TRUSTEES ON PAYMENT OF MARKET RATE, THEN, THAT CANN OT BE A REASON TO CONTEND THAT THE ASSESSEE IS CONDUCTING THE COURSE THROUGH THE FIRM / COMPANY IN WHICH THE TRUSTEES ARE SUBSTANTIALLY INT ERESTED. IN FACT, THE SERVICE OF THE FIRM / COMPANY BELONGS TO THE TRUSTE ES ARE AVAILED FOR THE PURPOSE OF INDUSTRIAL TRAINING WHICH IS A PART OF T HE CURRICULUM. THE SERVICE OF THE FIRM / COMPANY WAS ENGAGED BY PAYING THE MAR KET RATE OF FEE / LEASE RENT. THEREFORE, AS OBSERVED EARLIER, THERE IS NO VIOLATION OF SECTION 13(1) OR 13(3) OF THE ACT. 17. IN RESPECT OF PROFIT MAKING YEAR AFTER YEAR, TH E DEPARTMENT HAS ILLUSTRATED THE PERCENTAGE OF THE PROFIT EARNED BY THE ASSESSEE YEAR AFTER YEAR. THOUGH THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS MAKING PROFIT YE AR AFTER YEAR, THE CIT(A) HAS NOT CONSIDERED THE SAME. THE ASSESSEE HAS GIVE N THE ANALYSIS OF UTILIZATION OF FUNDS AS FOLLOWS (AT PAGE 34 OF THE PAPER BOOK): 31 ITA NO. 233 TO 236/COCH/2012 MALABAR HOTEL MANAGEMENT & CATERING PROMOTION TRUST ANALYSIS OF UTILISATION OF FUNDS PARTICULARS AY 2004-05 AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09 RECEIPTS A. GROSS RECEIPTS B. 85@ OF THE ABOVE 3,40,06,106 2,89,05,190 3,77,93,586 3,21,24,548 4,65,33,268 3,95,53,278 5,20,94.424 4,42,80,260 5,46,78,078 4,64,76,366 UTILISATION C. EXPENSES EXCLUDING DEPRECIATION D. DEPRECIATION E. CAPITAL EXPENDITURE DURING THE YEAR F. TOTAL APPLICATION 2,12,76,544 35,33,771 1,96,93,736 4,45,04,051 2,48,86,968 42,64,513 49,16,959 3,40,68,441 2,66,66,410 43,29,844 1,30,43,961 4,40,40,215 3,28,32,443 43,25,488 1,75,20,100 5,46,78,030 2,83,32,748 55,01,548 1,91,90,152 5,30,24,448 G. EXCESS / (SHORT) APPLICATION OF INCOME (F)-(A) 1,55,98,861 19,43,893 44,86,937 1,03,97,770 65,48,082 17. FROM THE ABOVE, IT IS OBVIOUS THAT THE ASSESSEE IS CLAIMING SUBSTANTIAL AMOUNT AS DEPRECIATION AND DEDUCTING TH E SAME AS EXPENDITURE. IT IS NOT KNOWN WHETHER THE ASSESSEE CLAIMED THE EXPENDITURE FOR HIRE / PURCHASE OF THE BUILDING OR MACHINERY AS APPLICATION OF INCOME U/S 11 OF THE ACT IN ANY OF THE EARLIER Y EARS. ONCE THE INCOME WAS ALLOWED AS APPLICATION OF INCOME U/S 11 IN ANY OF THE EARLIER YEARS, THERE IS NO QUESTION OF ANY DEPRECIATION ON THE VER Y SAME MACHINERY / BUILDING SINCE THE EXPENDITURE ON CREATION OF SUCH ASSET WAS ALREADY ALLOWED AS APPLICATION OF FUNDS. EVEN THOUGH THE A SSESSING OFFICER SPECIFICALLY CLAIMS THAT THE ASSESSEE IS ACCUMULATI NG PROFIT YEAR AFTER YEAR THE CIT(A) FAILED TO CONSIDER THE OBJECTION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. NOW THE DEPARTMENT SPECIFICA LLY MAKES A CLAIM THAT THE ASSESSEE IS MAKING PROFIT EXCEEDING 15% YEAR AF TER YEAR AND THE 32 ITA NO. 233 TO 236/COCH/2012 DETAILS FURNISHED BY THE ASSESSEE SHOWS THAT ONCE T HE DEPRECIATION WAS EXCLUDED, THE EXCESS / PROFIT WOULD BE MORE THAN 15 %. IN THE ABSENCE OF ANY DETAILS AS TO WHETHER THE EXPENDITURE FOR PURCH ASE OF MACHINERY OR CONSTRUCTION OF BUILDING ON WHICH THE DEPRECIATION WAS CLAIMED WAS ALLOWED IN THE EARLIER ASSESSMENT YEAR AS APPLICATI ON OF INCOME, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATT ER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF LOWER AUT HORITIES ARE SET ASIDE AND THE MATTER IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR A LIMITED PURPOSE OF VERIFYING WHETHER EXPENDITURE FO R ACQUIRING ASSETS / MACHINERY ON WHICH THE ASSESSEE IS CLAIMING DEPRECI ATION FOR THE YEAR UNDER CONSIDERATION ARE CLAIMED / ALLOWED S APPLICA TION OF INCOME U/S 11 OF THE I.T. ACT IN ANY OF THE YEARS AND ALSO TO VERIFY WHETHER THE STUDENTS OF BEAUTICIAN COURSE, HEALTH CLINIC, INTERIOR DECORATI ON, FLOWER MANAGEMENT COURSE, DRESS MAKING COURSE, ETC. ARE STUDENTS OF T HE ASSESSEE INSTITUTION IN ANY OF THE APPROVED COURSES. THE ASSESSING OFFI CER SHALL THEREAFTER FIND OUT THE EXACT PERCENTAGE OF THE PROFIT FOR ALL THE ASSESSMENT YEARS AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WI TH LAW AFTER CONSIDERING THE JUDGMENT OF THE JUDGMENT OF THE KARNATAKA HIGH COURT IN M/S VESVARAYA TECHNOLOGICAL UNIVERSITY VS ACIT (2014) 3 62 ITR 279 (KAR), OBSERVATIONS OF THIS TRIBUNAL IN THIS ORDER AND GIV ING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 33 ITA NO. 233 TO 236/COCH/2012 18. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH OCTOBER, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 17 TH OCTOBER, 2014 PK/- COPY TO: 1. DY.CIT, CIR.2(1), KOZHIKODE 2. M/S MALABAR HOTEL MANAGEMENT & CATERING PROMOTIO N TRUST, 5/2, 888B, EMIL & ERIC TOWER, ARAYIDATHUPALAM, BY PASS ROAD, C ALICUT 4 3. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE 4. THE COMMISSIONER OF INCOME-TAX(A)-I, KOZHIKODE 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH