Sri Srinivasa Vidhya Parishad, Hyderabad V. THE ITO, Ward 3(2), Visakhapatnam

ITA 605/VIZ/2013

• Counselvise Citation: 60525314 RSA 2013
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 25-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SINGH
• Keywords: Charitable institution; Maximum Marginal Rate; Fair market value; Capital receipt
• Section: 143(3); 80G; 12A; 147; 148; 6; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI SAKTIJIT DEY, JM ITA NO.604/VIZAG/2013 : ASST.YEAR 2003-2004 ITA NO.605/VIZAG/2013 : ASST.YEAR 2004-2005 ITA NO.606/VIZAG/2013 : ASST.YEAR 2005-2006 ITA NO.607/VIZAG/2013 : ASST.YEAR 2006-2007 ITA NO.608/VIZAG/2013 : ASST.YEAR 2008-2009 ITA NO.609/VIZAG/2013 : ASST.YEAR 2009-2010 ITA NO.633/VIZAG/2013 : ASST.YEAR 2007-2008 ITA NO.634/VIZAG/2013 : ASST.YEAR 2010-2011 SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD C/O.SAMUEL NAGADESI, CA 408, SRI RAMAKRISHNA TOWERS BESIDES IMAGE HOSPITALS, AMEERPET HYDERABAD 500 073. PAN : AABAS8112P. VS. THE INCOME TAX OFFICER WARD 3(2) VISAKHAPATNAM. ( APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SAMUEL NAGADESI RESPONDENT BY : SHRI R.K.SINGH, ADDL.CIT DATE OF HEARING : 26 . 02 .201 4 DATE OF PRONOUNCEMENT : 07 .0 3 .2014 O R D E R PER J.SUDHAKAR REDDY (AM) : ALL THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS), VISAKH APATNAM. AS THESE APPEALS PERTAIN TO THE SAME ASSESSEE AND AS THE ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE THEY ARE HEARD TOGETHER AND DISPOSED OF F BY WAY OF THIS COMMON ORDER. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A SOCIET Y REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860. IT RUNS EDUCATION AL INSTITUTIONS. THE OBJECTS OF THE APPELLANT-SOCIETY AS PER THE MEMORANDUM OF ASSOCIAT ION ARE AS UNDER. ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 2 2.1 (A) TO START, RUN AND ADMINISTER EDUCATIONAL IN STITUTIONS IN THE ANDHRA UNIVERSITY AREA; (B) TO PROMOTE EDUCATION FROM KIND ERGARTEN TO POST GRADUATION AND RESEARCH; (C) TO TRAIN STUDENTS TO ATTAIN SUCH PROF ICIENCY IN THEIR RESPECTIVE FIELDS OF STUDY AND EQUIP THEM WITH SUCH SKILLS AS WOULD ENAB LE THEM TO HELP THEMSELVES AND CONTRIBUTE TO THE NATIONAL ECONOMY AS SUCH; (D) IN GENERAL, TO UNDERTAKE ALL OTHER ACTIVITIES AS ARE INCIDENTAL AND CONDUCIVE TO THE ATTAINMENT OF THE ABOVE OBJECTIVES. 2.2 THE PETITIONER HAS SET UP AND IS MAINTAINING TH E FOLLOWING INSTITUTIONS (UNAIDED) IN THE FIELD OF PRIMARY, SECONDARY AND CO LLEGE EDUCATION SYSTEM WITH NECESSARY PERMISSIONS FROM THE GOVERNMENT OF ANDHRA PRADESH AND GOVERNMENT OF INDIA:- SL. SCHOOL / COLLEGE YEAR OF ESTT. COURSE 1. PUBLIC SCHOOL, MVP COLONY, VISAKHAPATNAM. 1980 SCHOOL EDUCATION 2. SSVP ENGLISH MEDIUM SCHOOL MVP COLONY, VISAKHAPATNAM 1991 SCHOOL EDUCATION 3. INSTITUTE OF DEVELOPMENT AND PLANNING STUDIES, VISAKHAPATNAM 1981 ADVANCED DEVELOPMENT & PLANNING. 4. DVN KALAKSHETRAM, VISAKPAHATNAM 1981 MUSIC, DANCE AND DRAMA 5. INTEGRAL INSTITUTE OF ADVANCED MANAGEMENT (IIAM), VISAKHAPATNAM. 1989 MANAGEMENT EDUCATION 6. NYAYA VIDYA PARISHAD LAW COLLEGE, VISAKHAPATNAM 1981 LAW 7. SRINIVASA INSTITUTE OF MANAGEMENT STUDIES, VISAKHAPATNAM. 1995 MANAGEMENT EDUCATION 8. SVP INDUSTRIAL TRAINING CENTRE, POTHIMALLAYYAPALEM VISAKHAPATNAM. 1987 INDUSTRIAL TRAINING. 9. SANKETHIKA VIDYA PARISHAD ENGINEERING COLLEGE, POTHIMALLAYYAPALEM. 2006 ENGINEERING. ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 3 10 SRINIVASA COLLEGE OF PHARMACY, POTHIMALLAYYAPALEM 2006 PHARMACY EDUCATION 11 SANKETIKA INSTITUTE OF TECHNOLOGY & MANAGEMENT, POTHIMALLAYYAPALEM 2009 TECHNOLOGY & MANAGEMENT EDUCATION. 12 SANKETHIKA POLYTECHNIC COLLEGE, POTHIMALLAYYAPALEM 2009 POLYTECHNIC. 13 CENTRE FOR MANAGEMENT & TECHNOLOGY, VISAKHAPATNAM 2010 MANAGEMENT & TECHNOLOGY. 14 GREE WOOD INTERNATIONAL SCHOOL, VISAKHAPATNAM. 2011 SCHOOL EDUCATION. 2.3 FOR THE ASSESSMENT YEAR 2004-2005, WHICH IS THE LEAD YEAR, THE ASSESSEE- SOCIETY FILED ITS RETURN OF INCOME ON 25.02.2005 AD MITTING GROSS RECEIPTS OF RS.15,35,637 AND DECLARING NET INCOME OF RS.24,833, WHICH WAS CLAIMED AS EXEMPT U/S 11(1) OF THE ACT. THE ASSESSING OFFICER NOTICED THAT THE REGISTERED SOCIETY HAS INVESTED IN M/S.HAPPY ESTATES PRIVATE L IMITED, FOR AN AMOUNT OF RS.1,09,400. HE WAS OF THE OPINION THAT THE ASSESSE E VIOLATED THE PROVISIONS OF SECTION 11(5) R.W.S. 13(1)(D) OF THE ACT, AND HENCE NOT ELIGIBLE FOR EXEMPTION U/S 11(1). THE AO FURTHER MENTIONS THAT THE ASSESSEE-SO CIETY MADE AN APPLICATION U/S 10(23C)(IV) AND THE JOINT COMMISSIONER OF INCOME TA X, VISAKHAPATNAM HAD REJECTED THE APPLICATION BY TREATING THE SOCIETY AS A NON-GENUINE ONE, FOR THE REASON THAT FIVE MEMBERS WERE ADMITTED INTO SOCIETY, WITHO UT TAKING ADMISSION FEE, AS REQUIRED IN THE MEMORANDUM OF ASSOCIATION. THE ASSE SSEE-SOCIETY HAD ALSO NOT DISCLOSED THE GROSS INCOME FROM THE INSTITUTIONS RU NNING UNDER THE SOCIETY. HENCE, NOTICE U/S 148 WAS ISSUED ON 03.09.2010, WHICH WAS SERVED ON THE ASSESSEE ON 09.09.2010. APPROVAL FOR ISSUE OF NOTICE U/S 148 WA S TAKEN FROM THE ADDL.COMMISSIONER OF INCOME TAX. IN RESPONSE TO NOT ICE U/S 148, THE ASSESSEE FILED A LETTER DATED 26.09.2010 AND SUBMITTED THAT THE RETURN OF INCOME FILED ON 25.02.2005 FOR THE ASSESSMENT YEAR 2004-2005 BE TRE ATED AS RETURN OF INCOME FILED IN RESPONSE TO THE NOTICE U/S 148. NOTICE U/S 143(2 ) DATED 30.03.2011 WAS ISSUED AND THE CASE WAS TAKEN UP FOR SCRUTINY. ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 4 2.3 THE ASSESSING OFFICER IN HIS ORDER U/S 143(3) R EAD WITH SECTION 147 DATED 29.12.2011, HELD THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11(1) OF THE ACT FOR THE FOLLOWING REASONS. (A) THE SOCIETY HAD ADMITTED FIVE MEMBERS IN VIOLAT ION OF ITS MEMORANDUM OF ASSOCIATION, WHICH REQUIRED COLLECTIO N OF MINIMUM OF RS.10,000 FROM THE MEMBERS AT THE TIME OF ADMISSION . AS THE ADMISSION OF FIVE MEMBERS IS NOT IN ACCORDANCE WITH THE RULES CO NTAINED IN THE MEMORANDUM OF ASSOCIATION, HE CAME TO A CONCLUSION THAT THE SOCIETY IS A NON-GENUINE ONE. (B) THE SOCIETY HAS GIVEN LOANS AND ADVANCES OF RS. 2,89,200 TO SRI VENKATESWARA VIDYA PEETH AND RS.71,215 TO SRI BALAJ I VIDYA PARISHAD, BOTH OF WHICH ARE EDUCATIONAL INSTITUTIONS AND SISTER CO NCERNS OF THE ASSESSEE- SOCIETY. SRI S.V.H.RAJENDRA IS SECRETARY OF BOTH TH ESE SOCIETIES. THE ADVANCE GIVEN TO SRI VENKATESWARA VIDYA PEETH IS WR ITTEN OFF. THUS, HE CONCLUDED THAT THE ASSESSEE IS NOT ENTITLED TO EXEM PTION U/S 11(1). (C) ALL THE MEMBERS OF THE ASSESSEE-SOCIETY WERE PA ID RS.2,500 EACH AS CONVEYANCE ALLOWANCE EVERY MONTH WHICH IS IN VIOLAT ION OF SECTION 13(1)(C). (D) THE SECRETARY OF THE SOCIETY SRI S.V.H.RAJENDRA HAD TAKEN ADVANCES AS AND WHEN REQUIRED BY HIM AND BALANCE DUE FROM H IM TO THE SOCIETY AS ON 31.3.2004 IS RS.15,254. THUS, THIS IS CLEAR VIOL ATION WITH REGARD TO THE MISUSE OF FUNDS IN THE HANDS OF THE SOCIETY, FOR WH ICH PROVISIONS OF SECTION 11(3) READ WITH SECTION 13(1)(C) OF THE ACT, IS ATT RACTED. (E) THE ASSESSEE HAS INVESTED AN AMOUNT OF RS.1,09, 400 IN HAPPY ESTATE (P) LTD. FOR THE PURCHASE OF HOUSE SITE AND THIS VIOLATES THE MODE OF INVESTMENT PRESCRIBED U/S 11(5) OF THE ACT. THIS IS CLEAR VIOLATION OF SECTION ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 5 13(1)(D) READ WITH SECTION 11(5) OF THE ACT, LEADIN G TO THE FORFEITURE OF EXEMPTION U/S 11(1). 2.4 AFTER HOLDING THAT THE ASSESSEE SOCIETY CANNOT BE GRANTED EXEMPTION U/S 11(1) OF THE ACT FOR THE REASON CITED ABOVE, THE AS SESSING OFFICER FURTHER HELD THAT THE ASSESSEE HAS NOT REFLECTED CERTAIN AMOUNTS COLL ECTED BY IT IN THE INCOME AND EXPENDITURE STATEMENT AND THAT THE ASSESSEE-SOCIETY HAD CAPITALIZED THESE RECEIPTS ON THE GROUND THAT THESE RECEIPTS WERE CORPUS RECEI PTS MADE BY THE DONORS WITH SPECIFIC DIRECTION. HE HELD THAT AS THE ASSESSEE HA S NOT FURNISHED ANY EVIDENCE TO DEMONSTRATE ITS CLAIM AND THE AMOUNTS COLLECTED AS CORPUS, ARE REVENUE RECEIPTS. THUS THE AMOUNTS COLLECTED UNDER THE HEAD (A) CAPIT AL FUND (B) AID EDUCATIONAL FUND, AND (C) BUILDING FUND, ARE ADDED AS REVENUE R ECEIPTS TO THE INCOME OF THE ASSESSEE. 2.5 THE DISALLOWANCE WAS MADE ON DONATIONS GIVEN ON THE GROUND THAT (A) SECTION 80G EXEMPTION CERTIFICATE OF THE RECIPIENT WERE NOT FURNISHED, AND (B) THE EXPENDITURE INCURRED IS NOT IN ACCORDANCE WITH OBJE CTS OF THE SOCIETY. 3. THERE ARE CERTAIN OTHER MINOR ISSUES THAT ARISE IN THE ORDERS OF OTHER YEARS, I.E. DISALLOWANCE MADE U/S 40(A)(IA), WHICH WE WILL DEAL SUBSEQUENTLY. 4. THE ASSESSEE CARRIED MATTER BEFORE THE FIRST APP ELLATE AUTHORITY, WHEREIN THE REOPENING WAS CHALLENGED. THE ASSESSEE DISPUTED THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM OF EXEMPTION U/S 11(1) AND ALSO THE FINDING THAT THE AMOUNTS RECEIVED TOWARDS CORPUS AR E TO BE TAXED AS REVENUE RECEIPTS. THE CIT(A)S LEAD ORDER WAS FOR THE ASSES SMENT YEAR 2003-2004. AFTER EXTRACTING THE CONTENTIONS OF THE ASSESSEE, HE HELD AS FOLLOWS. (A) IN VIEW OF THE FACT THAT THE REGISTRATION OF TH E ASSESSEE U/S 12A OF THE ACT BEING IN FORCE, THE ASSESSEE IS PRIMA FACIE ENTITLED TO EXEMPTION OF ITS ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 6 INCOME U/S 11, PROVIDED THE CONDITIONS STIPULATED I N SECTIONS 11, 12 AND 13 ARE FULFILLED. (B) ON THE ADMISSION OF MEMBERS IN VIOLATION OF THE MEMORANDUM OF ASSOCIATION, THE LEARNED CIT(A) RECORDED THE CONTEN TION OF THE ASSESSEE THIS THESE MEMBERS WERE ADMITTED ON ADHOC BASIS, AND THA T THEY HAD PAID ADMISSION FEE SUBSEQUENTLY. THEREAFTER HE CAME TO A CONCLUSION THAT THE VIOLATION IN QUESTION, IF ANY, DOES NOT CONSTITUTE A VIOLATION OF ANY OF THE PROVISIONS CONTAINED IN SECTIONS 11, 12 AND 13 OF T HE INCOME-TAX ACT. HE HELD THAT THIS ISSUE CANNOT BE A GROUND FOR DENIAL OF EXEMPTION U/S 11 OF THE ACT. (C) ON THE ISSUE OF ADVANCE OF LOAN TO SRI BALAJI V IDYA PARISHAD AND SRI VENKATESWARA VIDYA PEETH, WHICH WERE WRITTEN OFF, T HE LEARNED CIT(A) RECORDED THAT THE ASSESSEE FILED COPY OF MEMORANDUM OF ASSOCIATION, WHICH INDICATED THAT THESE SOCIETIES ARE ENGAGED IN EDUCA TIONAL AND CHARITABLE ACTIVITIES, THOUGH THE ASSESSEE HAD NOT PRODUCED RE GISTRATION GRANTED TO THEM U/S 12A OF THE ACT. HE HELD THAT THE AO HAS N OT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE VIOLATION OF SECTION 13(1 )(C) READ WITH SECTION 13(3). HE APPLIED THE DECISION IN THE CASE OF KANPU R SUBHASH SHIKSHA SAMITI V. DCIT 133 ITR 182 AND HELD THAT THIS CANNO T BE A GROUND FOR VIOLATION FOR DENIAL OF EXEMPTION U/S 11. THESE FIN DINGS OF THE LEARNED CIT(A) ARE NOT DISPUTED BEFORE US BY THE DEPARTMENT AND HE NCE ATTAINED FINALITY. (D) ON THE ISSUE OF ASSESSEE INCURRING MEDICAL EXPE NDITURE TO THE TUNE OF RS.1,17,809 ON THE FOUNDER MEMBER LATE SRI A.ALWARD AS, HE HELD THAT THIS WOULD AMOUNT TO VIOLATION OF PROVISIONS OF SECTION 13(1)(C) & 13(3) OF THE ACT. HE HELD THIS VIOLATION WOULD WARRANT DENIAL OF EXEMPTION U/S 11 OF THE ACT. ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 7 (E) ON THE INVESTMENT MADE IN M/S.HAPPY ESTATES PVT . LTD., HE CONSIDERED THAT THE ASSESSEES CONTENTION THAT IT W AS INVESTMENTS IN IMMOVABLE PROPERTY, WHICH WAS PERMITTED UNDER THE O BJECTS, BUT, ON THE GROUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM, HE UPHELD THE CONCLUSIONS OF THE ASSESSING OFFICER THAT EXEMPTION U/S 11 OF THE ACT IS TO BE DENIED. AT PARA 7.18, HE HELD AS FOLLOWS:- FROM THE ABOVE DISCUSSION, IT IS EVIDENT THAT THE APPELLANT HAS VIOLATED - (I) THE CONDITIONS PRESCRIBED IN SEC. 13(1)(C) READ WITH SEC.13(3) IN INCURRING THE MEDICAL EXPENDITURE OF T HE FOUNDER SECRETARY SHRI S.ALWARDAS, WHO IS ALSO THE FATHER O F THE PRESENT SECRETARY OF THE SOCIETY. (II) THE CONDITION PRESCRIBED IN SEC. 13(1)(D) IN MAKING INVESTMENT IN HAPPY HOME ESTATES P. LTD. 4.1 THEREAFTER HE CONSIDERED THE FOLLOWING CONTENTI ONS OF THE ASSESSEE:- (I) THAT THE EXEMPTION UNDER SEC. 11 CANNOT BE WITH DRAWN AS LONG AS THE SOCIETY HOLDS A VALID REGISTRATION UNDE R SEC. 12 A OF THE ACT (II) THAT THE VIOLATIONS ARE MERE LAPSES AND DO NOT WARRANT FORFEITURE OF EXEMPTION UNDER SEC. 11 (III) THAT EVEN IF IT WERE TO BE ADMITTED THAT THES E AMOUNT TO VIOLATION OF THE PROVISIONS CONTAINED IN SEC. 13 OF THE I.T.ACT, IT CANNOT RESULT IN FORFEITURE OF EXEMPTION UNDER SEC. 11 AS THE TRUST CONTINUES TO HOLD A VALID REGISTRATION AND HAS BEEN CARRYING ON ITS CHARITABLE OBJECTIVES, WHICH HAS NOT BEEN DOUBTED B Y THE AO (IV) THAT WITHOUT PREJUDICE, EVEN IF IT WERE TO BE ADMITTED THAT THESE AMOUNT TO VIOLATION OF PROVISIONS CONTAINED I N SEC. 13, IT WOULD BE ONLY THOSE PARTICULAR ITEMS OF INCOME THAT WOULD FORFEIT EXEMPTION AS PROVIDED IN SEC. 164(2) READ WITH CIRC ULAR 387/1984 AND THAT THE FORFEITURE CANNOT EXTEND TO THE WHOLE INCOME OF THE APPELLANT TRUST. ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 8 4.2 HE HELD THAT THE LEGAL POSITION IS NOT IN FAVOU R OF THE ASSESSEE. THEREAFTER, HE HAS GIVEN HIS DETAILED FINDING, WHICH ARE FROM P ARA 7.21 TO 7.33. FOR THE SAKE OF BREVITY, WE SHALL NOT EXTRACT THE SAME. WHILE ACCEP TING THE SUBMISSIONS OF THE ASSESSEE ON ALL OTHER ASPECTS, SUCH AS (A) PAYMENT OF CONVEYANCE ALLOWANCE TO MEMBERS OF THE ASSESSEE SOCIETY, (B) LOAN GIVEN TO SISTER SOCIETIES AS NOT VIOLATION CONTEMPLATED U/S 13(1)(C), HE HELD THAT ADVANCE OUT STANDING IN THE ACCOUNT OF THE SECRETARY CONSTITUTE VIOLATION U/S 13(1)(C). 4.3 ONE MORE ISSUE AROSE IN THE APPEAL AND IS ADDIT ION OF RS.30,55,743 BEING (A) ACCRETION TO CAPITAL FUND OF RS.7,50,155, (B) A ID EDUCATION FUND OF RS.5,20,288 AND, (C) BUILDING FUND OF RS.17,85,300. THE ASSESSE ES SUBMISSIONS WERE THAT THE CONTRIBUTIONS IN QUESTION WERE MADE WITH SPECIFIC D IRECTIONS AND FOR SPECIFIC PURPOSES AND HENCE THEY FORM PART OF THE CORPUS FOR THE ASSESSEE-SOCIETY AND SECTION 12(1) APPLIES AND THUS THEY SHOULD NOT BE T REATED AS INCOME OF THE ASSESSEE OR INSTITUTION AND ACCORDINGLY, THE ADDITI ON MADE BY THE ASSESSING OFFICER IS ILLEGAL AND UNLAWFUL. THE CIT(A), ON THE GROUND THAT THE ASSESSEE HAD NOT FURNISHED THE INFORMATION SPECIFICALLY REQUESTED BY THE AO, CALLED FOR REMAND REPORT AND IN THE REMAND REPORT THE AO ALLEGED THAT THE AS SESSEE HAS NOT FURNISHED ANY INFORMATION. THE ASSESSEE CONTROVERTED THE REPORT B Y THE AO BY SUBMITTING THAT COMPLETE DETAILS WERE PRODUCED DURING THE COURSE OF ASSESSMENT AND THAT THEY ARE AVAILABLE ON RECORD. AFTER CONSIDERING THE OTHER SU BMISSIONS OF THE ASSESSEE, THE LEARNED CIT(A), ON THE GROUND THAT NO INFORMATION O R DETAILS HAVE BEEN FILED BY THE ASSESSEE TO DEMONSTRATE THAT THE DONATIONS WERE MAD E WITH SPECIFIC DIRECTION, WHICH IS FOR A SPECIFIC CAPITAL PURPOSE, HELD THAT THEY ARE NOT CAPITAL RECEIPTS AND WOULD CONSTITUTE INCOME OF THE SOCIETY. 4.4 AGGRIEVED WITH THESE ORDERS, THE ASSESSEE HAS F ILED THESE APPEALS. WE EXTRACT GROUNDS FOR THE ASSESSMENT YEAR 2003-2004 F OR READY REFERENCE:- ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 9 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ERRONEOUS IN LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED COMMISSIONER (APPEALS) IS ERRED IN LAW AND FACTS OF THE CASE IN UPHOLDING THE REOPENING OF THE ASSESSMENT C ONTRARY TO FACTS AND LAW. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED COMMISSIONER (APPEALS) ERRED IN LAW AND FAC TS OF THE CASE IN HOLDING THAT THE CAPITAL FUND, BUILDING FUN D, AID EDUCATION FUND, IS NOT A VOLUNTARY CONTRIBUTION WIT H SPECIFIED DIRECTION FORMING PART OF THE CORPUS OF THE SOCIETY AND NOT TO BE TREATED AS CAPITAL RECEIPT NOT REFLECTED IN THE INC OME & EXPENDITURE ACCOUNT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED COMMISSIONER (APPEALS) ERRED IN LAW AND FAC TS OF THE CASE THE LEARNED ASSESSING OFFICER ERRED IN LAW AND FACTS OF THE CASE IN HOLDING THAT THE ASSESSING OFFICER IS RIGHT IN TREATING THE ASSESSEE SOCIETY AS AOP AND DENYING EXEMPTION UNDER SECTION 11 OF THE INCOME-TAX ACT, 1961. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER (APPEALS) IN VIEW OF THE PROVISIONS OF SECTION 164(2) AND THE BO ARD CIRCULAR 387/1984 OUGHT TO HAVE HELD CLEARLY THAT THE ASSESS ING OFFICER OUGHT TO HAVE FORFEITED THE EXEMPTION TO THE ITEMS OF INCOME INVOLVED IN VIOLATION OF SECTION 13(1)(C) AND 13(1) (D) AND ACCORDINGLY DIRECTED ASSESSING OFFICER TO TREAT THE SOCIETY AS AOP IN RESPECT OF THE PART OF THE INCOME INVOLVED IN TH E CONTRAVENTION AND HELD TO BE CHARGED AT MAXIMUM MARGINAL RATE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED COMMISSIONER (APPEALS) ERRED IN LAW AND FAC TS OF THE CASE IN RELYING UPON THE JUDGMENTS REPORTED IN 226 ITR 211 (KER) AND 263 ITR AT PAGE 13. ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OUGHT TO HAVE NOT ICED THAT BOTH THE DECISIONS ARE PER IN CURIUM OF THE PROVISI ONS OF SECTION 164(2) AND CANNOT BE RELIED ON AS A VALID PRECEDENT AND A COMPLETE EXPOSITION OF LAW ON THE ISSUE DECIDED. ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 10 4.5 FOR THE ASSESSMENT YEAR 2004-2005 IN ITA NO.605 /VIZAG/2013, THE ASSESSEE HAS TAKEN VERY SAME GROUNDS. GROUND NO.5 I S REPETITION OF GROUND NO.3 AND IN EFFECT, THERE IS NO FRESH ISSUE. 4.6 IN ITA NO.606/VIZAG/2013, ONE ADDITIONAL GROUND IS TAKEN REGARDING DISALLOWANCE U/S 40(A)(IA). IN ITA NO.607/VIZAG/201 3, GROUND ON SECTION 40(A)(IA) HAS BEEN TAKEN. SIMILAR GROUND ON SECTION 40(A)(IA) IS TAKEN IN ASSESSMENT YEAR 2007-2008 IN ITA NO.633/VIZAG/2013. ALL OTHER GROUN DS IN ALL THE APPEALS ARE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE, SRI SAMUEL NA GADESI, SUBMITTED THAT HE IS NOT PRESSING GROUND ON REOPENING. HENCE THE SAME IS DISMISSED AS SUCH. ON THE ISSUE OF CAPITAL FUND, BUILDING FUND, AID EDUCATION AL FUND, HE SUBMITTED THAT THESE ARE CONTRIBUTIONS RECEIVED FROM PERSONS WITH SPECIF IC DIRECTIONS AND THIS IS EVIDENCED BY THE RECEIPTS ISSUED TO SUCH PARTIES. H E SUBMITTED THAT EACH AND EVERY EVIDENCE HAS BEEN FURNISHED BEFORE THE ASSESSING OF FICER AND THE ASSESSING OFFICER IGNORING THESE EVIDENCES, HAS, WITH A PREJU DICED MIND, RECORDED THAT THE ASSESSEE HAS NOT PRODUCED EVIDENCES. HE POINTED OUT THAT THE AO IN A PRECONCEIVED MANNER CAME TO A CONCLUSION THAT THE A SSESSEE WILL NOT BE ENTITLED TO EXEMPTION U/S 11 OF THE ACT AND THAT IN THIS PROCES S, IGNORED THE EVIDENCES THAT WERE SUBMITTED TO HIM AS WELL AS THE CONTENTIONS OF THE ASSESSEE. HE ARGUED THAT THE LEARNED CIT(A) WENT BY THE REMAND REPORT GIVEN IN THIS CASE BY THE ASSESSING OFFICER AND DID NOT BOTHER TO VERIFY THE FACTUAL PO SITION. HE POINTED OUT THAT WHEN A PERSON CONTRIBUTES A PARTICULAR AMOUNT WITH THE SPE CIFIC DIRECTION, A DIFFERENT RECEIPT IS ISSUED TO HIM AND COPIES OF THESE RECEIPTS ARE V ERY MUCH AVAILABLE ON RECORD AND UNDER THOSE CIRCUMSTANCES, IT CANNOT BE SAID THAT T HE AMOUNT IN QUESTION IS NOT CORPUS AND THAT IT IS INCLUDIBLE IN THE REVENUE REC EIPTS OF THE ASSESSEE. 4.7 ON THE ISSUE OF VIOLATIONS OF SECTION 13(1)(C), HE SUBMITTED THAT THE CIT HAS RECORDED THREE FINDINGS, WHICH ARE AS FOLLOWS:- (A) THE ASSESSEE HAS INCURRED EXPENDITURE FOR TREA TMENT OF THE FOUNDER MEMBER LATE SRI A.ALWARDAS; ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 11 (B) THE SECRETARY, SRI S.V.H.RAJENDRA, HAS TAKEN C ERTAIN ADVANCES WHICH IS MISUSE OF FUNDS. (C) THAT THE INVESTMENT IS MADE IN M/S.HAPPY ESTAT ES. 4.8 ON THE EXPENDITURE INCURRED FOR LATE SRI A.ALWA RDAS, HE SUBMITTED THAT HE WAS A SOCIAL WORKER AND A FORMER MINISTER IN THE AN DHRA PRADESH GOVERNMENT DURING THE PERIOD 1982-83 AND AS THERE WAS PAUCITY OF EDUCATIONAL INSTITUTIONS FOR GIRLS IN THIS REGION, HE STARTED A MOVEMENT FOR EDU CATION OF GIRL CHILD AND TO INCREASE THE LITERACY RATIO. HE SUBMITTED THAT LATE SRI A.AL WARDAS HAS WORKED AS A FULL TIME WORKER FOR THE ESTABLISHMENT OF THESE INSTITUTIONS AND RENDERED DEDICATED SERVICE THROUGH OUT HIS LIFE TO THE ASSESSEE SOCIETY, WITHO UT TAKING ANY REMUNERATION OR HONORARIUM. THUS, THE INSTITUTION HAS NEVER INCURRE D ANY EXPENDITURE ON THE FOUNDER OF THESE INSTITUTIONS ALL THESE YEARS. WHEN HE WAS ILL, THE SOCIETY INTENDED THAT IT REQUIRES THE SERVICES OF ITS FOUNDER MEMBER, AS IN ITS OWN INTEREST AND FOR ITS OWN PURPOSE, THE SOCIETY SPENT SMALL PORTION OF THE TO TAL MEDICAL EXPENDITURE THAT WAS SPENT ON THE FOUNDER, SO AS TO BRING HIM BACK TO NO RMAL LIFE AND TO CONTINUE TO AVAIL HIS SERVICES IN FUTURE ALSO. HE SUBMITTED THAT THE SOCIETY INCURRED THE SAID EXPENDITURE AT A CRITICAL TIME AND CONSIDERING THE VALUE OF THE SERVICES, THE EXPENDITURE IN QUESTION IS NEGLIGIBLE, WHEN COMPARE D WITH THE REMUNERATION / COST THAT WOULD HAVE BEEN PAYABLE BY THE ASSESSEE TO THE FOUNDER MEMBER FOR THE SERVICES RENDERED. HE POINTED OUT THAT LATE SRI A.A LWARDAS, NEVER KNEW ABOUT THE SOCIETY HAVING INCURRED THIS EXPENDITURE FOR HIS ME DICAL TREATMENT AS HE WAS SICK. THUS, HE SUBMITTED THAT TAKING A HOLISTIC VIEW AND KEEPING IN MIND THE FACT, AS TO WHAT WOULD HAVE BEEN THE REMUNERATION DUE TO BE PAI D FOR THE SERVICES RENDERED, AND THE FACT THAT THE EXPENDITURE INCURRED WAS VOL UNTARILY AND FOR THE OWN INTEREST OF THE SOCIETY IS MINUSCULE AND BASED ON THE LOGIC GIV EN BY THE LEARNED CIT(A) IN HOLDING THAT THE CONVEYANCE ALLOWANCE PAID ETC. WAS COMMENSURATE, HE ARGUED THAT THIS IS NOT A GROUND FOR DENYING EXEMPTION U/S 11. HE PRAYED THAT THIS PARTICULAR EXPENDITURE SHOULD NOT BE CONSIDERED AS MADE IN VIO LATION OF SECTION 13(1)(C) OF THE ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 12 ACT. HE DISTINGUISHED THE DECISION OF THE HONBLE K ERALA HIGH COURT IN THE CASE OF AGAPPA CHILD CARE V. CIT [226 ITR 211] RELIED UPON BY THE LEARNED CIT(A). 4.9 ON THE ISSUE OF ADVANCE DUE FROM SRI S.V.H.RAJE NDRA, SECRETARY, HE SUBMITTED THAT HE IS HIGHLY EDUCATED AND THAT HE AL SO, LIKE HIS FATHER DEVOTED HIS ENTIRE TIME FOR THE PROMOTION OF THE SOCIETY, WITHO UT ACCEPTING ANY HONORARIUM MUCH LESS REMUNERATION. HE SUBMITTED THAT THE SOCIETY FA CED ACUTE FINANCIAL CRISES AND HAD TO RESORT TO BORROWING FROM ALLAHABAD BANK, THR OUGH THE STAFF OF VMC COLLEGE, AND THE PROCEEDS OF WHICH WERE USED TO KEEP THE MAN DATORY FIXED DEPOSIT OF RS.50,00,000 IN THE JOINT NAMES OF THE SOCIETY AND THE REGIONAL DIRECTOR, AICTE. IT WAS SUBMITTED THAT THE REPAYMENT OF THE LOANS WERE DEBITED TO THE SECRETARY, SRI S.V.H.RAJENDRA, THOUGH HE HAD NOT DERIVED ANY PERSO NAL BENEFIT OUT OF THE SAME. THE BENEFIT OF THE MATURITY PROCEEDS OF THE TDR WAS ENJOYED BY THE SOCIETY WITHOUT CORRESPONDING REVERSAL OF LIABILITY DEBITED IN THE PERSONAL ACCOUNT, DUE TO A MISTAKE COMMITTED BY THE ACCOUNTANT. THE LEARNED COUNSEL SU BMITTED THAT THE SECRETARY HAD TO TRAVEL FOR APPROVALS AND FOR DEVELOPING THE INFRASTRUCTURE OF THE SOCIETY AND FOR THIS PURPOSE, HE HAS DRAWN ADVANCES, WHICH SHOW S THAT THE EXPENDITURE IN QUESTION WAS INCURRED FOR THE SOCIETY AND NOT FOR H IS PERSONAL BENEFIT. HE POINTED OUT THAT THE CLOSE SCRUTINY OF THE ENTRIES MADE IN THE ACCOUNTS CLEARLY INDICATE THAT THE EXPENDITURE IS RELATABLE TO THE ADVANCES DURING THE YEAR, INCURRED BY THE SECRETARY DURING TRAVEL FOR THE PURPOSE OF THE SOCI ETY AND THEY WERE MADE THROUGH CREDIT CARDS. HE POINTED OUT THAT THE SECRETARY HAD MORTGAGED HIS PERSONAL PROPERTY WITH THE BANKS FOR RAISING LOANS AND HAS NEVER CHAR GED THE SOCIETY FOR ANY SERVICE AND THAT THIS DEMONSTRATES THAT THE SECRETARY HAS N OT TAKEN ANY PERSONAL BENEFIT AS CONTEMPLATED U/S 13(1)(C). REGARDING THE INSURANCE, HE SUBMITTED THAT THE BORROWINGS USED FOR THE SOCIETY WERE SECURED BY PER SONAL PROPERTY OF THE SECRETARY AND THE SECRETARY STOOD AS THE GUARANTOR AND HENCE THE INSURANCE EXPENDITURE HAD TO BE INCURRED AS IT WAS A CONDITION IMPOSED BY THE BANK AND THUS THE EXPENDITURE WAS IN FACT FOR THE BENEFIT OF THE SOCIETY. HE EXPL AINED VARIOUS ENTRIES TO DEMONSTRATE THAT ALL THE TRANSACTIONS WERE ONLY AND SOLELY FOR THE PURPOSE OF THE ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 13 SOCIETY AND THAT NO PERSONAL BENEFIT ACCRUED TO THE SECRETARY AND THAT ON THE CONTRARY THE SECRETARY AND HIS FAMILY UNDERTOOK HUG E RISK BY NOT ONLY STANDING AS GUARANTOR BUT ALSO BY MORTGAGING THEIR PERSONAL PRO PERTY AND HIS WIFES PROPERTY FOR THE BENEFIT OF THE SOCIETY. 4.10 HE SUBMITTED THAT THE SECRETARY IS DEVOTING FU LL TIME FOR THE ACTIVITIES OF THE SOCIETY AND HAS NOT DRAWN ANY REMUNERATION TILL 200 9-2010. UNDER THESE CIRCUMSTANCES, IT WAS ARGUED THAT EVEN IF IT IS TAK EN THAT CERTAIN SMALL AMOUNTS WERE INCURRED FOR AND ON BEHALF OF THE SOCIETY, THEN THE EXPENDITURE IS MINUSCULE AS COMPARED TO THE VALUE OF SERVICES RENDERED. IN OTHE R WORDS, IT WAS SUBMITTED THAT, IF REMUNERATION COMMENSURATE WITH THE SERVICES RENDERE D ARE TO BE QUANTIFIED, THEN THE EXPENDITURE INCURRED IS NOT IN ANY WAY COMPARAB LE TO THE SAME. HE RELIED ON THE FOLLOWING CASE LAWS. (I) CIT V. FOUNDATION FOR SOCIAL CARE [(2013) 37 T AXMANN.COM 389 (ALL.) (II) ITAT CUTTACK BENCH IN ITO V. HUMAN RESOURCE DE VELOP. & MANAGEMENT TRUST , [12 TAXMANN.COM 478 (TRIB.)] (III) ITAT DELHI BENCH IN ADDL.DIV V. MANAV BHARTI CHILD INST & CHILD PSYCHOLOGY. 4.11 ON THE ISSUE OF INVESTMENT IN M/S.HAPPY ESTATE S PRIVATE LIMITED, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS AN AP PLICATION OF FUNDS FOR THE PURCHASE OF LAND AND IT IS NOT A CASE OF INVESTMENT OUT OF SURPLUS FUNDS IN ACCORDANCE WITH SECTION 11(5) AND HENCE THERE IS NO VIOLATION OF SECTION 13(1)(D). 4.12 WITHOUT PREJUDICE TO HIS ARGUMENTS, THE LEARNE D COUNSEL SUBMITTED THAT EXEMPTION U/S 11 OF THE INCOME-TAX ACT, IF DENIED F OR VIOLATION OF SECTION 13(1)(C) OR 13(1)(D) READ WITH BOARD CIRCULAR NO.387/1984, ONLY THE QUANTUM OF INCOME FOR WHICH EXEMPTION IS NOT GIVEN, IS TO BE TAXED ON THE MAXIMUM MARGINAL RATE. ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 14 4.13 ON SECTION 40(A)(IA), THE LEARNED COUNSEL SUBM ITTED THAT HE DOES NOT APPLY TO THE ASSESSEES WHOSE INCOME IS DETERMINED U/S 11( 1) AND AS SECTIONS 28 TO 44 ARE NOT APPLICABLE IN THIS CASE. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE, SRI R.K .SINGH, ADDL.CIT, ON THE OTHER HAND, CONTROVERTED THE ARGUMENTS OF THE LEARN ED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT THIS IS A CASE WHERE CERTAIN MEDI CAL EXPENDITURE HAS BEEN INCURRED ON THE FOUNDER MEMBER OF THE ASSESSEE-SOCI ETY AND ADMITTEDLY THIS IS A CLEAR CASE OF VIOLATION OF SECTION 13(1)(C). HE REF ERRED TO THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSEE HIMSELF HAS ADMITTED TH AT HE IS NOT FOLLOWED THE RULES AND ON THIS ADMISSION, NO FURTHER REASON IS TO BE G IVEN TO HOLD THAT THE ASSESSEE WAS RIGHTLY DENIED EXEMPTION U/S 11. ON THE ISSUE O F CORPUS FUND, THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY EV IDENCE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE LEARNED CIT(A) TO P ROVE HIS CLAIM THAT THE RECEIPTS WERE FOR SPECIFIC PURPOSES AND WERE MADE WITH SPECI FIC DIRECTIONS. HE SUBMITTED THAT IN THE ABSENCE OF SUCH EVIDENCES, THE QUESTION OF ENTERTAINING THE CLAIM OF THE ASSESSEE DOES NOT ARISE. ON THE EXPENDITURE INCURRE D BY THE SECRETARY, SRI S.V.H.RAJENDRA, HE SUBMITTED THERE WERE OUTSTAN DING BALANCES IN THE NAME OF SRI S.V.H.RAJENDRA AND THIS DEMONSTRATES THAT FUNDS OF THE INSTITUTION HAS BEEN MISUSED BY THE SECRETARY AND UNDER THOSE CIRCUMSTAN CES THERE IS VIOLATION OF SECTION 13(1)(C). HE RELIED ON THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF AGAPPA CHILD CARE V. CIT (SUPRA) AND SUBMIT TED THAT EVEN IN ANY CASE WHERE A REFRIGERATOR BELONGING TO THE ASSESSEE WAS KEPT IN THE HOUSE OF THE MANAGING TRUSTEE, THE COURT CAME TO A CONCLUSION TH AT THERE WERE VIOLATION OF SECTION 13(1)(C). ON A QUERY FROM THE BENCH, HE SUB MITTED THAT THE REVENUE HAS NOT CONTESTED THE FINDINGS OF THE LEARNED CIT(A) ON INTEREST FREE LOANS GIVEN TO SRI VENKATESWARA VIDYA PEETH AND SRI BALAJI VIDYA PARIS HAD AND WHICH WERE SUBSEQUENTLY WRITTEN OFF AS WELL AS THE FINDING THA T THE CONVEYANCE ALLOWANCE BEING PAID TO MEMBERS OF THE SOCIETY IS COMMENSURATE WITH THE SERVICES RENDERED BY THE ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 15 MEMBERS AND WAS REASONABLE. HE RELIED ON THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A). 6. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D, WE HOLD AS FOLLOWS. 6.1 WE FIRST TAKE UP THE ISSUE OF VIOLATION OF SECT IONS 13(1)(C) AND 13(1)(D). THE FINDINGS BY THE REVENUE ARE THAT THESE VIOLATIONS A RE (A) AN EXPENDITURE OF RS.1,17,809 WAS INCURRED TOWARDS MEDICAL EXPENDITUR E ON THE FOUNDER MEMBER OF THE SOCIETY, LATE SRI A.ALWARDAS, (B) THERE ARE CER TAIN OUTSTANDING BALANCES DUE FROM SRI S.V.H.RAJENDRA, SECRETARY OF THE SOCIETY ( FOR THE ASSESSMENT YEAR 2004- 2005, THE ADVANCE DUE FROM THE SECRETARY WAS RS.15, 254). (C) AN INVESTMENT WAS MADE FOR PURCHASE OF LAND FROM M/S.HAPPY ESTATES PR IVATE LIMITED TO THE TUNE OF RS.1,09,400, WHICH IS NOT A MODE OF INVESTMENT STIP ULATED U/S 11(5) OF THE ACT. 6.2 ON THE FIRST ISSUE AS TO WHETHER THERE IS A VIO LATION OF SEC.13(1)(C) OF THE ACT, WE HOLD AS FOLLOWS. THE UNDISPUTED FACT IS THAT LAT E SRI A.ALWARDAS WAS THE FOUNDER MEMBER OF THE SOCIETY AND WAS A DEDICATED SOCIAL WO RKER AND STRIVED TO IMPROVE THE LITERACY AMONG GIRLS. IT IS ALSO NOT DISPUTED THAT THESE INSTITUTIONS WERE FORMED BY HIM FROM THE EARLY 1980S AND HE HAD WORKED SELFLESS LY FOR THE IMPROVEMENT OF THE SOCIETY FOR ALMOST THREE DECADES AND THAT TOO WITHO UT TAKING ANY REMUNERATION OR ANY HONORARIUM. THE SOCIETY IS CREATED BY HIM AND N URTURED BY HIM. THE SOCIETY THOUGHT THAT, IN ITS OWN INTEREST, TO INCUR CERTAIN MEDICAL EXPENDITURE FOR BRINGING ITS FOUNDER TO GOOD HEALTH AT A TIME WHEN HE WAS IN DIR E NEED OF MEDICAL ASSISTANCE. WITH A VIEW TO BRING HIM BACK TO HIS NORMAL LIFE AN D TO AVAIL HIS FUTURE SERVICES, GUIDANCE AND ASSISTANCE THE ASSESSEE-SOCIETY IN ITS OWN INTEREST HAS INCURRED THIS EXPENDITURE. THE QUESTION BEFORE US IS WHETHER THE EXPENDITURE INCURRED BY THE SOCIETY IS COMMENSURATE TO THE SERVICES RECEIVED BY IT FROM THE FOUNDER MEMBER. SEC.13(1)(C) IS ATTRACTED ONLY IF THE PAYMENT OR EX PENDITURE INCURRED ON THE MEMBER OF THE SOCIETY IS EXCESSIVE AND UNREASONABLE AND IS NOT COMMENSURATE TO THE ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 16 SERVICES RENDERED BY THE MEMBER TO THE SOCIETY. THI S IS THE TEST LAID DOWN BY VARIOUS COURTS ON THIS ISSUE OF PERSONAL BENEFIT TO A MEMBER OF A SOCIETY. FOR EXAMPLE SALARY PAID TO A TRUSTEE IS ALLOWABLE IF IT IS COMMENSURATE TO THE SERVICE RENDERED. THE SOCIETY HAD INCURRED CERTAIN EXPENSES ON ITS FOUNDER, WHO HAD SERVED THE SOCIETY THROUGH OUT HIS LIFE WITHOUT CHA RGING ANY SALARY OR REMUNERATION OR HONORARIUM. UNDER THE CIRCUMSTANCES, THE EXPENDI TURE INCURRED IS MINUSCULE WHEN COMPARED TO THE FAIR MARKET VALUE OF THE REMUN ERATION, IF QUANTIFIED, THAT WOULD BE PAYABLE FOR THE SERVICES RENDERED BY HIM O VER THE YEARS. THE LEARNED CIT(A) HAD TAKEN A SIMILAR VIEW IN RESPECT OF CONVE YANCE ALLOWANCE DRAWN BY THE MEMBERS OF THE SOCIETY AND THE REVENUE HAS NOT DIS PUTED THIS VIEW. THE PROPOSITION WAS THAT THE AMOUNT OF CONVEYANCE ALLOW ANCE GIVEN IS MINUSCULE AND DOES NOT TANTAMOUNT TO VIOLATION OF SECTION 13(1)(C ). 6.3 WE NOW CONSIDER SOME OF THE CASE LAWS ON THE IS SUE. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. FOUNDATI ON FOR SOCIAL CARE (2013) 86 CCH 044 ALL. HC HELD AS UNDER:- 10. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RECORD, IT APPEARS THAT THE TRUST IS A REGISTERED TRUST SIN CE 1994. ITS ACTIVITIES ARE NOT DOUBTFUL REGARDING CHARITABLE AC TIVITIES. FOR THE PURPOSE, THE TRUST NEEDS SOME OFFICE PREMISES AND A LSO ELECTRICITY ETC. IN THE INSTANT CASE, THE OFFICE PREMISES OF TH E PRESIDENT WAS TAKEN BY THE TRUST ON REASONABLE RENT. PERHAPS OTHE R PREMISES MIGHT BE MORE COSTLY. SO, THE RENT IS ALLOWABLE DED UCTION. FROM THE RECORD, IT ALSO APPEARS THAT THE PRESIDENT AND THE SECRETARY OF THE TRUST ARE PROVIDING VOLUNTARILY SERVICES TO THE TRUST. THEY ARE NOT CHARGING ANY FEE / REMUNERATION FOR THEIR SERVI CES. BY KEEPING THE OFFICE IN THE SAME BUILDING WHERE THEY ARE RESI DING, THE ACTIVITIES CAN BE LOOKED AFTER WITHOUT MAKING ANY E XPENDITURE ON CONVEYANCE. AS PER THE TENANCY AGREEMENT, THERE IS NO PROVISION FOR SEPARATE ELECTRICITY METER. IT IS NOT EXPLAINED WHETHER THERE WAS AN ARRANGEMENT OF SUB METER OR NOT. NEEDLESS TO MENTION THAT SOMETIMES, PERKS ARE HIGHER THAN SALARY / REMU NERATION. 11. IN THE INSTANT CASE, THE PRESIDENT AND SECRETA RY ARE NOT CHARGING ANY REMUNERATION OR CONVEYANCE ALLOWANCE. THEY ARE AVAILABLE ROUND THE CLOCK FOR THE ACTIVITIES OF THE TRUST. SEPARATE ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 17 ACCOUNT HAS BEEN MAINTAINED FOR PAYING THE GENUINE RENT AND ALSO THE ELECTRICITY CHARGES. THE AMOUNT IN QUESTION IS MEAGER ONE. 12. HENCE, WE FIND NO REASON TO INTERFERE WITH THE IMPUGNED ORDER PASSED BY THE TRIBUNAL AND THE SAME IS HEREBY SUSTAINED ALONG WITH THE REASONS MENTIONED THEREIN. 6.4 IN THE BOOK CHATURVEDI & PITHISARIAS INCOME TA X LAW FIFTH EDITION AT PAGE 1099, THE HONBLE AUTHORS STATED AS FOLLOWS:- THE QUESTION AS TO WHETHER OR NOT THE PROPERTY OF A CHARITABLE TRUST OR INSTITUTION IS USED OR APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY `EXCLUDED PERSON, AND IF IT IS SO, WHAT IS THE VALUE OF THE BENEFIT ARISING TO THE EXCLUDED PERSON FROM SUCH USER OR APPLICATION HAVE TO BE DECIDED AND DETERMINED ON TH E FACTS OF EACH CASE. 6.5 IT IS FURTHER, IN THE SAME PARA STATED AS FOLLO WS: THE VALUE OF THE BENEFIT CONFERRED ON THE `EXCLUDE D PERSON IN SUCH CASES WOULD BE DETERMINABLE, RESPECTIVELY, WI TH REFERENCE TO THE FAIR RENTAL VALUE OF THE HOUSE PROPERTY, THE PR EVAILING MARKET RATE OF INTEREST, AND THE PAYMENT WHICH WOULD HAVE BEEN NORMALLY MADE BY THE TRUST OR INSTITUTION TO A PERSON OTHER THAN THE `EXCLUDED PERSON FOR THE SERVICES RENDERED BY HIM . [CIRCULAR NO.4P (LXXVI-61) OF 1966, DATED 21 ST JULY, 1966.] 6.6 FROM THE ABOVE IT IS CLEAR THAT THE FAIR MARKET VALUE HAS TO BE DETERMINED FOR THE SERVICES RENDERED TO THE SOCIETY AND THE BENEFI T GIVEN TO THE MEMBER BE MEASURED AGAINST SUCH FAIR MARKET VALUE AND ONLY IF SUCH BENEFIT EXCEEDS THE FAIR MARKET VALUE OF THE SERVICES, THEN ONLY THE PROVISI ONS OF SECTION 13(1)(C) ARE ATTRACTED. 6.7 IN THE CASE OF IN ANANDA MARGA PRACHARAKA SANGH A V. CIT [(1996) 218 ITR 254,267-68 (CAL)], ON THE QUESTION WHETHER AN A SSESSEE WAS NOT ENTITLED TO EXEMPTION, INTER ALIA, ON THE GROUND OF APPLICABILI TY OF THE PROVISIONS OF SECTION 13(L)(C) INASMUCH AS THE ASSESSEE SPENT A CERTAIN S UM DIRECTLY FOR THE BENEFIT OF 'INTERESTED PERSONS' IN DEFENDING THEM AGAINST SERI OUS CRIMINAL CHARGES, IT HAS BEEN HELD THAT THE SAME PRINCIPLE AS APPLIES TO ALL OWABILITY OF EXPENSES FOR ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 18 DEFENCE IN A CRIMINAL PROCEEDING EMANATING IN THE C OURSE OF CARRYING ON A TRADE SHALL ALSO APPLY TO EXPENSES OF DEFENCE THAT A CHAR ITABLE INSTITUTION MAY HAVE TO INCUR FOR THE DEFENCE OF ANY OF ITS FOUNDERS OR TRU STEES GETTING INVOLVED IN CRIMINAL PROSECUTION IN THE COURSE OF CARRYING OUT THE OBJEC TS OF THE TRUST. BECAUSE, THOUGH THE CRIMINAL INDICTMENT IS PERSONAL AND THE BENEFIT MAY ACCRUE TO THE PERSON INDICTED WHERE THE EXPENSES ARE MET BY THE CHARITAB LE INSTITUTION, SUCH PERSONAL BENEFIT IS IMMATERIAL IN THE CONTEXT THAT THE DEFEN CE OF SUCH FOUNDERS OR OFFICE- BEARERS IS PRIMARILY IN THE INTEREST OF THE CHARITA BLE INSTITUTION SINCE THE VERY EXISTENCE OF THE SOCIETY IS IMPERILLED UNLESS ITS F AIR NAME IS SAVED. THE PROSECUTION MAY BE OF THE OFFICE-BEARER OR OFFICE-B EARERS BUT WHERE THE TRIAL EMANATES FROM THE EXECUTION OF THE OBJECTS OF THE T RUST, IT IS OF PRIME AND PRIOR INTEREST OF THE CHARITABLE INSTITUTION OR SOCIETY T O HAVE THE FITTING DEFENCE SO THAT THE INFAMY WHICH THE CRIMINAL PROSECUTION BRINGS DO ES NOT JEOPARDISE THE FUNCTIONING OF THE SOCIETY IN ITS EFFORTS TO ACHIEV E ITS OBJECTS. BENEFIT CAN BE SAID TO ACCRUE TO THE PERSON CHARGED AND BROUGHT TO TRIAL O NLY WHERE THE CHARGE HAS NOTHING TO DO WITH THE SOCIETY'S FUNCTIONING AND TH E PROCEEDING ARISES COMPLETELY OUTSIDE THE FIELD OF ITS ACTIVITY. IN THE FORMER CA SE WHERE THE CRIMINAL PROCEEDING IS CONNECTED WITH THE AFFAIRS OF THE SOCIETY AND THE I MPLEMENTATION OF ITS OBJECT, THE BENEFIT THAT MAY COINCIDENTALLY ACCRUE TO THE FOUND ER OR THE TRUSTEES CANNOT HAVE ANY MATERIAL BEARING ON THE QUESTION OF THE SOCIETY 'S PURITY AS A CHARITABLE TRUST AND THE DISQUALIFICATION IN SECTION 13(1)(C) CANNOT BE ATTRACTED. 6.8 COMING TO THE JUDGMENT OF THE HONBLE KERALA HI GH COURT IN THE CASE OF AGAPPA CHILD CARE (SUPRA), WE FIND THAT THIS CASE W AS DECIDED U/S 13(2)(B) AND NOT U/S 13(1)(C). EVEN ON FACTS, IT IS NOT A CASE WHERE THE MANAGING TRUSTEE WAS RENDERING SERVICES TO THE ASSESSEE WITHOUT CHARGING ANY FEE OR REMUNERATION. IT IS A CASE WHERE A REFRIGERATOR WAS PURCHASED BY THE TRUS T FOR ITS OWN USE, BEFORE THE COMPLETION OF THE TRUST BUILDING AND IT WAS KEPT IN THE RESIDENTIAL HOUSE OF THE MANAGING TRUSTEE OF THE TRUST. ON FACTS, THE HONBL E COURT CAME TO A CONCLUSION THAT THE PROPERTY OF THE TRUST WAS USED FOR THE BENEFIT OF A PROHIBITED PERSON. THIS CASE ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 19 IS NOT APPLICABLE TO THE FACTS OF THE CASE FOR THE REASON THAT VOLUNTARY SERVICES HAVE BEEN RENDERED BY THE MEMBERS WITHOUT CHARGING ANY F EE OR REMUNERATION OR SALARY AND THE AMOUNTS INCURRED ON THESE MEMBERS IS MINUSC ULE TO THE FAIR MARKET VALUE OF THE SERVICES AVAILED BY THE SOCIETY. 6.9 IN OUR CONSIDERED VIEW, THE PAYMENTS IN QUESTIO N IS LESS THAN THE FAIR MARKET VALUE OF THE SERVICES AVAILED BY THE SOCIETY FROM I TS FOUNDER MEMBER AND ON FACTS THERE IS NO PERSONAL BENEFIT THAT ACCRUED TO THE ME MBER AND HENCE THERE IS NO VIOLATION OF SECTION 13(1)(C) OF THE ACT. 6.10 SIMILARLY IN THE CASE OF ADVANCES TO SRI RAJEN DRA, SECRETARY OF THE SOCIETY, WE FIND THAT HE WORKS FULL TIME WITH THE SOCIETY AN D DOES NOT DREW ANY REMUNERATION OR SALARY NOR HAS HE CHARGED ANY FEE. UNDER SUCH CI RCUMSTANCES, EVEN IF AN ADVANCE OF RS.15,254 IS OUTSTANDING FROM HIM, IT CA NNOT BE TAKEN THAT CERTAIN PERSONAL BENEFIT HAS ACCRUED TO SRI RAJENDRA FROM T HE SOCIETY. IT IS BROUGHT TO OUR NOTICE THAT THE SECRETARY HAS ARRANGED FUNDS FOR TH E SOCIETY BY MORTGAGING HIS PERSONAL PROPERTY AND ALSO GIVING PERSONAL GUARANTE E. THE LOANS TAKEN, AS WELL AS THE GUARANTEES GIVEN ARE RUNNING INTO LAKHS OF RUPE ES AND WHEREAS THE ADVANCES IN QUESTION REMAINS OUTSTANDING AGAINST SRI RAJENDRAS ACCOUNT IS IN THOUSANDS, WHICH IS MINUSCULE AS COMPARED TO THE FAIR MARKET VALUE O F THE SERVICES RENDERED AS WELL AS THE FINANCIAL GUARANTEES GIVEN, ETC. IN OUR VIEW , SUCH OUTSTANDING ADVANCE DOES NOT TANTAMOUNT TO PERSONAL BENEFIT TO THE MEMBER IN TERMS OF SECTION 13(1)(C). THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE HAS TO BE SEEN AND THEN ONLY THEN A DECISION SHOULD BE TAKEN AS TO WHETHER THERE IS V IOLATION OF SEC.13(1)(C) OR NOT. ON FACTS ALSO, THE ASSESSEE HAS DEMONSTRATED THAT T HE SECRETARY HAS TAKEN MOST OF THE ADVANCES FOR THE PURPOSE OF INCURRING EXPENDITU RE AS TRAVELLING ETC. FOR THE SOCIETY AND EVEN AS THIS COUNT, THERE IS NO PERSONA L BENEFIT AS CONTEMPLATED U/S 13(1)(C) OF THE ACT. 6.11 COMING TO THE INVESTMENT IN M/S.HAPPY ESTATES PRIVATE LIMITED, THIS WAS FOR PURCHASE OF A LAND AND IT IS AN APPLICATION OF FUND . WHAT IS CONTEMPLATED IN THE LIST ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 20 OF PERMISSIBLE INVESTMENT U/S 11(5), IS ONLY THE SU RPLUS FUNDS WHICH REMAINS AFTER THE APPLICATION OF FUNDS. WHEN THE ASSESSEE GIVES A N ADVANCE FOR PURCHASE A LAND FOR THE PURPOSE OF THE SOCIETY, IT IS AN APPLICATIO N OF FUNDS AND HENCE THE CONCLUSION THAT THERE IS VIOLATION OF SECTION 13(1)(D) IS WRON G. FUNDS WHICH HAVE BEEN APPLIED CANNOT BE INVESTED AS CONTEMPLATED U/S 11(5). 6.12 THUS, IN VIEW OF THE ABOVE DISCUSSION AND FACT UAL FINDING, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S 11 AS THERE IS NO VIOLATION OF SEC. 13(1)(C) AND SEC. 13(1)(D). THE ASSESSING OFFICER IS DIRECTE D TO GRANT THE SAME. 6.13 COMING TO THE ISSUE OF CORPUS DONATIONS, WE FI ND THAT THE ASSESSEE HAS REPEATEDLY SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSING OFFICER, IN A PRECONCEIVED MANNER, HAS NOT CONSIDERED THE EVIDENC ES WHICH WERE PRODUCED BEFORE HIM. THE LEARNED CIT(A) WITHOUT PROPER VERIF ICATION OF THE DOCUMENTS AND EVIDENCES AVAILABLE WITH HIM, RELIED ON THE REMAND REPORT AND CAME TO A CONCLUSION THAT THERE IS NO EVIDENCE WHATSOEVER WITH THE SOCIE TY TO DEMONSTRATE THAT THE RECEIPTS WERE WITH SPECIFIC DIRECTION AND HENCE FOR M PART OF CORPUS OF THE SOCIETY. UNDER THE CIRCUMSTANCES, WE DEEM IT APPROPRIATE TO REMAND THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACC ORDANCE WITH LAW. THE ASSESSING OFFICER SHALL VERIFY THAT THE RECEIPTS, VOUCHERS, D OCUMENTS, ETC. PRODUCED BY THE ASSESSEE AND MAKE A RECORD OF THE SAME AND ADJUDICA TE THE MATTER DE NOVO . THIS ISSUE IS SET ASIDE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 7 TH DAY OF MARCH, 2014. SD/- SD/- ( SAKTIJIT DEY ) ( J.SUDHAKAR REDDY ) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM; DATED : 7 TH MARCH, 2014. DEVDAS* ITA NO.604/VIZAG/2013 & ORS. SRI SRINIVASA VIDHYAPARISHAD, HYDERABAD. 21 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT, VISAKHAPATNAM . 4. CIT(A) VISAKHAPATNAM . 5. DR, ITAT, VISAKHAPATNAM. 6. GUARD FILE. BY ORDER, //TRUE COPY// (SENIOR PRIVATE SECRETARY) ITAT, VISAKHAPATNAM