AMERICAN EDUCATION TRUST, MUMBAI V. ASST CIT (E) I(1), MUMBAI

ITA 971/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0344 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-11-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 10-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Rectification of order; Opportunity of being heard; Additional evidence; Valuation report
• Section: 143(3); 12A; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 971/MUM/2017 ASSESSMENT YEAR: 2013 - 14 AMERICAN EDUCATION TRUST, S.V. ROAD, PAREKH NAGAR, BEHIND GOKUL NAGAR, KANDIVALI (W), MUMBAI - 400067. VS. ACIT - I(1) MUMBAI. PAN NO. AAATA4303N APPELLANT RESPONDENT ASSESSEE BY : DR. K. SHIVARAM , SR. ADVOCATE & MR. RAHUL HAKANI, ADVOCATE REVENUE BY : MR. RAJESH KUMAR YADAV, DR DATE OF HEARING : 08 /11/2017 DATE OF PRONOUNCEMENT : 05/02/2018 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2013 - 14 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 1 , MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST AND 2 ND GROUND OF APPEAL BY THE ASSESSEE ARE CONSIDERED TOGETHER FOR ADJUDICATION , AS THEY ADDRESS A COMMON ISSUE. THE 1 ST GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED AMERICAN EDUCATION TRUST ITA NO. 971/MUM/2017 2 IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER (AO) HOLDING THAT THERE IS CONTRAVENT ION OF SECTION 13 BY THE ASSESSEE AND CONSEQUENTLY , IT IS NOT ENTITLED TO EXEMPTION U/S 11. THE 2 ND GROUND IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO TREATING THE ENTIRE INCOME OF THE ASSESSEE TRUST AS INCOME FROM OTHER SOURCES WITHOU T APPRECIATING THAT INCOME NOT COVERED BY CONTRAVENTION OF SECTION 13 HAS TO BE COMPUTED U/S 11 OF THE ACT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRUST REGISTERED UNDER THE BOMBAY PUBLIC TRUST ACT, 1950 AND U/S 12A OF THE INC OME TAX ACT. IT IS RUNNING A SCHOOL AT KANDIVALI BY THE NAME SWAMI VIVEKANAND INTERNATIONAL SCHOOL AND JUNIOR COLLEGE. ON 2 ND APRIL 2009 (AY 2010 - 11), THE ASSESSEE - TRUST ENTERED INTO AN AGREEMENT WITH SPRING BIRD EDUCATION PVT. LTD. (SBEPL) WHEREBY THE LATTER WAS GIVEN THE FIRST FLOOR ADMEASURING APPROX. 7,280 SQ. FT. ALONG WITH TABLE, CHAIRS, BLACKBOARD, FANS, CHARTS, ETC. FOR RUNNING PRE - PRIMARY SCHOOL. SBEPL WAS TO PAY 15% OF GROSS RECEIPT OR RS.1,00,000/ - PER MONTH WHICHEVER IS HIGHER TO THE TRUST. ON 23.04.2011 (AY 2011 - 12), SIMILAR AGREEMENT WAS ENTERED BY THE ASSESSEE TRUST WITH SBEPL , WHEREBY THE LATTER WAS TO PAY 20% OF GROSS RECEIPT OR RS.2,00,000/ - PER MONTH WHICHEVER IS HIGHER TO THE TRUST. THE ASSESSEE VIDE LETTER DATED 22.09.2015 SUBMITTED BEFORE THE AO THAT IT HAD RECEIVED RS.38,36,520/ - FROM SBEPL. AMERICAN EDUCATION TRUST ITA NO. 971/MUM/2017 3 3.1 THE AO ARRIVED AT THE FOLLOWING FINDINGS: (I) THAT THE TRUSTEES OF THE ASSESSEE TRUST AND THE DIRECTORS AND SHAREHOLDERS OF SBEPL ARE SAME OR ARE RELATIVES, (II) THA T THE COMPENSATION RECEIVED OF RS.38,36,520/ - IS LESS THAN ADEQUATE FOR THE INFRASTRUCTURE AND SERVICES PROVIDED AND NOT EVEN IN CONFORMITY WITH THE AGREEMENT, (III) THAT THE BENEFITS DUE TO UTILIZATION OF THE PROPERTY OF THE TRUST HAS ENURED TO THE TRUSTEES AN D RELATIVES BY WAY OF PROFITS IN THE COMPANY AND OTHER DIRECT AND INDIRECT BENEFIT LIKE REMUNERATION/INTEREST AND LOANS GIVEN TO CONCERNS IN WHICH THE DIRECTORS/FAMILY MEMBERS ARE MAJOR SHAREHOLDERS, (IV) THAT THE BUS FEES FROM ITS STUDENTS COULD HAVE ENURED T O THE BENEFIT OF THE TRUST WITH A NOMINAL INVESTMENT WHICH PRESENTLY FLOWED TO THE COMPANY. IN VIEW OF THE ABOVE, THE AO CONCLUDED THAT THE ASSESSEE - TRUST CONTRAVENED THE PROVISIONS OF SECTION 13 OF THE ACT. THEREFORE, HE DENIED EXEMPTION U/S 11 AND COMPU TED THE INCOME AS PER THE NORMAL PROVISIONS OF THE ACT. ACCORDINGLY, THE AO HELD THAT (I) THE CLAIM BY THE ASSESSEE - TRUST OF DONATION OF RS.1,05,00,000/ - AND SCHOLARSHIP OF RS.27,63,268/ - CANNOT BE CONSIDERED AS EXPENSES RELATED TO THE RECEIPTS OF THE YEA R, (II) THE CLAIM OF EXEMPTION U/S 11(1)(A) AT 15% AND ACCUMULATION U/S 11(2) CANNOT BE ALLOWED, (III) THE CLAIM OF EXPENSES BY THE ASSESSEE - TRUST OF RS.63,51,611/ - IS NOT BORN E FROM THE DETAILS FILED. IN VIEW OF THE ABOVE, THE AO ARRIVED AT A TAXABLE INCOME OF RS.3,31,25,420/ - U/S 143(3) VIDE ORDER DATED 12.01.2016. AMERICAN EDUCATION TRUST ITA NO. 971/MUM/2017 4 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) AGREED WITH THE REASO NS GIVEN BY THE AO IN THE ASSESSMENT ORDER AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS NOT CONTRAVENED THE PROVISIONS OF SECTION 13 AS IT HAS CHARGED ADEQUATE RENT/COMPENSATIO N FOR ALLOWING USE OF PROPERTIES OF THE TRU ST BY THE RELATED CONCERN SBEPL. IT IS STATED BY HIM THAT A STATEMENT WAS FILED BEFORE THE AO SHOWING WORKING OF COMPENSATION PAYABLE BY SBEPL TO THE ASSESSEE FOR USE OF PREMISES BELONGING TO AND OWNED BY THE ASSE SSEE - TRUST. AS PER THE SAID WORKING COMPENSATION WAS TO BE CALCULATED AS P ER PERCENTAGE OF ADMISSION FEES, TUITION FEES AND TERM FEES RECEIVED BY SBEPL FROM STUDENTS STUDYING IN ITS KANDIVALI SCHOOL. THE LD. COUNSEL FURTHER SUBMITS THAT THE AO HAS WRONGL Y CALCULATED COMPENSATION AS A PERCENTAGE OF TOTAL FEES RECEIVE BY SBEPL FROM ALL SCHOOLS RUN BY IT AND ALSO THE BUS FEES RECEIVED. THE LD. COUNSEL FILES AN APPLICATION UNDER RULE 29 OF THE INCOME TAX RULES 1962 TO ADMIT ADDITIONAL EVIDENCE IN THE SHAPE OF VALUATION REPORT DATED 01.07.2016 GIVEN BY SHAH & SHAH, CONSULTING ENGINEERS AND GOVERNMENT APPROVED VALUERS. IT IS STATED THAT THE SAME REPORT COULD NOT BE FILED EITHER BEFORE THE AO OR THE LD. CIT(A), AS THE ASSESSEE HAS RECEIVED IT AFTER PASSING OF T HE ORDER BY THE LD. CIT(A). IT IS ALSO STATED THAT THE ABOVE EVIDENCE, WHICH IS BEING PRODUCED AS ADDITIONAL AMERICAN EDUCATION TRUST ITA NO. 971/MUM/2017 5 EVIDENCE HAS GOT A DIRECT BEARING ON THE ISSUES INVOLVED IN THE PRESENT APPEAL AND THEREFORE, THE SAME MAY BE ADMITTED. IN THIS REGARD, RELIANCE IS PLACED BY HIM ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN SMT. PRABHAVATI SHAH V. CIT 231 ITR 1 (BOM) AND THE ORDER OF THE TRIBUNAL IN ABHAY KUMAR 63 ITD 144 (PAT.) (TM). 6. PER CO NTRA, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). IT IS STATED BY HIM THAT AS PER THE WORKING GIVEN BY THE AO ON PAGE 7 OF THE ASSESSMENT ORDER, THE ASSESSEE HAS NOT RECEIVED THE AMOUNT @ 20% OF GROSS RECEIPTS AND HENCE CONSIDERATION BEING INADEQUATE, THE PROVISIONS OF SECTION 13 ARE CLEARLY ATTRACTED. FU RTHER THE AO HAS REFERRED TO THE DECISION OF THE CONSUMER COURT ON PAGE 8 OF THE ASSESSMENT ORDER WHICH FURTHER PROVES THAT THE TRUSTEES AND THE FAMILY MEMBERS ARE T HE TOTAL BENEFICIARIES OF SBEPL. THUS THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A ). THE LD. DR OPPOSES THE APPLICATION FILED BY THE ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE ON THE GROUND THAT SAME COULD HAVE BEEN FILED BEFORE THE AO OR THE LD. CIT(A), WHEREAS THE ASSESSEE FAILED TO DO SO. IT IS ALSO SUBMITTED BY HIM THAT THE ASS ESSEE FAILED TO FILE DOCUMENTARY EVIDENCE BEFORE THE LD. CIT(A) AS MENTIONED ON PAGE 18 OF THE ORDER DATED 11.11.2016 PASSED BY THE LD. CIT(A). THUS IT IS SUBMITTED BY HIM THAT THE ASSESSEE SHOULD NOT BE ALLOWED TO FILE ADDITIONAL EVIDENCE FOR THE FIRST TI ME BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE AO HAS CONCLUDED THAT THE AMERICAN EDUCATION TRUST ITA NO. 971/MUM/2017 6 COMPENSATION OF RS.38,36,520/ - CHARGED BY THE ASSESSEE FROM SBEPL IS LESS THAN THE ADEQUATE CONSIDERATI ON. THE LD. COUNSEL BY FILING THE ADDITIONAL EVIDENCE SUBMITS THAT AS PER THE VALUATION REPORT, THE CONSIDERATION/RENT OF RS.38,36,520/ - CHARGED BY THE ASSESSEE FROM SBEPL IS ADEQUATE CONSIDERATION/RENT. WE ARE OF THE CONSIDERED VIEW THAT THE EXAMINATION BY THE AO OF THE VALUATION REPORT FILED BY THE ASSESSEE BEFORE US WOULD RESOLVE THE CONTENTIOUS ISSUE REGARDING THE CONSIDERATION/RENT OF RS.38,36,520/ - BEING ADEQUATE OR INADEQUATE. IN TEK RAM (DEAD) THROUGH LRS V. CIT (2013) 357 ITR 133 (SC), THE ADDITIONAL EVIDENCES WERE FIRST TIME PRODUCED BEFORE THE SUPREME COURT, WHICH WERE ADMITTED BY IT STATING THAT THE ADDITIONAL DOCUMENTS ARE OF SOME RELEVANCE ON THE ISSUE. THE MATTER WAS SET ASIDE TO THE HIGH COURT TO DECIDE A FRESH. IN THE INSTANT CASE, WE FIND THAT THE VALUATION REPORT FILED BY THE ASSESSEE IS QUITE RELEVANT FOR THE PURPOSE OF DECIDING THE ISSUE ARISING OUT OF THE 1 ST AND 2 ND GROUND OF APPEAL. THEREFORE, WE ADMIT THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE . IN CIT V. JAIPUR UDYOG LTD. (1997) 227 ITR 345, 349 (RAJ.), IN A SIMILAR CASE , IT HAS BEEN HELD THAT THE ONLY PROPER COURSE FOR THE TRIBUNAL WAS TO SEND THE CASE BACK TO THE INCOME - TAX AUTHORITIES FOR TAKING EVIDENCE ON RECORD AND PASS ORDER IN ACCORDA NCE WITH LAW. IN VIEW OF THE ABOVE POSITION OF LAW, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE ABOVE ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO TO PASS A DE NOVO ORDER AFTER EXAMINING THE VALUATION REPORT, THE VALUER AMERICAN EDUCATION TRUST ITA NO. 971/MUM/2017 7 AND OTHER RELEVANT DOCUM ENTS AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS DIRECTED TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. 7.1 IN THE RESULT, THE 1 ST AND 2 ND GROUND OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 8 . IN RESPECT OF THE 3 RD AND 4 TH GROUND OF APPEAL, IT IS SEEN THAT THE AO HAS ALREADY PASSED A RECTIFICATION ORDER DATED 23.06.2017. WE FIND THAT THE CLAIM OF SOME OF THE EXPENSES BY THE ASSESSEE HAS NOT BEEN CONSIDERED BY THE AO IN THE ABOVE RECTIFICATION ORDER . WE DIRECT THE AO TO EXAMINE THE SAID CLAIM IN THE DE NOVO ORDER TO BE PASSED BY HIM AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9 . THEN WE COME TO THE 5 TH GROUND OF APPEAL. IT RELATES TO THE CARRY FORWARD OF DEFICIT OF EARLIER YEARS TO BE SET OFF AGAINST INCOME OF SUBSEQUENT YEARS. WE FIND THAT IN CIT V. INSTITUTE OF BANKING PERSONNEL SELECTION (2003) 131 TAXMAN 386 (BOM), THE HONBLE BOMBAY HIGH COURT HELD; INCOME DERIVED FROM THE TRUST PROPERTY HAS ALSO GOT TO BE COMPUTED ON COMMERCIAL PRINCIPLES AND IF COMMERCIAL PRINCIPLES ARE APPLIED, THEN ADJUSTMENT OF EXPENSES INCURRED BY THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE EARLIER YEARS AGAINST THE INCOME EARNED BY THE TRUST IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICATION OF INCOME OF THE TRUST FOR CHARITABLE AND RELIGIOUS PURPOSES IN THE SUBSEQUENT YEAR IN WHICH ADJUSTMENT HAS BEEN MADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTA INED IN SECTION 11 AND SUCH ADJUSTMENT WILL HAVE TO BE EXCLUDED FROM AMERICAN EDUCATION TRUST ITA NO. 971/MUM/2017 8 THE INCOME OF THE TRUST UNDER SECTION 11(1)( A ). ACCORDINGLY, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE INSTANT CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN ALLOWING CARRYING FORWARD OF THE DEFICIT OF EARLIER YEAR AND SET IT OFF AGAINST THE SURPLUS OF SUBSEQUENT YEARS. [PARA 5] IN VIEW OF THE ABOVE POSITION OF LAW, WE DIRECT THE AO TO ALLOW CARRY FORWARD OF THE DEFICIT OF EARLIER YEAR AND SET IT OUT AGAINST THE SURPLUS OF SUBSEQUENT YEARS, AFTER DUE VERIFICATION. 1 0 . IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 05/02/2018. SD/ - SD/ - ( MAHAVIR SINGH ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 05/02/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI