×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
10-01-2020, Vidya Bharati Society for Education, Section 12(1), Tribunal Kolkata
Both these appeals preferred by the Assessee against the separate orders of Ld. CIT(A) – 25, Kolkata dated 21 09.2017 for AYs 2010-11 and 2014-15. Since facts are identical and grounds are mostly common, we dispose of both these appeals together by this consolidated order for the sake of convenience.
2. Firs of al , we will take up the appeal for AY 2010-11. By preferring Ground no 1 to 4 of assessee’s appeal, we note the main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the action of AO, who treated the receipt of development fees for Rs.19,39,000/- as undisclosed income of the assessee and further disallowed the benefit u/s. 11 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
3. Brief facts of the case, as discussed by the AO, is that the assessee society is for education and scientific advancement and filed its return of income for AY 2010-11 declaring nil income which was processed u/s. 143(1) of the Act on 01.08.2011 raising a refund of Rs.7,14,660/-. The case was selected for scrutiny vide CASS and thereafter the AO records that the Ld. AR of the assessee appeared from time to time and furnished details and documents as per requisitions made by him. According to AO, the assessee is a society registered u/s. 12A of the Act vide order dated 06.08.1999. The AO noted that the assessee had claimed exemption u/s. 11 and had furnished audit report in Form 10B dated 19.01.2011 along with the return of income. On examination of accounts, the AO observed that the assessee had received “development fees” for Rs.19,39,000/- which the assessee had capitalized in the development fund account. According to AO, since the development fee was received from students, it was revenue in nature and therefore formed part of the income of the assessee Society for the relevant previous year. Since the assessee had not included the ‘development fees’ by way of its income in the Income & Expenditure Account and/or in the computation of total income filed along with the return, the AO required the assessee to explain as to why such amount shall not be treat d as its income chargeable to tax for the relevant previous year. The reply furnished by the assessee is reproduced hereunder:
“The development fund is required to be used by the school authority for development of educational institutions in the form of apital expenditure and long term benefit. The nature of receipt is altogether different from any ther fees or collection received from students. In respect of other fees and collection from students the school authority has unrestricted powers to make use of such receipts. However, in the case of use of development fund, the school authority did not have any such unrestricted power to use such fund. Therefore, the nature of receipt of the money from students was capital in nature not revenue.”
4. The AO however held that the explanation furnished by the assessee is not acceptable. According to AO, the development fees were collected from the students on a regular ba is and even in advance and therefore, there is a certainty in receiving such payment or it is at least expected to be received in due course of time. The AO thus held that such receipts are revenue in nature and cannot be regarded as capital receipt. The AO further observed that the development fees collected from students cannot be equated with donation. According to him, donation is unconditional transfer of money or money’s worth from donor to donee upon own wish, willingness and choice of the donor, having no dictation from the donee. According to AO however, the development fee collected by the educational institution from students was not paid by them on their own volition or choice or unconditionally to the institution. Thus, according to AO, development fees paid cannot be regarded as donation by students. With regard to the assessee’s claim that such development fee was in the nature of ‘corpus donation’, the AO observed that the corpus donation is not defined in the Act. Referring to the language of section 12(1) and section 11(1)(d) of the Act, the AO noted that these Sections speak of exclusion of donation made with specific direction that such donation shall form part of the corpus of the trust i.e. it will remain outside the ambit of the chargeable income. The AO observed that corpus denotes “principal or capital sum” and not ‘interest’ or ‘recurring receipts’ or ‘income’. Referring to the definition of ‘corpus’ set out in Black’s Law dictionary, the AO observed that ‘corpus’ is a capital amount in the form of money, moveable or immovable property or the donation received by a charitable trust for specific purpose, which may be said to be corpus and remains as capital in a fund in contrast to income. According to AO therefore, whether a donation would constitute corpus or capital of the receiving trust or would fall within the ambit of its income depends upon given circumstan es of the case, having regard to the motive, intention and nature of the voluntary contribution. The AO observed that the characteristics of income are that, it is a periodical monetary return coming in with regularity or at least expected regularity Whereas, the corpus donation is a bilateral contract where the donor expresses the intention that donation will form part of the corpus or capital of the trust and the donee accepts it subject to the condition. According to AO, in the facts of the present case, this haracteristic is completely absent as there is no written direction of the students that the fee are paid towards the corpus of the institution. The AO thus concluded that both the contentions of the assessee i.e. fees were capital in nature and made with a spe ific direction, failed and, therefore, he treated the amount of Rs.19,39,000/- collected as development fees by way of undisclosed income of the assessee for the previous year. The AO also did not allow the benefit u/s. 11 with reference to such income as according to him no income or part thereof was applied for charitable purposes, which according to him was evident from the fact that the assessee did not show such fees as its income in the return and thus it had never intended to apply it. Aggrieved by such action of the AO, the assessee preferred an appeal before the Ld. CIT(A).
5. On appeal the Ld. CIT(A) confirmed the action of the AO to the extent of treating the receipts by way of development fee as revenue in nature but held that since the receipts had been disclosed in the annual accounts, it could not be treated as ‘undisclosed receipt’.