If it is to be held that the assessee has incurred certain expenditure and the source of expenditure remains unexplained, the amount can be added under section 69C of the Act. However, if on one hand the amount is added as unexplained expenditure, still it retains the character of the expenditure incurred on the object of trust.
Therefore, the assessee will be entitled to claim deduction while computing its income under sections 11 & 12 of the Act. The Proviso inserted to section 69C by Finance (No.2) Act, 1998 w.e.f. 1.4.1999 will not apply as in the present case the income of the assessee is not computed under any head of income but under the provision of sections 11 & 12 of the Act. Thus on one hand, income derived from property held under trust is chargeable to tax, to the extent the amount spent or applied for the charitable or religious purposes shall not form part of the total income of the assessee. The income of a trust is not computed under the various heads of income as prescribed in section 14 of the Act. Therefore, the Proviso to section 69C which bars allowability of deduction of such unexplained expenditure under any head of income will not apply in the case of an assessee being a trust whose income is to be computed under sections 11 & 12 of the Act. Thus the addition made under section 69C will be nullified by the expenditure incurred on the object of the trust and hence no further addition is called for.”
INCOME TAX APPELLATE TRIBUNAL, DELHI
ITA No. 277/Chd/2008 – Assessment Year: 2006- 07
Maharishi Markandeshwar Education Trust
Vs.
Commissioner of Income Tax (Central), Ludhiana.
ORDER
PER I.P. BANSAL, JUDICIAL MEMBER
This is an appeal filed by the assessee. It is directed against the order passed by the CIT, (Central), Ludhiana dated 31st January, 2008 u/s 12AA (3) of the Income Tax Act, 1961 (the Act). The grounds of appeal read as under:-
1. That order u/s 12AA (3) of the Income Tax Act, 1961 passed by Commissioner of Income Tax (Central), Ludhiana canceling the registration granted to the Trust u/s 12AA (1)(b)(i) is against law and facts on the file in as much he was not justified to hold that the Trust was not engaged in genuine charitable activities.
2. That he was further not justified to hold that the President or other members of the Governing Body have appropriated the benefits accruing to the Trust from commercialization of education.
3. That the Ld. CIT came to these conclusions without application of mind and solely relying on the conclusions drawn by the ld. Assessing Officer framing the assessment for A.Y.2006-07.
4. That the order passed is against principles of natural justice and no reasonable opportunity was provided to the appellant to explain its case.”
2. The assessee is a trust running nine educational institutions under various names catering to different kind of education like Management, Engineering, Medial Sciences, Nursing, Pharmacy, etc. It was granted registration u/s 12AA (2) of the Act by CIT, Panchkula vide his order dated 30th May, 2001 w.e.f. 26th November, 1993. A search was conducted at the official premises of the assessee as well as on the residential premises of its trustees on 7th September, 2005. During the course of search, unexplained assets as well as incriminating documents were seized on the basis of which ld. CIT has drawn a conclusion that the activities of the trust were not being carried out in accordance with the objects for which it was set up. Accordingly, he initiated proceedings u/s 12AA(3) of the Act and issued show cause notice to the assessee as to why the registration should not be cancelled. The ld. CIT after referring to the examination of the pages 1 to 7 of the bunch of documents captioned as A-37 seized during the course of search has found that the assessee had made payments in cash to the doctors of medical and dental colleges run by the assessee. Such payments were calculated at a sum of Rs. 45,66,372/- and these documents were shown to Shri Darshan Kumar Bansal, Sr. Accountant of the assessee trust who stated on oath that he himself has made these payments in cash outside the books of account to various teachers. Similar statement was given by Dr. R.P. Aggarwal, the principal of one of the medical colleges. Ld. CIT, further referred to page 81 of the bunch styled as A-35 which contained entries of payments in cash towards advance, traveling allowance and increments. The said documents were signed by Shri Tarsem Garg being the Chairman of the assessee trust. On perusal of all these documents ld. CIT has come to the conclusion that there is a manipulation in the books of account and cash transactions have been made outside the books of account. He referred to the fact that total cash found at the time of search was a sum of Rs. 13,98,476/- as against the cash available as per books of account of Rs. 26,61,781/- and, thus, he arrived at a conclusion that the assessee trust is not maintaining its books of account properly and the trustees are manipulating the accounts to siphon off the funds of the trust for their personal benefits. He ignored the contention of the assessee that the Assessing Officer in the assessment order for Assessment Year 2006-07 has accepted that the assessee trust is engaged in genuine charitable activities in terms of Section 2 (15) of the Act. Ld. CIT observed that as the benefit of registration can be given to the trust only if it is engaged in genuine charitable activities and referring to these discussions ld. CIT has cancelled the registration. The assessee is aggrieved, hence, has raised the aforementioned grounds of appeal.
3. After narrating the facts, it was submitted by the learned AR that upon receiving the impugned order from CIT which is dated 31st January, 2008, the assessee again submitted the application for registration in prescribed proforma on 10th March, 2008 and the very same CIT vide his order dated 23rd May, 2008 has granted registration to the assessee. Copy of this order is placed at page 219 of the paper book. He submitted that in the same order ld. CIT has stated as follows:-
“2. Satisfied about the genuineness of the Trust and of its present activities, the undersigned is registering the Trust u/s 12AA of the IT Act, 1961 and its registration has been recorded at Sr. No.1/JB/12AA/2008-09 in the Register of Application under Section 12AA maintained in this office.
3. As per provisions contained in 12A (2) of the IT Act, this registration shall have effect from Assessment Year 2008-09 onwards.”
4. He further stated that in the impugned order ld. CIT has rejected the registration of the assessee on two grounds: firstly, regarding the payment of salary to the doctors aggregating to a sum of Rs.45,66,372/-. He submitted that this issue was considered by the Tribunal for Assessment Year 2006-07 in the case of the assessee and the Tribunal vide its order dated 30th October, 2009 in ITA No. 2489/Del/2008 (departmental appeal) has confirmed the deletion made by the CIT (A) and resultantly the departmental appeal was dismissed (refer to copy of order placed at pages 1-4 of the paper book). He referred to the following observations of the Tribunal from the said decision:-
“During the course of search, documents detailed as A-37 was seized. These pages are stated to contain entries regarding cash payments to doctors of the medical and dental colleges as per following details:-
