COMMISSIONER OF INCOME TAX AND THE DEPUTY COMMISSIONER OF INCOME TAX Vs. SIR M. VISVESWARAYA EDUCATIONAL TRUST

JUDGEMENT

(1.) THIS appeal is by the appellant questioning the correctness of the order dated 31 -7 -2003 passed by the Income Tax Appellate Tribunal, Bangalore, in ITA No. 769/Bang/2002 for the assessment year 1997 -98, by framing the following substantial questions of law: 12. Whether the Tribunal was correct in holding that the assessee was entitled to exemption under Section 10(22) of the Act? 13. Whether the Tribunal was correct in holding that exemption under Section 10(22) of the Act cannot he denied on the basis of the provisions of Section 13(2B) of the Act? 14. Whether the Tribunal was correct in recording a finding that the misuse of funds was very insignificant and there was exaggeration by the Assessing Officer in holding that the payments had been made to family members as there were only minor irregularities in accounts and that the remuneration and electricity bill being paid was justified by ignoring the cogent evidence examined by the Assessing Officer which clearly disclose that the Chairman, his wife and sons were running the institution as a family concern not for the sole purpose of education but also for profit.

(2.) THE learned Counsel appearing for the appellant Mr. Seshachala, contends that the Tribunal committed an error in law in holding that the remuneration paid to the wife and children or the managing trustee of the Trust and the electricity bills towards the residence cannot be termed as misutilisation of funds. Another ground of attack to the impugned order would be that the Tribunal has committed an error in holding that misutilisation of funds is very insignificant fraction of the total receipts of the Trust and that the Assessing Officer has exaggerated the payments made to the family members of the Chairman to somehow deny exemption on one pretext or the other and further has failed to record a finding in respect of advance amount of Rs. 5,00,000/ - paid by the Chairman of the Trust out of the funds of the Trust to purchase the property in his name. Therefore, the learned Counsel has requested to answer question Nos. 14 instead of question Nos. 12 and 13 in favour of the Revenue. It is further contended by the Tribunal has recorded a erroneous finding stating that exemption under Section 10(22) of the Income Tax Act cannot be denied on the basis of provision of Section 13(2B) of the Act. Further, it is contended that the Tribunal has failed to appreciate the fact that the Managing Trustee and his wife and sons were running the Institution as their personal business in order to make profit to themselves and therefore the assessee was not entitled for the exemption claimed under Section 10(22) of the Act. Therefore, he requested to answer the aforesaid questions in favour of the Revenue.

(3.) WITH regard to the said above contentions we have carefully examined the same and answer the aforesaid substantial questions of law in favour of appellant for the following reasons: 1) We have carefully examined the assessment order passed by the Assessing Officer. He has passed the assessment order on the basis of the survey conducted by him on 9 -3 -1998. The Assessing Officer at that time has noticed that certain important documents were impounded and statements on oath of Sri P. Sadasivan, Chairman -cum -Managing Trustee was recorded. Thereafter, as per the procedure contemplated under Section 143(1) and (2) of the Act notices were issued to the assessees calling for various details from them. The survey was conducted on the basis of the authorisation obtained from the Commissioner of Income Tax. The Assessing Officer has verified the declared income of the Trust filed on 31 -10 -1997 in which the total receipts are stated to be Rs. 4,61,735/ - and the other details regarding the statements enclosed, opening balance(cash and bank), Total Receipts, Excess of Income over Expenditure and closing cash and bank balance are extracted. The further details regarding the same is also clearly mentioned and excess of income over expenditure, Receipts taken directly to the interest is also mentioned by showing the corpus donation directly to the balance sheet without excluding the same from the Income and Expenditure Account. Thereafter misappropriations of the Trust Fund and unexplained withdrawals in detail at Item No. XI (4) is clearly mentioned. The said payments have been made to the Chairman and Managing Trustee and the Legal Advisor of the Trust and the family members to purchase dental equipments and towards electricity charges of Chairman's House. Further, the undisputed fact of appointment of family members to the important posts of the Trust and payment of remuneration to them is also clearly extracted. The payment made is out of unexplained income of the assessee. The agreement of sale and the sale deed and payments made are in the name of Sri Sadashivan, Chairman -cum -Managing Trustee of the Trust and not in the name of the Trust. Therefore, the said findings of the Assessing Officer are in respect of misappropriation and misutilisation of the funds of the Trust. The unexplained withdrawals are mentioned in the order of the Assessing Officer. On the basis of the disputed facts and the material evidence on record, the documents were impounded from the office of the assessee. Therefore, the said findings are based on proper appreciation of material evidence on record. The said findings are affirmed by the appellate Tribunal. The Tribunal without applying its mind to the facts and the documentary evidence on record, which are considered by the assessing authority, has recorded a finding of fact stating that the receipts in the name of the Trust amounts to profit making. It is not the object to avail the benefit under Section 10(22) of the Income Tax Act. Further, the amount of the Trust is being misutilised and misappropriated in the name of the Managing Trustee and Chairman and also the family members of him and the expenditure is incurred towards the house of the Managing Director and Chairman -cum -Managing Trustee and huge amounts have been spent in the name of the family members of the Managing Trustee. The purchase of dental equipments for the College are not supported by the valid receipts and documents. Further, the properties are purchased in the name of Sadashivan the Managing Trustee. The said finding of the Assessing Officer based on material evidence is set aside by the Tribunal without adverting to each one of the items independently by applying its mind to the undisputed facts and the material evidence available on the file of the assessing Officer and the documents, which are impounded from the office of the Trustee and without assigning valid and proper reasons. Further, the documentary evidence would clearly go to show that the receipts which are in the name of the Trust and donation collected amounts to profit making motive and it cannot be the object or the purpose of running a charitable Educational Institution for which the statutory benefit under Section 10(22) of the Act is claimed. Therefore, the substantial questions of law 13 and 14 would certainly arise in this appeal and we answer the same in favour of the revenue.