Surplus generated was utilised for the educational activities assessee being educational institution , cancellation of registration was not justified.(

Surplus being generated is utilized for the purpose of objects of the institution. It is nowhere provided that the trust cannot be constituted by a family and it is also not provided under the Act that trust will not have number of institutions. Education itself is charitable object and if the surplus is utilized for the purpose of charitable activities then it cannot be said that registration is to be disallowed. Chief CIT has allowed exemption under s. 10(23C) on finding that the activities of the assessee are genuine and as per its object. Assessee has explained the reasonableness is respect of the payments made to the persons covered under s. 13(3). Reasonableness is actually to be seen by the AO and not by the CIT while allowing registration or cancelling the registration. CIT was not justified in cancelling the registration.
Rajasthan Vikas Sansthan v. CIT (2012) 78 DTR 411 (Jodhpur) (Trib.)

Object remained same even after amendment – No cancellation of registration without giving any contrary finding

Mere finding that objects of trust has been altered without consent of department would not be sufficient to exercise power under section 12AA(3) without giving a finding that objects of trust are no longer charitable. Where assessee education‐trust was formed with main object of imparting education, mere fact that it amended clause of trust deed to include technical and medical education within its ambit and it paid commission to persons who solicited students for studying in assessee's education, it could not lead to conclusion that assessee was not imparting education. Therefore, Director (Exemption) was not justified in cancelling registration under section 12AA(3).
Krupanidhi Educational Trust v. DIT(IT) (2012) 139 ITD 228 (Bang)(Trib.)

Director is not required to examine whether the Trust has actually carried on charitable activities

Statute does not prohibit or enjoin the CIT from registering trust solely based on its objects, without any activity, in the case of a newly registered trust. Statute does not prescribe a waiting period, for a trust to qualify itself for registration. Tribunal was therefore right in holding that while examining the application u/s. 12AA(1)(b) r.w.s. 12A, the CIT/Director is not required to examine the question whether the trust has actually commenced and has, in fact, carried on charitable activities.
DIT v. Foundation of Opthalmic and Optometry Research Education Centre (2012) 79 DTR
178(Delhi)(High Court)

Received shares as corpus and subsequent sale there is no violation the assessee is eligible for exemption

Assessee trust received 11,47,110 equity shares of M. Ltd and 2,01,500 equity shares of S Ltd.from another trust towards corpus donation. There is no restriction on accepting shares by a charitable institution. However, cl.(iia) of the proviso to s. 13(1)(d)(iii) entitles an assessee trust to hold the shares for a maximum period of one year before which they have to be converted into the modes of investment as prescribed in s. 11(5). Contention of the Dept. Representative that the assessee has violated the provisions of s. 11(1)(d) by selling the shares suffers from the basic fallacy in not recognizing that the assessee has merely converted one form of investment into another viz. Money by selling the shares. The corpus donations received by the assessee could not be considered as general donations merely on the ground of its utilization in the subsequent year for giving corpus donations to other charitable institutions. (A.Y. 2006 – 07 & 2007‐08)
Sera Foundation v. ITO (2012) 79 DTR 210/150 TTJ 537 (Delhi) (Trib.)

Capital gain applied for charitable purpose ‐Not by acquiring a new asset but for other charitable purpose – Claim for exemption is allowed

If capital gain is applied for charitable purpose of assessee not by acquiring a new asset but for other charitable purpose, then there is no reason why it should not be considered as application of income for
charitable purpose enabling assessee to claim exemption under section 11(1). (AY 2006‐07)
Al Ameen Education Society v. DIT (Ex) (2012) 139 ITD 245 (Bang.)(Trib.) (2006‐07

Absence of charitable activities -Trust is not entitled to exemption

An assessee that engages itself only or predominantly in activities relating to its ancillary or incidental objects which are not related to any charitable purpose and does not carry on any activity relating to its main object of charitable nature is not entitled to exemption u/s. 11 ; assessee institution having never carried out any scientific research, and applied a very insignificant portion of its income towards research and development activities, it is not entitled to exemption u/s. 11; claim for exemption u/s. 11 is also not sustainable in view of cl. (b) of sub s(4A) thereof as the leasing business carried on by the assessee was not wholly for the charitable purposes. (A.Y. 1989 – 90 & 1990 – 91)
M. Visvesvaraya Inds. Research and Development Centre vs. CIT (2012) 79 DTR 387 (Bom.) (High
Court)

Educational Institution- Profit Motive

An educational institution would not cease to exist solely for educational purpose and for purposes of profit merely because it has generated surplus income.(A.Y.2009‐10)
Santan Dharam Shiksha Samiti v. Chief C IT(2012) 253 CTR 518(P&H)(High Court)

Income earned from termination of forward contract – Capital gain treated as exempt

Assessee was a Singapore based bank registered in India as FII. It took loan in foreign currency to invest in debentures. To safeguard itself from foreign exchange fluctuation risk it entered into forward contracts. Before selling debentures, it terminated forward contracts on which it earned profit. It was held that gain arising from early settlement of foreign exchange forward contract was not income from other sources but had to be treated as capital gain exempt under Article 13 of DTAA. (A.Ys. 1998‐99 & 2005‐06)
Citicorp Investment Bank (Singapore) Ltd. v. Dy. DIT (2012) 54 SOT 119(Mum)(Trib.)

Treatment of Deferred Guarantee Commisison

Income from deferred guarantee commission did not accrue or arise in the year in which guarantee agreements were entered and such income should be spread over the period to which the guarantee commission related and should be assessed proportionately. (A.Y. 2002 – 03 & 2003 – 2004) BNP Paribas Sa v. Dy. DIT (International Taxation) (2012) 79 DTR 310/150 TTJ 395 (Mum.) (Trib.)

Guranatee Commision to be recognized when guarantee is issued and not over period of guarantee

Assessee, as a part of its banking business provided bank guarantees and charged guarantee commission on the same. Guarantee commission was being recognized by assessee over life of guarantee on accrual basis. Guarantee commission received for year under consideration to some extent was not recognized by assessee as its income on ground that guarantee period relating to said commission was subsequent to 31‐3‐2004. It was held that addition made by Assessing Officer on the basis that period of guarantee had nothing to do with assessee's right to receive commission and accordingly, said amount was brought to tax for assessment year in question holding that said income accrued to assessee at time when corresponding guarantees were issued. [A.Y. 2004‐05 to 2006‐07)
Shinhan Bank v. Dy.DIT (2012) 54 SOT 140 (Mum.)(Trib.)

Debenture Interest income calculated on amortization basis is accepted on the basis of matching principle.

The assessee has computed his interest income arising on the difference between purchase price of the debenture and redemption price after six years and calculated the income on amortization basis .The issue before the Apex court was whether such interest should be taxed on accrual basis in the year of allotment of debenture it self or whether it should be taxed on spread over basis. The Apex court referring the Judgment of Bombay High Court in Taparia Tools Ltd v. Jt.CIT (2003) 260 ITR 102(Bom.)(High Court), which refers to matching principle , order of Tribunal up held and order of High Court was set aside.(A.Y. 1995‐96)
 Rakesh Shantilal Mardia v. Dy.CIT ( 2012) 210 Taxman 565 /254 CTR 338(SC)

Compensation received from landlord for delay in actual delivery of leased premises is not taxable as revenue receipt.

On facts compensation of Rs.1,69,71,000 received from landlord, which was in effect refund of rent paid for the period for which property was not ready for start of STP unit. Rent received back by way of compensation is to be credited against the rent paid by the assessee. Thus, refund of the rent of pre operative period was credited to pre operative expenses account and the refund of the rent of post operative period was credited to rent account which was transferred to P & L A/c nature of entire compensation is the same. Merely because the assessee has bifurcated it into two portions, different treatment cannot be given to them. Therefore, no portion of the compensation amount is taxable as revenue receipt. (A.Y. 2003 – 2004)
American Express (India) (P) Ltd. v. JCIT (2012) 79 DTR 127/150 TTJ 316 (Delhi)(Trib.)

Provision of goods/services to non‐ members – Profit from transaction is liable to tax.

When a mutual concern provides goods and services to non‐members also and, some profit flows from
said transactions, it is chargeable to tax. (AY 1996‐97)
Dy.DIT v. Societe International De Telecommunication (2012) 139 ITD 328 (Mum)(Trib.)

Investment of surplus in Bank – Interest/return on such investment not be covered by character of mutuality hence liable to tax.

When a mutual concern invests its surplus funds or makes deposit in bank, return or interest on such
investment/deposits will not be covered by character of mutuality and such an amount will be liable totax. (AY 1996‐97)
Dy.DIT v. Societe International De Telecommunication (2012) 139 ITD 328 (Mum)(Trib.)

Gold bond certificate – Treated as asset, sale consideration liable to be taxed as short term capital gain.

Gold received by assessee on redemption of gold bond certificates issued under Gold Deposit Scheme, 1999, is a new asset. Therefore, when assessee sold said gold within a period of twelve months from date of its acquisition, income arising from sale transaction was to be taxed as short‐term capital gain. (AY 2008‐09)
Shiv Kumar Agrawal v. DCIT (2012) 139 ITD 572 (Agra)(Trib.)

Advance rent – premium for agreement to lease.

On facts “advance rent” received by the assessee from the lessee being the consideration for being let into possession of the leased premises as evident from the report of the assessee’s council of Management and the terms of the lease, it was in fact a premium rather than advance rent and constituted the assessee’s income; leasing out of commercial spaces by the assessee cannot be regarded as sale of properties as the assessee was only a lessee of the land which belonged to the Govt. and it was not even entitled to sell the construction put up on the land. Constituted the assessee’s income. (A.Y. 1989 – 90 & 90 – 91)
M. Visvesvaraya Industrial Research and Development Centre v. CIT (2012) 79 DTR 387(Bom.) (High
Court)

Amount received for transfer of indefeasible right of connectivity for 20 years is assessable over the period of 20 years.

RI Ltd. in terms of the agreement, had only the right to use the network during the tenure of the 20 years agreement. Further, the agreement was liable to be terminated at the sole discretion of RI Ltd. and consequently, the amount received as advance for 20 years lease period would have to be returned on such termination for the balance unutilized period. Tribunal also held that the agreement dated 30th April 2003 was only in the nature/form of a lease agreement. Therefore, the assessee had in terms of AS‐19 correctly spread the entire fee of Rs.3,037 crores over the period of 20 years and to pay tax thereon over the entire period. Entire amount was not assessable during the relevant year. (A.Y. 2004 –2005)
CIT v. Reliance Communication Infrastructure Ltd. (2012) 79 DTR 198 /254 CTR 251(Bom.) (High Court)

S.2(22)(e): Definitions‐ Dividend‐ Deemed dividend ‐ Trade advances to sister concern – Provisions of S. 2(22)(e) is not applicable

Provisions of section 2(22)(e) is not applicable to trade advances given to sister concern in which shareholders of assessee have substantial interest, therefore provision of section 194 cannot be applicable and assessee cannot be treated as assessee in default and levy of interest under section 201 (IA) was deleted .As the Commissioner (Appeals) has passed a reasoned order the matter was set aside. (AY 2005‐06 to 2006‐07) Jaypeem Granites (P.) Ltd. v. ITO (2012) 139 ITD 564 (Hyd.)(Trib.)

Occupancy rights to shareholders are taxable as deemed dividend

The assessee was the substantial shareholder of a closely held company which owned a building. The Articles of the company provided that each shareholder would have occupancy rights to a flat on the ondition that an interest‐free refundable deposit be paid. The occupancy rights were transferable. The AO held that the grant of occupancy rights by the company amounted to a “distribution of assets” and that the same was assessable as “deemed dividend” in the hands of the assessee u/s 2(22)(a) to the extent of the accumulated profits. On appeal, the CIT(A) held that as the occupancy rights were given against payment of a refundable deposit, there was no “distribution of assets” and so no deemed dividend. Instead, he held that the occupancy rights conferred a “benefit/perquisite” on the assessee which was assessable u/s 2(24)(iv). On cross appeals before the Tribunal, held:
(i) U/s 2(22)(a), any distribution by a company of accumulated profits, whether capitalized or not, constitutes “dividend” if such distribution entails the release by the company to its shareholders of all or any part of the assets. As the assessee received the occupancy rights to the flat in perpetuity and could transfer them, it effectively meant that he had full ownership over the flat. Accordingly, the value of the flats was assessable as deemed dividend u/s 2(22)(a);
(ii) However, as the said occupancy rights were given in lieu of holding shares and an interest‐free refundable deposit towards proportionate land cost and development cost and were transferable, there is no “benefit or perquisite” which is assessable u/s 2(24)(iv). (A. Y. 2006‐07 & 2007‐08)
Shantikumar D Majithia v. DCIT ( Mum.)(Trib.)www.itatonline.org

Marathon conducted in commercial sense – Cannot be said to be existing only for charitable purpose

A trust conducts marathon in a commercial manner, then it cannot be said to be existing only for
charitable purposes in view of amended definition of charitable purpose with effect from 1‐4‐2008,
matter remanded. (AY 2012‐13)
Hyderabad Runners Society v. DIT (Ex) (2012) 139 ITD 464/ 20 ITR 675 (Hyd.)(Trib.)

Assessee‐society provided citizen's services to common people ‐ Charged very huge fees, in addition to charges levied by State Government – Activities not treated as charitable purpose

Where assessee‐society provided citizen's services to common people by charging very huge fees which was in addition to charges levied by State Government and was additional burden upon common man, activities of assessee could not be treated as charitable in nature making it eligible for registration under section 12AA, refusal of registration was held to be justified.
Sukhmani Society for Citizen Services v. CIT (2012) 139 ITD 307 (Asr.)(Trib.)

Proviso to section 2(15),introduced by the Finance Act, 2008 with effect from 1‐4‐2008 ,applies to trust which has object of 'advancement of any other object of general public utility' and does not apply to other categories of charitable trust i.e., relief to poor and medical relief.

Krupanidhi Educational Trust v. DIT(IT) (2012) 139 ITD 228 (Bang)(Trib.)

Educational Institution-Investment in Trust publishing magazines dealing with education ancillary to main object of running educational institution ‐ trust is entitled to exemption

The assessee was allowed the benefit u/s. 11 of the I.T Act 1961, till 1985‐86. But, for the asst. years 1986‐87 and 1987‐88, the A.O. denied the exemption for the reason that (i) the assessee was not a public charitable trust; its objects were limited for the benefit of a few people; (ii) the assessee was running educational institution only for the purpose of commerce; and (iii) there was violation of the provisions of section 11(5) of the Act, inasmuch as the assessee invested the monies in two organizations publishing magazines and thereby infringed section 13(1)(c). The Commissioner (Appeals) and the Tribunal held that the assessee was entitled to exemption. On appeal the High Court held that the A.O. did not give any clear finding regarding violation of section 11(5) except making such a comment. Investing monies in the two organizations publishing magazines could not be said to be commercial ventures. They were incidental and ancillary to the main activities of the trust. The assessee was entitled to exemption under sec. 11.The Supreme Court in Yogiraj Charity Trust (1976) 103 ITR 777 (SC) held that if the primary or dominant purpose of a trust is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust from being a valid charity. (A.Ys. 1986‐88, 1987‐88, 1988‐89) 
CIT v. Vijaya Vani Educational Trust (2012) 349 ITR 280(AP)(High Court)