SLP Dismissed for Delay in Case of Educational Trust's , Development fees treated as capital expenditure

SLP Dismissed for Delay in Case of Educational Trust’s , Development fees treated as capital expenditure

Issue: Whether the Supreme Court should entertain a Special Leave Petition (SLP) filed with a significant delay of 504 days against a High Court order that upheld the Tribunal’s decision in favor of an educational trust regarding the treatment of development fees as capital expenditure.

Facts:

The assessee-trust, running an educational institution, had its original assessment concluded under Section 143(3), accepting its returned income.
The Commissioner issued a show-cause notice, contending that development fees collected from students should be treated as revenue income, leading to taxable income under Section 11(1).
The assessee responded with calculations showing a loss after accounting for capital expenditure.
The Commissioner, without considering the assessee’s explanation, held that the assessment order was erroneous and prejudicial to the interests of the revenue.
The Tribunal and the High Court ruled in favor of the assessee, recognizing that the inclusion of capital expenditure resulted in a loss, even if the development fees were treated as revenue income.
The revenue filed an SLP against the High Court order with a delay of 504 days, without providing any explanation for the delay.

Decision:

The Supreme Court dismissed the SLP solely on the ground of delay.
The court emphasized that there was no explanation for the inordinate delay in filing the SLP.

Key Takeaways:

This case highlights the importance of adhering to timelines in legal proceedings.
Significant delays in filing appeals, especially without any justification, can lead to dismissal.
The decision reinforces the principle that the Supreme Court’s discretion to entertain SLPs is limited and that delays, especially unexplained ones, can be a ground for rejection.

SUPREME COURT OF INDIA

Commissioner of Income-tax (Exemptions)

Kalinga Institute of Industrial Technology

ABHAY S. OKA and Augustine George Masih, JJ.

SPECIAL LEAVE PETITION (CIVIL) DIARY NO(S). 48103 of 2024

NOVEMBER 25, 2024

SLP dismissed against Commissioner of Income Tax (Exemptions) v. Kalinga Institute of Industrial Technology

S. Dwarakanath, A.S.G., Rupesh Kumar, Sr. Adv. Raj Bahadur Yadav, AOR, Udai Khanna, Vishnu Shankar Jain and Nring Chamwibo Zeilang, Advs. for the Petitioner.

ORDER

1. After having perused the application for condonation of delay, we find that there is absolutely no explanation for a long delay of 504 days in preferring the Special Leave Petition. Hence, the Application seeking condonation of delay in preferring the Special Leave Petition is rejected. Consequently, the Special Leave Petition stands dismissed on the ground of delay.

2. Pending application stands disposed of accordingly.

_____________

HIGH COURT OF ORISSA

Commissioner of Income-tax (Exemptions)

Kalinga Institute of Industrial Technology

Dr. S. Muralidhar, CJ
and M.S. Raman, J.

IT Appeal No. 38 of 2023

MARCH 2, 2023

R. Chimanka, Sr. Standing Counsel and A. Kedia, Jr. Standing Counsel for the Appellant. Sidhartha Ray, Sr. Adv. and K.K. Sahoo, Adv. for the Respondent.

ORDER

I. A. No.34 of2023

1. For the reasons stated, the I.A. is allowed. The delay in filing the appeal is condoned.

ITA No.38 of2023

2. The present appeal by the Revenue is directed against an order dated 13^th September 2022 passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench, Cuttack allowing the Assessee’s appeal ITA No.48/CTK/2022 for the assessment year (AY) 201718.

3. By the impugned order, the Tribunal has set aside an order dated 14^th March 2022 passed by the Commissioner of Income Tax (Exemptions) [CIT(E)], Hyderabad under Section 263 of the Income Tax Act, 1961 (Act).

4. The Assessee is a Trust running an educational institution. The original assessment for the aforementioned AY came to be concluded on 29^th December 2019 under Section 143 (3) of the Act accepting the returned income.

5. On 12^th January 2022, the CIT (E) issued a show cause notice (SCN) to the Assessee under Section 263 of the Act stating that a sum of Rs.1,11,54,33,001/- collected as development fees from its students had been directly carried to the balance sheet under the nomenclature “Development Fund’ instead of being routed through the income and expenditure account. This was then treated as part of the Revenue and therefore the taxable income under Section 11 (1) of the Act was taken to be Rs.51,97,46,092/-.

6. In replying to the above SCN, the Assessee gave a calculation after reducing the application of income on the revenue field in respect of capital expenditure. After doing so, as per the calculation of the Assessee, the result was a loss.

7. In the order dated 14^th March 2022, the CIT (E) did not refer to the explanation offered by the Assessee in reply to the SCN. Nor had the CIT (E) undertaken an enquiry or made any calculation to indicate how the application of the fund towards capital expenditure had been accounted for.

8. The CIT (E) simply stated that the impugned assessment order was erroneous and prejudicial in the interest of Revenue.

9. The ITAT has in the impugned order discussed in detail the explanation offered by the Assessee regarding application of funds. Inter alia, it was noticed that CIT (E) had taken the total revenue earned, granted 15% accumulation, without considering the capital expenditure to the tune of Rs.258 crores. As noted by the ITAT, if the said bill taken into account the taxable income would be a loss. It would have been observed the 15% accumulation granted to the Assessee. Further, even after treating the development fees of Rs.111crores as revenue income, the net figure would still be a loss.

10. As noted by the ITAT, if only the CIT (E) had undertaken an inquiry, he would have come to the above conclusion and there would have been no need to act to the taxable income of the Assessee.

11. The Court is satisfied that no error has been committed by the ITAT in concluding that the order of the CIT (E) is unsustainable in law. No substantial question of law arises. The appeal is dismissed.