2011 (7) TMI 580 - AT - Income Tax

Collection of money over and above the fee prescribed - whether amount to collection of capitation fee or not - Reopening of assessment - Held that - The very fact that the Assessing Officer has granted exemption to the assessee under section 11 clearly brings out the fact that he has treated the assessee society as a charitable institution and he was further convinced that the assessee society has not indulged in the activity of collecting Capitation fee - It is pertinent to note that the Assessing Officer did not give any reason to support his action. Voluntary contributions received by a charitable trust/institution - income from property held for charitable or religious purposes - Held that - The impugned donations received by the assessee have been given with a specific direction that they shall form part of the Corpus of the institution. The assessee society has furnished the names and addresses of the donors along with the photocopy of the receipts given by it also the confirmation letters from some of the donors to the effect that they have given the impugned corpus donations for the development of the institution. As the AO has failed to examine all these evidences to prove the point that the impugned donations were not given voluntarily & did not examine the concerned donors also in that regard the view entertained by the Assessing Officer becomes base less. Hence the said voluntary contributions shall remain as Corpus donations exempt under section 11(1)(d) and the Assessing Officer is not correct in changing the character of Corpus donations as ordinary receipts in the facts and circumstances of the case - in favour of assessee.

Summary

Issues Involved:

1. Classification of donations as "Corpus donations" or "Capitation fee."
2. Validity of reopening the assessment under section 148.
3. Treatment of donations as part of total receipts.
4. Applicability of exemptions under section 11 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Classification of Donations as "Corpus Donations" or "Capitation Fee":

The revenue argued that the donations received by the assessee were in the nature of capitation fees, citing the decision of the Apex Court in the case of Islamic Academy of Education v. State of Karnataka, which held that any amount collected over and above the prescribed fee amounts to capitation fee. The Assessing Officer (AO) believed that the assessee collected capitation fees in the guise of donations from students under the management quota. However, the assessee contended that the donations were voluntary and intended for the corpus fund, supported by names, addresses, receipts, and confirmation letters from donors. The CIT(A) found that the donations were received voluntarily for the corpus fund and directed the AO to delete the additions, as there was no evidence of capitation fee collection.

2. Validity of Reopening the Assessment under Section 148:

The AO issued a notice under section 148 to reopen the assessment for the assessment year 2001-02, based on the belief that the assessee collected capitation fees. During reassessment, the assessee provided detailed explanations and supporting documents, convincing the AO that the donations were not capitation fees. The AO granted exemption under section 11, indicating that the assessee was treated as a charitable institution not engaged in collecting capitation fees. The AO's subsequent decision to treat corpus donations as ordinary receipts lacked any supporting reason.

3. Treatment of Donations as Part of Total Receipts:

The AO treated the corpus donations as part of the total receipts without providing any rationale. The CIT(A) observed that the donations were received through banking channels and there was no evidence of capitation fee collection. The CIT(A) concluded that the donations were for the corpus fund and directed the AO to delete the additions. The tribunal noted that the classification of voluntary contributions depends on the donor's specific direction, and neither the assessee nor the AO has the authority to change the classification.

4. Applicability of Exemptions under Section 11 of the Income-tax Act:

The tribunal referred to sections 11, 12, and 13 of the Income-tax Act, which govern the taxability of voluntary contributions received by charitable trusts. Voluntary contributions with a specific direction to form part of the corpus are exempt under section 11(1)(d). The tribunal emphasized that the classification of donations depends on the donor's direction, and the AO's failure to examine the evidence and donors made his view baseless. The tribunal upheld the CIT(A)'s decision that the donations were corpus donations exempt under section 11(1)(d).

Conclusion:

The tribunal dismissed the revenue's appeals, agreeing with the CIT(A) that the donations were corpus donations exempt under section 11(1)(d) and the AO was incorrect in treating them as ordinary receipts. The tribunal emphasized the importance of the donor's specific direction in classifying voluntary contributions and upheld the exemptions granted to the assessee.