TMI Blog2010 (12) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of donors to pay capitation fees have to be examined in the hands of those donors. The assessee has nothing to do with the legality or illegality of the sources in the hands of those donors. The capitation fees could be unexplained in the hands of the persons making the donations - As far as, the assessee-trust is concerned, the violation is that of Anti Capitation Fees Act which is not a violation under the provisions of the Income-tax Act. Therefore enquiries should be made against the assessee through a process permitted under the Tamilnadu Prohibition of Capitation Fees Act. The Income-tax Act cannot be punitive against the assessee on that ground. Diversion of trust funds for own benefit and for purposes other than the objects for which the trust has been formed and registered - Application of funds - HELD THAT:- There is no case made out by the Revenue against the assessee. As per the details furnished by the assessee-trust, the assessee has spent its entire receipts for the purposes of creating infrastructure facilities to run its educational institutions. The assessee has almost spent its entire collection of donations to construct buildings and other facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-trust. Therefore, it becomes application of funds for educational purposes in the hands of the assessee-trust through the medium of the trustee. Thus, the Commissioner of Income-tax are directed to vacate his order cancelling the registration of the assessee-trust and restore the registration granted under section 12AA. This appeal filed by the assessee is allowed. - I.T.A. No. 444/Mds/2010 - - - Dated:- 24-12-2010 - Order The order of the Bench was delivered by Dr. O. K. Narayanan (Vice-President).-This is an appeal filed by the assessee. The appeal is filed against the order of the Commissioner of Income-tax, Central-II, Chennai dated March 16, 2010, under section 12AA cancelling the registration granted to the assessee-trust under section 12AA of the Income-tax Act, 1961. The assessee is a trust registered under section 12AA of the Income-tax Act, 1961 as a charitable trust from the assessment year 1993-94 onwards. On the basis of the registration, the assessee has been claiming benefits of sections 11 and 12 provided in the Income-tax Act and those benefits claimed by the assessee have been accepted and allowed by the Revenue. The assessee is running medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one reflected. (v) The capitation fees collected by the assessee-trust have not been brought in the books of account or reflected in the returns filed and therefore, this is a clear violation of the provisions of granting registration under section 12AA to the assessee-trust. (vi) The hon'ble Supreme Court in the case of T. M. A. Pai Foundation and others in Writ Petition (Civil) 317 of 1993 dated October 31, 2002, AIR 2003 SC 355, has held that charging of capitation fee is against public policy and profiteering is not permissible in the field of education. (vii) It is found from the materials collected in the course of search that the funds of the assessee-trust were diverted as the deposits were made for acquiring assets for the trustees and relatives. Therefore, there is unlawful diversion of trust funds. (viii) One of the trustees Dr. C. K. Velayuthan Nair owned a hospital building and the said building was taken on lease by the assessee-trust for an annual rent of Rs. 3 lakhs. As against the above lease, the assessee-trust has paid a lease advance totalling of Rs. 1.43 crores as on March 31, 2004. This is a case of diversion of funds for the benefit of the trustees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r authorities as required by law. The admissions are made on the basis of the guidelines and rules framed by the Government of Tamilnadu for admitting the students to professional courses. The assessee-trust is collecting fees from the students as per the guidelines issued by the Government of Tamilnadu. (iv) There is no violation of any rule or law in matters of running the educational institutions and conducting various courses offered by those institutions. The Department has no materials against this accepted position. (v) The assessee-trust is mainly established for offering various medical and para-medical courses. Therefore, its operation is in the field of education. Charitable activities included education as well. Therefore, the assessee-trust is a trust established for charitable purposes for which reason the assessee has been enjoying the benefit of registration under section 12AA. (vi) While making adverse inferences against the assessee on matters like capitation fees, diversion of funds, etc., the Commissioner of Incometax has no case that the assessee-trust has not carried out the objects for which the trust has been established. The trust has been established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xiii) The reliance placed by the Commissioner of Income-tax on the decisions of the hon'ble Supreme Court in the cases of T. M. A. Pai Foundation AIR 2003 SC 355 and Thanthi Trust [2001] 247 ITR 785 are not applicable to the facts of the case. The ratio of those decisions is that profit making is not permitted in the field of education. The assessee-trust has not made any profit in that matter. It is not possible to hold that the alleged capitation fee is in the nature of illegal income. Collection of capitation fees might violate any other law, but not the provisions of the Income-tax Act, 1961. (xiv) There is no distinction under the provisions of the Income-tax Act, 1961 between legal and illegal income. (xv) The duty cast on the assessee-trust under section 12A is to utilise all the funds available with it for the purposes of declared objects of the trust and not for the purposes of profits or personal gains. (xvi) The reasons pointed out by the Commissioner Income-tax on the relevance of the seized materials are not applicable as he believed. The cash found in the residence of the trustee, does not mean that the funds of the trust have been diverted. There is nothing uncom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law for the Commissioner of Income-tax to withdraw exemption granted to the assessee-trust under section 12AA. We heard Shri G. Baskar, learned counsel appearing for the assessee and Shri Shaji P. Jacob, the Commissioner appearing for the Revenue. Shri G. Baskar, learned counsel relied on the judgment delivered by the hon'ble Karnataka High Court in the case of DIT v. Sri Belimatha Mahasamsthana Socio Cultural and Educational Trust 46 DTR (Karn) 290. In that case, the assessee is running a professional institution and claimed receipts of corpus donations to the extent of Rs. 28,30,094. The case of the Revenue was that the above amount was collected by the assessee-trust in violation of the Prohibition of Capitation Fees Act, 1984. It was the case of the Revenue that the amount was collected by the assessee in the nature of capitation fee. The Tribunal did not accept the contention of the assessee that the amount represented corpus donation. But the Tribunal found that the assessee has applied the said amount for the purposes of educational institutions run by the trust. The Tribunal held therefore, that the donations were utilised by the assessee-trust for the purposes of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Tribunal on the ground that the donations received by the trust and applied for educational purposes which were in the nature of charitable purposes. Therefore, in the light of the above judgment of the hon'ble Karnataka High Court, the proposition of the Commissioner of Income-tax on the nexus between the public policy and capitation fee is not sustainable in law. Another decision relied on by learned counsel appearing for the assessee is the one rendered by the Income-tax Appellate Tribunal, Pune "A" Bench in the case of Maharashtra Academy of Engineering and Educational Research (Maeer) v. CIT in I. T. A. No. 1669/Pn/07 [2003] 133 TTJ (Pune) 706. In that case also, the registration was withdrawn by the Commissioner of Income-tax on the ground that the assessee-trust had accepted capitation fees for allotment of seats in violation of the Maharashtra Capitation Fees (Prohibition) Act, 1987. The Tribunal held that the Revenue should confine its enquiries about the activities of the trust and its genuineness which means that the trust was carrying on such activities in consonance with the objects for which it is created. The Tribunal held that the Commissioner of Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Appellate Tribunal, Pune Bench, the Commissioner of Income-tax is not to conduct investigation into the sources of donations received by it. Regarding the genesis and character of the money available in the hands of donors to pay capitation fees have to be examined in the hands of those donors. The assessee has nothing to do with the legality or illegality of the sources in the hands of those donors. The capitation fees could be unexplained in the hands of the persons making the donations. The Commissioner of Income-tax could direct his investigations to the sources of those persons who have given big amounts by way of donations presumably for allotment of seats in professional institutions. As far as, the assessee-trust is concerned, the violation is that of Anti Capitation Fees Act which is not a violation under the provisions of the Income-tax Act. Therefore enquiries should be made against the assessee through a process permitted under the Tamilnadu Prohibition of Capitation Fees Act. The Income-tax Act cannot be punitive against the assessee on that ground. As argued by the assessee-trust, there is no apparent distinction between legal and illegal income under the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the Tamilnadu Mercantile Bank. It is established that those funds have not been flown out of the funds of the assessee-trust. The payments were made by Dr. Velayuthan Nair personally. In such circumstances, there is no force in the argument of the Revenue that the amount of Rs. 3 lakhs paid by Dr. Velayuthan Nair for his daughter's medical seat, was from the funds of the trust. The third point regarding diversion of funds raised by the Commissioner of Income-tax is that the trust has paid huge amount of deposits to Dr.Velayuthan Nair for taking out his hospital property on lease. It is to be seen that the assessee-trust enjoyed such properties for conducting its educational activities and the deposits not non-refundable. Therefore, regarding the functional and legal character of the deposits, there is no case against the assessee. The case could only be in respect of quantum of deposits which according to the Commissioner of Income-tax is highly disproportionate, to the annual rent paid by the assessee-trust. In this context, it is to be seen that the total amount spent by the trust for constructing buildings and facility were about Rs. 90 crores much more than the donations ..... X X X X Extracts X X X X X X X X Extracts X X X X
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