TMI Blog2011 (4) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, financial statements and balance-sheets of the assessee-trust. decided in favour of Assessee. Regarding rejection of benefit of Sec. 11 - Held that:- Keeping the money belonging to the assessee-trust is essentially different from spending the money belonging to the assessee-trust. decided in favour of Assessee. Regarding caption Fee. - Held that:- The assessing authority has not conducted any such enquiries either with the students or with the parents of the students or with any other person interested in the activities carried on by the assessee-trust. - Decided in favour of Assessee. - IT APPEAL NOS. 1476 TO 1482 (MAD.) OF 2010, - - - Dated:- 5-4-2011 - DR. O.K. NARAYANAN, HARI OM MARATHA, JJ. Shaji P. Jacob for the Appellant. S.K. Tyagi for the Respondent. ORDER 1. This is a bunch of seven appeals and seven cross-objections. The appeals are filed by the Revenue and the cross-objections are filed by the assessee. The appeals and cross-objections are filed for the seven consecutive assessment years from 2002-03 to 2008-09. 2. These appeals and cross-objections are directed against the common order passed by the Commissioner of Income-tax (Appeals)-II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. A search action was conducted under section 132 along with survey operation under section 133A on August 13, 2008. On the basis of materials collected in the course of search and survey operations, the Assessing Officer came to the conclusion that the assessee-trust has collected capitation fees from students admitted to different courses under the management quota and no receipts were given to such collections and also not disclosed in the income-tax returns filed by the assessee-trust. 7. The above issue of collecting capitation fees was put to the chairman of the assessee-trust at the time of search. He furnished the details of number of seats available under the management quota in respect of the medical college, engineering colleges, nursing college and training college run by the assessee-trust. He has stated that the regular fees for the first year M.B.B.S was Rs. 3,60,000 per seat under management quota and Rs. 2 lakhs for a seat in Government quota. He also stated that students admitted in the management quota used to donate amounts ranging from Rs. 16 to Rs. 20 lakhs per seat. The assessee also had the privilege of direct allotment of seat to non-resident Indian (N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.52 13.18 7. 2008-09 31.67 9.44 10. After finding that the trust has been collecting capitation fees for allotment of seats under the management quota, the Assessing Officer held that the assessee could not be given the exemption provided under sections 11 and 12. The Assessing Officer held that the assessee-trust has violated the provisions of law stated in section 13 of the Income-tax Act, 1961, and therefore, the assessee-trust lost its privilege of claiming exemption under sections 11 and 12. In the light of the above findings, the assessing authority treated the entire estimate of capitation fees as taxable income of the assessee-trust, for all the seven assessment years under appeal. 11. While treating the estimate of capitation fees as taxable in the hands of the assessee, the assessing authority has relied on his finding that the assessee-trust was collecting capitation fees for allotting seats under the management quota by violating the provision of law contained in section 13 of the Act. It is the case of the assessing authority, that what is exempted from taxation under sections 11 and 12 are only "voluntary contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) and that of the hon'ble Allahabad High Court in the case of Dr. S. C. Gupta v. CIT [2001] 248 ITR 782/118 Taxman 252 (All). (vii) That the decision of the hon'ble Supreme Court in the case of CET v. P. V. G. Raju [1975] 101 ITR 465 is also applicable, where the court has held that donation could be treated as voluntary payment if it was not for any material return. 13. After summarising the premises relied on by the Assessing Officer to compute the taxable income in the hands of the assessee-trust, the Commissioner of Income-tax (Appeals) discussed the various factual and legal arguments placed by the assessee-trust before him. Those contentions and arguments of the assessee-trust placed before the Commissioner of Income-tax (Appeals) are summarised below : (i) That application of section 11 for the two assessment years 2002-03 and 2003-04 is not relevant, as the assessee-trust has been granted approval under section 10(23C)(vi) by the Chief Commissioner of Income- tax-VI, Chennai, through his proceedings dated June 8, 2007. (ii) That the Commissioner of Income-tax, Pondicherry, having jurisdiction over the assessee-trust has made a finding in his order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat category and therefore it has to return whatever amounts collected from the students. The Assessing Officer has erroneously treated those refund of fees as instances to support his theory of accepting capitation fees. (ix) That for the previous year 2007-08, the admissions to various courses were supervised by a committee appointed by the State Government as directed by the hon'ble Supreme Court and admissions were made on the basis of entrance test and students were admitted purely on the basis of merit and the assessee had no role in filling up the seats available under the management quota. In such circumstances there was no question of collecting any capitation fees. (x) That the chairman of the assessee-trust had owned up the amount of Rs. 44 lakhs found at his residence in the course of search and the said amount has already been assessed in his hands and that amount was made out of the petrol pump business carried on by him whose turnover was more than Rs. 30 crores. Therefore, there is no basis to treat the said amount as the income of the assessee-trust. (xi) That the chairman of the assessee-trust has always stated before the authorities that the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought on record, as held in the following decisions : (i) Maharashtra Academy of Engineering Educational Research v. CIT [2010] 3 taxman.com 35 (Pune-ITAT); (ii) Governing Body of Rangaraya Medical College v. ITO [1979] 117 ITR 284 (AP) ; (iii) CIT v. Khalsa Rural Hospital Nursing Training Institute [2008] 304 ITR 20/173 Taxman 180 (P H) ; and (iv) Rama Rao Adik Education Society v. CIT [I. T. Appeal No. 5742 (Mum.) of 2007 dated 11-2-2008]; (xviii) That no addition can be made in the assessment only on the basis of the statement without their being any supporting materials as held in the following decisions : (i) Asst. CIT v. Anoop Kumar [2005] 147 taxman 26 (Asr.) (Mag.); (ii) Asst. CIT v. Jorawar Singh M. Rathod [2005] 148 Taxman 35 (Ahd.) (Mag.) ; and (iii) Dineshchandra J. Dina v. ITO [2000] 112 Taxman 107 (Ahd) (Mag.). (xix) That the assessee has never accepted the allegation that it had received unaccounted income/donations as if stated by the managing trustees in his statement given under section 132(4). He had only stated that certain contributions were received from students and parents. This has been erroneously treated by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessing authority that the amount belonged to the petrol pump business carried on by the chairman of the assessee-trust, whose turnover was more than Rs. 30 crores at that point of time. The Assessing Officer has accepted the disclosure of the seized cash as the income of the chairman of the assessee-trust and, therefore, there is no force in the argument of the assessing authority that the seizure of the said amount supports the finding that the assessee-trust had accepted contributions by way of capitation fee appropriated the trust funds for his personal benefits. (4) The chairman of the assessee-trust had stated that contributions were received from philanthropists/institutions and some parents of the students admitted in the colleges run by the trust. In spite of that, the Assessing Officer had not made any enquiry with any student or any parent to support his allegation that the assessee-trust had accepted capitation fees. (5) The Commissioner of Income-tax at Pondicherry in his proceedings under section 264 pertaining to the assessment years 1998-99 to 2001-02 had stated that donations received from the students and parents were not compulsory collections and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to exemption of income of the trust are interrelated, and interdependent and when there is a case of no genuineness of the activities and non-maintenance of accounts, the Assessing Officer is empowered to withdraw exemption. (iv) The Commissioner of Income-tax (Appeals) has not considered the observation of the Appellate Tribunal, Chennai in paragraph 18.1 of its order in I. T. A. No. 2127/Mad/2008 dated September 11, 2009 that nomenclature used for the contributions is immaterial. (v) The Commissioner of Income-tax (Appeals) has failed to note that the assessee has not shown any single instance of donation from person other than students or parents of students which shows a clear nexus between allotment of seat and collection of donations. (vi) The Commissioner of Income-tax (Appeals) has failed to note that the statement of the chairman of the assessee-trust proves the fact that the amounts collected from each student, were in the nature of capitation fees. (vii) The Commissioner of Income-tax (Appeals) has failed to note that the assessee has not furnished any proof to show that fees were collected in advance. (viii) The Commissioner of Income-tax (Appeals) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of the assessing authority and granting the benefit of exemption under section 11 of the Income-tax Act, 1961. 23. Learned counsel appearing for the respondent-assessee made his argument in the following lines : (i) That there is no doubt so far on the question whether the assessee trust is running educational institutions or not. The assessee is running educational institutions like medical, engineering, training and other colleges and, therefore, there is no basis in raising a ground that the activities carried on by the assessee-trust are not genuine. (ii) That the assessee-trust is running the educational institutions on the strength of statutory and administrative approvals granted by different authorities like Government of Pondicherry, University Grants Commission, Medical Council of India, Dental Council of India, Government of India in the Ministry of Health, etc. The students admitted in the colleges are completing their courses, appearing for the examinations, which are recognised by law and by the authorities concerned and in such circumstances, allegation of the Revenue that the activities carried on by the assessee-trust are not genuine is absolutely with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities as defined in section 2(15), which are by nature charitable activities. The contributions are accepted and the funds are applied in the course of carrying on such educational/charitable activities. 27. Learned counsel explained that the law relating to the charities as provided in sections 11 and 13 provide only one distinction of the contribution received by a charitable trust as corpus donation and income donation and any other classification will be of no relevance. Learned counsel further argued that the role of donations and contributions are very much envisaged in the scheme of law relating to charitable activities as provided in sections 11 and 12 and other provisions, as it will not be possible to carry on charitable activities without such help forthcoming from the society and public. Therefore, the provisions do not provide for a rule to examine the source of contributions received by a charitable trust. The consequential position is that what is relevant is the contributions and the application of the funds and not the source or context of the contributions. 28. That the Assessing Officer has not mentioned under what section he is dividing the contributions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om) ; and (iv) Chairman, Andhra Pradesh Welfare Fund v. CIT [1983] 143 ITR 82/12 Taxman 242 (AP). 33. We heard both sides in detail and considered the rival contentions and arguments. 34. On going through the orders of the lower authorities, the order of the Commissioner of Income-tax, Pondicherry passed under section 264 and the paper book containing copies of relevant papers filed before us, we find it necessary to conclude on certain factual issues without much deliberations as facts and materials speak for themselves. (1) The first such conclusion is that there is no basis for the Assessing Officer to allege that the activities carried on by the assessee-trust are not genuine. The assessing authority himself has noted down the names of about eight prominent educational institutions carried on by the assessee-trust on the face of the assessment order. The same is reproduced in paragraph 2 of this order. These institutions included medical and engineering colleges. The paper book filed before us contains copies of relevant documents and certificates in pages 326 to 360, issued by appropriate authorities, which prove that the assessee is carrying on its educational activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of account in its ordinary course of activities. As far as the impugned assessment years are concerned, there again the Assessing Officer has not brought any adverse materials on record to substantiate the allegation that the assessee is not maintaining proper accounts. It is a fact to be borne in mind that the assessee has been claiming exemption of its income from taxation on the ground of educational activities since long in the past. Earlier it was enjoying the said benefit under section 10(22) and 10(23C)(vi) and thereafter under sections 11 and 13. The assessee is registered under section 12AA of the Income-tax Act, 1961. The assessee is filing regular returns before the assessing authority. The assessing authority himself has stated in his order that he has examined the returns of income in the light of the books of account, financial statements and balance-sheets of the assessee-trust. Even in the course of search operations, the assessing authority has no case that proper accounts were not maintained by the assessee-trust except the allegation regarding the nature of certain seized documents relating to the refund of fees made to the students, who were not given admiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingency, the amounts collected earlier from the students had to be refunded. These details have been brought out in the accounts maintained by the assessee-trust. If the Assessing Officer had any strong intuition about capitation fee on the basis of this solitary opinion, the Assessing Officer should have conducted proper enquiries before coming to a conclusion against the assessee-trust. The assessing authority has not conducted any such enquiries either with the students or with the parents of the students or with any other person interested in the activities carried on by the assessee-trust. 36. The contributions described as unaccounted by the assessing authority is only the consequence of the estimate of contributions made by himself. The assessing authority has estimated the collection of contributions on the basis of the number of seats available under the management quota multiplied by the amount of contribution attributable to individual seats. He has adopted such a simple multiplication formula. The assessee had stated even in his initial statement made in the course of search that the assessee-trust was not getting donations or collecting contribution for each and ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat could be the legal consequence of that finding ? Whether the Revenue will treat such involuntary contributions as capital and give exemption from taxation ? No, it will not. The Revenue will still find such involuntary contribution as income liable for taxation. If so, what is the real distinction between voluntary contribution and involuntary contribution as far as the taxation of charities is concerned ? In both cases, it will be brought for taxation if the assessee has not utilised the contributions for charitable purposes. 41. The expression "voluntary contributions" is used in the Act instead of "contributions" to highlight the principle of non-compulsion in matters of participating in charitable activities and to underline the gratuitous nature of donations and charitable activities. There is no compulsion in making contributions to charities. If the expression was "contributions" there could be a naunce of compulsion like contribution to provident fund and the like. 42. Therefore, we find that whether it is treated as voluntary or involuntary, the only course of action available before law is to see whether such contributions have been treated by the assessee as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is an institution which is running professional courses, it could not have been presumed by the Assessing Officer that the said amounts which were received as donations were attributable to the allotment of seats in the relevant assessment years. In the absence of there being any foundation for such a contention, the contention of counsel for the Revenue that the donations received to an extent of Rs. 28,30,094 during the said period is in violation of the Prohibition of Capitation Fee Act, 1984 and, therefore, the trust had acted opposed to public policy, consequently, was not entitled to be treated as a charitable organisation, is not sustainable. The Tribunal was hence justified in reversing the findings of the Assessing Officer and the first appellate authority on this aspect of the matter and granting relief to the assessee, which is just and proper." 46. Another decision to be considered is the one rendered by the Income-tax Appellate Tribunal, Pune "A" Bench in the case of Maharashtra Academy of Engineering Educational Research (Maeer) (supra). In this case, the registration was withdrawn by the Commissioner of Income-tax on the ground that the assessee-tru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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