TMI Blog2014 (3) TMI 1014X X X X Extracts X X X X X X X X Extracts X X X X ..... itable Trust - whether amounts to application of income for the purposes of s. 11 - Held that:- Hon’ble Delhi High Court has, in the case of DIT (Exemption) v. ACME Educational Society reported in (2010 (7) TMI 159 - DELHI HIGH COURT) on an identical issue to that of the present one, held that “the interest-free loan given by the assessee-society to the other society did not violate section 13(1)(d) read with section 11(5) of Act, 1961, as the loan was neither an ‘investment’ nor a ‘deposit’. Moreover, both societies had similar objects and were registered under section 12A of the Act and had approvals under section 80G……….” In conformity with the judgment of the Hon’ble Delhi High Court (supra), we are of the view that the assessee is entitled to exemption.- Decided in favour of assessee Denial of claim of depreciation as application of income u/s. 11 - Held that:- The amount of depreciation debited to the account of charitable institution is to be deducted to arrive at an available income from charitable or religious purposes. Following the decision of the jurisdictional High Court, we, therefore, hold that the depreciation is to be deducted to arrive at income available to ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said levy was not in accordance with the provisions of the Act? III. ITA No.324/B/2012 AY 2008-09: (i) Whether the assessee was eligible to claim exemption u/s 11 of the Act even when there was surplus funds of ₹ 60,59,220/-and in view of collecting of building and development funds respectively from the students? Alternatively (ii) Whether the assessee was eligible for exemption u/s 11, if those funds were applied towards the object of the institution? (iii) Whether the authorities were justified to deny the claim of depreciation as application of income u/s. 11 of the Act? (iv) Whether the assessee was liable to be charged to interest u/s 234B of the Act when the said levy was not in accordance with the provisions of the Act? 3. As the issues raised in these appeals being related to the same assessee, for the sake of convenience, they were heard together and disposed of in this consolidated order. 4. Briefly stated, the facts of the issues are as under: The assessee-trust runs a number of Schools at Mysore. The assessee is registered u/s 12AA of the Act and also obtained exemption under sections 11 and 12 of the ACT. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r parents were in the nature of capitation fee, because the collection was directly linked to admission given under the management quota. The fact that the appellant has accounted these collections as voluntary contributions does not change the true nature of the receipt. It is settled law that accounting treatment given by the assessee is not the conclusive proof of true nature of a receipt or expenditure. 5.1.1. With regard to the second issue Whether the assessee can be allowed exemption u/s 11 of the Act in respect of the receipt of voluntary contributions? After analysing the receipt and expenditure account of the assessee, the CIT (A) had opined that 13 It is worth noting that in both the years the appellant has made profit more than or equal to the total expenditure incurred. This type of profit can hardly be considered as incidental to the main activity. The profits are a direct result of the additional amount (capitation fee) collected from the students admitted under the management quota. 14. The above clearly gives a lie to the appellant s claim that he had to indulge in collection of additional amounts from the student ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this decision is fully applicable in the appellant s case. 28. In view of the above discussion, I hold that the appellant is not entitled to claim exemption u/s 11 of the Act. All the grounds of appeal raised by the appellant are basically in the nature of arguments contending that the voluntary contributions collected by the appellant are not in the nature of capitation fee and that the appellant trust being an educational institution, is entitled to exemption u/s 11 of the Act. I have already discussed both the issues above. There is a direct nexus between the admissions granted under the management quota and the voluntary contributions collected by the appellant. It is nothing but capitation fee. The appellant is also held to be indulging in profiteering from education and, hence, it is not eligible for exemption u/s 11 of the Act. 29. The assessing officer has brought to tax the gross amount of voluntary contributions disclosed by the appellant. This is not correct. Hence, the AO is directed to all the expenses incurred and bring to tax only profits/surplus after allowing depreciation and other expenses. As regards depreciation, I will clarify that in a recent decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.3.2011. Since the facts are identical, in line with the decision for the AYs 2006-07 and 2007-08, the appellant s appeal is dismissed for the reasons mentioned therein. 6. Aggrieved, the assessee has come up before us with the present appeals. During the course of hearing, the elaborate submissions made by the learned AR are summarized as under: Building fund that the assessee had collected a sum of ₹ 50.21 lakhs as development fund along with the admission fees from the students and the contributions made for a specific purpose of building development formed part of corpus and, thus, eligible for exemption u/s 11(1)(d) of the Act. The contributions made by the students were voluntary and not quid pro quo to the admissions into the society. The assessee had also produced confirmation letters before the authorities below to vouch that the contributions from the students community were voluntary; that the authorities below have, however, concluded that there was a nexus between the admissions and the voluntary donations and, accordingly, denied the benefit of exemption under sections 11 and 12 of the Act to the assessee, citing the following reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Education society v. ADIT [20 SOT 353] relied by the Revenue is also distinguishable since in that case the assessee was denied exemption on a finding that the assessee had violated the provisions of s. 13 of the Act by diverting the monies towards the Chairman of the institution. In the present case, even if the fees collected were in violation of the State Government s norms, application of funds were towards the objects and as such, there was no violation of 13 of the Act to deny exemption to the assessee; the findings of the Allahabad Tribunal reported in 82 ITD 71 relied on by the ld. DR is also not applicable to the issue on hand since that assessee being an educational institution was earning surplus and such surplus was diverted towards personal enjoyment of its secretary and his family members whereas in the present case, there was no diversion of the profits earned and such profits have been applied towards the objects of the Institution; Relies on the following case laws: (i) ACIT v. Balaji Educational and Charitable Public Trust 11 (Trib.) ITR 179 ITAT, Chennai; (ii) DIT (E) v. N. H. KAPADIA 136 ITD 111 ITAT, Ahd.; In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had applied all the contributions to its objects and none of the authorities below have given a finding that the funds have been diverted for the purposes other than the objects of the trust. Thus, the assessee had applied the funds/contributions received towards its objectives; that the revenue had nowhere contended that the funds collected have been utilized by the trust for the purposes other than its objects. The only reason for the revenue to deny exemption was that the contributions were not voluntary and the assessee was having a surplus over its expenditure; the assessee being a trust registered u/s 12AA of the Act and according to the scheme of the Act, any income of a trust registered u/s 12AA and established for charitable purpose would be exempt, if the income derived from such trust was applied for its objects except for the purposes as laid down in s. 13 of the Act. in the present case, even if the building fund and the development fund was considered as income of the assessee, since those funds were applied for the objects of the assessee, the income of the assessee would be exempt from tax; Relies on the following case laws: (i) DDIT(E) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved only as a quid-pro-quo or as a return for getting admission. Thus, the intention of the persons making the donations was quite clear and obvious and that was only to get admission, donations were paid by them. Hence, the donations received by the assessee cannot be considered as voluntary contributions in nature. According to the judicial pronouncement, the word voluntary has been held to be an act done out of one s free will; - that it is well settled legal position that voluntarily means an act done out of one free will. It does not insist upon any particular manner in which the contributions should be made. One of the main ingredients of the voluntary contribution is that the contribution must be made without there being any consideration therefor. To put it in a nutshell, any money paid willingly on its own by any person without compulsion and quid-pro-quo is known as voluntary contribution. As such, in a case of voluntary donation, the donors will generally give the money or the gift to the trusts/societies running educational institutions graciously without any compulsion or suggestion either directly or indirectly from such trusts or societies and also without exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quo; - that as per the provisions of s. 11(1), the assessee was entitled to claim deduction in respect of any income derived from properties held, under trust wholly for charitable or religious purpose. As per clause (d) of s. 11 (1), income in the form of voluntary contributions made with a specific direction to the effect they shall from part of the corpus of the trust or institution is also exempt from tax. Similarly, u/s 12(1) of the Act, any voluntary contributions received by a trust created wholly for a charitable or religious purpose shall be deemed to the income derived from property held under trust as envisaged u/s 11(1); - that as the factual matrix brought out by the AO, it cannot be stated that the donations received by the assessee were voluntary in nature so as to be exempt from tax. Rely on the judgment of the Hon ble Madras High Court in the case of P.S. Govinda Samy Naidu Sons v. ACIT 324 ITR 44 (Mad). - that the CIT (A) had held that the assessee was not able to establish that the donations received were voluntary in nature. Thus, the assessee s claim that the amounts were received voluntarily towards building fund was found to be nothing but capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, however, it is noticed that a chunk of the additional fee collected in the form of building fund and college development fee has been parked in FDs for a considerable period of time, implying that the assessee had not applied the fund towards the objects stipulated in the trust deed. Further, a substantial amount of surplus generated over a period of time, amounting to ₹ 1.36 crores was paid to another trust under the same management, namely, M/s. Kaveri Charitable Trust as on 31.3.2007. This fact indicates that the assessee had not utilized the additional funds received in the form of building fund and development fund towards the object of the trust; - that the details of net surplus as well as increase in surplus recorded on account of contributions from the students/parents in the form of building fund and college development fund are as under: Asst. year Dev. fund Net Surplus Building fund College 2006-07 ₹ 76,68,953 ₹ 50,21,500 Rs.66,99,832 2007-08 ₹ 92,67,907 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1. It is a fact that the assessee trust is a registered Society which runs several educational institutions in the city of Mysore starting from nursery to PUC. The assessee trust is also registered u/s 12A of the Act. According to the AO, some of the educational institutions run by the assessee are aided institutions, in the sense, that the salaries of the teaching/non-teaching staff are met by the Government grants. As per the norms fixed by the State Government, the assessee is entitled to give 50% of admissions under the management quota in respect of PU Course. However, there is no difference between the Government and non-government seats with regard to fee structure. All the admissions were required to be given on the basis of merits. Apart from the fee structures fixed by the Government, according to the AO, the assessee was collecting college development fee at ₹ 5,000/- and ₹ 3,000/- per student for science and commerce courses respectively in respect of PUC. 7.2. In the meanwhile, the premises of the assessee was subjected to a survey u/s 133A of the Act on 17.5.2007. During the course of such survey, certain books and documents containing the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for exemption u/s 11 of the Act. 7.2.3. However, during the course of hearing before us, the learned AR contradicted the stand of the authorities below by arguing that those contributions were received from the students for the specific purpose of being building fund which formed part of the corpus and, accordingly, exempt u/s 11(1)(d) of the Act. He had also urged that the students/their parents have accepted that those contributions have since been made out of their own free will and, thus, it cannot be attributed that there was a nexus between the admissions and the voluntary contributions towards building development so as to deny exemption u/ss. 11 and 12 of the Act. To drive home his point, the learned AR argued that the primary purpose/object of the assessee was to impart education and in that process, the assessee had accepted certain fees and voluntary contributions. The voluntary contribution, it was urged, so received was only for the specific purpose of building fund and, accordingly the assessee had applied such contribution towards the construction of building(s). 7.3. At this juncture, we shall proceed to analyse the case laws on which the learned DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.3.1. We shall now take up the case laws, on which, the assessee placed reliance for consideration as below: (i) ACIT v. Balaji Educational and Charitable Public Trust (2011) 11 ITR (Trib) 179 (Mad): The Hon ble Tribunal has held that There is no concept of involuntary contributions in the scheme of law of charities provided in the Income-tax Act, 1961. The only distinction recognized by law is that voluntary contributions are to be treated as income under section 12 and corpus donation are to be treated as capital receipts under section 11(1)(d). Voluntary contributions are taxable, only if not applied for charitable purposes. Even if the contributions are treated as not voluntary, the Department will not treat such involuntary contributions as capital. In both cases, they will be brought to taxation, if the assessee has not utilised the contributions for charitable purposes. 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 . (ii) In the case of ACI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the test of application of the funds and not the colour of donations received by the institution. In that view of the matter, we do not find any infirmity in the order of the CIT (A) . 7.3.2. In the meanwhile, our reference was drawn to the judgment of the Hon ble jurisdictional High Court in the case of CIT v. Bharatiya Samskriti Vidyapith Trust in IT Appeal Nos.278, 279, 280, 281 and 282 of 2007 dated 13.11.2013. The issues before the Hon ble Court were: (i) When the donations collected towards a specific fund and for a specific purpose i.e., corpus fund and so, whether the assessee was entitled to claim exemption as a charitable institution u/s 11 of the Act? and (ii) Whether in the absence of the particulars of the donors and in the absence of specific direction by the donors, whether the donations given by them would form part of the corpus fund of the trust or the institution and, thus, eligible for exemption from payment of tax u/s 11 of the Act? The fact of the issue, in brief, was that the assessee is a charitable trust registered u/s 12AA of the Act and also recognized u/s 80G of the Act. It runs educational institution. The assessee allowed its asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that income in the form of voluntary contribution made with a specific direction that they shall form part of the corpus of the trust or institution, shall not be included in the total income for the previous year of the person. Therefore, to be eligible for that exemption, the said contribution should be towards a part of the corpus. Though the words specific direction is used in the said provision, the legislature consciously has not used the word in writing . In the absence of any writing, only means to find out as to what is the specific direction can be gathered by considering how the recipient of the amount has accounted for it. The recipient has accounted the receipt as the amount received towards building funds and thereafter, a separate account is maintained for the said amount. From this, it could be inferred that there is a specific direction by the donor . The said amount is used as part of the corpus. It may be possible that, in a given case, the provision may be abused and unaccounted monies could be converted into corpus fund without furnishing the particulars of the persons who are contributing and to avoid tax liability to have benefit of exemption, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO had recorded that 22. As seen from the above, without having any sanction of the govt., the assessee has forcefully collected capitation fee in the garb of College Development Fee . The observation of the educational institution by the assessing officer in the assessment order contradicts the concept of the educational institution described in the above mentioned Act. The question of collecting capital fee will arise only when any institution by whatever name called, whether managed by Government, private body, local authority, trust, university or any other person carrying on the activity of imparting education in medicine or engineering leading to a degree . . [Courtesy: Karnataka Edl. Institutions (Prohbn. of Capitation Fee) Act, 1984]. However, the present assessee has been imparting education starting from nursery to PUC which has been admitted by the AO in the assessment order. Therefore, the question of attributing that the assessee allegedly collected capitation fees in the guise of building fund or development fee doesn t arise. 7.4. Taking into account the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of this Tribunal in the case of ACIT v. Sri Adichunchanagiri Shikshana Trust reported in (2013) 31 taxmann.com 157 (Bangalore Trib.). After analysing the issue in depth, the Hon ble Bench had recorded its findings as under: 13 The Tribunal in the assessee s own case for the assessment year 2006-07 at paragraph 7 of its order has decided the issue in favour of the assessee. The relevant finding of the Tribunal reads as follows: 7. We have heard both the parties. We have in the earlier para referred to the finds of the Hon ble Bombay High Court in the case of Institute of Banking (2003) 264 ITR 110 (Bom). We have also gone through the decision of the jurisdictional High Court. The Hon ble jurisdictional High Court held that the amount of depreciation debited to the account of charitable institution is to be deducted to arrive at an available income from charitable or religious purposes. Following the decision of the jurisdictional High Court, we, therefore, hold that the depreciation is to be deducted to arrive at income available to charitable and religious purposes. 10.2. In consonance with the findings of the earlier Bench of this Tribunal on a sim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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