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TMI Blog2016 (6) TMI 1336X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly insisted for the appeal to be heard. On perusing the matter the Bench decided to proceed with the hearing of the appeals because on the identical issue arising out of the same search proceeding U/s.132 of the Act, same seized materials and same facts for the assessment year 2001-02 the Learned CIT(A) in ITA No.165/2008-09 vide order dated 28/05/2010 as well as the Chennai Bench of the Tribunal in ITA No.1332/Mds/2010 and C.O.No.94/Mds/2010 vide order dated 09.06.2011 had already decided the matter. Moreover, the Revenue was continuously pursuing coercive action for recovery of tax from the assessee and the assessee was again and again seeking stay from such recovery of tax by the Department which was hotly contested by the learned Departmental Representative before the Tribunal. Thus the Revenue was vehemently insisting for adjournment of these appeals from being heard and at the same time bent upon colleting the demand of tax. In this situation, the Bench decided to proceed for hearing the appeals since the appeals were also not transferred to the Hyderabad Bench of the Tribunal before the Special Bench for hearing till date, and these facts are not disputed by the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search & seizure proceedings under section 132 of the Act was initiated in the premises of the assessee and chairman & founder trustee Shri G.Vishwanathan and his four sons. Notice under section 153A of the Act was issued to the assessee on 23.09.2008 and duly served on the assessee. Subsequent to which assessments were completed under section 153A of the Act on 31.12.2009 for all the three relevant assessment years including the assessment year 2001-02. Ground No.1: Validity of notice under section 153A: 6. On the issue of validity of notice under section 153A of the Act, the learned Commissioner of Income Tax (Appeals) has observed as follows:- "6.1 Appellant raised grounds against the issue of notice U/s.153A and assessment for assessment years 2002-03 to 2004-05: The appellant has contended against the issue of notice under section 153A for the assessment years 2002-03 to 2004-05 on the ground that search U/s.132 itself was invalid as no unaccounted income or assets were discovered from it or its founder and managing trustee Shri G.Vishwanathan and the income returned as per the accounts has been accepted but brought to tax by denying exemption under section 11. 6.2 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wered as per section 153A(b) of the Act to assess or reassess the total income of the assessee for the six assessment years immediately preceding the assessment year. Reliance was placed in the decision of Hon'ble Allahabad High Court in the case of CIT Vs.Raj Kumar Arora reported in 52Taxmann.com /172 wherein it was held that the Assessing Officer has power to reassess the returns of the assessee not only for undisclosed income found during the search operation but also with regard to materials that was available at the time of original assessment. He also placed reliance in the decision of Hon'ble Karnataka High Court in the case of Canara Housing Development Co. Vs. DCIT reported in 49 Taxmann.com 98, wherein it was held that initiation of proceedings under section 153A of the Act does not depend on any undisclosed income being unearthed during the course of search. 9. After hearing both sides, we are of the considered view that initiation of proceedings under section 153A of the Act by the learned Assessing Officer is in accordance with law because from the search proceedings various materials revealed that there is a possibility of the assessee having undisclosed / concealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. vi) In sheet no.11 under seized item ANN/CRK/LS/S/7 & in sheet No.1 to 6 under seized item ANN/MM/B & D/S-34 portrays that there is management and NRI quota and from sheet Nos.5, 4, 8 to 30 etc., reveal that the admissions are made on discretionary basis who are referred by several key personalities. vii) From the above, it is evident that the institution has management quota to be filled up by using its discretionary powers which gives scope for receiving "capitation fees" in the garb of "donations". viii) The assessee has been crediting every year with sizeable amount towards corpus fund apart from the surplus generated from the activity of running the institution. These amounts are increasing year after year. ix) In the sworn statements recorded on 6.6.2007 from Mr. V.Sankar, Pro-Chancellor, son of Mr. Viswanathan, Managing Trustee, he has admitted for receiving Rs. 8,00,000/- as capitation fee for granting admission to B.Tech & Bio-Technology course and further he had admitted that the donations are determined by the trustees for each course depending upon the expenditure incurred for the respective course like lab facility etc. x) The statement of Shri R.Vijayak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. The fact that the said amounts are collected in demand drafts (not by Cheques) cannot alter the nature of the said receipt and the treatment given for the same in the books of accounts is incorrect and it has to be taken to be receipts in the normal course of business and would form part of the surplus. xiii) The statement recorded from the parent Shri Surendra Lachuman Das recorded on 10.10.2007 confirms that he has paid donation of Rs. 8,00,000/- by demand draft to VIT for admitting his son. Another seized document ANN/MM/B&D/S/19 also confirms that the parent has paid donation of Rs. 8,00,000/- to admit their daughter. Statement recorded from the parent Shri Hari Krishnan on 10.10.2007 also reveals that he has paid Rs. 9,00,000/- as donation for admitting his son. Statements were also recorded from the following persons from which make it evident that they have paid donation for admitting their ward in the institution: "a Sumitra Ghosh mother of student Shiva Ghosh.15-10-2007 b.R M Kannammal, mother of student Jayakumar12-10-2007 c.Uma Abiraman, mother of student Kavitha 12-10-2007 d. Kabind Saud 06-06-2007 e. Sivanaga Reddy, F /o. Poornanda reddy challa 07-06- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemistry. * Donations cannot change its colour according to season - before the declaration of results of secondary school examination in the form of advance and thereafter partake the character of corpus donations. * Donations cannot be the subject matter of convenience accounting by obtaining multiple forms so as to suit the contingencies of the management to account for the same as donation to corpus or to account for a portion to corpus fund and balance as advance fees received and thereafter to refund the same back to students on the basis of standard formats on which signatures of parents are obtained as if they seek refund of the advance fees citing financial constraints and agreeing to pay the fees as and when they become due, all these events happening within a short span of time." xiv) The seized materials contain standard donation declaration form filed by the alleged donors (ANN/MR/B &D/S-12, 14, 15, 16, 17 & 21), and admission process forms filed by the students disclosing receipt of alleged donations ((AAAN/MR/B &D/S- 10,11,13,18,19,20, 22 & 23), admission registers disclosing receipt of alleged donations (ANN/MR/B &D/S-1 to 6), details of candidates preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at out of the three one person denied having filed any affidavit and had also stated that she has not paid any amount to VII towards donation. Thus overall it can be seen that apart from furnishing the affidavit, the assessee had not substantiated his case by producing the persons called for to carry out a meaningful verification in view of the inherent contradictions in their statement at different point of time. Though letters have been filed by 103 of them, it cannot be given any credence, in the absence of any independent confirmation by way of a sworn statement before the undersigned, as the assessee did not produce these people in spite of opportunity give. It is also a fact that 94 of them did not file any letters also. Thus, even the affidavits in respect of those people filed by the assessee could not be given any credence as the circumstances under which it "as obtained by the assessee is not known. The earlier written statement taken from them at the time of search cannot be simply brushed aside just because assessee is filing some affidavit from the same persons now, in the absence of any independent verification. Thus due to the stonewalling efforts of the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation as regards section 10(22) of the I.T. Act, we do not find any justification to admit this case. In such circumstances, the tax case appeal is rejected at the admission stage itself and is accordingly dismissed." b) CIT Vs. Durga Prasad More reported in 82 ITR 540 and Sumati Dayal reported in 214 ITR 801 wherein it was held that human probabilities and realities are to be taken into consideration while dealing with in complex matters. Therefore, it is for the assessee to prove that why so many parents and guardians of the students studying in this institute are offering donation to the assessee trust without quid pro quo. 12.2 From the facts of the case and the above decisions, the learned Commissioner of Income Tax (Appeals) came to a conclusion that the "voluntary donations" received by the assessee are "capitation fee" which are received in violation of law. Further, they are forced extortion of money by the educational institution which is supposed to run as public charitable trust. Accordingly, the benefit of section 11 was withdrawn by the learned Commissioner of Income Tax (Appeals) and further invoking the provisions of section 164(2) of the Act held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions:- i) DDIT Vs. Shanti Devi Progressive Education Society -340 ITR 320(Del) ii) DIT Vs. Garden City Educational Trust -330 ITR 480 (Kar) iii) Gaur Brahmin Vidya Pracharini Sabha Vs. CIT - 34 SOT 371(Del) iv) ITO Vs. Kaushalya Medical Foundation -31 SOT 119 (Mum) v) ACIT Vs. Graphic Era Educational Society -108 TTJ 608 vi) Reliable Educational & Alliance Society Vs. CIT - 126 TTJ 407 (Del) vii) DCIT Vs. Beer Shiva Educational Social Welfare society 107 ITD 403 (Del) viii) DCIT Vs. Vellore Institute of Technology 12 Taxmann.com 272 (Chennai) g. The Hon'ble Apex Court in the case of Queen's Educational Society reported in 372 ITR 699 has conclusively held (in para 16 of the judgment) that generation of surplus by an educational institution cannot lead to an adverse inference to determine whether the institution exists solely for the purpose of education and not for the purpose of profit under section 10(23C) of the Act. h. The decision in the case of CIT Vs. Surat Arts Silk Cloth Manufacturers Association reported in 121 ITR 1, American Hotel & Lodging Association Educational Institute Vs. CBDT 301 ITR 86 and in the case of Adithanaar Educational Institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was further submitted that various judicial authorities have held that the corpus donation cannot be treated as "capitation fees". Reliance was placed in the following decisions:- i) CIT Vs.Karnataka Lingayat Education Society - 371 ITR 249(Kar) ii) CCIT Vs.Geetanjali University Trust - 352 ITR 433 (Raj) iii) Padanilam Welfare Trust Vs. DCIT - 10 ITR (Trib) 479 iv) Saveetha Institute of Med.&Tech.Science Vs. ACIT - 12 ITR (Trib) 376 v) Deccan Education Society Vs. ACIT - 172 TTJ 417 (Pune) vi) Maharashtra Academy of Engg. & Educational Research Vs. CIT-133 TTJ 706 vii) Civil Services Society Vs. DIT(E) 143 ITD 408 (Del) viii) DCIT Vs. Vellore Institute of Technology - 12 Taxman.com 272 (Chennai) 12.7 The learned Authorized Representative also submitted that the admission process for the assessment year 2002-03 was made on the basis of TNPCC ranks, 2003-04 was made on the basis of AIEEE ranks and for the year 2004-05 was made on the basis of VITEE rankings. 12.8 The learned Authorized Representative also relied in the decision of the Hon'ble Apex Court in the case of Gangabai Charities Vs. CIT reported in 197 ITR 416 wherein it was held that the crux of the statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n MANAGEMENT ADMISSIONS MBA Courses (2003-2004 academic year) 2004-05 131 to 139 Book maintained by the assessee under the caption MANAGEMENT ADMISSIONS IT networking (2003-04 academic year) 2004-05 140 to 168 Seized materials ANN/MR/B &D/S5 - Book maintained by the assessee under the caption MANAGEMENT ADMISSIONS UG Courses (2003-2004 academic year) 2004-05 13.1 The learned Departmental Representative further argued before us in support of the orders of the Revenue by submitting as follows:- a) From the sworn statements of the pro-chancellor and office bearers of the institution, it is evident that the institution was receiving capitation fees. Further the assessee could produce only 3 parents out of 200 parents relating to various assessment years including assessment year 2002-03. b) The assessee was offered with ample opportunity to produce persons who retracted on their statements but the assessee could produce only one person out of 102 such persons. Therefore, the affidavit filed by the rest of them has no evidentiary value. The onus is on the assessee to produce all the donors who had retracted their statements. c) The assessee was collecting donations which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he education would remain as charity where it is imparted systematically for a fee prescribed by the Government and it is not the intention of the Parliament to recognize any institution as charitable where education is treated as a saleable commodity. g) The facts in the assessment year 2001-02 is distinguishable from the facts for the assessment year 2002-03 to 2004-05 and therefore the decision of the Tribunal for the assessment year 2001-02 is not applicable to the appeals for the relevant assessment years 2002-03, 2003-04 & 2004-05. h) Reliance was placed in the decision of P.S.Govindasamy Naidu & Sons Vs. ACIT reported in 324 ITR 44(Mad) wherein it was held that amount paid by the parents of the students admitted to the assessee educational institution was not the corpus donation but it was capitation fee and such capitation fee is not exempt in the hands of the assessee institution. 13.2 With the above submissions and arguments, the learned Departmental Representative prayed that the orders of the learned Assessing Officer and learned Commissioner of Income Tax (Appeals) may be upheld. 14. We have heard the rival submissions and carefully perused the materials availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge surpluses in the income and expenditure account year after year. 5. Donation is a voluntary payment without quid pro quo. Statements recorded during the search clearly establish that the appellant was collecting capitation fees for offering admissions and is also refunding it in certain cases clearly showing that the amount collected was not a voluntary donation. 6. The corpus donations were admittedly received from 123 parties out of which Rs. 68,36,000 was received in cash and Rs. 58,14,000 by cheque / draft. 7. In the light of the findings as a result of search, onus rests on the appellant to prove that the persons mentioned as donors remitted to the institution on their own volition and without expectation of anything in return. 8. Corpus donations of Rs. 1,26,50,000 were in reality neither donations nor voluntary contributions as these payments were forcibly extracted from the parents / guardians at the time of admission of their children into the appellant's institution. 9. In its decisions the Hon'ble Supreme Court of India has made it clear that education cannot be run as a business and that the concept of teaching shops is contrary to the constitutiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharged its burden by establishing that it is engaged in running an engineering college which has not been disputed in the assessment order. It is the contention of the AO that the education imparted by the appellant through the engineering college is done as business and should not be considered as education as defined in Sec.2(l5). However this contention of the AO is not supported by evidence. therefore hold that the appellant is eligible for exemption u/s 11. 19. As earlier stated an adverse inference could be drawn based on enquiries in the case of Shri.Gopinath, local parties and non receipt of questionnaires sent by the AO regarding the genuineness of corpus fund donations. Even if the corpus fund donations are not treated as genuine they would still be income derived from property held in Trust hence eligible for exemption u/s 11 subject to the provisions of that section with respect to application of such receipts for the purposes of the trust etc. Therefore, addition of Rs. 1,26,50,000/- made by the Assessing Officer is deleted and the Assessing Officer is directed to treat Rs. 1,26,50,000/- as income derived from property held under the trust eligible for exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income Tax (Appeals) has failed to note that the alleged donations were not voluntary but were only in the nature of one time capitation fee since voluntary donations will not be requested for refunding and the assessee could not explain the special reasons for the alleged donations from across the country to the exclusion of various other similarly placed educational institutions in the same region." 14.5 On the revenue's appeal before the Tribunal for the assessment year 2001-02 in ITA No.1332/Mds/2010 and C.O.No.94/Mds/2010, the Chennai Bench of the Tribunal has held the issue in favour of the assessee as follows:- a) "Corpus donations" received by the assessee cannot be treated as "capitation fees" and the surplus earned cannot be treated as "income from business". "13. We have considered the rival submissions and have carefully considered the material available on record, including the paper books filed by the assessee-trust. On perusing the aforesaid documents at length, we find substantial force in the submissions by the assessee. Apparently, the main source of income for the institution is fees received from students and donations collected. The fee receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor. While doing this, the Government had to take into account the fact that, while its ability to raise resources by tax and borrowings was unlimited, at least in theory, the resources of the private sector were limited. The State had faced one more difference between the motivation for investments by the State and the Private Sector; ie. - while the State can look at the aforesaid services as a mere "Cost Centre" the "Private Sector" neither can, nor be expected, to look at these functions as a cost centre. Hence, the Government devised ways by which the revenues of such private sector unaided educational institutions could be augmented so as to provide adequate revenues to recoup the investment, provide reasonable return on :- 14 -: ITA 1332/10 & CO 94/10 investment and to provide adequate surpluses to facilitate expansion and modernization. The three tier fee structure prescribed by the Government for different categories of students is a means to achieve the above objective. 14. The reason for presenting and analyzing the macro view on the subject is to appreciate the point that the Government, in its wisdom, has consciously permitted charging higher fees from some students ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's submission that it could not have obtained donations through coercion as alleged by the Revenue also deserves to be accepted, as we find from the admission regulations of AICTE that there were only two defined areas of discretion in the matter of admission viz. 5% of the sanctioned seats for NRIs and filling up of 'lapsed seats'. We find from the break up of admissions given that, out of the 5%, only 3% of seats were allotted to NRIs and further that out of the total corpus fund donation of Rs. 1,26,50,000/- there was no donation received from outside India. Hence, the discretion available in this regard could not have led to collection of the aforesaid donations. The letter along with list of students admitted with the date of admission of students reveal that the last student admitted was on 25.10.2000 as per the direction of the University of Madras, copy of which has also been filed. As there was no 'lapsed seat' which could be filled at the discretion of the assessee no donations could have been collected in this area also. Finally, we find from the aforesaid documents that while the seats sanctioned by the University of Madras was 535, only 500 stude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiteering' so as to deny exemption u/s 11. b. When the CIT, highest functionary of the Revenue had himself examined the very same aspect on 18.9.1998 (copy of this letter is filed in page 35 of Volume I of Paper book) and concluded in favour of the assessee, no new facts or circumstances have been brought on record for the year relating to 2001-02 a/y to change the Commissioner of Income Tax's view in 1998. c. Eleemosynary and altruism are irrelevant for claiming exemption u/s 11 - relying on the commentary in the law and practice of income tax in Kanga and Palkhiwala and the cases cited therein (page 392). d. CBDT Circular F.No.194/16-17-IT(AI) reproduced in 212 ITR 462 (KER) - "The question for consideration is whether an educational institution existing solely for educational purpose but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational institution will be subject to tax. However, there may be cases where the educational institutions may be owned by the trusts of societies to whom the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L) "... Educational Institution condition precedent - must exist solely for educational purposes and not for purposes of profit - position to be determined with reference to cumulative effect of all relevant facts ..." "... Neither the fortuitous factor of having a large surplus in any particular year nor the solitary fact of diverting some of the income to objects charitable but not educational would be decisive of the matter ..." "... a solitary instance of application of income from the schools for non-educational purposes in a prior year was not very material. The fact that the assessee trust had objects other than educational objects was also not material..." Pinegrove International Charitable Trust vs. Union of India and Others - 327 ITR 73 (P&H) "...Merely because profits have resulted from the activity of imparting education that would not change the character of the institution existing solely for educational purpose ..." "...Merely because there are surpluses in the hands of the educational institution that would not ipso facto lead to an inevitable conclusion that such an educational institution exists for making profits and not solely for educational purposes .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Legitimate expectation That, the assessee is entitled to consistency in assessment of income from the same activity over different years, especially when the department has failed to bring on record any facts or circumstances relating to 2001- 02 a/y, when the Revenue had been holding the assessee, as a charitable institution from its inception in 1984 up to 2000, as decided, in the following cases: Radhasaomi Satsang vs. CIT - 193 ITR 321 (SC) Berger Paints India Ltd. vs. CIT - 266 ITR 99 (SC) Union of India vs. Sathish Paunalal Shah - 249 ITR 221 (SC) CIT vs. S. Kamalahassan - 141 Taxman 24 (MAD) CIT vs. S. Kamalahassan - 141 Taxman 257 (MAD) DIT vs. Lovely Ran Shiksha Parishad - 266 ITR 349 (DEL) CIT vs. N.P. Mathaw - 280 ITR 44 (KEL) CIT vs. Neo Polypack Ltd. - 245 ITR 492 (DEL) III. 'Education' per se is 'charity' It was submitted that, Sec. 2(15) providing an inclusive definition of charitable purpose, enumerates the following: * Relief of the poor; * Education; * Medical relief and * Advancement of any other object of general public utility, not involving the carrying on of any activity for profit. 26. It was also submitted that there are no co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L) "... Assessee institution is duly recognized by HNB Garhwal University and strictly follows all University regulations with regard to admission, charging of fees and course curriculum and has on its governing body nominees of State Government, HNB University and AICTE functioning under Human Resource Ministry, and thus, in fact, Government managed - Therefore, the question of functioning like a commercial profit making institution is totally unfounded - Assets of the society cannot be shared or distributed amongst its members at any point of time..." "...Assessee rendering education to general public falls within charitable purpose under section 2 (15) ..." Reliable Educational & Alliance Society vs. CIT - 126 TTI 407 (DEL) "...Education is now clearly a charitable purpose within a meaning of section 2(15) ..." DCIT vs. Beer Shiva Educational Social Welfare Society - 107 ITD 403 (DEL) "...Whether relief of poor, education and medical relief are charitable activities per se and if any institution is carrying out any of these objects, then such an institution would be pursuing a charitable purpose - Held, yes..." "... Whether since running schools in a systematic manner was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Karnataka - 8 SCC 481. 31. In the light of the categorical decisions of the constitution bench of the Apex court aforesaid, the Revenue's attempt to categorize the educational institution as a business has to be rejected and the assessment of its surplus as Business income was rightly set aside by the ld. CIT(A). As we have held, following the Apex Court judgments aforesaid, that the educational institution is not a business and that `education' per se is a `charitable purpose' in the earlier para, we uphold the order of the ld. CIT(A) allowing the exemption u/s 11. d) The assessee is entitled to the benefit of section 11(4A) of the Act. 32. As regards Exemption u/s 11 is for 'application' of income and NOT source, we find this argument by the ld.AR to be the most attractive and relevant proposition in support of the assessee's claim for exemption u/s 11. The assessee submitted that sec. 11 (1) provides that ".... following income shall not be included in the total income ..... * income derived from property held under trust wholly for charitable or religious purposes to the extent it is applied for such purposes .... 33. The Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carried on by the assessee is treated as 'business' as it resulted in surpluses, its income would still be exempt under sec. 11(4A), which has been substantially liberalized from 1.4.1992. It was submitted before us that, as per the liberalized sec. 11(4A) a trust carrying on 'business' could still claim exemption u/s sec. 11, if: * the business is incidental to the attainment of the objectives of the trust and separate books of account are maintained in respect of such business. 39. The AR submitted that as assessee has satisfied both the conditions, even in the worst case scenario of the assessee's activity being categorized as 'business', its income would still be entitled to exemption u/s sec. 11 pursuant to sub-section 4A. A catena of decisions has been relied on to drive home this alternative submission, which too we approve. ACIT vs. Thanthi Trust - 247 ITR 785 (SC) "...Further change of law - requirement that business should be incidental to attainment of objectives of trust - satisfied - Income tax act, 1961, SS. 11(4A) (before and after amendment in 1992), 13(1)(bb)..." "... Interpretation of taxing statutes - ambiguity - provision to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t stands amended in 1992, all that is required for the business income of a trust or institution to be exempt from tax is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is a business which is incidental to the attainment of the objectives of the trust or institution ..." "... assessment years 1994-95 and 1993-94 ..." CIT vs. Sri Narayana Gurtuviah Chetty Estate & Charities - 326 ITR 662 (MAD) "... AY - 1996-97 to 1999-2000 - Charitable purpose - exemption - charitable trust earning income by letting out property as Kalyana Mandapam - letting out activity for fulfilling objects of trust - income derived from property - trust entitled to exemption - income tax act, 1961, sec. 11 - Thanthi Trust (2001) 247 ITR 785 (SC) applied ..." CIT vs. Bimetal Bearing Ltd. - 152 ITR 85 (MAD) ITO vs. Rao Bahadur AKD Dharmaraj Education Charity Trust - 273 ITR 256 (MAD) "... assessment year 1992-93, the respondent / assessee claimed exemption under sections 10(22) and 11 of the Income Tax Act ..." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than for educational purposes, exemption under section 10(22) could not be denied to assessee - held, yes ..." "... has to be evaluated each year to find out ..." "... Circular F.No. 194/16-17 IT (AI) ..." "... It is quite apparent that their Lordships have not disapproved the practice of collecting funds through donations, gifts, etc., as long as these were ploughed back into the system itself i.e. of imparting education - no distinction was drawn between donations which were voluntary or otherwise as has been done by the Id. Judicial Member ..." ITO vs. Model Institute of Education & Research - 77 ITD 375 "... Whether basic test for determining whether institution exists for profit is application of profit and in instant case application of profit in shape of excess of income over expenditure by and large was for purpose of education - held, yes ..." "... The institution might have had profit which was in the shape of excess of income over expenditure. If such excess called profit was distributed to the persons without any consideration then under those circumstances, it would be held that the institution was for the purpose of profit. If the excess over expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pex court, jurisdiction Madras High Court and other courts, we hold that, alternatively, the assessee is entitled to exemption u/s 11(4A), even in the event of its activity of running an education institution is categorized as a 'business'. e) Corpus donation received cannot be treated as capitation fee and therefore assessee cannot be denied benefit under section 11. "41. As regards Corpus donations/capitation fees, the ld. AR submitted that on first principles, a donation towards the corpus fund is a capital receipt. Hence, he submitted that even in the absence of any specific provisions, a corpus donation is a capital receipt outside the ambit of 'income'. He relied on the following decisions: Kilachanf Dev Chand Foundation vs. CIT - 172 ITR 382 (BOM); CIT vs. Vanchi Trust - 127 ITR 227 (KER); CIT vs. Bal Utkarsh Society - 119 ITR 137 (GUJ) He further submitted that a donation may be identified as a corpus donation - * from the intention of the donor expressed in writing or implication from its treatment in the accounts of the donee and * manner of utilization by the donee 42. It is claimed that corpus fund donations have a specific written direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es on the person alleging" as held in CIT vs. Daulatram Rawatmull 87 ITR 349 (SC) deserves acceptance. As we find that the Revenue has not discharged this onus and has merely made allegations, we hold that the taxation of corpus fund donations received Rs. 1,26,50,000 as capitation fees is without any basis. 45. The ld. AR relied on a line of cases which have held that collection of donation by an institution cannot be said to be with a profit motive. DIT vs. Bagh Mutual Aid Education - 298 ITR 190 (DEL) DIT vs. Andhra Educational Society - 155 Taxman 157 (DEL) "... Donations and had applied entire funds for educational purposes in accordance with its objects and held that it was entitled to exemption under section 10(22) ..." Shanthi Devi Progressive Education Society vs. ADI - 68 ITD 1 (DELTM) "... Exemption was denied for assessment year 1993-94 on ground that it was collecting admission fee, donation and loans and thus had been a society for profit and not solely for educational purpose - whether since assessee had been doing these activities right from beginning and same was within powers given in memorandum, there was no reason to object to such collections - since Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion had no claim or right to the recurrence of the contributions with unfailing regularity and in those circumstances, the contributions were non recurring in character and could not be regarded as income". 48. We find direct support to the aforesaid construction of the term `voluntary' in Abdul Salam vs UOI AIR 1969 All 223 - at 228 where, the meaning of the term has been explained as under: "Means doing of something as the result of free exercise of the will, but not something done under a legal duty." 49. Even de-hors the above judgments we fail to see as to how a donation, even if paid at the time of admission, and for the purpose of securing admission into the assessee's institution can be said to be not 'voluntary'. After all, educational institutions have proliferated in the past 2 decades on account of the Government's initiative to rope in the private sector to perform its constitutional obligation of providing education to its citizens. Hence, a student or his parents have the right of choosing the educational institution and can never be compelled to choose a particular institution or pay donation for securing admission into such institution. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution and Laws of the United States. By John Bouvier. Published The Oxford Dictionary defines `contribution' as: "a sum of money that is given to a person or an organization in order to help pay for something - contribution (to something) a sum of money that you pay regularly to your employer or the government in order to pay for benefits such as health insurance, a pension, etc. - monthly contributions to the pension scheme National Insurance contributions - contribution (to something) the act of giving something, especially money, to help a person or an organization; `Donation' is defined by the Oxford Dictionary as: "something that is given to a person or an organization such as a charity, in order to help them; the act of giving something in this way" 50. On reading the above two terms, it appears to us that - 1. Contribution' is a term of wider import than 'donation' and it includes 'donation'. 2. While 'contribution' may have quid pro quo, a donation does not have quid pro quo. 3. 'Contribution' may be either 'voluntary' or under a legal or contractual obligation, but a 'donation' can only be 'volu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be capital receipts on first principles. As contributions pursuant to legal or contractual obligations are income on first principles, there was no need to specify such contributions in the definition aforesaid. In this regard, the decision in the case of CIT vs. Hyderabad Race Club Charitable Trust, 262 ITR 194 (AP) is revealing. In that case the Hon'ble Andhra Pradesh High Court, after examining the meaning of 'contribution' has held that, even the income from licensing of racing and betting can be "voluntary" 'contribution' within the meaning of sec. 12. This judgement directly endorses the meaning that we have understood in the above para. The Bombay High Court in the case of CIT vs Trustees of Visha Nima charity trust 138 ITR 564 (Bom) held that Sale proceeds of tickets for an entertainment show and advertisement charges for a souvenir are `voluntary contributions' u/s 12(1). 53. In the case of CIT vs. Sri Billeswara Charitable Trust - 145 ITR 29 (MAD) it has been held in page 29 - "........ When Parliament speaks of income derived from voluntary contributions, which voluntary contributions are ordinarily windfalls, the legitimate implication to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contributions" has been avoided and voluntary contributions are straight away deemed to be income. This shows that but for the deeming, those would not be taxable gesture of parliamentary alms giving to charities. The section now keeps out only voluntary contributions tied up with a direction that the charity must use it as part of the trust corpus. For the rest, what is undoubtedly nonincome, is now deemed to be income on the basis of precedents, which Parliament had take advantage of to cut down the amplitude of exemption from taxation enjoyed by the charities..." . 54. Per Page 783 of Volume 783 of CORPUS JURIS SECUNDUM: "However, the expression "Donation" is not equivalent to "Gift"; but a donation .... need not have all of the essentials of a gift. 55. Thus, a Gift must be without a consideration, but a donation may be for a consideration; and a Gift must be entirely executed, while a Donation need not be. The term Donation is more aptly used to describe that which is given to a public cause or charity than to indicate a bounty to an individual (CORPUS JURIS SECUNDUM, VOL. 38, PAGE 783). 56. Viewed in this perspective, we have no doubt in our mind that the 'corpus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the prerogative of deciding and registering a trust as 'charitable' or 'religious' vested with the Commissioner of Income Tax at the threshold level of granting registration u/s 12A / 12AA. It was further submitted that once the trust is registered by the CIT under a particular category, the process of definition and classification of the activity ceases and that thereafter the Assessing Officer is not empowered to review the decision making in the domain of the higher authority - the Commissioner of Income Tax. The aforesaid submission was reinforced by the ld.AR by relying the following cases: ACIT vs. Surat City Gymkhana - 300 ITR 214 (SC) "... Charitable trust - registration - further probe into objects after registration - not permissible ..." "...The registration of a trust under section 12A of the income tax act, 1961, once done is a fait accompli and the Assessing Officer cannot thereafter make further probe into the objects of the trust ..." Hiralal Bhagwati vs. CIT - 246 ITR 188 (GUJ) "... Once the registration under section 12A(a) of the Act was granted, the income tax officer was not justified in refusing the benefits on the ground that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12AA was available with the Assessing Officer ..." 60. The ld. AR further submitted that the power/duty of the Assessing Officer during assessment are as under: (i) To determine whether the required % of income has been applied / accumulated in accordance with sec. 11; (ii) To determine whether conditions laid down in sec. 12A have been complied with and (iii) To determine whether sec. 13 has been violated. It was submitted that the Assessing Officer cannot travel beyond the aforesaid functions and usurp the powers of the Commissioner of Income Tax, to determine as to whether the activities of the trust are charitable. 61. As this submission by the ld. AR is on the basis of the direct decision of the Apex court in ACIT vs. Surat City Gymkhana - 300 ITR 214 (SC), apart from the other decisions on this issue cited above, we respectfully follow the decision of the Apex court and hold that the Assessing Officer has no power to determine whether the activity of the assessee was charitable in nature and therefore, even on this score the denial of exemption u/s 11 by holding that the activity of the trust was not charitable deserves to be rejected. 62. For all the reasons a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he charitable institutions. In fact, sustenance of the institutions depends on the donations received as charity. d) Page no.91 to 98 refers about the name of candidates and the name of the persons who have referred the candidates. In the remarks column, it is mentioned "To Pay, NRI quota, Nil etc. This also does not conclusively prove that the assessee is receiving donation by force or capitation fee. e) Page No.99 to101 contains details of admission such as merit candidates, NRI candidates, management quota admissions etc., this also does not suggest any violation of law. f) Page 102 to 109 contains Xerox copy of the management admission register of post-graduation courses. In one column we find reference of figures such as 1.5, 0.5, 6, 4 etc., which may suggest that Rs. 1,50,000/- , Rs. 1,00,000/- etc., are amount receivables but that is also not a conclusive proof for receipt of capitation fee. g) Similar Xerox copy of registers pertaining to management admission for PG courses are found in the pages, 110 to 139, 140 to 169 of the paper book from which no conclusive adervese inference can be made out. i) Page no.170 to 175 also refers to payment such as Rs. 8,00,000/- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and they are reproduced herein below for reference. i) In CIT Vs. Balaji Educational & Charitable Public Trust (Mad) reported in 374 ITR 274, the Hon'ble Madras High Court held as follows:- "Held, dismissing the appeal, (i) that the Commissioner (Appeals) and the Tribunal had come to the conclusion that the donations received did not partake of the character of capitation fee. There was no element of involuntary nature in the donations. A specific finding was given that no investigation had been done to show that any parent or student had complained about the nature of the donation. The Department had failed to dispel the finding of fact. For the assessment years 2002-03 and 2003-04 as the Chief Commissioner having jurisdiction over the case had notified under section 10(23C)(vi) there was no applicability of section 11 or section 13 in those two years. The Department had not produced any evidence of breach of section 10(23C)(vi) of the Act and, therefore, the assessee-trust would be entitled to the benefit of exemption contained therein. The Department had proceeded on a wrong premise without any basic materials to establish a case of violation of section 13 of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EDUCATIONAL INSTITUTE [2008] 301 ITR 86 (SC) would apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit. The thirteenth proviso to section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn." 19. Based on our above discussions, the facts of the case and the decisions cited by the learned Assessee's Representative, we hereby hold that the same decision of the earlier Order of the Tribunal in ITANo.1332/Mds/2010 and C.O.No.94/Mds/2010 for the assessment year 2001-2 will prevail for the assessment years 2002-03, 2003-04 and 2004-05 also, which is as follows:- a) "Corpus donations" received by the assessee cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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