TMI Blog2016 (6) TMI 1336X X X X Extracts X X X X X X X X Extracts X X X X ..... donations” received by the assessee cannot be treated as “capitation fees” and the surplus earned cannot be treated as “income from business”. The employees of the assessee could not have knowledge on the assessee’s affairs. By earning surplus, it cannot be said that the assessee is carrying on business activity.The assessee is entitled to the benefit of section 11(4A) of the Act. Corpus donation received cannot be treated as capitation fee and therefore assessee cannot be denied benefit under section 11. Accordingly, we hereby direct the learned Assessing Officer to grant the benefit of section 11 to the assessee and delete the addition made by denying such benefits for all the relevant assessment years 2002-03, 2003-04 & 2004-05. - Decided in favour of the assessee. Maximum marginal rate of tax as per section 164(2) of the Act, interest under section 234A & 234B and change in method of accounting by Revenue from cash basis to mercantile basis - Held that:- Since we have held that the assessee is entitled to the benefit of section 11 of the Act, the issue with respect to levy of tax at maximum marginal rate under section 164(2) of the Act will not arise in the case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3. The assessee has raised several grounds in its appeals, however, the cruxes of the issues are identical and concised herein below for adjudication:- i) The learned Commissioner of Income Tax (Appeals) has erred in upholding the validity of notice under section 153A of the Act dated 23.9.2008 and consequent assessment as the said notice is illegal and non-est in the eye of law and therefore liable to be quashed. ii) The learned Commissioner of Income Tax (Appeals) has erred in denying exemption under section 11of the Act on the basis of mere suspicion, surmises and conjectures without any factual material, information or even an iota of evidence relating to the assessment year 2002-03, 2003-04 2004-05. iii) The learned Commissioner of Income Tax (Appeals) has erred in confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 this regard, I have perused the records and found that a warrant of authorization was issued by the DIT(Inv) Chennai to carry out the search action in the appellant s case. Accordingly, search action U/s.132 of the Act was carried out on 6.6.2007. The provisions of section 153A require the Assessing Officer to issue notice under section 153A when a search is initiated U/s.32 of the Act. It does not contemplate the seizure of documents or the outcome of such seizures to have a bearing in the assessment, in contrast to the erstwhile section 158BBC. Hence, the contention of the appellant is rejected. As a result, the notice under section 153A and consequential assessments are valid in law. Therefore, the grounds raised in this regard are dismissed. 7. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 income due to furnishing of incorrect particulars. Therefore, as pointed out by the learned Departmental Representative and the decisions relied upon by him, we find that issuance of notice under section 153A in the case of the assessee is valid in law for all the three assessment years. Accordingly, this ground raised by the assessee is devoid of merits and accordingly dismissed for all the three assessment years. Ground Nos.2 3 : Denial of exemption under section 11of the Act by treating the donation received as capitation fees : 10. As the result of the materials seized in the search operation in the case of the assessee and the relevant proceedings the learned Assessing Officer came to the conclusion that the assessee trust is engaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn statements recorded on 6.6.2007 from Mr. V.Sankar, Pro-Chancellor, son of Mr. Viswanathan, Managing Trustee, he has admitted for receiving ₹ 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.Vijayakumar, Secretary to Prochancellor recorded on 6.6.2007 also reveals that the institution is collecting capitation fee from the students. xi) The statement recorded from Mr.James Jebaseelan, Admission Officer on 6.6.207 revels that in the case where students who do not get 60% in HSC the donation received are refunded when asked for and in cases where the student withdraws on his own even after securing 60% in HSC their donations are not refunded. It was also revealed that the assessee has signed MOU with Brakes India Ltd., TVS group for sponsoring their candidates in the course conducted by them. xii) The statement recorded from Shri D.Prakash, Finance Officer dated 7.11.2007 shows that the lump sum payments received are not ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has paid ₹ 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- 2007 VIT-lB u/s133A f.S Mohan, F /0 Pradeep , 06-06-2007 VIT-IB u/s133A g. Letter dated 15-8-2007 from S S Malik that the institute receives capitation fee. 30. From the above the following features are noticed as far as donations are concerned: The lump sum payments received are from parents I relatives of the student/from some sponsor which may be a concern or an individual. The sum is at a fixed rate according to the branch of study ie. higher rate for courses in demand and lower rate for courses not in demand. The sums are received in the course of admission process. It is not received; (throughout the year. Whatever-is received after the closure of admission are donations recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greeing 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 by key personalities and the donation required to be paid in such cases (ANN/MR/B D/S-8 9 - financial year 2005-06 2006-07, 34-academic year 2006-07 2007-08, 24-financial year 2007-08 and cash donations received from parents for the financial year 2003-04 and details of refund of alleged donations -ANN/MR/B D/S-28 to 31- financial year 2005-06 to 2007-08. xv) The donations received from individuals were identical according to the different category of courses offered and could be grouped and arranged in ascending / descending order. xvi) The assessee was not able to furnish proper explanation for the defects, omission and commission pointed out by the learned Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 not producing these people for personal examination, no meaningful verification could be conducted as desired by the CIT(A). Under the circumstances, considering the elaborate reasoning and evidences based on which the addition is made in the assessment order, the assessee s contention at the appellate stage deserves to be rejected. iv) From the above remand report, the learned Commissioner of Income Tax (Appeals) arrived at the following conclusion:- a. The assessee failed to produce the persons who have furnished the affidavits stating that they have not paid any donations pertaining to the relevant assessment years under these appeals. b. Since the persons who filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 rate of tax applicable will be at the maximum marginal rate. Thus, the learned Commissioner of Income Tax (Appeals) confirmed the order of the learned Assessing Officer. 12.3. The learned Authorized Representative vehemently argued before us stating as under:- a. The Managing Trustee of the trust in question No.4 (pages 1 to 4 of the paper book filed by the Department) has categorically denied that there is no payment of capitation fees in admitting students under management quota. Further he has stated that the Central Govt. guidelines fixes fee for NRI students and the trust only receives such fees. Donations are received from only industries and industriali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Institution vs. CIT reported in 224 ITR 310, the Hon ble Supreme Court has categorically held that when the surplus is ploughed back for educational purposes then it should be considered that the educational institute exists only for educational purpose and not for generating profit. i. Reliance was also placed in the CBDT circular F.No.194/16-17-IT(AI) wherein it is stated that when the surplus of the trust is used only for running the educational institution, then the institution should be construed to be existing for the purpose of education and not for the purpose of profit and thereby eligible to the benefit under section 10(22) of the Act. 12.4 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TD 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 statutory exemption under section 11(1)(a) of the Act is not the income earned from the property held under the trust but actual application of the said income for religious and charitable purposes. 12.9 The learned Authorized Representative once again vehemently submitted that for the similar decision taken by the Learned assessing officer on the earlier occasion for the assessment year 2001-02 resulting from the same action under section 132 of the Act and the same seized materials, the Learned CIT(A) and the Hon ble Tribunal in ITA No.1332/Mds/2010 - C.O.No.94/Mds/2010 has held the issue in favour of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a punishable offence. ii) Islamic Academy of Education Vs. State of Karnataka reported in 6 SCC 697(SC) wherein directions were given to the State Govts. to constitute a committee headed by a retired High Court judge for prescribing fee structure in professional colleges. The Apex Court further held that if any amount is charged other than the fee prescribed by the committee under any head the same would amount to capitation fee. Therefore, collection of money over and above the fee prescribed by the committee would amount to collection of capitation fees. f) The 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Surplus Corpus fund donation Total surplus 2000-01 51932115 59765000 57908615 1999-00 27155378 55006760 82162138 1998-99 19985049 35408920 55393969 3. Investigation during and subsequent to the search disprove the claim of the appellant that the donations were voluntary contribution towards corpus fund and prove that donations were, in fact and substance, only capitation fees collected in violation of the laws of the state. 4. The appellant has been charging very high fees from students and making various recoveries much above its costs of operation as is evident from huge 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as a charitable trust . 17. Though the Assessing Officer has concluded that the appellant is engaged in the activity of education as business, no evidence has been shown to support such a conclusion. While an adverse inference on the genuineness of the donations made by Shri Gopinath or by others who were not found in the addresses given or who have not responded to the questionnaires of the AO may be made no positive inference can be made that the corpus donations were nothing but payments received for admissions given in return by a quid pro quo. Details of admission procedures given by the appellant clearly show that the appellant did not have much discretion in making the admissions so that it could collect capitation fees for the admissions. 18. The burden is on the appellant to show that he is eligible for exemption u/s 11. The appellant has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in holding that the assessee has discharged its burden regarding proving the claim u/s 11 without considering that the assessee has delayed furnishing the list of donors for the relevant year especially when the A.O. has proved the facts for the later assessment years. 1.d. The learned Commissioner of Income Tax (Appeals) has erred in holding that the details of admission procedures given by the appellant clearly show that the appellant did not have much discretion in making the admission so that it could collect the capitation fee for the admission which is contrary to the established fact and evidence available on record especially when the management had sufficient flexibility in admitting the students under the management quota, the seats were literally sold and the alleged donations were also refunded without proper and valid reason. 1.e. The learned Commissioner 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remaining 50% falls under Payment seat category which attracted a much higher fee of ₹ 47200/-. The reason for narrating the above facts is to appreciate the bigger picture in the field of education in our country. Traditionally education and health were considered the exclusive obligations of the State and was expected to be provided free of cost; subsidized rates or, at cost, to the different segments of the society, depending on their need for support from the State. However, over a period of difficult financial times, and population explosion, when the State was unable to find the necessary resources to discharge its traditional or constitutional obligations, the State found new ways of catering to its citizens in the fields of education and health. One of the ways is what is popularly called as Public private partnership in which the State's function is outsourced to the private sector. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipate or gain distribution of the surplus and the entire surplus is only applied or accumulated for charitable purposes, then occurrence of the surplus will not in any way militate against the claim of Charitable nature of the institutions or make it a commercial venture - CIT vs Pulikkal Medical Foundation Private Limited 210 ITR 301 (Ker). 16. We find from clauses 19 and 20 of the trust deed placed at pages No.6 to 17 of the statement of facts that, there is an absolute embargo on any benefits or remuneration to the trustees or their relatives. It is not also the case of the Revenue that any such benefits have been conferred by the assessee during the year. Hence, for this reason too, the occurrence or recurrence of surplus of the assessee through its educational activity will not affect its eligibility for being considered as a charitable trust entitled to exemption u/s 11. Similarly, the assessee'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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2001-02. c) By earning surplus, it cannot be said that the assessee is carrying on business activity. 23. Not being content with defending the order of the ld. CIT(A) restoring the exemption u/s 11 and assailing the Revenue's grounds of appeal, the ld.AR advanced erudite arguments on law to justify the grant of exemption u/s 11 which are dealt with hereunder: I. Exemption not anathema to Surplus arising out of charitable activity - if surplus is applied for charitable purposes. a. That the Revenue is importing the language of sec. 10(22) (deleted on 1.4.1999) that the educational institution should exist solely for education purposes and not for purposes of profit into sec.11 which has no such conditions and therefore, the generation of 'surplus' within the frame work of regulations of the competent authorities cannot be construed as a 'business' activity or 'profiteering' 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as found that the 'institution' existed for educational purposes in the relevant year and even if any profit resulted which was only incidental to the purpose of education, the income would be... . American Hotel Lodging Association Educational Institutes vs. CBDT - 301 ITR 86 (SC) ...The mere existence of profit / surplus did not disqualify the institution ... . ACIT vs. Surat Art Silk Cloth Manufacturers Association - 121 ITR 1 (SC) - 5 member bench ... Not involving any activity for profit - meaning and scope ... ... So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be - it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not ... CIT vs. Indian Institute of Computer Technology - 244 ITR 371 (KER) Birla Vidya Vihar Trust vs. CIT - 136 ITR 445 (CAL) ... 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (BOM) 25. On a thorough reading of the judgments relied on, extracts from which are given above, we find that they apply in greater force to the assessee, whose claim for exemption is u/s 11, although most of the judgments have been rendered under sec.10(22). We notice that, while sec 10(22) had an express condition that the institution should exist not for purposes of profit sec.11 does not impose any such condition. If the incidence of profit is not an impediment for allowing exemption u/s 10(22), as decided by the above line of cases and CBDT Circular, we fail to see the Revenue's claim that the surplus would militate the assessee's claim for exemption u/s 11. We therefore, hold that the incidence of surplus during the course of activity of running the educational institution would not be a ground to state that the assessee is carrying on a business activity so as to forfeit exemption u/s 11. II. Application of Doctrine 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of charitable purpose satisfied by proof of any of the three conditions of relief of poor, education or medical relief.... DIT vs. Garden City Educational Trust - 330 ITR 480 (KAR) ... so long as a trust has education as one of its objects which is one of enumerated heads which qualifies and comes within scope of charitable purpose as enumerated in section 2(15), it has to be accepted that trust is having a charitable purpose as its object and may qualify for claiming exemption in terms of sections 11 .... Gaur Brahmin Vidya Pracharini Sabha vs. CIT - 304 SOT 371 (DEL) ... Imparting of education is a charitable purpose as defined in section 2(15), irrespective of the fact that the assessee charges fee for imparting education - there is no condition that to become a charitable purpose, education should be imparted free ... ITO vs. Kaushalya Medical Foundation - 31 SOT 119 (MUM) ACIT vs. Graphic Era Educational Society - 108 TTJ 608 (DEL) ... 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 Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deny exemption u/s 10(23C) on account of objects not considered as `educational' by it. No doubt the assessee became a `Deemed University' only from the following year. However, we are noticing this decision only for the purpose of reinforcing our finding that assessee was only engaged in the activity of education, which, per se, is a charitable purpose u/s 2(15). 30. As regards 'Education is NOT business', it was submitted before us, again, in our opinion rightly so, that 'education' can never be a business and that it was so held by the Apex court in the 5 Judges Bench in Unnikrishnan J.P. vs. State of Andhra Pradesh and others 1993 AIR 2178 - that imparting education cannot be trade, business or profession .... it may perhaps fall under the category of occupation ... . The above ratio that education is an 'occupation' was reaffirmed in the 11 Judges bench of the Apex court in T.M.A. Pai Foundation and others vs. 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KAR) 36. In the assessee's case, it is not the case of the Revenue that income has not been 'applied' for charitable purposes. We have held above that 'education' per se is a charitable purpose. The assessee's only source of income is the surplus arising from operating the educational institution, which is 'income derived from property held for charitable purposes'. 37. In the light of the aforesaid decisions of the Apex court, we have no hesitation in holding that as more than 75% of the income from property held for charitable purposes has been applied by the assessee for the educational institution of Vellore Engineering College, its entire income (regardless of the manner in which it was derived or head under which it is computed) is exempt u/s 11. 38. The ld.AR has made an alternate submission, after being careful to state that he was not admitting or conceding the contention of the Revenue that, even if the activity of education 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 submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d towards the attainment of the objectives - held that it is irrelevant if the business is run on a commercial expediency with a profit motive... ... We are of the view that when a business income is used towards the achievement of the object of the trust it would amount to incidental to the achievement of the object of the trust notwithstanding the profit and gain involved therein... CIT vs. Janakiammal Ayyandar Trust - 277 ITR 274 (MAD) ... Charitable purposes - charitable trust - exemption - businesses - effect of sub-section (4A) of section 11 - income of business applied for purposes of trust - income entitled to exemption - income tax act, 1961 sec. 11(4A) ... ...Effect of Supreme Court decision in Asst. CIT vs. Thanthi Trust (2001) 247 ITR 785 ... ... Supreme Court observed the scope of sub-section (4A) of section 11 of the income tax, as amended in 1992, is more beneficial to a trust or institution than the scope of the sub-section before the amendment. As it 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e institution was run for purpose of profit so long as no person or individual was entitled to any portion of the profit and the said profit was utilized for the purpose and for the promotion of the objects of the institution ... CIT vs. Kshatriya Girl Schools Managing Board - 245 ITR 170 (MAD) Shanthi Devi Progressive Education Society vs. ADIT - 68 ITD 1 (DEL-TM) ... Assessment year 1993-94 - Assessee society, running two schools, was granted exemption under section 10(22) till assessment year 1992-93 - 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 - held, yes - since Revenue could not point out any case where any part of profit / income was diverted for purpose 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be changed in absence of any strong factual or legal grounds ... If the profits or income of trade or business is devoted towards charitable purpose and no part thereof is distributed among the members as dividends or bonus, then that trade or business is a means to an end. It is charity The essential test of a charitable purpose is the destination of profits if the profits continue to feed the charity, the mere occurrence of profits would not detract from the charitable nature of the enterprise CBDT circular No. 642 dt. 15.12.2002 also reinforces the assessee's submission in the following words: ..... it is clarified .... w.e.f. 1st April 1992, profits and gains of business in the case of a trust or institution will not be liable to tax if the business is incidental to the attainment of the objectives of the trust or institution. 40. In the light of the aforesaid circular conceding the position in law in favour of the assessee and the aforesaid line of decisions of the Apex 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 educ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etracted. Be that as it may, the fact remains that neither Sri V. Sankar nor Sri R. Vijayakumar were either employed or occupying any official position in the Trust during the year relevant to assessment year 2001- 02 and therefore, their statements have no evidentiary value for assessment year 2001-02 and are therefore, disregarded. 44. The assessee further claimed in its written submission that neither before nor after the Tamil Nadu Educational Institutions (Prohibition of collection of capitation fee) Act, 1992 and till the date of hearing, the assessee has ever been complained against or issued any notice for violation of the said Act. In the absence of any such accusation either in the assessment order or rebuttal by the ld.DR, we are inclined to accept the statement, especially since the assessee's reputation of an institution of renown is well known and accepted in many parts of the country. Assessee's submission that the onus of proving that the apparent state of affairs is not really lies 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission of the ld. AR, again wearing the hat of caution by stating that without admitting or conceding that, even if the corpus donations received are indeed capitation fees, as more than 75% of that amount has also been applied for charitable purposes, the said donations would still be exempt u/s 11 (1)(a). As we have already held that the corpus fund donations received cannot be treated as capitation fees and as the factual matrix of the details are not available, we refrain from expressing our decision on this issue. The ld. AR then advanced an interesting argument on the interpretation of 'voluntary' by relying on the decision in CIT vs. Bengal Mills and Steamers Presbyterian Association 140 ITR 586 (CAL) that, in the absence of a legal right to collect donations by the assessee and an enforceable obligation to pay the donations against the donor, all donations received by the assessee are only 'voluntary'. Under these circumstances, it was held by the Calcutta High Court that, as ... the association had no claim or right to the recurrence of the contributions with unfailing regularity and in those circumstances, the contributions were non recurring in characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt. 2. The right of a joint tortfeasor who has paid more than her proportionate share of a judgment to recover the amount in excess of her share from the other tortfeasors. 3. The right of a joint tortfeasor to demand that the other tortfeasors supply their proportionate share of what is required to compensate the injured party. 4. A payment made by a co-debtor or joint tortfeasor of her proportionate share of what is due. See also indemnity. Webster's New World Law Dictionary Copyright 2010 by Wiley Publishing, Inc.,Hoboken, NewJersey. Used by arrangement with John Wiley Sons, Inc DONATION, contracts. The act by which the owner of a thing, voluntarily transfers the title and possession of the same, from himself to another person, without any consideration; a gift.(q.v.) A donation is never perfected until it is has been accepted, for the acceptance (q.v.) is requisite to make the donation complete. Vide Assent, and Ayl. Pand. tit. 9 Clef des Lois Rom. h.t. A Law Dictionary, Adapted to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsistence in a self- determined course of action: a willful waste of time. Willing suggests ready or cheerful acquiescence in the proposals or requirements of another: The first requisite of a good citizen ... is that he shall be able and willing to pull his weight (Theodore Roosevelt). The American Heritage Dictionary of the English Language, Fourth Edition copyright 2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved. 52. When we read sections 2(24)(iia), 11(1)(d) and 12(1) using the phrase 'voluntary' contribution in the light of the plain English meanings of the aforesaid terms, the wisdom of the legislature in qualifying the term 'contribution' by 'voluntary' becomes crystal clear. As explained above, since 'contribution' may be either 'voluntary' or under a legal or contractual obligation, the statute has prescribed that 'voluntary contributions' will be deemed to be income - Otherwise, such contributions will be capital receipts on first principles. As contributions pursuant to legal or contractual obligations are income on first principles, there was no need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, there is no need to exempt them or to exclude them from the total income. They stay out on account of their innate character as non-income. What sec. 12(1) meant before its amendment in 1972 was that while voluntary contributions are non-income, even what is undoubtedly income of charities, is not to be charged to tax, if the source of such income is traceable to voluntary contributions. To put it differently, Parliament was extremely charitable to charities. That was the liberality of sec. 12(1) of the Act, as it stood prior to April 1, 1973, that voluntary contributions are non-income and even income derived from such contributions are exempt from tax in certain circumstances went unnoticed and was lost sight of. Added to this, section 12(1) had also been interpreted in such a manner and in a slanting fashion as well, with the result that advantage was taken of it to put down in the statute book the receipt theory about voluntary contributions. Under the present section, the expression income .....derived from voluntary 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s decision, it was submitted that even assuming, without admitting that the corpus donations were received at the time of admission, the fact that it was received with a specific written direction from the donor that the donation was towards the corpus fund of the trust followed up by the factum of actual application of the donation for the capital purposes of the trust would, by virtue of the ratio of the said judgment would take the corpus donations received outside the ambit of income being a capital receipt. As this attractive argument is fortified by the aforesaid decision of the Apex court, we accept the same and hold that, even on this score, the corpus donation received cannot be treated as capitation fee receipt. 59. Regarding Assessing Officer's power to determine whether trust is charitable, it was submitted that once the trust is registered u/s 12A, the Assessing Officer has no loco-standi to decide as to whether it is 'charitable' or otherwise. Explaining the scheme of assessment of trusts, it was contended that the prerogative of deciding and registering a trust as 'charitable' or 'religious' vested with the Commissioner of Income Tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be denied exemption in respect of income on the ground that it is not a charitable institution ... Calicut Islamic Cultural Society vs. ACIT - 28 SOT 148 (COCH) ... Once the registration is granted to the assessee by the Commissioner of Income Tax, Assessing Officer cannot go into probing the objects and the purposes of the trust or institution and that is within the exclusive domain and jurisdiction of the Commissioner of Income Tax. What Assessing Officer can do that he can at the most investigate the matter within the four corners of sec. 13. In this case the Assessing Officer has gone with investigating and probing the basic objects of the trust by entering into shoes of the Commissioner of Income Tax and such exercise is not permissible ... ITO vs. Baba Dhall Educational Society of India - 27 SOT 391 (DEL) ...Once registration was granted by the CIT under sec. 12AA, it could not be said that the objects of the trust were not charitable - on the date when assessment was framed, the order of CIT registering the trust under sec. 12A / 12AA was available with the Assessing Officer ... 60. The ld. AR further submitted that the power/duty of the Assessing Officer during as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he coordinate Bench of the Tribunal mentioned supra. 16. Further, we find in the paper book filed by the learned Departmental Representative containing 1 to 270 pages that:- a) In page no.124 sworn statements of the parents / officials of the trust are enclosed and they were taken into consideration while deciding the issue by the Tribunal for the assessment year 2001-02. Moreover the Revenue itself has admitted that most of the parents have retracted their statements. The grievance of the Revenue is that the assessee has not produced those parents before them but the fact remains that the Revenue has failed to invoke their powers to summon them to find out the truth. b) Page no.85 to 89 refers to seized materials showing payment of ₹ 8,00,000/- for granting admission on agreed basis. From these letters it cannot be conclusively said that they are capitation fees or forced payments for admissions, though an air of suspicion may arise. c) Page no.90 refers to list of donations paid as cash by parents. Donations are not prohibited to be collected by the charitable institutions. In fact, sustenance of the institutions depends on the donations received as charity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ox copy of letters from parents regarding payment made for tuition fee, hostel fee, advance and donations. Again these do not suggest that the assessee is receiving capitation fees. 17. The above paper book filed by the Revenue has also been taken into consideration by the Tribunal while deciding the appeal for the assessment year 2001-02. Further, on perusing the above mentioned paper book filed by the learned Departmental Representative, we are of the considered view that based on surmises and conjectures, it cannot be presumed that the donations received by the assessee are capitation fees or forced extortion of money from the students for granting admission. Therefore, even though the learned Departmental Representative has cited certain search materials belonging to relevant assessment years in para no.13 hereinabove to establish that the assessee was collecting capitation fee, we do not find any merit in the same. 18. Further, we find the decision of the Hon ble jurisdictional High Court and the Hon ble Apex Court cited by the learned assessee s Representative to be very much relevant and they are reproduced herein below for reference. i) In CIT Vs. Balaji Educationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year in question the object is to make profit as opposed to educating persons. These tests would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit. ADDL. CIT v. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC),ADITANAR EDUCATIONAL INSTITUTION v. ADDL. CIT [1997] 224 ITR 310 (SC) and AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE v. CBDT [2008] 301 ITR 86 (SC) applied. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit. S. RM. M. CT. M. TIRUPPANI TRUST v. CIT [1998] 230 ITR 636 (SC) relied on. The tests laid down in SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC), ADITANAR EDUCATIONAL INSTITUTION [1997] 224 ITR 310 (SC) and AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE [2008] 301 ITR 86 (SC) would apply to determine whether ..... X X X X Extracts X X X X X X X X Extracts X X X X
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