TMI Blog2020 (1) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... ime fee could not be linked with the services rendered to the members. For the reasons set out above, we therefore hold that the assessee society had received contribution towards development fund from the students, apart from the tuition fees, with the clear understanding that it shall be solely used for creation of capital asset necessary for achieving the educational objects of the assessee society and therefore formed part of the corpus and therefore, not in the nature of revenue receipts. The AO is accordingly directed to re-compute the income of the assessee society after excluding the development fees from the purview of Section 11. Disallowing the claim of depreciation by way of application of income of the assessee society - HELD THAT:- We do not countenance the action of Ld. CIT(A) on the simple ground that the claim made by the assessee for depreciation for the year under consideration is no longer resintegra since the Hon'ble Supreme Court in the decision in CIT Vs. Rajasthan Gujarati Charitable Foundation [2017 (12) TMI 1067 - SUPREME COURT] upheld the action of the Hon'ble High court, which in turn upheld the action of Tribunal, allowing the depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income. On examination of accounts, the AO observed that the assessee had received development fees for ₹ 19,39,000/- which the assessee had capitalized in the development fund account. According to AO, since the development fee was received from students, it was revenue in nature and therefore formed part of the income of the assessee Society for the relevant previous year. Since the assessee had not included the development fees by way of its income in the Income Expenditure Account and/or in the computation of total income filed along with the return, the AO required the assessee to explain as to why such amount shall not be treated as its income chargeable to tax for the relevant previous year. The reply furnished by the assessee is reproduced hereunder: The development fund is required to be used by the school authority for development of educational institutions in the form of capital expenditure and long term benefit. The nature of receipt is altogether different from any other fees or collection received from students. In respect of other fees and collections from students the school authority has unrestricted powers to make use of such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, intention and nature of the voluntary contribution. The AO observed that the characteristics of income are that, it is a periodical monetary return coming in with regularity or at least expected regularity. Whereas, the corpus donation is a bilateral contract where the donor expresses the intention that donation will form part of the corpus or capital of the trust and the donee accepts it subject to the condition. According to AO, in the facts of the present case, this characteristic is completely absent as there is no written direction of the students that the fees are paid towards the corpus of the institution. The AO thus concluded that both the contentions of the assessee i.e. fees were capital in nature and made with a specific direction, failed and, therefore, he treated the amount of ₹ 19,39,000/- collected as development fees by way of undisclosed income of the assessee for the previous year. The AO also did not allow the benefit u/s. 11 with reference to such income as according to him no income or part thereof was applied for charitable purposes, which according to him was evident from the fact that the assessee did not show such fees as its income in the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Estate v. ITO [1991] 192 ITR 615, he submitted that when the amount was contributed to the corpus of the institution and the same is kept as capital by the assessee society, then it cannot be treated as income or revenue receipt for the purpose of section 11 of the Act. Drawing our attention to the resolution dated 03.01.2000, the ld. AR contended that the amount collected from the students were only for the purpose of the development of the school and that such amount collected would be used only for the construction or development of building, library, computer up-gradation etc. and for no other purpose and hence such contribution by the students constituted capital receipt. He explained that the school run by the assessee society required at regular periodic intervals development and up-gradation for which substantial corpus was required. Upon mutual discussions held with the parents, it was agreed that instead of donating lump sum amount, they would contribute in yearly instalments towards the development fund so that the assessee society can systematically plan and carry out the development activities with the fund raised in a phased manner. According to Ld. AR, the mere mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue receipt, since the surplus of the assessee society went beyond the prescribed limit of 15% cap provided under section 11(1)(a) of the Act, the excess surplus over and above the 15% cap is liable to income-tax. 8. We have heard the rival submissions and gone through the facts and circumstances of the case. From the material placed before us, we note that the assessee society has been collecting the development funds contribution from the students in pursuance of a resolution adopted by the Trustees in their meeting held on 03.01.2000, which read as follows: Abstract of minutes of meeting Trustees of Vidya Bharati Society for Education and Scientific Advancement held on 3rd January, 2000 at Registered office in Kolkata. DEVELOPMENT FUND It was unanimously resolved that Development Fund be collected from each student of Vidya Bharati School (Mominpur) of the Trust for further development of school building and purchase of capital equipments required for various educational activities required for school purpose and as per studies curriculum. It was further resolved that development fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the nomenclature of development fee cannot ipso facto lead to conclusion that it cannot be considered to be corpus contribution. It is true that in terms of Section 12(1) read with Section 11(1)(d) of the Act, what is not includible in the total income of a charitable institution is the receipt by way of corpus donation. However the Act nowhere defines the expression or term corpus donation. However this term has been judicially interpreted by the Courts. We note that the Hon ble Karnataka High Court in the case of DIT Vs Sri Ramakrishna Seva Ashrama [2012] 18 taxmann.com 37/205 Taxman 26/[2013] 357 ITR 731 while considering the meaning of word corpus held that the donation for specific purpose must be in capital field and therefore cannot be applied for charitable or religious purpose and therefore cannot be deemed to be income derived from the property for the purpose of section 11 of the Act. In the present assessee/society s case, it is noted that in the resolution passed by the trustees on 03.01.2000 it was specifically resolved that the collection towards development fund would be used solely for development of school building and purchase of capital equipments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for rendering of educational services to students. On this premise, the lower authorities treated the collections made by way of development fees to be revenue receipt. We however note that the premise on which the lower authorities proceeded were factually wrong. We find that the development fees was collected from the students once in a year and no material has been brought on record by the lower authorities to establish that the amount was received in consideration of any service being rendered or provided to the students in lieu thereof. As such, we do not find any material brought on record by the lower authorities or before us by the Ld. DR to substantiate that the contribution towards development fund was not voluntary or that it was in exchange for the services provided by the assessee society to the payers. In this regard we may gainfully refer to the decision of Hon'ble Delhi High Court in case of DIT (Exemption) v. National Association of Software Services Co's. [2012] 345 ITR 362 wherein the Hon'ble High Court has held that onetime fee paid by members who are aware that it could be spent by assessee only towards capital purposes was in the nature of cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. For that Ld. AO Ld. CIT(A) both had erred in not allowing deduction for depreciation for ₹ 25,40,795/-. 6. For that Ld. CIT(A) had ignored the appeal order of the jurisdictional Calcutta High Court on identical facts CIT vs. Siliguri Regulated Market Committee [2014] 51 Taxmann.com 455 and followed the decision of Hon'ble ITAT Chennai, drawing reference to Section 32 of the Act in the case of charitable Trusts are highly misplaced. 7. For that your appellant assessee society craves leave to add or alter and modify the grounds of appeal before or at the time of appeal hearing. 14. Ground nos. 1 to 4 [supra] relate to the action of the Ld. CIT(A) in confirming the action of the AO in treating the receipt of development fees for ₹ 34,12,500/- as revenue receipt and assessing it by way of undisclosed income of the assessee society. After considering the rival submissions, it is observed that the issue involved in these grounds, are similar to the Ground Nos 1 to 4 of the assessee s appeal in A.Y. 2010-11. Following our conclusion drawn in A.Y. 2010-11, we allow these grounds raised by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire expenditure incurred for acquisition of capital assets was treated as application of income for charitable puruposes under Section 11(1)(a) of the Act. The view taken by the Assessing Officer in disallowing the depreciation which was claimed under Section 32 of the Act was that once the capital expenditure is treated as application of income for charitable purposes, the assessees had virtually enjoyed a 100 per cent write off of the cost of assets and, therefore, the grant of depreciation would amount to giving double benefit to the assessee. Though it appears that in most of these cases, the CIT (Appeals) had affirmed the view, but the ITAT reversed the same and the High Courts have accepted the decision of the ITAT thereby dismissing the appeals of the Income Tax Department. From the judgments of the High Courts, it can be discerned that the High Courts have primarily followed the judgment of the Bombay High Court in 'Commissioner of Income Tax v. Institute of Banking Personnel Selection (IBPS)' [(2003) 131 Taxman 386 (Bombay)]. In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held that income of a Charitable Trust derived form building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. In view of the aforestated judgment of the Bombay High Curt, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Department. 4. Question No. 2 herein is identical to the question which was raised before the Bombay High Court in the case of Director of Income-tax (Exemption) v. Framjee Cawasjee Institute [1993] 109 CTR 463. In that case, the facts were as follows: The assessee was the Trust. It derived its income from depreciable assets. The assessee took into account depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt (supra), we hold that the ratio decidendi of the decision of the co-ordinate Bench of this Tribunal in the case of The Music Academy Madras (supra) relied upon by the Ld. CIT(A) is no longer good law and therefore the decision of the Ld. CIT(A) on this issue is set aside and we direct the AO to allow the depreciation as claimed by the assessee society. 18. Before parting, we would like to observe that though the Ld. CIT(A) was aware that the Hon'ble jurisdictional High Court at Calcutta has passed an order in a similar case CIT Vs. Siliguri Regulated Market Committee reported in (2014) 366 ITR 51 (Cal) and allowed the claim of depreciation and though the ratio of the judgment of jurisdictional High Court is binding on the Ld. CIT(A), he has preferred to apply the ratio of the Tribunal at Chennai, which is situated outside the territorial jurisdiction of State of West Bengal. In our considered view, such action of the Ld. CIT(A) is not in consonance with the judicial discipline and cannot be accepted and we expect the lower authorities to be clear in mind that the law laid by the Hon'ble jurisdictional High Court is binding on us and Ld. CIT(A) and AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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