TMI Blog2022 (11) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... tees and are in indeed sister Trusts, this Court may be constrained to lift the veil to see the real beneficiaries and the object of the donations by relatives/friends of parents as quid pro quo for admissions into the Assessee educational institutions as well as the other Assessees who are not educational institutions. On lifting the veil, it is clear as daylight that the modus operandi adopted by the Assessee Institutions and Trusts are with the twin objectives of circumventing/violating the provisions of the Capitation Fee Act as well as evading tax while seeking tax exemption under the corporate veil of being different and distinct entities receiving funds from each other for purely charitable purposes. Suffice it to say, nothing can be farther from the naked truth that cannot hide itself sufficiently behind the fig leaf of the legal cover sought to be taken by the Assessees under the guise of being charitable trusts and seeking exemption thereof. An elaborate exercise was undertaken by AO by issuing summons to various persons and their sworn statements were recorded. These sworn statements point to the factum of payment of amounts extending to atleast around Rs. 5 Lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the multitude of facts, such as, the detailed sworn statements of the persons, who had made the contributions, being the relatives/friends of the parents of the students, who were given seats in the Assessee educational institution, the nexus between the other Assessee institution, which collected and passed on the contribution though not an educational institution by itself, having common trustees being well-knit, as can be seen from the facts. That apart, the fact that no action has been initiated by the State cannot be a reason to allow the exemption under the provisions of the Act or absolve the liability of the assessees, that too after the device to route the capitation fee was discovered. Illegality cannot be perpetuated. Similarly, any decision even in the assessees' own case cannot have any bearing on the adjudication of the issues before us, because each assessment is independent and has to rest on its own facts. As such, when the contributions cannot be treated as voluntary, the further question of their application to charitable purposes or otherwise, need not be gone into, meaning thereby that the assesses are not entitled to the benefits of Sections 11 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orphose the service, once known and worshipped to be a noble occupation, into an opportunity to make money. Our Constitution, under various Articles has enunciated the principles for equality and equal opportunity, the requirement to protect women, children and the youth of this nation and to prevent them from exploitation. 2. Education has been dealt with in the Constitution, in the following manner: Article 14. Equality before law.-The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. Article 15 . Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth.- (1) The State shall not discriminate against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them. (2) No citizen shall, on grounds only of religion, race, caste, sex, place of birth or any of them, be subject to any disability, liability, restriction or condition with regard to- (a) access to shops, public restaurants, hotels and places of public entertainment; or (b) the use of wells, tanks, bathing ghats, roads and places of public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..... (6) Nothing in sub-clause (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub-clause, and, in particular, nothing in the said sub-clause shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to,- (i) the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or (ii) the carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise. ...... Article 21A . Right to education .-The State shall provide free and compulsory education to all children of the age of six to fourteen years in such manner as the State may, by law, determine. .............. Article 28. Freedom as to attendance at religious instruction or religious worship in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws. Article 38. State to secure a social order for the promotion of welfare of the people.-(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life. (2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations. Article 39. Certain principles of policy to be followed by the State.-The State shall, in particular, direct its policy towards securing- (a) that the citizens, men and women equally, have the right to an adequate means of livelihood; ...... (e) that the health and strength of workers, men and women, and the tender age of children are not abused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contain provisions for the devolution of powers and responsibilities upon Panchayats at the appropriate level, subject to such conditions as may be specified therein, with respect to- (a) the preparation of plans for economic development and social justice; (b) the implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule Extract of Eleventh Schedule. .... 17. Education, including primary and secondary schools. 18. Technical training and vocational education. 19. Adult and non-formal education. 20. Libraries Article 243W . Powers, authority and responsibilities of Municipalities, etc.- Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow- (a) the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to- (i) the prepara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... protect the educational and economic interest of the weaker section of the people and protect them from social injustice and exploitation. Therefore, by the very First Amendment to the Constitution in 1951, Article 15 was amended to save the challenge to any action taken by the State to protect the interest of the weaker sections. The minorities are guaranteed a right to establish and maintain educational institutions. The local bodies have been entrusted with duties to promote education under the Constitution as found in the eleventh and twelfth schedule. By the Constitution 42nd Amendment Act, 1976, the subject of education was moved from State list to Concurrent list. The primary responsibility of education, though was reposed with the State, the Constitution also by Article 19 (1)(g) facilitated private players in the field of education. Still, such private institutions can be treated only as supplementing the efforts of the State and the responsibility of the State is never shed away. Equality and equal opportunity in our system is achieved through the policy of reservation. Though the reservation was initially only contemplated for seats in House of the People and Legislativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled for benefit of Section 11 with respect to the receipts of the capitation fees/monies under the head donation from its sister trusts. (2) Whether on facts and in the circumstances of the case, the Tribunal was right in not appreciating that the said monies are the capitation fee received by the trusts in a quid pro quo manner for allotment of seats to the students in the college run by the sister trusts having common controlling trustee and the same was illegally passed on as voluntary donation. (3) Whether on facts and in the circumstances of the case, the Tribunal was right in not appreciating the Assessees aiding of illegal action of receipt of capitation fee is against the public policy and the provisions of Tamil Nadu Educational Institution (Prohibition of Collection of Capitation Fee) Act, 1992 and no benefit under Section 11 of Income Tax Act is warranted. 6. Subsequently, on 22.02.2022, TCA Nos. 59, 60, 62 and 63 of 2022 were admitted by raising the following questions of law: (1) Whether on the facts and in the circumstances of the case and in law, the ITAT was right in holding that the Assessees are eligible for exemption under Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rict, which is a unit of the Assessee - Sri Venkateswara Educational and Health Trust. On further analysis, the Assessing Officer concluded that there was a nexus between M/s. United Educational Foundation, M/s. MAC Charities, M/s. MAC Public Charitable Trust and Sri Venkateswara College of Engineering. The Assessing Officer also concluded that the Assessee utilised M/s.United Educational Foundation, M/s. MAC Charities, M/s.MAC Public Charitable Trust as a tool for transfer of capitation fees received from the students and thereby virtually sold education for a price. Such practice of receiving donation and/or capitation fee as a condition precedent for admitting a student is opposed to the provisions of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992. The enquiry also unfolded that the Assessee demanded and insisted the parents of the students, who wish to get admission for their children, to pay capitation fee to the other trust in the name of their relatives or friends of the parents, but not in their name. The parents also, in the interest of admitting their children in the said College, were forced to pay capitation fee in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fees, campus recruitment, transport etc., in the form of donation with specific direction that these donations shall form part of the corpus; and no donations have been collected from any of the students. However, the reply of the assessee was not accepted by the assessing officer. According to the assessing officer, the Assessee trust and other trusts are connected with each other. The capitation fee has been received in lieu of procuring seats in Sri Venkateswara College of Engineering as donation by M/s. United Educational Foundation and it was systematically routed through the other pass-through trusts belonging to Mr. A.C. Muthiah and ultimately it reached Sri Venkateswara College of Engineering operating under the name and style of M/s.Sri Venkateswara Educational and Health Trust as corpus donation. Therefore, the Assessing Officer after having held that the capitation fee received was treated as income not eligible for exemption under section 11 of the Act, determined the taxable income of the Assessee at Rs.9,90,50,000/- and the tax payable at Rs.4,13,59,162/- for the assessment year 2011-2012 by the assessment order dated 31.03.2014. Similarly, the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable income at Rs.3,60,00,000/- and tax payable at Rs.1,65,27.680/- for the assessment year 2011-12. On the same reasoning, by order dated 27.12.2016, the Assessing Officer completed the assessment for the assessment year 2014-2015, determining the taxable income at Rs.8,00,00,000/- by treating the same as not eligible for exemption under section 11 of the Act. It was further observed that penalty proceedings against the Assessee under Section 27 (1) (c) of the Act will be initiated separately. 10.1. The Assessee viz., M/s. United Educational Foundation / respondent in TCA Nos.59/2022, 305 and 306/2021 relating to the AY 2011-12, 2013-14 and 2014-15 respectively, is a registered trust under Section 12AA of the Act, vide order passed in DIT (E) No.2(1359)/08-09 dated 24.09.2009. For the Assessment year 2011-2012, the Assessee filed its return of income on 30.09.2011 admitting 'Nil' income. After processing the same, the assessing officer issued a notice dated 03.08.2012 under Section 143 (2) of the Act. In response, the representative of the Assessee appeared before the assessing officer and produced documentary evidence, including a letter dated 12.08.2013 furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Venkateswara Engineering College. It was also stated that donations to other trust is proper application of funds and there is nothing wrong in the donations given to MAC Charities etc. The Assessing Officer, after considering the explanation of the Assessee, was of the opinion that the amount of non-voluntary contribution i.e., capitation fee received at Rs.22,03,77,500/- has to be treated as income and the Assessee was not eligible for exemption under section 11 of the Act, for the assessment year 2011-12. 10.3. On the above said reasoning, the assessing officer passed the orders of assessment dated 31.03.2016 and 31.12.2016, relating to the assessment years 2013-14 and 2014-15, determining the tax payable by the assessee at Rs.16,22,60,670/- and Rs.16,33,99,970/-, respectively. 11.1. The Assessee namely M/s. MAC Charities / respondent in TCA Nos. 63/2022, 309 and 310 of 2022 relating to the AY 2011-12, 2013-14 and 2014- 15 respectively, is a trust registered under Section 12A(a) of the Act vide the order in DIT(E) No.2(102) /90-91 dated 15.11.2000. For the assessment year 2011-12, they had filed their return on 26.09.2011 admitting 'nil' income. The Assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15 respectively. 12. Assailing the orders of assessment passed by the Assessing Officer for various assessment years, the Assessee Trusts filed statutory appeals before the Appellate Authority namely the Commissioner of Income Tax (Appeals). Before the CIT(A), on behalf of the Assessees, it was contended that the donations were received voluntarily; and the Assessee Trusts were in no way connected with the securing admission of students in Sri Venkateswara College of Engineering for the children of the donors. In the records of the Assessee Trusts, they had shown these donations as income only and applied the same for charitable purposes as per law. As a charitable institution, there is no prohibition under law to receive donation from another charitable institution. In this context, on behalf of the Assessees, reliance was placed on the decision of the Allahabad High Court in CIT v. J.K. Charitable Trust [(1992) 196 ITR 31] wherein it was observed that as a charitable institution, the Assessee can directly contribute to another charitable institution which advances similar cause. It was further observed that in the absence of any allegation of malafides, the amount c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om which Rs.3.60 crores was received as donation by the Assessee trust. He is not a trustee in Sri Venkateswara Educational and Health Trust. The donation given by M/s. United Education Foundation to the Assessee trust is on its own volition and there is no coercion by the Assessee trust exerted on the donor trust. The AO did not bring any evidence to prove that the donation given by M/s. United Education Foundation to the Assessee trust is either by undue influence or intimidation. The alleged collection of capitation fee by the United Education Foundation for admission to engineering college owned by Sri Venkateswara Educational and Health Trust is no way connected with the activities of the trust. No evidence was brought on record by the AO to prove that the Assessee trust exerted influence on the parents, relatives or friends of the parents of the students to pay donation/capitation fee to the United Education Foundation in order to get admission in the engineering college owned by Sri Venkateswara Educational and Health Trust. In the circumstances, whether the donation in the hands of M/s. United Education Foundation is voluntary or not is not an issue relatable to the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO's finding is rejected and it is held that there is no violation of Sec.13 of the Act by the Assessee trust. Reliance is also placed on the decision of Delhi High Court in the case of DIT (E) vs. ACME Educational Society (2010) 326 ITR 146. 4.5 Regarding the treatment of donation paid by the Assessee to other trusts as non-application, it is to be observed that the Assessee not only donated money to Sri Venkateswara Educational and Health Trust but also donated to ten other trusts. The donations other than corpus donations shall for the purposes of sec.11 be deemed to be income derived from property held under trust for wholly charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly as per sec.12 (1) of the Act. Hence the donation received by the Assessee trust at Rs.4 crores is income of the Assessee for the purpose of Sec.11(1) of the Act. Similarly, the donation paid by the Assessee trust to other trusts are income in the hands of recipient trusts for the purpose of sec.11 (1) of the Act. 4.6. ......... The above decisions and instructions are squarely applicable to the facts of the case and hence the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced the individual donors and obtained the statements. The Tribunal also, was of the view that none of the donors or the parents/students studying in the educational institutions did make any complaint to any of the authorities complaining the so-called extortion of money in the form of donation for securing admission in the educational institutions run by M/s. Sri Venkateswara Educational Health Trust. It was the further view of the Tribunal that there is no bar for the Assessee Trusts to receive and/or accept voluntary donations from the donors or from the relatives/parents of the students studying in the educational institutions connected with the charitable trusts. In effect, the Tribunal opined that the Assessing Officer had not brought out credible materials to show that the Assessee Trusts had received donations as a condition precedent for allotment of seats to the student in M/s. Sri Venkateswara College of Engineering, Sriperumbudur. Accordingly, the Tribunal dismissed the appeals preferred by the Revenue. The relevant portion of the order dated 12.04.2017 passed by the Tribunal can profitably be extracted hereunder: 10. .......However, the facts also reveals tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penal action which includes imprisonment. In the case of Assessee trust, nothing is brought before us to point out that the law enforcing authorities of the State Govt., or the Central Govt., have initiated any coercive action against any of these Assessees for violating any provisions of the relevant Act. Further nothing is brought before us to establish that the Assessee trusts are barred from accepting donations from the relatives/parents of the students studying in the educational institutions connected to those charitable trusts. In the case of MAC Educational Foundation, the Assessee trust had received from M/s. United Education Foundation. Though the Ld.AO state that the Assessee Trust has received the donation for granting admission to students in M/s.Sri Venkateswara College, Sriperumbudur, he has not brought out any evidence to prove the same. Therefore, there is no merit in the case of M/s.MAC Educational Foundation for treating the amount as non-voluntary contribution. In the case of M/s. Sri Venkateswara Educational and Health Trust, the Ld.AO had simply stated that the Assessee trust has received capitation fees without any evidence to establish the same. It is also n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal dated 12.04.2017 is under challenge in TCA Nos.59, 60, 62 and 63 of 2022 at the instance of the Revenue. 16. In the mean while, challenging the orders dated 31.12.2018 passed by the CIT(A) relating to the AYs 2012-13, 2013-14 and 2014-15, the Revenue filed appeals before the Tribunal. It was contended on behalf of the Revenue that the Appellate Authority erred in deleting the disallowance made by the Assessing Officer and accepted the claim of the Assessees towards receipt of the amount as voluntary donation. It was further contended that the donations were in fact collected by the Assessee Trusts towards capitation fee as a condition precedent for admitting the students in the Engineering College run by Sri Venkateswara Educational and Health Trust. 17. However, the Tribunal, by a common order dated 13.11.2019, rejected all the appeals, by placing reliance on the earlier order dated 12.04.2017, mentioned supra, without examining the merits of the contentions raised by the Revenue. The relevant portion of the said order dated 13.11.2019 is quoted below for ready reference: 7. We have considered the rival submissions and perused the materials availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received from one Trust to the other; the amount received in the form of donation was in fact towards capitation fee to procure seat for the student in the college; and therefore, it cannot be said that the amount received was a voluntary contribution. 18.2. The learned Senior Standing Counsel for the Revenue further submitted that the founder trustee of the Assessee trust namely MAC Public Charitable Trust Dr. A.C. Muthiah is also the trustee of M/s.United Educational Foundation, which gave donation to the Assessee trust; the said Dr. A.C. Muthiah is also the founder trustee of Sri Venkateswara Educational and Health Trust, which owns the College viz., Sri Venkateswara College of Engineering; and thus, the Assessee Trusts are having nexus with one another and the donations received by M/s. United Educational Foundation were systematically channelised so as to reach the college operating by Sri Venkateswara Educational and Health Trust as corpus donations. The Assessing Officer also, on appreciation of the evidence collected during the course of enquiry, has concluded that there was a clear nexus among the Assessee Trusts. However, the appellate authority as well as the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enable them to receive voluntary contribution; the donations and/or contributions received by the respondent trusts are proved to be involuntary; and hence, they are not entitled to the exemption any longer. 18.5. The learned Senior Standing Counsel for the Revenue further submitted that the capitation fee received was for allotment of seats by the Trust and hence, it cannot be said to be a voluntary contribution/donation to the trust. Such receipt of capitation fee cannot be passed on as a donation by one trust to another and claimed exemption thereof. The nature of money received by the respondent Trusts had lost their character of voluntary donation/contribution at the time of original receipt itself. Therefore, the manner in which the monies spent subsequently will not be construed as donation especially when the socalled money received have landed finally in the hands of the College or the trust running the college that allotted seats. 18.6. Referring to the provisions of Tamil Nadu Educational Institutions (Prohibition of Capitation Fee) Act, 1992, the learned Senior Standing Counsel appearing for the Revenue submitted that section 2 (a) defines capitation fee , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contentions, the learned Senior Standing Counsel appearing for the appellant placed reliance on the following decisions: (i) In T.M.A. Pai Foundation and others v. State of Karnataka and others [2002 (8) SCC 481], the Constitutional Bench of the Hon'ble Supreme Court in Para Nos.28, 57 and 69, held as follows: 28. We will now examine the decision in Unni Krishnan's case. In this case, this Court considered the conditions and regulations, if any, which the State could impose in the running of private unaided/aided recognised or affiliated educational institutions conducting professional courses such as medicine, engineering etc., The extent to which the fee could be charged by such an institution and the manner in which admissions could be granted was also considered. This Court held that private unaided recognized /affiliated educational institutions running professional courses were entitled to charge a fee higher than that charged by government institutions for similar courses, but that such a fee could not exceed the maximum limit fixed by the State. It held that commercialization of education was not permissible and was opposed to public policy and I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim more at earning rather than serving and that becomes a bane to society. The charging of capitation fee by unaided minority and non-minority institutions for professional courses is just not permissible. Similarly, profiteering is also not permissible. Despite the legal position, this Court cannot shut its eyes to the hard realities of commercialisation of education and evil practices being adopted by many institutions to earn large amounts for their private or selfish ends. If capitation fee and profiteering is to be checked, the method of admission has to be regulated so that the admissions are based on merit and transparency and the students are not exploited. It is permissible to regulate admission and fee structure for achieving the purpose just stated. (iii) In P.S. Govindasamy Naidu Sons v. Assistant Commissioner of Income Tax [(2010) 324 ITR 44 (Madras)] the Division Bench of this Court held as follows: 5. It is seen from the order of the assessing authority that on an examination of a random number of parents who admitted the children into the college, it was found that the amount paid was not to the corpus donation account, but it was collected only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier assessment proceedings. Once an assessment is reopened, the initial order of assessment ceases to be operative and the proceedings start afresh. The Appellant's contention that since the AO had originally accepted the donations to be genuine, he is precluded from treating them to be bogus and making additions, is untenable. The Tribunal has noted that though the Assessee had initially submitted the confirmation of donation at the time of original assessment, however, during investigation by the CBI, some of the donors have confessed that they have not given any such donation. Under interrogation of the donors it was unearthed that the donation detail submitted by the Assessee in the original assessment proceedings was false. Thus, the genuineness of the donors could not be established. This case invited deeper scrutiny owing to the discovery of facts during CBI investigation that adversely impinged the findings determined in the earlier round of assessment. However, the Appellant failed to discharge the onus of proof cast upon it. No attempt was made to produce credible material to corroborate the transactions or to explain the contradictory evidence that it was confronted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he broad objectives for which the income derived from the property is to be utilised. There is no mention in the trust deed as to how the income derived from the trust property is to be utilised. The public uses the building on payment of rent to the trustees. What is to be done with the money so collected has not been provided in the trust deed. There is no mandate in the trust deed that the income derived from the trust property is to be spent on religious or charitable purposes. (ii) In Commissioner of Income Tax, Bombay City-VII v. Trustees of the Jadi Trust [1981 SCC Online Bombay 347 = (1982) 133 ITR 494] the Bombay High Court held as follows: 22. So far as the provision of s.11 of the Act which was in force at the material time is concerned, we do not think that the legal position is in any way different. As already pointed out when a trust which holds property for charitable or religious purposes hands over a donation to another trust which is also at trust made for the application of its funds for charitable or religious purposes there can hardly be any purposes by the donor trust. As already pointed out it would be permissible for a trust either to direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld in the case of Addl CIT vs. Aditanar Educational Institution (1979) 118 ITR 235, that a society merely running a college cannot utilise the provision as an instrument for exemption in respect of all its sources of income which had no connection with its educational activity. The decision of the Supreme Court in Aditanar Educational Institution vs. Addl. CIT, (1997) 224 ITR 310, to which a reference has already been made was the decision in an appeal from the judgment of this Court in the case of Addl. CIT vs. Aditanar Educational Institution, (1979) 118 ITR 235, and the Supreme Court has not in that judgment held that the width of language of Section 10 (22) notwithstanding income qualifying for exemption should be limited or restricted, having regard to its proximate connection or otherwise with the activity of running educational institutions. The observation made by this Court having regard to the issues which were considered therein were obiter. It is obvious that granting exemption to the income of the educational institutions is to enable such institutions to utilise the monies available with them for the purpose of running the educational institutions. The source from whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust. Income derived for trust property must be determined on commercial principles. In order to be eligible for the aforesaid exemption the Assessee has to get the trust registered under Section 12A of the Act. The Assessee has to make an application in the prescribed form and comply with the other legal requirements mentioned in the aforesaid section. On receipt of such application for registration the Commissioner is under an obligation to follow the procedure prescribed under Section 12AA before he grants or refuses registration. What he is expected to do on receipt of such an application is, he shall call for such documents or information from the trust in order to satisfy himself about the genuineness of the activities of the trust or institution. In addition to securing information in the aforesaid manner, it is open to the Commissioner to make such enquiries as he deems necessary in this behalf. Having regard to the scheme of Sections 11, 12 and 13 ultimately what the Commissioner has to look into is not the source of income to the trust but whether such income is applied for charitable or religious purposes. The satisfaction of the Commissioner should be regarding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of HCL Perot System or any of its Directors. Therefore, it cannot be said that the finding of fact recorded by Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal upholding genuineness of the donations is perverse, calling for intervention by this Court. No contravention of Section 13 of Income Tax Act having been made out and the genuineness of the donations having been accepted by Commissioner of Income Tax (Appeals) as well as by the Income Tax Appellate Tribunal, there is no ground for interference by this Court under Section 260A of Income Tax Act. No substantial question of law arises for our consideration in this case. The appeal as well as CM 3907/2010 for condonation of delay are hereby dismissed. 20. We have heard the learned Senior Standing Counsel for the appellant / revenue and the learned counsel for the respondents / Assessees and also perused the materials placed before us. DISCUSSION FINDINGS 21. At the outset, pertinently, be it noted, an understanding of the facts at hand would reveal that the case of the respondents / Assessees is nothing more than a fig leaf to conceal the violation of the Tamil Nadu Educational Instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an electoral trust. Explanation: For the purposes of this sub-clause, trust includes any other legal obligation;] Earlier, prior to the Amendment Act, 1987, sub-clause (iia) stood as follows: (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution. The provision was amendment by Amending Act, 1987 by omitting the words not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution with effect from 1-4- 1989. Subsequently the provision was amended and stands as above at the relevant point of time when the assessment orders were passed. Incomes not included in total income. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (23C) any income received by any person on behalf of- (iiiab) any un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h may be approved by the prescribed authority, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority; or (via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, other than those mentioned in subclause (iiiac) or sub-clause (iiiae) and which may be approved by the prescribed authority : Provided that the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) and sub-clause (ia), by way of bonus shares allotted to the fund, trust or institution or any university or other educational institution or any hospital or other medical institution ; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11: Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989, otherwise than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under sub-clause (iv) or sub-clause (v) shall be issued or approval under sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via) shall be granted or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received: Provided also that where the total income, of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or subclause (vi) or sub-clause (via), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such trust or institution or any university or other educational institution or any hospital or other medical institution shall get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish along with the return of income for the relevant assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital or other medical institution has not- (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution- (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .-In this clause, where any income is required to be applied or accumulated, then, for such purpose the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this clause in the same or any other previous year;] Section 11 of the Income Tax Act,1961 now under consideration prior to Direct Tax Laws (Amendment) Act, 1987, stood as follows: Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- [(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property; (b) income derived from property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1) or sub-section (2) of section 139 whether fixed originally or on extension for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived.] [(1A) For the purposes of sub-section (1),- (a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt thereof- (a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received, or (b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived.] [(2) [Where seventy-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-] (a) such person specifies, by notice in writing given to the [Assessing] Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess shall be deemed to be applied to purposes other than charitable or religious purposes [***]. [(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless- (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business.] [(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely:- (i) investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled in a building for the convenient occupation of the building)even though attached to, or permanently fastened to, anything attached to the earth;] [(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964).]] Section 11 of the Act was omitted by Amendment Act, 1987 with effect from 1-04-1989. By Amendment Act, 1989, the provision was reintroduced with effect from 1-4-89 with certain modifications and the amended provision stood as under: Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- [(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) [* * *] of section 139 [* * *] for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in subclause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately folio-wing the previous year in which the income was derived] [(1A) For the purposes of sub-section (1),- (a) where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held then, the capital gain arising from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a during the period referred to in subclause (a) or, as the case may be, sub-clause (b), of the said clause, then, such income shall be deemed to be the income of the person in receipt thereof- (a) in the case referred to in sub-clause (i) of the said clause, of the previous year immediately following the previous year in which the income was received or (b) in the case referred to in sub-clause (ii) of the said clause, of the previous year immediately following the previous year in which the income was derived] [(2) [ Where seventy-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-;]. (a) such person specifies, by notice in writing given to the [A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking such excess shall be deemed to be applied to purposes other than charitable or religious purposes[* * *]. [(4A). Sub-section (1) or sub-section (2) or sub-section (3) or subsection (3A) shall not apply in relation to any income, being profits and gains of business, unless- (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business. ] [(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following namely:- (i) investment in savings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. Explanation: Immovable property does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] [(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] [(xii) any other form or mode of investment or deposit as may be prescribed ] 23. It is pertinent to mention here that since the old provision of Section 2 (24) (iia) was being widely used for tax avoidance by giving donations to a trust in the form of corpus donations so as to keep this amount out of the regulatory provisions of sections 11 to 13, by the Amending Act, 1987 it was omitted to secure that all donations received by a charitable or religious trust or institution, including corpus donations and it was sought to be treated as income of such trust or institution. However, exemption to the corpus donations was granted under the provisions of the new section 80F, introduced by the Amending Act, 1987, subject to the condition that such corpus d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. 27. By 36th Finance Act, 2000, the following words were substituted in Section 11 (5) (viii) and in section 11 (5) (ix) with the then existing provision: which is eligible for deduction under clause (viii) of sub-section (1) of section 36]; 28. By Finance Act, 2000, the following provisions were inserted: Proviso to Section 11 (5) (vii) Provided that where an investment or deposit in any public sector company has been made and such public sector company ceases to be a public sector company,- (A) such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company; (B) such other investment or deposit shall be deemed to be an investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, to any trust or institution registered under Section 12-AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or subclause (vi) or sub-clause (vi-a) of clause (23-C) of Section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. ; (c) in sub-section (3), (i) after clause (c), the following clause shall be inserted, namely: (d) is credited or paid to any trust or institution registered under Section 12- AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in subclause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (vi-a) of clause (23-C) of Section 10, ; (ii) for the words set apart or ceases to remain so invested or deposited or , the words set apart or ceases to remain so invested or deposited or credited or paid or shall be substituted; (d) in sub-section (3-A), the following proviso shall be inserted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income, in such form and manner as may be prescribed) shall be substituted; (II) in sub-section (2), for clauses (a) and (b) and the first and second provisos, the following shall be substituted, namely:- (a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5); (c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year: Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded. . 34. Section 12 deals with the income of trusts or institutions from contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for registration: Section 12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the [Principal Commissioner or] Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA : Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,- (i) from the date of the creation of the trust or the establishment of the institution if the [Principal Commissioner or] Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA.] The words Principal Commissioner or were inserted with retrospective effect from 1-4-2013 by Finance (No 2) Act, 2014. Procedure for registration. Section 12AA. (1) The [ Principal Commissioner or ] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) of sub-section (1) of section 12A, shall- (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on due to operation of sub-section (1) of section 13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution: (Inserted by the Finance (No. 2) Act, 2014, w.e.f. 1-10-2014.) Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner. The words Principal Commissioner or were inserted with retrospective effect from 1-4-2013 by Finance (No 2) Act, 2014. 36. The following provisions, which deal with the cases where section 11 is not applicable, are relevant: Section 11 not to apply in certain cases. Section 13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; (b) in the case of a trust for charitable purposes or a charitable institution created or establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) any shares in a company, other than- (A) shares in a public sector company; (B) shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983: Provided that nothing in this clause shall apply in relation to- (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; (ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before the 1st day of March, 1983; (iia) any asset, not being an investment or deposit in any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate; (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees; (h) if any funds of the trust or insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets after the 31st day of March, 1992. (6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but without prejudice to the provisions contained in sub-section (2) of section 12, in the case of a charitable or religious trust running an educational institution or a medical institution or a hospital, the exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-section (2) of section 12, by reason only that such trust has provided educational or medical facilities to persons referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3). (7) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof, any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of that section. (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso* to clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneficially by such person or partly by such person and partly by one or more of the other persons referred to in sub-section (3); (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern. 38. Upon a conjoint reading of the above legal provisions, it is manifest that charitable purpose, as contemplated under the Act though would include education, would not include the advancement of any other object of general public utility, if the object involved is the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Thus, it is clear that Section 10 (23C) and Section 11 deal with income that are not to be treated as part of total income. Section 10 (23C) exempts the income received by the institution exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 11 is also liable to be rejected. The word genuine must be read as in compliance with all the laws of the land. If the institution or trust is used as a cloak to violate law, irrespective of whether any benefit is achieved or not, the benefit of registration cannot be permitted to accrue to the assessee. Section 12AA (3) is an independent provision as the right to cancel the registration is not restricted just towards the fulfilment or not of the objects of the trust or association. 39. The object and the relevant provisions of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, for effective adjudication of the present cases, are extracted below: Object: Whereas the practice of collecting capitation fee for admitting students into educational institutions is widespread in the State; And Whereas this undesirable practice, besides contributing to large scale commercialisation of education has not been conducive to the maintenance of educational standards; And Whereas it is considered necessary to effectively curb this undeniable practice, in public interest, by prohibiting the collection of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss or classes of such educational institutions in respect of any or all class or classes of students: Provided that before issuing a notification under this sub-section, the draft of which shall be published in the Tamil Nadu Government Gazette stating that any objection or suggestion which may be received by the Government, within such period as may be specified therein, shall be considered by them. (2) No educational institution shall receive or collect any fee or accept deposit in excess of the amount notified under sub-section (1). (3) Every educational institution shall issue an official receipt for the fee or deposit received or collected by it. 40. The above provisions make it clear that any amount collected in excess of prescribed fee, either directly or indirectly is to be treated as capitation fee, irrespective of whether it is voluntary contribution or donation. Similarly, not only there is a prohibition for the educational institution or the person in-charge to collect any amount in the nature of capitation fee, but also against any other person either for himself or on behalf of any such educational institution or on behalf of any such manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. Jut never as trade or business. We agree with Gajendragadkar, J. that education in its true Inspect is more a mission and as vocation rather than a profession or trade or business, however Wide may be the denotation of the two latter words... (see University of Delhi 1961(1) SCR 03. The Parliament too has manifested its intention repeatedly (by enacting the U.G.C. Act, Act and A.I.C.T.E. Act that commercialisation of education is not permissible and that |no person shall be allowed to steal a march over a more meritorious candidate because of his economic power. The very same intention is expressed by the Legislatures of Andhra Pradesh, Karnataka, Maharashtra and Tamil Nadu in the Preamble to their respective enactment prohibiting charging of capitation fee. 165. We are, therefore, of the opinion, adopting the line of reasoning in R.M.D.C. v. State of Bombay MANU/SC/0019/1957 : [1957]1SCR874 , that imparting education cannot be treated as trade or business. Education cannot be allowed to be converted into commerce nor can the petitioners seek to obtain the said result by relying upon the wider meaning of occupation . The content of the ' expression o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant statutes. (h) .. 38. In Unni Krishnan case, MANU/SC/0333/1993 : (1993) 1 SCC 645, this Court also rejected the argument that the said activity could be classified as a profession . However, the right of professional institutions to establish and manage educational institutions was finally regarded as an occupation befitting the recognition of this right as a fundamental right Under Article 19(1)(g) in T.M.A. Pai Foundation, MANU/SC/0905/2002 : (2002) 8 SCC 481, in the following words: (SCC p. 535, para 25) 25. The establishment and running of an educational institution where a large number of persons are employed as teachers or administrative staff, and an activity is carried on that results in the imparting of knowledge to the students, must necessarily be regarded as an occupation, even if there is no element of profit generation. It is difficult to comprehend that education, per se, will not fall under any of the four expressions in Article 19(1)(g). Occupation would be an activity of a person undertaken as a means of livelihood or a mission in life. The above quoted observations in Sodan Singh case, MANU/SC/0521/1989 : (1989) 4 SCC 155, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or university to ensure that no capitation fee is charged and there is no profiteering, though a reasonable surplus for the furtherance of education is permissible. 7. While clarifying the judgment of this Court in TMA Pai Foundation1, this Court in Islamic Academy of Education and Anr. v. State of Karnataka and Ors. MANU/SC/0580/2003 : (2003) 6 SCC 697 observed that once fee is fixed by the Committee, the institute cannot charge either directly or indirectly any other amount over and above the amount fixed as fee. If any other amount is charged, under any other head or guise, e.g. donations, the same would amount to charging of capitation fee. The Governments/appropriate authorities should consider framing appropriate Regulations, if not already framed, whereunder if it is found that an institution is charging capitation fees or profiteering, that institution can be appropriately penalised and also face the prospect of losing its recognition/affiliation. In the said judgment, this Court took note of the fact that the States of Tamil Nadu, Maharashtra, Karnataka and Andhra Pradesh have enacted statutes prohibiting collection of capitation fee and regulating admission proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing charging of capitation fee, it was suggested that a web portal under the aegis of Supreme Court would provide confidence in the public to furnish any information relating to capitation fee being charged by private medical colleges. The Ld. Amicus Curiae further suggested that all candidates taking the National Eligibility-cum- Entrance Test (NEET) for undergraduate, postgraduate and super speciality courses should be informed about the web-portal wherein complaints with respect to charging of capitation fee can be registered. In addition, a pamphlet should also be issued to the students and parents regarding the existence of website at the time of counselling. The Chief Secretaries of the State Governments and Union Territories should ensure that the details of the website are published in English as well as vernacular newspapers to spread awareness amongst the public at large. This website could be maintained by the National Informatics Centre (NIC) under the Ministry of Electronics and Information Technology. 11. The other suggestions relate to the steps to be taken by the concerned authorities to prevent the practice of charging capitation fee. One important suggestio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the institutions recognized by the AICTE. The report also prescribes the minimum and maximum fees which includes the tuition fee, development fee, examination fee and other fees. 13. It was submitted that the managements of private medical colleges should be directed not to receive fee through cash payment and to prohibit certain private medical colleges from insisting on payment of fee for entire course in advance. The latter issue of payment of fee for the entire course in advance is the subject matter of another SLP bearing SLP (C) No. 11296 of 2021 titled JNU Institute for Medical Sciences and Research Centre and Ors. v. Deepesh Singh Beniwal and Ors., in which this Court on 23.09.2021 had directed the Ministry of Health and Family Welfare, Government of India to conduct a meeting with all the stakeholders to find a solution to the issue. For the former issue, we are in agreement with the suggestion that the managements of private medical colleges should not accept any fees in cash in order to avoid the charging of capitation fee. It has also been suggested that the Director General of Health Services and other concerned authorities of the State Governments should ensure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) The management of private medical colleges are strictly prohibited from accepting payment of fees in cash, in order to avoid charging of capitation fee. The students or any other aggrieved persons are at liberty to report on the web-portal regarding collection of fees in cash by any medical colleges; (g) The Director General of Health Services and other concerned authorities to the State Governments should ensure that the All-India Quota and State Quota rounds of counselling are completed strictly in accordance with the time Schedule that is fixed. 46. In Lok Shikshana Trust v. CIT [ (1976) 1 SCC 254 : 1976 SCC (Tax) 14], the Hon'ble Apex Court held as follows: 5. The sense in which the word education has been used in Section 2(15) is the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word education has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. By the use of the expression profit motive it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity. In the case of CIT v. Lahore Electric Supply Co. Ltd. [(1966) 60 ITR 1 : (1966) 2 SCR 720 : AIR 1966 SC 843] Sarkar, J. speaking for the majority observed that business as contemplated by Section 10 of the Indian Income Tax Act, 1922, is an activity capable of producing a profit which can be taxed. In the case of the appellant-trust the activity of the trust, as already observed earlier, has in fact been yielding profits and that apparently accounts for the increase in the value of its assets. 42. The difficult question, however, still remains: What is the meaning of charitable purpose which is only indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was to run a profitable newspaper and publishing business without paying the tax on it. Just as mere making of profit as a consequence or incident of altruistic activity is not decisive of the real purpose or object of the activity, so also the carrying on of a business for profit does not cease to be so merely because losses are actually incurred in certain years or because those who carry it or call it education It would be difficult to find any commercial activity which makes profits always or which expressly gives out that its existence depends upon profit-making although, in practice, and, ultimately, its continuance may depend on profit-making. A newly started business may, initially, have to run at a loss; but, at a later stage, it may earn magnificent profits. Therefore, the test of the real character or purpose of an activity cannot be whether its continuance is made to depend upon profits resulting from it or not. Such a test would be artificial and specious. I do not think that the qualification introduced by Section 2(15) of the Act of 1961 was intended to compel courts to look for the conditions on which continuance of activities of public utility is made to depend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ostensibly charitable trusts with a view to discovering their real purposes by analysing the effects of their terms and what they permit. It narrows the scope of exemption from income tax granted at least under the last and widest category of charitable trusts mentioned in Section 2(15) of the Act as was held in CIT, v. Indian Chamber of Commerce [(1971) 81 ITR 147 (Cal)] 47. In Commissioner of Income tax (Exemptions) Kolkatta v. Batanagar Educational and Research Trust [LL 2021 SC 337] , the Hon ble Apex Court, while restoring an order of cancellation of the registration under Section 12AA of the Act, held as follows: 11. The answers given to the questionnaire by the Managing Trustee of the Trust show the extent of misuse of the status enjoyed by the Trust by virtue of registration under Section 12AA of the Act. These answers also show that donations were received by way of cheques out of which substantial money was ploughed back or returned to the donors in cash. The facts thus clearly show that those were bogus donations and that the registration conferred upon it under Sections 12AA and 80G of the Act was completely being misused by the Trust. An entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of a thing voluntarily transfers the title and possession of the same from himself to another, without any consideration, is a donation. A gift or gratuitous payment is in simple English a donation. We do not require lexicographic learning or precedential erudition to understand the meaning of what many people do every day, viz., giving donation to some fund or other, or to some person or other. 50. It is therefore beyond the pale of any doubt that education can never be a commercial activity or a trade or business and those in the field of education will have to constantly and consistently abide by this guiding principle. However, the undeniable reality staring at our face is the collection of capitation fee as a condition precedent for admission into educational institutions. The present appeals raise the twin issues of the blatant violation of the Capitation Fee Act and then drawing a premium on their own illegal act by seeking exemption under Sections 11, 12AA and 80G of the Act. 51. The appellate authority and the Tribunal have failed to consider the provisions of the Capitation Fee Act and have given perverse findings. Under section 2(a) of the Capitation Fee Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Supreme Court as follows: 14. It is well settled that the court can lift the veil, look to the conspectus of factors governing employment, discern the naked truth though concealed intelligently. The court has to be astute in piercing the veil to avoid the mischief and achieve the purpose of law. It cannot be swayed by legal appearance. 68. The said principle has been followed by this Court in catena of cases namely, Kanpur Suraksha Karamchari Union and Basti Sugar Mills Ltd. referred to supra. In the case of State of UP v. Renusagar Power Co. (supra), this Court held as under: 55...On the other hand these English cases have often pierced the veil to serve the real aim of the parties and for public purposes. See in this connection the observations of the Court of appeal in DHN Food Distributors Ltd. v. London Borough of Tower Hamlets. It is not necessary to take into account the facts of that case. We may, however, note that in that case the corporate veil was lifted to confer benefit upon a group of companies under the provisions of the Land Compensation Act, 1961 of England. Lord Denning at p. 467 of the report has made certain interesting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nct from individual members. It has since been held that the corporate veil may be lifted and corporate personality may be looked in. Reference was made to Pennington and Palmer's Co. Laws. 66. It is high time to reiterate that in the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, indubitably, we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of Aluminium. It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of takeover of the power station by the State or the Electricity Board. As the facts make it abundantly clear that all the steps for establishing and expanding the power station were taken by Hindalco, Renusagar is wholly owned subsidiary of Hindalc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people. The concept of resulting trust and equity . (Emphasis laid by the Court) 70. In Kapila Hingorani v. State of Bihar (supra), this Court held as under: 26. The proposition that a company although may have only one shareholder will be a distinct juristic person as adumbrated in Salomon v. Salo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the premises the consumption of such energy by Hindalco will fall Under Section 3(1)(c) of the Act. The learned Additional Advocate-General for the State relied on several decisions, some of which have been noted. 68. The veil on corporate personality even though not lifted sometimes, is becoming more and more transparent in modern company jurisprudence. The ghost of Salomon case (1897 AC 22) still visits frequently the hounds of Company Law but the veil has been pierced in many cases. Some of these have been noted by Justice P.B. Mukharji in the New Jurisprudence (Tagore Law Lectures, P. 183). 25. In Delhi Development Authority v. Skiper Construction Company (P) Ltd MANU/SC/0497/1996 : (1996) 4 SCC 622, it was observed: 24. Lifting the corporate veil: In Aron Salomon v. Salomon Company Limited (1897) AC 22, the House of Lords had observed, the company is at law a different person altogether from the subscriber...; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands received the profits, the company is not in law the agent of the subscriber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs: The courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose.... Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company. Similar views have been expressed by all the commentators on the Company Law which we do not think it necessary to refer. (underlining is ours) 26. It is thus clear that the doctrine of lifting the veil can be invoked if the public interest so requires or if there is allegation of violation of law by using the device of a corporate entity. In the present case, the corporate entity has been used to conceal the real transaction of transfer of mining lease to a third party for consideration without statutory consent by terming it as two separate transactions -the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly charitable purposes. Suffice it to say, nothing can be farther from the naked truth that cannot hide itself sufficiently behind the fig leaf of the legal cover sought to be taken by the Assessees under the guise of being charitable trusts and seeking exemption thereof. 55. Further, an elaborate exercise was undertaken by the Assessing Officer by issuing summons to various persons and their sworn statements were recorded. These sworn statements point to the factum of payment of amounts extending to atleast around Rs. 5 Lakhs in each of the cases as well as the nexus between the Assessee institutions. The fact that these payments were made by the relatives/friends of the parents of the students who obtained admission in the Assessee institutions would prove the nature of the donations and the reasons therefor. That apart, it is clearly evident that the funds that have been given for admissions, have been routed through the other trusts. The fact that there have been some statements and their change subsequently can at best be said to be under fear of being exposed, which would ultimately tell on the future of the students. At this juncture, it will be useful to refer to the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our view, retraction after a sufficient long gap or point of time, as in the instant case, loses its significance and is an afterthought. Once statements have been recorded on oath, duly signed, it has a great evidentiary value and it is normally presumed that whatever stated at the time of recording of statements under Section 132(4), are true and correct and brings out the correct picture, as by that time the assessee is uninfluenced by external agencies. Thus, whenever an assessee pleads that the statements have been obtained forcefully/by coercion/undue influence without material/contrary to the material, then it should be supported by strong evidence which we have observed hereinbefore. Once a statement is recorded under Section 132(4), such a statement can be used as a strong evidence against the assessee in assessing the income, the burden lies on the assessee to establish that the admission made in the statements are incorrect/wrong and that burden has to be discharged by an assessee at the earliest point of time and in the instant case we notice that the AO in the Assessment Order observes:- Regarding the amount of Rs. 44.285 lakhs, it is now contended that the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn filed by him and certain documents were seized which bore the signature of the assessee, held in para 16 of the report as under: 16. Thus, in view of sub-sections (4) and (4A) of Section 132 of the Act, the Assessing Officer was justified in drawing presumption against the assessee and had made addition of Rs.9 lakhs in his income under Section 68 of the Act. The onus was upon the assessee to have produced cogent material to rebut the aforesaid presumption which he had failed to displace. The assessee retracted from the said statement, vide letters dated November 24, 1998, and March 11, 1999, during the course of assessment proceedings. However, no value could be attached thereto in the present case. In case the statement which was made by the assessee at the time of search and seizure was under pressure or due to coercion, the assessee could have retracted from the same at the earliest. No plausible explanation has been furnished as to why the said statement could not be withdrawn earlier. In such a situation, the authenticity of the statement by virtue of which surrender had been made at the time of search cannot be held to be bad. The Tribunal, thus, erred in conclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account, documents, money or valuable articles or things etc. and record a statement made by such person which can be used in evidence in any proceedings under the Income Tax Act. The explanation appended to Clause (4) also makes it clear that such examination can be in respect of any matters relevant for the purpose of any investigation and need not be confined to matters pertaining to the material found as a result of the search. A plain reading of Section 132(4) would clearly show that what was intended by empowering an officer conducting the search to take a statement on oath was to record evidence as contemplated in any adjudication especially since Section 131 confers on all officers empowered therein with the same powers as vested in a court under the Code of Criminal Procedure, for the purpose of the Income Tax Act. 10. A Division Bench of this Court in C.I.T. v. Hotel Meriya, (2011) 332 ITR 537 considered the scope of a statement recorded under Section 132(4) and found that such statement recorded by the officer as well as the documents seized would come within the purview of evidence under Section 158(BB) of the Income-tax Act read with Section 3 of the Eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant-company from his residence and that in the absence of individual cash-book of respective concerns and other details maintained by him, it is not possible to identify whether the cash so found belongs to the proprietary concern or to the assessee company. Subsequently, when the statement under Section 132(4) of the IT Act was recorded on 10.10.2014, which was concluded at his residence, Shri Bannalal Jat categorically admitted that the cash amount of Rs.1,21,43,210/- belonged to his company M/s. Bannalal Jat Construction Private Limited and the same was its undisclosed income. Thereafter another statement under Section 132(4) of the IT Act was recorded at his business premises on 11.10.2014. In reply to question No. 8, he was asked to explain the source of cash amounting to Rs.3,380/- found at his office and Rs.1,21,43,210/- found at his residence, he submitted regarding the amount of Rs.1,21,43,210/- found at his residence that he was unable to give any explanation and admitted that he was in the business of civil construction and in such business, various expenses have been inflated and shown in the books of accounts, and that the income so generated on account of such inflat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unless the retractions are made within a short span of time, supported by affidavit swearing that the contents are incorrect and it was obtained under force, coercion and by lodging a complaint with higher officials, the same cannot be treated as retracted. This position laid down in catena of decisions by the various High Courts in CIT vs. Lekh Raj Dhunna [344 ITR 352 (P H)], Bachittar Singh v. CIT [328 ITR 400 (P H)], Rameshchandra Co. v. CIT [168 ITR 375 (Bom.)], Dr. S.C. Gupta v. CIT, [248 ITR 782 (All.)], CIT v. Hotel Meriya [332 ITR 537 (Kerala)], CIT v. O. Abdul Razak [350 ITR 71 (Kerala)] . 64. The reasoning adopted by the Tribunal that the Assessing Officer might have coerced to obtain the sworn statements from the donors in the manner convenient to the Revenue so as to drop further proceedings against the donors for examining their source of income with respect to the amount of donations made, is based on surmises and conjectures. The further reasoning that the donors or the parents/students studying in the educational institutions had not complained to any authorities regarding extortion by way of donations for securing admission in the educational institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may also be had to cases where the term voluntary contributions have been expounded for the purposes of Section 12 of the Act. In CIT v. Madhya Predate Anaj Tilhan Vyapari Mahasangh, [(1988) 171 ITR 677], the High Court of Madhya Pradesh interpreted the expression voluntary contribution under section 12 of the Act as The contributions, in order to be voluntary, had to be made willingly and without compulsion and the money was to be gifted or given gratuitously without consideration and these tests were satisfied on the facts of the present case. In Russel v. Vestry of St. Giles [3 E B 416] , Lord Campbell observed that voluntary contributions here do not mean annual subscriptions (or entrance fees) paid for value received or expected to be received by the party paying, but means a gift made from disinterested motives for benefit of others . In Society of Writers to the Signet v. IRC, [1886] 2 TC 257 (C Sess) , the court held that the entrance fees and subscriptions paid by entrants to a society or institution as a condition precedent to their membership and as the price of admission to the privileges and benefits of the society or institution are given und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s affidavit would improve the case of the appellant. 6. The learned counsel for the appellant also placed reliance on the judgments in Fifth Generation Education Society v. Commissioner Income Tax [185 ITR 635], New Life In Christ Evangelistic Association v. Commissioner of Income Tax [246 ITR 532] to contend that when application is made under Section 12AA, the Commissioner is not required to examine the application of income of a trust. In our view, this principle has no application to the facts of the case. The rejection of the application made by the petitioner, as we have already noted, was for the reason that they were collecting capitation fee for admission and not on the ground that the funds of the trust were not applied for charitable purpose. For all these reasons, we do not find any merit in this appeal. (ii)In Dawn educational Charitable Trust v. CIT, Kochi [2014 SCC OnLine Ker 2988 : (2015) 370 ITR 724], it was held as follows: 3. Apart from above factual situation, clause 6 of the trust deed further indicates that the trust is at liberty having absolute discretion to accept contributions as donation and contributors have no right or control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted fact that the sums have been paid by the parents or acquaintances to the institutions/trusts for securing the seat. Such persons are the source for the assessees. As rightly contended by the learned Senior Standing Counsel for the Revenue, it is not necessary for the assessing officer to go into the source of the source to tax the assessees under assessment and the same cannot be a reason to allow the deduction, which the assessees are not otherwise entitled to. CONCLUSION 68. In view of our above findings that the amounts collected by the assessees are capitation fee in quid pro qua for allotment of seat in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 and the same are neither a voluntary contribution nor to be treated as applied for charitable purpose, the orders of the Appellate Authority as well as the Tribunal, which are impugned in these appeals, are absolutely perverse in nature and therefore, they are set aside. Accordingly, all the substantial questions of law are answered in favour of the Revenue and against the Assessees. 69. Our country, though has developed considerably, after indepen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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