2011 (4) TMI 625 - AT - Income Tax

Tribunal upholds trust exemption under section 11, dismisses AO additions

Assistant Commissioner of Income-tax Versus Balaji Educational & Charitable Public Trust

Assistant Commissioner of Income-tax Versus Balaji Educational & Charitable Public Trust - [2011] 11 ITR 179 Issues Involved:1. Collection of capitation fees by the assessee-trust.2. Denial of exemption under sections 11 and 12 of the Income-tax Act.3. Alleged violation of section 13 of the Income-tax Act.4. Maintenance of proper books of account by the assessee-trust.5. Application of section 10(23C)(vi) for certain assessment years.6. Seizure of Rs. 44 lakhs from the residence of the chairman.7. Estimation of donations and their nature (voluntary vs. involuntary contributions).Detailed Analysis:1. Collection of Capitation Fees:The primary issue revolves around the collection of capitation fees by the assessee-trust against the allotment of seats under the management quota. The Assessing Officer (AO) concluded that the trust collected capitation fees from students, which were not disclosed in the income-tax returns. This conclusion was based on statements made by the chairman of the trust and materials collected during search and survey operations. The AO estimated the total collection of fees by multiplying the number of seats available under the management quota by the amount collected per seat.2. Denial of Exemption under Sections 11 and 12:The AO denied the exemption provided under sections 11 and 12, holding that the trust violated the provisions of section 13 by collecting capitation fees. The AO argued that only 'voluntary contributions' are exempt under sections 11 and 12, and the contributions collected by the trust were not voluntary but were in exchange for allotment of seats.3. Alleged Violation of Section 13:The AO alleged that the trust violated section 13 of the Income-tax Act, which led to the denial of exemption under sections 11 and 12. However, the Commissioner of Income-tax (Appeals) (CIT(A)) found that the AO did not specify the particular provision of section 13 that was violated. The CIT(A) also noted that there was no evidence to show that the trustees or their family members derived any personal benefit from the trust's funds.4. Maintenance of Proper Books of Account:The AO alleged that the trust did not maintain proper books of account. However, the CIT(A) and the Tribunal found this allegation to be baseless. The trust had been maintaining regular books of account, and there was no adverse material on record to substantiate the AO's claim.5. Application of Section 10(23C)(vi):For the assessment years 2002-03 and 2003-04, the trust was granted approval under section 10(23C)(vi) by the Chief Commissioner of Income-tax, Chennai. Therefore, the question of applying sections 11 and 12 for these years did not arise.6. Seizure of Rs. 44 Lakhs:During the search, Rs. 44 lakhs were seized from the residence of the chairman of the trust. The chairman explained that this amount was from his petrol pump business, which had a turnover of more than Rs. 30 crores. The CIT(A) found that this amount had already been disclosed in the chairman's income tax return, and there was no evidence to suggest that the amount was appropriated for personal benefit.7. Estimation of Donations and Their Nature:The AO estimated the donations collected by the trust based on the number of seats available under the management quota. However, the CIT(A) found that the AO's estimation was not supported by any evidence. The trust had accounted for all contributions as 'voluntary contributions,' and there was no rule to reject this classification. The CIT(A) and the Tribunal held that the contributions were applied for charitable purposes, and there was no evidence of unaccounted contributions.Conclusion:The Tribunal upheld the order of the CIT(A), granting exemption to the trust under section 11 and deleting the additions made by the AO. The Tribunal found that the trust was carrying on genuine educational activities and there was no evidence to show that the trust had accepted capitation fees. The appeals filed by the Revenue were dismissed, and the cross-objections filed by the trust were also dismissed as infructuous.