Tribunal directs reassessment of donations, contributions as income, upholds re-computation based on commercial principles.

The tribunal allowed the appeals for statistical purposes, directing the assessing officer to re-examine the treatment of donations and contributions as income, providing the assessee an opportunity to substantiate that these were not capitation fees. The tribunal also instructed a re-evaluation of the aggregate receipts exceeding Rs.1 crore for 2006-07 and upheld the CIT(A)'s direction to re-compute income for 2007-08 by applying commercial principles and verifying actual donations received.

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Issues Involved:
1. Denial of exemption under Section 11 and Section 10(23C) due to lack of registration under Section 12A.
2. Treatment of donations and contributions as revenue receipts.
3. Computation of income by applying commercial principles.
4. Verification of the actual amount of donations received.

Detailed Analysis:

Issue 1: Denial of Exemption under Section 11 and Section 10(23C)
The assessee society, incorporated in September 2002, was engaged in running educational institutions and filed returns for the assessment years 2005-06 to 2007-08. A search and seizure operation led to the discovery that the society had been granted registration under Section 12A only from the financial year 2008-09 onwards. Consequently, exemption under Section 11 was not available for the years under consideration. The assessing officer observed that the income of the trust should be assessed as business income, as no exemption was available for the years in question. The CIT(A) confirmed this view, noting that the assessee did not have the necessary approvals under Section 10(23C)(vi) and Section 12A, making the income taxable.

Issue 2: Treatment of Donations and Contributions as Revenue Receipts
The assessing officer found that the assessee had received contributions and donations totaling Rs.96,40,000 for the year 2005-06. Since no exemption was allowed, these contributions were treated as income. The assessee contended that these were capital receipts meant for corpus funds or development funds and should not be taxed. However, the CIT(A) noted that no documentary evidence was provided to substantiate this claim. The CIT(A) stated, "The appellant has not been able to prove that the said contribution received by it are not in the nature of capitation fee collected from students/prospective students or their relatives in the garb of donation." Consequently, the CIT(A) confirmed the assessing officer's decision to treat these contributions as income.

Issue 3: Computation of Income by Applying Commercial Principles
The assessee argued that if exemption was denied, the income should be computed by applying commercial principles, considering revenue receipts and expenditures, and allowing depreciation. The CIT(A) acknowledged this argument for the year 2007-08, directing the assessing officer to re-compute the income accordingly. However, for the years 2005-06 and 2006-07, the CIT(A) did not find merit in this contention and confirmed the assessments made by the assessing officer.

Issue 4: Verification of the Actual Amount of Donations Received
For the year 2007-08, the CIT(A) noted discrepancies in the reported donations. While the receipts and payments account showed donations of Rs.27,500, the assessing officer had added Rs.2,75,000 to the income. The CIT(A) directed the assessing officer to verify the correct amount while giving effect to his order. Similarly, for the year 2006-07, the CIT(A) observed that the aggregate annual receipts exceeded Rs.1 crore, making the assessee ineligible for exemption under Section 10(23C)(iiiad). The CIT(A) directed the assessing officer to verify whether fees received in advance were included in the aggregate receipts.

Conclusion:
The tribunal set aside the orders of the lower authorities on the issue of donations and contributions, directing the assessing officer to give the assessee another opportunity to provide evidence that the donations were meant for the corpus or were not capitation fees. The tribunal also remitted the issue of aggregate receipts exceeding Rs.1 crore for the year 2006-07 to the assessing officer for re-examination. For the year 2007-08, the tribunal upheld the CIT(A)'s direction to re-compute the income by applying commercial principles and verify the actual amount of donations received. All three appeals were treated as allowed for statistical purposes.

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