Tax Tribunal Rules on Exemption & Compliance Requirements for Charitable Trusts

The Tribunal allowed the appeals concerning denial of exemption under Section 11 due to late filing of returns, stating that timely filing was not mandatory for the relevant assessment years. The addition on account of collection of capitation fees was partly allowed for certain years due to lack of evidence. Compliance with conditions under Section 12A was deemed met despite late filing. The Tribunal confirmed the application of income towards charitable purposes, concluding that the Trust qualified for exemption under Section 11. The appeals were disposed of accordingly.

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Issues Involved:
1. Denial of exemption under Section 11 due to late filing of returns.
2. Addition on account of collection of capitation fees.
3. Compliance with conditions under Section 12A for claiming exemption under Section 11.
4. Application of income towards charitable purposes.

Detailed Analysis:

1. Denial of Exemption under Section 11 due to Late Filing of Returns:

The CIT(A) upheld the denial of exemption under Section 11 on the grounds that the assessee had not finalized the books of accounts and had not filed returns timely until the date of search. The returns were filed belatedly in response to notices under Sections 153A/148. The CIT(A) noted that Section 12A did not have a specific provision requiring timely filing of returns for exemption under Section 11 until the assessment year 2018-19. The search revealed violations under Sections 13(1)(c) and 11(4), leading to the income of the Trust being chargeable to tax. The CIT(A) observed that the returns for AY 2006-07 were filed almost six years late, indicating improper maintenance of books of accounts.

The Tribunal, however, held that the sections 11 and 12 do not mandate filing returns by a due date for the assessment years under consideration to grant exemption under Section 11. It referred to the judgment in CIT vs. Shahzadanand Charity Trust, which held that the audit report could be furnished later, and delay could be condoned. The Tribunal concluded that the CIT(A)'s findings were not tenable, as the returns were filed in response to notices under Section 153A, and the requirement to file returns timely was only applicable from AY 2018-19 onwards. Hence, this ground of appeals was allowed.

2. Addition on Account of Collection of Capitation Fees:

During the search, it was found that the assessee was collecting capitation fees in addition to regular fees from students. The details were recorded in the laptop of the administrative officer and confirmed by his statement. The CIT(A) noted that the evidence for capitation fees was found for FY 2011-12, indicating a practice of collecting unaccounted fees. The CIT(A) confirmed the additions for AYs 2009-10 onwards, except for AY 2008-09 where no MBBS seats were available.

The Tribunal found that there was no incriminating material for AYs 2006-07 to 2011-12, and the addition was based on the statement of an employee and subsequent details provided by the assessee. It held that the addition for these years could not be sustained due to the lack of evidence. However, for AY 2012-13, the addition was to be restricted to the extent of the seized material. Hence, the appeals for AYs 2009-10 to 2011-12 were allowed, and for AY 2012-13, it was partly allowed for statistical purposes.

3. Compliance with Conditions under Section 12A for Claiming Exemption under Section 11:

The Tribunal referred to the case of CIT vs. Shahzadanand Charity Trust, which clarified that the requirement to file an audit report along with the return under Section 12A(b) was procedural and directory, not mandatory. The Tribunal also noted the amendment to Section 12A effective from AY 2018-19, which required filing returns within the time allowed under Section 139 to claim exemption under Section 11. For the assessment years under consideration, this requirement was not applicable. Therefore, the Tribunal held that the assessee was entitled to exemption under Section 11 despite the late filing of returns.

4. Application of Income Towards Charitable Purposes:

The Tribunal noted that the assessee had applied the income towards charitable activities, fulfilling the condition of applying at least 85% of the income towards the objects of the Trust. The Tribunal referred to earlier decisions where it was held that as long as the income was applied for charitable purposes, exemption under Section 11 could not be denied. The Tribunal concluded that the assessee's activities were in line with its charitable objects, and there was no evidence of personal benefits to trustees or violations warranting denial of exemption.

Conclusion:

The appeals were disposed of with the following outcomes:
- ITA Nos. 255 to 257/Coch/2018 - Allowed.
- ITA Nos. 258 to 260/Coch/2018 – Partly allowed.
- ITA No. 261/Coch/2018 – Partly allowed for statistical purposes.

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