2023 (9) TMI 886 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on tax exemption under Section 11

The Dy. Commissioner – of Income Tax, Central Circle-2 (3), Chennai. Versus M/s. Sindhi Educational- Society (Madras), Chennai

The Tribunal dismissed the Revenue's appeals for all assessment years, upholding the CIT(A)'s decision to allow the exemption under Section 11 of the ... Exemption u/s. 11 & 12 - assessee has collected ‘corpus donations’ - violations noticed during the course of survey - as per DR assessee is collecting donations in lieu of admissions of students to schools run by the assessee in violation of said legislation which prohibits collection of ‘Capitation Fees’ - HELD THAT:- As going by the amount of donations received by the assessee from parents of students, it cannot be said that said donations are ‘Capitation Fees’ in violation of the provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992. In any event, the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, is not applicable to schools run by the assessee, which is evident from the law itself, because, said enactment is applicable only to professional institutions offering degrees and diplomas. Therefore, the observation of the AO in light of above said Act that the assessee has violated the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and not entitled for exemption u/s. 11 of the Act, is totally absurd and devoid of merits. Allegation of the AO that the assessee has collected excess fess over and above fees prescribed under the provisions of the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, is also negated by the assessee by filing relevant details. From the details furnished by the assessee, we find that the AO has computed excess fees by taking into number of students and fees fixed as per said Act without excluding certain Miscellaneous Fees collected by the assessee, which is not at all in nature of tuition fees prescribed under said Act. Therefore, we are of the considered view that the AO has made mere allegations of collecting excess fees in contravention of provisions of the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. Therefore, we are of the considered view that the AO is erred in rejecting exemption u/s. 11 of the Act, to the assessee society, on the basis of above observation. Generating income from incidental activities - assessee did not maintain separate books of accounts for incidental activities as required u/s. 11(4A) - We do not find any merit in the allegation of the AO for simple reason that the AO himself in his assessment order, has computed income and expenditure from various incidental activities and reproduced in tabular form of his assessment order. From the above, it is undoubtedly clear that there are books of accounts for incidental activities. In any event, maintenance of separate books of accounts for incidental activities gets fully diluted in the era of software accounting, where, segmental accounting entries are posted, which can be easily segregated to ascertain separate income and expenditure from each activity. Further, the AO himself has culled out data from books of accounts maintained by the assessee for each activity and computed income and expenditure separately. From the above, it is clear that there are books of accounts for incidental activities and from said books of accounts, income and expenditure from each activity can be computed. Therefore, we are of the considered view that the reasons given by the AO in light of incidental activities carried out by the assessee for rejection of exemption u/s. 11 of the Act, is devoid of merits. AO is erred in denying the benefit of exemption u/s. 11 of the Act, to the assessee Society on the ground that the assessee Society is collecting ‘Capitation Fees’ in lieu of admissions and also not maintaining separate books of accounts for incidental activities - Decided in favour of assessee. Issues Involved:1. Denial of exemption under Section 11 of the Income Tax Act, 1961.2. Nature of donations received by the assessee trust.3. Compliance with the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992.4. Maintenance of separate books of accounts for incidental activities.Summary of Judgment:1. Denial of Exemption under Section 11:The Revenue appealed against the orders of the Commissioner of Income Tax (Appeals) (CIT(A)), which allowed the assessee's claim for exemption under Section 11 of the Income Tax Act, 1961. The AO had denied the exemption on the grounds that the assessee collected donations in lieu of admissions, which were not voluntary, and did not maintain separate books of accounts for incidental activities.2. Nature of Donations:The AO argued that the donations received by the assessee were not voluntary but were compulsory for new admissions, thus constituting capitation fees. The CIT(A) found that the donations were voluntary, supported by donor declarations, and there were no complaints from parents about compulsory donations. The Tribunal upheld the CIT(A)'s findings, noting that the AO's allegations were not substantiated with evidence.3. Compliance with Tamil Nadu Acts:The AO contended that the collection of donations violated the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. The CIT(A) and the Tribunal found that the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, did not apply to the schools run by the assessee, as it was intended for professional institutions offering degrees and diplomas. The Tribunal also noted that the donations collected were minimal and voluntary, and thus, did not constitute capitation fees.4. Maintenance of Separate Books of Accounts:The AO claimed that the assessee did not maintain separate books of accounts for incidental activities, as required under Section 11(4A) of the Act. The CIT(A) found that the assessee maintained segmental accounting in a computerized environment, allowing for the segregation of income and expenditure from incidental activities. The Tribunal agreed, noting that the AO had computed income and expenditure from the assessee's books, indicating the presence of separate accounts.Conclusion:The Tribunal dismissed the Revenue's appeals for all assessment years, upholding the CIT(A)'s decision to allow the exemption under Section 11 of the Act. The Tribunal found that the donations were voluntary, the Tamil Nadu Acts did not apply to the assessee, and the assessee maintained adequate books of accounts for incidental activities.