TaxTMI 
TaxTMI 
2011 (4) TMI 625
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....t, 1961 for the purpose of claiming exemption of its income, when applied for charitable purposes. The assessee-trust is running the following educational institutions, in pursuance of its objects. (i) Bharathiyar College of Engineering Technology, Karaikal. (ii) Mahathma Gandhi Medical College, Pondichery. (iii) Indira Gandhi Institute of Dental Science, Pondichery. (iv) Kasturba Gandhi Nursing College, Pondichery. (v) Sri Venkateswara College of Education, Pondichery. (vi) Rajiv Gandhi College of Engineering and Technology and others. 4. The assessee is also running various other institutions imparting general education. 5. As the assessee-trust was carrying on its objects of establishing and running of educational institutions, the provisions of law contained under section 10(22)/10(23C)(vi) were applicable to the assessee for the earlier assessment years. Section 10(22) was omitted from the Income-tax Act with effect from April 1, 1999, relevant to the assessment year 1999-2000 onwards. The scenario up to the assessment year 1998-99 and thereafter for the assessment year 1999-2000 onwards became different because of the omission o....
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....ssessee did not collect any donation. Wherever donations are not collected the assessee used to collect higher amount of fees than the fees payable for seats allotted under the Government quota. In respect of engineering colleges, the assessee stated that donations to the tune of Rs. 2 lakhs were collected per seat under the management quota, but only in respect of high demand subjects like computer technology. 8. On the basis of the details collected in the course of search and the contents of the statement furnished by the chairman of the assessee-trust, as already stated earlier, the assessing authority came to the conclusion that the assessee was collecting capitation fees against allotment of management seats in medical and engineering colleges run by it. But the assessing authority has not accepted that part of the statement of the chairman of the trust that the assessee did not collect donations from each and every student to whom seat was allotted under the management quota. But, the Assessing Officer estimated the total collection of fees for the different assessment years involved in these cases on the basis of the number of seats available under the management quota m....
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....ncome-tax Act, 1961. While coming to the above conclusions, the Assessing Officer has relied on an order of the Income-tax Appellate Tribunal, Hyderabad Bench in the case of Vodithala Education Society v. Asstt. DIT (Exemptions) [2008] 20 SOT 353 (Hyd.). 12. The assessments were taken in the first appeal. The Commissioner of Income-tax (Appeals) has summarised the premises on which the Assessing Officer has made additions as taxable income in the hands of the assessee-trust. Those points noted by the Commissioner of Income-tax (Appeals) are as follows : (i) In his statement recorded on August 13, 2007, the chairman of the assessee-trust has admitted collecting of donations from students on allotment of seats under the management quota (answers to questions 7 and 9 of the statement). (ii) It is justified that the donations per seat has to be multiplied by the number of seats allotted in different courses under the management quota to arrive at the quantum of capitation fees collected by the assessee from the assessment year to the assessment year. (iii) The amounts reflected in papers seized in the course of search related to the capitation fees collect....
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....h at the residence of the chairman was in fact assessed in his hands for the assessment year 2008-09, whereby the allegation of the Revenue regarding the nature of the said amount stands disapproved. (iv) That admission under the management quota is given after conducting written examination as directed by the State Government and the entire admission procedure is looked after by a committee headed by a retired judge of the hon'ble High Court of Madras. (v) That in the case of engineering college number of seats remained vacant during the period and as such there was no question of demanding capitation fees for admission. (vi) That no evidence was found in the course of search to establish that capitation fee was collected from the students. (vii) That in the statement made by the chairman of the assessee-trust on August 13, 2007 and in the course of search, he had stated that contributions were not received from each and every student. The assessing authority has not accepted the retraction made by the chairman of his initial statement. The assessing authority had relied only on the initial statement m....
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....hose years considered by the Commissioner of Income-tax, Pondicherry in his proceedings concluded under section 264. (xii) That the fees and contributions collected from students and others have been fully applied towards the objects of the assessee-trust and, therefore, the entire fees and contributions are exempted under section 11 of the Act. (xiii) That the Assessing Officer has not explained the ground on which section 13 has been invoked and the Assessing Officer has not even mentioned the particular provision of section 13 that goes against the assessee, which shows that there is no basis for relying on section 13 to deny the exemption to the assessee-trust. (xiv) That there is not even a single piece of evidence to show that the assessee-trust is receiving unaccounted contributions. The entire contributions actually received by the assessee-trust have been properly accounted and the amounts totalled and recorded in the assessee's books. (xv) That the decisions relied on by the Assessing Officer are not applicable to the present case of the assessee-trust as the contributions received by the assessee-trust are not involuntary, ....
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....Officer and the findings arrived at by him in the assessment order and the contentions and arguments of the assessee and also the materials available on record. On the basis of the examination so carried out, he has come to the following findings : (1) That the evidence relied on by the Assessing Officer to estimate the contributions taxable in the hands of the assessee-trust are the following : (i) Seized document No. ANN/SO/B&D/LS referred to in paragraph 5.3 of the assessment order. (ii) Seizure of Rs. 44 lakhs from the residence of the chairman of the assessee-trust in the course of search. (iii) Statement of the chairman of the assessee-trust made in the course of search on August 13, 2007. (2) In spite of mentioning about so many seized documents, the assessing authority has discussed in the assessment order only one document ANN/SO/B&D/LS. In the said document, certain amounts are found received and certain amounts are found refunded and also the balance amount. When this paper was confronted to the chairman at the time of search, he had explained that the refunds were made to the students from whom fees were collected but not allotted ....
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....001-02 are exactly similar to the facts of the impugned assessment years and, therefore, the said findings of the Commissioner of Income-tax, Pondicherry remain good and valid. The Assessing Officer has not found any new facts which were not considered by the Commissioner of Income-tax, Pondicherry while passing his order under section 264 for the assessment years 1998-99 to 2001-02. (6) The Chief Commissioner of Income-tax at Chennai has given approval under section 10(23C)(vi) in favour of the assessee-trust for the assessment years 2002-03 and 2003-04 and the question of section 11 does not apply to those assessment years. (7) The Assessing Officer has not established any case of deriving any benefit by any of the trustee or any members of the families of the trustees while carrying on the activities of the assessee-trust. (8) The Assessing Officer has no case that the entire income of the assessee was not applied for educational activities as proclaimed in its memorandum of association. 15. On the basis of the above findings, the Commissioner of Income-tax (Appeals) held that the entire amount received by the assessee-trust in the previous year period relevant to th....
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.... of the chairman of the assessee-trust and his disclosure of income of Rs. 3 crores supported the fact that the trustees are deriving income from the activities of the assessee-trust. The Commissioner of Income-tax (Appeals) has failed to observe that the explanation regarding the source of Rs. 44 lakhs being the assessee's petrol pump business is not at all convincing. (ix) The Commissioner of Income-tax (Appeals) has failed to note that the proceedings for cancellation of registration under section 12AA were pending with the Commissioner of Income-tax, Central Circle III. (x) The Commissioner of Income-tax (Appeals) has failed to note that the activities carried on by the assessee are not genuine and, therefore, denial of exemption under section 11 was justified. 18. We heard Shri Shaji P. Jacob, the learned Commissioner of Income-tax appearing for the Revenue and Shri S. K Tyagi, learned counsel appearing for the respondent-assessee. 19. The learned Commissioner of Income-tax in support of the grounds raised by the Revenue has contended that notice under section 153A was issued by the Assessing Officer on the basis of the findings arrived at in the light of seized ma....
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....ried on by the assessee-trust that it has been granted registration under section 12A by the Income-tax Department. It was also approved for the assessment years 2002-03 and 2003-04 by the Chief Commissioner of Income-tax-VI at Chennai under section 10(23C)(iv) of the Act. (iv) That there is no evidence on record to treat the seized cash of Rs.44 lakhs as application of the trust funds for the personal benefit of the chairman of the trust. (v) Donations and contributions are recorded in the books of account in the ordinary course of activities. There is no evidence to raise the allegations of unaccounted contributions. The unaccounted portion of income has been made out only because of the unlawful estimation made by the assessing authority. (vi) For the first two assessment years 2002-03 and 2003-04 section 13 of the Income-tax Act is not applicable as the assessee was enjoying the benefits available under section 10(23C)(vi). 24. Learned counsel argued that if the contributions received by the assessee-trust are not treated as voluntary contributions, but treated as capitation fees, then those contributions do not partake the character of income and instead the contri....
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....tions. He has only stated that contributions are made against quid pro quo for allotment of seats in medical and engineering colleges. If the admissions are sought by students/parents in those colleges voluntarily, the amounts paid by them by way of donations and fees could not be in the nature of involuntary contributions. 29. That the only ground pointed out by the Assessing Officer to refuse exemption is that the assessee has violated the provisions of law contained in section 13. Section 13 contains different sub-sections and clauses to address different situations of violation. Therefore, it is necessary to cite the specific sub-section and clause to allege that the assessee has violated the law stated in section 13. In the present case, the Assessing Officer has not referred to any such sub-section or clause of section 13. He has made a bald reference to section 13 and proceeded to deny the benefits of exemption available to the assessee under section 11. 30. It is only now that the learned Commissioner appearing for the Revenue makes a belated attempt to bring the case of alleged violation under section 13(1)(d) stating that the seizure of cash of Rs. 44 lakhs from the....
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....ber of institutions within the domain of the Central and the State laws. The letter of the Deputy Director of Public Health, Government of Puducherry, at page 326 of the paper book permits the assessee's medical college to utilise the facilities of the Government hospitals for the clinical practice of medical students. Page 327 is a copy of the letter issued by the Puducherry Health Secretariat regarding the constitution of Permanent Admission Committee under the chairmanship of the hon'ble Justice A. Ramamurthy (Retd.) Madras High Court. A copy of the procedure on admission of medical students issued by the Director of Health and Family Welfare Services, Government of Puducherry, is available in page 331. Page 332 contains a copy of the letter from the Directorate of Higher and Technical Education. A copy of the recognition report issued by the Medical Council of India is placed in pages 330 to 337. Accreditation status conferred by the All Council for Technical Education is available at pages 338 and 339 and also in pages 340 and 341. A copy of the order of the Government of India in the Ministry of Human Resource Development is available at pages 342 and 343 granting the status ....
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.... of the assessee-trust. We do not find any reason to endorse the above allegation made out by the Revenue, which is without any basis. (3) The next grievance of the Revenue is that the assessee-trust has violated the provision of section 13(1)(d), which enabled the Assessing Officer to deny the benefits of section 11 to the assessee. The basis of such a finding is that a sum of Rs. 44 lakhs was found and seized in the course of search from the residence of the chairman of the assessee-trust. In spite of repetition, we have to state that the said sum of Rs. 44 lakhs has been explained as "income" of the chairman of the assessee-trust and the said amount has been offered for taxation in the return of income filed by the chairman in the regular course. Apart from that, the most interesting aspect is that there is no case that a sum of Rs. 44 lakhs was applied by the chairman for any of his personal requirements. The only complaint is that the said sum was found in his possession at his residence. There is nothing unnatural in the chairman of the assessee-trust keeping the money in his custody, even if it belonged to the assessee-trust. Money cannot be kept in the educational instit....
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....under the management quota. The collection of contributions other than the estimated portion has been properly accounted by the assessee. It is obvious that the amount of collection additionally estimated by the assessing authority could not have been accounted by the assessee. The maximum case of the assessing authority could be that the contributions were accounted not as "capitation fee" but accounted as "voluntary contributions". 37. The above factual findings are nothing new as far as the case of the assessee-trust is concerned. The Commissioner of Income-tax, Pondicherry has already arrived at a similar finding exactly on same set of facts in his order passed under section 264 on December 14, 2004 while dealing with the assessment years 1998-99 to 2001-02. This shows the continuity and consistency of the facts applicable to the impugned assessment years from 2002-03 to 2008-09. 38. In the light of the above factual findings alone, it is possible for us to uphold the order passed by the Commissioner of Income-tax (Appeals) granting exemption to the assessee-trust under section 11 of the Income-tax Act, 1961 and thereby deleting the additions made by the assessing authori....
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.... also applied for charitable purposes. 43. It is in this context that we find force in the argument of learned counsel that there is no such test of distinction in respect of contributions offered under section 12 of the Income-tax Act, the only distinction is that of corpus donation under section 11(1)(d) and income donation under section 12. 44. In the facts and circumstances, we find that the assessee is carrying on genuine educational activities entitled to be treated as charitable activities and there is no evidence on record to show that the assessee had accepted capitation fee against allotment of seats. 45. As repeatedly stated, the crucial issue to be considered in taxation of charities is the issue of application of funds. It is useful to refer to a recent judgment of the hon'ble High Court of Karnataka rendered in the case of Director of Income-tax (Exemptions) v. Sri Belimatha Mahasamsthana Socio Cultural and Educational Trust [2011] 336 ITR 694 (Karn) ; 46 DTR (Kar) 290. The assessee is running professional institution and claimed exemption on receipts of corpus donations to the extent of Rs. 28,30,094. The case of the Revenue was that the above amount was col....