TaxTMI 
TaxTMI 
2011 (6) TMI 391
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....llege'. The institution became a 'Deemed University' in the year 2001. Although, the income of the Trust was exempt under section 10(22), the Trust submitted in its "statement of facts" that it had been filing Income-tax returns, along with audited accounts from assessment year 1990-91, inspite of no legal obligation to file returns under section 139 as it existed at that time. 3. It is stated that the Trust was also approved under section 80G from its inception. It is further stated that, questions were raised about the eligibility of the Trust for exemption under section 10(22) on the ground that it was "running for profit" and its eligibility for renewal of approval under section 80G by the following authorities: 19-2-1994 - 2nd Income-tax Officer, Vellore 12-1-1998 - Director of Income-tax (Exemptions) 18-9-1998 - Commissioner of Income-tax During the assessments under section 143(3) for assessment year 2003-04 - ADIT (Exemptions) - 24-3-2006 2004-05 - ADIT (Exemptions) - 1-12-2006 2005-06 - ADIT (Exemptions) - 31-5-2007 4. It is finally stated that after the enquiries and investigations by the aforesaid various authorities stretching over a period from 199....
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....ation of the laws of the state. 4. The appellant has been charging very high fees from students and making various recoveries much above its costs of operation as is evident from huge surpluses in the income and expenditure account year after year. 5. Donation is a voluntary payment without quid pro quo. Statements recorded during the search clearly establish that the appellant was collecting capitation fees for offering admissions and is also refunding it in certain cases clearly showing that the amount collected was not a voluntary donation. 6. The corpus donations were admittedly received from 123 parties out of which Rs. 68,36,000 was received in cash and Rs. 58,14,000 by cheque/draft. 7. In the light of the findings as a result of search, onus rests on the appellant to prove that the persons mentioned as donors remitted to the institution on their own volition and without expectation of anything in return. 8. Corpus donations of Rs. 1,26,50,000 were in reality neither donations nor voluntary contributions as these payments were forcibly extracted from the parents/guardians at th....
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....itation fees for the admissions 18. The burden is on the appellant to show that he is eligible for exemption under section 11. The appellant has discharged its burden by establishing that it is engaged in running an engineering college, which has not been disputed in the assessment order. It is the contention of the Assessing Officer that the education imparted by the appellant through the engineering college is done as business and should not be considered as education as defined in section 2(15). However, this contention of the Assessing Officer is not supported by any evidence. I, therefore, hold that the appellant is eligible for exemption under section 11. 19. ....... Even if the corpus fund donations are not treated as genuine, they would still be income derived from property held in Trust and hence, eligible for exemption under section 11 subject to .....". 8. Aggrieved, the revenue is in appeal before us by raising following grounds: "1a. On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the assessee is eligible for exemption under section 11. 1b. The learned Commissioner of Income-tax (A....
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....mainly containing copies of various decisions relied on by him, apart from written submissions. A separate paper book of 71 pages styled "statement of facts", enclosing copies of Trust Deed, history of past assessments, enquiries etc., has also been filed. On the issue of the institution being run as a business, charging high fees, collecting Donations (capitation fees) and earning large surpluses, the ld.AR amplified the reasons as to why, during the year relevant to assessment year 2001-02, the assessee had very little discretion in the matter of admissions and therefore, could not have collected donations as quid pro quo for admissions. He submitted that the assessee's engineering college was regulated and controlled by AICTE and DOTE during the year in all the following matters: i. The engineering courses that may be conducted; ii. Number of students that can be admitted for each course; iii. Prescribing eligibility criteria and enforcing that the criteria are adhered to in the matter of admissions like, through a common entrance test and single window admission procedure by the Madras University under whose affiliation and control....
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....t the 5 per cent discretionary NRI admission available to the assessee. The ld.AR therefore submitted that as the assessee had very little discretion in the matter of admissions, the allegations of the department of profiteering and collection of capitation fees for admissions stand negated and therefore, the grant of exemption under section 11 by the ld. CIT(A) has to be sustained. Finally, he referred to a chart placed at pages No. 67 and 68 of the "statement of facts" to establish that there is absolutely no correlation whatsoever between the percentage of growth in corpus fund donations received and percentage of growth in admissions from its inception in assessment year 1985-86 to assessment year 2001-02. 13. We have considered the rival submissions and have carefully considered the material available on record, including the paper books filed by the assessee-trust. On perusing the aforesaid documents at length, we find substantial force in the submissions by the assessee. Apparently, the main source of income for the institution is fees received from students and donations collected. The fee receipts would depend upon the number of students admitted and the fees charged. The....
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....t had to take into account the fact that, while its ability to raise resources by tax and borrowings was unlimited, at least in theory, the resources of the private sector were limited. The State had faced one more difference between the motivation for investments by the State and the Private Sector; i.e., while the State can look at the aforesaid services as a mere "Cost Centre" the "Private Sector" neither can, nor be expected, to look at these functions as a cost centre. Hence, the Government devised ways by which the revenues of such private sector unaided educational institutions could be augmented so as to provide adequate revenues to recoup the investment, provide reasonable return on investment and to provide adequate surpluses to facilitate expansion and modernization. The three tier fee structure prescribed by the Government for different categories of students is a means to achieve the above objective. 14. The reason for presenting and analyzing the macro view on the subject is to appreciate the point that the Government, in its wisdom, has consciously permitted charging higher fees from some students in the case of unaided colleges to achieve its aforesaid objectives. ....
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....d donations through coercion as alleged by the revenue also deserves to be accepted, as we find from the admission regulations of AICTE that there were only two defined areas of discretion in the matter of admission viz. 5 per cent of the sanctioned seats for NRIs and filling up of 'lapsed seats'. We find from the break up of admissions given that, out of the 5 per cent only 3 per cent of seats were allotted to NRIs and further that out of the total corpus fund donation of Rs. 1,26,50,000 there was no donation received from outside India. Hence, the discretion available in this regard could not have led to collection of the aforesaid donations. The letter along with list of students admitted with the date of admission of students reveal that the last student admitted was on 25-10-2000 as per the direction of the University of Madras, copy of which has also been filed. As there was no 'lapsed seat' which could be filled at the discretion of the assessee no donations could have been collected in this area also. Finally, we find from the aforesaid documents that while the seats sanctioned by the University of Madras was 535, only 500 students were actually admitted leaving 35 of the s....
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.... by Sri V. Sankar son of Managing Trustee and Sri R. Vijayakumar, Secretary to the Pro-Chancellor, it is submitted that these statements were obtained under duress and by coercion at the time of search and were retracted. It was submitted that Sri V. Sankar was neither a Trustee nor a Pro-Chancellor or holding any other position in the Trust during the year relevant to assessment year 2001-02 and that Sri R. Vijayakumar became an employee of Vellore Institute of Technology only on 2-8-2004. The ld.AR would therefore contend that the above retracted statements relied on by the department, which were obtained from persons who had absolutely no position in the organization of the assessee during the relevant year and who therefore could not have been privy to any information or knowledge of the assessee's affairs during the relevant year, cannot be relied upon to deny the exemption under section 11. As it has been held in Asstt. CIT v. Anoop Kumar [2005] 94 TTJ 288/147 Taxman 26 (Asr.) (Mag.), Asstt. ACIT v. J.S.M Rathod [2005] 94 TTJ 867/148 Taxman 35 (Ahd.) (Mag.) and Asstt. ACIT v. Balaji Educational & Charitable Trust [IT Appeal Nos. 1476 to 1482 (Mad.) of 2010, dated 5-4-2011] th....
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....ions and therefore, the generation of 'surplus' within the frame work of regulations of the competent authorities cannot be construed as a 'business' activity or 'profiteering' so as to deny exemption under section 11. b. When the CIT, highest functionary of the revenue had himself examined the very same aspect on 18-9-1998 (copy of this letter is filed in page 35 of Volume I of Paper book) and concluded in favour of the assessee, no new facts or circumstances have been brought on record for the year relating to 2001-02 a/y to change the Commissioner of Income-tax's view in 1998. c. Eleemosynary and altruism are irrelevant for claiming exemption under section 11 - relying on the commentary in the law and practice of Income-tax in Kanga and Palkhiwala and the cases cited therein (page 392). d. CBDT Circular F. No. 194/16-17-IT(AI) reproduced in 212 ITR 462 (Ker.) - "The question for consideration is whether an educational institution existing solely for educational purpose but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of t....
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....for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not ..." CIT v. Indian Institute of Computer Technology [2000] 244 ITR 371/112 Taxman 333 (Ker.) Birla Vidhya Vihar Trust v. CIT [1982] 136 ITR 445/[1981] 7 Taxman 391 (Cal.) "... Educational Institution condition precedent - must exist solely for educational purposes and not for purposes of profit - position to be determined with reference to cumulative effect of all relevant facts ..." "... Neither the fortuitous factor of having a large surplus in any particular year nor the solitary fact of diverting some of the income to objects charitable but not educational would be decisive of the matter ..." "... a solitary instance of application of income from the schools for non-educational purposes in a prior year was not very material. The fact that the assessee trust had objects other than educational objects was also not material..." Pinegrove International Charitable Trust v. Union of India [2010] 327 ITR 73/188 Taxman 402 (Punj. & Har.) "...Merely because profits have resulted from the activity of imparting education that would not change the character of the institution e....
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.... exemption under section 11. We therefore, hold that the incidence of surplus during the course of activity of running the educational institution would not be a ground to state that the assessee is carrying on a business activity so as to forfeit exemption under section 11. II. Application of Doctrine of Legitimate expectation. - That, the assessee is entitled to consistency in assessment of income from the same activity over different years, especially when the department has failed to bring on record any facts or circumstances relating to 2001-02 a/y, when the revenue had been holding the assessee, as a charitable institution from its inception in 1984 up to 2000, as decided, in the following cases: Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC) Berger Paints India Ltd. v. CIT [2004] 266 ITR 99/135 Taxman 586 (SC) Union of India v. Satish Panalal Shah [2001] 249 ITR 221/117 Taxman 373 (SC) CIT v. S. Kamalahasan [2004] 141 Taxman 24 (Mad.) CIT v. S. Kamalahasan [2004] 141 Taxman 257 (Mad.) DIT v. Lovely Bal Shiksha Parishad [2004] 266 ITR 349/135 Taxman 34 (Delhi) CIT v. N.P. Mathew [2006] 280 ITR 44/[2005] 147 Taxman 670 (Ker.) CIT v. Neo Poly Pack Ltd.....
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.... in terms of section 11 ...." Gaur Brahmin Vidya Pracharini Sabha v. CIT [2009] 304 SOT 371 (Delhi) "... Imparting of education is a charitable purpose as defined in section 2(15), irrespective of the fact that the assessee charges fee for imparting education - there is no condition that to become a charitable purpose, education should be imparted free ..." ITO v. Kaushalya Medical Foundation [2009] 31 SOT 119 (Mum.) Asstt. CIT v. Graphic Era Educational Society [2008] 26 SOT 22 (Delhi) "... Assessee institution is duly recognized by HNB Garhwal University and strictly follows all University regulations with regard to admission, charging of fees and course curriculum and has on its governing body nominees of State Government, HNB University and AICTE functioning under Human Resource Ministry, and thus, in fact, Government managed - Therefore, the question of functioning like a commercial profit making institution is totally unfounded - Assets of the society cannot be shared or distributed amongst its members at any point of time..." "...Assessee rendering education to general public falls within charitable purpose under section 2 (15) ..." Reliable Educational Alliance Socie....
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....re us, again, in our opinion rightly so, that 'education' can never be a business and that it was so held by the Apex Court in the 5 Judges Bench in Unnikrishnan J.P. v. State of Andhra Pradesh AIR 1993 SC 2178 that "imparting education cannot be trade, business or profession .... it may perhaps fall under the category of occupation ...". The above ratio that "education is an 'occupation'" was reaffirmed in the 11 Judges Bench of the Apex Court in T.M.A. Pai Foundation v. State of Karnataka [2002] 8 SCC 481. 31. In the light of the categorical decisions of the Constitution Bench of the Apex Court aforesaid, the revenue's attempt to categorize the educational institution as a business has to be rejected and the assessment of its surplus as Business income was rightly set aside by the ld. CIT(A). As we have held, following the Apex Court judgments aforesaid, that the educational institution is not a business and that 'education' per se is a 'charitable purpose' in the earlier para, we uphold the order of the ld. CIT(A) allowing the exemption under section 11. 32. As regards exemption under section 11 is for 'application' of income and not source, we find this argument by the ld.AR ....
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....n in holding that as more than 75 per cent of the income from property held for charitable purposes has been applied by the assessee for the educational institution of Vellore Engineering College, its entire income (regardless of the manner in which it was derived or head under which it is computed) is exempt under section 11. 38. The ld.AR has made an alternate submission, after being careful to state that he was not admitting or conceding the contention of the revenue that, even if the activity of education carried on by the assessee is treated as 'business' as it resulted in surpluses, its income would still be exempt under section 11(4A), which has been substantially liberalized from 1-4-1992. It was submitted before us that, as per the liberalized section 11(4A) a trust carrying on 'business' could still claim exemption under section section 11, if: u the business is incidental to the attainment of the objectives of the trust and u separate books of account are maintained in respect of such business. 39. The AR submitted that as assessee has satisfied both the conditions, even in the worst case scenario of the assessee's ac....
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....gain involved therein..." CIT v. Janakiammal Ayyandar Trust [2005] 277 ITR 274 (Mad.) "... Charitable purposes - charitable trust - exemption - businesses - effect of sub-section (4A) of section 11 - income of business applied for purposes of trust - income entitled to exemption - Income-tax Act, 1961 section 11(4A) ..." "...Effect of Supreme Court decision in Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785 ..." "... Supreme Court observed the scope of sub-section (4A) of section 11 of the Income-tax, as amended in 1992, is more beneficial to a trust or institution than the scope of the sub-section before the amendment. As it stands amended in 1992, all that is required for the business income of a trust or institution to be exempt from tax is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is a business which is incidental to the attainment of the objectives of the trust or institution ..." "... assessment years 1994-95 and 1993-94 ..." CIT v. Sri Narayana Gurtuviah Chetty's Est....
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....axman 555 (Mad.) Shanthi Devi Progressive Education Society v. Asstt. DIT [1999] 68 ITD 1 (Delhi) (TM) "... Assessment year 1993-94 - Assessee society, running two schools, was granted exemption under section 10(22) till assessment year 1992-93 - exemption was denied for assessment year 1993-94 on ground that it was collecting admission fee, donation and loans and thus had been a society for profit and not solely for educational purpose - whether since assessee had been doing these activities right from beginning and same was within powers given in memorandum, there was no reason to object to such collections - Held, yes - since revenue could not point out any case where any part of profit/income was diverted for purpose other than for educational purposes, exemption under section 10(22) could not be denied to assessee - Held, yes ..." "... has to be evaluated each year to find out ..." "... Circular F.No. 194/16-17 IT (AI) ..." "... It is quite apparent that their Lordships have not disapproved the practice of collecting funds through donations, gifts, etc., as long as these were ploughed back into the system itself i.e. of imparting education - no distinction was drawn betwe....
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....at trade or business is a means to an end. It is charity" "The essential test of a charitable purpose is the destination of profits" if the profits continue to feed the charity, the mere occurrence of profits would not detract from the charitable nature of the enterprise" CBDT circular No. 642 dated 15-12-2002 also reinforces the assessee's submission in the following words: "..... it is clarified .... with effect from 1st April 1992, profits and gains of business in the case of a trust or institution will not be liable to tax if the business is incidental to the attainment of the objectives of the trust or institution." 40. In the light of the aforesaid circular conceding the position in law in favour of the assessee and the aforesaid line of decisions of the Apex Court, jurisdiction Madras High Court and other Courts, we hold that, alternatively, the assessee is entitled to exemption under section 11(4A), even in the event of its activity of running an education institution is categorized as a 'business'. 41. As regards Corpus donations/capitation fees, the ld. AR submitted that on first principles, a donation towards the corpus fund is a capital receipt. Hence, he submitted....
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.... evidentiary value for assessment year 2001-02 and are therefore, disregarded. 44. The assessee further claimed in its written submission that neither before nor after the Tamil Nadu Educational Institutions (Prohibition of collection of capitation fee) Act, 1992 and till the date of hearing, the assessee has ever been complained against or issued any notice for violation of the said Act. In the absence of any such accusation either in the assessment order or rebuttal by the ld.DR, we are inclined to accept the statement, especially since the assessee's reputation of an institution of renown is well known and accepted in many parts of the country. Assessee's submission that the "onus of proving that the apparent state of affairs is not really lies on the person alleging" as held in CIT v. Daulatram Rawatmull [1973] 87 ITR 349 (SC) deserves acceptance. As we find that the revenue has not discharged this onus and has merely made allegations, we hold that the taxation of corpus fund donations received Rs. 1,26,50,000 as capitation fees is without any basis. 45. The ld. AR relied on a line of cases which have held that collection of donation by an institution cannot be said to be wit....
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.... the said donations would still be exempt under section 11 (1)(a). As we have already held that the corpus fund donations received cannot be treated as capitation fees and as the factual matrix of the details are not available, we refrain from expressing our decision on this issue. The ld. AR then advanced an interesting argument on the interpretation of 'voluntary' by relying on the decision in CIT v. Bengal Mills and Steamers Presbyterian Association [1983] 140 ITR 586/[1981] 7 Taxman 78 (Cal.) that, in the absence of a legal right to collect donations by the assessee and an enforceable obligation to pay the donations against the donor, all donations received by the assessee are only 'voluntary'. Under these circumstances, it was held by the Calcutta High Court that, as "... the association had no claim or right to the recurrence of the contributions with unfailing regularity and in those circumstances, the contributions were non recurring in character and could not be regarded as income". 48. We find direct support to the aforesaid construction of the term 'voluntary' in Abdul Salam v. Union of India AIR 1969 All. 223 - at 228 where, the meaning of the term has been explained ....
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....to demand that the other tortfeasors supply their proportionate share of what is required to compensate the injured party. 4. A payment made by a co-debtor or joint tortfeasor of her proportionate share of what is due. See also indemnity. Webster's New World Law Dictionary Copyright circle 2010 by Wiley Publishing, Inc., Hoboken, New Jersey. Used by arrangement with John Wiley & Sons, Inc Donation, contracts. The act by which the owner of a thing, voluntarily transfers the title and possession of the same, from himself to another person, without any consideration; a gift.(q.v.) A donation is never perfected until it is has been accepted, for the acceptance (q.v.) is requisite to make the donation complete. Vide Assent, and Ayl. Pand tit. 9 Clef des Lois Rom. h.t. A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John Bouvier. Published 1856 The Oxford Dictionary defines 'contribution' as: "a sum of money that is given to a person or an organization in order to help pay for something - contribution (to something) a sum of money that you pay regularly to your employer or the Government in order to pay for benefits such as healt....
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....ls or requirements of another: "The first requisite of a good citizen ... is that he shall be able and willing to pull his weight" (Theodore Roosevelt). The American Heritage(r) Dictionary of the English Language, Fourth Edition copyright (c)2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved. 52. When we read sections 2(24)(iia), 11(1)(d) and 12(1) using the phrase "'voluntary' contribution" in the light of the plain English meanings of the aforesaid terms, the wisdom of the legislature in qualifying the term 'contribution' by 'voluntary' becomes crystal clear. As explained above, since 'contribution' may be either 'voluntary' or under a legal or contractual obligation, the statute has prescribed that 'voluntary contributions' will be deemed to be income - Otherwise, such contributions will be capital receipts on first principles. As contributions pursuant to legal or contractual obligations are income on first principles, there was no need to specify such contributions in the definition aforesaid. In this regard, the decision in the case of CIT v. Hyderabad Race Club Charitable Trust [2003] 262 ITR 194/129 Taxman 788 (AP....
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....nnate character as non-income. What section 12(1) meant before its amendment in 1972 was that while voluntary contributions are non-income, even what is undoubtedly income of charities, is not to be charged to tax, if the source of such income is traceable to voluntary contributions. To put it differently, Parliament was extremely charitable to charities. That was the liberality of section 12(1) of the Act, as it stood prior to 1-4-1973, that voluntary contributions are non-income and even income derived from such contributions are exempt from tax in certain circumstances went unnoticed and was lost sight of. Added to this, section 12(1) had also been interpreted in such a manner and in a slanting fashion as well, with the result that advantage was taken of it to put down in the statute book the receipt theory about voluntary contributions. Under the present section, the expression "income .....derived from voluntary contributions" has been avoided and voluntary contributions are straight away deemed to be income. This shows that but for the deeming, those would not be taxable gesture of parliamentary alms giving to charities. The section now keeps out only voluntary contributions ....
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....that it was received with a specific written direction from the donor that the donation was towards the corpus fund of the trust followed up by the factum of actual application of the donation for the capital purposes of the trust would, by virtue of the ratio of the said judgment would take the corpus donations received outside the ambit of income being a capital receipt. As this attractive argument is fortified by the aforesaid decision of the Apex Court, we accept the same and hold that, even on this score, the corpus donation received cannot be treated as capitation fee receipt. 59. Regarding Assessing Officer's power to determine whether trust is charitable, it was submitted that once the trust is registered under section 12A, the Assessing Officer has no locus standi to decide as to whether it is 'charitable' or otherwise. Explaining the scheme of assessment of trusts, it was contended that the prerogative of deciding and registering a trust as 'charitable' or 'religious' vested with the Commissioner of Income-tax at the threshold level of granting registration under section 12A/12AA. It was further submitted that once the trust is registered by the CIT under a particular ca....
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....ion ..." Calicut Islamic Cultural Society v. Asstt. CIT [2009] 28 SOT 148 (Coch.) "... Once the registration is granted to the assessee by the Commissioner of Income-tax, Assessing Officer cannot go into probing the objects and the purposes of the trust or institution and that is within the exclusive domain and jurisdiction of the Commissioner of Income-tax. What Assessing Officer can do that he can at the most investigate the matter within the four corners of section 13. In this case the Assessing Officer has gone with investigating and probing the basic objects of the trust by entering into shoes of the Commissioner of Income-tax and such exercise is not permissible ..." ITO v. Baba Dhall Educational Society of India [2009] 27 SOT 391 (Delhi) "...Once registration was granted by the CIT under section 12AA, it could not be said that the objects of the trust were not charitable - on the date when assessment was framed, the order of CIT registering the trust under section 12A/12AA was available with the Assessing Officer ..." 60. The ld. AR further submitted that the power/duty of the Assessing Officer during assessment are as under: (i) To determine whether the r....
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....as not acted upon, especially as the refund of Rs. 10150 claimed was not issued, appears to be acceptable. The ld.AR has relied upon the following cases to contend that when the return filed under section 139 is not acted upon under either section 143(1) or section 143(3), the Assessing Officer is precluded from resorting to reassessment proceedings under section 147. Trustees of H.E.H., the Nizam Supplemental Family Trust v. CIT [2000] 242 ITR 381/109 Taxman 193 (SC) State of Assam v. Deva Prasad Barua [1978] 75 ITR 18 (SC) CIT v. M.K.K.R. Muthukaruppan Chettiar [1970] 78 ITR 69 (SC) Estate of A.M.K.M. Karuppan Chettiar v. CIT [1969] 72 ITR 403 (SC) CIT v. Raman Chettiar [1965] 55 ITR 630 (SC) Ghanshyamdas v. Regional Asstt. CST [1964] 51 ITR 557 (SC) CIT v. Ranchnodas Karsondas [1959] 36 ITR 569 (SC) CIT v. K.M. Pachayappan [2008] 304 ITR 264 (Mad.) CIT v. Qatalys Software Technologies Ltd. [2009] 308 ITR 249 (Mad.) A.S.S.P. & Co. v. CIT [1988] 172 ITR 274/[1986] 27 Taxman 623 (Mad.) N. Naganatha Iyer v. CIT [1966] 60 ITR 647 (Mad.) S.M. Muthiah Thevar v. CIT [1960] 39 ITR 107 (Mad.) KLM Royal Dutch Airlines v. Asstt. DIT [2007] 292 ITR 49/159 Taxman 191 (Delhi) CIT....