TaxTMI 
TaxTMI 
2015 (7) TMI 649
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....urces amounting to Rs. 54,97,44,582/- and has claimed exemption under section 10(23C)(iiiab). Donation of Rs. 2,92,18,001/- has been claimed to be corpus donation and the details of such donations were also enclosed with the return of income which also includes anonymous donations. 3. During the course of assessment proceedings, the Assessing Officer noted that the details of income, expenditure and surplus declared by the assessee as per the income and expenditure account filed with the return of income are as under : Table-1 (Income in Rs.) Rent 125,97,417 Interest received from bank 209,70,765 Grants 29,07,70,462 Income from other sources 22,52,05,938 Transfer from reserve 200,000 Total 54,97,44,562 Table-2 (Expenditure & Surplus in Rs.) (I) Amount applied to charitable purposes 1. Expenditure on objects of the trust 41,40,54,914 2. Administrative Expenses (a) Expenditure in respect of properties 121,03,261 Rates, taxes, cesses 3347,424 &nbs....
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....nment, by way of salary grants to the teachers and non-teaching staff of such institutions, with no surplus income, and to the exclusion of the income or expenditure of unaided institutions, whether income/surplus of the unaided institutions would also be covered under the provisions of Section 10(23C)(iiiab), and eligible for exemption under that section? 2) Whether the income of the assessee shall be exempt from tax u/s 10(23C)(iiiab) or under any other exemption provisions under the IT Act, when there are irrefutable evidence that the assessee collected capitation fee in the form of corpus donations, in relation to granting admission to students in its institutions, using its discretion under management quota or other-wise, in an arbitrary and commercial manner?" He also asked the assessee to furnish the details of donors along with the amount of donation, identity of the donors and the draft/pay order details etc. 7. It was explained by the assessee that it is a 125 year old public charitable trust started by national leaders like Lokmanya Balgangadhar Tilak, and that it is registered under the Bombay Public Trust,1950. It runs educational institutions in Pune, Mumbai, San....
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....s argued that the unaided institutions are not assessees by themselves and form a composite and indivisible part of the assessee's operations and the assessee seeks to utilise the surplus of unaided institutions to satisfy the needs of aided institutions. The fees for various courses of unaided institutions are determined by resolution passed by the assessee's Governing body. It was submitted that during the relevant assessment year the assessee has received donations only towards the corpus of the trust and none towards income contribution and hence no donation amounts appear in the assessee's income and expenditure account. 10. On the basis of the details submitted by the assessee, the Assessing Officer conducted enquiries regarding the claim of the assessee that the donation of Rs. 2,92,18,001/- received from about 900 persons were voluntary and towards the corpus and not in relation to admission of students in any of the educational institutions run by the assessee trust. The Assessing Officer issued summons u/s.131 dated 23-11-2010 to 56 donors of Pune and 27 outstation donors selected randomly who had donated singly or cumulatively more than Rs. 50,000/- to the assessee trus....
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.... society in the form of better public relations. The name of student admitted in management quota is also communicated to the UOP in the usual manner. The assessee also explained the procedure for admission to MCA in FCP, MCS in FCP, BCP, BCS, Bio-Technology, Organic Chemistry etc. The assessee also requested the Assessing Officer to grant opportunity to cross examine all the donors whose statements were recorded and who have stated that the donations were not towards the corpus of the rust. The assessee also requested to provide the details of the number of donors to whom summons u/s.131 are issued and the total number of donors who responded to the aforesaid summons. 12. The Assessing Officer informed the assessee that it would not be possible to allow him cross examination of all the witnesses who responded or were examined in view of the time constraint and also the fact that no fault or any inconsistency has been found in the statement of witnesses who confirmed in their reply/statements that donations were made to secure admission of their wards/relatives as also those of their friends/neighbours and associates. The Assessing Officer provided the list of donors/witnesses sta....
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....e's back contravenes the propriety in law of section 131 of the said Act, causing immense prejudice to our substantial rights in law. (c) The reliance on unsubstantiated depositions of witnesses collected by administering the oath for charging the assessee for violation of provisions of the said Act, The Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987 and the dictum of the Hon'ble Supreme Court in the case of Islamic Academy of education & others, is wrong and misconceived in law. (d) No such deposition can be relied upon in law or admissible in evidence for any purpose whatsoever, as no opportunity of crossexamining the said witnesses was ever granted to the assessee, thus disregarding the cardinal principle of law of evidence. (e) No reasons have been disclosed for ignoring the letters and statements written to the assessee by the witnesses under their own signatures thct the donations given to the assessee were voluntary, and as such the notice suffers from non-application of mind in law. (f) Even otherwise, no such deposition can be read or relied upon or used for any purposes, unless the assessee's substantial rights in law to cro....
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....ions were given in consideration of an admission. The assessee should be confronted with such evidence so that the assessee has an opportunity to disprove it. (c) The deponents were not asked as to whether they claimed a deduction u/s. 80G of the IT Act in computing their total income for AY 2008-09. If the donors have claimed such a deduction on the basis of the 80G certificate given to them by the assessee, the donors have obviously admitted the fact that the amounts paid to the assessee was actually a donation and not capitation fee. (d) The fact of admission alleged by deponents was not verified by reference to the records of the assessee- (i) Deponent No.6 Smt. Padmaja Joshi has alleged that the daughter-in-law Ms. Aditi Deshpande was admitted to MCA Course, however as per list of students admitted to MCA Course in FY 2007-08 does not include her name. (Note: Ms Aditi A Deshpande was actually admitted to MCS with only 9 marks (Entrance + University), in Open (O.U.) category, purportedly without management quota) . (ii) Shri Kedar S.Edke has stated that his cousin Shri Ninad N. Mohrir was admitted to MSc (Biotechnology) course, but the list of students admitted to that cour....
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.... the donors gave the donation and that a son or daughter of the donor may have been admitted at any institution run by the assessee. The assessee runs about 35 schools and colleges in several places, where about 50,000 students are admitted. It is quite possible that some student may be a relative or acquaintance of some donor. The assessee never gives admission in consideration of donation. However the assessee as a public charitable trust always appeals to every one for donation to promote the noble cause of education. The amount of donation and the time of donation is left entirely to the discretion of the donors. 18. Regarding the investment of funds in shares amounting to Rs. 712,650/-, it was stated that it was only 0.0018% of the total investment of Rs. 38,50,80,789/- as on 31.3.2008, it was claimed that they were donated to the assessee in 2006 and sold in March, 2010. It was also claimed that provisions of section 13(1)(d) does not apply to the assessee and that there was no malafide intention to violate the provisions. 19. However, the Assessing Officer was not satisfied with the explanation given by the assessee. Tracing the historical background of the erstwhile provi....
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.... One crore, quantified at Rs. 7,86,39,996/- was held to be taxable income of the assessee trust. However, no separate addition to this effect was made on this ground while computing the total income of the assessee in the assessment order as the assessee was held to be not eligible for any exemption. The AO accordingly treated the status of the assessee as AOP and computed the total income of the assessee at Rs. 11,06,10,504/- the details of which are as under : 1. Income as per income & expenditure account Rs.815,92,503 Less : Transfer from reserve Rs.200,000 2. Donation claimed to be corpus donation Rs.292,18,001 Gross Total income Rs.11,06,10,504 20. Before CIT(A) it was submitted that the Assessing Officer erred in holding that unaided institutions having receipts over Rs. 1 crore, run by the assessee society were not eligible for exemption u/s.10(23C) or Sec.11 of the I.T. Act. Stressing that the entity under assessment is Deccan Education Society, it was argued that the various educational activities were being carried out by the assessee in an integrated manner and the individual institutions run by the assessee are not separate....
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....es can be separately identified with respect to grantable and non grantable institutions. The assessee needs to be assessed as one person and therefore it was not legally correct on the part of the Assessing Officer to artificially divide the institutions as aided and unaided to deny the benefit of exemption. In case of unaided institutions whose actual receipts exceeded Rs. 1 crore, it was argued that the word "other educational institution" in clause (iiiab) refers to the assessee society and not to the individual educational institution. Relying on various decisions it was argued that the Assessing Officer was not justified on facts and in law in holding that the income of the unaided institutions whose annual receipts exceeded Rs. 1 crore is not eligible for exemption in the absence of necessary approval from the prescribed authority u/s.10(23C)(vi). 23. As regards the amounts shown to have been received by the assessee as donation towards corpus fund and treated by the AO as capitation fee, it was argued that the Assessing Officer failed to follow the due process of law and the principles of natural justice. It was argued that the assessee had vehemently protested against the....
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....essee was unable to furnish the list of successful candidates who secured admissions in the institutions on merit. The Assessing Officer further reported that the donors in questions were not in the habit of giving donation. The deponents have not positively stated that they were in the habit of giving donations to any other trusts running orphanages, hospitals etc. Therefore, it clearly indicated a systematic exploitation of the situation by the assessee to force the parents and relatives of the students to part with their hard earned income and savings, at times even by taking loans and sale of jewellery to pay donation. The Assessing Officer further reported that the assessee during the entire process of cross examination never denied the modus operandi described by the deponents stated to be adopted by the assessee to collect the donations. 26. The Ld.CIT(A) forwarded the copy of the remand report to the assessee to enable it to file its comments, if any. The assessee in its rejoinder stated that the Assessing Officer has merely repeated the contents of the order of his predecessor without making any attempt to discuss the material facts discovered in the course of cross exami....
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....uilt up space and open space, certain equipment, a certain number of staff per student and payment to staff as per VIth Pay Commission norms. The creation of such infrastructure is a condition precedent for starting of any new course by the assessee for which substantial funds are required. Since the Government has stopped disbursing non salary grants for the last 10 years most of the educational institutions have to look upon their operating surplus and donations from philanthropic persons to finance such donations. It was argued that in absence of such sources, it would be difficult to start new institutions as also for existing institutions to survive. It was argued that the assessee abhors capitation fee as much as the Assessing Officer but it was a necessity for the assessee to appeal for voluntary donations in order to survive. It was submitted that if educational institutions like the assessee who offer education to the masses are denied exemption under the income-tax Act the poor and the needy people will ultimately be denied education and suffer immensely. 28. The decision of Hon'ble Delhi High Court in the case of Shanti Devi Progressive Education Society was brought to ....
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.... he erred in assessing the total income at Rs.l 1,06,10,500/- as against the income of Rs. NIL returned by the appellant. 2] The learned CIT(A) was not justified in denying the exemption u/s 10(23C)(iiiab) when it was granted to the appellant trust in the past years. 3] The learned CIT(A) erred in holding that - a. The applicant society has .collected capitation fee for giving admissions to various students and it has violated Maharashtra Educational Institution (Prohibition of Capitation Fee) Act, 1987 and therefore, it is not entitled to the exemption. b. The appellant does not exist for educational purposes as it generates surplus profits and therefore, it is not entitled to the exemption. c. The exemption u/s 10(23C)(iiiab) is available to an institute and the appellant being a society running various educational institutes, the exemption is not allowable to the appellant. 4] 'The learned CIT(A) failed to appreciate that - a. The appellant society was running a number of colleges / institutes imparting education to about 50,000 students in an year while it had collected donations only from a few hundred persons and thus, it was incorrect to hold that the appel....
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....lly or substantially financed by the Government is exempt from tax. Referring to the Explanation which has been inserted by the Finance (No.2) Act 2014, w.e.f. 01-04-2015 he submitted that the words "substantially financed" by the Government means if the grant from the Government is more than 50%. Referring to provisions of section 10(23C)(iiiad) he submitted that the income of any university or other educational institution existing solely for educational purposes and not purposes of profit is exempt if the aggregate annual receipts of such university or educational institutions does not exceed the amount of annual receipts as may be prescribed which is Rs. 1 crore. Referring to provisions of section 10(23C)(vi) he submitted that the income of any university or other educational institution existing solely for educational purposes and not purposes of profit other than those mentioned in sub clause (iiiab) or sub clause (iiiad) and which may be approved by the prescribed authority is exempt from tax. He accordingly submitted that the various institutions run by the assessee trust may be categorised into 3 types, i.e. (i) some of the institutions run by the trust are aided where the....
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....e decision of Hon'ble Delhi High Court in the case of DDIT Vs. Shanti Devi Progressive Educational Society reported in 340 ITR 320 he submitted that in that case the assessee was an educational society running schools during the relevant assessment year which received various amounts towards admission fees, corpus funds and loan from parents. The Assessing Officer sought to assess them in the hands of the assessee but the Tribunal held that the assessee was entitled to exemption. On further appeal by the Revenue, the Hon'ble High Court dismissed the appeal filed by the Revenue holding that the source of funds was relatable to the activity of education. The loans have been availed by the assessee from nationalised banks for the purpose of creating additional infrastructure/schools and the three sets of amounts had been addressed only towards the object of creating additional infrastructure and easing the liability of the assessee towards the interest burden of loan repayment. There was no finding or allegation of diversion of these funds for the purpose other than carrying on educational activity. There was no diversion of funds to the individual members or taking away of profit for....
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....books and deposited same in the bank, requirement of section 11(1)(d) is fulfilled. Assessee trust was running several schools starting from nursery to PUC and said fact has been endorsed by Assessing Officer. No question of assessee collecting capitation fees in guise of building fund or development fee. Further voluntary contributions received were for the specific purpose of "building" and assessee had applied such contributions towards object of trust. Assessee had obtained the signatures of the parents of successful students in pre-printed letters before obtaining donation and shown in statement. Assessee was entitled to exemption u/s.11 in respect of building fund as well as college development fund. 40. Referring to the decision of the Chennai Bench of the Tribunal in the case of Padanilam Welfare Trust Vs. DCIT reported in 10 ITR (Tribunal) 479 he submitted that the Tribunal in the said decision has held violation of prohibition of Capitation Fees Act cannot be a ground taking away the registration of a charitable organisation. It has been held that capitation fee per se is not in the nature of illegal income in absence of any material to show that assessee had made any pr....
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....erred to in serial number 1 was used or applied, in a manner which results directly or indirectly in conferring any benefit, amenity or perquisite (whether converted into money or not), on any interested person as specified in sub-section (3) of section 13? If so, details thereof." 44. Referring to the above he submitted that when the form itself asks the assessee to state the legal status, i.e. whether it is a trust or a registered society/others, then there is no requirement of treating each institution as separate entity for claiming exemption u/s.10(23C). The society as a whole should be granted exemption u/s.10(23C). 45. As regards the allegation of the Assessing Officer that the assessee has received grants more than 50% from Government and therefore is not eligible for exemption, the Ld. Counsel for the assessee drew the attention of the Bench to CBDT Notification dated 12-12-2014 a copy of which is placed at Page 73 of the legal compilation and submitted that the said circular says for the purpose of said sub clause (iiiab) and (iiiac) of clause 23 of section 10 any university or educational institution shall be considered as being substantially financed by the Governmen....
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....e has to accept some donation towards the corpus since the Govt. grant is very negligible. There is no diversion of fund for the benefit of the trustees and most importantly there is no complaint by any of the donors before the State authorities for violation of the Capitation Fee Act, if any. 49. As regards the observation of the Ld.CIT(A) that donations were timed for admission the Ld. Counsel for the assessee submitted that that is the time when the people come to the society and it happens with all charitable institutions and not with the assessee only. He submitted that the donations were taken by the assessee voluntarily. So far as the merit list is concerned he submitted that it is a public document. The Ld. Counsel for the assessee reiterated that the assessee does not exist for profit and has not violated the Capitation Fee Act. 50. Referring to the decision of the Hon'ble Rajasthan High Court in the case of Chief CIT Vs. Geetanjali University Trust reported in 352 ITR 433 he submitted that Hon'ble High Court in the said decision has held that merely because there is some defect in the admission procedure, the assessee will not lose character as entity existing solely fo....
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....ted that the trust is not charging any fees more than the prescribed limit which is fixed by the Government. The donations received every year appear in the accounts and the Government has not taken any action. Such type of collection is continuing since long. Merely because some donors have stated that they have given donation for admission that does not mean that the institution is existing for profit motive. The donors have given the donation voluntarily and some of them claimed deduction u/s.80G. Therefore, their statements before the Assessing Officer are contradictory to what they have signed before the institution. Therefore, the second version of the statement before the Assessing Officer has to be ignored or disbelieved. Referring to paper book page 114 he submitted that the assessee has not generated huge surplus. So far as the decision relied on by Ld. Departmental Representative is concerned he submitted that the issue before Hon'ble Karnataka High Court was under sub clauses (iiiad) of clause (23C) of section 10. However here, the issue is under sub clause (iiiab) and (iiiac) of clause (23C) of section 10. He also relied on the latest decision of Hon'ble Supreme Court ....
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....action of the Assessing Officer. While doing so, he observed that the income of the unaided institutions whose annual receipts exceeded Rs. 1 crore is not eligible for exemption in absence of necessary approval from the prescribed authority u/s.10(23C)(vi). He also rejected the argument of the assessee that the word "other educational institutions" in clause (iiiab) refers to the assessee society and not the individual educational institution. According to him the exemption u/s.10(23C) is institution specific and not person specific and the eligibility for exemption of income or otherwise in respect of each institute of the society has to be decided with reference to specific sub clause provided in section 10(23C) and applicable to that institute. 58. So far as the allegation of the Assessing Officer that the assessee has received capitation fee in the guise of donation, he observed that the statements recorded from the donors showed that the contributions were paid by the donors as quid-pro-quo for securing admissions in various institutions run by the assessee and the same are not voluntary contributions or corpus donations as the donations coincide with the dates of admission a....
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.... the Government. Similarly, there are 3 institutions where the trust has not received any grant and the gross receipt is more than Rs. 1 crores, the list of such details of the institutions are given as under : DECCAN EDUCATION SOCIETY, PUNE PAN: AAATD3141P AY2008-09 NAME OF THE INSTITUIONS (Aided institutions) GROSS RECEIPTS EXPENDI TURE SURPLUS/ DEFICIT GRANTS included in GROSS RECEIPTS % of the Grants with Total Gross Receipts BELOW ONE CRORES UNITS 1 Shah Kanital Prashala(Primary) 561,192 575,175 (13,983) 561,153 100% 2 Shah Kanital Prashala(Secondary) 977,211 1,391,797 (414,586) 724,864 74% 3 Navin Marathi Shala, Satara 2,704,976 2,455,538 249,438 1,890,094 70% 4 Technical Institute, Pune 4; 597,062 3,704,790 892,272 2,223,000 48% 5 Navin Marathi Shala, Pune 5,610,342 5,204,816 405,526 3,854,738 69% 14,450,783 13,332,115 1,118,668 9,253,849 ABOVE ONE CRORES UNITS 6 Dravin Highschool, Wai 10,631,057 10,477,016 214,042 8,589,94....
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....lal Prashala Secondary, Sangli 373,658 595,301 (221,643) 17 Shah Kantilal Prashala Pre-Primary, Sangli 301,527 228,752 72,776 18 Shah Kantilal Prashala Computer 373438 225,007 148,431 19 DES New Pre-Primary, Pune 1,21-1,091 707,205 503,887 20 Balak Mandir Satara 1,436 ,571 674,350 762,221 21 Ranade Balak Mandir, Pune 4,292,^-17 2,063,116 2,229,301 22 DES Primary, Pune 5,695,944 3,172,135 2,523,810 23 DES New Primary, Pune 5.75S.830 4,293,906 1,465,924 24 DES Pre-Primary, Pune 6,014,857 1,436,180 4,578,676 25 Institute of Management & Research 6,936,239 5,946,310 989,929 26 DES Secondary, Pune 7,789,173 5,510,641 2,278,532 27 Jagganath Rathi Vocational Institute, Pune 8,751,432 8,467,541 283,891 55,502,143 40,918,00 14,584,142 NAME OF THE Institutions (Unaided Institutions) GROSS RECEIPTS EXPENDIT URE SURPLUS/ DEFICIT GRANTS % of the Grants with Total Gross Receipts ABOVE ....
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.... could be regarded as an educational institution, if the society was running an educational institution not for the purpose of profit, but its existence was solely for the purpose of education. The Revenue appealed to the Supreme Court . The Hon'ble Supreme Court held as under (page 316 and 317) : "The sole question that arises for consideration is whether the assessee will be taken in by the words "other educational institution". On this aspect, the High Court held thus : "'Any educational institution' would fall within the scope of section 10(22) even though it may have or may not have anything to do with the University. The categories are so different that the University cannot be the genus, and the 'other educational institution' the species thereof. Thus, the college here could come under the 'other educational institution'. " Proceeding further, the High Court held that the assessee came into existence for the purpose of establishing, running, managing or assisting colleges, schools and other educational organisations and in pursuance of its objects, the assessee has established a college. It was further held that the medium through which th....
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....ducational purposes and not for the purpose of profit could be regarded as "other educational institution" coming within section 10(22) of the Act. (See CIT v. Doon Foundation [1985] 154 ITR 208 (Cal) and Agarwal Shiksha Samiti Trust v. CIT [1987] 168 ITR 751 (Raj). It will be rather unreal and hypertechnical to hold that the assessee society is only a financing body and will not come within the scope of "other educational institution" as specified in section 10(22) of the Act. The object of the society is to establish, run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard to raise or collect funds, donations, gifts, etc. Colleges and schools are the media through which the assessee imparts education and effectuates its objects. In substance and reality, the sole purpose for which the assessee has come into existence is to impart education at the levels of colleges and schools and so, such an educational society should be regarded as an "educational institution" coming within section 10(22) of the Act. We hold accordingly. In our view, the judgment of the High Court does not merit interference. The plea of the....
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....me of them claimed deduction u/s.80G, a fact stated by Ld. Counsel for the assessee and not controverted by the Ld. Departmental Representative. Therefore, changing the stands after their wards completed their education from the institutions run by the assessee trust are contradictory. Further, it is also a fact that all donations received by the assessee trust are recorded in the books of account. There is no allegation by the Revenue that any part of such donation has been siphoned off for the benefit of any of the trustees or related persons. Nothing has been brought on record that any student has been denied admission for not giving donation. Merely because some of the donors stated that they have given the donation for admission the same in our opinion will not disentitle the society from getting exemption which is existing solely for educational purposes and which is otherwise entitled to the exemption. 67. We find a somewhat similar issue had come up before the Hon'ble Rajasthan High Court in the case of Chief CIT and Another Vs. Geetanjali University Trust reported in 352 ITR 433. In that case the assessee-trust, for the assessment year 2008-09, filed an application seekin....
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.... interference with the order of the single judge." 68. We find the Pune Bench of the Tribunal in the case of Shikshana Prasaraka Mandali Vs. CIT Central Pune vide ITA Nos.1348 and 1349/PN/2010 order dated 27-03-2014 (where one of us - Accountant Member is a party) while dealing with denial of registration u/s.12A for violation of The Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987 by accepting donations has observed as under : "8. We have considered the rival arguments made by both the sides, perused the order of the Ld.CIT and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find there is no dispute to the fact that the assessee trust is more than 100 years old and it runs more than 60 educational institutions imparting education to more than 70000 students in various fields. The trust was granted registration earlier u/s.12A. However, the Ld.CIT cancelled the registration granted earlier on the ground that the objects of the assessee trust are not genuine since the assessee trust is collecting huge donation from students for admission to the various institutes run by it in violation....
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....he Loans taken from parents. Thus it really can't be disputed that even the source of funds is relatable to the activity of education. It may be noticed that there are factual findings on the loans having been availed of by the assessee from a nationalized bank for the purpose of creating additional infrastructure/schools and the three sets of amounts have been addressed only towards the object of creating additional infrastructure and easing the liability of the assessee towards the interest burden of loan repayment. What is pertinent to be taken note of is that there is no finding or allegation of any diversion of these funds for the purpose other than carrying on educational activity. There is no diversion of funds to the individual members or taking away of profits for some other activity. It does appear to us that the Assessing Authority appears to have been weighed down by the factum of some questions being raised in the Parliament about the manner of collection of funds by the institutions. That alone, would not suffice to deny the exemption under Section 10(22) of the IT Act. There is in fact no material to show or a complaint that there has even been any coercive proce....
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....ion is the legal consequence of the assessee accepting capitation fees / donations from students seeking admission to various courses offered by the Institutions run by the Assessee-Trust. Even in the matter of capitation fees / donations, the Commissioner of Income Tax has no case that the funds collected by the Assessee- Trust through capitation fees / donations have been used for the purposes other than running the Institutions managed by the Assessee Trust. It is to be seen that all the Institutions run and managed by the Assessee Trust are carrying on the activities envisaged in the Memorandum of Association the Assessee-Trust. It is stated by the Commissioner in his order itself that the moneys collected by the Assessee-Trust by way of capitation fees / donations are used for the purpose of not only by the Assessee- Trust but also for other Institutions of similar nature It is to be seen that application of funds for the charitable activities of another eligible Institution amounts to application of funds for charitable purposes. The law has made it very clear that the charitable activities may be carried out directly by an eligible Institution or through another eligible Ins....
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....o should be contributed to justify the cancellation of the registration." On the basis of the aforesaid decision of the Tribunal, which has been rendered after considering the judgments of the Hon'ble Karnataka High Court in the case 11 of Sanjevamma Hanumanthe Gowda Charitable Trust (supra) and that of the Allahabad High Court in the case of CIT v Red Rose School 163 Taxmann 19 (AIL), it is quite clear that the objection raised by the Commissioner with regard to the receipt of capitation fee/donations are factors to be considered at the time of assessments while examining the eligibility of the assessee trust for the benefit of section 11 & 12 and the same do not come into play in the course of the examination by the Commissioner for the purposes of grant of registration under section 12AA of the Act. 14. In view of the aforesaid discussion, in our considered opinion, the Commissioner has examined the application of the assessee on irrelevant considerations which were beyond the scope of enquiry envisaged under section 12AA of the Act. We, therefore, deem it fit and proper to set aside the order of the Commissioner and restore the matter back to his file to be examined afres....
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....r understanding, also acknowledged in the precedents; the provisions of s. 12AA prescribes conditions for registration of a trust and therefore in the absence of registration disentitles any trust from claiming any benefit of the provisions of s. 11 and s. 12 of the Act in relation to its income. Therefore the conclusion is that s. 12AA prescribes certain conditions for the registration of a trust and thereupon obligates a trust or an institution to seek, rather obtain, a registration under s. 12AA if such trust intends to have the benefits of the exemption as prescribed under ss. 11 and 12 of the Act. It is not the other way round that the benefit of ss. 11 and 12 shall be automatic once the registration is granted. Thus the outcome is that these provisions make it clear that if the trust is not registered under s. 12AA it would not be able to claim any exemption or exclusion of its income from the total income of the previous year, even if such income is otherwise liable for exclusion under any of the clauses of s. 11 and s. 12 of the Act. 11.3 On due consideration of the rival arguments we can summarise the section of the Act governing the issue in hand. The purpose of framing....
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....the procedure of earning of income and sources from where receipts are derived. The argument was, it also does not speak anywhere that while considering the registration the CIT shall also see the manner in which the receipts or the income is being spent by the trust. To our humble understanding of various related provisions, the power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections as already discussed ante. The language thus used in this section only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should d....
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....os. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under s. 11 or s. 12. This certainly is not the legislative intention as reflected in the scheme laid down in ss. 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of s. 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the AO is required to examine the claim of the assessee for benefits under s. 11 or s. 12 while computing the total income of the assessee of the relevant previous year. The application of s. 13 thus falls within the exclusive domain of the AO and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration under s. 12AA." 11.7 An another feature of the impugned order of the learned CIT is in fact bothering us that nowhere he has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution as declared in the trust deed, which are extracted earlier, does reflect that all are philanthropic or benevolent in nature, precisely ....
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....ust. Secondly in case of dissatisfaction he is empowered to cancel the already granted registration. Thirdly in case it is found that the activities are not in conformity with the object that too is the good reason for cancellation of registration. Fourthly the sweep of the section is wide enough to empower the CIT to examine the nature of the object whether for general public utility and philanthropic in nature. In our conscientious view there is no disagreement about the above-mentioned four legal proposition as eruditely laid down by the respected Amritsar Bench. Undisputedly we have also to decide this appeal more or less within these parameters. But the basic question is that before stepping towards the cancellation of registration the heavy burden is on the learned CIT to conclusively demonstrate that all had gone haywire i.e., objects are meant for personal benefits; that engaged in immoral activities or that there is no element of public benefit. In the present appeal none of the above criteria for rejection of registration was in existence, however mainly confined to the finding that by charging donation the trust has infringed the rules of Prohibition of Capitation Fee Ac....
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....der s. 12AA can only be withdrawn when the CIT is satisfied that (a) the activities of the trust or the institution are not 'genuine'; or (b) the activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. There cannot be any other legally sustainable reason for cancelling or withdrawing the registration granted under s. 12AA. By no stretch of logic, the activities of the assessee can be said to be not genuine and the assessee is admittedly pursuing the objects for which it was established. When the assessee is engaged in bona fide activities, with the framework of law, to pursue its objectives, it cannot be said that the activities of the assessee are not genuine. Learned CIT has also not brought on record any material to demonstrate activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. Under these circumstances, the withdrawal of registration granted under s. 12AA cannot be sustained in law. Learned CIT has extensively referred to as to why the assessee is not eligible for exemption under s. 11 as the activities of the assessee cannot be said to be for &....
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....e not genuine. (b) That activities of the trust are not carried out in accordance with the objects of the trust/institution. Thus the findings of the learned CIT has not to be only conceptual or contextual but should be within the four corners of law so that not surpassing the power, as listed above, granted in sub-s. (3) of s. 12AA. But unfortunately the fallacy is writ large as gathered on perusing the impugned order. We can hold that the CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. We are afraid about the ramification if we approve the action of learned CIT because in that case it may adversely affect the imparting of education especially when the Revenue has not made out a case that the very purpose for creation of the trust was defeated. Rather we wonder that what purpose does it serve to Revenue by cancelling a registration if the activities are in public interest because in case of any breach of the laws the same is subject to tax under ss. 11 and 12 of IT Act. These two provisions and few other provisions are competent enough to tackle firmly a default....
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....wrongful means; hence deregistration sans our approval. Nevertheless the list of fifteen cases, as highlighted by learned CIT, lack desired positive finding as it was left blank on the excuse that even the other authorities could not lay their hands on alleged defaults so it was also difficult for the Revenue authorities to trace the correct position. While dealing with the facts ante, it was found that after exhaustive enquiry few instances; fifteen in numbers; were noticed by the Revenue authorities wherein it was alleged to be the infringement of Capitation Fee Act. But the irony is that in the same breath the learned CIT has accepted the stand of the assessee that it can charge five times the normal fees in case of admission in the defined management quota. Thereupon there was a circumvent in the approach of the learned CIT that the amount of donation be considered together with the fees to find out the violation of prohibition of Capitation Fee Act. But on facts that too did not stand the test of those provisions since admittedly did not exceed the prescribed limit. 11.14 Facts of this appeal are peculiar, as already discussed in above paras in detail and thereupon can comme....
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....cerned we find the Ld. Counsel for the assessee has distinguished the same. We fully agree with his arguments. In any case since 2 views are possible on this issue, the view in favour of the assessee has to be adopted in view of the settled proposition of law. In this view of the matter, we hold that the Ld. CIT is not justified in cancelling the registration u/s.12A of the I.T. Act, 1961. We accordingly set-aside the order of the Ld.CIT and direct him to grant registration u/s.12A of the Income Tax Act. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed." 69. Although the above decision was rendered in the context of denial of registration u/s.12A of the I.T. Act we find the issue there was also denial of registration u/s.12A on the ground that the institutions are accepting capitation fee in guise of voluntary donations and are being run on commercial lines with profit motive. Therefore, the ratio that whether the institutions are being run on commercial lines with profit motive due to acceptance of capitalisation fee in guise of donation will be applicable to the facts of the present case. 70. We find the Bangalore 'C' Bench of the Trib....
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....39; in guise of 'building fund or development fee-Further voluntary contributions received were for the specific purpose of 'building fund or development fee' - Further voluntary contributions received were for the specific purpose of 'building' and assessee had applied such contributions towards object of trust - Assessee had obtained the signatures of the parents of successful students in pre-printed letters before obtaining donation and shown instatement - Assessee was entitled to exemption u/s.11 in respect of 'building fund' as well as 'college development fund' - Assessee's appeal allowed. Held : In the present case, even if the fees collected were in violation of the norms subscribed by the State Government, the application of the funds were towards the objects of the assessee trust and as such, there was no violation of s.13 of the Act as ascribed by the Revenue, The assessee had obtained the signatures of the parents of the successful students in preprinted letters without giving the details of amounts' donated, date of contributions etc., but contained the donors' names and their addresses. However, the assessing authority had chosen not to cross-exami....
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....as, the case before the Uttrakhand High Court pertained to Section 10(23C)(iiiad) of the Act. The third proviso to Section 10(23C)(vi) is not applicable to the cases falling within the purview of Section 10(23C)(iiiad). Secondly, the judgment rendered by the Uttarkhand High Court runs contrary to the provisions of Section 10(23C)(vi) of the Act including the provisos thereunder. Section 10(23C)(vi) of the Act is equivalent to the provisions of Section 10(22) existing earlier, which were introduced with effect from 1st April, 1999 and it ignores the speech of the Finance Minister made before the introduction of the said provisions, namely. Section 10(23C) of the Act [See observations in American Hotel and Lodging Association Educational Institute's case (supra)]. Thirdly, the Uttrakhand High Court has not appreciated correctly the ratio of the judgment rendered by Hon'ble the Supreme Court in the case of Aditanar Educational Institution(supra) and while applying the said judgment including the judgment which had been rendered by Hon'ble the Supreme Court in the case of Children Book Trust (supra), it lost sight of the amendment which had been carried out with effect from....
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....ete with the finding that there is no contravention of the statutory provisions, need not be reopened. However, alter grant of approval if it comes to the notice of the prescribed authority that the conditions on which approval was given, have been violated or the circumstances mentioned in 13th proviso exists, then by following the procedure envisaged in 13th proviso, the prescribed authority can withdraw the approval. (3) The capital expenditure wholly and exclusively to the objects of education is entitled to exemption and would not constitute part of the total income. (4) The educational institutions, which are registered as a Society, would continue to retain their character as such and would be eligible to apply for exemption under Section 10(23C)(vi) of the Act. [See para 8.7 of the judgment-Aditanar Educational Institution case (supra)] (5) Where more than 15% of income of an educational institution is accumulated on or after 1st April, 2002, the period of accumulation of the amount exceeding 15% is not permissible beyond five years, provided the excess income has been applied or accumulated for application wholly and exclusively for the purpose of education. (6) Th....
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....itution can afford to remain stagnant. The Income-tax Act 1961 does not condition the grant of an exemption under Section 10(23C) on the requirement that a college must maintain the status-quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23C). Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The provisions of Section 10(23C) cannot be interpreted regressively to deny exemptions. So long as the institution exists solely for educational purposes and not for profit, the test is met. 25. We approve the judgments of the Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside the judgment of the Uttarakhand High C....