TaxTMI 
TaxTMI 
2016 (7) TMI 272
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....rom the parents of students over and above the regular fees in violation of Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. However, for the sake of reference, we extract the grounds in ITA No.206/Bang/2014 hereunder:- "i) The order of the CIT(A) on the issue of capitation fee / donations collected by the assessee trust over and above the regular tuition fee and violation of Karnataka Educational Institution Prohibition of Capitation Fee Act, 1984, cannot be accepted for the reason that, the assessee is basically an entity existing for charitable purposes and imparting education, being an object of the trust, should not indulge in collecting hefty money in the form of donations, for which, as brought out by the AO in the assessment order, parents were forced to borrow loans to get their wards admitted to the said college. ii) The opinion of the CIT(A), Mysore that the AO is not the competent authority to hold that the appellant has committed violations is not acceptable for the reason that, the AO is duty bound to look out for any violations committed by the entities claiming exemption and whether the entity is carrying on its a....
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.... the case of VODITHALA EDUCATION SOCIETY reported in 20 SOT 353 in preference to the decision of the jurisdictional Tribunal in the case of CHILDRENS EDUCATION SOCIETY and also the express provisions of section 11[7] of the Act, under the facts and in the circumstances of the appellant's case. 3. The learned CIT[A] has seriously erred in upholding the order of the learned A.O. that the amounts collected by the appellant trust as voluntary contributions from general public and which are accounted in its own books as "voluntary contributions" in the "Head Office Segment" and in the Income & Expenditure account of the books of accounts of the appellant trust, as fee for granting admissions by the educational institutions run by the appellant trust especially when the books of accounts and the entries made therein are not rejected under the facts and in the circumstances of the appellant's case. 3.1 The finding of the authorities below are purely on suspicion and surmise, assumptions and presumptions and per se perverse as contrary to the evidence especially by relying upon the statements of only 7 persons, which have not been put to the appellant to lead evidence i....
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.... ITR 699], in which the Hon'ble Supreme Court has upheld that the surplus earned on account of running the educational institutions would not be impressed such educational activity by virtue of resultant surplus year after year as non-charitable activity on account of profit motive for being exempt u/s.10[23C] as well as u/s.11 and balance in view of the express provisions of section 11 [7] of the Act, which was not so exempt was entitled for exemption u/s. 11[1] of the Act, as per the ratio of the decision of the jurisdictional ITAT in the case of CHILDRENS EDUCATION SOCIETY in ITA Nos.1439 & 1554/Bang/2012 dated 30105/2015 contrary to the non-jurisdictional Tribunal, Hyderabad "B" Bench in the case of Vodithala Education Society [supra], which is not binding on the learned CIT[A]. 7. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234-B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled especially, there was no obligation to file an estimate and pay advance-tax and therefore, the interest charged u/s.234B of the Act requi....
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....bstantial amount of donation/capitation fees on admission of their children. The ld. DR has also placed reliance upon the judgment of the Hon'ble Madras High Court in the case of P.S. Govindaswamy Naidu & Sons v. ACIT, 324 ITR 44 (Mad) in which it was held that where it was found that amount paid by the parents of the students admitted to assessee educational institution was not to the corpus donation account, but it was collected only by way of capitation fee, such amount of capitation fee was not exempt in the hands of the assessee- institution. 10. The ld. DR further invited our attention to the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, according to which, "capitation fee" means any amount, by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed under section 5, but does not include the deposit specified under the proviso to section 3 of the Act. The ld. DR further contended that since the assessee has received the capitation fees over and above the tuition fees, the assessee is not entitled for exemption u/s. 11 of the Act. He also placed reliance upon the judgment of the Hon'ble Apex Court in the ....
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....by the Tribunal, against which an appeal was filed before the Hon'ble High Court of Karnataka and the order of the Tribunal was confirmed and the appeal of the Revenue was dismissed. Therefore, the Tribunal has examined the nature of activities of the assessee while adjudicating the issue of grant of registration. Similar issue cannot be re- examined by the AO for denying the exemption u/s. 11 of the Act. He has also placed reliance upon the following judgments:- (1) ITO v. Kalinga Cultural Trust, 177 TTJ 233 (Hyd) (2) DIT(E) v. Lala Lajpatrai Memorial Trust, 383 ITR 345 (Bom) (3) CIT v. Karnataka Lingayat Educational Society, Karnataka High Court, Dharwad Bench, ITA No.5004/2012 dated 15.10.2014. (4) Children's Education Society, 358 ITR 373 (Kar) (5) K.T. Venkatappa v. K.N. Krishnappa, 173 ITR 678 (Kar) (6) Shri Ananda Marakala, ITAT Bangalore, ITA No. 1584/Bang/2012 & CO 58/Bang/2013 dated 13.9.2013. (7) Colonisers v. ACIT, 41 ITD 57 (Hyd) [SB] (8) Kishinchand Chellaram, 125 ITR 713 (SC) 15. Having carefully examined the orders of authorities below and documents placed on record, we find that the controversy in these appeals is only with re....
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.... institution has received voluntary contributions from different persons and one list was given from which it was noticed that Sangham has received a sum of Rs. 1,14,20,000/- as donations which have been accounted under the head "voluntary contributions". It was further seen that the amount was received mainly in cash and varies from 1 lakh to 5 Lakhs. A notice dated 1.11.2011 was issued u/s 133(6) of the IT Act, 1961 to few of the persons whose name figured in the list and which is reproduced here: "1. Whether you have given any donation to this institution in earlier earlier or subsequent year, if yes, details thereof. 2. Whether you have given any donation to any other organization / institute during the year or earlier. 3. The purpose for which the donations were given. 4. The reasons for giving donations in cash and not in cheque. Whether the recipient trust had insisted on giving the amount in cash. 5. Whether your son / daughter / any close relative / ward was given admission in Kammavari Institute of Technology / Polytechnic during the Financial Year 2008-09, if so, name and academic course in which the admission was giv....
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....s Act and maintained or developed solely or substantially out of amounts collected as capitation fee or any class or classes of such institutions, to continue to receive such capitation fee or cash deposits in such manner, to such extent and for such period as the Government may, by order, specify, so however that such period shall not in any case extend beyond five years from such date." 16. In the succeeding year i.e., AY 2010-11, the AO has also made further investigation and reproduced the details of the persons from whom the capitation fees was received by the assessee. 17. While dealing with the appeal for the AY 2011-12, the CIT(Appeals) was not convinced with the contentions of the assessee and he himself also made a detailed enquiry in respect of voluntary contributions in his order. He has extracted the mode of payments and details of persons from whom the payments were made. He has also placed reliance upon various judgments in this regard while holding that capitation fees has been given in the disguise of so-called voluntary contribution. The relevant observations of the CIT(Appeals) is extracted hereunder for the sake of reference:- "14. I have co....
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....he HO account. 4.3 The 'consent' by parents of students admitted to the appellant professional courses in their replies to the AO could not have been otherwise, considering the enormous but subtle pressures that constrain parents in such situation. Infact, the printed receipts of Andhra Bank, KSIT branch reproduced above with mention of "voluntary contribution for the year ... " displays the blatant and systematic manner in which parents of students seeking admission are pulled into the system where readymade receipts for voluntary contribution exist to give an impression of legitimacy for the so called "voluntary" donations. 5. Coming next to the question of whether the impugned amounts, therefore, partake the character of capitation fees, it is seen that for the impugned period of 2010-11, the admissions to private professional colleges for medical, dental and engineering courses were governed by the consensual arrangement entered into between the Government of Karnataka and the Karnataka Private Medical, Dental and Engineering Colleges Association (KPM & DECA) entered into under the Karnataka Professional Education Institution (Regulation of Admissions ....
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....Hon'ble Apex Court in the case of Miss Mohini Jain vs State of Karnataka (1992) 2 SCC 666. 5.2 In the background of the above facts, and the existence of the anti-capitation fees related legislation referred to supra, it appears that the voluntary contributions collected with the quid pro quo of engineering seat for the wards of the donors carries a very strong colour of commercial orientation in education. In order to claim exemption of income u/s, 11(1)(a), the income should have been derived from a property held under trust wholly for charitable or religious purposes. In the case of the appellant, the educational institutions run by it constitute this property held under trust. It, therefore, follows that this property i.e. the educational institutions, should exist wholly for educational purposes, education being one of the components of charitable activities permitted u/s, 2(15). 5.3 The Hon'ble Supreme Court have passed a number of land mark decisions to determine whether an educational institution is existing wholly for educational purpose and not for purposes of profit. The decisions, even when rendered in the context of Sec.10(23C), are applicable....
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....enactment ....................When the assessee used the charitable activity/ educational institution as an apparatus for selling the education, in our opinion, the element of charity no longer remains in the activity of the assessee .................. In the case on hand, the material found during the course of survey operation clearly established the collection of money over and above the fee prescribed by Government for admission of a student. Therefore, it is a clear case of sale of education by the assessee-society. In our opinion as such, the assessee cannot be considered as a charitable institution under section 2(15) of the Income-tax Act. Therefore, the assessee is not eligible for exemption under section 11 of the Income-tax Act ................ We would like to further add that collection of money over and above the fees prescribed by the Committee appointed as per the directions of the Hon 'ble Apex Court is increasing day-by-day for admitting students under Management Quota. This collection of money over and above the fees prescribed by the committee, shall be construed as collection of 'Capitation fees' as held by the Apex Court. Collecti....
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....aid case was not rendered in the context of Sec.10(23C) of the Act. Hence, the observations that the appellant has made huge surplus etc are not germane to the issue relating to the exemption u/s. 11 of the Act." The factual inaccuracy in this observation is that the M/s Queens Education Society matter was actually delivered on Sec.10(23C)(iiiad). The issue of surplus generation is at the heart of understanding the profit orientation or charitable orientation of an assessee since the Hon'ble Supreme Court in the case of M/s Queen's Educational Society itself, as discussed supra, have observed that if the surplus is not incidental to the educational activity, it shows that the institution did not derive income from property held under trust for charitable purpose. 6.2 The CIT(A) had held that the AO is not the competent authority to conclude that the appellant has committed violation under the Karnataka Education Institution (Prohibition of Capitation Fee) Act of 1984. It needs to be mentioned that the AO's discussion in the order for that year has not been made as a competent authority under the anti capitation fee statute but only as a competent authority unde....
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.... of the appellant is found to be factually incorrect since the in the Mohini Jain decision, the Hon'ble Supreme Court had said that the fees charged in private institutions in excess of tuition fees fixed in government colleges is "deemed to be capitation fees". In the present case, the AO has similarly pointed out that the capitation fees has been given in the disguise of so called "voluntary contributions", The identity of facts is, thus, obvious." 18. From a careful perusal of the orders of the lower authorities and details of receipt of donation/voluntary contribution, we find that these donations/voluntary contributions were received over and above the tuition fees. There is no iota of evidence produced by the assessee to support that these donations were towards the corpus. Had it been a case of donation towards corpus, there should be a specific narration on the donation receipts that this contribution was made towards the corpus. Moreover in Karnataka receipt of donation/capitation fee is strictly prohibited by the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. Through this legislation, the Govt. of Karnataka has prohibited the receipt ....