TaxTMI 
TaxTMI 
2018 (8) TMI 190
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.... the society. 4. It is contended that the learned Commissioner of Income tax (Appeals)IV, Hyd. erred in coming to the conclusion that voluntary contributions in the form of development fund received by the appellant society amounting to Rs. 1,21,25,001 for the assessment year 2003-04 should be treated as donations ~~ ~ collected as quid pro quo for the admission of students under management quota. 5. It is contended that voluntary contributions received are for the corpus fund and cannot be called as income. The learned Commissioner of Income tax(Appeals)IV, Hyd. should have seen that the appellant in any event, has considered these voluntary contributions as income for the purpose of computation of income. 6. It is contended that the learned Commissioner of Income tax (Appeals)IV, Hyd. erred in not applying the decisions of the Supreme Court in C.LT Vs. Bijili Cotton Mills Ltd. reported in 116 ITR P.60 at pages (73 & 74) and that of the A.P High Court in the case of Chairman, A.P Welfare Fund Vs. C.LT reported in 143 ITR P.84 for the purpose of considering whether the contributions are voluntary or not. The learned Commissioner of Income tax(Appeals)IV, Hyd. fell into err....
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....ferred to at para 6.2 of the appellate order. All enquiries were made behind the back of the appellant. At no stage these matters were put to the appellant for its objections by the learned Commissioner of Income tax(Appeals). 13. It is contended that the inference drawn at para 8 in relation to ~~e reasons why the Secretary(Higher Education) or A.C.I.T.E could not have taken action, is a figment of imagination of the learned Commissioner of Income tax(Appeals). He has indulged in wild guess work and invoked non existent inferences to draw adverse conclusions. It is contended that the learned Commissioner of Income tax(Appeals) made up his mind first not to allow the appeal and later went in search of some reasons willy nilly to deny the appellant's claim to justify his action. 14. The learned Commissioner of Income tax(Appeals)IV, Hyd. erred in relying on the decision of the Hon'ble Tribunal in Vodithala Education Society in ITA No.1138/Hyd.l2006 for the assessment year 2003-04. It is contended that the said order of the Hon'ble Tribunal is inapplicable because the issue therein was whether there was any violation of provisions of section 13 (l)( c) of the I. T A....
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....e issue as to whether the assessee was eligible for exemption u/s 11 of the Act. The Special Bench was however, disbanded after taking into consideration, the contentions of the assessee that similar matter is pending before the Hon'ble High Court of Andhra Pradesh and that the ITAT Chennai had adjudicated the issue in favour of the assessee. Therefore, the matter is again posted before the Division Bench for adjudication. 5. The learned Counsel for the assessee, Shri Y. Ratnakar, while reiterating the submissions made by the assessee before the authorities below, has also referred to the written submissions filed by him. He submitted that this issue is covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in the case of Vignana Jyothi in ITA No.1751/Hyd/2014 dated 26.04.2017 and therefore, the issue needs to be decided in its favour. Copy of the said order is filed before us. 6. The learned DR, however, supported the orders of the authorities below. 7. Having regard to the rival contentions and the material on record, we find that in the case of Vignan Jyothi (Supra), the Coordinate Bench of this Tribunal after considering the decisions ....
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....registration. These are analysed herein onwards. 11.1. First we will consider the meaning of 'Charitable purpose' under the Income Tax Act. Section 2(15) of the Act defines 'charitable purpose' as under: "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility (not involving the carrying on of any activity for profit)". The italicized words in the above definition were deleted w.e.f. 1st April, 1984 by the Finance Act1983. It can be seen that the above definition is not exhaustive or exclusive but is an inclusive definition. It classifies the charitable activities under the following four heads: a) Relief of the poor; b) Education; c) Medical relief; and d) The advancement of any other object of general public utility. The ambit and scope of the word 'education' occurring in the definition of 'charitable purpose' under section 2(15) of the I.T. Act has been examined by the Hon'ble Apex Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT reported in 101 ITR 234(SC) wherein the Hon'ble Supreme Court held that the word 'education....
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....ical relief or the advancement of any other object of general public utility, the trust was considered to be for a charitable purpose. As a result of the addition of the word "not involving the carrying on of any activity for profit" at the end of the definition in s. 2(15) of the Act, even if the purpose of trust is "advancement of any other object of general public utility", it would not be considered to be "charitable purpose" unless it is shown that the above purpose does not involve the carrying on of any activity for profit. The result thus of the change in the definition is that in order to bring a case within the fourth category of charitable purpose, it would be necessary to show that : (1) the purpose of the trust is advancement of any other object of general public utility, and (2) the above purpose does not involve the carrying on of any activity for profit. Both the above conditions must be fulfilled before the purpose of the trust can be held to be charitable purpose. It is not necessary for the decision of the case, as already mentioned above, to go into the question as to whether the words "not involving the carrying on of any activity for profit" also qualify the f....
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.... the Finance Act, 1983 (w.e.f.1-4-1984) in view of the new provision made in Sub-section (4A) of section 11. The provisions of sub-section (4A) as inserted by the Finance Act, 1983 (w.e.f.1-4-1984) read as under: "(4A). Sub-section (1), or sub-section (2) or sub-section (3) or sub- section (3A) shall not apply in relation to any income, being profits and gains of business, unless (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central government in this behalf in the Official Gazette: or (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution. And separate books of account are maintained by the trust or institution in respect of such business" Sub-sec.(4A) has been substituted by the following by the Finance Act,1991 w.e.f. 1-4-1991. (4A) Sub-section (1) or Sub-section (2) or Sub-section (3) or Sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profit....
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....pose is truly charitable, the attainment of the purpose must rigorously exclude any activity for profit" (v) On the other hand, where profit making is the predominant object of the activity, the purpose, though it may aim at advancing an object of general public utility, would cease to be a charitable purpose under s.2(15). Thus, where the profit earned by a charitable institution is not pursuant its objectives but is incidental to its activities, such an institution will still be eligible for exemption from income tax u/sec.11 of the Act, but the incidental profit so earned would be liable to income tax unless it is applied for the objects of the charitable institution. 11.7. In the scheme of the Act and provisions, a charitable institution is eligible for exemption u/s.11 of the Act, provided it fulfils the conditions prescribed u/s.11 to 13 of the IT Act. Sec.11(1) lays down certain conditions regarding application of income by the trust on charitable objects which should be fulfilled before claiming exemption under that section. Therefore, the exemption u/s11 is not automatic and the AO is required to examine the fulfillment of the conditions specified under sections 1....
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....f the person in receipt of the income. On the other hand, section 2(24)(iia) defines 'income' to include voluntary contributions received by a trust created wholly or partly for charitable or religious purposes by an institution established wholly or partly for such purposes[.....]. Sub-sec.(1) of section 12 also provides that any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall, for the purposes of sec.11, be deemed to be income derived from property held under trust wholly for charitable or religious purposes. Thus, the income referred to under 11(1)(d) is considered to be capital receipt and excluded from the from the 'deemed income' under sec.12(1) of the Act. Therefore, unless the donations received by the assessee falls under the category of 'voluntary contribution' u/s 11(1)(d) of the Act, it would be income or deemed income of the assessee. 11.10. The test of the nature of contributions being voluntary or compulsory....
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.... sale of education and hence is no longer a charitable activity, but is an activity run with a profit motive and is not being run wholly for charitable purposes as required u/s 12(1). 11.12. We find that the AO in the assessments has relied upon the judgment of the Hon'ble Supreme Court in the case of TMA Pai Foundation & Others in Writ Petition (Civil) 317 of 1993 dated 31- 10- 2002 wherein it has been held that charging of capitation fee is against public policy and profiteering is not permissible in the field of education. However, Hon'ble Supreme Court also considered that receiving donations by an educational institution, unconnected with admission of students, could not obviously be treated as an equivalent of collection of capitation fee. From the decision of the Hon'ble Supreme Court, it is clear that private unaided institutions are prohibited from collecting capitation fee and profiteering, but not from making profit. Different institutions are entitled to notify different fee for the same course and the same institution may notify different fees structure for different courses. In such cases, the fee notified by the institution would not be considered as c....
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.... of Andhra Pradesh [(1993) 4 SCC 697] (supra), the Hon'ble Court held that private unaided educational institutions running professional course were entitled to charge a fee higher than that charged by Government institutions for similar courses but that such a fee could not exceed the maximum limit fixed by the State. The court then formulated a scheme and directed every authority granting recognition/affiliation to impose that scheme upon institutions seeking recognition/affiliation, even if they were unaided institutions. In TMA Pai's case, the Hon'ble Court reconsidered its verdict in the Unni Krishnan's case and held that the scheme framed by the court and thereafter followed by the Governments cannot be called a reasonable restriction under Article 19(6) of the Constitution. It was held that the decision on the fee to be charged must necessarily be left to the private unaided educational institutions. It was further held that since the object of setting up an educational institution is by definition 'charitable', it is clear that an educational institution cannot charge such a fee as is not required for the purpose of fulfilling the object of developme....
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....ional institutions. Rule 4 of the above rules provides that the Management seats shall be filled either on the basis of rank obtained in EAMCET conducted by the State scoring not less than 50% marks in aggregate or in group subjects in the qualifying examination. Rule 5(c) provides that 15% of the total intake of seats of each course shall be earmarked as Management seats. Rule 6(b) provides that the Managements seats shall be filled by the Management of the concerned Professional College by ensuring merit and transparency. Rule 7(B) provides that the Management seats shall be filled by the Management of the institution keeping them open to all the eligible candidates. Rule 9(2) provides that the Management may charge up to a fee of Rs. 75,000/- per student per annum for the 15% seats under Management Quota while rule 9(3) provides that the Management shall not collect any other fees in the name of Development fee, Building fee, Infrastructure Development Fee etc., except Refundable Deposits like Library Deposit, Laboratory Deposit etc., and shall not charge any capitation fees or resort to profiteering in accordance with the judgment of the Supreme Court in the TMA Pai's case.....
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.... Apex Court has further held that the private unaided institutions are entitled to collect funds for the maintenance and improvement of the institution. However, the objective of the collection of funds must be the imparting of standard education to the public at large. In the case before us, there is no allegation that the funds collected by the assessee society are for any other purpose or that the profits have been distributed to any person or persons. Therefore the collection of the donations by the assessee institution cannot be regarded as capitation fee. 11.16. Now issue arises about profiteering? Profiteering refers to taking advantage of unusual or exceptional circumstances to make excessive profits. It is the generation of disproportionate or unfair profit through manipulation of prices, abuse of dominant position, or by exploiting a bad or unusual situation such as temporary scarcity. Usually, there is no governmental control over profiteering unless it involves any illegal means. Sale of scarce goods at inflated price during war is an example for profiteering. But in the case before us, there is no case of unusual or exceptional circumstances to make excessive profit....
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....butions to the educational institutions. The rules have prescribed only the fee to be collected from the students and have prohibited the collection of the fee of any kind other than those mentioned in the rules. But Sec.6 of the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 permits the receipt of voluntary donations. For the sake of easy reference the relevant provision is reproduced hereunder: Sec.6. (1) Any donation of money to any educational institution, shall be made only in such manner as may be prescribed and not otherwise. (2) All moneys received by any educational institution by way of voluntary donations shall be deposited in the account of the institution, in any scheduled Bank and shall be applied and expended for the improvement of the institution and the development of the educational facilities and for such other related purposes as may be prescribed. Thus, it can be seen that the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 does not prohibit the receipt of voluntary donations or contributions, but the limitation placed is on the ....