TaxTMI 
TaxTMI 
2018 (8) TMI 190
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.... for the year is not liable to tax as income in the hands of 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....
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....nd the remand report dt. 31- 5- 2007 sent by the Assessing Officer (para -6. I) Ill} I' and several letters referred 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 i....
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....re varying decisions of various Benches of the Tribunal on the issue, the case was referred to the Special Bench for a decision on the 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 ma....
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....itation fee, whether the donation can be considered as capitation fee and profits and profiteering - the reasons given by the Ld. DIT(E) while cancelling the 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....
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....it" have been added at the end of the definition as it was given in s. 4(3) of the Indian IT Act, 1922. The position as it existed under the Act of 1922 was that once the purpose of the trust was relief of the poor, education, medical 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....
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....itution for the relief of the poor, education or medical relief, which carries on business, unless the business is carried on in the course of the actual carrying on of a primary purpose of the trust or institution." However, this provision has been omitted by 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 inst....
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....tter of fact the activity results in profit. Bhagwati J said, "Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit merely because profit accrues." Pathak J observed, "I am unable to accept the proposition that if the purpose 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 cond....
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....less the source of the income is some property, and the property is held under trust or other legal obligation wholly or in part for a religious or charitable purposes. 11.9. Clause (d) of sub-sec(1) of sec.11 provides that voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be included in the total income of the previous year of 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 r....
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....es viz., donation/security deposit fee/maintenance fee/activity fee/development fee/entertainment fee etc. Ld DIT placed reliance upon the judgment of the Hon'ble Apex court in the case of Miss Mohini Jain v. State of Karnataka [1992] 2 SCC 666 and also the decision of the ITAT in the case of Rajah Sir Annamalai Chettiar Foundation v. DIT(E) (2011) 48 SOT 502/15 Taxmann.com 313, in support of his decision that collection of capital fee for admission amounts to 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 equ....
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....use in T.M.A. Pai foundation, this court itself held: 11.13. Revenue has placed reliance in the case of Mohini Jain's case (cited supra), whereas there has been a change in approach thereafter in subsequent judgments of the Hon'ble Apex Court. In Mohini Jain's case, the Apex Court had held that any prescription of fee in excess of what was payable in Government colleges was a 'capitation fee' and would therefore be illegal. Subsequently, in the case of Unnikrishnan Vs. State 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 therea....
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....are applicable to all the Unaided Non-minority professional institutions imparting under-graduate professional courses in various streams stated therein. The EAMCET is the basis for admission of students into various unaided Non-minority professional institutions in the State of Andhra Pradesh (at the relevant point of time). 'Management Seats' are defined as the seats earmarked from out of the sanctioned intake of seats in each course to be filled by the Management of the Unaided Non-minority professional 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....
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....oluntary contributions not connected to the admission of students. However, from the statements of the parents before the AO when enquired initially, the contributions are stated to be linked to the admission of students, even though they have filed affidavits subsequently denying the same. We also find that the institution has received the fund through D.Ds/ cheques and has issued receipts for the same and has also accounted for the same. Therefore, there is transparency in accounting the receipts. The Hon'ble 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 excep....
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....llected any fee in excess of such prescribed amount. In addition to the above fee notified, the assessee has also collected the donations not only from some parents/ relatives bit also from members of Society. Whether such collection of donation is prohibited by the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 is to be examined. The reliance of the Revenue has been only on the rules framed vide G.O.Ms.33(supra) in which there is no mention of donations and contributions 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 insti....