TaxTMI 
TaxTMI 
2023 (9) TMI 886
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.... learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2 The Ld.CIT(A) erred in deleting the addition Rs. 4,02,25,300/- made towards excess of income over expenditure by the assessing officer denying the exemption u/s. 11 of the Income tax Act, 1961. 2.1 The CIT(A) erred in failing to appreciate that donations received by the assessee trust are not voluntary in nature. The donation amount is fixed by the school administration run by the trust. This donation amount is made compulsory for the new admission of students in the schools run by trust. Signature from parents were obtained from parents in preprinted forms treating it as contribution to corpus. Further, the amount collected as donations were returned back to parents in some cases where admissions were rejected. This showed that the donations are not voluntary in nature but represented the capitation fee for getting admission to the institutions run by the trust. 2.2 The CIT(A) erred in failing to appreciate that by collecting donations compulsorily for admission of students in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Cap....
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....le disposing appeals filed by the revenue in the case of M/s.MAC Public Charitable Trust and M/s.Shri Venkateshwara Educational and Health Trust & others in TCA Nos.303 to 310 Of 2021 and 59,60,62,63 of 2022, the Hon'ble Madras High Court held as follows: "In view of our above findings that the amounts collected by the assessees are capitation fee in quid pro qua for allotment of seat in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 and the same are neither a voluntary contribution nor to be treated as applied for charitable purpose, the orders of the Appellate Authority as well as the Tribunal, which are impugned in these appeals, are absolutely perverse in nature and therefore, they are set aside. Accordingly, all the substantial questions of law are answered in favour of the Revenue and against the Assessees". In the instant case, the assessee trust is collecting Capitation fee in the form of Corpus donations from the students applying for new admission as elaborately discussed in the assessment order. Hence, the above decision of Madras High Court is squarely applicable to the facts of this case. ....
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....here, he had admitted that the Society is collecting donations from new students during admission process and preprinted corpus donation receipts are given and the parents fill necessary columns. The said donations are over and above the tuition fees and miscellaneous fess fixed by the Schools. Further, a statement on oath u/s. 131 of the Act, was recorded from Mr.J.C.Prakash, one of the Members of the Society and he was confronted with 'corpus donation' receipts and called upon to explain. In response, he specifically stated that the Society appeals for 'corpus donation' from parents during admission process and those parents who admitted their children to Sindhi Model Senior Secondary School, Kellys, Chennai, were paid 'corpus donation' of Rs. 50,000/-,but said donation is not compulsory. He further stated that the Society is not collecting any donations for admission to Sindhi College of Arts & Science, Numbal, and Chennai. During the course of survey, it was further noticed that the Society is collecting uniform 'corpus donation' from parents of students admitted to Sindhi Model Senior Secondary School, Kellys, Chennai. Similarly, the Society has collected Development Fund (Cor....
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....vey. Further, the Society is maintaining its books of accounts in computerized environment and segmental accounting entries are passed in the books of accounts and from the said accounts, segmental income and expenditure can be ascertained. Therefore, it cannot be said that there are no separate books of accounts for incidental activities. 7. The AO, however, was not convinced with the explanation furnished by the assessee and according to the AO, the facts gathered during the course of survey, clearly established collection of donation in lieu of admissions to Schools run by the Society in violation of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. The AO further observed that said donation amount is fixed by the School administration for new admission and invariably all students shall pay donations for getting admission in the Schools. Further, signatures were taken from parents in pre-printed forms provided by the School. In some cases, donations has been refunded to the parents, wherever, they did not get admission in the Schools. The AO further ....
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....d by the government of Tamil Nadu. For this act of the collecting excess fees over and above the prescribed fees and collecting donations which are not voluntary but compulsory, the exemption claimed by the assessee trust u/s 11 is to be denied and income over expenditure is to be brought to tax. 8. The amount of donation is fixed. Hence, it is not voluntary. The Donee should not decide the amount of donation that must be given by the donor. Corpus donation has to be on the direction of the donor and not by the wish of the donee. In this case, a pre-printed form is given to the parent for filling name, addresss, PAN and signature etc., The donation is collected from all the newly admitted students. Also as discussed in the earlier paras the assessee has collected extra fees over and above the fees prescribed by the government. Collection of any amount exceeding the prescribed fee is prohibited by law. The Hon'ble Apex Court in the case of Ms. Mohini Jain v. State of Karnataka & Ors. (1992) 3 SCC 666, held that capitation fee was nothing but price of selling education and such "teaching shops" were contrary to the Constitutional scheme and abhorrent to our Indian cultur....
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....ies are not being carried out in accordance with all or any of the conditions subject to which approval has been given under Section 10(23-C) of the Act, such approval and exemption must be withdrawn forthwith. 9. In view of the above, the exemption u/s. 11 is denied and the excess of income over expenditure is taxed. As exemption u/s. 11 is denied, the assessee's claim of accumulation under explanation 2 of Section 11(1) in Form 9A is also denied. Hence, the assessment is completed u/s. 143(3) of IT Act 1961 for A.Y 2013-14 as under: Particular Amount Gross receipts (including corpus donations) 10,68,62,816 Less: Revenue Expenditure 6,66,37,516 Assessed Income 4,02,25,300 Demand notice and computation sheet is enclosed herewith. Penalty, 27(1)(c) is initiated for furnishing inaccurate particulars of income. 8. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions on the issue, which has been reproduced at Para No.5 on Page Nos.7-52 of the Ld.CIT(A)'s Order. The sum and substance of arguments of the assessee be....
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..... There is no distribution of surplus to any of the Members. Therefore, the Ld.CIT(A) opined that the observations made by the AO in light of 'corpus donations' received from parents of students in lieu of admission that said donations are contrary to the provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, is incorrect, because, the CBSE School run by the assessee is not governed by the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, which is clear from Sec.3(3) of the said Act. The State Board Schools run by the Society has collected nominal development funds from new admissions which are very minimal. Further, excess fess quantified by the AO on the basis of number of admissions into School and fees fixed by said Act, is incorrect, because, the AO has considered even miscellaneous fees collected by the Society. Therefore, the Ld.CIT(A) opined that the denial of exemption u/s. 11 of the Act, by the AO on this ground is incorrect. 10. The Ld.CIT(A) further observed that there is no merit in the observation of the AO on maintenance of separ....
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.... in nature, but donations in lieu of admission of students to schools run by the assessee. The Ld. DR referring to assessment order submits that during the course of survey, it was noticed that the assessee is collecting 'Capitation Fees' in the form of 'corpus donations' from parents of students admitted to schools and issued pre-printed forms. Further, the amount collected as donations were returned back to parents in some cases, where admissions are rejected. This shows that the donations are not voluntary in nature, but represented 'Capitation Fees' for getting admissions to the schools run by the assessee society. The Ld. DR further submitted that the Ld.CIT(A) fails to appreciate the fact that collecting donations in lieu of admissions of students is contrary to the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and any institutions violates said provision, cannot be considered as engaged in charitable activities makes it eligible for exemption u/s. 11 of the Act. The Ld. DR further referring to the statement recorded from Shri C.V.Kalyanasundaram, who claims to have consolidated the accounts of the assessee submitted that he had ad....
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....referring to the decision of the Hon'ble Supreme Court in the case of Queens Education Society v. CIT reported in 372 ITR 699, submitted that said judgment is squarely applicable to the facts of the present case, because, the assessee is solely existing for profit not for charity, which is evident from the financial statement of the assessee for the relevant assessment year where the assessee has earned more than 20% surplus from the Schools and Institutions run by the assessee. He further referring to the decision of the Hon'ble Supreme Court in Ahmedabad Urban Development Authority v. CIT reported in [2022] 115 CCH 253 (SC) submitted that the Hon'ble Supreme Court has explained the concept of charity and Institutions existing solely for profit and held that if any institutions earned more than 20% profit, then, said Institutions cannot be considered as solely existing for charitable purpose. The Ld.CIT(A) without considering relevant facts deleted the additions made by the AO. 15. The Ld. Counsel for the assessee Shri S.Sridhar, Adv., supporting the order of the Ld.CIT(A) submitted that the respondent is admittedly protected by the registration granted u/s. 12AA of the Act. It....
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.... for AY 2012-13 and Rs. 7,500/- to Rs. 8,900/- for AY 2013-14. Similarly, the assessee has collected donations of Rs. 10,000/- to Rs. 15,000/- for AYs 2014-15 to 2017-18 and said donations are collected for only new admissions, that too the assessee makes appeal for donations for development of the Institution, for which, the parents responded, but there is no compulsion as regards payment of donations in lieu of admissions. Therefore, the allegation of the Department that the assessee has collected donation in lieu of admission is incorrect. Similarly, the assessee has collected interest free deposits from parents of students admitted to CBSE school ranging from Rs. 25,000/- to Rs. 50,000/- and said amount is voluntary in nature. Further, even in CBSE schools, in some cases, admission has been given without any donation. The donations collected from the parents are voluntary in nature and forming part of corpus of the students. The amount donation has been applied for the objection of the Trust. There is no allegation from the AO that any part of income of the Trust has been applied for the benefit of interested persons. In absence of finding contrary to the effect that the donati....
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....thorities for demanding donations in lieu of admissions, and under those facts, the Hon'ble High Court came to the conclusion that collecting donation in the name of voluntary contributions for getting admissions to professional course, is a 'Capitation Fees' and violation of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and thus, rejected Sec.11 benefit to the trust. In the present case, there is no such allegation from any of the parents. Further, the assessee is collecting small amount of donations from new admissions which is very nominal. Further, said donation has been totally applied for charitable purpose. Therefore, the above judgments cannot be applied to the present case to deny the benefit of exemption u/s. 11 of the Act. The Ld. CIT (A) after considering relevant facts has rightly directed the AO to allow the benefit of exemption u/s. 11 of the Act and their orders should be upheld. 19. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered the relevant provisions of the Tamil Nadu Education Institution....
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....School, Chetpet, Chennai, and said school is providing State Board curriculum. Admittedly, no donations are collected from Sindhi College of Arts & Science, Numbal, Chennai. The assessee collects small amount of donations from parents of students admitted to State Board Schools ranging from Rs. 1,500/- to Rs. 10,000/- for new admissions alone. In other words, the donations have been collected for new admissions in the first year. Similarly, the assessee society collects donations from new admissions in CBSE School also and such donations are ranging from Rs. 3,000/- to Rs. 50,000/-. The donations collected from parents of the students are voluntary in nature and forming part of corpus of the Trust, which is evident from declaration given by the donor. The assessee had also accounted said donations in the books of accounts and applied for charitable purpose, and this, facts are not disputed by the AO. Therefore, it is necessary to decide whether the assessee is entitled for the benefit of sec.11 of the Act, in light of reasons given by the AO with reference to the facts brought on record during assessment proceedings. 21. The AO has denied benefit of exemption u/s. 11 of the Act,....
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.... Fees' needs to be understood before applying said laws in general. There was a time, when large number professional institutions are forcing the students to pay 'Capitation Fees' for getting admission to professional courses. It came to the notice of the various State Governments that management of professional institutions are collecting huge 'Capitation Fees' in lieu of admissions and utilizing said money for their personal benefit and in some case, the tuition fees was very minimal where 'Capitation Fees' is in few lakhs. Under those circumstances, the State Governments have enacted a law to prohibit acceptance of 'Capitation Fees' in lieu of admissions to professional courses run by the private institutions. Therefore, while applying said law, the purpose and intent has to be seen in light of amount of donations received by various institutions. Further, the Hon'ble Supreme Court also held in the case of T.M.A Pai Foundation & Ors. v. State of Karnataka & Ors. reported in [2002] 8 SEC 481 (SC) that collection is capitation fees in lieu of admission cannot be considered as charity. In fact, there is no dispute that any trust/institution violates law prohibiting collection of ca....
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....ent Fund is not compulsory which is evident from the list of donations submitted by the assessee, where, it was noticed that in many cases, admission has been given without any donation. Further, the allegation of the AO that said donations are compulsory in nature is only on suspicion and surmise without there being any evidence to support his allegation, because, there is no iota of evidence with the AO, that any parents has lodged compliant with any authority for refusing to give admission without paying donation. Further, the allegation of the AO that the assessee has collected excess fess over and above fees prescribed under the provisions of the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, is also negated by the assessee by filing relevant details. From the details furnished by the assessee, we find that the AO has computed excess fees by taking into number of students and fees fixed as per said Act without excluding certain Miscellaneous Fees collected by the assessee, which is not at all in nature of tuition fees prescribed under said Act. Therefore, we are of the considered view that the AO has made mere allegations of collecting excess fees in contraven....
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....ts is permitted and as per details furnished by the assessee, we find that income generated by the assessee from incidental activities does not overshooting the threshold limits prescribed therein. Therefore, we are of the considered view that the reasons given by the AO in light of incidental activities carried out by the assessee for rejection of exemption u/s. 11 of the Act, is devoid of merits. 26. Coming back to the decision relied upon by the Ld. DR present for the Revenue. The Ld. DR heavily relied upon the decision of the Hon'ble High Court of Madras in the case of CIT v. MAC Public Charitable Trust reported in 450 ITR 368 (Mad.) (HC). The Ld. DR took us to the decision and more particularly Para No.65 and argued that in order to be any donations voluntary contributions, said donations had to be made willingly and without compulsion and the money was to be gifted or given graciously without consideration and in the present case, those conditions are not satisfied. We find that the arguments of the Ld. DR in light of above observations of the Hon'ble High Court fails for simple reason that facts brought on record by the AO clearly indicates that 'corpus donations' receive....
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....0% of profit from its activities, then, said Institution/Trust cannot be considered as solely existing for charitable purpose. Since, the assessee society has earned more than 20% profit from its activities, the Society itself disentitled for exemption u/s. 11 of the Act. We find that the Hon'ble Supreme Court has considered exemption u/s. 11 of the Act, in light of super profits earned by various Trusts in the process of imparting education. In the case of Queens Education Society v. CIT (supra), the Hon'ble Supreme Court after considering relevant facts held that when the activity of the Trust/Institution is falls under the definition of charitable purpose, then, even if said Institution earns some profit in the process, which can be said to be incidental to the attainment of main objects, and thus, the benefit of exemption cannot be denied u/s. 11 of the Act. Moreover, in the present case as alleged by the Ld. DR, assessee society is not earning huge profits from its activities which is evident from financial statement filed for all these assessment years, where, we find that assessee society is earning a minimum surplus for each year after meeting various expenditure, Further, ....