2010 (2) TMI 970 - AT - Income Tax

Exemption u/s 11 - Collection of capitation fees - over and above the fees prescribed - charitable/education institution - HELD THAT - Since the lower authorities were not examined the collection of capitation fees in this case, in our opinion, the matter requires to be examined by the assessing officer whether the assessee is collecting the capitation fees from students or not and it is necessary for bringing the actual facts on record for deciding the issue effectively. We set aside the orders of the lower authorities and remit back the matter to the file of AO with a direction that he shall reconsider the entire issue in the light of judgement of Supreme Court in the case of M/s Islamic Academy of Education Another Vs. State of Karnataka and Another 2003 (8) TMI 469 - SUPREME COURT , and in the case of T.M.A. Pai Foundation and Others Vs. State of Karnataka and Others 2002 (10) TMI 739 - SUPREME COURT , and find out whether the assessee has received any money over and above the fees prescribed and thereafter decide the issue afresh in accordance with law after giving reasonable opportunity of hearing to the assessee . We make it clear that the assessee is not entitled for exemption either u/s 11 or u/s 10(23C) in case it collected any money by whatever name it is called i.e., donation, building fund, auditorium fund etc. etc., over and above the prescribed fee for admission of students. Revenue s appeal is allowed for statistical purpose.

Issues involved:
1. Failure to obtain approval of the prescribed authority as mandatory.
2. Interpretation of Sec.10(23C) in relation to Sec.10(22) and (22A).
3. Introduction of new provisions under sub clauses (vi) and (via) for monitoring mechanisms.
4. Conflict between Sec.10(23C)(vii) and Sec.11 regarding overriding provisions.
5. Examination of capitation fees collection for student admissions affecting charitable institution status.

Analysis:

1. The first issue raised by the Revenue was the failure to obtain approval of the prescribed authority, deemed mandatory. The Tribunal referred to a previous order in the assessee's case for the assessment years 2005-06, where it was held that the matter required examination by the assessing officer to determine if capitation fees were being collected from students. The Tribunal cited Supreme Court judgments indicating that collection of capitation fees could impact the institution's charitable status under Sec.10(23C) and Sec.11 of the IT Act. The Tribunal remitted the matter back to the assessing officer for reconsideration in light of the legal precedents and directed a fresh decision after examining the facts.

2. Regarding the interpretation of Sec.10(23C) vis-a-vis Sec.10(22) and (22A), the Tribunal emphasized that sub clauses (iiiad) and (iiiae) were replacements for the erstwhile provisions. Additionally, sub clauses (vi) and (via) were introduced as new provisions to enhance monitoring mechanisms, as highlighted in Circular No.772. The Tribunal affirmed that these changes did not imply a complete replacement of the previous sections but rather specific modifications and additions to address shortcomings in the earlier provisions.

3. The introduction of new provisions under sub clauses (vi) and (via) was viewed by the Tribunal as crucial for providing a monitoring mechanism that was lacking in the previous provisions. The Tribunal underscored the importance of these new provisions in enhancing oversight and control, as outlined in Circular No.772. The Tribunal's decision indicated a recognition of the necessity for these mechanisms to ensure effective regulation and compliance within the specified framework.

4. The issue of conflict between Sec.10(23C)(vii) and Sec.11 regarding overriding provisions was addressed by the Tribunal. Despite the CIT(A) holding that Sec.10(23C)(vii) did not override Sec.11, the Tribunal noted overwhelming judicial opinion favoring specific provisions over general ones. This observation underscored the need for a comprehensive understanding of the legal hierarchy and the precedence of specific provisions in certain contexts.

5. The examination of capitation fees collection for student admissions and its impact on charitable institution status was a critical aspect of the judgment. The Tribunal referenced Supreme Court judgments emphasizing that institutions collecting capitation fees could jeopardize their charitable status. The Tribunal directed the assessing officer to investigate whether the assessee had collected money beyond prescribed fees for student admissions, highlighting the significance of adhering to legal requirements and ensuring transparency in financial transactions to maintain eligibility for exemptions under relevant sections of the IT Act.

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