2012 (10) TMI 1141 - AT - Income Tax

Entitled for exemption either under S.10(23C) or under S.11 - Held that - The enquiry conducted by the Assessing Officer with handful of persons does not appear to have brought out the reality of the situation as to the collection of capitation fee by the assessee - we are of the opinion that adequate enquiry should have been conducted by the lower authorities before coming to the conclusion that the assessee has charged capitation fee. Consequently the assessee deserves another opportunity to substantiate its claim before the Assessing Officer that it has not charged any capitation fee from the students. Remit the matter back to the file of the Assessing Officer for deciding the issue afresh and determine as to whether the assessee has collected capitation fee from the students keeping in view the principles enunciated by the Apex Court and others in the judicial pronouncements discussed above

Summary

Issues:
- Denial of exemption claim under S.11 for income from donations
- Dispute over considering depreciation while computing income on commercial basis

Analysis:
1. The appeals involved cross-appeals against separate orders of the Commissioner of Income-tax(Appeals) IV, Hyderabad for the assessment years 2005-06 and 2006-07. The common grievance of the assessee was the denial of exemption for income under S.11 due to donations being treated as capitation fees collected from students.

2. The Revenue's main contention was the disagreement with the CIT(A) holding that depreciation must be factored in while computing the assessee's income on commercial grounds without granting exemptions under S.11. The Revenue disputed the CIT(A)'s finding that depreciation had to be considered for the assessment year 2005-06.

3. The assessing officer, upon examining the donations received by the assessee, concluded that a portion of the donations were akin to capitation fees, not voluntary contributions. This decision was influenced by the Supreme Court's judgment in the case of TMA Pai Foundation, leading to the disallowance of a significant amount as capitation fee.

4. The CIT(A) upheld the assessing officer's decision, stating that the donations were directly linked to student admissions, making the assessee ineligible for exemptions under S.10(23C) or S.11. The CIT(A) directed the computation of the assessee's income as a regular business venture, without the benefit of statutory exemptions.

5. The dispute over depreciation arose when the assessing officer disallowed a substantial depreciation claim, citing double deduction concerns. The CIT(A) directed the assessing officer to verify and allow depreciation on various assets in line with commercial principles for income calculation.

6. The Tribunal referenced previous decisions, such as Vellore Institute of Technology and Balaji Educational & Charitable Public Trust cases, where donations linked to admissions were considered voluntary and not capitation fees, thus eligible for exemptions. However, the Apex Court's stance on capitation fees for student admissions was highlighted, indicating that such fees would disqualify institutions from charitable status under S.11.

7. The Tribunal remitted the matter back to the assessing officer for a thorough reexamination to determine if the donations were indeed capitation fees, emphasizing the need for a comprehensive inquiry before concluding on the nature of the donations. The directions regarding income computation and depreciation were deemed irrelevant in light of the decision on the exemption claim.

8. Ultimately, both the assessee's and the Revenue's appeals were allowed for statistical purposes, with the Tribunal's decision pronounced on 19.10.2012, rendering the directions on income computation and depreciation moot in the given context.