2012 (5) TMI 236 - AT - Income Tax

Education trust - corpus fund - amount charged from students against various funds directed credited to balance sheet - AO denied the exemption and held as current income - held that - AO has failed to appreciate that the appellant trust has not made any appropriations from the corpus donations after having received the same. It appears that AO has mixed up the facts of Educational Research Fund with the other funds such as building fund, library fund, staff welfare fund, student welfare fund etc. The distinctions between the same are that the former is mainly appropriation at 50% out of tuition fees whereas the later is specifically donated by the parents/students but the bifurcation of the aggregate amount is made as per the decision of board of trustees such as 30% towards building fund and educational Research Fund etc. - AO was not justified in holding contributions towards different corpus funds totalling to ₹ 1,90,01,319/- as current income liable to tax. - Decided in favor of assessee. Allegation of payment on behalf of trustee - held that - There evidences to attribute that the said transaction took place only to benefit the managing trustee or his relatives except that the funds of the trust were routed through the trustees to the vendor which merely exhibits the expediency which prevailed at that relevant time. Cancellation of registration - charitable purpose - section 2(15) - held that - it makes it crystal clear that the amended provision of s.2(15) of the Act will come into fore only that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business . In the case under consideration, the assessee trust did not in anyway involve itself in indulging in carrying on of any activity in the nature to any trade, commerce or business. Therefore, the question of bringing the assessee trust s case under the ambit of the amended provisions of s. 2(15) of the Act doesn t arise. - Decided in favor of assessee. - DIT(E) was not justified in resorting to cancel the registration granted to the assessee trust earlier - Decided in favor of assessee.

Issues Involved:

1. Deletion of the addition of Rs. 1,90,19,319/-
2. Grant of exemption u/s 11 of the Act
3. Cancellation of registration u/s 12AA(3) of the Act

Issue-wise Detailed Analysis:

1. Deletion of the Addition of Rs. 1,90,19,319/-:

The Revenue contended that the assessee trust collected Rs. 1,90,19,319/- from students under various heads (Building fund, Education Research Fund, etc.) and did not credit this amount to the income and expenditure account but directly to the balance sheet. The AO argued that these amounts should be treated as current income and not corpus donations, as they were payments for services rendered by the school and not voluntary contributions.

The CIT(A) observed that the contributions were not fixed or identical and were non-refundable, indicating that they were not quid pro quo payments for services. The contributions were towards corpus funds for purposes like building, library, sports, etc., and not for current educational services. The CIT(A) held that these contributions were corpus donations exempt under section 12 of the Act.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the contributions were voluntary, non-refundable, and varied, indicating they were not payments for services but corpus donations. The Tribunal confirmed that the contributions were exempt u/s 12 of the Act.

2. Grant of Exemption u/s 11 of the Act:

The Revenue argued that the ultimate beneficiaries of the student fees and contributions were the family of the Managing Trustee, alleging improper utilization of funds. The CIT(A) examined the issues of funds used for purchasing agricultural land, advances to building contractors, and excessive salaries and amenities provided to the trustees.

(a) Funds for Agricultural Land: The CIT(A) found that the purchase of land was a prudent decision for future educational purposes, and the funds were routed through trustees due to legal restrictions on land transfers. The transaction was for the trust's benefit, not personal gain.

(b) Advances to Contractors: The CIT(A) noted that advances to contractors were for construction work on the proposed site, a step towards setting up an educational institution, and not improper utilization of funds.

(c) Salaries and Amenities: The CIT(A) held that the salaries and amenities provided to the trustees were justified given their responsibilities and contributions to the trust's activities. The trust's activities were charitable, with significant funds spent on education and social obligations.

The Tribunal upheld the CIT(A)'s findings, confirming that the trust's activities were charitable and the funds were used appropriately for the trust's objectives. The exemption u/s 11 was rightly granted.

3. Cancellation of Registration u/s 12AA(3) of the Act:

The DIT(E) canceled the trust's registration u/s 12AA(3), citing violations of sections 11(1)(d) and 13(1)(c)(ii) of the Act, and alleging that the trust's activities were not genuine and involved commercial transactions within the family group.

The Tribunal analyzed the trust's activities and found them to be genuine and within the trust's objectives. The purchase of agricultural land and routing of funds through trustees were due to legal restrictions and not for personal gain. The trust's activities were educational, not commercial, and the amended definition of "charitable purpose" in section 2(15) did not apply to the trust's educational activities.

The Tribunal noted that the DIT(E)'s cancellation of registration was based on the assessment order for AY 2008-09, which had been set aside by the CIT(A). The Tribunal held that the DIT(E) was not justified in canceling the registration and restored the registration granted to the trust.

Conclusion:

- The Tribunal dismissed the Revenue's appeal, confirming the deletion of the addition of Rs. 1,90,19,319/- and the grant of exemption u/s 11.
- The Tribunal allowed the assessee trust's appeal, setting aside the cancellation of registration u/s 12AA(3) and restoring the registration granted to the trust.

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