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2015 (4) TMI 342 - HC - Income TaxCapitation fee received by trust - Tribunal not considering that the capitation fee received by the assessee trust is a revenue receipt liable for taxation - Tribunal not considering that the trust was receiving capitation fee for admission of students under management quota, as it would clearly prove that it was not doing any charitable activities as per Section 2(15) of the Act - Held that - The assessee/Trust is running about eight educational institutions. The Tribunal, based on the various documents filed by the assessee, (i.e.), the permission by the Deputy Director of Public Health, Government of Puducherry to utilize the facilities of the Government Hospitals; the constitution of Permanent Admission Committee under the Chairmanship of Hon ble Justice A.Ramamurthy (Retd.), etc., rendered a categoric finding on fact that the assessee is running a number of educational institutions recognized by law and its charitable activities by way of education are bona fide. The department has not produced any evidence to rebut the said finding rendered by the Tribunal. Therefore, we do not find any reason to upset the said finding. As rightly held by the Tribunal, if the Assessing Officer had any doubt about the receipt of capitation fee or the explanation given, he should have conducted enquiry either with the students or with their parents or with any other person interested in the activities carried on by the assessee trust. But, without doing so, the Assessing Officer estimated the collection of contributions on the basis of the number of seats available under management quota multiplied by the amount of contribution attributable to individual seats. Any determination for purpose of tax cannot be based on hypothetical facts or conjectures or surmises. The inference drawn by the Original Authority is based on probability. In our considered opinion, based on the loose sheets and cash seized, which have been held as irrelevant to the present issue, it cannot be held that for all the assessment years the assessee received capitation fee for admission of students in the management quota. This is a perverse inference. No endeavour is made to sustain the allegation of involuntary donation. In any event, as rightly held by the Tribunal, it is not relevant in the present case as the allegation is violation of Section 13 r/w Section 11 of the Act. Having invoked Section 13, the mainstay of the case of the department should be based on the activities of the trust to plead that the same are not in consonance with Section 13 of the Act and, therefore, exemption under Section 11 of the Act should be denied, which we find is abysmally silent in the show cause notice and the assessment order. There appears to be no second opinion on this finding because the scope of Sections 11, 12 and 13, as we find is in relation to application of income and the utilization thereon for charitable purpose, as defined under Section 2(15). There is not even an iota of material to come to a conclusion to a different conclusion than what has been held by the CIT (Appeals) and the Tribunal. We find that the department has not made out a case of collection of capitation fee under the guise of donation and it has not established a case of involuntary nature of donations. - Decided in favour of assessee. Capitation fees received from students who were admitted in the management quota - ITAT deleted the addition - Held that - That apart, for the assessment years 2002-2003 and 2003-2004 as Chief Commissioner of Income Tax-VI, Chennai, having jurisdiction over the case has notified this under Section 10(23C)(vi) of the Act that there is no applicability of section 11 or 13 in those two years. The department has not produced any evidence of breach of Section 10(23C)(vi) of the Act and, therefore, the respondent/Trust will be entitled to the benefit of exemption contained therein. In the present case, we find that the department had proceeded on a wrong premise without any basic materials to establish a case of violation of Section 13 of the Act. Therefore, in our considered opinion, the Tribunal was right in deleting the addition. - Decided in favour of assessee. Non following the jurisdictional High Court judgment in the case of P.S.Govindasamy Naidu & Sons v. ACIT, 2007 (10) TMI 382 - MADRAS HIGH COURT by ITAT but relied on by revenue, as distinguishable on facts. In the said decision, it has been clearly held that the examination of parents and students of the college found that amounts paid were not corpus donation, but capitation fee. Therefore, the reasoning given in the said decision does not apply to the facts of the present case, as the Assessing Officer has not chosen to conduct any enquiry from any student or parent with regard to the donations. Decided in favour of the assessee. Whether the department has established a case of violation of Section 13(1)(d) of the Act as against the respondent/assessee? - Held that - The very basis of the plea of the Revenue regarding violation of Section 13(1)(d) of the Act is that a sum of ₹ 44 Lakhs was found and seized in the course of the search from the residence of the Chairman of the assessee Trust. With regard to the said seizure, the Assessing Officer has accepted the disclosure of the seized cash as the income of the individual and, therefore, in our considered opinion, it cannot be said that assessee trust has violated the provisions of Section 13(1)(d) of the Act. In any event, from the show cause notice and the order of the Assessing Officer, we find that none of the ingredients of Section 13 is attracted to the facts of the present case. - Decided in favour of the assessee.
Issues Involved:
1. Whether the capitation fee received by the assessee trust is a revenue receipt liable for taxation under the Income Tax Act, 1961. 2. Whether the trust was receiving capitation fee for admission of students under management quota, proving it was not doing charitable activities as per Section 2(15) of the Act. 3. Whether the Tribunal was right in deleting the addition of capitation fees received from students admitted in the management quota. 4. Whether the Tribunal was right in not following the jurisdictional High Court judgment in the case of P.S.Govindasamy Naidu & Sons v. ACIT, 324 ITR 44. Detailed Analysis: Issue 1: Capitation Fee as Revenue Receipt The Revenue argued that the capitation fee received by the assessee trust should be treated as a revenue receipt liable for taxation. The trust contended that the donations were voluntary contributions and not capitation fees. The Tribunal and the Commissioner of Income Tax (Appeals) (CIT(A)) found that the trust's activities were genuinely charitable, and the donations were not involuntary. The Tribunal emphasized that voluntary contributions are taxable only if not applied for charitable purposes, which was not the case here. Issue 2: Charitable Activities and Capitation Fee The Revenue claimed that the trust was receiving capitation fees for admissions under the management quota, indicating it was not engaged in charitable activities. The Tribunal and CIT(A) found no evidence to support this claim. The Tribunal noted that the trust was running several recognized educational institutions and that the donations were voluntary. The Revenue failed to produce any complaints or evidence from students or parents to substantiate the claim of capitation fees. Issue 3: Deletion of Addition of Capitation Fees The Tribunal upheld the deletion of the addition of capitation fees by the CIT(A). The Tribunal found that the Assessing Officer (AO) had based his conclusions on hypothetical estimates and loose sheets without conducting proper inquiries. The Tribunal emphasized that the AO should have verified the claims by investigating with students, parents, or other relevant parties, which was not done. The Tribunal also noted that the cash seized from the Chairman's residence was assessed in his individual capacity and not related to the trust's activities. Issue 4: Jurisdictional High Court Judgment The Revenue argued that the Tribunal did not follow the jurisdictional High Court judgment in P.S.Govindasamy Naidu & Sons v. ACIT. The Tribunal distinguished the facts of the present case from the cited judgment, noting that in P.S.Govindasamy Naidu & Sons, there was clear evidence from parents and students that the amounts paid were capitation fees. In the present case, no such evidence was provided by the AO. Additional Issue: Violation of Section 13(1)(d) The Tribunal and CIT(A) found no violation of Section 13(1)(d) of the Act. The cash seized from the Chairman's residence was included in his individual income and taxed accordingly. The Tribunal noted that the AO did not establish any misuse of funds by the trust or its trustees. The Tribunal emphasized that the primary test for charitable institutions is the application of funds for charitable purposes, which the trust had met. Conclusion The appeals filed by the Revenue were dismissed. The Tribunal and CIT(A) found that the trust's activities were genuinely charitable, and the donations received were voluntary. The Revenue failed to provide sufficient evidence to prove that the trust was receiving capitation fees or violating Section 13(1)(d) of the Act. The judgment highlighted the importance of proper investigation and evidence in making tax assessments and upheld the trust's entitlement to exemptions under Sections 11 and 12 of the Income Tax Act.
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