2017 (4) TMI 1605 - AT - Income Tax

Exemption u/s 11 - substantive addition made by the AO by withdrawing the benefit of Section 11 due to receipt of non-voluntary contribution / capitation fees - HELD THAT - There is no merit in the case of M/s. MAC Educational Foundation for treating the amount of Rs.10 lakhs as non-voluntary contribution. In the case of M/s. Sri Venkateswara Educational and Health Trust AO had simply stated that the assessee trust has received capitation fees without any evidence to establish the same. It is also not clear whether this amount is received from other connected/related trusts or directly received from the donors. AO instead of clarifying these issues has made substantive addition in the hands of the assessee which is erroneous. As apparent that the AO without examining the correct source of actual donation had come to the conclusion that there were quid-pro-quo arrangements for the payment of donation only based on certain presumptions and assumptions and not based on well ascertained facts. Though it may appear from the circumstance of the case that there may be quit-pro-quo arrangement for receipt of donation unless it is established by cogent evidence drastic decision cannot be arrived at by withdrawing the benefit of Section 11 of the Act to all the charitable trusts which will jeopardize the functioning and the very existence of the charitable educational institutions. There is no finding with respect to any violation of Section 13 of the Act because the donations received by the respective charitable trusts are spent according to the objects of the trusts. It is also apparent that this bench of the Tribunal 2014 (6) TMI 1068 - ITAT CHENNAI for the assessment year 2010-11 and 2013 (8) TMI 1166 - ITAT CHENNAI for the assessment year 2008-09 in the case of M/s. MAC Public Charitable Trust had held that the benefit of Section 11 12 of the Act cannot be denied to the assessee for extending loan to another connected/related charitable educational institution. Further the assessee trusts have issued valid receipts for the donations received and had maintained the names address of the donors as per the provisions of the Act. CIT(A) had also made a categorical finding that the assessee trust had not only extended donation to M/s. Sri Venkateswara Educational and Health Trust but to various other charitable institutions for carrying out charitable activities. We are of the considered view that no interference is necessary in the decision of the CIT(A) who had extensively analyzed the issue and decided the matter by placing reliance on the various decisions of higher judiciary. Therefore we hereby sustain the order of the CIT(A) in the case of all the assessees trusts mentioned herein above. Appeals of the Revenue are dismissed.

Summary

Issues Involved:
1. Withdrawal of the benefit of Section 11 of the Income Tax Act due to receipt of non-voluntary contributions/capitation fees.
2. Validity and nature of donations received by the assessee trusts.
3. Allegations of quid-pro-quo arrangements for securing admissions in educational institutions.
4. Examination of the source of donations and the relationship between donors and the educational institutions.
5. Compliance with the Tamil Nadu State Legislative Act prohibiting capitation fees.
6. Adherence to the objects of the trust and the genuineness of the charitable activities.

Detailed Analysis:

1. Withdrawal of the Benefit of Section 11:
The Revenue was aggrieved by the orders of the Ld. Commissioner of Income Tax (Appeals) [CIT(A)] who held that the substantive additions made by the Ld. Assessing Officer (AO) by withdrawing the benefit of Section 11 of the Income Tax Act due to receipt of non-voluntary contributions/capitation fees were not tenable. The CIT(A) concluded that the assessee trusts were entitled to the benefit of Section 11 as the donations received were voluntary and directed towards charitable purposes.

2. Validity and Nature of Donations:
The Ld. AO observed that the donations received by the assessee trusts were from individuals who made the contributions to secure admissions for their wards/relatives in Sri Venkateswara College. The CIT(A) noted conflicting statements from donors, some of whom initially stated that the donations were voluntary but later claimed they were made to secure admissions. The CIT(A) found that the donations were voluntary based on letters from donors and that the trusts had not violated their charitable objectives.

3. Allegations of Quid-Pro-Quo Arrangements:
The Revenue alleged that the donations were quid-pro-quo arrangements for securing admissions in Sri Venkateswara College. The CIT(A) found no direct evidence to support this claim and noted that the trustees of the various assessee trusts were different, indicating no direct link between the institutions. The CIT(A) also observed that the donations were spread across various charitable institutions, not just the educational institution in question.

4. Examination of Source of Donations:
The Ld. AO did not thoroughly examine the source of the donations made by the individual donors, many of whom were not assessed to tax. The CIT(A) criticized the Revenue for not investigating the source of the donations and for relying on conflicting statements from donors. The CIT(A) emphasized the need for concrete evidence to support claims of non-voluntary contributions.

5. Compliance with Tamil Nadu State Legislative Act:
The Ld. AO argued that the forced donations and capitation fees violated the Tamil Nadu State Legislative Act prohibiting capitation fees. However, the CIT(A) found no evidence of coercion or undue influence in obtaining donations. The CIT(A) noted that no complaints were filed with authorities regarding extortion for securing admissions and that the trusts were not barred from accepting donations from relatives or parents of students.

6. Adherence to Objects of the Trust and Genuineness of Charitable Activities:
The CIT(A) concluded that the assessee trusts adhered to their charitable objectives and that the donations received were used for charitable purposes. The CIT(A) found no violation of Section 13(1)(c) read with Section 13(3) of the Act. The CIT(A) also noted that the donations were given to various unconnected charitable institutions, further supporting the genuineness of the trusts' activities.

Conclusion:
The CIT(A) extensively analyzed the issues and concluded that the donations received by the assessee trusts were voluntary and used for charitable purposes. The CIT(A) found no evidence of quid-pro-quo arrangements or violations of the Tamil Nadu State Legislative Act. The CIT(A) directed the Ld. AO to delete the additions made on account of non-voluntary contributions and upheld the benefit of Section 11 of the Income Tax Act for the assessee trusts. The Tribunal sustained the CIT(A)'s order, dismissing the Revenue's appeals.