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2017 (9) TMI 1461 - AT - Income TaxExemption u/s 11 - proof of charitable purposes - disallowance of donations received - voluntary donations received - Held that - In the case before us, it is seen that the assessee has received donations from various persons and more than 50% of the donations are from people who are not at all concerned with the admission of the students whereas the AO has disallowed the entire donations. It is also seen that all the donations are recorded in the books of account of the assessee and most of the parents and relatives of the students also have stated that the donations are voluntary. Only a few parents of the students have stated that the donations are connected with the admissions and some of these statements have also been retracted subsequently. There is also no finding that the assessee has misused or not used the donations for any other purpose than the purpose for which they have been given i.e. for educational purpose. In such circumstances, we are of the opinion that the exemption u/s 11 of the Act cannot be denied in toto to the assessee with regard to the voluntary donations received by the assessee. Only such donations, which are admittedly not voluntary can be disallowed. AO is directed accordingly. Revenue s appeals are partly allowed.
Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act. 2. Disallowance of depreciation on assets claimed as application of income. Issue-wise Detailed Analysis: 1. Denial of Exemption under Section 11 of the Income Tax Act: The assessee, a society running educational institutions, claimed exemption under Section 11 of the Income Tax Act for the assessment years 2010-11 and 2011-12. The Assessing Officer (AO) observed that the assessee collected donations from parents of students, ranging from ?30,000 to ?12,00,000, which were claimed to be voluntary. However, upon issuing notices under Section 133(6) and examining responses, the AO found that in some cases, donations were stated to be prerequisites for admission, thus considering them as capitation fees. Citing the Supreme Court's decision in TMA Pai Foundation vs. State of Karnataka, the AO denied the exemption under Section 11, treating the donations as non-voluntary and impermissible. The Commissioner of Income Tax (Appeals) [CIT(A)] granted partial relief, noting that the nexus between donations and admissions was not established. The CIT(A) allowed the exemption under Section 11, as the donations were not conclusively proven to be compulsory for admissions. Upon appeal, the Tribunal examined the issue, referencing the ITAT's previous decision which stated that voluntary donations are permissible under the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983, provided they are accounted for transparently and used for educational purposes. The Tribunal found no evidence of misuse or diversion of funds and noted that most donations were voluntary. Consequently, the Tribunal directed that only non-voluntary donations should be disallowed, and the exemption under Section 11 should not be denied in toto. 2. Disallowance of Depreciation on Assets Claimed as Application of Income: The AO observed that the assessee claimed capital expenditure on fixed assets as application of income and also debited depreciation, amounting to double deduction. Referring to the Supreme Court decision in Escorts Ltd vs. Union of India, the AO disallowed the depreciation claim. The CIT(A) upheld this disallowance, agreeing that depreciation on assets already claimed as application of income is not allowable. The Tribunal, however, considered previous decisions, including those of the Coordinate Bench, which allowed depreciation claims for charitable trusts registered under Section 12A, even if the cost of assets was claimed as application of income. Citing cases like A.P. Olympic Association vs. ADIT and Guru Nanak Mission Trust vs. DDIT, the Tribunal concluded that the assessee could claim both application of funds and depreciation. Thus, the Tribunal allowed the assessee's appeal on this issue. Conclusion: The Tribunal partly allowed the Revenue's appeals, directing the disallowance of only non-voluntary donations, and fully allowed the assessee's appeals, permitting the claim of depreciation on assets. The order was pronounced in the Open Court on 22nd September 2017.
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