2017 (12) TMI 354 - AT - Income Tax

Benefit u/s 11 - Exempted capital receipt u/s 12 - whether the receipt on account of development fund/development fee from the students of the assessee is in the category of capital receipts/ corpus fund to be used by the assessee for specific purpose or not? - Held that - In the case of the assessee the development fee is part of the total fee charged by the assessee from the students and it is apparent that the quantum of amount and specific purpose on account of which this fee is received from the students is determined and decided by the assessee and not by the students or their parents. Therefore, the development fee is not optional for the students but it is compulsory for the students without any discretion or fee will to decide whether to pay or not to pay the development fund fees. Hence, it is a charge by the assessee on the students without having any element of any discretion on the part of the students or parents either to the quantum of fee or the specific purpose as well as the option of making payment or not. Thus in the facts and circumstances of the case when the development fee received by the assessee is not voluntary but it is a compulsory charge on the students then the same cannot be classified as capital in nature for specific purpose or part of the corpus fund of the assessee trust. The decision relied by the ld. AR are on the point that when a particular contribution or donation is given by the donor as per his free will and for specific purpose then the same cannot be treated as revenue receipt. Having regard to all the fee in the name of development charge received by the assessee from the students is part of the current receipt and will part take a character of the other fee charged by the assessee on account of tuition fee, term fee etc. Hence, we set aside the order of the ld. CIT(A) qua this issue. Depreciation on capital assets - Held that - Depreciation claimed by the assessee on capital assets for which capital expenditure was already given in the year under consideration allowed. See CIT vs. Krishi Upaj Mandi Samiti, Jaisalmer 2015 (3) TMI 11 - RAJASTHAN HIGH COURT

Issues Involved:

1. Classification of Development Fund Receipts
2. Allowance of Depreciation on Fixed Assets
3. Applicability of Section 10(23C) Exemption

Issue-wise Detailed Analysis:

1. Classification of Development Fund Receipts:

The primary issue is whether the development fund received by the assessee from students is to be treated as capital receipts/corpus donation or revenue receipts. The Assessing Officer (AO) contended that the development fund, amounting to ?11,32,50,389/-, was received as part of other fees and was not a voluntary contribution but a mandatory fee for services rendered by the school. Consequently, the AO treated it as revenue receipt and assessed the balance of ?1,44,06,790/- as income chargeable to tax after considering the allowable set apart u/s 11.

The CIT(A) allowed the assessee's claim, treating the development fund as capital receipts. However, the Tribunal found that the development fee collected from students was not voluntary but a compulsory payment, thus not qualifying as a capital receipt or corpus fund. The Tribunal emphasized that voluntary contributions are those made at the donor's discretion, whereas the development fee was a mandatory charge without any discretion on the part of the students or parents. Therefore, the Tribunal set aside the CIT(A)'s order on this issue, classifying the development fee as part of the current receipts.

2. Allowance of Depreciation on Fixed Assets:

The second issue pertains to the allowance of depreciation on fixed assets. The AO disallowed the depreciation claim on the grounds that the cost of acquisition of fixed assets was already claimed as application of income, and allowing depreciation would result in double deduction. The CIT(A) allowed the depreciation claim, following the jurisdictional High Court's decision.

The Tribunal upheld the CIT(A)'s decision, referencing the Rajasthan High Court's ruling in CIT vs. Krishi Upaj Mandi Samiti, which affirmed that depreciation on assets owned by a charitable institution is a necessary deduction on commercial principles. The Tribunal concluded that there was no error in allowing the depreciation claim.

3. Applicability of Section 10(23C) Exemption:

The issue of exemption under Section 10(23C) was not decided by the AO, and the CIT(A) did not adjudicate this issue since relief was granted under Sections 11 and 12. The Tribunal noted that the benefit of Section 10(23C)(vi) is not automatic and requires satisfying certain conditions, including limits on receipts.

The Tribunal set aside this issue to the AO for consideration and adjudication, emphasizing that the assessee should be given an opportunity of hearing to determine eligibility for the exemption under Section 10(23C).

Conclusion:

The Tribunal concluded by partly allowing the revenue's appeal. The classification of the development fund as revenue receipt was upheld, while the allowance of depreciation on fixed assets was affirmed. The issue of exemption under Section 10(23C) was remanded to the AO for further consideration. The order was pronounced in the open court on 15/11/2017.

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