2022 (8) TMI 895 - AT - Income Tax

Exemption u/s 11 - Treatment of Development Fund as Tuition Fees - whether the development funds given and collected by the institution are akin to the tuition fees collected or not? - Whether the development fund collected partakes the character of revenue receipt or corpus donation u/s 11(1)(d) and capital receipt in nature? - HELD THAT - Development Fee relates to rates to be determined by the UGC and AICTE. Different rates may prescribe for payment fee seats and foreign NRI seat holders. As the fee chargeable will be notified by the relevant committee it shall be the duty of the statutory body concern to communicate the rate of development fee to such bodies well in advance to enable the appropriate committee to suitable incorporate such rates. In the case of an educational institution which collected fees on account of building fund and treated as corpus the Hon ble Karnataka High Court in Bharatiya Samskriti Vidyapith Trust 2013 (11) TMI 1594 - KARNATAKA HIGH COURT held that since the assessee had specifically mentioned building fund on fee receipts and had later applied for the purpose of building it could be said that there was a specific direction under 11(1)(d). Similar view has been taken in the case of Sri Ramakrishna Seva Ashrama 2011 (10) TMI 369 - KARNATAKA HIGH COURT wherein Court held that if the amounts received are held as capital and only applied for specific purposes then it can be said that there was a specific direction to treat it as corpus funds. Court further held that the requirement is that the voluntary contributions have to be made with a specific direction. The law does not require that the said direction should be in writing. In the absence of the direction in writing the only way that one can find out whether there was a specific direction is to find out how the money so paid it is utilized. In the instant case the Development Fee has been directly taken to corpus account as capital receipt u/s 11(1)(d) and has also invested in the fixed asset in the year. Ergo we hold that the Development Fee is to be treated as corpus fund allowed to be taken as capital receipt. Computation of 15% u/s 11(1)(a) of net surplus in place of gross receipt - We hold that 15% accumulation is allowed on the income from property held under trust. These provisions have been further clarified in the case of Addl. CIT Vs. A.L.N. Rao Charitable Trust 1975 (9) TMI 44 - KARNATAKA HIGH COURT wherein lordships has explained the law with an example of Rs. 1, 00, 000/- gross income and assuming an expenditure of Rs. 20, 000/- Court has held that Rs. 25, 000/- being 25% (now 15%) of gross receipts will be allowed as accumulation u/s 11 (1)(a). Hence keeping in view the provisions of Section 11(1)(a) and the judgments of Hon ble Supreme Court we hold that the amount eligible u/s 11(1)(a) be determined taking into consideration the income derived from the property held under trust to the extent to which the income so accumulated is not in excess of 15% of income from such property.

Summary

Issues Involved:
1. Whether the development funds collected by the institution are akin to tuition fees and whether they partake the character of revenue receipt or corpus donation under Section 11(1)(d) of the Income Tax Act, 1961.
2. Determination of the "quantum" eligible as per Section 11(1)(a).

Detailed Analysis:

1. Treatment of Development Fund as Tuition Fees:

The primary issue is whether the development funds collected by the institution are similar to tuition fees and whether they should be considered as revenue receipts or corpus donations under Section 11(1)(d) of the Income Tax Act, 1961.

The Assessing Officer (AO) observed that the development fee was part of the fee structure and was compulsory for all students. The AO concluded that such fees were not voluntary and, therefore, should be included in the revenue receipts rather than being treated as corpus funds. The AO's decision was based on the fact that the development fee was mandatory and lacked specific directions to be considered as part of the corpus.

The assessee argued that the development fee was collected with a specific direction to be used for capital expenditure and thus should be treated as corpus donations under Section 11(1)(d). The Ministry of HRD's guidelines were cited, which distinguished between tuition fees (for revenue expenditure) and development fees (for capital expenditure).

The CIT(A) upheld the AO's decision, stating that the development fee was not voluntary and was part of the overall course fee. The CIT(A) noted that the fee was obligatory and not received with specific directions to form part of the corpus.

The Tribunal referred to various judgments, including those of the Hon'ble Madras High Court and ITAT, which supported the view that development fees used for capital purposes could be considered corpus donations. The Tribunal concluded that the development fee should be treated as corpus funds allowed to be taken as capital receipts under Section 11(1)(d).

2. Determination of Quantum Eligible under Section 11(1)(a):

The second issue pertains to the computation of the 15% accumulation allowed under Section 11(1)(a) of the Income Tax Act.

Section 11(1)(a) allows a charitable trust to accumulate up to 15% of its income derived from property held under trust. The Tribunal referred to the provisions of the Act and judgments of the Hon'ble Supreme Court, which clarified that the 15% accumulation should be based on the gross income derived from the property.

The Tribunal cited the Supreme Court's judgment in Addl. CIT Vs. A.L.N. Rao Charitable Trust, which explained that the accumulation should be calculated on the gross receipts rather than the net surplus. The Tribunal also referred to the case of CIT vs. Programme for Community Organisation, where the Supreme Court held that the 25% (now 15%) accumulation should be on the gross income.

Based on these precedents, the Tribunal held that the amount eligible for accumulation under Section 11(1)(a) should be determined based on the gross income derived from the property held under trust.

Conclusion:

The Tribunal allowed the appeals of the assessee on both grounds. It held that the development fee should be treated as corpus funds under Section 11(1)(d) and that the 15% accumulation under Section 11(1)(a) should be calculated based on the gross income derived from the property held under trust. The order was pronounced in the open court on 27/06/2022.