2007 (10) TMI 382 - HC - Income Tax

Exemption- Educational Institution- The assessee was a public charitable trust running several educational institutions. While considering the assessment for the assessment year 1995-96, the Assessing Officer brought to tax the amount received from students admitted to the college but credited towards the corpus of the trust u/s 2(24)(iia) of the Income Tax Act, 1961, taking the view that these donation were not voluntary, but were received as capitation fee for admission into the college. Consequently the Assessing Officer rejected the plea for exemption u/s 10(22). This order is upheld by the Tribunal. Held that- going by the statement recorded from parents, the Tribunal rightly came to conclusion that these amount were in fact paid only by way of capitation fee and not towards corpus account of the assessee trust. The assessee was not entitled to exemption under section 10(22).

Summary

Issues:
1. Entitlement to exemption under section 10(22) of the Income-tax Act for a trust primarily for educational purposes.
2. Characterization of contributions towards corpus as voluntary or taxable income.
3. Exemption under section 10(22) for contributions utilized for running educational institutions.

Analysis:
Issue 1:
The case involved an appeal regarding the entitlement of a public charitable trust, running educational institutions, to exemption under section 10(22) of the Income-tax Act for the assessment year 1995-96. The Assessing Officer brought to tax the amount received from students as capitation fee, rejecting the plea for exemption. The Commissioner of Income-tax (Appeals) granted relief, but the Income-tax Appellate Tribunal overturned it, stating that each year must be considered separately. The Tribunal held that capitation fees were not voluntary contributions and hence not eligible for exemption under section 10(22). The Tribunal distinguished the nature of receipts as donations in earlier years from capitation fees in the current case.

Issue 2:
The assessing authority found that the amount collected from parents as capitation fee was not voluntary but was treated as corpus donation by the trust. The Tribunal upheld this view, stating that capitation fees could not be characterized as voluntary contributions towards corpus. The Tribunal referred to a decision where donations for material gain, like securing admission, were not considered charitable. The Tribunal's decision was based on the fact that the amounts were paid only as capitation fees, not towards the trust's corpus account.

Issue 3:
The Commissioner of Income-tax (Appeals) had earlier granted relief by considering the payments as voluntary contributions exempt under section 11(1)(d). However, the Tribunal concluded that the amounts were indeed capitation fees and not corpus donations. The High Court rejected the appeal, stating that since the amounts were received as capitation fees, they could not be characterized as donations eligible for exemption under section 10(22). The court emphasized that the nature of the receipt at the time of receipt determines its quality, regardless of how it is accounted for later.

In conclusion, the High Court dismissed the appeal, holding that the trust was not entitled to exemption under section 10(22) for capitation fees received, as they were not voluntary contributions towards the trust's corpus. The court emphasized that the character of the receipt at the time of receipt is crucial in determining its nature for tax purposes.