2012 (10) TMI 568 - AT - Income Tax

Exemption u/s 10(23C) or u/s 11 - Donations - Engineering college, whose receipts have exceeded the prescribed limit of Rs. 1.00 crore, has not obtained the necessary approval u/s 10(23C) and collected any money by whatever name it is called i.e., donation, building fund, auditorium fund etc. etc., over and above the prescribed fee for admission of students, Income of Society has to be taxed - held that - matter remitted to AO with a direction to assessing officer that he shall reconsider the entire issue in the light of judgment of Supreme Court in the case of M/s Islamic Academy of Education & Another Vs. State of Karnataka and Another 2003 (8) TMI 469 - SUPREME COURT and in the cased of T.M.A. Pai Foundation and Others Vs. State of Karnataka and Others 1993 (10) TMI 308 - SUPREME COURT . The assessee is not entitled for exemption u/s 11 in case it collected any money by whatever name it is called i.e., donation, building fund, auditorium fund etc. etc., over and above the prescribed fee for admission of students.

Summary

Issues:
Appeals against orders of CIT(A)-IV, Hyderabad for assessment years 2003-04 to 2005-06, common issues involved, denial of exemption under sections 11 to 13, violation of principles of natural justice, voluntary donations, nexus between donations and admission of students, collection of 'Development Fund', denial of exemption by AO, appeal before ITAT Hyderabad.

Analysis:
1. The appeals before the ITAT Hyderabad involved common issues related to the denial of exemption under sections 11 to 13 for the assessment years 2003-04 to 2005-06. The appellant challenged the orders of CIT(A)-IV, Hyderabad, claiming that all donations received were accounted for and applied for the society's objectives. The AO observed a nexus between donations and admission of students, leading to the denial of exemption.

2. The AO noted that the society collected a 'Development Fund' of Rs. 61,99,000 during the year, which was not admitted as income but directly taken to the Balance Sheet. The AO found that donations were linked to the admission of students, with parents testifying that they paid donations to secure seats for their daughters. The AO considered this activity as profiteering, not aligned with charitable purposes, and issued a show cause notice proposing to tax the income of the engineering college.

3. The ITAT, after considering arguments from both parties, referred to previous judgments and legal precedents. It highlighted that if donations were received compulsorily for student admission, the assessee would not be entitled to exemption under sections 10(23C) or 11 of the Act. The ITAT emphasized the need for assessing officers to examine whether capitation fees were collected and directed a fresh examination of the issue in light of relevant Supreme Court judgments.

4. Ultimately, the ITAT set aside the orders of the lower authorities and remitted the matter back to the assessing officer for reconsideration. The ITAT instructed the assessing officer to determine if the assessee had collected money over and above prescribed fees and to decide the issue afresh. The ITAT clarified that the assessee would not be entitled to exemption if any additional money was collected for student admission.

5. Given the similarity of issues in the assessment years 2004-05 and 2005-06 to that of 2003-04, the ITAT applied the conclusions drawn for 2003-04 to these years as well. Consequently, all three appeals were treated as allowed for statistical purposes, with the issue being restored to the file of the assessing officer for further examination and decision.