2012 (10) TMI 749 - AT - Income Tax

Exemption u/s 11 - corpus fund - donation received with direction - capitation fee - anonymous donations - Held that - Capital receipts by way of development fund, contributions and donations could not be added as they were received with specific direction that they should be treated as corpus fund or development fund. Assessee in the instant case has not been able to prove that the contributions received by it are not in the nature of capitation fee collected from students/prospective students or their relatives in the guise of donations. - In the absence of any evidence filed by the assessee in that behalf the assessing officer treated the same as the income of the assessee and the CIT(A) too confirmed the addition made by the assessing officer in that behalf. - Matter remanded back to AO for fresh decision. Fee received included fee received in advance which is to be excluded before arriving at the amount of Rs. 1.00 crore. In these circumstances, we remit the issue to the file of the Assessing Officer to examine whether the fees received in advance has been included so as to arrive to the conclusion that the aggregate receipt is more than 1 crore and therefore the assessee is out of purview of section 10(23C)(iiiad). Nature of contributions - capital in nature - The income has to be computed in a commercial manner even in the case where exemption is denied and the capital receipts cannot be taken as income of the assessee in case the Assessing Officer is satisfied that the contributions are capital in nature. Incidentally, the Assessing Officer is required to verify the figure as donation received - all the three appeals of the assessee under consideration are treated as allowed for statistical purposes.

Issues Involved:
1. Denial of exemption under Section 11 and Section 10(23C) due to lack of registration under Section 12A.
2. Treatment of donations and contributions as revenue receipts.
3. Computation of income by applying commercial principles.
4. Verification of the actual amount of donations received.

Detailed Analysis:

Issue 1: Denial of Exemption under Section 11 and Section 10(23C)
The assessee society, incorporated in September 2002, was engaged in running educational institutions and filed returns for the assessment years 2005-06 to 2007-08. A search and seizure operation led to the discovery that the society had been granted registration under Section 12A only from the financial year 2008-09 onwards. Consequently, exemption under Section 11 was not available for the years under consideration. The assessing officer observed that the income of the trust should be assessed as business income, as no exemption was available for the years in question. The CIT(A) confirmed this view, noting that the assessee did not have the necessary approvals under Section 10(23C)(vi) and Section 12A, making the income taxable.

Issue 2: Treatment of Donations and Contributions as Revenue Receipts
The assessing officer found that the assessee had received contributions and donations totaling Rs.96,40,000 for the year 2005-06. Since no exemption was allowed, these contributions were treated as income. The assessee contended that these were capital receipts meant for corpus funds or development funds and should not be taxed. However, the CIT(A) noted that no documentary evidence was provided to substantiate this claim. The CIT(A) stated, "The appellant has not been able to prove that the said contribution received by it are not in the nature of capitation fee collected from students/prospective students or their relatives in the garb of donation." Consequently, the CIT(A) confirmed the assessing officer's decision to treat these contributions as income.

Issue 3: Computation of Income by Applying Commercial Principles
The assessee argued that if exemption was denied, the income should be computed by applying commercial principles, considering revenue receipts and expenditures, and allowing depreciation. The CIT(A) acknowledged this argument for the year 2007-08, directing the assessing officer to re-compute the income accordingly. However, for the years 2005-06 and 2006-07, the CIT(A) did not find merit in this contention and confirmed the assessments made by the assessing officer.

Issue 4: Verification of the Actual Amount of Donations Received
For the year 2007-08, the CIT(A) noted discrepancies in the reported donations. While the receipts and payments account showed donations of Rs.27,500, the assessing officer had added Rs.2,75,000 to the income. The CIT(A) directed the assessing officer to verify the correct amount while giving effect to his order. Similarly, for the year 2006-07, the CIT(A) observed that the aggregate annual receipts exceeded Rs.1 crore, making the assessee ineligible for exemption under Section 10(23C)(iiiad). The CIT(A) directed the assessing officer to verify whether fees received in advance were included in the aggregate receipts.

Conclusion:
The tribunal set aside the orders of the lower authorities on the issue of donations and contributions, directing the assessing officer to give the assessee another opportunity to provide evidence that the donations were meant for the corpus or were not capitation fees. The tribunal also remitted the issue of aggregate receipts exceeding Rs.1 crore for the year 2006-07 to the assessing officer for re-examination. For the year 2007-08, the tribunal upheld the CIT(A)'s direction to re-compute the income by applying commercial principles and verify the actual amount of donations received. All three appeals were treated as allowed for statistical purposes.

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