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2014 (4) TMI 941 - AT - Income TaxEntitlement for exemption u/s 10(23C)(vi) of the Act Exemption u/s 11 of the Act Deposits and donations added Nature of the Institution Educational OR profit motive - Revenue was of the view that the donations are not voluntary and they are linked to the admission of the students to the educational institutions of the assessee, and thus, the assessee has collected higher fee over and above the prescribed fee limit - Held that - The assessee is an educational society registered under S.12A of the Act, and its objects as appearing in the memorandum of association are for carrying on activities of general public utility in the field of education and charitable purposes the assessee has received donations from the parents of the prospective students seeking admissions into the assessee s educational institutions - A list of such donations together with the particulars of the donors has also been furnished before the Revenue authorities - The AO has proceeded to decide the issue of assessee s claim for exemption, merely on the basis of suspicions and surmises, and the CIT(A) simply confirmed the action of the Assessing Officer, ignoring the findings and observations of the Assessing Officer in the remand reports and other material available on record. The GOMs. No.33 by the Government of Andhra Pradesh in respect of formulation of rules for admission into the Under Graduate Professional Courses in Engineering in Unaided Non-Minority Professional Institutions was issued on 20.6.2003, which is after the closure of the academic year under consideration, viz. 2002-03 - those Government orders are of no application to the year under appeal, viz. assessment year 2003-04, in the case of the present assessee - In any event, there were no violation of the rules also, in the absence of any clinching material brought on record by the Revenue, to indicate that there were, in fact, violations warranting denial of exemption under S.11 of the Act - the assessee is entitled to exemption under S.11 of the Act - the additions made by the AO in the have no legs to stand the order of the CIT(A) set aside - Decided in favour of Assessee.
Issues Involved:
1. Whether the donations received by the assessee were voluntary or linked to admissions. 2. Whether the assessee was eligible for exemption under Section 11 of the Income Tax Act. 3. Whether the assessee was eligible for exemption under Section 10(23C)(vi) of the Income Tax Act. 4. Whether the collection of fees by the assessee was in violation of government norms and Supreme Court directives. 5. Whether the assessee's activities were solely for educational purposes and not for profit. Issue-wise Detailed Analysis: 1. Voluntariness of Donations: The Assessing Officer (AO) found that the donations received by the assessee, an educational society, were not voluntary but were linked to admissions under the management quota. The AO noted that the amounts were shown as deposits or development fees and were conditional, indicating they were not genuine donations. The AO issued summons to some donors who confirmed that the donations were linked to securing admissions for their wards. This led the AO to conclude that the donations were in the nature of capitation fees, collected as quid pro quo for admissions, thus lacking voluntariness. 2. Eligibility for Exemption under Section 11: The assessee argued that the donations were voluntary and used for educational purposes, thereby qualifying for exemption under Section 11. The AO, however, denied this exemption, stating that the assessee's activities were profit-oriented due to the collection of capitation fees. The AO also noted that the assessee had not obtained mandatory approval under Section 10(23C)(vi), which further disqualified it from exemption. The CIT(A) upheld the AO's decision, emphasizing that the donations were not voluntary and were linked to admissions, thus making the institution profit-oriented. 3. Eligibility for Exemption under Section 10(23C)(vi): The AO denied exemption under Section 10(23C)(vi) because the assessee had not obtained the necessary approval from the prescribed authority, despite its gross receipts exceeding Rs. 1 crore. The AO also noted that the collection of capitation fees indicated that the institution did not exist solely for educational purposes but for profit, disqualifying it from exemption under this section. The CIT(A) agreed with this assessment, noting that the assessee had failed to comply with the basic conditions for exemption under Section 10(23C). 4. Violation of Government Norms and Supreme Court Directives: The AO referred to Government Orders (G.O. No. 950 and G.O. No. 33) and Supreme Court decisions (TMA Pai Foundation and Islamic Academy of Education) which prescribed norms for fee collection by educational institutions. The AO found that the assessee had collected amounts over and above the prescribed fees, which was in violation of these norms. Consequently, the AO concluded that the assessee's activities were not charitable but profit-oriented. The CIT(A) supported this view, noting that the collection of additional fees indicated that the institution existed for profit, not solely for educational purposes. 5. Solely for Educational Purposes and Not for Profit: The assessee contended that its primary purpose was educational and not for profit, citing its registration under Section 12A and the philanthropic nature of its activities. The AO, however, found that the collection of capitation fees contradicted this claim, indicating a profit motive. The CIT(A) upheld this finding, noting that the assessee's actions were not in line with its claimed charitable purpose. The CIT(A) also referred to the Tribunal's decision in Vodithala Educational Society, which held that institutions collecting capitation fees were not entitled to exemptions under Sections 10(23C) and 11. Conclusion: The Tribunal, after considering the submissions and remand reports, found merit in the assessee's claim that the donations were voluntary and there was no violation warranting denial of exemption under Section 11. The Tribunal noted that the AO's findings were based on suspicions and the CIT(A) had ignored the remand reports' observations. The Tribunal distinguished the case from Vodithala Educational Society and TMA Pai Foundation, noting that the relevant government orders and Supreme Court decisions were not applicable for the assessment year in question. Consequently, the Tribunal held that the assessee was entitled to exemption under Section 11 and set aside the Revenue authorities' orders, allowing the assessee's appeal.
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