2015 (7) TMI 649 - AT - Income Tax

Entitlement to claim of exemption u/s.10(23C) (iiiab) - Whether the income of the assessee shall be exempt from tax u/s 10(23C)(iiiab) or under any other exemption provisions under the IT Act, when there are irrefutable evidence that the assessee collected capitation fee in the form of corpus donations, in relation to granting admission to students in its institutions, using its discretion under management quota or other-wise, in an arbitrary and commercial manner? - Held that - As far as the objective of the appellant is concerned this is not the case of the Revenue that the assessee was not imparting education. As we know the term education means to teach subjects to students for the development of his mind and also to equip students to deal with reality. The training process is either theoretical or practical but student has to be taught the essentials of the selected subjects so as to develop his skill and knowledge for the subjects studied by him. The appellant institute, admittedly, fulfils the requirements of imparting formal education by a systematic teaching and instructions. Since the question about the imparting of education has not been doubted or challenged by the Revenue therefore. In our considered opinion the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the Revenue Department has hopelessly failed to establish that there was any illegal activity or infringement of any law so that to doubt the genuineness of the activities. If it was so then it can be held that the allegations of the Revenue as discussed above, remained unsupported thus deserves our dismissal. From the submission of the assessee we find that out of more than 47000 students the assessee trust has collected donations from only 1217 students out of which only 23 persons had admitted to have given donations for admission. We find out of the above 23 persons only 6 were available for cross examination. We find the relatives or parents of the students have filled up the declaration stating that they have given voluntary donations to the institutions, even some of them claimed deduction u/s.80G also. Nothing has been brought on record that any such amount of donation has not been accounted for in the books of account or has been utilised by any of the trustees or their relatives or has not been utilised for purposes other than education. Therefore, we are of the considered opinion that the assessee trust whose main object is imparting education, cannot be denied the benefit of provisions of section 10(23C)(iiiab) and (iiiac) merely on the basis of contradictory statements of a few donors. Neither any donor nor the Assessing Officer has lodged any complain before Government authorities for violation of the Act. Assessments of the trust have been completed in the past accepting the exemption u/s.10(23C) of the Act. Therefore, we find no reason to deviate in absence of any evidence brought on record for denying the exemption claimed u/s.10(23C) for the year. So far as the decision relied on by Ld. Departmental Representative is concerned, the same in our opinion is not applicable to the facts of the present case which was in context of section 10(23C)(iiiad). In view of our reasons given above we hold that the Ld.CIT(A) is not justified in denying the exemption u/s.10(23C) (iiiab) of the I.T. Act. - Decided in favour of assessee.

Issues Involved:
1. Eligibility for exemption under Section 10(23C)(iiiab) of the Income-tax Act.
2. Whether the collection of donations constituted capitation fees.
3. Whether the assessee trust was running on a profit motive.
4. The applicability of Section 13(1)(d) regarding investments in shares.
5. The procedural fairness of the assessment process.

Detailed Analysis:

1. Eligibility for Exemption under Section 10(23C)(iiiab):
The assessee, a public charitable trust running multiple educational institutions, claimed exemption under Section 10(23C)(iiiab). The trust argued that it existed solely for educational purposes and was substantially financed by the government, with government grants constituting 52.91% of its gross income. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied the exemption, arguing that some institutions were unaided and had receipts exceeding Rs. 1 crore, thus requiring approval under Section 10(23C)(vi) or registration under Section 12A. The Tribunal, referencing the Supreme Court decision in Aditanar Educational Institution, held that the trust as a whole, rather than individual institutions, should be considered for exemption. The Tribunal emphasized that the trust's primary purpose was educational and not for profit, thus qualifying for exemption under Section 10(23C)(iiiab).

2. Collection of Donations as Capitation Fees:
The AO alleged that donations received by the trust were capitation fees for admissions, which indicated a profit motive. The trust countered that donations were voluntary and used solely for educational purposes. The Tribunal noted that no complaints were lodged with government authorities regarding capitation fees, and donations were accounted for in the books. The Tribunal found that the AO's reliance on statements from a few donors, who later contradicted their initial declarations, was insufficient to prove that donations were capitation fees. The Tribunal concluded that the donations did not disqualify the trust from exemption under Section 10(23C).

3. Profit Motive:
The AO and CIT(A) argued that the trust was running on commercial lines with a profit motive, citing surplus funds and investments. The Tribunal found no evidence that the surplus was used for purposes other than education or for the benefit of trustees. The Tribunal held that merely generating a surplus does not indicate a profit motive if the surplus is used to further educational purposes. The Tribunal referenced the Supreme Court decision in Queen's Educational Society, which clarified that incidental surplus does not change the character of an institution existing solely for educational purposes.

4. Applicability of Section 13(1)(d) Regarding Investments in Shares:
The AO noted that the trust had invested in shares, which could violate Section 13(1)(d). The trust argued that the investment was minimal (0.0018% of total investments) and was donated to the trust. The Tribunal found no evidence of malafide intention or misuse of funds, and thus, the minor investment did not disqualify the trust from exemption.

5. Procedural Fairness:
The trust argued that the assessment process was unfair, citing the AO's refusal to allow cross-examination of donors who provided adverse statements. The Tribunal agreed that the AO's reliance on statements without cross-examination violated principles of natural justice. The Tribunal emphasized the need for a fair process, allowing the trust to challenge adverse evidence.

Conclusion:
The Tribunal allowed the appeal, granting the trust exemption under Section 10(23C)(iiiab). The Tribunal found that the trust existed solely for educational purposes, did not collect capitation fees, and was not run on a profit motive. The procedural fairness of the assessment process was also upheld, ensuring the trust's right to a fair hearing.

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