2018 (8) TMI 190 - AT - Income Tax

Entitled to exemption u/s 11 and also u/s 10(23C)(vi) - assessee had collected huge extra consideration over and above the official fee - receipt of capitation fee - Held that - The decision relied upon by the learned Counsel for the assessee i.e. the Chief Commissioner of Income Tax vs. St. Peter s Educational Society reported in (2016 (6) TMI 536 - SUPREME COURT OF INDIA) also confirm the view that the ultimate test is whether on an overall view of the matter in the concerned A.Y, the object is to make profit as opposed to educating persons. In the case of Queen s Educational Society vs. CIT reported in (2015 (3) TMI 619 - SUPREME COURT), the Hon ble Supreme Court has followed its decision the case of St. Peters Educational Society (Supra) to hold that the assessee there in is eligible for exemption u/s 11 of the Act. Respectfully following the above decisions, the assessee s appeals are treated as allowed.

Issues Involved:
1. Entitlement to exemption under Section 11 of the Income Tax Act.
2. Compliance with Sections 11 to 13 of the Income Tax Act.
3. Treatment of voluntary contributions as donations or quid pro quo for admissions.
4. Application of Supreme Court and High Court decisions regarding voluntary contributions.
5. Consideration of statements from donors without cross-examination.
6. Charitable character of the institution despite receipt of voluntary contributions.
7. Proper accounting and application of received funds.
8. Interpretation of Circular No. 11 of 2008.
9. Reliance on prior Tribunal decisions.
10. Allegations of behind-the-back inquiries and lack of opportunity for objections.
11. Inferences drawn by the Commissioner of Income Tax (Appeals).
12. Applicability of the Vodithala Education Society decision.

Detailed Analysis:

1. Entitlement to Exemption under Section 11 of the Income Tax Act:
The appellant contended that it is entitled to exemption under Section 11 of the Income Tax Act, asserting that no part of its income is liable to be taxed. The Tribunal found that the assessee, a society registered under Section 12A, collected development funds, which were directly taken to the balance sheet without being admitted as income. The Assessing Officer (AO) concluded that these funds were capitation fees, disallowing the exemption under Sections 11 and 10(23C)(vi). The Tribunal, however, referred to the decision in Vignana Jyothi, which supported the assessee's claim for exemption.

2. Compliance with Sections 11 to 13 of the Income Tax Act:
The appellant argued compliance with all provisions of Sections 11 to 13, asserting that any surplus should not be taxed. The Tribunal noted that the AO had linked voluntary contributions to admissions under the management quota, treating them as capitation fees. However, the Tribunal found that the assessee's activities constituted "education" under Section 2(15) and were thus charitable.

3. Treatment of Voluntary Contributions:
The appellant contended that voluntary contributions received for the corpus fund should not be considered income. The AO treated these as quid pro quo for admissions. The Tribunal, referencing the Vignana Jyothi case, concluded that even if contributions were linked to admissions, it did not destroy the charitable character of the institution.

4. Application of Supreme Court and High Court Decisions:
The appellant criticized the Commissioner of Income Tax (Appeals) for not applying relevant Supreme Court and High Court decisions. The Tribunal cited the Supreme Court's decisions in Queen’s Educational Society and St. Peter’s Educational Society, which supported the view that the primary object of the institution was education, not profit.

5. Consideration of Statements from Donors:
The appellant contended that the Commissioner erred by considering statements from donors without allowing cross-examination. The Tribunal agreed that such statements could not be relied upon to draw adverse inferences without cross-examination.

6. Charitable Character of the Institution:
The appellant argued that the receipt of voluntary contributions did not affect its charitable status. The Tribunal supported this view, stating that the collection of donations, whether voluntary or linked to admissions, did not negate the charitable nature of the institution.

7. Proper Accounting and Application of Received Funds:
The appellant asserted that all received funds were accounted for and used for educational purposes. The Tribunal found no evidence to the contrary and noted that the funds were used transparently for the institution's development.

8. Interpretation of Circular No. 11 of 2008:
The appellant argued that even if profits were derived in the course of achieving educational objectives, they were incidental and not liable to tax. The Tribunal agreed, emphasizing that incidental profits used for charitable purposes did not disqualify the institution from exemption.

9. Reliance on Prior Tribunal Decisions:
The appellant contended that the Commissioner wrongly relied on the Vodithala Education Society decision. The Tribunal distinguished the present case from Vodithala, noting that the issue there was different and did not solely relate to the receipt of contributions.

10. Allegations of Behind-the-Back Inquiries:
The appellant claimed that inquiries were conducted without its knowledge and without an opportunity to object. The Tribunal found merit in this argument, noting procedural lapses in the Commissioner's approach.

11. Inferences Drawn by the Commissioner:
The appellant criticized the Commissioner for drawing inferences based on assumptions. The Tribunal agreed, stating that the conclusions were speculative and not supported by concrete evidence.

12. Applicability of the Vodithala Education Society Decision:
The appellant argued that the Vodithala decision was not applicable. The Tribunal concurred, distinguishing the facts of the present case and emphasizing the charitable nature of the appellant's activities.

Conclusion:
The Tribunal allowed the appeals, granting the appellant exemption under Section 11 of the Income Tax Act. The decision emphasized the charitable nature of the institution, proper accounting of funds, and procedural fairness in considering evidence and statements.

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