2021 (8) TMI 30 - AT - Income Tax

Assessment of trust - assessee is registered under section 12AA - addition on the plea that Income Tax Department concerns only with the application of income and it is not significant how that income was earned - HELD THAT - As only extra fee of ₹ 1,500/- was charged and that too was for examination fee. In such circumstances, it cannot be said that any capitation fee has been charged from the students. Moreover, there is no surplus has been generated in the year under consideration and the assessee cannot be alleged for engaged in profiteering also. The assessee has contested that no fee was fixed by the state level fee fixation committee for the year under consideration and, therefore, computation of the excess fee by the Assessing Officer, is based on presumption and without any documentary evidence in support. The decisions relied upon by the Assessing Officer are in respect of the capitation fee and in absence of any such evidence of collection of capitation fee, the decisions relied upon are not applicable over the facts of the assessee. CIT(A) has correctly held that once the assessee is registered under section 12AA of the Act, the Assessing Officer has to examine applicability of section 11, 12 and 13 of the Act. No such violation has been pointed out by the learned Assessing Officer of section 11, 12 and 13 of the Act. The Section 11 prescribe application of the income toward charitable purposes, which in the case of the assessee is for education and the assessee has duly applied its income for said purposes as per the rules specified in the Act. In view of the above facts and circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and, accordingly, we uphold the same. The ground of the appeal of the Revenue is accordingly dismissed.

Issues Involved:
1. Deletion of addition of ?10,32,13,500/- made by the Assessing Officer (AO) on the grounds that the Income Tax Department should only be concerned with the application of income, not how it was earned.
2. Whether the order of the Commissioner of Income Tax (Appeals) [CIT(A)] should be canceled and the order of the AO restored.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?10,32,13,500/-:
The primary issue was whether the excess fees charged by the assessee, a society registered under section 12AA of the Income-tax Act, 1961, should be considered as business income and taxed accordingly. The AO observed that the assessee charged fees in excess of those fixed by the state-level fee fixation committees, categorizing it as capitation fee, which indicated a profit motive rather than a charitable purpose. The AO cited several Supreme Court decisions to support this view and computed the taxable income of the assessee based on the excess fees collected.

However, the CIT(A) deleted the addition, stating that the society's income is exempt from taxation as long as it is applied towards its charitable objects in accordance with sections 11, 12, and 13 of the Act. The CIT(A) noted that there was no violation of these sections and that the total utilization of income exceeded the total receipts, indicating no surplus. The CIT(A) also pointed out that the fee fixation order referred to by the AO was not applicable for the relevant assessment year, and the actual fees received were lower than what the AO had computed.

2. Whether the Order of CIT(A) Should Be Canceled and the Order of AO Restored:
The Revenue argued that the assessee was engaged in business rather than charity due to the collection of capitation fees. However, the assessee countered by stating that no fee was fixed by the fee fixation committee for the relevant academic year, and the fees charged were within permissible limits. The assessee also provided an affidavit from the trustee confirming that no fee was fixed by the committee for the relevant year.

The tribunal reviewed the submissions and found that the assessee was registered under section 12AA, and its primary activity was education, which is considered a charitable activity under section 2(15) of the Act. The tribunal noted that the AO did not provide evidence from any regulatory authority regarding the collection of capitation fees. The tribunal also referenced several Supreme Court decisions, which allowed educational institutions to generate reasonable surpluses without it being considered profiteering.

The tribunal concluded that the assessee did not charge capitation fees and that there was no surplus generated in the year under consideration. It also held that the AO's computation of excess fees was based on presumption without documentary evidence. Therefore, the tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

Conclusion:
The tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of ?10,32,13,500/-. It concluded that the assessee's income was applied towards its charitable objects, and there was no evidence of capitation fees or profiteering. The tribunal emphasized that the AO should focus on the application of income rather than how it was earned, as long as there was no violation of sections 11, 12, and 13 of the Income-tax Act.

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