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TMI Blog2015 (4) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... the said finding rendered by the Tribunal. Therefore, we do not find any reason to upset the said finding. As rightly held by the Tribunal, if the Assessing Officer had any doubt about the receipt of capitation fee or the explanation given, he should have conducted enquiry either with the students or with their parents or with any other person interested in the activities carried on by the assessee trust. But, without doing so, the Assessing Officer estimated the collection of contributions on the basis of the number of seats available under management quota multiplied by the amount of contribution attributable to individual seats. Any determination for purpose of tax cannot be based on hypothetical facts or conjectures or surmises. The inference drawn by the Original Authority is based on probability. In our considered opinion, based on the loose sheets and cash seized, which have been held as irrelevant to the present issue, it cannot be held that for all the assessment years the assessee received capitation fee for admission of students in the management quota. This is a perverse inference. No endeavour is made to sustain the allegation of involuntary donation. In any ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d decision does not apply to the facts of the present case, as the Assessing Officer has not chosen to conduct any enquiry from any student or parent with regard to the donations. Decided in favour of the assessee. Whether the department has established a case of violation of Section 13(1)(d) of the Act as against the respondent/assessee? - Held that:- The very basis of the plea of the Revenue regarding violation of Section 13(1)(d) of the Act is that a sum of ₹ 44 Lakhs was found and seized in the course of the search from the residence of the Chairman of the assessee Trust. With regard to the said seizure, the Assessing Officer has accepted the disclosure of the seized cash as the income of the individual and, therefore, in our considered opinion, it cannot be said that assessee trust has violated the provisions of Section 13(1)(d) of the Act. In any event, from the show cause notice and the order of the Assessing Officer, we find that none of the ingredients of Section 13 is attracted to the facts of the present case. - Decided in favour of the assessee. - T.C.(A).Nos.1052 to 1058 of 2014 - - - Dated:- 24-3-2015 - R.Sudhakar And R.Karuppiah JJ. For the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urses conducted by various educational institutions run by the assessee/trust. 2.3. Thereafter, notice under Section 153A of the Act dated 4.9.2008 was issued to the assessee. In response, on 6.10.2008, the assessee filed returns admitting NIL income for all the assessment years. Pursuant to the same, notice under Section 143(2) of the Act was issued on 9.7.2009 in respect of all the assessment years, followed by issuance of notice under Section 142(1) of the Act on 6.11.2009, annexing a detailed questionnaire regarding the case. 2.4. At this juncture, for better clarity on the manner in which the department proceeded in the matter, we take up the annexure to one such notice issued under Section 142(1) of the Act, wherein after referring to the statement of the Chairman of the Trust, in query (viii), the Assistant Commissioner of Income Tax records that in the return of income filed by the assessee certain amount has been admitted as donation collected, whereas on the basis of the statement of the Chairman and the inference drawn by the Assessing Officer, a higher amount should be shown as donation. A specific query has been posed in query (x) as follows: (x) In your aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering College. 2.8. On this basis, the Assessing Officer came to the conclusion that these donations are nothing but capitation fee. Taking note of the number of students admitted under the management quota in various colleges and by making computation on the basis of an estimate, for which he falls back on the statement of the Chairman, the Assessing Officer determined receipt of a higher amount as capitation fee, in the guise of donation, as against the admitted figure of donation as claimed by the assessee in respect of each assessment year. 2.9. To arrive at such conclusion, the Assessing Officer relied upon two other relevant factors, which are admitted and not in dispute, which we find have been uniformly applied in all these cases. For instance, the relevant portion of the Assessment Order passed for the assessment year 2002-2003 is extracted hereunder: 5.3. The loose sheets 5 to 22 in LS Sl.No.3 of ANN/SO/B D/LS seized during the search and referred to in the questionnaire issued to the assessee, contain the list of the students along with the details of amount received, repaid and total paid and balance. The following amounts are appearing in the above seized docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiplying the amount of donation with the number of students admitted under management quota in various courses. The total amount of donation calculated was treated as the income of the trust not being exempt as per Section 13 read with Section 11 of the Act for all the assessment years. 2.11. The Assessing Officer further held that the assessee is not carrying on charitable activities for the purpose of Section 13 read with Section 11 of the Act. In fine, the Assessing Officer concluded as follows: 9. In view of the discussions made above and the decisions relied upon, I hold that the assessee earned income under the head voluntary contributions in the books of the assessee are not actually voluntary and that these are only selling of seats in exchange of capitation fees. The amount of capitation fee thus collected by the assessee is treated as undisclosed capitation fees being not exempt as per section 13 r.w.s. 11 of the I.T.Act. 2.12. Similar orders have been passed for all the assessment years by the Assessing Officer. These facts are not disputed by the learned counsel for the appellant department. 3.1. The assessee, aggrieved by such assessment, pursued the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill go to the Government quota and no admission can be made under to the management quota and, therefore, the assessee had no other option except to refund the fees collected. However, the Assessing Officer misdirected himself to state that the amount, which was later returned, was received as donation from the students and the same is unaccounted. This factual mistake was agitated before the Commissioner of Income Tax (Appeals) and accepted by the said authority. The relevant portion of the said order reads as under: The content of this seized document as mentioned by the AO shows that some amount was received and part of it is refunded and balance of the amount is mentioned in the seized document. These papers were confronted to Sri MKR, Managing Trustee of the Trust who had stated that the contents of the paper is the fee collected from the students which was refunded to the students as the admissions were denied to those students and all these entries are recorded in the books of accounts. The reason for the same was explained that for financial year 06-07 the Govt. of Pondicherry took a decision that all the seats of medical college will go to the Govt. quota and no admissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on account of various assets. His statement has been reproduced in this order earlier. Further employee of the appellant trust Sri Bhaskar on the date of search has stated that he has not sent any cash to the residence of Sri M.K.R. In continuation of his above statement, he has filed a return of income declaring undisclosed income of ₹ 3 crores. The AO has accepted this disclosure and has even mentioned in the asst. order that this unaccounted income of ₹ 3 crores includes the cash found at his residence. Therefore, the AO has given the finding in the asst. order of Sri MKR in individual capacity that the said cash belongs to Sri MKR and therefore the same cannot belong to the trust also. When the copy of sworn statement recorded on 13.8.07 was given to Sri MKR he has retracted the said statement that the cash belongs to the trust. He has produced the medical certificate in support of 50% hearing disability. Furtherance to the statement of disclosure of unaccounted income, Sri MKR, having turnover of more than ₹ 30 crores in his petrol pump business has declared unaccounted income of ₹ 3 crores, the AO has accepted the disclosure in the asst. order and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustees or any member of the Trust. The source of income to the charitable institution is of no relevance. What is relevant is the application of income for providing exemption under Section 11 of the Act. It is for the department to prove that there is mis-utilization of the income of the trust as stated in Section 13 of the Act. He, therefore, holds that denying exemption under Section 11 of the Act without there being a case made out for violation of Section 13 of the Act is totally incorrect. He further held that receipt of donation at uniform rate for admission in management quota is not supported by any material evidence. He, therefore, allowed the appeals of the assessee. 4.1. The department pursued the matter before the Tribunal. The case of the department was summarized by the Tribunal in paragraph (28) as under: 28. That the only ground pointed out by the Assessing Officer to refuse exemption is that the assessee has violated the provisions of law contained in sec. 13. Section 13 contains different sub-sections and clauses to address different situations of violation. Therefore, it is necessary to cite the specific sub section and clause to allege that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself has noted down the names of about eight prominent educational institutions carried on by the assessee trust on the face of the assessment order. The same is reproduced in para 2 of this order. These institutions included medical and engineering colleges. The paper book filed before us contains copies of relevant documents and certificates in pages 326 to 360, issued by appropriate authorities, which prove that the assessee is carrying on its educational activities by running a number of institutions within the domain of central and state laws. The letter of Dy. Director of Public Health, Govt. of Puducherry, at page 326 of the paper book permits the assessee's medical college to utilize the facilities of the Govt. hospitals for the clinical practice of medical students. Page 327 is a copy of the letter issued by the Puducherry Health Secretariat regarding the constitution of Permanent Admission Committee under the Chairmanship of Hon'ble Justice A.Ramamurthy (Retd.,) Madras High Court. A copy of the procedure on admission of medical students issued by the Director of Health and Family Welfare Services, Govt. of Puducherry, is available in page 331. Page 332 contains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 11 and 13. The assessee is registered u/s 12AA of the Income Tax Act 1961. The assessee is filing regular returns before the assessing authority. The assessing authority himself has stated in his order that he has examined the returns of income in the light of the books of accounts, financial statements and balance sheets of the assessee trust. Even in the course of search operations, the assessing authority has no case that proper accounts were not maintained by the assessee trust except the allegation regarding the nature of certain seized documents relating to the refund of fees made to the students, who were not given admission in the colleges of the assessee trust. We do not find any reason to endorse the above allegation made out by the Revenue, which is without any basis. (emphasis supplied) 4.6. Thereafter, the Tribunal proceeded to go into the core issue of violation of the provision of Section 13(1)(d) of the Act, which prompted the Assessing Officer to deny the benefit of Section 11 of the Act to the assessee. The Tribunal, as in the case of Commissioner of Income Tax (Appeals), was inclined to discard the two findings rendered by the Assessing Officer based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otment under management quota. It was in that contingency, the amounts collected earlier from the students had to be refunded. These details have been brought out in the accounts maintained by the assessee trust. If the Assessing Officer had any strong intuition about capitation fee on the basis of this solitary opinion, the Assessing Officer should have conducted proper enquiries before coming to a conclusion against the assessee trust. The assessing authority has not conducted any such enquiries either with the students or with the parents of the students or with any other person interested in the activities carried on by the assessee trust. (emphasis supplied) 4.7. The question, as has been posed by the Tribunal, is whether the contributions or donations are voluntary or involuntary and what is the effect of such donation. The Tribunal was of the view that there is no concept of involuntary contributions and went on to hold that voluntary contributions should be treated as income under Section 12 of the Act and that corpus donations to be treated as capital receipt under Section 11(1)(d) of the Act and corpus donations are not generally in the nature of income. It further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aunce of compulsion like contribution to provident fund and the like. 38. Therefore, we find that whether it is treated as voluntary or involuntary, the only course of action available before law is to see whether such contributions have been treated by the assessee as the income and also applied for charitable purposes. (emphasis supplied) This reasoning of the Tribunal, we are inclined to accept. 4.9. The finding of the Tribunal is that the department has not established a case that the assessee had in this case not utilized the donations or income for charitable purpose. The clear finding of the Tribunal is that if the assessee had not utilized the amount for charitable purpose, it would automatically become taxable and the assessee would not be entitled to exemption. But, on the contrary, without there being a finding of violation of Section 13 of the Act, an inference is drawn on an alleged receipt of donation and consequently, the allegation is made that there is a violation of Section 13(1)(d) of the Act. A hypothetical finding is given that because capitation fee is charged, it is not an income in terms of Section 11 of the Act and, therefore, there is a violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India ; and where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent. of the income from such property; (c) income derived from property held under trust-- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India ; Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income. (d) income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly. (2) The value of any services, being medical or educational services, made available by any charitable or religious trust running a hospital or medical institution or an educational institution, to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13, shall be deemed to be income of such trust or institution derived from property held under trust wholly for charitable or religious purposes during the previous year in which such services are so provided and shall be chargeable to income-tax notwithstanding the provisions of sub-section (1) of section 11. For the purposes of this sub-section, the expression ''value'' shall be the value of any benefit or facility granted or provided free of cost or at concessional rate to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of June, 1970 ; (d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983, otherwise than i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a) thereof] of the Finance Act, 1972. ..... (6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but without prejudice to the provisions contained in sub-section (2) of section 12, in the case of a charitable or religious trust running an educational institution or a medical institution or a hospital, the exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-section (2) of section 12, by reason only that such trust has provided educational or medical facilities to persons referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3).''. (emphasis supplied) Questions of Law (i) and (ii) 7.1. To answer these questions of law raised by the revenue, let us analyze activities carried on by the assessee trust. 7.2. The assessee/Trust is running about eight educational institutions. The Tribunal, based on the various documents filed by the assessee, (i.e.), the permission by the Deputy Director of Public Health, Government of Puducherry to utilize the facilities of the Government Hospitals; the constitution of Permane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout doing so, the Assessing Officer estimated the collection of contributions on the basis of the number of seats available under management quota multiplied by the amount of contribution attributable to individual seats. Any determination for purpose of tax cannot be based on hypothetical facts or conjectures or surmises. The inference drawn by the Original Authority is based on probability. 7.6. With regard to the seizure of cash of over ₹ 44 Lakhs from the residence of the Chairman of the Assessee Trust, it is not in dispute that the said sum has been assessed in the hands of the Chairman for the assessment year 2008-2009 and the same was received from the petrol pump business, the turnover of which is more than ₹ 30 Crores. Moreover, the Assessing Officer has accepted the disclosure of the seized cash as the income of the individual and, therefore, in our considered opinion, it cannot be said that assessee trust had accepted contributions by way of capitation fee. The said issue cannot be used both ways. The assessment of the undisclosed income at the hand of the individual ends the issue there. It has no relevance to the affairs of the Trust and there is no me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot voluntary, and it is relatable to admission of students. We find this finding of the Assessing Officer, as has been rightly held by the Commissioner of Income Tax (Appeals) and the Tribunal, is not supported by documents, but on the basis of Assessing Officer's inference. It cannot be now stated that something was not furnished, nevertheless, he tallied all the materials and came to the conclusion as stated above. If the Assessing Officer has tallied the figures then the assessees case of actual contribution to Trust has to be accepted. It has been shown in the return of income. A bald statement in paragraph (7) of the assessment order that the assessee is not carrying on charitable activities for the purpose of Section 13 read with Section 11 of the Act appears to be the mainstay of the department's case. 7.10. In effect, it is clear that the authority has confused himself with the admission of students in management quota with the carrying on activities of the trust. The distinction is obvious that if the department wanted to make out a case of violation of Section 13 of the Act by the trust, it cannot be based on the perception of the Assessing Officer that donatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, whatever income was offered by the assessee as contributions will be entitled to exemption under Section 11 of the Act. 8.2. The true intent of Sections 11, 12 and 13 of the Act is utilization of funds for charitable purpose and the same has been highlighted by the Supreme Court in a recent decision in Queen's Education Society v. Commissioner of Income Tax, CDJ 2015 SC 215. The Supreme Court held that the assessing authority must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down and if the activities of the institution are found not to be genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. The relevant potion of the said decision reads as under: 19. It is clear, therefore, that the Uttarakhand High Court has erred by quoting a non existent passage from an applicable judgment, namely, Aditanar and quoting a portion of a property tax judgment which expressly stated that rulings arising out of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Society (Regd.) v. Commissioner of Income Tax, (2011) 53 DTR (Del) 130. Also inTolani Education Society v. Deputy Director of Income Tax (Exemption), (2013) 351 ITR 184, the Bombay High Court has expressed a view in line with the Punjab and Haryana High Court view, following the judgments of this Court in the Surat Art Silk Manufacturers Association Case and Aditanar Educational Institution case as follows: '..The fact that the Petitioner has a surplus of income over expenditure for the three years in question, cannot by any stretch of logical reasoning lead to the conclusion that the Petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that the Petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In the present case, the sole and dominant nature of the activity is education and the Petitioner exists solely for the purposes of imparting education. An incidental surplus which is generated, and which has resulted in additions to the fixed assets is utilized as the balance-sheet would indicate towards upgrading the facilities of the college including for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C) read with Section 11 of the Income Tax Act. (emphasis supplied) 8.3. It only emphasizes that the department is empowered to take action in cases where an institution does not apply the income to further the cause of the trust. 8.4. That apart, for the assessment years 2002-2003 and 2003-2004 as Chief Commissioner of Income Tax-VI, Chennai, having jurisdiction over the case has notified this under Section 10(23C)(vi) of the Act that there is no applicability of section 11 or 13 in those two years. The department has not produced any evidence of breach of Section 10(23C)(vi) of the Act and, therefore, the respondent/Trust will be entitled to the benefit of exemption contained therein. 8.5. In the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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