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TMI Blog2016 (7) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... t selling the education in the light of the judgment in the case of Ms. Mohini Jain v. State of Karnataka & Ors. (1992 (7) TMI 330 - SUPREME COURT) wherein held that capitation fees was nothing but price of selling education and such “teaching shops” were contrary to the Constitutional scheme and abhorrent to our Indian culture. We have also carefully examined the judgments referred to by the parties and in the case of P.S. Govindaswamy Naidu & Sons v. ACIT, (2007 (10) TMI 382 - MADRAS HIGH COURT) has held that where it was found that amount paid by parents of students admitted to assessee’s educational institution was not corpus donation amount, but it was collected only by way of capitation fees, such capitation fees was not exempt in the hands of assessee institution. Grant of registration u/s. 12AA by the Tribunal is concerned, we are of the view that the scope of grant of registration u/s. 12AA is entirely different than the scope of grant of exemption u/s. 11 of the Act. While granting registration u/s. 12AA of the Act, the authority was required to examine the objects of the society if the object of the society is of charitable nature, but no other contrary material i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of donations, for which, as brought out by the AO in the assessment order, parents were forced to borrow loans to get their wards admitted to the said college. ii) The opinion of the CIT(A), Mysore that the AO is not the competent authority to hold that the appellant has committed violations is not acceptable for the reason that, the AO is duty bound to look out for any violations committed by the entities claiming exemption and whether the entity is carrying on its activities on charitable footing, before allowing such exemptions claimed, which has been rightly done by the AO after bringing on record the relevant facts after investigation and disallowing the claim of exemption of the assessee trust. iii) The observation of the CIT(A) that so long as the income from the charitable activity, i.e., profits earned from the educational activities is applied for the objects of the trust or society, there is no embargo on the nature of income that feeds the charity except in the case of any activity that falls within the limb any other object of general public utility , is not acceptable for the reason that, by way of collecting capitation fee in the guise of voluntar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions run by the appellant trust especially when the books of accounts and the entries made therein are not rejected under the facts and in the circumstances of the appellant's case. 3.1 The finding of the authorities below are purely on suspicion and surmise, assumptions and presumptions and per se perverse as contrary to the evidence especially by relying upon the statements of only 7 persons, which have not been put to the appellant to lead evidence in rebuttal and if found necessary to cross-examine them and thus the finding is vitiated and the addition made and finding rendered on the basis of which denial of exemption u/s.11 of the Act is made are liable to be deleted/vacated. 4. Without prejudice to the above, the learned CIT[A] failed to appreciate that there was no surplus at all with reference to 3 institutions and hospital and there was surplus only with reference to the head office segment of the appellant trust and that too such surplus was without reckoning the capital expenditure, which was not claimed as an expenditure in the Income Expenditure account and if they were considered, the surplus earned would be very reasonable and could not be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Society [supra], which is not binding on the learned CIT[A]. 7. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s 234-B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled especially, there was no obligation to file an estimate and pay advance-tax and therefore, the interest charged u/s.234B of the Act requires to be cancelled. 8. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs for not following the binding jurisdictional High Court in the case of CHILDRENS EDUCATION SOCIETY. 4. Hence, in both the appeals the issue involved is, whether receipt of capitation fees or donations by the assessee in violation of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, from the students/parents of the students disentitle the assessee to claim exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount, by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed under section 5, but does not include the deposit specified under the proviso to section 3 of the Act. The ld. DR further contended that since the assessee has received the capitation fees over and above the tuition fees, the assessee is not entitled for exemption u/s. 11 of the Act. He also placed reliance upon the judgment of the Hon ble Apex Court in the case of Ms. Mohini Jain v. State of Karnataka Ors. (1992) 3 SCC 666, wherein the Hon ble Supreme Court has held that capitation fee was nothing but price of selling education and such teaching shops were contrary to the Constitutional scheme and abhorrent to our Indian culture. Reliance was also placed upon the decision of the Hyderabad Tribunal in the case of Vodithala Education Society v. Addl. CIT (Exemption) reported in 20 SOT 353, wherein it was held that the assessee had collected money over and above the prescribed fee by the authority for admission of students and such amount was to be classified as capitation fee and it could be said that assessee s case was clear case of selling education and it could not be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Education Society, 358 ITR 373 (Kar) (5) K.T. Venkatappa v. K.N. Krishnappa, 173 ITR 678 (Kar) (6) Shri Ananda Marakala, ITAT Bangalore, ITA No. 1584/Bang/2012 CO 58/Bang/2013 dated 13.9.2013. (7) Colonisers v. ACIT, 41 ITD 57 (Hyd) [SB] (8) Kishinchand Chellaram, 125 ITR 713 (SC) 15. Having carefully examined the orders of authorities below and documents placed on record, we find that the controversy in these appeals is only with regard to denial of exemption u/s. 11 of the Act on account of receipt of capitation fees by the assessee from the parents of the students who have been admitted during that year. In this regard, we have carefully examined the order of AO and we find that in the AY 2009-10, the AO has made a detailed investigation and has noticed that the assessee s receipt was also found from leasing of Kalyana Mantapa for marriage purposes which was considered to be the commercial activity by the AO in the light of the judgment of Hon'ble jurisdictional High Court in the case of Sri Subharam Trust in ITA No.380/2009 dated 30.5.2011. Besides, the AO has also examined the nature of receipts from the parents of students and he noticed that this recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The purpose for which the donations were given. 4. The reasons for giving donations in cash and not in cheque. Whether the recipient trust had insisted on giving the amount in cash. 5. Whether your son / daughter / any close relative / ward was given admission in Kammavari Institute of Technology / Polytechnic during the Financial Year 2008-09, if so, name and academic course in which the admission was given. If so, whether any receipt was issued by the trust, if yes, a copy may kindly be furnished. 6. Are you assessed to tax, your PAN and income shown in assessment year 2008-09 and 2009-10 may be furnished. 16. It was gathered from few persons that their son/daughter is studying in Kammavari Institute of Technology and accordingly the payment was made to the Society and for which receipts were issued towards voluntary contribution. Moreover these persons have also clarified that they have made the donation only to this assessee and that too in the year of admission of their ward. From the perusal of those letters/information prima facie it appeared that the assessee is taking huge donations/capitation fees in the garb of voluntary contributions. 17. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted the mode of payments and details of persons from whom the payments were made. He has also placed reliance upon various judgments in this regard while holding that capitation fees has been given in the disguise of so-called voluntary contribution. The relevant observations of the CIT(Appeals) is extracted hereunder for the sake of reference:- 14. I have considered the AO's order and the appellant's submissions as above along with the available evidences. Coming first to the identification of the impugned amounts as voluntary contribution , it is seen that the same have been credited as income in the Income Expenditure Account and have not been posited as corpus donations eligible for separate treatment as capital receipts. The assessment records were verified to examine the evidences from the donors sent in response to the AO's queries u/s 133(6). It is an undisputed fact that except in one of the replies all the other respondents have described their payment as general donation, although it was admitted that the same was given at the time of admission of their ward to the engineering course in KSIT. Two of the sample yes replies from B.S. Rajashekar a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate professional colleges for medical, dental and engineering courses were governed by the consensual arrangement entered into between the Government of Karnataka and the Karnataka Private Medical, Dental and Engineering Colleges Association (KPM DECA) entered into under the Karnataka Professional Education Institution (Regulation of Admissions and Fixation of fee) (Special provisions) Act, 2006 being Act no.13 of 2006. The summary of the fees structure and percentage of seats as per this agreement is in respect of 3 categories i.e. Government quota seat (to be filled through CET (exam), COMED-K member institutions seat (to be filled through COMED-K exam) and the balance management quota or NRI quota seats to be filled largely through discretion (but subject to eligibility as per AICTE/MCI/DCI norms). The summary is reproduced below from page 14 of the consensual arrangement which was applicable for FY 2010-11. 5.1 The above arrangement for diverse fee structures is a consequence of the Hon'ble Supreme Court's decisions in case of TMA Pai Foundation Vs. State of Karnataka (2002) (8 SCC 481), Islamic Academy of Education Vs. State of Karnataka (2003) (6 SCC 697) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onents of charitable activities permitted u/s, 2(15). 5.3 The Hon'ble Supreme Court have passed a number of land mark decisions to determine whether an educational institution is existing wholly for educational purpose and not for purposes of profit. The decisions, even when rendered in the context of Sec.10(23C), are applicable to institutions claiming exemption u/s. 11 for their engagement in educational activities. The latest decision in this regard is the case of M/s Queens Education Society Vs. CIT (Civil Appeal no.5167 of 2008) in Order dt. 16.03.2015. The earlier land mark decisions of the Hon'ble Supreme Court have been discussed in this latest order and they include the following 1. Aditanar Educational Institution Vs. Addl.CIT (1997) 224 ITR 310 2. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 3. American Hotel Lodging Association Vs. CBDT (2008) 301 ITR 86 4. Loka Shikshana Trust (1975) 101 ITR 234 5. The Indian Chamber of Commerce (1975) 101 ITR 796 5.4 The Hon'ble Court have held that if surplus results incidentally from the educational activities then no adverse inference should be drawn about the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the directions of the Hon 'ble Apex Court is increasing day-by-day for admitting students under Management Quota. This collection of money over and above the fees prescribed by the committee, shall be construed as collection of 'Capitation fees' as held by the Apex Court. Collection of capitation fee is not an isolated problem of an individual student and the institution. This is a social problem and makes the availability of education beyond the reach of the vast majority of the population. More than 30 per cent of the population is living below poverty line and bulk of the remaining population is struggling for existence under poverty. In this economic situation, if we allow a few individuals who had an opportunity to establish an educational institution to collect money directly or indirectly for admission of students, it would be a threat to very existence of democracy and sovereignty of this country. Therefore, the judicial and quasi-judicial authorities, cannot be expected to be a silent spectators of what is happening in the educational institutions ............... In the present case the AO as the quasi judicial authority has acted in the correct spi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Karnataka Education Institution (Prohibition of Capitation Fee) Act of 1984. It needs to be mentioned that the AO's discussion in the order for that year has not been made as a competent authority under the anti capitation fee statute but only as a competent authority under the Income Tax Act since he is entrusted with the responsibility of verifying whether the claimed charitable activities of an assessee flow from legal and legitimate activities sanctioned by statute. The CIT(A) has commented negatively on the AO's inference sought to be drawn based on the fact that the persons who gave the voluntary contributions had admitted their students in the institutions run by the appellant in certain cases. It needs to be emphasized that the quid pro quo arrangement even in that year did not exist in certain cases but in every case where an engineering seat had been offered to the concerned student. 6.3 In the impugned AY 2011-12, as in the earlier AYs 2009-10 2010-11, the assessee had filed its returns by claiming exemption u/s. 11. It was not, therefore, open to it to make a different claim in terms of Sec. 10(23C) at a later stage. In the case of Vodithala E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution was made towards the corpus. Moreover in Karnataka receipt of donation/capitation fee is strictly prohibited by the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. Through this legislation, the Govt. of Karnataka has prohibited the receipt of capitation fees by defining that capitation fee means any amount by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed u/s.5, but does not include the deposit specified under the proviso to Sec.3. Undisputedly, the assessee has received these voluntary contributions/donations over and above the tuition fees. Now the onus is upon the assessee to demonstrate that the voluntary contributions/donations falls within the proviso to section 3 of the Act, but no evidence is placed on record that proviso to section 3 would apply in the case of assessee. Where the definition of capitation fee has been given in the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, no other definition of capitation fee can be adopted, as the word capitation fee has not been defined in the Income- tax Act. The Revenue has also established that donation/vo ..... 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