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TMI Blog2018 (8) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... , Accountant Member For The Assessee : Shri Y. Ratna Kar For The Revenue : Shri J. Siri Kumar, DR ORDER Per Smt. P. Madhavi Devi, J.M. All the three appeals are filed by the assessee against the order of the CIT (A)-IV, Hyderabad, dated 25/04/2006 for the A.Ys 2003-04, 1004-05 and 2005-06 respectively. The assessee has raised the following grounds of appeal for A.Y 2003-04. 1. The order of the learned Commissioner of Income tax(Appeals)IV, Hyd. dt. 13-2-2009 is contrary to law and facts. 2. The appellant contends that it is entitled to exemption u/s 11 of the LT Act and no part of its income is liable to be taxed for the assessment year under appeal. 3. The appellant contends that it has complied with all the provisions of sections 11 to 13 of the LT Act and therefore any surplus remaining for the year is not liable to tax as income in the hands of the society. 4. It is contended that the learned Commissioner of Income tax (Appeals)IV, Hyd. erred in coming to the conclusion that voluntary contributions in the form of development fund received by the appellant society amounting to ₹ 1,21,25,001 for the assessment year 2003-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... render income liable to tax in as much as such profits are merely incidental. 11. It is contended that mere receipt of donations does not destroy the charitable character of the institution and the test should have been whether the moneys received have been applied for the objects of the society. In the appellant's case there is no denial that to the last rupee of funds have been applied on the objects of the appellant society and the learned Commissioner of Income tax(Appeals)IV, Hyd. should have held that the income of the appellant society is not liable to tax u/s 11 of the LT Act. 12. The appellant contends that it has no knowledge of the letter of the Commissioner of Income tax(Appeals) dt. 25-4-2007 addressed to the Addl. Director of Income tax(Exemptions) (Para 6 of the appellate order) and the remand report dt. 31- 5- 2007 sent by the Assessing Officer (para -6. I) Ill} I' and several letters referred to at para 6.2 of the appellate order. All enquiries were made behind the back of the appellant. At no stage these matters were put to the appellant for its objections by the learned Commissioner of Income tax(Appeals). 13. It is contended that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO concluded that the assessee had collected huge extra consideration over and above the official fee and therefore, it was the capitation fee which was being collected. He therefore, held that the assessee is not carrying on charitable activity and also further that the exemption u/s 10(23C)/11 is available only to those colleges or societies which are run solely for educational purposes and not for the purpose of the profit. He therefore, disallowed the exemption u/s 11 and also u/s 10(23C)(vi) of the Act. Aggrieved, the assessee preferred an appeal before the CIT (A), who confirmed the order of the AO by following the decision of the ITAT in the case of Vodithala Education Society in ITA No.1138/Hyd/2006 for the A.Y 2003-04. Aggrieved, the assessee filed appeals before the Tribunal. 4. Since there were varying decisions of various Benches of the Tribunal on the issue, the case was referred to the Special Bench for a decision on the issue as to whether the assessee was eligible for exemption u/s 11 of the Act. The Special Bench was however, disbanded after taking into consideration, the contentions of the assessee that similar matter is pending before the Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as capitation fees and were brought to tax. Assessee filed the letters from the above four persons that the donations are voluntary and no capitation fee was collected. No further enquiry was conducted in spite of remitting matter for examination of the same. Even though the matter is pending adjudication before the Ld.CIT(A) in assessment proceedings, we are of the opinion that these four isolated instances which were relied on by AO does not conclusively establish that the society has violated the objects for which it was established and registration framed so as to invoke provisions of Section 12AA(3) to cancel registration. 11. Before adverting to the issue of cancellation, it would be better to analyse the concepts of charitable purpose, taxability of voluntary contributions, capitation fee, whether the donation can be considered as capitation fee and profits and profiteering - the reasons given by the Ld. DIT(E) while cancelling the registration. These are analysed herein onwards. 11.1. First we will consider the meaning of 'Charitable purpose' under the Income Tax Act. Section 2(15) of the Act defines 'charitable purpose' as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blication of newspapers and journals carried on by the trust therein involved the carrying of an activity for profit, it was held that the income of the trust therein was not exempt from tax. It was in this context that the Hon'ble Apex court further held that it is not permissible to read the word profit in the expression not involving the carrying on of an activity for profit as private profit as the words general public utility themselves exclude objects of private gain. The relevant portion of the judgment is reproduced hereunder: It has been pointed out in the earlier part of the judgment that in the definition of charitable purpose as given in s. 2(15) of the Act the words not involving the carrying on of any activity for profit have been added at the end of the definition as it was given in s. 4(3) of the Indian IT Act, 1922. The position as it existed under the Act of 1922 was that once the purpose of the trust was relief of the poor, education, medical relief or the advancement of any other object of general public utility, the trust was considered to be for a charitable purpose. As a result of the addition of the word not involving the carrying on of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and medical relief in sec 2(15). The heads relief of the poor, education, and medical relief remained unqualified by any express statutory restriction, and income arising from a profit-making activity linked with those heads enjoyed exemption without express limitation until section 13(1)(bb) was inserted in the Act by the taxation Laws (Amendment) Act, 1975, with effect from April 1, 1977. 11.5. The above judgment refers to the limitation placed by sec.13(1)(bb) of the Act inserted by the Taxation Laws (Amendment) Act, 1975. Let us now examine the scope of limitation placed by Clause (bb) to section 13(1) inserted with effect from April 1, 1977. It reads as under: (bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on business, unless the business is carried on in the course of the actual carrying on of a primary purpose of the trust or institution. However, this provision has been omitted by the Finance Act, 1983 (w.e.f.1-4-1984) in view of the new provision made in Sub-section (4A) of section 11. The provisions of sub-section (4A) as inserted by the Finance Act, 1983 (w.e.f.1-4-1984 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty shall be conducted on a no profit no loss basis or that no profit shall be prescribed. ( iii) the definition of charitable purpose would not be satisfied (a) where an activity for profit is actually carried on as an integral part of the purpose or in order to advance the purpose, or (b) where the trust deed expressly provides that the purpose shall be carried out by engaging in an activity which has predominant profit motive, in which case it would be non- charitable even if no activity for profit is actually carried on. ( iv) Activity for Profit connotes that the predominant object of the activity must be the making of profit: it is not enough that as a matter of fact the activity results in profit. Bhagwati J said, Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit merely because profit accrues. Pathak J observed, I am unable to accept the proposition that if the purpose is truly charitable, the attainment of the purpose must rigorously exclude any activity for profit ( v) On the other hand, where profit making is the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or religious; ii. the income is applied to any purpose outside India; iii. the income accumulated is in excess of the permissible limit of accumulation; iv. the income shown in the accounts of a business undertaking held upon trust is less than the income computed in accordance with the provisions of the Act; v. the accounts are not audited; or vi. the funds are not invested or deposited according to statutory requirements. Thus, the portion of the trust-income entitled to exemption may vary from year to year and therefore the AO has to examine the issue year after year and section 11 can have no application unless the source of the income is some property, and the property is held under trust or other legal obligation wholly or in part for a religious or charitable purposes. 11.9. Clause (d) of sub-sec(1) of sec.11 provides that voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be included in the total income of the previous year of the person in receipt of the income. On the other hand, section 2(24)(iia) defines 'income' to include voluntary contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary to understand the meaning of the word capitation fee . The Income Tax Act has not defined capitation fee and therefore it is necessary to look at the meaning given to this word in other related Acts and the judicial pronouncements thereon. The Right of Children to Free Compulsory Education Act, 2009 defines 'Capitation fee' in Section 2(b) as follows: Capitation fee means any kind of donation or contribution or payment other than the fee notified by the School. Thus, the term 'capitation fee' includes all amounts of money by whatever name it is called or may be called by various names viz., donation/security deposit fee/maintenance fee/activity fee/development fee/entertainment fee etc. Ld DIT placed reliance upon the judgment of the Hon'ble Apex court in the case of Miss Mohini Jain v. State of Karnataka [1992] 2 SCC 666 and also the decision of the ITAT in the case of Rajah Sir Annamalai Chettiar Foundation v. DIT(E) (2011) 48 SOT 502/15 Taxmann.com 313, in support of his decision that collection of capital fee for admission amounts to sale of education and hence is no longer a charitable activity, but is an activity run with a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be charged directly or indirectly, or in any form. At para 29 of its order in the case of Action committee, Unaided Private schools(cited supra) , the Hon'ble apex court held as under: 29. I, in view of the statement of law laid down in P.A.Inamdar(supra), am of the opinion that the authorities of all the schools, particularly, unaided schools, may lay down its own fee criteria. Imposition of regulation, however, only is permissible for the purpose of exercising control over profiteering and not earning of a profit which would include reasonable return of the investment made. I say so because in T.M.A. Pai foundation, this court itself held: 11.13. Revenue has placed reliance in the case of Mohini Jain's case (cited supra), whereas there has been a change in approach thereafter in subsequent judgments of the Hon'ble Apex Court. In Mohini Jain's case, the Apex Court had held that any prescription of fee in excess of what was payable in Government colleges was a 'capitation fee' and would therefore be illegal. Subsequently, in the case of Unnikrishnan Vs. State of Andhra Pradesh [(1993) 4 SCC 697] (supra), the Hon'ble Court held that private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand of the AO has been that the assessee has collected 'donations', it is in fact, payment for admission and hence 'capitation fee'. In view of this stand of the Revenue, it is, therefore, necessary to examine if the 'donations' is 'quid pro quo' for a seat in a college. G.O. Ms.No.33 dated 11-6- 2003 issued by the Govt. of Andhra Pradesh to implement the judgment of the Hon'ble Supreme Court in the case of TMA Pai (cited supra), has notified rules and regulations for admissions into under graduate professional courses through Common Entrance Test. The rules are applicable to all the Unaided Non-minority professional institutions imparting under-graduate professional courses in various streams stated therein. The EAMCET is the basis for admission of students into various unaided Non-minority professional institutions in the State of Andhra Pradesh (at the relevant point of time). 'Management Seats' are defined as the seats earmarked from out of the sanctioned intake of seats in each course to be filled by the Management of the Unaided Non-minority professional institutions. Rule 4 of the above rules provides that the Management seats sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observations of the Apex Court that in view of the majority judgment in the case of TMA Pai, different institutions may notify different fee for different courses and the same institution is also entitled to fix different fee for different courses. Therefore, if the institution has fixed different sums for different courses, they are perfectly entitled to do so but they must notify the same. To our understanding, the requirement of notifying the fee is to ensure transparency and accountability and to prevent misuse of funds. In the case before us, it is the stand of the assessee that these are voluntary contributions not connected to the admission of students. However, from the statements of the parents before the AO when enquired initially, the contributions are stated to be linked to the admission of students, even though they have filed affidavits subsequently denying the same. We also find that the institution has received the fund through D.Ds/ cheques and has issued receipts for the same and has also accounted for the same. Therefore, there is transparency in accounting the receipts. The Hon'ble Apex Court has further held that the private unaided institutions are entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Capitation Fee) Act, 1983 which prohibited collection of any fee other than the fee fixed by the Govt. The ld DR has placed before us the copy of the G.O.Ms.33, dt.11-06-2003 issued by the government of Andhra Pradesh to implement the judgment of the apex court in the case of T.M.A. Pai Foundation (supra) by framing the rules and regulations for admission of students into professional colleges. As per these rules, the fee prescribed per student admitted to an engineering college under the management quota was up to a sum of ₹ 75,000/ per annum. There is no allegation that assessee has collected any fee in excess of such prescribed amount. In addition to the above fee notified, the assessee has also collected the donations not only from some parents/ relatives bit also from members of Society. Whether such collection of donation is prohibited by the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 is to be examined. The reliance of the Revenue has been only on the rules framed vide G.O.Ms.33(supra) in which there is no mention of donations and contributions to the educational institutions. The rules have prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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