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TMI Blog2022 (11) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and then mundane goals. It is a tool to eradicate social injustice. Globalization in every field has resulted in creation of more opportunities. Every rational parent, not privileged by affluence, strives to get their children educated beyond their means. Their quest to fulfil their dreams through their children has envisioned certain educational institutions to metamorphose the service, once known and worshipped to be a noble occupation, into an opportunity to make money. Our Constitution, under various Articles has enunciated the principles for equality and equal opportunity, the requirement to protect women, children and the youth of this nation and to prevent them from exploitation. 2. Education has been dealt with in the Constitution, in the following manner: "Article 14. Equality before law.-The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. Article 15. Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth.- (1) The State shall not discriminate against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them. (2) No c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily income and other indicators of economic disadvantage. ..... Article 19. Protection of certain rights regarding freedom of speech, etc.- (1) All citizens shall have the right- ...... (g) to practise any profession, or to carry on any occupation, trade or business ..... (6) Nothing in sub-clause (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub-clause, and, in particular, nothing in the said sub-clause shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to,- (i) the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or (ii) the carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise. ...... Article 21A. Right to education.-The State shall provide free and comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 37. Application of the principles contained in this Part.-The provisions contained in this Part shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws. Article 38. State to secure a social order for the promotion of welfare of the people.-(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life. (2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations. Article 39.Certain principles of policy to be followed by the State.-The State shall, in particular, direct its policy towards securing- (a) that the citizens, men and women equally, have the right to an adequate means of livelihood; ...... (e) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions for the devolution of powers and responsibilities upon Panchayats at the appropriate level, subject to such conditions as may be specified therein, with respect to- (a) the preparation of plans for economic development and social justice; (b) the implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule Extract of Eleventh Schedule. .... 17. Education, including primary and secondary schools. 18. Technical training and vocational education. 19. Adult and non-formal education. 20. Libraries Article 243W. Powers, authority and responsibilities of Municipalities, etc.- Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow- (a) the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to- (i) the preparation of plans for economic development and social justice; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exploitation. Therefore, by the very First Amendment to the Constitution in 1951, Article 15 was amended to save the challenge to any action taken by the State to protect the interest of the weaker sections. The minorities are guaranteed a right to establish and maintain educational institutions. The local bodies have been entrusted with duties to promote education under the Constitution as found in the eleventh and twelfth schedule. By the Constitution 42nd Amendment Act, 1976, the subject of education was moved from State list to Concurrent list. The primary responsibility of education, though was reposed with the State, the Constitution also by Article 19 (1)(g) facilitated private players in the field of education. Still, such private institutions can be treated only as supplementing the efforts of the State and the responsibility of the State is never shed away. Equality and equal opportunity in our system is achieved through the policy of reservation. Though the reservation was initially only contemplated for seats in House of the People and Legislative Assemblies, it was later extended to employment and then, to the field of education. The Constitution, though directed the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether on facts and in the circumstances of the case, the Tribunal was right in not appreciating that the said monies are the capitation fee received by the trusts in a quid pro quo manner for allotment of seats to the students in the college run by the sister trusts having common controlling trustee and the same was illegally passed on as voluntary donation. (3) Whether on facts and in the circumstances of the case, the Tribunal was right in not appreciating the Assessees' aiding of illegal action of receipt of capitation fee is against the public policy and the provisions of Tamil Nadu Educational Institution (Prohibition of Collection of Capitation Fee) Act, 1992 and no benefit under Section 11 of Income Tax Act is warranted." 6. Subsequently, on 22.02.2022, TCA Nos. 59, 60, 62 and 63 of 2022 were admitted by raising the following questions of law: (1) Whether on the facts and in the circumstances of the case and in law, the ITAT was right in holding that the Assessees are eligible for exemption under Section 11 of the Income Tax Act without taking cognizance of the fact that quid-pro-quo element was involved in the trust accepting donations from donors? (2) Whether on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foundation, M/s. MAC Charities, M/s. MAC Public Charitable Trust and Sri Venkateswara College of Engineering. The Assessing Officer also concluded that the Assessee utilised M/s.United Educational Foundation, M/s. MAC Charities, M/s.MAC Public Charitable Trust as a tool for transfer of capitation fees received from the students and thereby virtually sold education for a price. Such practice of receiving donation and/or capitation fee as a condition precedent for admitting a student is opposed to the provisions of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992. The enquiry also unfolded that the Assessee demanded and insisted the parents of the students, who wish to get admission for their children, to pay capitation fee to the other trust in the name of their relatives or friends of the parents, but not in their name. The parents also, in the interest of admitting their children in the said College, were forced to pay capitation fee in the name of their relatives or friends. According to the Assessing Officer, the analysis of the fund transactions confirms that the Assessee made to appear that the contributors voluntarily paid the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the reply of the assessee was not accepted by the assessing officer. According to the assessing officer, the Assessee trust and other trusts are connected with each other. The capitation fee has been received in lieu of procuring seats in Sri Venkateswara College of Engineering as donation by M/s. United Educational Foundation and it was systematically routed through the other "pass-through" trusts belonging to Mr. A.C. Muthiah and ultimately it reached Sri Venkateswara College of Engineering operating under the name and style of M/s.Sri Venkateswara Educational and Health Trust as corpus donation. Therefore, the Assessing Officer after having held that the capitation fee received was treated as income not eligible for exemption under section 11 of the Act, determined the taxable income of the Assessee at Rs.9,90,50,000/- and the tax payable at Rs.4,13,59,162/- for the assessment year 2011-2012 by the assessment order dated 31.03.2014. Similarly, the assessing officer passed the assessment orders on 30.03.2015, 30.03.2016, 31.12.2016, determining the taxable income and tax payable by the assessee, in respect of the assessment years 2012-13, 2013-14 and 2014-15 as well. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2014-2015, determining the taxable income at Rs.8,00,00,000/- by treating the same as not eligible for exemption under section 11 of the Act. It was further observed that penalty proceedings against the Assessee under Section 27 (1) (c) of the Act will be initiated separately. 10.1. The Assessee viz., M/s. United Educational Foundation / respondent in TCA Nos.59/2022, 305 and 306/2021 relating to the AY 2011-12, 2013-14 and 2014-15 respectively, is a registered trust under Section 12AA of the Act, vide order passed in DIT (E) No.2(1359)/08-09 dated 24.09.2009. For the Assessment year 2011-2012, the Assessee filed its return of income on 30.09.2011 admitting 'Nil' income. After processing the same, the assessing officer issued a notice dated 03.08.2012 under Section 143 (2) of the Act. In response, the representative of the Assessee appeared before the assessing officer and produced documentary evidence, including a letter dated 12.08.2013 furnishing the details of the donors, their address, Pan Number and the manner in which the donation was paid viz., demand draft/pay order. On perusal of the same, the assessing officer noticed that the Assessee received a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the explanation of the Assessee, was of the opinion that the amount of non-voluntary contribution i.e., capitation fee received at Rs.22,03,77,500/- has to be treated as income and the Assessee was not eligible for exemption under section 11 of the Act, for the assessment year 2011-12. 10.3. On the above said reasoning, the assessing officer passed the orders of assessment dated 31.03.2016 and 31.12.2016, relating to the assessment years 2013-14 and 2014-15, determining the tax payable by the assessee at Rs.16,22,60,670/- and Rs.16,33,99,970/-, respectively. 11.1. The Assessee namely M/s. MAC Charities / respondent in TCA Nos. 63/2022, 309 and 310 of 2022 relating to the AY 2011-12, 2013-14 and 2014- 15 respectively, is a trust registered under Section 12A(a) of the Act vide the order in DIT(E) No.2(102) /90-91 dated 15.11.2000. For the assessment year 2011-12, they had filed their return on 26.09.2011 admitting 'nil' income. The Assessee's case was taken up for scrutiny and notice under section 143(2) was issued on 03.08.2012. In response, the Assessee's representative appeared and produced the documents called for. On verification of the return of income, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals). Before the CIT(A), on behalf of the Assessees, it was contended that the donations were received voluntarily; and the Assessee Trusts were in no way connected with the securing admission of students in Sri Venkateswara College of Engineering for the children of the donors. In the records of the Assessee Trusts, they had shown these donations as income only and applied the same for charitable purposes as per law. As a charitable institution, there is no prohibition under law to receive donation from another charitable institution. In this context, on behalf of the Assessees, reliance was placed on the decision of the Allahabad High Court in CIT v. J.K. Charitable Trust [(1992) 196 ITR 31] wherein it was observed that as a charitable institution, the Assessee can directly contribute to another charitable institution which advances similar cause. It was further observed that in the absence of any allegation of malafides, the amount contributed to other charitable institutions out of the income accumulated under sub-section (2), is outside the mischief of sub-section (3) of Section 11. In other words, such contribution does not amount to application of the income for purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no coercion by the Assessee trust exerted on the donor trust. The AO did not bring any evidence to prove that the donation given by M/s. United Education Foundation to the Assessee trust is either by undue influence or intimidation. The alleged collection of capitation fee by the United Education Foundation for admission to engineering college owned by Sri Venkateswara Educational and Health Trust is no way connected with the activities of the trust. No evidence was brought on record by the AO to prove that the Assessee trust exerted influence on the parents, relatives or friends of the parents of the students to pay donation/capitation fee to the United Education Foundation in order to get admission in the engineering college owned by Sri Venkateswara Educational and Health Trust. In the circumstances, whether the donation in the hands of M/s. United Education Foundation is voluntary or not is not an issue relatable to the Assessee trust. The only common link is that the founder trustee of the Assessee trust, Dr. A.C. Muthiah is also the trustee of the United Education Foundation which gave donation to the Assessee trust. it is also a fact that the father of Dr. A.C. Muthiah is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treatment of donation paid by the Assessee to other trusts as non-application, it is to be observed that the Assessee not only donated money to Sri Venkateswara Educational and Health Trust but also donated to ten other trusts. The donations other than corpus donations shall for the purposes of sec.11 be deemed to be income derived from property held under trust for wholly charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly as per sec.12 (1) of the Act. Hence the donation received by the Assessee trust at Rs.4 crores is income of the Assessee for the purpose of Sec.11(1) of the Act. Similarly, the donation paid by the Assessee trust to other trusts are income in the hands of recipient trusts for the purpose of sec.11 (1) of the Act. 4.6. ......... The above decisions and instructions are squarely applicable to the facts of the case and hence the additions made are not tenable. The donation receipt of Rs.3.60 crores from M/s. United Education Foundation is brought to tax in the hands of the Assessee protectively. The same amount was taxed in the hands of M/s. United Education Foundation substantively. The same amount was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional institutions run by M/s. Sri Venkateswara Educational & Health Trust. It was the further view of the Tribunal that there is no bar for the Assessee Trusts to receive and/or accept voluntary donations from the donors or from the relatives/parents of the students studying in the educational institutions connected with the charitable trusts. In effect, the Tribunal opined that the Assessing Officer had not brought out credible materials to show that the Assessee Trusts had received donations as a condition precedent for allotment of seats to the student in M/s. Sri Venkateswara College of Engineering, Sriperumbudur. Accordingly, the Tribunal dismissed the appeals preferred by the Revenue. The relevant portion of the order dated 12.04.2017 passed by the Tribunal can profitably be extracted hereunder: "10. .......However, the facts also reveals that initially all the donors who had submitted sworn statements before the Ld. AO against the Assessee had earlier replied to the Ld. AO stating that the donations were voluntarily made by them to the charitable institutions. In this situation we fail to understand the reason for the change of stand by the donors before the Ld. AO on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us to establish that the Assessee trusts are barred from accepting donations from the relatives/parents of the students studying in the educational institutions connected to those charitable trusts. In the case of MAC Educational Foundation, the Assessee trust had received from M/s. United Education Foundation. Though the Ld.AO state that the Assessee Trust has received the donation for granting admission to students in M/s.Sri Venkateswara College, Sriperumbudur, he has not brought out any evidence to prove the same. Therefore, there is no merit in the case of M/s.MAC Educational Foundation for treating the amount as non-voluntary contribution. In the case of M/s. Sri Venkateswara Educational and Health Trust, the Ld.AO had simply stated that the Assessee trust has received capitation fees without any evidence to establish the same. It is also not clear whether this amount is received from other connected/related trusts or directly received from the donors. The Ld.AO instead of clarifying these issues has made substantive addition in the hands of the Assessee, which is erroneous. Further it is apparent that the Ld.AO without examining the correct source of actual donation had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue that the Appellate Authority erred in deleting the disallowance made by the Assessing Officer and accepted the claim of the Assessees towards receipt of the amount as voluntary donation. It was further contended that the donations were in fact collected by the Assessee Trusts towards capitation fee as a condition precedent for admitting the students in the Engineering College run by Sri Venkateswara Educational and Health Trust. 17. However, the Tribunal, by a common order dated 13.11.2019, rejected all the appeals, by placing reliance on the earlier order dated 12.04.2017, mentioned supra, without examining the merits of the contentions raised by the Revenue. The relevant portion of the said order dated 13.11.2019 is quoted below for ready reference: "7. We have considered the rival submissions and perused the materials available on record. Perusal of the orders of the Co-ordinated Bench of this Tribunal in the Assessee's own case in respect of all Assessees clearly show that the Co-ordinated Bench of this Tribunal has confirmed the order of the learned Commissioner of Income Tax (Appeals) for the Assessment year 2011-2012 by holding that no interference was necessary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust namely MAC Public Charitable Trust Dr. A.C. Muthiah is also the trustee of M/s.United Educational Foundation, which gave donation to the Assessee trust; the said Dr. A.C. Muthiah is also the founder trustee of Sri Venkateswara Educational and Health Trust, which owns the College viz., Sri Venkateswara College of Engineering; and thus, the Assessee Trusts are having nexus with one another and the donations received by M/s. United Educational Foundation were systematically channelised so as to reach the college operating by Sri Venkateswara Educational and Health Trust as corpus donations. The Assessing Officer also, on appreciation of the evidence collected during the course of enquiry, has concluded that there was a clear nexus among the Assessee Trusts. However, the appellate authority as well as the Tribunal simply brushed aside the said fact and erroneously held that the assessees are eligible for exemption under section 11 of the Act. 18.3. In effect, it is the submission of the learned Senior Standing Counsel appearing for the revenue that the respondents /Assessees are part of a group trust. Their modus operandi is that students of the educational institution of Trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to be a voluntary contribution/donation to the trust. Such receipt of capitation fee cannot be passed on as a donation by one trust to another and claimed exemption thereof. The nature of money received by the respondent Trusts had lost their character of voluntary donation/contribution at the time of original receipt itself. Therefore, the manner in which the monies spent subsequently will not be construed as donation especially when the socalled money received have landed finally in the hands of the College or the trust running the college that allotted seats. 18.6. Referring to the provisions of Tamil Nadu Educational Institutions (Prohibition of Capitation Fee) Act, 1992, the learned Senior Standing Counsel appearing for the Revenue submitted that section 2 (a) defines "capitation fee", which means any amount, by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed under Section 4 of the Act. According to the learned Senior Standing Counsel, as per the statements given by the parents/relatives in this case, they had paid capitation fee over and above the prescribed fee for admission and the same is also punishable under the said A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Court considered the conditions and regulations, if any, which the State could impose in the running of private unaided/aided recognised or affiliated educational institutions conducting professional courses such as medicine, engineering etc., The extent to which the fee could be charged by such an institution and the manner in which admissions could be granted was also considered. This Court held that private unaided recognized /affiliated educational institutions running professional courses were entitled to charge a fee higher than that charged by government institutions for similar courses, but that such a fee could not exceed the maximum limit fixed by the State. It held that commercialization of education was not permissible and "was opposed to public policy and Indian tradition and therefore charging capitation fee was illegal......." 57. We, however, wish to emphasize one point, and that is that inasmuch as the occupation of education is, in a sense, regarded as charitable, the government can provide regulations that will ensure excellence in education, while forbidding the charging of capitation fee and profiteering by the institution. Since the object of setting up a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts for their private or selfish ends. If capitation fee and profiteering is to be checked, the method of admission has to be regulated so that the admissions are based on merit and transparency and the students are not exploited. It is permissible to regulate admission and fee structure for achieving the purpose just stated." (iii) In P.S. Govindasamy Naidu & Sons v. Assistant Commissioner of Income Tax [(2010) 324 ITR 44 (Madras)] the Division Bench of this Court held as follows: "5. It is seen from the order of the assessing authority that on an examination of a random number of parents who admitted the children into the college, it was found that the amount paid was not to the corpus donation account, but it was collected only by way of capitation fee. The Assessee treated it on its own as corpus donation and issued receipts as corpus donation and credited it under the corpus donation account. The Assessing Authority rightly held that it is immaterial how the recipient, namely the Assessee herein, accounted for the same and issued receipts towards charitable purpose at the time of receipt of the income. Admittedly, it was towards capitation fee. In such circumstances, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, during investigation by the CBI, some of the donors have confessed that they have not given any such donation. Under interrogation of the donors it was unearthed that the donation detail submitted by the Assessee in the original assessment proceedings was false. Thus, the genuineness of the donors could not be established. This case invited deeper scrutiny owing to the discovery of facts during CBI investigation that adversely impinged the findings determined in the earlier round of assessment. However, the Appellant failed to discharge the onus of proof cast upon it. No attempt was made to produce credible material to corroborate the transactions or to explain the contradictory evidence that it was confronted with. Appellant also never took any steps to examine the witnesses and as a result, on the basis of the material on record, the tax authorities concluded that the genuineness, creditworthiness remained unsubstantiated. In wake of this factual position, the donations were treated as bogus, justifying the additions. Therefore, the third substantial question of law, premised on findings that are purely based on fact calls for no interference." Thus, the learned senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income Tax, Bombay City-VII v. Trustees of the Jadi Trust [1981 SCC Online Bombay 347 = (1982) 133 ITR 494] the Bombay High Court held as follows: "22. So far as the provision of s.11 of the Act which was in force at the material time is concerned, we do not think that the legal position is in any way different. As already pointed out when a trust which holds property for charitable or religious purposes hands over a donation to another trust which is also at trust made for the application of its funds for charitable or religious purposes there can hardly be any purposes by the donor trust. As already pointed out it would be permissible for a trust either to directly apply the income for charitable purposes or to a charitable work in the field as put by Slade, J., or the same funds or income could be utilised through the medium of another charitable institution which applies its funds or income to charitable purposes. The Tribunal is, in our view, right in holding that the Assessee was entitled to the relief under s.11 (1) (a) of the I.T. Act, but the propriety of the direction given by the Tribunal need not be dealt with in this reference. However, it has been arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucational Institution, (1979) 118 ITR 235, and the Supreme Court has not in that judgment held that the width of language of Section 10 (22) notwithstanding income qualifying for exemption should be limited or restricted, having regard to its proximate connection or otherwise with the activity of running educational institutions. The observation made by this Court having regard to the issues which were considered therein were obiter. It is obvious that granting exemption to the income of the educational institutions is to enable such institutions to utilise the monies available with them for the purpose of running the educational institutions. The source from which the money is received is not of any consequence, what is relevant is the application. So long as the institution is an educational institution, which is not engaged in earning profit, income of such institution is exempt under section 10 (22). (iv) In Trustees of Vanita Vishram v. Commissioner of Income Tax, Bombay [2005 SCC Online Bombay 721] the Bombay High Court held as follows: "22. In the instant case, there is no dispute about the fact that the Assessee existed only for educational purposes, viz., for running sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to do on receipt of such an application is, he shall call for such documents or information from the trust in order to satisfy himself about the genuineness of the activities of the trust or institution. In addition to securing information in the aforesaid manner, it is open to the Commissioner to make such enquiries as he deems necessary in this behalf. Having regard to the scheme of Sections 11, 12 and 13 ultimately what the Commissioner has to look into is not the source of income to the trust but whether such income is applied for charitable or religious purposes. The satisfaction of the Commissioner should be regarding the application of the income of the trust for the aforesaid purposes which only entitles the Assessee to claim exemption. For arriving at such satisfaction primarily he has to look at the object of the trust, when the same is reduced into writing in the form of trust deed. If on the date of the application the trust has received income from its property, then find out how the said income has been expended, and whether it can be said that the income is utilized towards charitable and religious purposes i.e., towards the object of the trust. Therefore, for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o substantial question of law arises for our consideration in this case. The appeal as well as CM 3907/2010 for condonation of delay are hereby dismissed." 20. We have heard the learned Senior Standing Counsel for the appellant / revenue and the learned counsel for the respondents / Assessees and also perused the materials placed before us. DISCUSSION & FINDINGS 21. At the outset, pertinently, be it noted, an understanding of the facts at hand would reveal that the case of the respondents / Assessees is nothing more than a fig leaf to conceal the violation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 (hereinafter shortly referred to as "the Capitation Fee Act"). Therefore, before appreciating the rival contentions made by the parties, it is essential to delve into the legal provisions. Relevant provisions under the Income Tax Act, 1961 22. The following provisions of the Income Tax Act, 1961, are relevant for the purpose of the present cases: Section 2 (15) of the Income Tax Act, defines "Charitable Purpose" as follows: "(15) "charitable purpose" includes relief of the poor, education, yoga, medical relief, preservation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the corpus of the trust or institution" with effect from 1-4- 1989. Subsequently the provision was amended and stands as above at the relevant point of time when the assessment orders were passed. Incomes not included in total income. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (23C) any income received by any person on behalf of- ...... (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or (iiiac) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government. [Explanation.-For the purposes of sub-clauses (iiiab) and (iiiac), any university or other educational institution, hospital or other inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation, existing solely for philanthropic purposes and not for purposes of profit, other than those mentioned in subclause (iiiac) or sub-clause (iiiae) and which may be approved by the prescribed authority : Provided that the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall make an application in the prescribed formand manner to the prescribed authorityfor the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) : Provided further that the prescribed authority, before approving any fund or trust or institution or any university or other educational institution or any hospital or other medical institution, under sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11: Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 1993 : Provided also that the exemption under sub-clause (vi) or sub-clause (via) shall not be denied in relation to any funds invested or deposited before the 1st day of June, 1998, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 if such funds do not continue to remain so invested or deposited after the 30th day of March, 2001: Provided also that the exemption under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal institution or any hospital or other medical institution shall get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish along with the return of income for the relevant assessment year, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: Provided also that any amount of donation received by the fund or institution in terms of clause (d) of sub-section (2) of section 80G in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or which has been utilised for purposes other than providing relief to the victims of earthquake in Gujarat or which remains unutilised in terms of sub-section (5C) of section 80G and not transferred to the Prime Minister's National Relief Fund on or before the 31st day of March, 2004 shall be deemed to be the income of the previous year and shall accordingly be charged to tax: Provided also that where the fund or trust or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer: Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes an application on or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be made on or before the 30th day of September of the relevant assessment year from which the exemption is sought : Provided also that any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of the said section shall be included in the total income : Provided also that all pending applications, on which no notification has been issued under sub-clause (iv) or sub-clause (v) before the 1st day of June, 2007, shall stand transferred on that day to the prescribed authority and the prescribed authority may proceed with such applications under those sub-clauses from the stage at which they were on that day: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or set apart is not in excess of twenty-five 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 twenty-five 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 extern 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. [Explanation : For the purposes of claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain; (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n no case exceed ten years; [(b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5)].] [(3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or [(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5) , or] (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a.) of that sub-section or in the year immediately following the expiry thereof, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or, as the case may be, of the previous year immediately following the expiry of the period aforesaid.] [(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank), Explanation : In this clause, "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the Central Government or a State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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 twenty-five 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 the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution;] [Explanation: For the purposes of clauses (a) and (b),- (1) in computing the twenty-five percent of the income which ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in. any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation: In this sub-section,- (i) "appropriate fraction" means the fraction which represents the extent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in sub-section (5)].] [(3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or [(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or] (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or, as the case may be, of the previous year immediately following the expiry of the period aforesaid] [(3A) Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the [Assessing]Officer may, on an appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on the business of banking (including a cooperative land mortgage bank or a co-operative land development bank). Explanation: In this clause," scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by the Central Government or a State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both the principal whereof and the interest whereon ate fully and unconditionally guaranteed by the Central Government or by a State Government; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions. I find that some of these trusts and institutions are trying to circumvent the investment pattern for trust funds laid down by the Finance Act, 1983. It is necessary to ensure that all such trusts and institutions strictly conform to the prescribed investment pattern and that such income or property is not used for providing benefit to the settlers trustees, etc. I , therefore, propose to provide for taxation of the income of defaulting trusts and institutions at the maximum marginal rate of income-tax. while on this subject, I would like to refer to a tendency noticed to create private trusts which carry on business. To curb such practice, I propose to provide that where such trusts have profits and gains of business the entire income of the trust will be charged to tax at the maximum marginal rate, an exception being made only in the cases where the trust is created by will for dependant relatives." 25. The major changes that were introduced by the Amending Act, 1989 are that Sections 11, 12, 12A and 13 which were omitted by Direct Tax Laws (Amendment) Act, 1987, were reintroduced by Direct Tax Laws (Amendment) Act, 1989 with effect from 01-04-1989. Section 11(d) was ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) "urban infrastructure" means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport;" 29. By Finance Act, 2001, Second Proviso to sub-section 2 of Section 11 was inserted with effect from 1-4-2002. Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words "ten years" at both the places where they occur, the words "five years" had been substituted. 30. By Finance Act, 2002, the following modifications were made to Section 11: Section 7. Amendment of Section 11 In Section 11 of the Income Tax Act, with effect from the 1st day of April, 2003 (a) in sub-section (1), (i) in clause (a), for the words twenty-five per cent , the words fifteen per cent shall be substituted; (ii) in clause (b), for the words twenty-five per cent , the words fifteen per cent shall be substituted; (iii) in the Explanation, (A) in clause (1), for the words twenty-five per cent , the words fifteen per cent sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce (No.2) Act 2014, with effect from 01.04.2015, the following sub-sections were inserted to Section 11. "6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. (7) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) of section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and the said registration is in force for any previous year, then, nothing contained in section 10 [other than clause (1) and clause (23C) thereof] shall operate to exclude any income derived from the property held under trust from the total income of the person in receipt thereof for that previous year." 33. By Finance Act 20/2015, the following amendments were made to Section 11: "In section 11 of the Income-tax Act, with effect from the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Explanation.-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) of section 13. (3) Notwithstanding anything contained in section 11, any amount of donation received by the trust or institution in terms of clause (d) of sub-section (2) of section 80G in respect of which accounts of income and expenditure have not been rendered to the authority prescribed under clause (v) of sub-section (5C) of that section, in the manner specified in that clause, or] which has been utilised for purposes other than providing relief to the victims of eart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below subsection (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (c) [***] (2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made: [Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the end of the month in which the application was received under clause (a) or clause (aa) of sub-section (1)of section 12A. (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) and subsequently the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] (4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is 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; o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be had to the amendments made to this section by section 7 [other than sub-clause (ii) of clause (a) thereof] of the Finance Act, 1972. (2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in subsection (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the funds of the trust or institution invested in a concern in which any person referred to in sub-section (3) has a substantial interest, does not exceed five per cent of the capital of that concern, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such investment, by reason only that the funds of the trust or the institution have been invested in a concern in which such person has a substantial interest. (5) Notwithstanding anything contained in clause (d) of sub-section (1), where any assets (being debentures issued by, or on behalf of, any company or corporation) are acquired by the trust or institution after the 28th day of February, 1983 but before the 25th day of July, 1991, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such assets, by reason only that the funds of the trust or the institution have been invested in such assets if such funds do not continue to remain so invested in such assets after the 31st day of March, 1992. (6) Notwithstanding an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny lineal ascendant or descendant of the spouse of the individual; (vi) spouse of a person referred to in sub-clause (ii), sub-clause (iii), subclause (iv) or sub-clause (v); (vii) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual. Explanation 2.-A trust or institution created or established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or women and children shall not be deemed to be a trust or institution created or established for the benefit of a religious community or caste within the meaning of clause (b) of sub-section (1). Explanation 3.-For the purposes of this section, a person shall be deemed to have a substantial interest in a concern,- (i) in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of the other persons referred to in sub-section (3); (ii) in the case of any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the benefit of exemption under section 11 and section 12 of the Act. It is mandatory for every institution claiming exemption to register themselves. The procedures for registration and cancellation are contemplated in Section 12AA. As per section 12AA(1)(b) of the Income-tax Act, 1961, the commissioner before granting the registration is to be satisfied about the objects of the trust and the genuineness of its activities. However, the commissioner is vested with the power under 12AA (3) to cancel the registration if the activities are not genuine. The objects are irrelevant, when the activities are not genuine. The application of the funds is also subject to scrutiny by the commissioner. Further, similar to Section 10 (23C), the requirement under Section 12 is that the trust must be "wholly" for charitable purpose. If it turns out that the activities are not genuine or not being carried out in accordance with the objects of the trust, not only is the registration liable to be cancelled, the claim of exemption under Section 11 is also liable to be rejected. The word "genuine" must be read as in compliance with all the laws of the land. If the institution or trust is used as a clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to the charitable and religious institutions and endowments and Wakfs shall be deemed to be a management for the purposes of this Act; ..... 3. Prohibition of collection of capitation fee. - Notwithstanding anything contained in any law for the time being in force, or in any judgment, decree or order of any Court or other authority, no capitation fee shall be collected,- (a) by any person who is in charge of, or is responsible for, the management of any educational institution; or (b) by any other person either for himself or on behalf of any such educational institution or on behalf of any such management of any educational institution. 4. Regulation of fee, etc. - (1) Notwithstanding anything contained in any other law for the time being in force, the Government may, by notification, regulate the tuition fee or any other fee or deposit that may be received or collected by any educational institution or class or classes of such educational institutions in respect of any or all class or classes of students: Provided that before issuing a notification under this sub-section, the draft of which shall be published in the Tamil Nadu Government Gazette stating that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1993) 1 SCC 645], it was held that: "164. .... While we do not wish to express any opinion on the question whether the right to establish educational institution can be said to be carrying on any "occupation" within the meaning of Article 19(1)(g), - perhaps, it is - we are certainly of the opinion that such activity can neither make a trade or business nor can it be a profession within the meaning of Article 19(1)(g). Trade or business normally connotes an activity carried on with a profit motive. Education has never (been) commerce in this country. Making it one is opposed to the ethos, tradition and eligibilities of this nation. The argument to the contrary has an unholy ring to it. Imparting education has never been treated as a trade or business in this country since times memorial. It has been treated as a religious duty. It has been treated as charitable activity. Jut never as trade or business. We agree with Gajendragadkar, J. that "education in its true Inspect is more a mission and as vocation rather than a profession or trade or business, however Wide may be the denotation of the two latter words..."(see University of Delhi 1961(1) SCR 03. The Parliament too h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..... (g) The Court also took note of prevailing situation of corruption in the field of education and commercialisation of education thus: 68. .... 86. It is, therefore, to be borne in mind that the occupation of education cannot be treated on a par with other economic activities. In this field, the State cannot remain a mute spectator and has to necessarily step in order to prevent exploitation, privatisation and commercialisation by the private sector. It would be pertinent to mention that even in respect of those economic activities which are undertaken by the private sector essentially with the objective of profit-making (and there is nothing bad about it), while throwing open such kind of business activities in the hands of private sector, the State has introduced regulatory regime as well by providing Regulations under the relevant statutes. (h)..... 38. In Unni Krishnan case, MANU/SC/0333/1993 : (1993) 1 SCC 645, this Court also rejected the argument that the said activity could be classified as a "profession". However, the right of professional institutions to establish and manage educational institutions was finally regarded as an "occupation" befitting the reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn a Nelson's eye to the menace of capitation fee rampant in the State of Tamil Nadu like many other States as well. The following observations would lend support to this: "6. Before we proceed to deal with the suggestions made for effectively stopping the practice of charging capitation fee by medical colleges, it is necessary to refer to how this Court has previously dealt with the evil practice of charging capitation fee and the immediate need to stop the practice of collection of capitation fee by private medical colleges. In TMA Pai Foundation and Ors. v. State of Karnataka MANU/SC/0905/2002 : (2002) 8 SCC 481, this Court observed that a rational model should be adopted by the management, which would not be entitled to charge a capitation fee. Appropriate machinery can be devised by the State or university to ensure that no capitation fee is charged and there is no profiteering, though a reasonable surplus for the furtherance of education is permissible. 7. While clarifying the judgment of this Court in TMA Pai Foundation1, this Court in Islamic Academy of Education and Anr. v. State of Karnataka and Ors. MANU/SC/0580/2003 : (2003) 6 SCC 697 observed that once fee is fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suggestions that are made by the learned Amicus Curiae for curbing the menace of capitation fee, after taking note of the suggestions and comments of learned Counsel appearing for the States, medical colleges and National Medical Council for the issuance of appropriate directions. 10. Pursuant to orders dated 6.08.2014 and 20.04.2022, Shri Hargurvarinder S. Jaggi, Officer on Special Duty in the Supreme Court of India, has been nominated for rendering assistance to learned Amicus Curiae in the matter of setting up a web portal which would serve as a platform for the aggrieved persons to provide information relating to any demand of capitation fee made by the private medical colleges. Though, we are informed that no complaint has been received by any State Government regarding charging of capitation fee, it was suggested that a web portal under the aegis of Supreme Court would provide confidence in the public to furnish any information relating to capitation fee being charged by private medical colleges. The Ld. Amicus Curiae further suggested that all candidates taking the National Eligibility-cum- Entrance Test (NEET) for undergraduate, postgraduate and super speciality cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the learned Counsel on this behalf. The Fee Fixation Committees have to fix the fee without leaving any scope for the managements of private medical colleges to charge any additional fee which is not part of fee fixed by the Committees. We make it clear that the Fee Fixation Committees have to take into account all components of fee proposed to be charged by the Management while determining the fee to be paid by the students. For this purpose, assistance can be sought from the report of Hon'ble Mr. Justice B.N. Srikrishna dated 26.08.2021 for reviewing the existing fee structure and for fixing the norms and guidelines for charging tuition and other fees in which the Committee has prescribed the parameters and guidelines for the types of fees to be charged by the institutions recognized by the AICTE. The report also prescribes the minimum and maximum fees which includes the tuition fee, development fee, examination fee and other fees. 13. It was submitted that the managements of private medical colleges should be directed not to receive fee through cash payment and to prohibit certain private medical colleges from insisting on payment of fee for entire course in advance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be made strictly on the basis of merit and in the event of any admission to the contrary, suitable action shall be taken against the private medical colleges; (e) While fixing fee, the Fee Fixation Committees of the States should take into account all the components of fee, leaving no scope for managements to charge any additional amounts apart from what has been prescribed by the fee fixation committee from time to time. In the event that the management intends to charge additional amounts over and above the price band fixed by the Fee Fixation Committee, or for any component not included in the structure fixed by the Fee Fixation Committee, the same can only be done with the concurrence of the Fee Fixation Committee; (f) The management of private medical colleges are strictly prohibited from accepting payment of fees in cash, in order to avoid charging of capitation fee. The students or any other aggrieved persons are at liberty to report on the web-portal regarding collection of fees in cash by any medical colleges; (g) The Director General of Health Services and other concerned authorities to the State Governments should ensure that the All-India Quota and State Qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust involves the carrying on of an activity for profit. The expression "business", as observed by Shah, J., speaking for the Court in the case of State of Gujarat v. Raipur Mfg. Co. [AIR 1967 SC 1066 : (1967) 1 SCR 618 : (1967) 19 STC 1] though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. By the use of the expression "profit motive" it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trust before us, we find that the word "education" is mentioned by the maker of the trust in a rather ceremonial or ritualistic fashion as a label for what he considers to be charitable objects. The third set of objects, in clause 2 of the deed does not appear to be stated there merely as a means of serving the general purpose of "education" separable from these objects in clause (c). On the other hand, there are strong grounds for believing, in the light of other provisions and profitmaking activities and background of the trust, that education was mentioned as the object in the deed only as a convenient cloak to conceal and serve the real and dominant purpose of clause 2(c) which was to run a profitable newspaper and publishing business without paying the tax on it. Just as mere making of profit as a consequence or incident of altruistic activity is not decisive of the real purpose or object of the activity, so also the carrying on of a business for profit does not cease to be so merely because losses are actually incurred in certain years or because those who carry it or call it "education" It would be difficult to find any commercial activity which makes profits always or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect, if any, purely illusory. Indeed, this was the law even before the qualifying words introduced by the 1961 Act. [See: East India Industries (Madras) Pvt. Ltd. v.CIT, Madras [(1967) 65 ITR 611 : (1967) 3 SCR 356 : AIR 1967 SC 1554] ; CIT, Madras v. Andhra Chamber of Commerce ; Md. Ibrahim Raza v. CIT, Nagpur [1930 LR 57 IA 260 : AIR 1930 PC 226 : 125 IC 879] . Such a "trust" would be of doubtful validity, but I refrain from further comment or any pronouncement upon the validity of such a trust as that was neither a question referred to the High Court in this case nor argued anywhere. 46.The amendment of the 1961 Act considered by us compels closer scrutiny of deeds of ostensibly charitable trusts with a view to discovering their real purposes by analysing the effects of their terms and what they permit. It narrows the scope of exemption from income tax granted at least under the last and widest category of charitable trusts mentioned in Section 2(15) of the Act as was held in CIT, v. Indian Chamber of Commerce [(1971) 81 ITR 147 (Cal)] ..." 47. In Commissioner of Income tax (Exemptions) Kolkatta v. Batanagar Educational and Research Trust [LL 2021 SC 337], the Hon'ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-society. In our opinions such, the assessee cannot be considered as a charitable institution under section 2(15) of the Income-tax Act. Therefore, the assessee is not eligible for exemption under section 11 of the Income-tax Act." 49. Even in terms of the judgment of the Hon'ble Supreme Court in Safdarjung Enclave Educational Society v. MCD [AIR 1992 SC 1456], any donation made in order to gain advantage or benefit cannot be called as voluntary contribution. The relevant passage of the same is usefully extracted below: "Where a person gives money to another without material returns, he donates that sum. An act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another, without any consideration, is a donation. A gift or gratuitous payment is in simple English a donation. We do not require lexicographic learning or precedential erudition to understand the meaning of what many people do every day, viz., giving donation to some fund or other, or to some person or other." 50. It is therefore beyond the pale of any doubt that education can never be a commercial activity or a trade or business and those in the field of educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t also seeking the benefit of tax exemptions by adopting the modus operandi as stated above and elaborated by the counsel for Revenue. The insolent acts of the managements, despite the laws and dictums of the Apex Court on the nature of education as a noble occupation and on consistent deprecation against Capitation Fee in any form, has been incessant throughout. LIFTING THE CORPORATE VEIL 53. In this regard, useful reference is made to the following judgments on the doctrine of 'lifting the corporate veil'. (i) In Balwant Rai Saluja & Ors. v. Air India Ltd. & Ors. [(2013) 15 SCC 85], it was held by the Hon'ble Supreme Court as follows: "14. It is well settled that the court can lift the veil, look to the conspectus of factors governing employment, discern the naked truth though concealed intelligently. The court has to be astute in piercing the veil to avoid the mischief and achieve the purpose of law. It cannot be swayed by legal appearance. 68. The said principle has been followed by this Court in catena of cases namely, Kanpur Suraksha Karamchari Union and Basti Sugar Mills Ltd. referred to supra. In the case of State of UP v. Renusagar Power Co. (supra), this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected. After referring to several English and Indian cases, this Court observed that ever since A. Salomon & Co. Ltd. case a company has a legal independent existence distinct from individual members. It has since been held that the corporate veil may be lifted and corporate personality may be looked in. Reference was made to Pennington and Palmer's Co. Laws. 66. It is high time to reiterate that in the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, indubitably, we are of the opinion that it is correct that Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Lord Denning quoted with approval the statement in Gower's Co. Law that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group". The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners". He called it a case of "three in one" - and, alternatively, as "one in three". 28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding.... 67. In the aforesaid view of the matter we are of the opinion that the corporate veil should be lifted and Hindalco and Renusagar be treated as one concern and Renusagar's power plant must be treated as the own source of generation of Hindalco and should be liable to duty on that basis. In the premises the consumption of such energy by Hindalco will fall Under Section 3(1)(c) of the Act. The learned Additional Advocate-General for the State relied on several decisions, some of which have been noted. 68. The veil on corporate personality even though not lifted sometimes, is becoming more and more transparent in modern company jurisprudence. The ghost of Salomon case (1897 AC 22) still visits frequently the hounds of Company Law but the veil has been pierced in many cases. Some of these have been noted by Justice P.B. Mukharji in the New Jurisprudence (Tagore Law Lectures, P. 183). 25. In Delhi Development Authority v. Skiper Construction Company (P) Ltd MANU/SC/0497/1996 : (1996) 4 SCC 622, it was observed: 24. Lifting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, upand- doing, men and women shareholders, and will do justice between real persons. 25. In Palmer's Company Law, this topic is discussed in Part-II of Vol-I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs: The courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose.... Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company. Similar views have been expressed by all the commentators on the Company Law which we do not think it necessary to refer. (underlining is ours)" 26. It is thus clear that the doctrine of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifting the veil, it is clear as daylight that the modus operandi adopted by the Assessee Institutions and Trusts are with the twin objectives of circumventing/violating the provisions of the Capitation Fee Act as well as evading tax while seeking tax exemption under the corporate veil of being different and distinct entities receiving funds from each other for purely charitable purposes. Suffice it to say, nothing can be farther from the naked truth that cannot hide itself sufficiently behind the fig leaf of the legal cover sought to be taken by the Assessees under the guise of being charitable trusts and seeking exemption thereof. 55. Further, an elaborate exercise was undertaken by the Assessing Officer by issuing summons to various persons and their sworn statements were recorded. These sworn statements point to the factum of payment of amounts extending to atleast around Rs. 5 Lakhs in each of the cases as well as the nexus between the Assessee institutions. The fact that these payments were made by the relatives/friends of the parents of the students who obtained admission in the Assessee institutions would prove the nature of the donations and the reasons therefor. That apar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded, either by filing a complaint to the higher officials or otherwise brought to the notice of the higher officials, either by way of a duly sworn affidavit or statements supported by convincing evidence through which an assessee could demonstrate that the statements initially recorded were under pressure/coercion and factually incorrect. In our view, retraction after a sufficient long gap or point of time, as in the instant case, loses its significance and is an afterthought. Once statements have been recorded on oath, duly signed, it has a great evidentiary value and it is normally presumed that whatever stated at the time of recording of statements under Section 132(4), are true and correct and brings out the correct picture, as by that time the assessee is uninfluenced by external agencies. Thus, whenever an assessee pleads that the statements have been obtained forcefully/by coercion/undue influence without material/contrary to the material, then it should be supported by strong evidence which we have observed hereinbefore. Once a statement is recorded under Section 132(4), such a statement can be used as a strong evidence against the assessee in assessing the income, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Commissioner of Income-Tax v. Lekh Raj Dhunna, taking note of the fact that the assessee had made a statement under Section 132(4) of the IT Act, whereby a surrender of Rs.2 lakh was made and further that, the assessee had admitted that he had earned commission from a party, which was not disclosed in the return filed by him and certain documents were seized which bore the signature of the assessee, held in para 16 of the report as under: "16. Thus, in view of sub-sections (4) and (4A) of Section 132 of the Act, the Assessing Officer was justified in drawing presumption against the assessee and had made addition of Rs.9 lakhs in his income under Section 68 of the Act. The onus was upon the assessee to have produced cogent material to rebut the aforesaid presumption which he had failed to displace. The assessee retracted from the said statement, vide letters dated November 24, 1998, and March 11, 1999, during the course of assessment proceedings. However, no value could be attached thereto in the present case. In case the statement which was made by the assessee at the time of search and seizure was under pressure or due to coercion, the assessee could have retracted from the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n search. 9. Section 132 of the Income tax Act deals with search and seizure and sub- Section (4) of Section 132 empowers the authorised officer during the course of the search and seizure to examine on oath any person who is found to be in possession or control of any books of account, documents, money or valuable articles or things etc. and record a statement made by such person which can be used in evidence in any proceedings under the Income Tax Act. The explanation appended to Clause (4) also makes it clear that such examination can be in respect of any matters relevant for the purpose of any investigation and need not be confined to matters pertaining to the material found as a result of the search. A plain reading of Section 132(4) would clearly show that what was intended by empowering an officer conducting the search to take a statement on oath was to record evidence as contemplated in any adjudication especially since Section 131 confers on all officers empowered therein with the same powers as vested in a court under the Code of Criminal Procedure, for the purpose of the Income Tax Act. 10. A Division Bench of this Court in C.I.T. v. Hotel Meriya, (2011) 332 ITR 537 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2014 and made the following observations: "Reverting back to the present case, the ITAT, on the basis of such statement of Shri Bannalal Jat, concluded that he was managing his business affairs of both his proprietary concern as well as appellant-company from his residence and that in the absence of individual cash-book of respective concerns and other details maintained by him, it is not possible to identify whether the cash so found belongs to the proprietary concern or to the assessee company. Subsequently, when the statement under Section 132(4) of the IT Act was recorded on 10.10.2014, which was concluded at his residence, Shri Bannalal Jat categorically admitted that the cash amount of Rs.1,21,43,210/- belonged to his company M/s. Bannalal Jat Construction Private Limited and the same was its undisclosed income. Thereafter another statement under Section 132(4) of the IT Act was recorded at his business premises on 11.10.2014. In reply to question No. 8, he was asked to explain the source of cash amounting to Rs.3,380/- found at his office and Rs.1,21,43,210/- found at his residence, he submitted regarding the amount of Rs.1,21,43,210/- found at his residence that he was u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ]. The onus falls on the person who had earlier admitted to prove it wrong. Therefore, the statements could form the basis of assessment. 63. The statements given to the Assessing officer under Section 132 (4) have legal force. Unless the retractions are made within a short span of time, supported by affidavit swearing that the contents are incorrect and it was obtained under force, coercion and by lodging a complaint with higher officials, the same cannot be treated as retracted. This position laid down in catena of decisions by the various High Courts in CIT vs. Lekh Raj Dhunna [344 ITR 352 (P&H)], Bachittar Singh v. CIT [328 ITR 400 (P&H)], Rameshchandra & Co. v. CIT [168 ITR 375 (Bom.)], Dr. S.C. Gupta v. CIT, [248 ITR 782 (All.)], CIT v. Hotel Meriya [332 ITR 537 (Kerala)], CIT v. O. Abdul Razak [350 ITR 71 (Kerala)]. 64. The reasoning adopted by the Tribunal that the Assessing Officer might have coerced to obtain the sworn statements from the donors in the manner convenient to the Revenue so as to drop further proceedings against the donors for examining their source of income with respect to the amount of donations made, is based on surmises and conjectures. The further re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o charitable purposes or otherwise, need not be gone into, meaning thereby that the assesses are not entitled to the benefits of Sections 11 and 12 of the Act. MEANING OF "VOLUNTARY CONTRIBUTION" 65. Reference may also be had to cases where the term "voluntary contributions" have been expounded for the purposes of Section 12 of the Act. In CIT v. Madhya Predate Anaj Tilhan Vyapari Mahasangh, [(1988) 171 ITR 677], the High Court of Madhya Pradesh interpreted the expression "voluntary contribution" under section 12 of the Act as "The contributions, in order to be voluntary, had to be made willingly and without compulsion and the money was to be gifted or given gratuitously without consideration and these tests were satisfied on the facts of the present case." In Russel v. Vestry of St. Giles [3 E & B 416], Lord Campbell observed that "voluntary contributions" here do not mean annual subscriptions (or entrance fees) paid for value received or expected to be received by the party paying, but means a gift made from disinterested motives for benefit of others. In Society of Writers to the Signet v. IRC, [1886] 2 TC 257 (C Sess), the court held that the entrance fees and subscriptions p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time before the Tribunal such an attempt was made. Having regard to the fact the affidavit only contained unsubstantiated claims made therein, we do not think that this affidavit would improve the case of the appellant. 6. The learned counsel for the appellant also placed reliance on the judgments in Fifth Generation Education Society v. Commissioner Income Tax [185 ITR 635], New Life In Christ Evangelistic Association v. Commissioner of Income Tax [246 ITR 532] to contend that when application is made under Section 12AA, the Commissioner is not required to examine the application of income of a trust. In our view, this principle has no application to the facts of the case. The rejection of the application made by the petitioner, as we have already noted, was for the reason that they were collecting capitation fee for admission and not on the ground that the funds of the trust were not applied for charitable purpose. For all these reasons, we do not find any merit in this appeal." (ii)In Dawn educational Charitable Trust v. CIT, Kochi [2014 SCC OnLine Ker 2988 : (2015) 370 ITR 724], it was held as follows: "3. Apart from above factual situation, clause 6 of the trust deed furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16157/2014 on 13.10.2014. 67. Insofar as the assessing officer, not enquiring about the source of the donors, it is an undisputed fact that the sums have been paid by the parents or acquaintances to the institutions/trusts for securing the seat. Such persons are the source for the assessees. As rightly contended by the learned Senior Standing Counsel for the Revenue, it is not necessary for the assessing officer to go into the source of the source to tax the assessees under assessment and the same cannot be a reason to allow the deduction, which the assessees are not otherwise entitled to. CONCLUSION 68. In view of our above findings that the amounts collected by the assessees are capitation fee in quid pro qua for allotment of seat in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 and the same are neither a voluntary contribution nor to be treated as applied for charitable purpose, the orders of the Appellate Authority as well as the Tribunal, which are impugned in these appeals, are absolutely perverse in nature and therefore, they are set aside. Accordingly, all the substantial questions of law are answered in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to publish the details about the web-portal in the English as well as vernacular newspapers at the time of admission. In addition, a pamphlet should be compulsorily given to the students and their parents at the time of counselling informing them about the availability of the web-portal stated above. Apart from that, in view of the fact that the present appeals filed by the Revenue are allowed, it is natural that
(i) The Assessing Authority shall proceed further on the basis of the orders of assessment of tax, which are the subject matter of these appeals.
(ii) The Assessing Authority shall also proceed further for cancellation of registration certificate issued to the Assessees/trusts under Section 12A of the Act thereby not to treat the respondents as charitable institutions any longer.
(iii) The Assessing Officer shall also proceed to reopen the previous assessments, if permissible by law, based on tangible materials relating to collection of capitation fee, since it is illegal and is punishable.
70. With the above observations and directions, all these tax case appeals are allowed. No costs. Consequently, connected miscellaneous petitions are closed. X X X X Extracts X X X X X X X X Extracts X X X X
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