MAHARISHI MARKANDESHWAR TRUST ,HARYANA vs. DCIT, CENTRAL CIRCLE KARNAL , KARNAL

The assessee stated before the AO that in view of provision of section 12 and 11(1)(d), such corpus donation were made with a specific direction that it would form part of the corpus of trust and thus have been kept out of purview of income. The AO further observed that there was not a single student who has not paid development fee to "the assessee”. There was no discretion with the students not to pay the development fee while seeking the admission. Thus, such receipts were not voluntary in nature. The AO confronted the above facts to the assessee and after considering the submission of the assessee observed that such development fee is not voluntary in nature as it has been charged on compulsory basis from all the students. On such facts it was inferred by the AO that such receipts are not covered by the provision of section 11(1)(d) r.w.s.12 of the Act.

During the course of search, statements of some of the students were recorded u/s 131 of the Act in order to examine the nature of development fee charged from the students. It was stated by the students that such payment on account of 4 to 1972/Del/2021 Maharishi Markandeshwar Trust development charges was compulsory part of the fee and was not thus voluntary. The AO relied upon the decision of the Hon’ble Madras High Court in the case of PS Govindasami Naidu and Sons vs. ACIT 324 ITR 4-4. On such facts the AO reached to the conclusion that such development fee was in the nature of income of the Trust as such funds were not received voluntarily and there was no such voluntary and specific directions that it would form part of corpus. Accordingly the AO treated the amount of Rs. XXXXX received during the year on account of development fee as a part of income of the trust.

During the proceedings before the ld. CIT(A), the assessee argued that as per the Ministry of HRD, fee has been charged in two components - tuition fee - to recover actual cost of imparting education and development fee - to use for the procurement of equipments, books and assets and has been charged as specified in the prospectus. It was argued that when the students are made aware of the fact of payment of development fee through the prospectus, admission forms and fee slips, it cannot be said that it was compulsorily imposed on them. Further, such fees were utilized only for the specific purpose of the capital expenditure. Thus, the same were voluntary in the nature with the specific direction to treat the same as a part of the corpus and relied upon the provision of section 11 (1) (d) of the Act.

The ld. CIT(A) held that it is an undisputed fact that the assessee has received amount of Rs. XXXXX during the year from students who have taken admission in various institutes being run by the assessee as development fee, part of overall course fee. Such development fees have been taken directly to 5 to 1972/Del/2021 Maharishi Markandeshwar Trust the balance sheet and have been treated by the assessee as voluntary funds received with the specific directions to treat the same as part of corpus as covered u/s 11 (1)(d) of the Act. The ld. CIT(A) held that these amounts are obligatory for each new admission to be paid to the assessee while taking the new admission, thus are not discretionary/voluntary in nature. These amounts have not been received by the assessee as a voluntary contribution from the new admissions during the year. These amounts/have not been received by the assessee from the parents of the new admissions as a voluntary contribution made with a specific direction that these would form part of corpus of the trust or institution. Rather the parents did not have any such discretion of not paying such contributions towards development fees and they also did not have any discretion in deciding the quantum for such components while paying the admission fee. The amount to be paid has been already fixed by the institutes being run by the assessee as a percentage of the tuition fee ranging from 7% to 36%. The ld. CIT(A) held that the parents under compulsion and forced to pay such contribution at the direction of the assessee and held that such contributions cannot be held as voluntary in nature as there was no specific directions to form part of the corpus of the assessee. There is nothing on record to show that the amounts were paid by the students to the institutes being run by the assessee with the directions to treat the same as a part of the corpus. The ld. CIT(A) held that these amounts have been received by the assessee from the concerned parents as a part of overall fee structure, in addition to the tuition fee. Such receipts have been charged by the assessee from them through/in the form of printed fee slips in which various components of tuition fee,

Before us, the ld. AR relied on the submissions filed before the authorities below and reiterated the contents while the ld. DR supported the order of the ld. CIT(A) who affirmed the Assessment Order.

Heard the arguments of both the parties and perused the material available on record.

On the issue of “Development Fee”, we have gone through the resolution dated 18.03.1997 of the Government of India (MHRD) which as per Clause (8) deemed to be instructions issued by the Government to the University Grants Commission under Sub-section (1) of Section 20 of the UGC Act, 1956 and under sub-Section (1) of Section 20 of the AICTE Act, 1987. The 7 to 1972/Del/2021 Maharishi Markandeshwar Trust Ministry vide its notification No. FZO-43/96 has laid down the "Policy For Fee Fixation in Private Educational Institutions'’ which is applicable to the assessee trust. There is a drastic distinction between the two fees has been clarified by the Ministry itself. As per the resolution, the difference could be examined which is analyzed as under:

Thus, we find primarily the tuition fee is meant to incurring revenue expenditure, the development fee is aimed at requirement of equipments and acquisition of capital assets. On the issue, whether the development fee is revenue in nature or capital in nature. Reliance is being placed on the orders of Co- ordinate Bench of Tribunal in the case of Global Institute of Technology vs. DCIT (Exemption) in dated 05.11.2018 wherein it was held as under:

The Co-ordinate Bench of ITAT in the case of ACIT vs. JSS Mahavidyapeetha in held the view that litmus test of charitable institution is the application of funds and not the colour of the contributions. It was held, “The AO based his conclusion on the presumption that the contribution to development fee was not a voluntary contribution the question whether the donations were voluntary or not becomes irrelevant and what becomes relevant is the application of such contributions for the objections of the trust which are

Further, the Co-ordinate Bench of ITAT Bangalore in the case of Sadvidya Educational Institution vs. ACIT in held that Development Fees received from students as per Policy of Government for acquisition of Fixed Assets and utilized for acquisition of Capital Assets will fall within the definition of section 11 (1)(d).

With regard to the absence of specific direction as required by section 11(1)(d), the Courts have sought to clarify that a specific direction can be gathered from how the recipient has accounted for the contribution.

In the case of an educational institution which collected fees on account of building fund and treated as corpus, the Hon’ble Karnataka High Court in Bharatiya Samskriti Vidyapith Trust vs. CIT in of 2007 held that, “since the assessee had specifically mentioned building fund on fee receipts and had later applied for the purpose of building, it could be said that there was a specific direction under 11(1)(d).

Similar view has been taken by Hon’ble Karnataka High Court in the case of Sri Ramakrishna Seva Ashrama, 357 ITR 731. In the said case, a trust registered u/s 12AA had collected contributions from the public which were accumulated in a Rural Project Fund and exemption claimed u/s 11 (1)(d). The AO denied exemption due to absence of written specific direction from donors. On appeal, the Court held that if the amounts received are held as capital and only applied for specific

In the instant case, the Development Fee has been directly taken to corpus account as capital receipt u/s 11(1)(d) and has also invested in the fixed asset in the year.

Ergo, we hold that the Development Fee is to be treated as corpus fund allowed to be taken as capital receipt.

With regard to issue of computation of 15% u/s 11(1)(a) of net surplus in place of gross receipt, we have gone through the provisions of the Act which are as under:

(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income— (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to

On going through the bare provisions of the Act, we hold that 15% accumulation is allowed on the income from property held under trust.

These provisions have been further clarified by the Hon’ble Supreme Court in the case of Addl. CIT Vs. A.L.N. Rao Charitable Trust 216 ITR 697 wherein lordships has explained the law with an example of Rs. 1,00,000/- gross income and assuming an expenditure of Rs. 20,000/-, Court has held that Rs. 25,000/- being 25% (now 15%) of gross receipts will be allowed as accumulation u/s 11 (1)(a).

For the sake of ready reference, the relevant part of the order of the Hon’ble Supreme Court is also reproduced herewith:

Similarly, the Hon’ble Supreme Court in the case of CIT vs. Programme for Community Organisation,248 ITR 1 held that gross receipts were Rs. 2,57,376/- and the assessee had applied Rs. 1,70,369/- for charitable purposes, thereby leaving balance of Rs. 87,010/-. The Court held under para 3 that Trust was eligible to accumulate 25% (now 15%) of Rs. 2,57,376/- u/s 11 (1)(a).

The question that really requires consideration is whether, for the purpose of s. 11(1)(a) of the IT Act, 1961, the amount for the grant of exemption of twenty-five per cent should be the income of the trust or it should be its total income as determined for the purposes of assessment to income-tax. This question has to be answered in the light of these facts: The assessee-trust received donations in the aggregate sum of Rs. 2,57,376. It applied thereout for its charitable purposes the aggregate sum of Rs. 1,70,369 leaving a balance of Rs. 87,010. The question is whether the assessee is 15 to 1972/Del/2021 Maharishi Markandeshwar Trust entitled to accumulate twenty-five per cent of Rs. 2,57,376 as it contends, or twenty-five per cent of Rs. 87,010, as the Revenue appeared to contend.

Having regard to the plain language of the above provisions it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of Rs. 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty-five per cent of Rs. 87,010.

Hence, keeping in view the provisions of Section 11(1)(a) and the judgments of Hon’ble Supreme Court, we hold that the amount eligible u/s 11(1)(a) be determined taking into consideration, the income derived from the property held under trust to the extent to which the income so accumulated is not in excess of 15% of income from such property.