M/S. INDIAN SOCIETY FOR TECHNICAL EDUCATION,NEW DELHI vs. ITO, NEW DELHI

This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income Tax (Appeals)–40, New Delhi, dated 17.03.2017 for assessment year 2012-13 wherein the appeal filed by the assessee against the order of assessment passed under Section 143 (3) of the Income Tax Act, 1961 (the Act) on 25th March, 2015 by the Income Tax Officer, Ward 1(2), New Delhi, for assessment year 2012-13 is dismissed. 2. Assessee aggrieved with the above order, has raised the following grounds of appeal:-

That in any case and in any view of the matter, action of Ld. CIT(A) in confirming this action of Ld. AO in making aggregate addition of Rs.2,20,20,850/- on account of life and institutional membership fees received, is bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in not allowing 15% of the tot: receipts/income. 4. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred law and on facts in not reversing the action of Ld. AO in charging interest u/s 234, 234B and 234D of Income Tax Act, 1961. 5. That the appellant craves the leave to add, modify, amend or delete any of the ground of appeal at the time of hearing and all the above grounds are without prejudice to ea other.”

The brief facts of the case shows that the assessee is a trust registered under Section 12AA of the Income Tax Act, 1961 (the Act) as per order dated 5.08.1989 and also recognized under Section 80G(5)(v)(vi) vide order dated 12.08.2009. It is a society undertaking the activity of technical education. 4. It filed its return of income for assessment year 2012-13 on 27.09.2012 which was assessed by the ld. Assessing Officer at a taxable income of Rs.2,20,20,850/- by the AO stating that the benefit under Section 11 of the Act is allowed to the assessee. However, he found that assessee is receiving membership and life membership fees, which are directly credited as part of the corpus fund instead of crediting it to the income and expenditure account. On being questioned, assessee submitted that membership and life membership fees is valid for the whole life and, therefore, same is taken to the corpus fund. The ld. AO rejected the contentions and held that these fees are voluntary in nature and are not given with specific direction as mandated on Section 11(1) (d) of the Act. Further the members have paid their membership fees to remain associated with the assessee and, therefore, it does not make the life membership fees as corpus donation. In nutshell, he held that the life membership fees are not a voluntary contribution with a specific direction by the members that it shall form part of the corpus of the trust and, therefore, it is merely in nature of general voluntary contribution. Accordingly, he considered the institutional membership fees and life membership fees as income of the trust and determined the taxable income. Page | 2

The assessee aggrieved with the order of the ld. Assessing Officer preferred an appeal before the ld. CIT (Appeals) who decided the issue as per para No. 4 as under:- “ 4.1 Ground Nos. 1 to 3 of the appeal challenge the disallowance of exemption to institutional membership fees and life membership fees being corpus fund and not taxable under section ll(l)(d). These grounds of appeal are being taken together. 4.1.1 The Assessing Officer has mentioned in his assessment order that as per section 11(1) (d), there should be a specific direction by the payee to treat the voluntary contribution as part of the corpus fund and in absence of any direction thereof the funds given by the members can only be treated as income revenue in nature. The appellant has submitted that the Institutional and Life Membership Fees received by the assessee forms part of the capital of the Trust since the entire funds received under these heads are kept in Fixed Deposits as capital. Not even a single rupee of these funds is utilized for any other purpose. These memberships are valid for the whole life of the institution / individual and need not be renewed. The individual / institution taking this membership are not required to pay any other charges for availing the services of the assessee trust during their lifetime. These funds are capable of generating income i.e. interest income and the said income generated by these funds is utilized for the purpose of attaining the objects of the trust. 4.1.2 1 have considered the assessment order and the submissions of the appellant. The issue for consideration is whether the institutional and life membership fees received by the appellant can be treated as corpus donation or is income in revenue nature and is to be added to the income. The appellant has relied on various case laws which are distinguishable on facts. 4.1.3 With regard to membership fees or subscription, the issue is not whether such receipts would be revenue or capital in nature to decide whether these can be considered as part of the corpus donations which are exempt under section Vl(1)(d). What is exempt under section 11 (1)(d) is income in the form of voluntary contributions made with a specific direction that they shall form a part of the corpus. Hence what is to be decided is whether receipts on account of membership fees are voluntary or not and not whether such receipts are revenue or capital in nature. 4.1.4 In the case of CIT vs Divine Light Mission [(2005) 146 Taxman 653 (Delhi)], the Hon'ble Delhi High Court held that membership fees and subscription amounts received by a trust/society from its members cannot be characterized as voluntary contribution within the meaning of "fund" in section 12. The Hon'ble Court held as under:-

The assessee aggrieved with the order of the ld. CIT (Appeals) has preferred this appeal before us. The ld. AR vehemently submitted that assessee has received these fees since assessment year 1996-97 and until now, these are accepted as corpus donation. He referred to the various assessment orders passed in the case of the assessee in past year. He also submitted copies of the annual accounts. In view of this he submitted that this is accepted by the Revenue in past. He submitted a case law compilation wherein he relied upon the several decisions. He also referred to the order of the Kolkata Bench of the Tribunal in the case of Credai Bengal Vs. ITO (110 taxmann.com 113 wherein it has been held that membership fees received by the assessee from members towards corpus would be exempt under Section 11 of the Act. He, therefore, submitted that the orders of the lower authorities are incorrect in holding that life membership fees is not a corpus donation. Thus, he covered ground Nos. 1 to 3 of the grounds of appeal. He further submitted that the levy of interest under Section 234B & D of the act is not chargeable with respect to the addition on account of life and institutional membership fee. 5. The ld. Sr. DR vehemently supported the orders of the lower authorities. The ld. Sr. DR categorically submitted that membership fees and life membership fees received by the assessee are not with specific direction that they shall form the part of the corpus of the trust and, therefore, these are merely voluntary contributions. She further submitted that this is immaterial for the members whether they get the association for life or not, but it is the donation of the trust which is required to be seen. She further Page | 5

We have carefully considered the rival contentions and perused the orders of the lower authorities. The simple issue involved in this appeal is that assessee being a charitable trust has received membership and life membership fees being institutional membership fees of Rs.36,61,550/- and life membership fees of Rs.1,83,59,300/- which are considered by the assessee as corpus donation whereas the Assessing Officer in absence of any specific direction from the donors held it to be voluntary contribution chargeable to tax. The Assessing Officer did not grant 15% of general accumulation out of this income and assessed the total income at Rs.2,20,20,850/-. It is apparent that according to the provisions of Section 11 the voluntary contributions received by the assessee are the income of the trust and there from certain income are excluded. Thereafter expenditure incurred are considered as an application and further 15% of gross receipts is allowed to be accumulated by the trust. Further accumulation is also allowed by fulfilling certain conditions and thereafter the income of the trust is assessed to tax. There is no dispute that the assessee is a charitable trust registered under Section 12AA of the Act and, therefore, it is entitled to benefit of Section 11 of the Act. According to provisions of Section 12(1) of the act any voluntary contribution received not, being contributions made with a specific direction that they shall form part of the corpus of the trust shall for the purposes of Section 11 be deemed to be the income of the trust. Therefore, all voluntary contribution except the contributions with a specific direction that they shall form part of the corpus of the trust are chargeable to tax. In the case of institutional membership fees and the life membership fees there is no dispute between the parties that it is a voluntary contribution. The only dispute is that assessee claims that these donations are with specific direction that they shall form part of the corpus of the trust and, therefore, not chargeable to tax. The Assessing Officer says that assessee has not produced any evidence to show that these donations are having any specific directions Page | 6

Ground No. 4 is against charging of interest which is consequential in Page | 7

In the result, the appeal of the assessee is allowed, for statistical purposes.