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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI GEORGE GEORGE K.
Per Bench These are cross appeals by the assessee and revenue for the AYs 2012-13 & 2014-15 and appeal by the assessee for the AY 2013-14. All these appeals are directed against the different orders of the CIT(Appeals) involving common issues, hence they are clubbed together and disposed of by this common order for the sake of convenience.
The assessee has raised common grounds for the AYs 2012-13 & 2014-15 with only change in the figures and the grounds for AY 2012-13 are reproduced below:-
“1. The learned CIT (A) erred in passing the order in the manner which he did.
2. The learned CIT (A) erred in treating an amount to the tune of Rs. 1.35,87,810/- as capitation fee without appreciating the submission of the Appellant.
3. The learned CIT (A) having accepted that donation were voluntary and not by force ought to have allowed the same.
4. The learned CIT (A) ought to have following the jurisdiction of High Court decision and ought to have allowed the same.
5. The learned CIT (A) further ought to have appreciated that funds were collected for development purchase and used for specific purpose, hence there is no infringement made u/s 13(1)(d) of the Act also.
6. The learned CIT (A) erred in holding that the appellant was indulging in commercial activity when there was no motive for the appellant and when the entire amount received were exclusively used for educational purposes.
, 1263 & 64/B/18 & 1506 & 1507/B/18 Page 3 of 11 7. The learned CIT (A) ought to have accepted the explanation of the Appellant ought to have granted the relief u/s 11 as claimed by the Appellant in toto.
8. The learned CIT (A), without prejudice, ought to have appreciated that the indulging of commercial activity by the appellant if any was in the course of carrying out the educational activity and every surplus had been used exclusively for educational purposes and accordingly the appellant could not be excluded from the definition u/s 2(15) of the Act.
9. Without prejudice, the disallowances/addition as confirmed by the learned assessing officer are arbitrary, excessive and ought to be deleted in toto.
10. The learned CIT(A) erred in confirming the levy of interest under Sections 234B, 234C and 234D of the Act.
11. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.”
For AY 2013-14, the assessee has raised the following grounds:-
“1. The learned C.I.T. (A) has erred in passing the order in the manner which he did.
2. The learned C.I.T. (A) ought to have accepted the explanation offered by the Appellant and refrained from holding that the Appellant was not eligible for exemption u/s.11 of the Act.
3. The learned C.I.T. (A) further erred in holding that the Appellant was indulging in commercial activities when there was no motive for the Appellant to do the same and when the entire amount received was exclusively used for educational purposes.
4. The learned C.I.T. (A), ought to have appreciated that the Appellant was in the course of carrying out activities towards the objective of education and that all surpluses received , 1263 & 64/B/18 & 1506 & 1507/B/18 Page 4 of 11 were used towards educational purposes exclusively, therefore the Appellant being not excluded from the definition u/S.2(15) of the Act.
5. The learned C.I.T. (A) ought to have appreciated the explanation of the Appellant and have granted relief u/S.11 as claimed by the Appellant.
6. The learned C.I.T. (A) has also erred in disallowing an amount of Rs.2,28,42,347 as unexplained income without appreciating the explanation of the Appellant.
Without prejudice, the additions are excessive, arbitrary and unreasonable and ought to be deleted in toto.
8. The learned C.I.T. (A) erred in allowing the interest levied by the A.O. u/S.234B of the Act.
9. For these and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed.”
The revenue has raised common grounds for the AYs 2012-13 & 2014-15 and the grounds for AY 2012-13 are reproduced below:-
“1. The order of the CIT(A) is opposed to facts and circumstances of the case.
2. Whether in the facts and circumstances of the case, the CIT(A) is right in holding that the assessee is eligible for exemption u/s 11 and 12 of the I.T. Act, 1961, though the assessee trust has collected more than the fee declared or notified through the `Karnataka Educational Institutions prohibition of capitation fee Act, 1984' (by the State Government) in the garb of voluntary contributions/corpus fund and this fact of collecting more than the fee notified has been proved without any dispute in as much as the assessee itself furnishing the details? 3. Whether the CIT(A) is right in holding that the assessee is eligible for exemption u/s 11 and 12 of the Act when the purpose of running the educational institutions is , 1263 & 64/B/18 & 1506 & 1507/B/18 Page 5 of 11 overshadowed by profit making motives of the Society. The assessee trust is making huge surplus every year and is involved in collection of capitation fee in the guise of 'Voluntary Contributions' and it is evident that the charity is no more in spirit and practice and the assessee is indulging in commercial activity.
4. Whether the CIT(A) is right in not following the Hon'ble Supreme Court decision in the case of M/s. Visvesvaraya Technological University wherein constant increase in surplus year after year by way of collection of fee/money under various heads more than what they require to spend for the purpose for which they collect would not amount to reasonable surplus but would amount to more surplus ? 5. Whether the CIT(A) is right in not following the Hon'ble Supreme Court decision in the case of Ms. Mohini Jain Vs. State of Karnataka (1992) 2 SCC 666 wherein it is held that the capitation fee charged is nothing but price for selling education and could not be considered as charitable institution u/s 2(15) of the I.T. Act.
6. Any other grounds to be raised at the time of hearing of the appeal”
The crux of the assessee’s appeal for AY 2013-14 is with regard to denial of exemption u/s. 11 of the Act and the grounds in AYs 2012-13 & 2014-15 is with regard taxation of the corpus donation collected from various students after allowing exemption u/s. 11 of the Act. The grounds in revenue’s appeals in AYs 2012-13 & 2013-14 are with regard to granting of exemption by the CIT(Appeals) after observing that the assessee has collected donation from its students for admission. Since the issues are inter-related, we adjudicate these issues in a collective manner.
For the sake of brevity, we consider the facts in AY 2012-13. The facts of the case for the AY 2012-13 are that the return was filed on 28.9.2012 declaring Nil income. During the scrutiny proceedings the AO , 1263 & 64/B/18 & 1506 & 1507/B/18 Page 6 of 11 noticed that the assessee has shown an amount of Rs.1,35,87,810/- as general donation towards corpus. The AO asked the details of such donations which were submitted. On examination of the documents submitted, the AO found that the assessee has collected donations towards the admission sought by the students for different courses and the donation amounts varied from student to student. The AO noticed the following pattern in the collection of the donations:-
• All the voluntary contributions are made by the parents of the students seeking admission.
• Amount of donations received varies from student to student and course to course.
• Huge amounts of donation are received as voluntary contribution in case of admission to Engineering and Polytechnic courses whereas smaller amounts are voluntarily contributed to regular degree courses.
• There is a clear nexus between the donations collected and admissions of the candidate in a particular year.
7. Therefore, the AO reached the conclusion that the donations are directly linked to admissions and hence cannot be called as voluntary contributions. The AO further noted that these donations are nothing but capitation fee collected under the garb of voluntary contributions. Hence he disallowed the claim of exemptions u/s 11 of the Act. Accordingly, the AO assessed the net profit at Rs.8,60,55,230 as taxable income.
On appeal, the CIT(Appeals) observed that the amount collected by the assessee from students/parents shown as general donation is nothing but capitation fee and not voluntary donation as claimed by the assessee.
As such he considered the issue in the light of the judgment of Karnataka High Court in the case of CIT v. Fr. Mullers Charitable Institutions, 366 ITR 230 (Kar) and observed that in AYs 2012-13 & 2014-15 the amount collected by the assessee in violation of the provisions 13(1)(d) of the Act and it does not tantamount to denial of exemption u/s. 11 on the total income of the assessee trust and only the capitation fees collected by the assessee from students to be treated as taxable income, and balance income of the assessee is exempt u/s. 11 of the Act.
With regard to the AY 2013-14, the CIT(Appeals) denied total exemption u/s. 11 of the Act.
Against this, for AYs 2012-13 & 2014-15, both assessee and revenue are in appeals before us. For AY 2013-14, only assessee is in appeal before us.
The ld. AR submitted that assessee has been duly registered u/s. 12A of the Act. The assessee collected the amount as donation not relating to admission of students. The admissions and collection of fees is regulated by the consensual agreement entered into between the Govt. of Karnataka and the Karnataka Professional Colleges Foundation (KPCF). As per the consensual agreement, seats are classified into 4 categories out of which one category is NRI’s / NRI sponsored or Institution Preference Seats.. In other words, under the management quota, the assessee is entitled to give admission for 25% of the seats and there was no restriction in collection of fees from these students. Further it was submitted that the admission is also governed by the provisions of Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984 [Karnataka Act No.37 of 1984) or Karnataka Professional Colleges Educational Institutions (Regulation of Admission and Fixation of Fee) (Special Provisions) Act, 2011 (Karnataka Act No.23 of 2011) , as such there cannot be restriction in admission of NRI students or Institution Preference Seats and the AO noted the collection of donation from these kinds of seats and denied exemption u/s. 11 of the Act which is incorrect. According to him, the assessee is carrying on activities in accordance with the trust deed and there is no violation whatsoever on this count and hence exemption u/s. 11 cannot be denied and also the amount collected by the assessee from the students are general students which cannot be taxed. The ld. counsel for the assessee, Shri S. Parthasarathi, has also filed detailed written submissions along with various case laws which is kept on record.
On the other hand, the ld. DR submitted that the assessee has collected donations from students for their admission and it is nothing but capitation fees for which the assessee has given the nomenclature as general donation. Collection of donation is directly linked to the admission to the college which amounts to collection of capitation fees as defined in Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984.
We have heard both the parties and also perused the detailed written submissions and case laws filed by the ld. counsel, Sri S. Parthasarathi. The main contention of the ld. AR is that the assessee has not collected any capitation fees. It is voluntary contribution by the students who got admission under the management quota and there is no restriction for collection of such donation under the management quota.
On the other hand, from a careful perusal of the orders of the lower authorities with regard to the details of receipt of voluntary donation, we find that there is no iota of evidence brought on record either by the assessee or the AO to support the claim that these donations are collected from the students admitted under the management quota or the assessee collected it over and above the prescribed fees as per the Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1994. Further, the revenue is also required to establish that the donations for voluntary contribution was collected from the parents of students admitted during the year is over and above the prescribed fees and it is capitation fees.
Further, it has been held in the case of CIT v. Lingayat Education Society, 371 ITR 249 (Karn) that just collection of donation itself by the assessee cannot be considered as capitation fee for admission of students. It is also held in the case of CIT v. MBA Nahata Charitable Trust, 364 ITR 693 (Karn) that as long as receipts were voluntary and amounts have been utilized for charitable purposes, the entity will be liable for exemption u/s. 11 of the Act.
Further, in the case of Sri Srinivasa Educational & Charitable Trust v. ACIT, 113 taxmann.com 65 (Bang), the Tribunal held that since the assessee has not collected any money outside the books of account and accounted the entire receipts, the same cannot be treated as capitation fees.
In the case of Rashtriya Shikshana Samiti Trust V. Addl. CIT, in it was held that characterizing the voluntary contribution as capitation fees by the AO/CIT(A) is without any basis, therefore required to be rejected.
The ITAT Cochin in the case of. Kunhitharuvai Memorial Charitable Trust v. DCIT in to 261/Coch/2018 dated 27.5.2019 held that since there was no proof that the assessee had collected additional fees in the guise of donation and there was no violation of prohibition and collection of capitation fees, exemption u/s. 11 cannot be denied. However, if the amount paid by the parents of students admitted to assessee’s educational institution was not corpus donation, but it was collected only by way of capitation fees, such capitation fees was not exempt in the hands of assessee and exemption u/s. 11 cannot be granted. In other words, if the assessee received donation over and above the prescribed fees from the parents of students, then the assessee is hit by the provisions of Prohibition of Capitation Fees Act, then the assessee cannot be considered as charitable institution u/s. 2(15) of the Act. Therefore, the assessee is not eligible for exemption u/s. 11 of the Act.
Thus, the assessee has to show that it is not collected any amount as capitation fees over and above the prescribed fees by the respective Acts of the State Govt. referred to above read with consensual agreement entered into between the Govt. of Karnataka and KPCF.
In the present case, the material available on record does not establish from whom the assessee collected the donations, whether it exceeds the prescribed limits as stipulated in the consensual agreement cited supra or the Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984. The assessee has to establish that it collected fees within the prescribed limits and not in excess of that. Accordingly, the issue is dispute is remitted to the file of AO with a direction to the assessee to prove that it has not collected donation in excess than prescribed by Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984. Thereafter, the AO has to decide the issue after going through the consensual agreement entered into between the Govt. of Karnataka and KPCF read with Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 2011. Accordingly, the order of lower authorities is set aside to the AO for de novo consideration after affording opportunity of being heard to the assessee.
The assessee’s appeal for the AYs 2012-13 & 2014-15 with regard to taxation of donation collected by the assessee is not required to be , 1263 & 64/B/18 & 1506 & 1507/B/18 Page 11 of 11 adjudicated at this stage and kept open, as we have remitted the main issue of exemption u/s. 11 of the Act to the file of AO for fresh consideration in the revenue’s appeals.
In the result, all the appeals by the assessee and the revenue are allowed for statistical purposes.
Pronounced in the open court on this 23rd day of December, 2021.