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Facts
The assessee, an educational trust, claimed exemption under Section 10(23C)(iiiad), declaring Nil income. The AO denied the exemption, arguing that the annual receipts exceeded Rs. 1 crore. The assessee contended that a significant portion of its receipts (Rs. 47,37,278/-) was a capital receipt for building and repair development expenditure, inadvertently included in annual receipts, and thus, its actual revenue receipts were below the threshold. The AO and CIT(A) treated these as revenue and also added depreciation, determining a higher total income.
Held
The Tribunal, relying on a precedent set by a coordinate bench, held that funds collected as "development fund" for building and repair expenditure constitute corpus contributions and not revenue receipts, as they were specifically resolved to be used for capital purposes. The Tribunal found the lower authorities were factually incorrect in treating these funds as revenue. Consequently, the AO was directed to re-compute the income by excluding these development fees and to allow the exemption under Section 10(23C)(iiiad) of the Act.
Key Issues
Whether 'development funds' collected by an educational trust from students are to be treated as capital receipts (corpus contributions) or revenue receipts for the purpose of claiming exemption under Section 10(23C)(iiiad) of the Income Tax Act.
Sections Cited
10(23C)(iiiad), 250, 12(1), 11(1)(d), 11
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR & SHRI SONJOY SARMA
O R D E R
Per Rajesh Kumar, AM :
This is an appeal filed by the assessee against the order of the ld.CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 24.09.2024, for the assessment year 2018-2019 on the following grounds of appeal :-
1. That the order passed by the Ld. CIT (Appeals), NFAC, u/s 250 confirming the additions and disallowances made by learned assessing officer is contrary to the law and facts of the case.
2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the action of AO denying the benefit of exemption claimed u/s 10(23C) (iiiad) of the Act.
3. For that on the facts and in the circumstances of the case, the lower authorities failed to correctly appreciate that the assessee was indeed maintaining and aiding education institutions and it existed solely for educational purposes without any motive for profit and since its annual receipts did not exceed the limit of Rs.1 crores, it had rightly claimed exemption u/s 10(23C) (iiiad) of the Act.
4. For that on the facts and in the circumstances of the case, the lower authorities failed to correctly appreciate that the claim of exemption cannot be denied merely on the ground that the assessee had filed Form 10B instead of Form 10BB.
5. For that on the facts and in the circumstances of the case, the lower authorities failed to correctly appreciate that the filing form 10BB is procedural formality and claim of exemption cannot be denied merely on the basis of delay of filing such form. 6. For that on the facts and in the circumstances of the case, the lower authorities have erred in denying the claim of exemption on holding that the turnover of the assessee is more than 1cr e even though it was claimed before the lower authorities that inadvertently the building repair and development fund was included in the annual receipt of Rs.47,37,278/-. However, the same was capital receipt 7. For that on the facts and in the circumstances of the case, the lower authorities have erred in adding the depreciation of Rs 19,73,235/- to the total income of the assessee even though the said amount was not claimed as expenses by the assessee. 8. That the appellant craves leave to add/or amend any ground of this appeal. 2. The only issue raised by the assessee is against the denial of benefit of exemption claimed u/s.10(23C)(iiiad) of the Act, by the ld. CIT(A) thereby confirming the order passed by the ld. AO. 3. Facts in brief are that the assessee filed return of income on 30.10.2018 declaring income at Rs.Nil. The case was taken for complete scrutiny and statutory notices were duly issue and served on the assessee. The assessee is running a school in the name and style of Berahampore Polytechnic College for Advancement of Education and Knowledge in Science, Engineering, Education and Research. The assessee-trust claimed exemption u/s.10(23C)(iiiad) of the Act qua its income. The AO during the course of assessment proceedings noted that annual receipts of the assessee were Rs.1,31,55,461/-. According to the AO since the annual receipt of the assesee was more than Rs.1 crore and, therefore, the benefit of provisions of Section 10(23C)(iiiad) of the Act was not applicable to the assessee. Accordingly, a show cause notice was issued to the assessee which was replied by the assessee by stating that annual receipts of Rs.1,31,55,461/- included Rs.47,37,278/- received by the assessee on account of building and repair development expenditure which was inadvertently shown in the annual receipts. The assessee submitted that the actual annual receipts was Rs.84,18,183/-. The AO was not convinced with the reply submitted by the assessee. Accordingly denied exemption u/s.10(23C)(iiiad) of the Act and after making addition on account of depreciation of Rs.19,73,235/-, the AO determined the total income of the assessee at Rs.70,30,576/-.
4. In the appellate proceedings, ld.CIT(A) dismissed the appeal of the assessee on this issue citing same reasons as noted by the AO in the assessment order. 5 After hearing the rival contentions and perusing the material on record, we find that the issue as to whether the funds collected by the assessee trust towards building and repair development expenditure has already been decided by the coordinate bench of the Tribunal in the case of Vidya Bharati Society for Education & Scientific Advancement, passed in vide order dated 10.01.2020 for A.Y.2010-2011 & 2014-2015. The operative part of the decision is extracted below :-
We have heard the rival submissions and gone through the facts and circumstances of the case. From the material placed before us, we note that the assessee society has been collecting the development funds contribution from the students in pursuance of a resolution adopted by the Trustees in their meeting held on 03.01.2000, which read as follows: "Abstract of minutes of meeting Trustees of Vidya Bharati Society for Education and Scientific Advancement held on 3rd January, 2000 at Registered office in Kolkata. DEVELOPMENT FUND It was unanimously resolved that Development Fund be collected from each student of Vidya Bharati School (Mominpur) of the Trust for further development of school building and purchase of capital equipments required for various educational activities required for school purpose and as per studies curriculum. It was further resolved that development fund so collected would not be used for revenue purpose of the school and it would be used for only development activities as desired herein above."
From the plain reading of the said resolution it was apparent that the Trustees had resolved to collect funds for development of the school building and associated infrastructure inter alia including purchase of capital equipment to support educational activities. The Trustees had also resolved that the funds to be collected for development of the educational infrastructure would be used only for defined objects and not for revenue purposes and to give effect to the said resolution, the development contributions were received from the students and were directly taken into the Balance Sheet under the head 'Development Fund'. We therefore find that the accounting entries passed by the assessee society were in conformity with the views expressly stated by the Trustees in the resolution passed as far as back in January 2000. It is true that instead of receiving the contributions to Development Fund in one lump-sum and from the public at large, the assessee society received the contributions towards development fund from the students. We also find merit in the ld. AR's submissions that the authorities below were factually wrong in stating that the contribution to development fund was collected by the assessee society every month along with the tuition fees and this fact influenced the decision of the lower authorities to hold that the payment being regular monthly feature constituted revenue receipt. On the other hand, the ld. AR filed before us sample copies of the receipts issued from which it was evident that the contributions to 'Development Fund' were not collected on monthly basis along with tuition fees for the month but the students paid contributions to Development Fund at their own volition at any time during the year. We therefore find that the basic premise on which the lower authorities proceeded i.e. the development fund contributions were compulsorily collected by the assessee society from each student along with monthly tuition fees on monthly basis being factually wrong, the conclusions drawn based on assumption of wrong facts is therefore unsustainable.
We also find merit in the ld. AR's argument that merely because the contributions from students were collected under the nomenclature of development fee cannot ipso facto lead to conclusion that it cannot be considered to be corpus contribution. It is true that in terms of Section 12(1) read with Section 11(1)(d) of the Act, what is not includible in the total income of a charitable institution is the receipt by way of corpus donation. However the Act nowhere defines the expression or term 'corpus' donation. However this term has been judicially interpreted by the Courts. We note that the Hon'ble Karnataka High Court in the case of DIT Vs Sri Ramakrishna Seva Ashrama [2012] 18 taxmann.com 37/205 Taxman 26/[2013] 357 ITR 731 while considering the meaning of word 'corpus' held that the donation for specific purpose must be in capital field and therefore cannot be applied for charitable or religious purpose and therefore cannot be deemed to be income derived from the property for the purpose of section 11 of the Act. In the present assessee/society's case, it is noted that in the resolution passed by the trustees on 03.01.2000 it was specifically resolved that the collection towards development fund would be used solely for development of school building and purchase of capital equipments. The said resolution particularly prohibited the trustees from utilizing the fund so collected for revenue purposes. In consonance with the said resolution, the development fees collected was directly credited to the 'Development Fund' Account appearing in the balance sheet. These materials considered cumulatively and harmoniously lead only to conclusion that the development fees contribution received from the students were intended to provide corpus or capital of the assessee society which was to be solely used for specific capital purposes and there was embargo on the assessee society to utilize it for revenue purpose. As far as the Revenue's objection that the donor did not give any express written direction for treating such contributions to be forming part of corpus, we note that there is no such requirement prescribed in law mandating a written direction from the donor so as to constitute any voluntary payment to form part of the corpus. By the conduct of the parties as also the entries in books of accounts, one can reasonably infer the intention of the donor as well as donee and determine whether or not the parties had intended to use the donation amounts for capital purposes or any purpose for which the trust is established. As noted in the foregoing, the assessee society in its resolution passed dated 03.01.2000 had specifically resolved to raise the funds by way of development fees to generate corpus to meet the capital requirements of the society. Further the receipts which the assessee society issued expressly acknowledged that the amounts were received from them towards the development fund and this was sufficient to substantiate the intention of the parties that the amount so contributed formed part of the corpus. In this regard, we may gainfully refer to the decision of the Hon'ble Rajasthan High Court in case of Sukhdeo Charity Estate v.
ITO [1991] 192 ITR 615 wherein it was held that when the amount was contributed to the corpus of the institution and is kept as capital in the books, then it cannot be treated as income or revenue receipt for the purpose of section 11 of the Act.
In the orders of the lower authorities, much emphasis has been placed on the fact that the development fees were received by the assessee society along with tuition fees and therefore the nature of receipt was akin to fees collected for rendering of educational services to students. On this premise, the lower authorities treated the collections made by way of development fees to be revenue receipt. We however note that the premise on which the lower authorities proceeded were factually wrong. We find that the development fees was collected from the students once in a year and no material has been brought on record by the lower authorities to establish that the amount was received in consideration of any service being rendered or provided to the students in lieu thereof. As such, we do not any material brought on record by the lower authorities or before us by the Ld. DR to substantiate that the contribution towards development fund was not voluntary or that it was in exchange for the services provided by the assessee society to the payers. In this regard we may gainfully refer to the decision of Hon'ble Delhi High Court in case of DIT (Exemption) v. National Association of Software & Services Co's. [2012] 345 ITR 362 wherein the Hon'ble High Court has held that onetime fee paid by members who are aware that it could be spent by assessee only towards capital purposes was in the nature of corpus donation and not taxable as income. The Court also took note of the fact that apart from the one time fees, the association was collecting fees separately for the services rendered to the members and therefore the one-time fee could not be linked with the services rendered to the members.
For the reasons set out above, we therefore hold that the assessee society had received contribution towards development fund from the students, apart from the tuition fees, with the clear understanding that it shall be solely used for creation of capital asset necessary for achieving the educational objects of the assessee society and therefore formed part of the corpus and therefore, not in the nature of revenue receipts. The AO is accordingly directed to re-compute the income of the assessee society after excluding the development fees of Rs.19,39,000/- from the purview of Section 11 of the Act. Ground Nos. 1 to 4 of the appeal therefore stands allowed.
Since the facts of the case before us are materially same, therefore, we respectfully set aside the order of the coordinate bench of the Tribunal in the above case, set aside the order passed by ld CIT(A) and direct the