ACIT(E), JAIPUR vs. SCHOLARS EDUCATION TRUST OF INDIA, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh Hkkxpan] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM vk;dj vihy la-@ITA No. 1087/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2012-13 cuke The ACIT(E), M/s Scholars Education Trust of India, Vs. Circle, A-3-G. Sunder Path, Bani Park, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADTS1374A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri Varindera Mehta (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 16/10/2017 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 15/11/2017

vkns'k@ ORDER

PER: VIJAY PAL RAO, J.M.

This appeal by the Revenue is directed against the order dated

28.09.2016 of CIT (A) for the A.Y. 2012-13.

Registration Act XXI, 1860 on 24.02.1994. As per the objects of the

assessee society it was formed to impart education under the name and

style of Central Academic & Parents Pride. The assessee is running various schools to various locations in Rajasthan and Uttar Pradesh. The

assessee society is registered u/s 12AA of the Income Tax Act vide

order dated 09.06.2003 and also notified u/s 10 (23C)(vi) of the Income

Tax Act vide notification dated 27.12.2010 for the assessment year

2011-12 onwards. The assessee filed its return of income declaring nil

income after claiming the exemption u/s 11 of the Act. The Assessing

Officer on examination of the record and particular of the balance sheet

noticed that the assessee has shown development fund of Rs.

47,90,56,305/- as on 31.03.2011 and Rs. 59,23,06,694/- on 31.03.2012

showing an increase of Rs. 11,32,50,389/- in the year under

consideration. The AO asked to the assessee to explain as to why the

development fund has not been routed through the income and

expenditure account and also to explain the nature of receipt with

documentary evidence. In response the assessee submitted that the

amount in question were not credited in the profit and loss account

but directly credited to the balance sheet and was claimed as capital

receipt exempt u/s 12 of the Income Tax Act. The assessee further

explained the contribution as development fund made by the students

were in consideration of services to be rendered by the school to

student and therefore, these contributions were in the nature of capital receipt and was used in creating fixed assets, like purchase of school

land, construction of school building etc. Thus the assessee contended

before the AO that the contribution received by the assessee from the

parents/students was not current income but capital receipt exempt u/s

12 of the Act. Then the assessee tried to explain the different between

the tuition fee and development fund and claimed that the receipt on

account of development fund is capital in nature and exempt u/s 12 of

the Act. The AO did not accept the contention and explanation of the

assessee and was of the view that the development fund received as

part of the other fees and as such there is no contribution and

difference in the nature of development fund and other fees. The AO

also taken note of the fact that the assessee itself has claimed that the

development fund made by the students were in consideration of

services to be rendered by the school to student and as such it is fee

against the services and not voluntary offered from any person but a

compulsion of students to pay development fund. Accordingly, the AO

treated the development receipt of Rs. 11,32,50,389/- as revenue

receipt and after considering excess of receipt over the application of

income and 15% of the receipt allowed as set apart u/s 11 assessed the

balance of Rs. 1,44,06,790/- treated as income chargeable to tax. The assessee challenged the action of the AO before the ld. CIT(A). The ld.

CIT(A) allowed the claim of the assessee and deleted the addition made

by the AO. Aggrieved by the impugned order of the ld. CIT(A) the

Revenue has filed the present appeal and raised the following grounds

as under:-

“1) On the facts and in the circumstances of the case and in law the CIT(A) has erred in deleting the addition on account of receipts portion of fees, treating as capital receipts/corpus donation, earmarked as development fund by the assessee himself whereas the students or persons depositing the fee paid it as fee only, and nowhere has indicated it to be a voluntary contribution. 2) On the facts and in the circumstances of the case and in law the CIT(A) has erred in allowing claim of depreciation on fixed assets in spite of the facts that the same was allowed as application of income u/s 11 at the time of purchase. 3) On the facts and in the circumstances of the case and in law the CIT(A) has erred in allowing depreciation without appreciating the fact that the application of 100% expenditure of the capital asset is already allowed as capital expenditure hence further allowance of the depreciation on the same capital asset would amount to double allowance. 4) On the facts and in the circumstances of the case and in law the CIT(A) has erred in allowing depreciation without appreciating the fact that the assessee has not carried out the business activities but the receipts utilized for charity. As there was no business activities the claim of depreciation was not allowable, the depreciation is allowable only in the case of business or profession or in the case of ‘income from other sources.’ 4

5) Any other question of law as deemed fit in the facts and circumstances of the case may also be framed before the Hon’ble Tribunal in the interest of justice.” 3. Before us, the ld. DR has submitted that the development fund is

received from the students as a part of other fees on account of tuition

fees and term fees, therefore, there is no difference in the nature of

development fund and other fees received by the assessee from the

students. It is an admitted fact that the development fund is received

from the students against the services to be rendered as such it is a

fees against service and no voluntary contribution by the students or

parents but it is compulsion of student to pay development fund if he or

she wants to study in the school. The ld. DR has thus contended that

when there is no option with the students or parents to pay or not to

pay the development fund but it is mandatory to pay this fee along with

other fees then this receipt cannot be treated as the voluntary

contribution. Further when this fee received against the student

services then it cannot be treated as capital in nature but it is the

current receipt of the assessee. The ld. DR has thus contended that the

received in question cannot be classified as donation or contribution for

specific projects and therefore, will part of revenue receipt from the

students. Since the surplus is increased beyond the 15% limit of allowable amount as per provision of section 11(1)(a) of the Act,

therefore, the said surplus over and above the 15% cap is liable to tax.

He has relied upon the order of the Assessing Officer.

assessee is also notified u/s 10 (23C)(vi) and therefore this amount is

otherwise exempt under the provisions of section 10(23C)(vi). He has

reiterated the contention has raised before the authorities below and

submitted that though the voluntary contribution is included in the term

income as per section 11(1)(a) in respect of charitable or religious trust

however, the said amount shall not be included in the total income of

the trust or institutions being the corpus fund of the trust as per

provisions of section 11(1)(a) r.w.s. 12 of the Income Tax Act which

excludes the contribution made with a specific direction will not form

part of the income but shall form corpus of the trust or institution. The

ld. AR has relied upon the decision of Hon’ble Karnataka High Court in

case of Director of IT (Exemption) vs. Sri Ramakrishna Seva Ashrama

357 ITR 731 and submitted that the Hon’ble High Court while

considering the meaning of word corpus held that the donation for

specific purpose must be capital in nature and cannot be applied for

charitable or religious purpose and therefore cannot be deemed to be 6 income derived from the property for the purpose of section 11 of the

Income Tax Act. He has also relied upon the decision of Rajasthan High

Court in case of Sukhdeo Charity Estate Vs. ITO 192 ITR 615 and

submitted that when the amount was contributed to the corpus of the

institution and are kept as capital then it cannot be treated as income

or revenue receipt for the purpose of section 11 of the Income Tax Act.

The ld. AO has relied upon the decision of Hon’ble Delhi High Court in

case of DIT(E) Vs. National Association of Software & Services 345 ITR

362 and submitted that the Hon’ble High Court has held that one time

admission fee paid by members who are aware that it could be spent

by assessee only for acquiring capital asset is corpus donation not

taxable income. The ld. DR thus contended that the assessee has been

received development funds from the student apart from the tuition

fees with the clear understanding that it is to be used for creation of

capital asset necessary for achieving the object of the assessee society.

Therefore, the development fees of Rs. 11,32,50,389/- received during

the year is directly credited to the development fund account and not

routed through the income & expenditure account. The ld. AR has

further contended that the development fund fees received by the

assessee is utilized only for acquiring the fixed asset and thus the fund utilized in creation of capital asset cannot be treated as revenue

receipt. He has also relied upon the various decision of this Tribunal

including the decision dated 01.11.2016 of Coordinate Bench of this

Tribunal in case of ACIT (Exemptions) Vs. Shyam Lal panwar Anandi

Devi Memorial Charitable Trust.

material on record, there is not dispute so far as the assessee is

granted registration u/s 12AA of the Act as well as notified u/s 10

(23C)(vi) of the Act. However the mere registration granted u/s 12A

and notification u/s 10(23C) would not ipso facto exempt all the

receipts from tax. For the purpose of availing the benefit u/s 11 of the

Act. The conditions as stipulated under the said provision along with the

condition as provided u/s 12 and 13 of the Act are to be satisfied. The

dispute before us is on the limited point whether the receipt on account

of development fund/development fee from the students of the

assessee is in the category of capital receipts/ corpus fund to be used

by the assessee for specific purpose or not. So far as a voluntary

donation or contribution for specific purpose is received by the trust or

institution the same would be classified as capital receipt for being part

of the corpus fund for specific purpose for which such donation is given 8 by the donor. However the question arises in the case of the assessee is

whether the receipt on account of development fee collected from the

students is a voluntary contribution/donation or it is a compulsory

payment by the students for continuing the studying in the educational

institutions of the assessee. We find that the said payment is received

by the assessee along with the tuition fee, term fee and other charges

in a single receipt of fees which the students are making periodical

payments. It is imperative to ascertain whether such payment received

from the students along with the tuition fee, term fee and other charges

is a voluntary payment/ contribution/donation for specific purpose of

development or it is a compulsory payment by the students. The term

voluntary refers to an act of once’s own free will and discretion and not

a compulsion or an obligatory. In the case of the assessee the

development fee is part of the total fee charged by the assessee from

the students and it is apparent that the quantum of amount and specific

purpose on account of which this fee is received from the students is

determined and decided by the assesee and not by the students or their

parents. Therefore, the development fee is not optional for the students

but it is compulsory for the students without any discretion or fee will to

decide whether to pay or not to pay the development fund fees. Hence, it is a charge by the assessee on the students without having any

element of any discretion on the part of the students or parents either

to the quantum of fee or the specific purpose as well as the option of

making payment or not. Therefore, when this payment is not optional

or voluntary on the part of the students but it is compulsory charge in

the nature of fee for studying and continuing the study in the

institutions of the assessee, then this payment in the name of

development fee cannot be regarded as voluntary contribution or

donation. The quantum, the time of payments are decided and

determined by the assessee and the students are having no say or role

in the quantum of fee or any discretion of paying or not paying the

same. Thus in the facts and circumstances of the case when the

development fee received by the assessee is not voluntary but it is a

compulsory charge on the students then the same cannot be classified

as capital in nature for specific purpose or part of the corpus fund of the

assessee trust. The decision relied by the ld. AR are on the point that

when a particular contribution or donation is given by the donor as per

his free will and for specific purpose then the same cannot be treated

as revenue receipt. Having regard to the peculiar facts and

circumstances we are of the considered opinion that the fee in the name of development charge received by the assessee from the

students is part of the current receipt and will part take a character of

the other fee charged by the assessee on account of tuition fee, term

fee etc. Hence, we set aside the order of the ld. CIT(A) qua this issue.

was not decided by the AO and further the ld. CIT(A) has not

adjudicated this issue as the relief was granted u/s 11 and 12 of the

Act. The relevant part of the ld. CIT(A) finding on this issue in para 6.3

is as under:-

“ 6.3 I have carefully considered the facts of the case, findings of the AO and submission of the appellant. Since I have already allowed ground No. 1 and 2 supra, there does not remain any grievance of assessee. This ground therefore requires no adjudication.” Therefore, the issue of benefit u/s 10(23C) has not been adjudicated by

the ld. CIT(A) or by the AO and hence the same is required to be

considered and adjudicated at the level of the AO. It is pertinent to

note that the benefit of section 10(23C)(vi) is also not automatic but

certain conditions provided under the said provision are to be satisfied

for availing the benefit. There are also certain limits of receipt under the

said provision and breaching those limits will disentitle the assessee for the exemption u/s 10(23C) of the Act. Accordingly, this issue of benefit

u/s 10(23C) is set aside to the record of the Assessing Officer for

consideration and adjudication. Needless to say the assessee be given

opportunity of hearing.

regarding disallowance of depreciation by the AO which was allowed by

the ld. CIT(A).

relevant material on record. At the outset we note that this issue of

allowing depreciation on fixed asset is covered by a series of decisions

of Hon’ble High Courts as well as Tribunal. The AO disallowed the claim

of the assessee on the ground that once the assessee has claimed the

cost of acquisition of fixed asset as applicability of income then the

depreciation on the same asset would amount to double deduction. The

ld. CIT(A) allowed the claim of the assessee by following the decision

of Hon’ble jurisdiction High Court. We note that the Hon’ble Rajasthan

High Court in case of CIT vs. Krishi Upaj Mandi Samiti, Jaisalmer 388

ITR 605 has considered and decided an identical issue in paras 4 & 5

as under:-

“4. We have considered the arguments advanced. The assessee is a charitable institution registered under Section 12-A of the Act of 1961 and 100% capital expenditure was availed by it against the asset concerned i.e. a building. Section 32(1) of the Act of 1961 provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. Income of a charitable trust like the present assessee derived from the depreciable heads is also liable to be computed on commercial basis, however, while doing so it is to be kept in mind that ultimately assessee is a charitable institution and its income for tax purposes is required to be determined by taking into consideration provisions of Section 11 of the Act of 1961 after extending normal depreciation and deductions from its gross income. In computing the income of a charitable institution/trust depreciation of assets owned by such institution is a necessary deduction on commercial principles, hence, the amount of depreciation has to be deducted to arrive at the income available. 5. In view of the discussions made above, we find ourselves in agreement with the view taken by Bombay High Court in Framjee Cawasjee Institute (supra) and in Institute of Banking Personnel (supra). The substantial question framed in the instant matter, thus, is answered in the terms that the Income Tax Appellate Tribunal rightly allowed depreciation claimed by the assessee on capital assets for which capital expenditure was already given in the year under consideration.” Thus in view of the decision of Hon’ble jurisdiction High Court we do not

find any error or illegality in the order of the ld. CIT(A) qua this issue.

In the result, the appeal of the revenue is partly allowed.

Order pronounced in the open court on 15/11/2017

Sd/- Sd/- ¼Hkkxpan ½ ¼fot; iky jko½ (Bhagchand) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 15/11/2017. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 13

vihykFkhZ@The Appellant- The ACIT(E),Circle, Jaipur. 1. 2. izR;FkhZ@ The Respondent- M/s Scholars Education Trust of India, A-3-G. Sunder Path, Bani Park, Jaipur. 3. vk;dj vk;qDr@ CIT vk;dj vk;qDr@ CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. xkMZ QkbZy@ Guard File {ITA No. 1087/JP/2016} 6.

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत