DCIT CENTRAL CIRCLE 7 (1) , MUMBAI vs. DR D Y PATIL EDUCATIONAL ACADEMY, MUMBAI

stated that corpus donations taken by the Appellant Trust group entities from Donors were in lieu of admissions given to various students in their group entity i.e. Padmashree DY Patil University and that the Appellant Trust group entities was in receipt of capitation fees. These statements were retracted by the deponents under subsequent affidavits sworn on 10-8-2016 & 17-12-2018. However, the AO after evaluating the contents of the statement, treated the development fee collected by the assessee as revenue receipt and not as capital or corpus nature by holding that The said payment is received by the assessee Trust along with the tuition fee, term fee and other charges in a single receipt of fees which the students are making periodical payments. The term voluntary refers to an act of one's own free will and discretion and not a compulsion or an obligatory. In the case of the assessee Trust, 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 aid specific purpose on account of which this fee is received from the students is determined and decided by the assesses Trust 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 free will to decide whether to pay or not to pay the development fund fees_ It is a charge by the assessee on the students without having Dr.D Y Patil Educational Academy., Mumbai. 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/fund 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.

8. We are of the considered view that while holding the development fee as revenue receipts and not as capital or corpus in nature. The AO was of the view that the students do not have any discretion or free will to pay or not pay the development fee.

10. Thus in our view, development fees paid by the students to the Appellant Trust is "voluntary contribution" which is gratuitous in nature and without any compulsion. Further, students already being aware that such fees are for the purpose of the development of the Trust and forming part of the Corpus of the Trust, is to be treated as Dr.D Y Patil Educational Academy., Mumbai.

Corpus Donation u/s 11(1)(d) of the Act. There is no question of Development fee collected being non voluntary in nature / compulsory / without any discretion or free. Reliance is being placed In case of DIT(E), Ahmedabad vs N.H Kapadia Education Trust [2012] 20 taxmann.com 702 (Ahd Tribunal), the assessee was engaged in the field of education, it collected from students at time of admission different amounts comprised of different funds in respect of building, education research, education infrastructure, library, sports, staff welfare and students welfare. Parents/students had made contribution with a clear understanding that contributions were towards different corpus funds. Furthermore, trust deed stipulated that voluntary contributions given by parents/students for furtherance of objects of trust were exclusive property of trust which were required to be utilized for objects of trust only. Thus, the Tribunal held that the said contributions were in nature of corpus funds and as such exempt under section 12. Further, in the case of Sadvidya Educational Institution v. Addl. CIT [IT Appeal No. 604 (Bang.) of 2011, dated 28-3-2014], the assessee trust was collecting voluntary contributions/building fund/development funds against admissions given under Management quota in institutions run by the assessee and therefore the Assessing Officer held that assessee was not entitled to claim deduction Dr.D Y Patil Educational Academy., Mumbai. u/s.11(1)(a) and 11(1)(d). The Ld. CIT(A) upheld the action of the Assessing Officer and held that there was a direct nexus between the admissions granted under the Management quota and voluntary contributions collected by the assessee. Therefore Tribunal held that if educational institution has collected money in form of voluntary contributions from public and may be from parents of the students who are studying in institution and issued receipts acknowledging said amount towards building fund and made requisite entries in the books and deposited same in the bank, then requirement of section 11(1)(d) is fulfilled. Further voluntary contributions received were for the specific purpose of "building" and assessee had applied such contributions towards object of trust. Assessee was entitled to exemption u/s.11 in respect of building fund as well as college development fund.

The AO held that the payment collected from the students are not voluntary payments and therefore cannot be held to be received towards corpus donations. The relevant observations of the AO in this regard are extracted below: “The said payment is received by the assessee Trust along with the tuition fee term fee and other charges in a single receipt of fees which the students are making periodical payments. The term voluntary refers to an act of one's own free will and discretion and not a compulsion or an obligatory. In the case of the assessee Trust, the development fee is part of the total fee charged by the assessee from the students and 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 assessee Trust 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 free will to decide whether to pay or not to pay the development fund fees. 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 lee 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 lee or any discretion of paying or not paying the same. Thus in the facts and circumstances of the case when the development fee/fund 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”

36. Before the CIT(A) the assessee made a detailed submission with regard to the development fees and the CIT(A) deleted the addition by making the following observations: Dr.D Y Patil Educational Academy., Mumbai.

7.3.5. I have considered the submission of the appellant. As stated by the appellant, the parents/students were informed at the time of admission that the institute would charge development fee, which would be used for construction of the building. The students/parents have taken informed decisions to proceed with the admission in the institute knowing fully well that the institute would be charging the development fee. They had an option of approaching any other college/institute, but they chose to seek admission in the appellants' institute. There is nothing brought on record to indicate that the parents were kept in the dark about the development fee and that they were making the contribution against their will. The charging of development fee is allowed by the UGC and same has been allowed by the Hon'ble Supreme Court. The amount so received has been disclosed by the appellant in its books of account. The development fee is being utilized for the construction of the building of the Trust, which is evident from the fact that the additions of movable and immovable assets are much more than the development charges. There is no record of complaint received by UGC or any other board with respect to non-utilization of development few or diversion of development fee for any other purpose. I have also considered the case laws relied upon by the appellant, where the said issue is decided in its favour, Considering the overall facts and circumstances of the case and the judicial pronouncements relied upon by the appellant, it is held that the Development Fee collected by the appellant is by the way of voluntary contribution made by the students towards the corpus and cannot be treated as revenue receipt. The addition of Rs 4,25,11,338/- is hereby deleted and is treated as part of corpus.

37. The ld. AR argued that the donations are collected through proper banking channel and that the students are informed that the development fees would be charged which would form part of its corpus. The ld. AR further submitted that no complaints are received from the parents or students regarding charging of development fees and collection of management fees for incurring capital expenditure is allowed by UGC notification dated October 1997 as per the prescribed guidelines.

38. The ld DR argued that for the receipt to be treated as part of donation, the key requirement is that it should be voluntary. Dr.D Y Patil Educational Academy., Mumbai.

The ld DR further argued that Development fees which is pre- determined, non-negotiable part of the admission package, not an optional, conscious donation towards corpus where donations are part of contractual obligation or compulsory payments, such contributions cannot be regarded as voluntary, and hence not eligible for exemption as corpus donations. The ld DR also argued that even if the claim of the assessee that the fee collected is within UGC regulations, that does not change the income nature of the receipts since the corpus character is not automatic under UGC guidelines. The ld DR submitted that no material has been brought on record showing any written or express direction from the students/parents earmarking the fee as corpus. In summary the ld DR submitted that the corpus nature cannot be presumed merely because the Trust decides to apply the fund for capital expenditure and the CIT(A) has erred in allowing the claim of the assessee.

“9. We have carefully considered the rival contentions and perused the records.

10. Assessee claims to be a charitable society and obtained certificate under section 12(A) of the Act.

11. The assessee has received donations and shown it in the Income and Expenditure account. By the impugned order, the ITAT has denied the benefit under section 11 of the Act.

'4.7 The question, as has been posed by the Tribunal, is whether the contributions or donations are voluntary or involuntary and what is the effect of such donation. The Tribunal was of the view that there is no concept of involuntary contributions and went on to hold that voluntary contributions should be treated as income under section 12 of the Act and that corpus donations to be treated as capital receipt under section 11(1)(d) of the Act and corpus donations are not generally in the nature of income. It further held that voluntary contributions are taxable only if not applied for charitable purposes. The emphasis is on, not applying the same for charitable purposes. Dr.D Y Patil Educational Academy., Mumbai.

4.8 Whether contribution is voluntary or involuntary and its implication in relation to these provisions was considered by the Tribunal in the following manner:

"35. To proceed further, we have to examine the (30) scheme of law of charities provided under the Income-tax Act, 1961. There is no concept of involuntary contributions in that scheme. The only distinction recognized by law is the voluntary contributions to be treated as income under section 12 and the corpus donations to be treated as capital receipt under section 11(1)(d). The corpus donations are not generally in the nature of income. The voluntary contributions are taxable only if not applied for charitable purposes. In the present case, the assessee- trust itself has treated the contributions as voluntary contributions in the nature of income. The assessee claims exemption under section 11 not on the basis of the nature of contributions but for the reason that the contributions were applied for charitable purposes. When the assessee- trust itself has treated the contributions as voluntary contribution in the nature of income, which is the best situation that the Revenue would always welcome, what is the relevance of arguing whether the contributions were voluntary or not?

This reasoning of the Tribunal, we are inclined to accept.

4.9 The finding of the Tribunal is that the department has not established a case that the assessee had in this case not utilized the donations or income for charitable purpose. The clear finding of the Tribunal is that if the assessee had not utilized the amount for charitable purpose, it would automatically become taxable and the assessee would not be entitled to exemption. But, on the contrary, without there being a finding of violation of section 13 of the Act, an inference is drawn on an alleged receipt of donation and consequently, the allegation is made that there is a violation of section 13(1)(d) of the Act. A hypothetical finding is given that because capitation fee is charged, it is not an income in terms of section 11 of the Act and, therefore, there is a violation of section 13(1)(d) of the Act. The Tribunal held that such a reasoning cannot be accepted because if the donations are offered for income and if the department wants to disprove the nature of income on the basis of material, as has been pointed (33) out by the Commissioner of Income-tax (Appeals), it should be borne out by records based on investigation, which the Assessing Officer failed to do, except falling back on a statement which is not supported by materials'.

14. We are in respectful agreement with the view taken by the Madras High Court.

Identical view has been expressed by Hon’ble Karnataka High Court in another case, viz., PCIT vs. Rashtreeya Shiksha Samithi Trust (2023)(152 taxmann.com 664)(Kar) as under:-

“7. We have carefully considered rival contentions and perused records.

9. Undisputed facts of this case in hand are, the exemption certificate was in force as on the date of issuance of notice. The AO has denied the benefit of exemption by holding that the assessee had received a sum of Rs. 27,23,55,000/- as capitation fee in the guise of voluntary contribution.

37. In the light of the above, we are of considered opinion that the Appellant is carrying out education which is charitable within the meaning of section 2(15), it has applied and/or accumulated sums as required by section 11(1)(a), the explanation thereto and section 11(2), it is duly registered under section 12A and has not violated section 13. Further there is no private gain and all the funds are ploughed back only into education. Thus accumulations and application are as per the provisions of section 11. Therefore, exemption under section 11 and 12 has to be allowed to the assessee. We hold that the assessee is entitled to exemption u/s.11 and 12 of the Act. In the result grounds 3 to 5 of assessee appeal are allowed.

The AO had held that there was violation under the KEI (Prohibition of Capitation Fee) Act, and accordingly, brought the money collected by the assessee to tax. In challenge before the ITAT, the assessee has filed an affidavit stating that no action was initiated against the assessee by the State and that has remained uncontroverted. The resultant position is, the AO, based on assumption and surmise, has held that there was violation under the KEI (Prohibition of Capitation Fee) Act by the assessee and that incorrect assumption has been rightly reversed by the ITAT. So far as the authority in New Noble Educational Society's case (supra) is concerned, the Apex Court has held that the registration under different statues is also a relevant consideration while deciding the application for approval under section 10(23C) of the Act. In the case on hand, we are not dealing with a situation where the IT Department was considering any application for granting exemption. On the other hand, the department had issued the exemption certificate and the AO on an incorrect assumption has treated the money collected by the assessee as capitation fee under the KEI (Prohibition of Capitation Fee) Act. Therefore, the said authority does not lend any support to the Revenue. This court has already taken a view in Kammavari Sangham's case (supra) and the same is applicable to the facts of this case.

11. In view of the above, this appeal by the Revenue must fail ..”

Accordingly, we hold that the assessee should be granted exemption u/s 11 of the Act in all the years under consideration. We order accordingly. Dr.D Y Patil Educational Academy., Mumbai.

by the revenue in this regard is dismissed.

11. Therefore, considering the totality of the facts and circumstances of the entire case, we found that as per the facts of the present case since the parents / students informed at the time of admission that the institution would charge development fee, which would be used for construction of the building. The students/parents have taken informed decisions to proceed with the admission in the institute knowing fully well that the institute would be charging the development fee. They had an option of approaching any other college/institute, but they chose to seek admission in the appellants' institute. There is nothing brought on record to indicate that the parents Dr.D Y Patil Educational Academy., Mumbai. were kept in the dark about the development fee and that they were making the contribution against their will. The charging of development fee is allowed by the UGC and same has been allowed by the Hon'ble Supreme Court. The amount so received has been disclosed by the appellant in its books of account. The development fee is being utilized for the construction of the building of the Trust, which is evident from the fact that the additions of movable and immovable assets are much more than the development charges. There is no record of complaint received by UGC or any other board with respect to non-utilization of development few or diversion of development fee for any other purpose.

12. No new facts or circumstances have been brought before us during the course of arguments in order to controvert or rebut the findings so recorded by Ld.CIT(A). Therefore considering the decision of the coordinate Bench in the case of sister trust Ramrao Adik Education Society (supra) we have no reasons to deviate from the lawful findings so recorded by Ld. CIT(A). Hence, while dismissing the grounds raised by the revenue, we uphold the decision of Ld. CIT(A) and accordingly grounds raised by the revenue stands dismissed. Dr.D Y Patil Educational Academy., Mumbai.

ITA No. 2289/Mum/2025, 2015-16

13. As the facts and circumstances in this appeal is identical to A.Y 2017-18 (except variance in figures) and the decision rendered in above paragraph would apply mutatis mutandis for this appeal also. Accordingly, the grounds of appeal of the present appeal also stands dismissed.