ITO (E), NEW DELHI vs. M/S CHADHA EDUCATION SOCIETY, DELHI

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ITA 91/DEL/2016Status: DisposedITAT Delhi13 June 2024AY 2011-12Bench: SHRI SAKTIJIT DEY, VICE PRESIDENT, SHRI NAVEEN CHANDRA (Accountant Member)16 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A) was justified in allowing exemption as the donations were voluntary and utilized for charitable purposes. The AO's denial of exemption based on alleged capitation fees was not sustainable, especially since the assessee's registration under Section 12A was not questioned.

What were the facts?

The assessee, Chadha Education Society, registered under Section 12A, received corpus donations of Rs. 56,25,000/- which the AO treated as capitation fees for securing admissions. The AO denied exemption under Sections 11 and 12, assessing the assessee as an AOP.

What were the issues?

Whether corpus donations received by an educational society are voluntary and eligible for exemption under Section 11, and whether the AO can deny exemption based on alleged capitation fees without challenging the Section 12A registration.

Which sections of the Income-tax Act were involved?

Section 11,Section 12,Section 12A,Section 13(1)(d)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(6)Show list

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Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,

Before: SHRI SAKTIJIT DEY, & SHRI NAVEEN CHANDRA

For Appellant: Shri Baldev Raj, CA, Shri Manish Upneja, CA
For Respondent: Shri R.K. Doi, Sr. DR
Hearing: 03.06.2024Pronounced: 13.06.2024

PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-

1.

This appeal by the Revenue is preferred against the order of the ld. CIT(A) - 40, New Delhi dated19.10.2015 pertaining to A.Y. 2011-12.

2.

The Revenue has raised the following substantive grounds of appeal:

“1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that the assessee is involved in imparting education without appreciating the fact that the school being run by the assessee society is not recognized by Directorate of Education, Government of NCT, Delhi

2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that the corpus donation of Rs. 56,25,000/- are voluntary in nature without appreciating the fact that he donors had categorically stated that they were told to make donation to the assessee society to secure admission of their wards in schools being run by its sister societies.”

3.

Brief facts of the case are that the assessee Chadha Education Society is registered u/s 12A of the Income-tax Act, 1961 [the Act, for short]. The main object of the assessee society is to promote and provide education and open schools etc. The assessee runs Maxfort Pre-Primary School in Pitampura and its sister concerns also run schools in Rohini and Pitampura. The assessee has earned Rs 2,19,86,513/- from its educational activities beside receiving a corpus donation of Rs 56,25,000/-. It has expended Rs 2,88,23,445/- on the objects of the Trust. The major portion of expenditure is towards school building.

4.

During the course of assessment proceedings, the Assessing Officer observed that the assessee has shown corpus donation of Rs. 56,25,000/- which has not been routed through income and expenditure account and directly taken to the balance sheet. Details of these donors of corpus donation were called for and the same was provided by the assessee. Thereafter, information was sought u/s 133(6) of the Act from the persons who made the donations, which in every case is Rs. 30,000/-.

5.

Most of the persons replied that they have made payment of Rs. 30,000/- to secure admission of the wards and that the amount of Rs. 30,000/- was pre-determined. After examining all the issues, the Assessing Officer came to the conclusion that the assessee –schools is not doing any charitable activity as the assessee-school is collecting capitation fees from the parents of the students and selling seats for admission. The AO held that the contributions received are not voluntary and therefore not eligible for exemption u/s 11(1)(d).

Accordingly, the Assessing Officer denied claim of exemption u/s 11 and 12 of the Act and assessed the assessee as an AOP. The AO also recommended to the DIT (Exemption) to cancel the registration granted u/s 12AA(3).

6.

Aggrieved, the assessee went in appeal before the ld. CIT(A).

7.

Before the ld. CIT(A), the assessee submitted that the amount collected as corpus donations were ultimately utilized in construction of school building. There is no allegation that the funds have been diverted for personal use of any member of the society or that the funds have not been used for the purposes of the society which is education. All the receipts of the corpus funds carry the counter signature of the person making the donation.

8.

After considering the facts and submissions, the ld. CIT(A) came to hold as under:

“3.12 I have considered the order of the Assessing Officer and the submissions of the assessee and find any merit in the submissions of the assessee. The assessee is a charitable society and is involved in imparting education and the income of the assessee is mainly from the school fees received from the students which are also applied/ spent for running the school. The income of the assessee includes all the fees by whatever name called from the students and the same has to be treated as part of the income as provided u/s 11(1)(a). There is no provision u/s 11 to treat the income in any other way except the corpus donation as provided u/s 11(l)(d) which is treated as exempt and all other income are to be treated as exempt when the same are applied for charitable purposes. So far as the matter of capitation fee is concerned, the case laws relied on by the assessee in respect of the claim is also -in favour the assessee as all these contributions are voluntary in nature.”

3.12 After considering all the facts and circumstances of the case, I am of the view that the amount of Rs. 56,25,000/- are voluntary and this is not capitation fees and it is held in various decisions of High Courts and thus proviso of section 2(15) does not attract in this case as the assessee is in the field of education and imparting the education and accordingly the AO is directed to allow the benefit of exemption u/s11(1) and the addition of Rs. 56,25,000/- is deleted.”

9.

Aggrieved by this action of the ld. CIT(A), the Revenue is in appeal before us.

10.

Before us, the DR relied heavily on the orders of the AO. The ld. counsel for the assessee, on the other hand, vehemently argued that the funds received were utilized for the construction of the school building. He vehemently contended that there is no nexus between the donation and admission to the particular school. He submitted that it is not that if they would not have paid the donation the children would have been denied admission. It was also argued that none of the persons called by the AO to verify the donation, have said that there was coercion or undue pressure to admit the children. The ld. counsel for the assessee relied upon the decision in the case of Deputy Director Income tax Vs. 340 ITR 320; the decision in the case of CIT Vs. Balaji Education, Charitable Public Trust 374 ITR 274 and the decision of the Hon'ble Karnataka High Court in the case of Kammavari Sangham 146 Taxmann.com 367.

11.

The ld counsel of the assessee further added that the Department has treated the assessee as having been granted the Registration u/s 12A, in subsequent years since AY 2018-19 till AY 2022-23 and the Assessee’s claim of exemption u/s 11 & 12 has been accepted. He argued that since there is no change in facts, the principle of consistency should be followed as held by hon’ble Supreme Court in the case of Radhasoami Satsang 193 ITR 321(SC). The ld counsel also reiterated the argument that once the registration granted is not disturbed, the AO has no power to deny the exemption u/s 11 of the IT Act.

12. We have given thoughtful consideration to the orders of the authorities below, the rival submissions and have carefully considered the judicial decisions relied upon by both the representatives. We have also considered the relevant documentary evidences brought on record in light of Rule 18(6) of ITAT Rules.

13.

We are of the opinion that the Revenue’s ground that the assessee is not recognized by the Directorate of Education, Government of NCT, Delhi has no relevance on the facts of the case.

The assessee has been granted Registration u/s 12AA of the Income Tax Act where the CIT granting registration has examined the genuineness of activities of the Trust and its compliance with any requirements of any law as are material for the purpose of achieving its objects. It is settled position of law that once the society/trust/institution is registered u/s 12A, the Assessing Officer has no loco-standi to decide as to whether it is 'charitable' or otherwise. Once the trust is registered by the CIT under a particular category, the process of definition and classification of the activity ceases. It was held by the Hon'ble Supreme Court in the case of ACIT vs. Surat City Gymkhana [2008] 170 Taxman 612 (SC)/ [2008] 300 ITR 214 (SC) that the registration of a trust once done u/s 12A is a fait accompli and the Assessing Officer cannot thereafter make further probe in to the

14. It was similarly held in the case of Hiralal Bhagwati v.

Commissioner of Income tax [2000] 246 ITR 188 (Guj.) where the Hon'ble Supreme Court held that once the registration under section 12A(a) was granted, the grant of benefit and exemptions could not be denied.

15. The other bone of contention is the amount of Rs. 56,25,000/- received towards corpus donation during the year by the assessee. The ld. CIT(A) has given a categorical finding that the assessee is a charitable society and is involved in imparting education and the income of the assessee is mainly from school fees received from the students which are also spent for running the school. We find that the contribution received have been utilized for the purposes of building the school which is in furtherance of the Trust’s objective of imparting education. We are also of the opinion that the Revenue has not established that the contributions received as corpus donation was utilized for purposes other than charitable purposes or there is a violation of provisions of section 13(1) or 13(2) of the I T Act.

16. We are in agreement with the findings of the ld. CIT(A)that the contributions cannot but be treated as voluntary in nature towards corpus donation u/s 11(1)(d).On the issue of capitation fee being in the nature of contributions which are voluntary in nature and exempted u/s 11(1)(d), the decision of the Hon'ble Karnataka High Court in the case of Kammavari Sangham, on which the assessee has relied, squarely applies as under:

“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.

12.

Section 11(1)(d) of the Act relied upon by Shri. Sanmathi, makes it clear that the voluntary donation made with a specific direction shall form a part of the corpus. The person who makes a contribution can make such contribution either with a specific direction or without any direction. Section 11(1)(d) of the Act refers to only such contribution which are made for a specific purpose. For example, the donor may desire that his donation be used for construction of a building. If no direction is given by the donor, the money received by the assessee shall be taxable

subject to such exemption which may be claimed under Section 11 of the Act.

13. In the instant case, it is not in dispute that the entire amount received as 'contribution' has been shown in the Income and Expenditure account. The denial of benefit under Section 11 of the Act is on the premise that the donations received are not voluntary in nature. This precise question was considered by Madras High Court in BALAJI EDUCATION CASE (supra) and it is held as follows:

"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.

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 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?

36.

Even if the contributions are treated as not voluntary what could be the legal consequence of that finding? Whether the Revenue will treat such involuntary contributions as capital and give exemption from taxation? No, it will not. The Revenue will still find such involuntary contribution as income liable for taxation. If so, what is the real distinction between voluntary contribution and involuntary contribution as far as the taxation of charities is concerned? In both cases, it will be brought for taxation if the assessee has not utilised the contributions for charitable purposes.

37.

The expression "voluntary contributions" is used in the Act instead of "contributions" to highlight the principle of non- compulsion in matters of participating in charitable activities and to underline the gratuitous nature of donations and charitable activities. There is no compulsion in making contributions to charities. If the expression was "contributions" there could be a nuance of compulsion like contribution to provident fund and the like.

38.

Therefore, we find that whether it is treated as voluntary or involuntary, the only course of action available before law is to see whether such contributions have been treated by the assessee as the income and also applied for charitable purposes."

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 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.

15.

Sri. E.I. Sanmathi, learned advocate is also right in his submission that in each year of assessment, the Assessing Officer will have to examine the case independently. In the case on hand, the Assessing Officer for the A.Y. 2011-2012 has held that he has made enquiry with the parents and collected information that the amount was not made voluntarily.

16.

It was argued by Shri. Chandrashekar that Assessing Officer's view that capitation fee was collected in violation of the Karnataka Educational Institution (Prohibitions of Capitation Fee) Act, 1984, is not sustainable because it is for the appropriate authority, which deals with the said Act to investigate into the matter. In substance, his contention is, the Assessing Officer under the Income Tax Act cannot deny the exemption under Section 11 of the Act on the assumption that there is violation of any other statutory provision. He also adverted to Section 12(AA) (4) (b) of the Act and contended that the said provision has been substituted with effect from 01.09.2019, giving power to the Principal Commissioner or the Commissioner of Income Tax to cancel the registration of a trust or institution. Thus, it is clear that should there be any violation with regard to receipt of capitation fee, the Assessing Officer could not have denied the benefit under Section 11 of the Act so long as the certificate is in force. Admittedly, assessee's certificate was in force. Though it was cancelled by the Revenue it has been restored by an order passed by this Court in ITA.No.421/2013.”

17.

Considering the above discussion in light of the judicial decisions discussed and the findings given by the ld. CIT(A) reproduced hereinabove, we are of the considered opinion that the ld. CIT(A) was justified in allowing the benefit of exemption u/s 11(1) of the Act and deleting the addition of Rs. 56,25,000/-. We also note that the ld DR has not controverted the fact that proposal sent by the AO to the DIT(Exemption) for cancellation of registration, has not been acted upon or the Department itself has not accepted the charitable nature of the assessee and has denied grant of exemption u/s 11 and 12 in subsequent AYs. Considering all the facts in totality and the legal principle of consistency, both the ground raised by the Revenue are dismissed.

18.

In the result, the appeal of the Revenue in stands dismissed.

The order is pronounced in the open court on 13.06.2024.

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