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

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.

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/-.

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).

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.

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.”

appeal before us.

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.

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.

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.

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

objects of the trust.

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.

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.

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.

subject to such exemption which may be claimed 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.

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?

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.

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".

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.”

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.

stands dismissed.

The order is pronounced in the open court on 13.06.2024.

Sd/- Sd/-

[SAKTIJIT DEY] [NAVEEN CHANDRA] VICE PRESIDENT ACCOUNTANT MEMBER

Dated: 13th JUNE, 2024.

VL/