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Income Tax Appellate Tribunal, ‘I’ BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER
The present appeal of the revenue is directed against the order passed by the CIT(A)-7, Mumbai, dated 10.03.2015, which in itself
P a g e | ITO Vs. Indian Institute of Industrial Training arises from the assessment order passed by the A.O u/s 143(3) of the Income Tax Act, 1961 (for short ‘the Act’), dated 20.02.2014. The revenue assailing the order of the CIT(A) had raised the following grounds of appeal before us:- “1. Whether, on the facts of the case and in law the ld. CIT(A) erred in accepting that the entrance fee received of Rs.59,87,450/- is capital receipt.
2. Whether, on the facts and in the circumstances of the case and in law the ld. CIT(A) erred in ignoring the fact that entrance fee is collected from each student and every year new students are enrolled hence same is revenue receipt in nature.
3. The Appellant prays that to the extent of above grounds, the order of the Commissioner of Income Tax (Appeals)-7, Mumbai be set aside and that of the Assessing officer be restored.
4. The appellant craves to amend or alter any ground or add a new ground which may be necessary.”
Briefly stated, the facts of the case are that the assessee is a trust registered with the Director of Income Tax (Exemption), Mumbai u/s. 12A of the Income-tax act, 1961, and also registered with Charity Commissioner, Mumbai. The assessee had filed its return of income for A.Y 2011-12 on 30.09.2011 along with the Income and expenditure account, Balance sheet and Audit report in Form No. 10B, declaring total income at Rs. Nil. The case of the assessee was taken up for scrutiny assessment and a notice u/s. 143(2) was issued on 07.09.2012 and served on the assessee.
That one of the main object of the assessee trust was inter alia conducting graduationship examinations for students, for which it would charge separately. The income generated from charging of the aforesaid fees (which would be in excess of the expenditure on graduationship examination) was reflected by the assessee in its ‘Income & Expenditure a/c’ and was during the year reflected at Rs.
P a g e | ITO Vs. Indian Institute of Industrial Training 1,15,63,320/-. That the assessee had further during the year under consideration collected one-time entrance fees aggregating to Rs.59,87,450/- from the students who had appeared for the graduationship examination, which was taken to the ‘Balance sheet’ and added by the assessee to the capital fund. The A.O during the course of the assessment proceedings, on noticing the same, therein called upon the assessee to show cause as to why the amount of Rs.59,87,450/-(supra) may not be treated as the income of the assessee and accordingly be brought to tax. The assessee submitted before the A.O that as the entrance fees was one-time fees and was in the nature of a capital receipt which was to be utilized towards the objects of the trust, therefore, the same could not be brought to tax. However, the contentions of the assessee did not find favor with the A.O who holding a conviction that as the receipts were collected by the assessee from the students at the time of admission towards graduation examination, therefore, the same could not be construed as a capital receipt. The A.O thus being of the view that the assessee had failed to establish as to how the amounts received by way of entrance fees were to be characterized as capital receipts and were to be utilized towards the objects of the trust, therefore, assessed the amount of Rs. 59,87,450/- (supra) as the income of the assessee.
The assessee being aggrieved with the order of the A.O carried the matter in appeal before the CIT(A). The assessee submitted before the CIT(A) that the A.O had wrongly held the one-time entrance fees of Rs. 59,87,450/- (supra) as the income of the assessee. The assessee in order to drive home its aforesaid contention took support of the following facts:-
P a g e | ITO Vs. Indian Institute of Industrial Training (i). As per Clause 4.1.1 of the Memorandum of association and Rules and Regulations of the assessee trust, the entrance fees received by the assessee was to be capitalized and credited to capital fund.
(ii). That the entrance fees had nothing to do with the facilities and amenities provided by the institution and rather had much to do with the status of the particular class of member, therefore, the same was a capital receipt.
(iii). The entrance fees of Rs. 59,87,450/- was credited by the assessee to the capital fund consequent to an obligation imposed by Clause 4.1.1 of the ‘Memorandum of Association’ and rules and regulations of the institution.
(iv). The entrance fees paid by the entrants to the institution was a requirement or condition precedent to the membership, and thus being a price for admission to the privileges and benefits of the institution under a contract, were not voluntary contributions.
5. The CIT(A) after deliberating on the contentions of the assessee accepted that as per Clause 4.1.1 of the ‘Memorandum of Association’ and rules and regulations of the assessee trust, the amount of Rs. 59,87,450/- (supra) constituted one-time entrance fees which was charged from the students. The CIT(A) observed that a perusal of the ‘Income & Expenditure a/c’ of the assessee revealed that the assessee which would separately charge for conducting graduation examinations from the students, was reflecting the income arising therefrom in its ‘Income & Expenditure a/c’, which during the year under consideration, viz. A.Y. 2011-12 stood reflected at Rs.
P a g e | ITO Vs. Indian Institute of Industrial Training 1,15,63,320/-. The CIT(A) thus found favor with the contentions of the assessee that the one-time entrance fees charged by the assessee from the students were not recurring in nature, and had rightly been taken by the assessee to the ‘balance sheet’. The CIT(A) in the backdrop of his aforesaid observations concluded that as the one-time entrance fees charged by the assessee were in the nature of capital receipts, therefore, the same were not to be taxed. The CIT(A) observed that his aforesaid view was fortified by the judgment of the Hon’ble Hiigh Court of Bombay in the case of CIT Vs. WIAA Club Ltd. (1982) 136 ITR 569 (Bom). Alternatively, it was observed by the CIT(A) that as the main object of the assessee trust was to conduct graduationship examination in the filed of Industrial training, therefore, the accumulation of entrance fees and credit of the same in the ‘balance sheet’ would even otherwise be exempt under the provisions of Sec.
11. The CIT(A) in support of his aforesaid view relied on the judgment of the Hon’ble High Court of Bombay in the case of Trustees of Shri Kot Hindu Stree Mandal Vs. CIT (1994) 209 ITR 396 (Bom). The CIT(A) on the basis of his aforesaid observations concluded that the A.O had erred in taxing the one time entrance fees of Rs. 59,87,450/- (supra) collected by the assessee trust from the students by treating the same as revenue receipts, and not granting exemption under Sec. 11 in respect thereof. The CIT(A) thus deleted the addition of Rs. 59,87,450/- (supra) made by the A.O.
6. The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The ld. Departmental representative (for short ‘D.R’) submitted that for the purpose of construing the scope and gamut of the term ‘Income’ contemplated in Sec. 11, a revenue receipt and a capital receipt have not been differently placed and are to be similarly construed. The ld. D.R
P a g e | ITO Vs. Indian Institute of Industrial Training submitted that the one-time entrance fees received by assessee trust were clearly in the nature of income in the form of ‘Voluntary contributions’, which thus was liable to be taxed. The ld. D.R in order to fortify his aforesaid contention drew our attention to Sec. 11 and 12 of the ‘Act’. It was submitted by the ld. D.R that the CIT(A) failing to appreciate the aforesaid material aspects of the issue under consideration had thus erroneously deleted the addition of Rs. 59,87,450/-.The ld. D.R averred that in all fairness the order of the CIT(A) may be restored to the file of the A.O for fresh adjudication after deliberating on the material aspects. Per contra, the ld. Authorized representative (for short ‘A.R’) for the assessee placed heavy reliance on the order of the CIT(A). It was averred by the ld. A.R that the issue involved in the present appeal was squarely covered by the judgments of the Hon’ble High Court of Bombay in the case of Trustees of Shri Kot Hindu Stree Mandal Vs. CIT 1994) 209 ITR 396 (Bom), and the order of the coordinate bench of the Tribunal, viz. ITAT Mumbai Bench ‘D’, in the case of Cotton Textiles Export Promotion Council Vs. ITO (Exemptions), Range 1(1), Mumbai (2009) 117 ITD 90 (Mum). The ld. A.R in order to drive home his aforesaid contention, took us through the relevant extracts of the aforesaid case laws. That on a specific query by the bench as to what was the position as regards the treatment of the one-time entrance fees by the department in the case of the assessee for the preceding and the succeeding years, it was fairly submitted by the ld. A.R that while for the ‘return of income’ of the assessee in the immediately preceding year, viz. A.Y. 2010-11 was processed u/s 143(1), while for in the succeeding year, viz. A.Y. 2012-13 the A.O had while framing a regular assessment made a similar addition in the hands of the assessee.
P a g e | ITO Vs. Indian Institute of Industrial Training 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We have given a thoughtful consideration to the facts of the case and are of the considered view that our indulgence has been sought for adjudicating as to whether the one-time entrance fees received by the assessee trust is liable to be construed as a revenue receipt and brought to tax, or not. We have deliberated on the issue under consideration and find that the same is covered by the judgment of the Hon’ble High Court of Bombay in the case of Trustees of Shri Kot Hindu Stree Mandal Vs. CIT 1994) 209 ITR 396 (Bom). We find that the Hon’ble High Court had in its aforesaid judgment while adjudicating the scope and gamut of the term ‘Voluntary contributions’, observed as under:-
“4. The learned counsel for the assessee has invited the attention of the Court to observations made by the High Court of Madhya Pradesh in the case of CIT vs. M.P. Anaj Tilhan Vyapari Mahasangh (1988) 68 CTR (MP) 13 : (1988) 171 ITR 677 (MP) in support of her contention concerning interpretation of the expression `voluntary contribution' under s. 12 of the Act. N.D. Ojha, C.J. speaking for the Division Bench (as His Lordship then was) observed at page 680 of the above referred judgment as under ; "The contributions, in order to be voluntary, had to be made willingly and without compulsion and the money was to be gifted or given gratuitously without consideration and that these tests were satisfied as facts of the present case." When a person pays membership fee or subscription to a society or a trust, he does not make a gift of membership fee or subscription amount to the Society. The amount of subscription paid by a member to the society can never be considered as gratuitous payment made by the member to the society or as a payment without any consideration.
There is considerable merit in the submission of the learned counsel for the assessee. In Russel vs. Vestry of St. Giles 3 E&B 416, Lord Campbell observed "voluntary contributions here do not mean annual subscriptions (or entrance fees) paid for value received or expected to be received by the party paying, but means a gift made from disinterested motives for benefit P a g e | ITO Vs. Indian Institute of Industrial Training of others." In society of Writers vs. I.R. 2 Tax Cases 257, the Court held that the entrance fees and subscriptions paid by entrants to a society or institution as a condition precedent to their membership and as the price of admission to the privileges and benefits of the Society or institution are given under a contract and are not voluntary.
We accept the above referred submission of the learned counsel for the assessee. We accordingly hold that the membership and subscription amounts received by the applicant trust/society from its members cannot be characterised as "voluntary contribution" within meaning of the said expression under s. 12 of the IT Act, 1961. The entire income of the trust is exempted under s. 11 of the IT Act, 1961. In our opinion, the Tribunal was not justified in treating the receipt of subscription amounts from the members as voluntary contribution or a donation.”
We have deliberated on the aforesaid judgment of the Hon’ble High Court of jurisdiction, and are of the considered view that as the one-time entrance fees of Rs. 59,87,450/- received by the assessee before us is backed by a requirement or condition precedent to the membership and is a price for admission to the privileges and benefits of the institution under a contract, therefore, the same cannot be characterized as a ‘Voluntary contribution’. We further find that the aforesaid amount of Rs. 59,87,450/- had been capitalized and credited to the capital fund pursuant to the obligation imposed by Clause 4.1.1 of the ‘Memorandum of Association’ and rules and regulations of the assessee trust. We further are persuaded to be in agreement with the contentions of the ld. A.R that as the one-time entrance fees has nothing to do with the facilities and amenities provided by the institution of the assessee trust, and rather has much to do with the status of the particular class of the member, therefore, the same takes the color and character as that of a capital receipt. We further find that the Hon’ble High Court of Bombay in the case of CIT Vs. W.I.A.A Club Ltd. (1992) 136 ITR 569 (Bom), had held that the ‘entrance fees’ only vests a right of membership, and though the member by making such payment does not get any return in the form
P a g e | ITO Vs. Indian Institute of Industrial Training of services or amenities, but all that he gets is a right to avail of the amenities or facilities provided by the institution. We have given a thoughtful consideration to the facts of the case in the light of the settled position of law, and are of the considered view that as the one- time entrance fees received by the assessee trust from the students who appear for the graduationship examination cannot be considered as gratuitous payment made by the members to the trust or as a payment without any consideration, therefore, the same cannot be characterized as ‘Voluntary contributions’.
We further find that the issue before us had earlier came up before a coordinate bench of the Tribunal in the case of Cotton Textiles Export Promotion Council Vs. ITO (Exemptions), Range 1(1), Mumbai (2009) 117 ITD 90 (Mum). The Tribunal had in the aforesaid case observed as under:-
13. Now we take up the Revenue’s appeal. The only issue arising in this appeal is whether the entrance fees received by the assessee can be excluded from the income of the assessee. The AO was of the view that the entrance fee could not be considered as voluntary contribution with specific direction to form part of the corpus. Accordingly, the same was included in the total income of the assessee. The CIT(A) following the decision of the Tribunal in asst. yr. 1992-93 held that the entrance fees could not be treated as income of the assessee. Aggrieved by the same, the Revenue is in appeal before the Tribunal. After hearing both the parties, we do not find any merit in the appeal of the Revenue, since the decision of the CIT(A) is in accordance with the order of the Tribunal. The order of the CIT(A) is, therefore, upheld on this issue.
We have given a thoughtful consideration to the facts of the case in the backdrop of the settled position of law, and are of the considered view that the issue involved herein is squarely covered by the aforementioned judgments of the Hon’ble High Court of Bombay and the order of the coordinate bench of the Tribunal. We thus being of the considered view that the CIT(A) had by way of a well reasoned
P a g e | ITO Vs. Indian Institute of Industrial Training order adjudicated the issue, therefore, finding no reason to take a different view, thus uphold the order of the CIT(A) and dismiss the appeal of the revenue.
The appeal filed by the revenue is dismissed. Order pronounced on the open court on 31.08.2017
Sd/- Sd/- (RAJENDRA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 31.08.2017 Ps. Rohit Kumar आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीर थी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आम क्त(अऩीर) / The CIT(A)- 3. 4. आमकय आम क्त / CIT विब गीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भ ुंफई / DR, 5. ITAT, Mumbai ग र्ड प ईर / Guard file. 6. सत्म वऩत प्रतत //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, भ ुंफई / ITAT, Mumbai
P a g e | ITO Vs. Indian Institute of Industrial Training