ITO, CHENNAI vs. UNITED EDUCATIONAL FOUNDATION, CHENNAI

आदेश / O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER:

Since the issues in all these appeals are inter connected and identical they are heard and dispose off together for the sake of convenience.

2. All the assessee’s have raised several grounds in their

respective appeals however they are briefly stated herein below for adjudication.

2.1 M/s. United Educational Foundation in for the assessment year 2011-12:-

The Revenue has raised several grounds in its appeal, however the crux of the issue is that, the Revenue is aggrieved by the order of the Ld. CIT(A), who has held that the substantive addition made by the Ld. AO for Rs.22,03,77,500/- by withdrawing the benefit of Section 11 of the Act due to receipt of non-voluntary contribution / capitation fees, is not tenable and the assessee would be entitled for the benefit of the Section 11 of the Act.

2.2 M/s. MAC Public Charitable Trust in ITA No.

2885/Mds/2014 for the assessment year 2011-12:

The Revenue has raised several grounds in its appeal, however the crux of the issue is that the Revenue is aggrieved by the order of the Ld. CIT(A) who had deleted the addition made by the Ld. AO protectively for Rs.3,60,00,000/- on account of non-voluntary contribution / capitation fees by holding that there is no violation of the Act.

2.3. M/s. MAC Charities in for the assessment year 2011-12:-

The Revenue has raised several grounds in its appeal, however the crux of the issue is that the Revenue is aggrieved by the order of the Ld. CIT(A) who had deleted the addition made by the Ld. AO protectively for Rs.10,65,00,000/- on account of non- voluntary contribution / capitation fees by holding that there is no violation of the Act.

2.4 M/s. MAC (Educational) Foundation in ITA No.

2886/Mds/2014 for the assessment year 2011-12:-

The Revenue has raised several grounds in its appeal, however the crux of the issue is that the Revenue is aggrieved by the order of the Ld. CIT(A) who had deleted the addition made by the Ld. AO protectively for Rs.10,00,000/- on account of non- voluntary contribution / capitation fees by holding that there is no violation of the Act.

2.5 M/s. Sri Venkateswara Educational & Health Trust in ITA

No. 2889/Mds/2014 for the assessment year 2011-12:-

The Revenue has raised several grounds in its appeal, however the crux of the issue is that the Revenue is aggrieved by the order of the Ld. CIT(A) who had deleted the substantive addition made by the Ld. AO for Rs.9,90,50,000/- on account of non-voluntary contribution / capitation fees by holding that there is no violation of the Act.

are either engaged in the activity of promoting education in the form of charity or other charitable activities, filed their respective return of income admitting NIL income for the relevant assessment year. Subsequently in the case of all the assessees the assessment was taken up for scrutiny and thereafter assessment u/s. 143(3) of the Act was completed on 31.03.2014, wherein the Ld. AO withdrew the benefit of Section 11 of the Act by holding that all the assessee trusts had received non-voluntary contribution

/ capitation fees. Thus addition was made towards the donations received.

3.1 During the course of assessment proceedings, it was observed by the Ld. AO in the case of M/s. United Education

Foundation that the assessee had received donation of Rs.22,03,77,500/- from 1206 persons on various dates. Out of the above mentioned sum the assessee had donated

Rs.18,74,67,000/- to various institutions. It further came to light from the sworn statements obtained from the donors that the donations were made in order to secure admission for their wards/relatives in Sri Venkateswara College, Sriperumbudur,

Kancheepuram District. For instance Shri R. Jeevarathinam vide his sworn statement dated 17.02.2014 had replied stating that he had donated a sum of Rs.6 lakhs to the assessee trust to secure admission of his uncle’s son Master M. Karthikeyan in Sri

Venkateswara College to pursue Bachelor of Engineering

(Mechanical) course. He further stated that the amount paid as donation by him was received from his uncle. Similarly Shri Ravi

Anantha Padmanaban vide his sworn statement dated 17.02.2014 had stated that he had donated Rs.5,50,375/- to the assessee trust for securing the admission of his sister’s son Master M. Viswesh in Sri Venkateswara College to pursue Bachelor of Engineering

(Computer Science) course. He further stated that the amount paid as donation by him was received from his sister. Further Shi

K. Krishnan in his sworn statement dated 06.02.2014 had replied stating that he had paid Rs.7 lakhs to the assessee trust for securing the admission of his cousin’s son Master S.

Deivanayagam in Sri Venkateswara College to pursue Bachelor of Engineering (Mechanical) course. He further stated that the amount paid as donation by him was received from his cousin.

3.2 Drawing inference from the above, the Ld. AO opined that persons who desire to admit their wards in Sri Venkateswara Engineering College were forced to pay donation to the assessee trust which amounts to capitation fee. The Ld. AO further analyzed the fund flow of all the assessees trust in the following manner:-

3.3 The assessee rebutted to the findings of the Ld. AO vide its letter dated 18.03.2014 as under:-

“….b. The assessee trust has indeed collected donations from several individuals. The fact that the donations have been given to the assessee trust is not denied by these individuals. The donors have given letters to assessee trust that the donations are voluntary. The assessee trust is an independent trust and is in no way connected to the Sri Venkateswara College, which we are given to understand is a Telugu minority institution. The assessee trust is therefore in no position to secure admissions for the donors as alleged. Moreover, it appear from the statements of the donors that the admissions have been obtained not for themselves but for some friends or relatives. The donations are therefore voluntary only, as the trust has not rendered any service to the donors leave alone secure seats for the donors in Sri Venkateswara College. c. As regards donations by the assessee to MAC Charities etc., these are trust which are registered u/s.12A of the Act and applying their income for charitable purpose. Therefore the donations are for the purpose of the objects of the assessee trust and have been properly applied for. It is settled law that Donations to other trust is proper application of funds. Therefore there is nothing wrong in the donations given to MAC Charities etc., and is part of the normal activities of the trust. As a matter of policy the assessee trust regularly donates to other trust after having done a thorough study on existing/proposed activities and antecedents of the donee trust…”

3.4 Similarly with respect to the same allegations the assessee’s trust M/s. MAC Public Charitable Trust replied to the Ld. AO as follows:- a) “As far as the assessee trust is concerned the donations are voluntary only. The trust has not in any way secured admission in SCVE College for the donors who happen to be trusts only. b) The assessee has also shown these donations as income only and applied the same for charitable purposes in accordance with law. Donations to other trusts is a permissible application of funds. c) There is no intention to evade tax as these are genuine transactions properly accounted for and duly confirmed by all the concerned parties. d) Merely because there are some issues with regards to the donor trust, the donations received by the assessee trust does not become involuntary. The assessee trust has been regularly receiving donations and has been applying the same for charitable purpose.”

3.5 The assessee Sri Venkateswara Educational & Health Trust also responded to the show-cause notice of the Ld.AO vide its letter dated 19.03.2014 as under:-

“….a. The assessee trust is running the SVCE College which is one of the most reputed colleges in the country. b. The college collects fees from the students in accordance with the AICTE norms as may be applicable to a minority institution. c. Apart from the fees collected from the students on account of tuition fees, campus recruitment, college transport etc the trust receives some donations from trusts with specific direction that these donations shall form part of the corpus. No donations have been collected from any student directly or indirectly by the assessee trust. As stated earlier even the fees collected from the students are as per stipulated norms. d. As regards the donations received from the MAC trust etc these are voluntary only, as is evidenced by their letters which have already been produced to your goodselves during assessments. The donor trusts have not stated that these are not voluntary donations. The donors are separate trusts with no common trustees. The assessee trusts have issued valid receipts for these donations, properly accounted for the same and the donors trusts are identifiable and separately assessed to tax. Therefore, if there are some issues regarding the source of funds for the donor trusts the same cannot be a ground for the corpus donation receipt to be considered as income. Section 12(1) provides that any voluntary contribution received by a trust with a specific direction that shall form part of the corpus is not deemed to be income in the hands of the trust. e. The allegation that the assessee trust is systematically adopting this route to evade tax is denied. The assessee trust has been complying with all the relevant provisions of the Income tax act in the true spirit all these years. However, without prejudice to the stand that the corpus donations do not form part of income, the trust would still have spent more than 85% of its gross receipts towards its objects even if these corpus donations were to be considered as income. Under such circumstances, there is no requirement for the assessee trust to evade tax. It is therefore prayed that the proceedings pursuant to the SCN issued may be dropped in view of the fact that:

1. 1. The trust is carrying on educational activities in accordance with law.

2. The donation received towards corpus are confirmed by the donors who are independent trusts with their own sources of income. The donors have not stated that the donations are not voluntary.

3. There is no evidence to evade tax by this route as the activities of the trust fully qualify for exemption under Section 11-12.

4. The various trusts referred to in the SCN are all properly registered u/s.12A and have been regular in filing returns and in proper application of funds. The assessee trust is a minority institution and is in no way connected to the various trusts referred to in the SCN to allege a nexus. The trusts have been regular donors to the assessee trust for several years….”

3.6 The assessee M/s. MAC Charities responded to the show cause notice issued by the Ld.AO on 07.03.2014 as follows: “Therefore your proposal to treat the donation of Rs.10.65Cr as a not voluntary contribution may be dropped in view of the following:- a) As far as the assessee trust is concerned the donations are voluntary only. The trust has not in any way secured admission in SVCE College of the donors who happen to be trusts only. b) The assessee has also shown these donations as income only and applied the same for charitable purposes in accordance with law. Donations to other trusts is a permissible application of funds. c) There is no intention to evade tax as these are genuine transactions properly accounted for and duly confirmed by all the concerned parties. d) Merely because there are some issues with regards to the donor trust, the donations received by the assessee trust does not become involuntary. The assessee trust has been regularly receiving donations and has been applying the same for charitable purposes.

In view of the above, it is prayed that the issues raised in the show cause notice may be dropped.”

3.7 In the case of M/s. MAC Education Foundation, the Ld.AR submitted before the Ld.CIT(A) vide written submission dated 12.07.2014 as follows: 1. “No donations have been collected by the appellant trust from any of the students/parents of the college.

3. If the donors of United Education Foundation had submitted that the donations were for securing seats the learned assessing officer ought to have examined the relevant student/parent before concluding that the statements of the donors were true.

3.8 However the Ld. AO was of the opinion that all the transactions are interlinked because all the assessee trusts were managed by the same group of founders. Since forced donations and the capitation fees are in violation of the Tamil Nadu State

Legislative Act which prevents the educational institutions from accepting capitation fees, the Ld. AO withdrew the benefit of Section 11 of the Act in the case of all the above mentioned assessee trusts by holding that they had received either forced donations or capitation fees. Accordingly additions were made by the Ld. AO in the case of all the assessee trusts either substantially or protectively. While doing so, the Ld. AO also relied in the case P.S. Govindasamy Naidu v. ACIT (2010) in 324 ITR 44

(Mad) wherein the Hon’ble Jurisdictional High Court upheld the addition made on account of receipt of capitation fees though it was termed as corpus receipt, and in the case Miss Mohini Jain v.

State of Karnataka (1992) 2 SSC 666 (SC) wherein the Hon’ble

Supreme Court confirmed the addition by stating that the capitation fees is nothing but a price for selling education.

4. All the above assessee trusts carried the matter before the Ld. CIT(A).

5.1 In the case of M/s. United Educational Foundation, the Ld. CIT(A) after examining the facts observed, that the assessee trust had extended donation to the following trusts for the relevant assessment year :-

MAC Public Charitable Trust Rs. 3,60,00,000.00 MAC Charities Rs.10,65,00,000.00 Maruti Educational Trust Rs. 75,00,000.00 Madhuritai Deshmukh Sewa Pratishthan Rs. 25,00,000.00 Arvindbabu Deshmukh Pratishthan Rs. 25,00,000.00

Rohikhand Educational & Charitable Trust Rs. 75,00,000.00 Mitra Parishad Rs. 50,00,000.00 Gyan Sagar Foundation Rs. 25,00,000.00 Talkara Charitable Trust Rs. 75,00,000.00 AR L. Family Charitable Trust Rs. 5,00,000.00 Child Health Congress, Delhi Rs. 25,00,000.00 Tyagi Education Foundation Rs. 36,00,000.00 Tamil Isai Sangam Rs. 23,67,000.00 MAC (Educational) Foundation Rs. 10,00,000.00 --------------------- Rs.18,74,67,000.00 ---------------------- 5.2 The Ld. CIT(A) further observed as follows:- i. Perusal of the letters from the donors indicated that the amount received by the assessee trust were voluntary donations. ii. Only in some of the sworn statements the donors had stated that the amount paid was for securing admission of their wards/relatives in Sri Venkateswara College of Engineering. iii. However, the same donors had responded earlier by stating that they had advanced voluntary donations. iv. Thus there were conflicting statements. v. The Ld. AO did not examine the source of the huge donation paid by the individual donors which shows that the Revenue was lenient on the donors for detecting undisclosed income if any. vi. Some of the donors who paid huge donations were not assessed to tax. vii. Some donors also stated that they were mear name lenders. viii. There were statements by the donors stating that the amount contributed by them as donations where in fact amount received from the parents of the wards who had been admitted in Sri Venkateswara College of Engineering. ix. If that being the case the source of such donations were not examined in the case of the parents of the wards. x. The manner in which coercive influence were administered for obtaining donation was also not established. xi. Donations were received by Sri Venkateswara Engineering

College from different entities. xii. The trustees of all the assessee trust were different and therefore there is no link between the institutions. xiii. The decision in the case of PSG Charities v. ACIT reported in 324 ITR 44 is not applicable to the facts of the present case because in that case students were admitted in the colleges run by the assessee trust itself and the quid-pro-quo was established beyond doubt. xiv. Sri Venkateswara Educational and Health Trust is a linguistic minority institution whereas the other trusts were normal trusts. xv. There is no violation of Section 13(1)(c) r.w.s. 13(3) of the Act, because the donations received by the trust are spent xvi. The assessee trust not only donated money to Sri

Venkataswara Educational and Health Trust but also donated money to other unconnected trusts. xvii. There is no direct nexus between the donation received by the assessee trust and the admissions secured in an xviii. The entire donations received by the assessee trust were spread over to different charitable institutions who were not connected to each other. xix. There is no prohibition in law for parents or relatives of the students admitted in Sri Venkateswara Educational and Health Trust to contribute donation to connected trusts.

Reliance was placed in the case CIT v. Vellore Institute of Technology decided by the Chennai bench of the Tribunal, in ITA No.1332/Mds/2010 dated 09.06.2011. xx. The donations contributed to the assessee trust by individuals are voluntary and directed to be held as corpus funds by such individuals. Hence it cannot be treated as the income of the trust. Moreover the entire donations were expended by the assessee trust for the purpose of meeting the objectives of the trust. Reliance was placed in the case decided by the Chennai bench of the Tribunal reported in 15 taxman.com 53.

Based on the above observations, the Ld.CIT(A) held in the case of the M/s. United Educational Foundation that, the donation extended by the donors cannot be treated as non- voluntary contribution. Further the assessee trust had not violated any of the objects of the trust and the genuineness of the trust is also established. Therefore exemption U/s. 11 of the Act cannot

a. There is no prohibition in law for a charitable institution to receive donation from another charitable institution. b. There is also no prohibition in law for a charitable institution to give donation to another charitable institution. c. The donation given by the assessee trust is application of income and hence exempt u/s. 11 of the Act. d. The donation received and given by the assessee trust are voluntary in nature. e. The assessee trust is not connected with receipt of donation/capitation fee by any trust from anyone. f. The assessee trust is not connected with the admission of students to any Engineering College.

While doing so the Ld. CIT(A) made the following observations:- i. Though Dr. A.C. Muthiah was the founder trustee of Sri

Venkateswara Educational and Health Trust, he is not a trustee of the trust during the relevant assessment year. ii. The donation given by M/s. United Education Foundation to the assessee trust is without any coercion on the part of the iii. The Ld. AO did not bring any evidence to prove that the donation given by M/s. United Education Foundation to the assessee trust is due to undue influence or intimidation. iv. The allege collection of capitation fees by M/s. United

Education Foundation Trust for admission to engineering college owned by Sri Venkateswara Educational and Health v. No evidence was brought on record by the Ld. AO to prove that the assessee trust exerted influence on their parents, relative and friends of the parents of the students to pay donation / capitation fees to M/s. United Education

Foundation Trust in order to get education in the Engineering

College owned by Sri Venkateswara Educational and Health

Trust. vi. The assessee trust has received donation from other trusts and also paid donation to various other unconnected trusts. vii. The deposits of Rs.17,95,000/- with M/s. SPK MAC

Charitable Trust is nothing but a loan transaction and on similar occasion the Tribunal in the assessee’s own case had held that such transaction is not in violation of Section 13 of the Act. viii. Reliance was placed in the decision of the Hon’ble Delhi

High Court in the case CIT v. Sri Ram Memorial Foundation

Limited 269 ITR 35 which concurred with the decision of the Hon’ble Gujarat High Court in the case CIT v Sarladevi

Sarabhai Trust reported in 172 ITR 698 wherein it was held that when the donor charitable trust donates its income to another charitable trust provisions of Sec 11(1)(a) can be said to have been met. ix. Reliance was also placed in the decision of the Hon’ble

Bombay High Court in the case CIT v Trustees of the Jadi Trust reported in 133 ITR 494 wherein it was held that “the trust to which sec.11 applies can make a voluntary contribution to another trust to which also sec.11 is made applicable subject, of course to the satisfaction of the conditions in sec.11.” x. Reliance was also placed in the decision of Hon’ble

Allahabad High Court in the case CIT v. JK Charitable Trust reported in 196 ITR 31 wherein it was held as follows: “A charitable purpose may be served in more than one way. One is to directly contribute money to another charitable organization, which advances that cause. In the absence of allegations of device and/or malafides, the amount contributed to other charitable institutions out of the income accumulated under sub-section (2) is outside the mischief of sub-section(3) of section 11. In other words such contribution does not amount to application of the income for purposes other than charitable or religious”. xi. Similar directions was also made in the instructions issued by the Ld. CBDT No.1132 dated 04.01.1978 clause XXIII/1/128.

Based on the above observations and the conclusions, the Ld.

CIT(A) held that the allegations of the Ld. AO such as “donation of Rs.3,60,00,000/- received by the assessee trust is non- voluntary/capitation fees contribution by the donors” is devoid of merits and not tenable in the eye of law. Accordingly, the Ld.

CIT(A) directed the Ld. AO to delete the addition of Rs.3,60,00,000/- made in the hands of the assessee as receipt of non-voluntary donations.

Foundation also the Ld. CIT(A) arrived at the same conclusions and made the same observations as in the case of M/s. MAC

Public Charitable Trust and accordingly directed the Ld. AO to accept the income return by the assessee trusts.

Trust, the Ld.CIT(A) also arrived at the same conclusion as in the case of the other trusts and further observed as follows: i. The assessee trust had received corpus donations from the other trusts amounting to Rs.9,90,00,000/- which is not prohibited under any law. ii. The assessee trust is a linguistic minority charitable institution which is distinct from all other trusts. iii. The assessee trust did not receive capitation fee from any individuals. iv. No evidence was brought on record by the Ld. AO to establish that the donor trust influence the persons to donate v. Moreover the Revenue has taxed the same amount in the hands of all the three trusts which amounts to triple taxation. vi. The assessee is a genuine minority charitable institution engaged in the activity of providing education.

Accordingly the Ld. CIT(A) deleted the addition made by the Ld. AO towards non-voluntary contribution in the case of all the assessee trust by holding that the exemption U/s. 11A of the Act cannot be denied.

1) The donation received by the assessee trusts was mostly diverted to their connected /related charitable Trust viz., M/s.

Sri Venkateswara Educational & Health Trust in order to secure admission for the relatives/wards of the donors in the educational institutions run by M/s. Sri Venkateswara

Educational & Health Trust.

2) To arrive at the above conclusion the Revenue had obtained sworn statements from few donors.

However, the facts also reveals that initially all the donors who had submitted sworn statements before the Ld.AO against the assessee had earlier replied to the Ld.AO stating that the donations were voluntarily made by them to the charitable institutions. In this situation we fail to understand the reason for the change of stand by the donors before the Ld.AO on the subsequent proceedings. In all the instances the donors have donated huge sum often extending to more than five lakhs to the charitable institutions. It is pertinent to mention at this juncture that the Ld.AO has not examined the source of investment made by the donors. Further according to the findings of the Ld.AO, in most of the cases the relatives/parents of the students studying in M/s. Sri Venkateswara Educational & Health Trust have paid donations to connected/related charitable Trusts. From these facts and circumstances of the case it appears that the Ld.AO might have coerced to obtain the sworn statements from the donors in the manner convenient to the Revenue so as to drop further proceedings against the donors for examining their source of income with respect to the amount of donations made. Further it is not always possible for the relationship between the parents and students to be cordial with the management of the educational institutions. We do not find any other reason as to why the donors have changed their mind while giving the sworn statements when they had already stated otherwise in the written submission submitted before the Ld.AO on the earlier occasion. Thus reliance cannot be placed on the sworn statement given by the donors which is subsequent to their confirmation letter given on the earlier occasion that they had extended voluntary contribution to the charitable institutions unless some other material evidence proves otherwise. It is also pertinent to mention that the donors or the parents/students studying in the educational institutions had not complained to any authorities regarding extortion by way of donations for securing admission in the educational institutions managed by M/s. Sri Venkateswara Educational & Health Trust. It is a well-known fact that accepting donations for granting admission in the education institutions is against the law of the land viz., The Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 and in violation of the same leads for penal action which includes imprisonment. In the case of the assessee trust, nothing is brought before us to point out that the law enforcing authorities of the State Govt., or the Central Govt., have initiated any coercive action against any of these assessees for violating any provisions of the relevant Act. Further nothing is brought before us to establish that the assessee trusts are barred from accepting donations from the relatives / parents of the students studying in the educational institutions connected to those charitable trusts. In the case of MAC Educational Foundation, the assessee trust had received Rs.10 lakhs from M/s.

United Education Foundation. Though the Ld.AO state that the assessee Trust has received the donation for granting admission to students in M/s. Sri Venkateswara College, Sriperumbudur, he has not brought out any evidence to prove the same. Therefore there is no merit in the case of M/s. MAC Educational Foundation for treating the amount of Rs.10 lakhs as non-voluntary contribution. In the case of M/s. Sri Venkateswara Educational and Health Trust, the Ld. AO had simply stated that the assessee trust has received capitation fees without any evidence to establish the same. It is also not clear whether this amount is received from other connected/related trusts or directly received from the donors.

The Ld. AO instead of clarifying these issues has made substantive addition in the hands of the assessee, which is erroneous. Further it is apparent that the Ld.AO without examining the correct source of actual donation had come to the conclusion that there were quid-pro-quo arrangements for the payment of donation only based on certain presumptions and assumptions and not based on well ascertained facts. Though it may appear from the circumstance of the case that there may be quit-pro-quo arrangement for receipt of donation, unless it is established by cogent evidence drastic decision cannot be arrived at by withdrawing the benefit of Section 11 of the Act to all the charitable trusts which will jeopardize the functioning and the very existence of the charitable educational institutions. Moreover there is no finding with respect to any violation of Section 13 of the Act, because the donations received by the respective charitable trusts are spent according to the objects of the trusts. It is also apparent that this bench of the Tribunal in vide order dated 27.06.2014 for the assessment year 2010-11 and ITA No.1799/Mds/2012 vide order dated 29.08.2013 for the assessment year 2008-09 in the case of M/s. MAC Public Charitable Trust had held that the benefit of Section 11 & 12 of the Act cannot be denied to the assessee for extending loan to another connected/related charitable educational institution. Further the assessee trusts have issued valid receipts for the donations received and had maintained the names, address of the donors as per the provisions of the Act. The Ld.CIT(A) had also made a categorical finding that the assessee trust had not only extended donation to M/s. Sri Venkateswara Educational and Health Trust but to various other charitable institutions for carrying out charitable activities. Considering these facts and circumstance of the case, we are of the considered view that no interference is necessary in the decision of the Ld.CIT(A) who had extensively analyzed the issue and decided the matter by placing reliance on the various decisions of higher judiciary. Therefore, we hereby sustain the order of the Ld.CIT(A) in the case of all the assessees trusts mentioned herein above.

Order pronounced on 12th April, 2017 at Chennai.