Case Law Details
Dy. CIT (E) Vs. Vignana Jyothi (ITAT Hyderabad)
Tribunal has clearly held that there is no violation of the provisions of the A.P. Educational Institutions (Regulation of Admission and Prohibition of Capitation Fees Act of 1983). It is also mentioned that the assessee has received the donations by way of DDs/Cheques which are duly accounted for in its books of account and has also been applied for the purpose of education only. Having held that the activities of the assessee trust are charitable in nature and the donations are permitted by the memorandum and there is no complaint that the assessee was collecting any fees more than what was prescribed, it cannot be said that the assessee has violated any of the conditions for claiming exemption under section 11 of the Act. We also find that the Coordinate Bench of this Tribunal in the case of Voditala Educational Society v. ADIT (cited supra) was considering the case of an assessee where there is a finding that the assessee therein was collecting money over and above the prescribed fee from students and in such circumstances, it was held that it was to be classified as capitation fee and therefore, not eligible for exemption under section 11 of the Act. In the case before us, it is seen that the assessee has received donations from various persons and more than 50% of the donations are from people who are not at all concerned with the admission of the students whereas the assessing officer has disallowed the entire donations. It is also seen that all the donations are recorded in the books of account of the assessee and most of the parents and relatives of the students also have stated that the donations are voluntary. Only a few parents of the students have stated that the donations are connected with the admissions and some of these statements have also been retracted subsequently. There is also no finding that the assessee has misused or not used the donations for any other purpose than the purpose for which they have been given i.e., for educational purpose. In such circumstances, we are of the opinion that the exemption under section 11 of the Act cannot be denied in toto to the assessee with regard to the voluntary donations received by the assessee. Only such donations, which are admittedly not voluntary can be disallowed.
Full Text of the ITAT Order is as follows:-
All the above are cross appeals of the assessee as well as the Revenue for the assessment years 2010-11 and 2011-12 respectively against separate orders of the Commissioner (Appeals)-IV Hyderabad dated 12-9-2014.
2. Brief facts of the case are that the assessee is a society which is engaged in running of educational institutions. For the assessment years2010-11 and 2011-12, the assessee filed its return of income claiming exemption under section 11 of the Income Tax Act.
3. During the assessment proceedings under section 143(3) of the Act, the assessing officer observed that the assessee had collected donations from various persons which included donations from the parents of the students (as declared by the assessee itself) ranging from Rs. 30,000 to Rs. 12,00,000. In order to verify the assessee’s claim that the donations received from the parents or relatives of the students were voluntary, notices under section 133(6) were issued randomly to some of the parents. Responses were received in some cases and on examination of the said responses, the assessing officer observed that some of the persons submitted that the donations were given voluntarily whereas in five cases for the assessment year 2011-12, the parties categorically stated that the donation amount was given as a prerequisite for securing admission of their wards in the engineering colleges run by the assessee society. Similar statements were given for the assessment year 2010-11 as well. Taking the same into consideration, the assessing officer observed that the assessee’s claim that the donations are entirely voluntary is not correct. Further, taking note of the decision of the Hon’ble Supreme Court in the case of TMA Pai Foundation & Others v. State of Karnataka & Ors. (2002) 8 SCC 481, the assessing officer held that the capitation fee charged over and above the prescribed fee, termed as a donation or building fund or development fund or by any other name, is not permissible and that the organization is not eligible for exemption under section 10(23C)(vi) or section 11 of the Act. Thus observing, the assessing officer denied the claim of exemption under section 11 of the Act to the assessee for both the assessment years in respect of the entire donations received by the assessee.
4. The assessing officer also observed that the assessee has claimed capital expenditure being the cost of acquisition of fixed assets as application of income. He also observed from the income and expenditure a/c, that the assessee has debited Rs. 3,77,21,183 as depreciation. He observed that claiming both the cost of fixed assets as application of income and depreciation thereon amounts to double deduction which is not allowable in view of the Apex Court decision in the case of Escorts Ltd. v. (199 ITR 44) and also the decision of the jurisdictional I.T.A.T in the case of Venkatasai Educational Society & Ors. (ITA No. 1440/Hyd/2011, date 9-4-2012). However, since the assessee is being denied exemption under section 11, he held that the cost of the assets cannot be allowed whereas the depreciation during the previous year may be allowed as per commercial principles. He therefore, worked out the allowable depreciation at Rs. 13,74,670 and the balance of the claim of application of income towards fixed assets of Rs. 3,63,46,513 was disallowed and added to the total income of the assessee.
5. Aggrieved, the assessee preferred an appeal before the Commissioner (Appeals) who granted partial relief to the assessee. The Commissioner (Appeals) observed that in the assessee’s own case for the assessment years2005-06 to 2006-07 in ITA No. 378/Hyd/2009 & Ors. date 19-10-2012, his predecessors has taken note of various decisions on the issue and also the decision of the Hon’ble Supreme Court in the case of TMA Pai Foundation (cited supra) and has held that if the donations were received compulsorily for admission of students, then the assessee is not entitled for exemption either under section 10(23C) or under section 11 of the Act. The Commissioner (Appeals) observed that in the case of the assessee, the nexus between the donations and the admissions has not been established and therefore, it is not possible to hold that the donations were received compulsorily for admission of the students. She, therefore, allowed the exemption under section 11 of the Act.
6. As regards the issue of dis allowance of depreciation on assets which have been allowed as application of income is concerned, she observed that since the cost of the assets on which the depreciation has been claimed had already been claimed as application of income, the depreciation on such assets is not allowable. She therefore, upheld the depreciation disallowed by the assessing officer. Aggrieved, the assessee is in appeal against the dis allowance of the depreciation whereas the Revenue is in appeal against the relief granted by the Commissioner (Appeals) allowing the claim of exemption under section 11 of the Act.
7. The learned Departmental Representative supported the orders of the assessing officer and submitted that the assessee has collected donations from the parents and relatives of the students at the time of giving admissions, as is evident from the statements of the parents and therefore, the donations cannot be treated to be voluntary and it is in clear violation of the judgment of the Hon’ble Supreme Court in the case of TMA Pai Foundation. He also submitted that only few of the parents have subsequently withdrawn their statements but that does not absolve the assessee from its burden of proving that the donations are voluntary. Thus, according to the learned Departmental Representative, the order of the Commissioner (Appeals) granting relief to the assessee is erroneous.
8. The learned Counsel for the assessee, on the other hand, submitted that the DIT (Exemptions), vide orders dated 1-4-2005, had withdrawn the registration granted to the assessee under section 12AA of the Act on the very same ground that the assessee has received donations from the parents for admission of their wards to educational institutions of the assessee and that the said order was challenged before the ITAT and ITAT after considering various decisions including the decision of the Hon’ble Supreme Court in the case of TMA Pai Foundation, has held that the donations collected by the assessee is not in violation of the provisions of the Andhra Pradesh Educational Institutions (Regulations of admission and prohibition of capital fee Act of 1983) and that there is no allegation that the funds are being misused or diverted or that the assessee is not imparting education. He, however, drew our attention to the observations of the Tribunal that it is open to the assessing officer to deny the benefit under section 11 of the Act, if the assessee does not satisfy the conditions for such exemption, but it cannot be a ground for cancellation of registration. He also placed reliance upon the following other decisions in support of his contentions that exemption under section 11 is allowable to the assessee :–
(i) ACIT v. Balaji Educational & Charitable Public Trust, (2011) 48 SOT 281 (Madras)
(ii) DCIT v. Vellore Institute of Technology, in (IT Appeal No. 1332 (Mad.) of 2010, C.O. No. 94 (Mad.) of 2010, (assessment year 2001-02), date 9-6-2011).
9. The learned Departmental Representative, on the other hand, placed reliance upon the decision of the Coordinate Bench of this Tribunal in the case of Voditala Educational Society v. ADIT (20 SOT 353).
10. Having regard to the rival contentions and the material on record, we find that the assessee was initially granted registration under section 12A of the Act which was cancelled by the DIT (Exemption) on the ground that the assessee is collecting donations from the parents or relatives of the students for admission into its educational institutions. We find that the cancellation of registration was challenged before the ITAT and the ITAT in ITA No. 1751/Hyd/2014 vide orders date 26-4-2017 has examined the issue at length and at Paras 11.15 to 12 has observed as under :–
“11.15. We have already brought out above, the observations of the Apex Court that in view of the majority judgment in the case of TMA Pai, different institutions may notify different fee for different courses and the same institution is also entitled to fix different fee for different courses. Therefore, if the institution has fixed different sums for different courses, they are perfectly entitled to do so but they must notify the same. To our understanding, the requirement of notifying the fee is to ensure transparency and accountability and to prevent misuse of funds. In the case before us, it is the stand of the assessee that these are voluntary contributions not connected to the admission of students. However, from the statements of the parents before the assessing officer when inquired initially, the contributions are stated to be linked to the admission of students, even though they have filed affidavits subsequently denying the same. We also find that the institution has received the fund through D.Ds/ cheques and has issued receipts for the same and has also accounted for the same. Therefore, there is transparency in accounting the receipts. The Hon’ble Apex Court has further held that the private unaided institutions are entitled to collect funds for the maintenance and improvement of the institution. However, the objective of the collection of funds must be the imparting of standard education to the public at large. In the case before us, there is no allegation that the funds collected by the assessee society are for any other purpose or that the profits have been distributed to any person or persons. Therefore the collection of the donations by the assessee institution cannot be regarded as capitation fee.
11.16. Now issue arises about profiteering? Profiteering refers to taking advantage of unusual or exceptional circumstances to make excessive profits. It is the generation of disproportionate or unfair profit through manipulation of prices, abuse of dominant position, or by exploiting a bad or unusual situation such as temporary scarcity. Usually, there is no governmental control over profiteering unless it involves any illegal means. Sale of scarce goods at inflated price during war is an example for profiteering. But in the case before us, there is no case of unusual or exceptional circumstances to make excessive profits. It is not the case that engineering institutions in the state of Andhra Pradesh are only a few and therefore there was scarcity of seats and the assessee has exploited such a situation to make excessive profits. In the State of Andhra Pradesh, during the relevant period, there were a number of engineering colleges and there was no scarcity of seats for the aspirant students. In fact, there were newspaper reports that many colleges could not get the permitted number of students. The reasons for not getting the students may be many such lack infrastructure, or faculty or standard of education. The assessee institution may be commanding good reputation and may also be a sought after institution due to which the parents and the students may be willing to contribute to the development of the institution but that would not amount to profiteering by the institution.
12. That leads us to the question whether the assessee has violated the rules and regulations of the government of Andhra Pradesh framed for the purpose of prohibiting the collection of Capitation fees? One of the grounds on which the revenue has relied is that the assessee has violated the provisions of the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 which prohibited collection of any fee other than the fee fixed by the Govt. The learned Departmental Representative has placed before us the copy of the G.O.Ms.33, date 11-6-2003 issued by the government of Andhra Pradesh to implement the judgment of the Apex Court in the case of T.M.A. Pai Foundation (supra) by framing the rules and regulations for admission of students into professional colleges. As per these rules, the fee prescribed per student admitted to an engineering college under the management quota was up to a sum of Rs. 75,000/ per annum. There is no allegation that assessee has collected any fee in excess of such prescribed amount. In addition to the above fee notified, the assessee has also collected the donations not only from some parents/ relatives bit also from members of Society. Whether such collection of donation is prohibited by the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 is to be examined. The reliance of the Revenue has been only on the rules framed vide G.O.Ms.33 (supra) in which there is no mention of donations and contributions to the educational institutions. The rules have prescribed only the fee to be collected from the students and have prohibited the collection of the fee of any kind other than those mentioned in the rules. But section 6 of the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 permits the receipt of voluntary donations. For the sake of easy reference the relevant provision is reproduced here under :–
Section 6. (1) Any donation of money to any educational institution, shall be made only in such manner as may be prescribed and not otherwise.
(2) All moneys received by any educational institution by way of voluntary donations shall be deposited in the account of the institution, in any scheduled Bank and shall be applied and expended for the improvement of the institution and the development of the educational facilities and for such other related purposes as may be prescribed.
Thus, it can be seen that the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 does not prohibit the receipt of voluntary donations or contributions, but the limitation placed is on the manner of payment of such donation and the purpose of the donation to be for the improvement and development of the institution. In the case before us, the assessee has received the donations by way of D.Ds/ cheques which are duly accounted for in its books of account and has also been applied for the purposes of the education only. Therefore, in our opinion, there is no violation of the provisions of Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983”.
11. Thus, the Tribunal has clearly held that there is no violation of the provisions of the A.P. Educational Institutions (Regulation of Admission and Prohibition of Capitation Fees Act of 1983). It is also mentioned that the assessee has received the donations by way of DDs/Cheques which are duly accounted for in its books of account and has also been applied for the purpose of education only. Having held that the activities of the assessee trust are charitable in nature and the donations are permitted by the memorandum and there is no complaint that the assessee was collecting any fees more than what was prescribed, it cannot be said that the assessee has violated any of the conditions for claiming exemption under section 11 of the Act. We also find that the Coordinate Bench of this Tribunal in the case of Voditala Educational Society v. ADIT (cited supra) was considering the case of an assessee where there is a finding that the assessee therein was collecting money over and above the prescribed fee from students and in such circumstances, it was held that it was to be classified as capitation fee and therefore, not eligible for exemption under section 11 of the Act. In the case before us, it is seen that the assessee has received donations from various persons and more than 50% of the donations are from people who are not at all concerned with the admission of the students whereas the assessing officer has disallowed the entire donations. It is also seen that all the donations are recorded in the books of account of the assessee and most of the parents and relatives of the students also have stated that the donations are voluntary. Only a few parents of the students have stated that the donations are connected with the admissions and some of these statements have also been retracted subsequently. There is also no finding that the assessee has misused or not used the donations for any other purpose than the purpose for which they have been given i.e., for educational purpose. In such circumstances, we are of the opinion that the exemption under section 11 of the Act cannot be denied in toto to the assessee with regard to the voluntary donations received by the assessee. Only such donations, which are admittedly not voluntary can be disallowed. assessing officer is directed accordingly.
12. In the result, Revenue’s appeals are partly allowed.
13. As regards the assessee’s appeals are concerned, we find that the Commissioner (Appeals) has disallowed the depreciation on the ground that the cost of the assets have already been allowed as application of income in the earlier years. This issue had come up for consideration before the Coordinate Bench of this Tribunal in the case of (i) A.P. Olympic Association v. ADIT (2014) 151 ITD 627 (Hyderabad – Trib.) and (ii) Guru Nanak Mission Trust v. DDIT in (IT Appeal No. 854 (Hyd.) of 2015 (assessment year 2010-11), dt. 5-8-2015) in which, after considering the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. v. Union of India (199 ITR 43) and also the decision of the Hon’ble Delhi High Court in the case of Vishwa Jagruti Mission (IT Appeal No. 140 of 2012, dt. 29-3-2012) as well as the decision of the Coordinate Bench in the case of Venkata Sai Educational Society in ITA No. 1440/Hyd/2011, date 9-4-2012, it has been held that charitable or religious trusts registered under section 12A of the Act can claim benefit under section 11 in the form of application of funds as well as depreciation under section 132 in respect of property held under the trust. Respectfully following the decisions of the Coordinate Benches of this Tribunal, the assessee’s appeals are also allowed.
14. In the result, assessee’s appeals are allowed.
15. To sum up, Revenue’s appeals are partly allowed and assessee’s appeals are allowed.
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