Exemption u/s 10 (23C)(iiiab) cannot be denied merely on the basis of contradictory statements of few donors

Brief of the case:

The exemption is denied to assessee trust on the basis of statement given before AO in response to summon u/s 131 issued to certain donors as AO was of the view that assessee is not engaged in imparting educational services on charitable purpose but provides admission on capitation basis. After examining the facts and circumstances of the case Hon’ble ITAT observed that Merely because some of the donors stated that they have given the donation for admission will not dis-entitle the society from getting exemption which exists solely for educational purposes and which is otherwise entitled to the exemption.

Facts of the case:

• The assessee is a trust which was set up in the year 1984 and is not registered u/s.12A of the Income-tax Act. It availed exemption u/s.10(22) upto A.Y. 1989-99 and thereafter u/s.10(23C)(iiiab). It has also been granted approval u/s.80G of the Income-tax Act for the purpose of deduction under the section to the donors of the assessee.
• The assessee trust filed its return of income for the impugned assessment year on 29-09-2008 declaring total income at NIL after claiming exemption u/s 10 (23C) (iiiab). In the return of income, the assessee has shown income from other sources amounting to Rs.54,97,44,582/-.
• The AO noticed from the details filed that the assessee trust has received Salary Grants from the State Govt. of Rs.28,70,35,473/-, other grants of Rs.34,86,635/- and non-salary grants of Rs.248,354/-, aggregating to Rs.29,07,70,462/ for some of its institutions. Assessee was asked for denial of exemption for unaided institutions u/s 10 (23C) (iiiab). AO also doubted that assessee trust collected capitation fee in form of corpus donation.
• Assessee was asked to furnish details along with identity proof and details of donors.
• The Assessing Officer issued summons u/s.131 56 donors out of which 16 donors have confirmed that the donations were paid in connection with and to secure the admissions of their wards/relatives who do not have qualifying marks or failed in the entrance test taken by the assessee’s various institutions for grant of admissions in various courses.
• AO denied exemption by holding that merely because certain institutions run by an assessee were wholly or substantially financed by the Govt. does not ipso facto makes the other unaided educational institutions run by the said entity eligible to exemption u/s. 10(23C).
• AO treated the status of the assessee as an AOP and assessing 23 the surplus of the year and the contributions received by the assessee in the guise of corpus donations aggregating to Rs.11,06,10,500/- (which includes income of unaided institutions of Rs.7,86,39,996/- of unaided institutions whose aggregate annual receipts exceeded Rs. One crore) as taxable business income.

Held by the CIT (A)