CIT Vs MAC Public Charitable Trust (Madras High Court)
Conclusion: The Hon’ble Madras High Court observed that Juxtaposing the provisions of both the Acts viz., Income Tax Act, 1961 and the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, with each other, it is explicit that collection of any amount in excess of what has been prescribed as fee or in the nature of donation or voluntary contribution either directly or indirectly to the institution or through some other person or institution or trust, as quid pro quo for the seat in any educational institution, would render the activity of both the entities ungenuine. Such actions would render the object of “charity” a farce and the transaction will have to be treated as a commercial activity, depriving the assessees of the benefits of Sections 11 and 12 of the Act.
Facts: In present facts of the case, two main issues were taken into consideration which were as follows:
(1) Whether on the facts and in the circumstances of the case and in law, the ITAT was right in holding that the Assessees are eligible for exemption under Section 11 of the Income Tax Act without taking cognizance of the fact that quid-pro-quo element was involved in the trust accepting donations from donors?
(2) Whether on the facts and in the circumstances of the case, the ITAT was legally ‘justified’ in deciding the case on the ground that the AO has not enquired into the source of the donors without appreciating that the jurisdictional High Court in the case of CIT vs. Taj Borewells (291 ITR 232) and the Honourable Supreme Court in the case of CIT vs. Hariprasad & Sons (99 ITR 118) have held that the source of source cannot be enquired into?
The present matter is related to assessment years 2011-12, 2012-13, 2013-14 and 2014-15 respectively. The assessee had registered themselves as Charitable Trust under Section 12A (a) of The Income Tax Act, 1961 vide order bearing C.No.1146-III (58)/84 dated 02.08.1984. They had filed their return of income admitting ‘nil’ income for the assessment year 2011-12 on 28.09.2011. The AO had taken up the return of income filed by the assessee for scrutiny under Section 143 (1) of the Act and issued notice under Section 143 (2) of the Act. On verification of return of income and other details during scrutiny, it unfolded that Rs.9,90,50,000/- was received by the Assessee as corpus donations. This amount was received by the Assessee as donations from number of persons. In order to verify the same, elaborate exercise was undertaken by the Assessing Officer. The Assessing Officer also concluded that the Assessee utilised some Charitable Trust as a tool for transfer of capitation fees received from the students and thereby virtually sold education for a price. Such practice of receiving donation and/or capitation fee as a condition precedent for admitting a student is opposed to the provisions of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992. The AO after having held that the capitation fee received was treated as income not eligible for exemption under section 11 of the Act, determined the taxable income of the Assessee at Rs.9,90,50,000/-and the tax payable at Rs.4,13,59,162/- for the assessment year 2011-2012 by the assessment order dated 31.03.2014. Similarly, the assessing officer passed the assessment orders on 30.03.2015, 30.03.2016, 31.12.2016, determining the taxable income and tax payable by the assessee, in respect of the assessment years 2012-13, 2013-14 and 2014-15 as well.
The Appellate Authority viz., CIT(A) observed that the donations paid by the Assessee Trusts to other trusts are income in the hands of recipient trusts for the purpose of Section 11 (1) of the Act. Accordingly, by separate orders dated 01.08.2014 and 31.12.2018, the CIT(A) allowed the appeals preferred by the respondent trusts.
Aggrieved by the orders so passed by the Appellate Authority dated 01.08.2014 relating to the AY 2011-12, the Revenue preferred the appeals before the ITAT. The Tribunal, by a common order dated 12.04.2017, rejected the contentions so made on the side of the Revenue by observing that the statements recorded from the donors revealed that they made the donations voluntarily to the charitable institutions. Further, the Assessing Officer did not examine the source of investment made by the donors. While so, it could be inferred that the Assessing Officer had coerced the individual donors and obtained the statements. The Tribunal also, was of the view that none of the donors or the parents/students studying in the educational institutions did make any complaint to any of the authorities complaining the so-called extortion of money in the form of donation for securing admission in the educational institutions.
The Hon’ble high Court observed that Juxtaposing the provisions of both the Acts viz., Income Tax Act, 1961 and the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, with each other, it is explicit that collection of any amount in excess of what has been prescribed as fee or in the nature of donation or voluntary contribution either directly or indirectly to the institution or through some other person or institution or trust, as quid pro quo for the seat in any educational institution, would render the activity of both the entities ungenuine. Such actions would render the object of “charity” a farce and the transaction will have to be treated as a commercial activity, depriving the assessees of the benefits of Sections 11 and 12 of the Act.
Further, it was observed that the appellate authority and the Tribunal have failed to consider the provisions of the Capitation Fee Act and have given perverse findings. Under section 2(a) of the Capitation Fee Act, “capitation fee” means any amount, by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed under section 4. The Act was enacted with its avowed object of prohibiting any fee paid in excess of the fee as regulated under Section 4 of the Act. The source of the excess payment has been consciously not mentioned. Thus, technicalities such as parents of the students admitted in the Assessee institutions not paying the fee directly but through relatives and friends, can be of no consequence to help the assesses wriggle out of their acts. The appellate authority curiously has rendered a finding that there is no violation of any law and the Tribunal also failed to look into this aspect.
Accordingly, all the substantial questions of law were answered in favour of the Revenue and against the Assessees and it was held that the Assessing Authority shall also proceed further for cancellation of registration certificate issued to the Assessees/trusts under Section 12A of the Act thereby not to treat the respondents as charitable institutions any longer and the AO was directed to proceed to reopen the previous assessments, if permissible by law, based on tangible materials relating to collection of capitation fee, since it is illegal and is punishable.
On basis of the above, the tax appeals filed by the Revenue were allowed.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
