Case Law Details
Society for Computer Technology and Research Vs ACIT (ITAT Pune)
Introduction: The Income Tax Appellate Tribunal (ITAT), Pune recently confirmed that payments made for admissions cannot be counted as donations to a Charitable Trust. This came about in the case of Society for Computer Technology and Research vs Assistant Commissioner of Income Tax (ACIT), where the tribunal confirmed the addition of Rs. 6.00 lakh to the income of the Charitable Trust, underlining the distinction between admission payments and donations.
Analysis: In the case, the Society for Computer Technology and Research, registered as a Charitable Trust, claimed to have received a donation of Rs. 6.00 lakh from Ms. Suprabha D. Galakatu. However, she clarified that the sum was not a voluntary donation but a payment for the admission of her sister’s son to an educational institution run by the Trust. The ITAT agreed with the ACIT’s assessment, stating that the amount received was indeed a capitation fee and not a voluntary contribution, as the money was paid in exchange for a service (admission), thus confirming the tax addition.
The ITAT’s ruling essentially reaffirms the principle that any payment made in exchange for a service cannot be treated as a donation, even when given to a charitable institution. This decision is significant as it sets a clear precedence on how payments and donations should be categorized for tax purposes.
Conclusion: The Society for Computer Technology and Research vs ACIT case highlights the need for charitable organizations to accurately classify payments and donations received. The ITAT’s ruling underscores that payments made in return for services, such as school admissions, should not be counted as donations for income tax purposes.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee arises out of the order dated 21-03-2023 passed by the CIT(A) in National Faceless Appeal Centre, Delhi u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2017-18.
2. The only issue raised in this appeal is against the confirmation of addition of Rs.6.00 lakh, being, donation given by one Ms. Suprabha D. Galakatu.
3. Briefly stated, the facts of the case, are that the assessee is a Charitable Trust engaged in Educational activities. It is registered and Research u/s.12A of the Act. Return was filed for the year under consideration declaring Nil income. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee claimed to have received donation of Rs.42,48,738 (non corpus). On being called upon to furnish the details of the donors, the assessee submitted the necessary details. Notices were issued u/s.133(6) to the donors, some of whom replied while the others did not. One of the donors, namely, Ms. Suprabha D. Galakatu who had given donation of Rs.6.00 lakh as per the list provided by the assessee, furnished her response in the form of a letter to the AO stating that “no voluntary donation was given. A sum of Rs.6.00 lakh was paid towards admission of her sister’s son Mr. Soham Deshmukh of Aurangabad”. The AO treated such amount as chargeable to tax and made the addition of the same. No relief was allowed in the first appeal, against which the assessee has come up in appeal before the Tribunal.
4. I have heard both the sides and gone through the relevant material on record. The list of donors given by the assessee contained the name of Ms. Suprabha D. Galakatu from whom alleged donation of Rs.6.00 lakh was received. In response to notice u/s.133(6), she replied vide her letter dated 19-11-2009, which has been incorporated in the assessment order. Relevant parts of the letter are reproduced as under :
“1. We along with my real sister went for survey in various Engineering Colleges across Pune and in the process from general public discussion we visited the Engineering College run by the Society of Computer Technology and Research.
2. When we entered the college premises to enquire about the admission procedure, at the reception we were directed to meet Ms. Nair for admission process. During our discussion we were assured for admission in First year in Computer Science (2016-17) against payment of Rs.6 lakhs as part of admission process. Moreover, we were informed to provide letter stating the amount which was requested for admission shall be part of donation. The same letter dated 5th April 2016 is attached as Annexure-“A”.
3. Yes, son of my real sister at the moment studying in CS Final Year. Details of Student provided in Annexure “F”. We have attached herewith documentary evidence of copy of PAN cards as part of proof indicating real sisters, whose fathers name is same in Annexure “G”.
4. Yes, I have paid amount of Rs.6 lakhs to the Society.
(a) I have given Rs.6,00,000/- for seeking admission.
(b) I have given amount through banking mode; i.e. by issuing a demand draft. A copy of the demand draft and the relevant extract of bank statement is attached herewith and marked as “Annexure B and C”.
(c) I am attaching my computation along with my bank statement for FY 2016-17 herewith and marked the same as “Annexure D and E”. Kindly note that since my income is below the taxable limit as per Income Tax Act, 1961, I have not filed my income tax returns.
(d) Yes, we have not made any donation, amount of Rs.6 lakhs is paid for seeking admission in PICT college.
(e) The amount of Rs.6 Lakhs is paid with the intention of seeking admission in PICT college being one of the reputed college.”
5. Yes, we had given the said amount to the institution for seeking admission. We had handed over the Demand Draft at the administration office as per direction of Ms. Nair.
6. No, I have not given donation to any other charitable institution.”
5. It is clear from the above letter that Ms. Suprabha D. Galakatu did pay a sum of Rs.6.00 lakh to the assessee but that was in lieu of admission of her sister’s son, Mr. Soham Deshmukh. She specifically gave complete narration of the circumstances of entering the college; being directed to meet one Ms. Nair for admission process; being assured admission in the first year in Computer Science against payment of Rs.6.00 lakh as part of the admission process. She further submitted that Ms. Nair asked her to camouflage the fee amount in the colour of donation and required the parents of the student to provide a letter in writing that they had given donation to the society. All these facts were duly confronted by the AO to the assessee vide show cause notice dated 18.12.2019. It is not denied that Mr. Soham Deshmukh was a student of the college at the material time. Further, existence of Ms. Nair , working with the trust, was also never controverted by the assessee. All these facts amply prove that the assessee society received a sum of Rs.6.00 lakh as Capitation fee for granting admission to the relative of Ms. Suprabha D. Galakatu and introduced the amount as voluntary contribution in the books of account. In my considered opinion, there is no merit whatsoever in the contention of the assessee. I, therefore, affirm the view taken by the authorities below on this score.
6. In the result, the appeal is dismissed.
Order pronounced in the Open Court on 15th June, 2023.
