ITAT Grants Section 11 Exemption for Voluntary School Corpus Donations by Parents

DCIT Vs Sindhi Educational Society (ITAT Chennai)

The case of DCIT Vs. Sindhi Educational Society has recently been examined by the Income Tax Appellate Tribunal (ITAT) in Chennai. In this case, the issue at hand revolved around the exemption u/s.11 of the Income Tax Act, specifically regarding corpus donations collected from parents of students admitted in schools run by the Sindhi Educational Society.

The ITAT Chennai thoroughly reviewed the case, considering the relevant provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. Additionally, they referred to the decision of the Hon’ble Madras High Court in CIT v. MAC Public Charitable Trust and the Hon’ble Supreme Court’s decision in Ahmadabad Urban Development Authority vs. CIT.

The key facts of the case include the following:

• The assessee is registered u/s.12AA of the Income Tax Act and has been in existence for 48 years, operating two schools and one college in Chennai.
• The society runs Sindhi Model Senior Secondary School, Sindhi Model Matriculation School, and Sindhi College of Arts & Science.
• The primary objective of the society is education, and no violations of u/s.11, 12, or 13 of the Act were found by the Revenue.

Conclusion:

After a detailed analysis, the ITAT Chennai came to several important conclusions:

1. The AO’s objection that corpus donations were collected compulsorily was not substantiated. The donations were voluntary and were based on general appeals made to parents.

2. The donations collected by the society did not violate the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992. The donations were of a small amount, voluntary, and meant for new admissions.

3. The Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, was not applicable to the schools run by the assessee society as it pertains to professional institutions offering degrees and diplomas.

4. The AO’s claim that the society did not maintain separate books of accounts for incidental activities was refuted as the AO himself had computed income and expenditure from these activities in his assessment order.

5. The society’s earning of more than 20% profit from its activities did not disqualify it from exemption u/s.11, as the surplus was not significant, and the primary objective of imparting education was maintained.

In light of these conclusions, the ITAT Chennai dismissed the appeals filed by the Revenue for all assessment years, upholding the benefit of exemption u/s.11 of the Income Tax Act for the Sindhi Educational Society.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

These seven appeals filed by the Revenue are directed against separate, but identical orders of the Commissioner of Income Tax (Appeals)-19, Chennai, dated 27.09.2022, and pertains to assessment years 2013-14 to 2019-20. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed off, by this consolidated order.

2. The Revenue has, more or less, raised common grounds of appeal for all the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for the AY 20 13-14, are re-produced as under:

1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

2. The Ld. CIT(A) erred in deleting the addition Rs. 4,02,25,300/- made towards excess of income over expenditure by the assessing officer denying the exemption u/s. 11 of the Income tax Act, 1961.

2.1 The CIT(A) erred in failing to appreciate that donations received by the assessee trust are not voluntary in nature. The donation amount is fixed by the school administration run by the trust. This donation amount is made compulsory for the new admission of students in the schools run by trust. Signature from parents were obtained from parents in preprinted forms treating it as contribution to corpus. Further, the amount collected as donations were returned back to parents in some cases where admissions were rejected. This showed that the donations are not voluntary in nature but represented the capitation fee for getting admission to the institutions run by the trust.

2.2 The CIT(A) erred in failing to appreciate that by collecting donations compulsorily for admission of students in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 the institution cannot be construed as engaged in charitable activities and this makes the assessee ineligible to claim exemption u/s. 11 of the Act.

2.3 The CIT(A) failed to appreciate that since the contributions are not voluntary in nature, the assesses is not eligible to claim exemption u/s. 11 in respect of the contribution towards corpus as per the provisions of Sec. 11 (1)(d) of the Act.

2.4 The CIT(A) failed to appreciate that Shri. C. V. Kalyanasundaram who consolidated the accounts of the assessee, in his sworn statement, admitted that the donation is over and above the tuition fees and misc. fees received. This donation is compulsory for all new admission cases. Some donations were returned, if the students declined admission/management rejected admission. This proved that the donations are not voluntary in nature.

2.5 The CIT(A) erred in observing that provision of Sec. 11 (4A) is not applicable since the assessee has not derived profit from different sources other than the preoccupation of running financial institution. The assessee has not maintained separate books of accounts for incidental business activities such as sale of books, plying of buses etc as stipulated in the provisions of Sec. 11 (4A) of the Act for claiming exemption u/s. 11 of the Act.

2.6 The Ld. CIT(A) failed to appreciate that as per the provisions of Tamilnadu Educational Institutions & Prohibitions of Collection of Capitation fee Act, 1992 any institution shall not levy any other recurring or non-recurring fee including capitation fee. Hence, the amount collected from the students in the form of donations cannot be construed as for the purpose of charitable objective and also not in the character of voluntary contributions u/s. 2(24)(iia).

2.7 The CIT(A) erred in holding that the decision of the Supreme Court in the case of Queens Elizabeth Society Vs CIT 372 ITR 699 is squarely applicable to the facts of the case and theory of capitation fee referred cannot be equated with the “Corpus donations” in the case of assessee. Since the corpus donations are not voluntary in nature and they are nothing but capitation fee, the assessee should not be given benefit of Sec. 11 of the Act.

In these terms, the decision of Queens Elizabeth society supra is favourable to the revenue.

2.8 Further, for a similar issue, while disposing appeals filed by the revenue in the case of M/s.MAC Public Charitable Trust and M/s.Shri Venkateshwara Educational and Health Trust & others in TCA Nos.303 to 310 Of 2021 and 59,60,62,63 of 2022, the Hon’ble Madras High Court held as follows: “In view of our above findings that the amounts collected by the assessees are capitation fee in quid pro qua for allotment of seat in deviation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 and the same are neither a voluntary contribution nor to be treated as applied for charitable purpose, the orders of the Appellate Authority as well as the Tribunal, which are impugned in these appeals, are absolutely perverse in nature and therefore, they are set aside. Accordingly, all the substantial questions of law are answered in favour of the Revenue and against the Assessees”.

In the instant case, the assessee trust is collecting Capitation fee in the form of Corpus donations from the students applying for new admission as elaborately discussed in the assessment order. Hence, the above decision of Madras High Court is squarely applicable to the facts of this case.

3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.

3. The brief facts culled out from ITA No.975/Chny/2022 for AY 20 13- 14 are that the assessee is a society registered under the Society Registration Act, 1860 in the year 1974, with the main object of imparting education. The Society is registered u/s.12AA of the Income Tax Act, 1961 (in short “the Act”) from AY 1975-76. The object of the Society is to provide quality education to all those who require such education irrespective of any discrimination. The Society has established two Schools and one College of Arts & Science. First school, Sindhi Model Senior Secondary School, Kellys, Chennai, is affiliated to CBSE and the School has presently strength of 2400 students from Pre-KG to 11^th Standard. Second school, Sindhi Model Matriculation Higher Secondary School, Chetpet, Chennai, is affiliated to State Board curriculum and has presently strength of 650 students from LKG to 12^th Standard. Sindhi College of Arts & Science, Numbal, Chennai, was established in the year 1991 and the college now offers 12 undergraduate and 3 post graduate courses with student strength of 1800 students. The assessee Society is also establishing Sindhi Model School of Excellence and the School is expected to start functioning from the Academic Year 2019-20. The Society has filed its return of income for AYs 2013-14 to 2019-20 u/s.139(1) of the Act, and claimed exemption u/s.11 & 12 of the Act. A survey u/s.133A of the Act was conducted on 04.02.2020 at the premise of the assessee Society. During the course of survey, it was noticed that the Society is collecting donations in lieu of new admissions and claimed that those donations are voluntary in nature. It was further observed that the Society was collecting excess fess over and above the fees prescribed by the Statutory Authorities. It is also noticed that the Society did not maintain separate books of accounts for incidental activities like sale of text books, plying of buses, running canteen, and income from ground rent.

4. During the course of survey, a statement on oath u/s.131 of the Act, was recorded from Shri. C.V.Kalyanasundaram, who consolidates the accounts of the Society, where, he had admitted that the Society is collecting donations from new students during admission process and pre­printed corpus donation receipts are given and the parents fill necessary columns. The said donations are over and above the tuition fees and miscellaneous fess fixed by the Schools. Further, a statement on oath u/s.131 of the Act, was recorded from Mr.J.C.Prakash, one of the Members of the Society and he was confronted with ‘corpus donation’ receipts and called upon to explain. In response, he specifically stated that the Society appeals for ‘corpus donation’ from parents during admission process and those parents who admitted their children to Sindhi Model Senior Secondary School, Kellys, Chennai, were paid ‘corpus donation’ of Rs.50,000/-,but said donation is not compulsory. He further stated that the Society is not collecting any donations for admission to Sindhi College of Arts & Science, Numbal, and Chennai. During the course of survey, it was further noticed that the Society is collecting uniform ‘corpus donation’ from parents of students admitted to Sindhi Model Senior Secondary School, Kellys, Chennai. Similarly, the Society has collected Development Fund (Corpus) from parents of students admitted to Sindhi Model Matriculation School, Chetpet, Chennai, ranging from Rs.1,500/- to Rs.15,000/- for different assessment years.

5. During the course of assessment proceedings, a show cause notice was issued to the assessee to explain ‘as to why’ the exemption claimed u/s.11 of the Act, should not be denied for various violations referred to in Sec.11 & 12 of the Act, noticed during the course of survey. In the said show cause notice, the AO observed that the Society is collecting ‘Capitation Fees’ in violation of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. The AO further observed that although, the assessee Society is generating income from incidental services in terms of provisions of Sec.11(4) of the Act, but separate books of accounts are not maintained in violation of said provisions. Since, there is a violation of provisions of Sec.11 & 12 of the Act, the AO called upon the assessee to explain ‘as to why’ exemption claimed u/s.11 of the Act, should not be denied.

6. In response, the assessee submits that although, the Society has collected ‘corpus donation’ from parents of students admitted in Schools, but such donations are voluntary in nature. The Society makes an appeal to parents for donation for various development activities of the Society, including development of infrastructure facilities, for which, the parents invariably contribute donations for corpus of the Trust, but such donations are not in violation of the provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. The assessee further submitted that Sindhi Model Senior Secondary School, Kellys, Chennai, is affiliated to CBSE and is governed by state rules and as per section 3(3) of the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, the Government has not fixed any fees for Schools affiliated to CBSE, and further, the Schools are permitted to collect fees commensurate with the facilities provided by the School. In so far as Sindhi Model Matriculation School, Chetpet, Chennai, which is affiliated to State Board, the Society does not collect any excess fees as alleged during the course of survey. Further, the Society is maintaining its books of accounts in computerized environment and segmental accounting entries are passed in the books of accounts and from the said accounts, segmental income and expenditure can be ascertained. Therefore, it cannot be said that there are no separate books of accounts for incidental activities.

7. The AO, however, was not convinced with the explanation furnished by the assessee and according to the AO, the facts gathered during the course of survey, clearly established collection of donation in lieu of admissions to Schools run by the Society in violation of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. The AO further observed that said donation amount is fixed by the School administration for new admission and invariably all students shall pay donations for getting admission in the Schools. Further, signatures were taken from parents in pre-printed forms provided by the School. In some cases, donations has been refunded to the parents, wherever, they did not get admission in the Schools. The AO further noted that Mr.C.V. Kalyanasundaram, Administrative In-Charge of the Society, categorically admitted that a separate bank account is maintained for receiving donations and such donations are collected from new admission students during admission process. This fact has been confirmed by Mr.J.C.Prakash, Member of the Society. Therefore, the AO opined that collecting donations compulsorily for admission of students is clearly prohibited by the Law and such donations in excess of prescribed fees is nothing but ‘Capitation Fees’ for admission and this makes the assessee Society ineligible to claim exemption u/s.11 of the Act. The AO further observed that the assessee Society has been generating income by renting out cricket grounds, running canteen, plying of buses, sale of text books, note books, etc., but no separate books of accounts are maintained as required u/s.11(4A) of the Act, to be eligible for exemption towards income generated from incidental activities. The AO has discussed the issue in light of tabular income and expenditure statement furnished by the assessee from AYs 2013-14 to 2019-20 and observed that the Society has incurred loss from the incidental activities and the same has been set off against income of the Society which otherwise would have been available for charitable activities. Since, the assessee Society did not maintain separate books of accounts as required u/s.11(4A) of the Act, the conditions precedent for claiming exemption are not satisfied, and thus, the assessee is ineligible to claim exemption u/s.11 of the Act. Therefore, the AO opined that the assessee Society is not entitled for exemption u/s.11 of the Act, and thus, rejected exemption claimed u/s.11 of the Act, and computed income under normal provisions of the Act. The relevant findings of the AO are as under:

7. From the aforementioned paragraphs, it is seen that the donation amount is directly linked to admissions. Such compulsory donations, received in lieu of admissions, collected using pre-printed forms and claimed as corpus is to be denied exemptions u/s.11(1)(d) and is to be treated as income of the trust u/s.11(1)(a) of the act. Also, the assessee has not complied with the provisions of section 11 (4A) and the proceeds from such activity is to be denied exemption under section 11. Further, the assessee has collected extra fees which are not approved by the government of Tamil Nadu. For this act of the collecting excess fees over and above the prescribed fees and collecting donations which are not voluntary but compulsory, the exemption claimed by the assessee trust u/s 11 is to be denied and income over expenditure is to be brought to tax.

8. The amount of donation is fixed. Hence, it is not voluntary. The Donee should not decide the amount of donation that must be given by the donor. Corpus donation has to be on the direction of the donor and not by the wish of the donee. In this case, a pre-printed form is given to the parent for filling name, addresss, PAN and signature etc., The donation is collected from all the newly admitted students. Also as discussed in the earlier paras the assessee has collected extra fees over and above the fees prescribed by the government. Collection of any amount exceeding the prescribed fee is prohibited by law. The Hon ‘ble Apex Court in the case of Ms. Mohini Jain v. State of Karnataka & Ors. (1992) 3 SCC 666, held that capitation fee was nothing but price of selling education and such “teaching shops” were contrary to the Constitutional scheme and abhorrent to our Indian culture. Hon’ble Supreme Court’s decisions in case of TMA Pai Foundation Vs. State of Karnataka (2002) (8 SCC 481), Islamic Academy of Education Vs. State of Karnataka (2003) (6 SCC 697) and P.A. Inamdar Vs. State of Maharashtra (2005) (6 SCC 537) also supports the fact that the education is not a commercial activity. Education would remain as a charity only in a case where education is imparted systematically for a fee prescribed by Government. A private aided or unaided professional institution or any other educational institution of a State is required to collect fees with regard to infrastructure and benefit of students of that educational institution. Collection of money over the above fee prescribed by Committee would amount to collection of capitation fee and such an institution would face legal consequences for same (Vodithala Education Society Vs. ADIT, [2008] 20 SOT 353 (HYD.)) The Hon’ble ITAT, Hyderabad vide their order on 22-3 -2012 in the case of M/s Islamic Educational Society had observed, as under: “Further, we find that the Constitutional Bench of Apex Court in the case of T.M.A. Pai foundations and others Vs State of Karnataka & Others (2002) 8 SCC 481 examined the issue of collection of capitation fees for the admission of students over and above fees prescribed by the private institution and held that the institution which are collecting capitation fees for admission of students over and above the fees prescribed cannot be construed as charitable/educational institution……..

Same view was taken by Apex Court in the case of Islamic Academy of Educations and another Vs State. of Karnataka & another (2003) 6 SCC 697. If the admissions were received compulsorily for admission of students, the assessee is not entitled for exemption either u/s 1 0(23C) or u/s 11 of the IT Act…………………….. ” In the leading case of Queen’s Educational
Society Vs. Commissioner of Income Tax, reported in (2015) 8 SCC 47 relied upon by the assessee in its submission, the Apex Court held that if the activity is primarily for educating persons, the fact that Institution makes a surplus/profit which arises incidentally from the Educational activities or public utility activities does not render the Institution a profit making Institution. In the very same judgment, the Hon ‘ble Supreme Court warned that if they are not found to be genuine or such activities are not being carried out in accordance with all or any of the conditions subject to which approval has been given under Section 10(23-C) of the Act, such approval and exemption must be withdrawn forthwith.

9. In view of the above, the exemption u/s.11 is denied and the excess of income over expenditure is taxed. As exemption u/s. 11 is denied, the assessee’s claim of accumulation under explanation 2 of Section 11(1) in Form 9A is also denied. Hence, the assessment is completed u/s.143(3) of IT Act 1961 for A.Y 2013-14 as under:

Demand notice and computation sheet is enclosed herewith.

Penaltyu,27(1)(c) is initiated for furnishing inaccurate particulars of income.

8. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed detailed written submissions on the issue, which has been reproduced at Para No.5 on Page Nos.7-52 of the Ld.CIT(A)’s Order. The sum and substance of arguments of the assessee before the Ld.CIT(A) are that when the AO is not disputing the fact that the assessee is imparting education by establishing Schools, then, he ought not have denied exemption u/s.11 of the Act, merely for the simple reason that the Society has collected voluntary contributions from parents of students admitted to various Schools run by the Society. It was further submitted that ‘corpus donation’ received from various persons are voluntary, but not compulsory as alleged by the AO. Further, the Society has not collected excess fees in violation of the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, as alleged by the AO. The voluntary donations received from parents of students is not ‘Capitation Fees’ as alleged by the AO in light of the provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, because, said Act is not applicable to the Schools run by the society. The assessee has not collected any donations for admissions to Sindhi College of Arts & Science, Numbal, Chennai. The society has also maintained segmental accounting for incidental activities and from this income & expenditure, from each activity has been computed by the AO. Therefore, it cannot be said that there is no separate books of accounts for incidental activities.

9. The Ld.CIT(A) after considering relevant submissions of the assessee and also by relying upon various judicial precedents held that the AO has not made any findings regarding application of ‘corpus donations’ collected by the assessee to benefit of the persons referred to under Sec.13(3) of the Act. Further, ‘corpus donations’ collected by the assessee are voluntary in nature, because, there is no allegations from the AO that any of the parents has made a compliant regarding demanding donations for admission. Further, the Society has not collected donations from all students as alleged by the AO. In fact, there are cases were admissions has been given without any donations. The assessee has appealed to parents for nominal donations for development of the Institutions, for which, all parents of the students have voluntarily contributed for the corpus of the society. The donations collected from parents have been utilized for the object of the Trust. There is no allegation from the AO that donations collected from parents have been diverted to interested persons. There is no distribution of surplus to any of the Members. Therefore, the Ld.CIT(A) opined that the observations made by the AO in light of ‘corpus donations’ received from parents of students in lieu of admission that said donations are contrary to the provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, is incorrect, because, the CBSE School run by the assessee is not governed by the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, which is clear from Sec.3(3) of the said Act. The State Board Schools run by the Society has collected nominal development funds from new admissions which are very minimal. Further, excess fess quantified by the AO on the basis of number of admissions into School and fees fixed by said Act, is incorrect, because, the AO has considered even miscellaneous fees collected by the Society. Therefore, the Ld.CIT(A) opined that the denial of exemption u/s.11 of the Act, by the AO on this ground is incorrect.

10. The Ld.CIT(A) further observed that there is no merit in the observation of the AO on maintenance of separate books of accounts for incidental activities, because, as per provisions of Sec.11(4A) of the Act, separate books of accounts are required to be maintained to quantify income from different incidental activities. In the present case, the assessee has maintained its accounts in computer software where segmental accounting has been maintained for different activities. The AO has computed income and expenditure of each activity from said books which is evident from assessment order itself, where, the AO has tabulated income and expenditure of each incidental activity. Therefore, the Ld.CIT(A) opined that the AO is erred in denying exemption u/s.11 of the Act, on this ground. The Ld.CIT(A) has discussed the issue at length in light of certain judicial precedents and held that mere surplus from the activity does not disentitled the assessee society from exemption u/s.11 of the Act, because, the decision of the Hon’ble Supreme Court in the case of Queens Educational Society v. CIT reported in 372 ITR 699 (SC) very clearly held that where, the Educational Institution caries on the activity of education primarily for educating persons and, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an Institution for the purpose of making profit. Further, incidental activities carried out by the assessee relates to main activity of imparting education and in the process, the assessee has earned income and such income is within the prescribed limit as per proviso to section 2(15) of the Act. Therefore, the Ld.CIT(A) opined that the assessee has satisfied conditions prescribed for claiming exemption u/s.11 of the Act, but the AO has denied exemption u/s.11 of the Act, only on the basis of findings during the course of survey, without finding any error in the reasons given by the assessee to claim the benefit of exemption. Therefore, directed the AO to allow exemption claimed u/s.11 of the Act, for AYs 20 13-14 to 20 19-20.

11. Being aggrieved by the order of the Ld.CIT(A), the Revenue is in appeals before us.

12. The Ld. DR, P. Sajit Kumar, JCIT, submits that the Ld.CIT(A) erred in deleting the additions made by the AO towards excess income & expenditure by denying exemption u/s.11 of the Act, without appreciating the fact that the donations received by the assessee are not voluntary in nature, but donations in lieu of admission of students to schools run by the assessee. The Ld. DR referring to assessment order submits that during the course of survey, it was noticed that the assessee is collecting ‘Capitation Fees’ in the form of ‘corpus donations’ from parents of students admitted to schools and issued pre-printed forms. Further, the amount collected as donations were returned back to parents in some cases, where admissions are rejected. This shows that the donations are not voluntary in nature, but represented ‘Capitation Fees’ for getting admissions to the schools run by the assessee society. The Ld. DR further submitted that the Ld.CIT(A) fails to appreciate the fact that collecting donations in lieu of admissions of students is contrary to the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and any institutions violates said provision, cannot be considered as engaged in charitable activities makes it eligible for exemption u/s.11 of the Act. The Ld. DR further referring to the statement recorded from Shri C.V.Kalyanasundaram, who claims to have consolidated the accounts of the assessee submitted that he had admitted in a statement recorded during the course of survey that the donations collected from parents of students is over and above the Tuition Fees and Miscellaneous Fees. Further, donations are compulsory for all new admission cases. Therefore, from the above, it is clear that the assessee is collecting donations in lieu of admissions of students to schools run by the assessee in violation of said legislation which prohibits collection of ‘Capitation Fees’.

13. The Ld. DR further referring to the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, has explained the definitions and also provisions of Sec.3, which prohibits collection of excess fees. He further submitted that no Private Schools can collect fees in excess of prescribed fees as per said Act. In the present case, the AO has brought out clear facts to the effect that the assessee has collected excess fess from students admitted in Sindhi Model Matriculation School, Chetpet, Chennai, which has been established under State Board curriculum. The Ld. DR vehemently argued the issue in light of the decision of the Hon’ble High Court of Judicature at Madras in the case of CIT v. MAC Public Charitable Trust in TCA No.323/2021 dated 31.10.2022, and submitted any donations in quid pro quo for allotment of seats in deviation of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, can neither be voluntary contribution nor to be treated as applied for charitable purpose. He had also referred to Para No.65 of said judgment and argued that the Hon’ble High Court has completely explained the concept of voluntary contribution and such contributions had to be made willingly and without compulsion and the money was to be gifted or given graciously without consideration. In the present case, the facts brought on record by the AO clearly established the modus operandi of collection of‘ Capitation Fees’ for getting admissions to schools, and thus, same cannot be considered as voluntary in nature.

14. The Ld. DR further submitted that although, there is a clear violation of provisions of Sec.11(4A) of the Act, in not maintaining separate books of accounts for incidental activities, but the Ld.CIT(A) erred in holding that the assessee has maintained separate books of accounts, and there is no violation of Sec.11(4A) of the Act. The Ld. DR further referring to the decision of the Hon’ble Supreme Court in the case of Queens Education Society v. CIT reported in 372 ITR 699, submitted that said judgment is squarely applicable to the facts of the present case, because, the assessee is solely existing for profit not for charity, which is evident from the financial statement of the assessee for the relevant assessment year where the assessee has earned more than 20% surplus from the Schools and Institutions run by the assessee. He further referring to the decision of the Hon’ble Supreme Court in Ahmedabad Urban Development Authority v. CIT reported in [2022] 115 CCH 253 (SC) submitted that the Hon’ble Supreme Court has explained the concept of charity and Institutions existing solely for profit and held that if any institutions earned more than 20% profit, then, said Institutions cannot be considered as solely existing for charitable purpose. The Ld.CIT(A) without considering relevant facts deleted the additions made by the AO.

15. The Ld. Counsel for the assessee Shri S.Sridhar, Adv., supporting the order of the Ld.CIT(A) submitted that the respondent is admittedly protected by the registration granted u/s.12AA of the Act. It is also an admitted fact that the respondent is running various Educational Institutions having more than 6000 students. The sole basis for rejection of Sec.11 benefit is survey conducted in the premise of the assessee, where, it was claimed that the assessee is collecting compulsory donations in lieu of admissions to Sindhi Model Senior Secondary School, Kellys, Chennai affiliated to CBSE and state board school Sindhi Model Matriculation School, Chetpet, Chennai. According to the AO, voluntary contributions received from parents of students forming part of corpus of the Society/Trust are non-voluntary/compulsory in nature. The AO had also observed that said donations are in contravention of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, but fact remains that the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, is not applicable to the assessee at all, because, said enactment is applicable only to Educational Institution offering Degree and Diploma Courses. Further, the case law relied upon by the Ld. DR in the case of CIT v. MAC Public Charitable Trust, is also on the basis of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and thus, said judgment cannot be applied to the facts of the assessee case.

16. The Ld. Counsel for the assessee further submitted that the assessee is running Sindhi Model Senior Secondary School, Kellys, Chennai, which is affiliated to CBSE and for said School, the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, is not applicable, which is clear from section 3(3) of said Act. The assessee Society did not collect any donations for Sindhi College of Arts & Science, Numbal, Chennai. The donations collected in lieu of admissions to Sindhi Model Matriculation School, Chetpet, Chennai, is very small in nature and only for new admission. Further, said donations are voluntary in nature, which is clearly established from declaration given by donors. The allegation of the AO that donations have been collected for all admissions is totally incorrect, because, in some cases, admissions have been given without any donations. Further, the assessee is collecting very nominal donations of Rs.1,500/- to Rs.2,400/- for AY 2012-13 and Rs.7,500/- to Rs.8,900/- for AY 2013-14. Similarly, the assessee has collected donations of Rs.10,000/- to Rs.15,000/- for AYs 2014-15 to 2017-18 and said donations are collected for only new admissions, that too the assessee makes appeal for donations for development of the Institution, for which, the parents responded, but there is no compulsion as regards payment of donations in lieu of admissions. Therefore, the allegation of the Department that the assessee has collected donation in lieu of admission is incorrect. Similarly, the assessee has collected interest free deposits from parents of students admitted to CBSE school ranging from Rs.25,000/- to Rs.50,000/- and said amount is voluntary in nature. Further, even in CBSE schools, in some cases, admission has been given without any donation. The donations collected from the parents are voluntary in nature and forming part of corpus of the students. The amount donation has been applied for the objection of the Trust. There is no allegation from the AO that any part of income of the Trust has been applied for the benefit of interested persons. In absence of finding contrary to the effect that the donations are compulsory in nature, the question of denying the benefit of exemption u/s.11 of the Act, does not arise.

17. The Ld. Counsel for the assessee further referring to the assessment order submits that the allegation of the AO that there is no separate book of accounts for incidental activities is incorrect. The AO has prepared segmental wise income and expenditure account from the assessee books of accounts. Further, for the schools, maintenance of books of accounts is in electronic mode, the condition of maintainin separate books of accounts gets fulfilled especially,in view of the segmental accounting entries are posted therein. The concept of maintaining separate books of accounts in the era of software accounting gets fully diluted and facts & figures can be culled out from the very same books of accounts. In any event, the proviso below to sec.2(15) of the Act, permits such activities with certain threshold limits and circulated tabulation would establish the fact of the respondent not overshooting the threshold limits prescribed therein. Therefore, the Ld. Counsel for the assessee submits that the AO is completely erred in denying the benefit of exemption u/s.11 of the Act, on the basis of baseless allegation that there are no separate books of accounts for incidental activities.

18. The Ld. Counsel for the assessee further submitted that assuming for a moment, but not accepting the donation received towards corpus by matriculation schools is considered as not voluntary, then for taxation, the donation alone needs to be considered, because, the Revenue cannot deny the tax exemption u/s.11 of the Act, in its entirety when the assessee has satisfied conditions prescribed for claiming such benefit. The Ld. Counsel for the assessee further referring to the decision of the Hon’ble Madras High Court in the case of CIT v. MAC Public Charitable (supra) submitted that said judgment was rendered on its own acts which is clear from the findings of the Hon’ble High Court. The sole basis for the decision is violation of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, in the context of the Trust collecting donations in lieu of admissions by employing multi layered mechanism and accepting donations in different trust. Further, in the said case, there was a complaint from the parents to the authorities for demanding donations in lieu of admissions, and under those facts, the Hon’ble High Court came to the conclusion that collecting donation in the name of voluntary contributions for getting admissions to professional course, is a ‘Capitation Fees’ and violation of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and thus, rejected Sec.11 benefit to the trust. In the present case, there is no such allegation from any of the parents. Further, the assessee is collecting small amount of donations from new admissions which is very nominal. Further, said donation has been totally applied for charitable purpose. Therefore, the above judgments cannot be applied to the present case to deny the benefit of exemption u/s.11 of the Act. The Ld. CIT (A) after considering relevant facts has rightly directed the AO to allow the benefit of exemption u/s.11 of the Act and their orders should be upheld.

19. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered the relevant provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. We have also carefully considered the decision of the Hon’ble Madras High Court in the case of CIT v. MAC Public Charitable Trust(supra), and also the decision of the Hon’ble Supreme Court in the case of Ahmadabad Urban Development Authority vs. CIT (supra). The fact with regard to the impugned dispute are that the assessee is registered u/s.12AA of the Act, from 1975-76 onwards. The assessee society has been in existence for the past 48 years and running two Schools and one College. The assessee is running Sindhi Model Senior Secondary School, Kellys, Chennai, and the school has student strength about 2400 from Pre-KG to 11^th Standard. The assessee is running Sindhi Model Matriculation School, Chetpet, Chennai, and the school has been affiliated to State Board curriculum and run classes from LKG to 12^th Standard. The society is also running Sindhi College of Arts & Science, Numbal, Chennai, since 1991, and has about 1800 students. Admittedly, the Schools and College run by assessee society are reputed Schools in Chennai. The objects of the assessee society are imparting education and this fact has not been disputed by the Revenue. The assessee is carrying out its activities in accordance with its objects. In fact, the Revenue has not noticed any violations referred to u/s.11, 12 & 13 of the Act, which necessitate withdrawal of registration granted u/s.12AA of the Act and the appellant society is continued to enjoy 12AA registration.

20. In this factual back ground, if you examine the reasons given by the AO to deny the benefit of sec.11 of the Act, one has to understand, is other any ground for denial for such exemption. Admittedly, there was a survey u/s.133A of the Act, in the case of assessee society. During the course of survey, it was noticed that the assessee has collected ‘corpus donations’ from various persons. On verification, it was noticed that such donations have been collected from parents of students got admitted to schools run by the assessee. It is also an admitted fact that the assessee is collecting donations in lieu of admissions to Sindhi Model Senior Secondary School, Kellys, Chennai, which is providing education under CBSE rules. The assessee was also collected donations from Sindhi Model Matriculation School, Chetpet, Chennai, and said school is providing State Board curriculum. Admittedly, no donations are collected from Sindhi College of Arts & Science, Numbal, Chennai. The assessee collects small amount of donations from parents of students admitted to State Board Schools ranging from Rs.1,500/- to Rs.10,000/- for new admissions alone. In other words, the donations have been collected for new admissions in the first year. Similarly, the assessee society collects donations from new admissions in CBSE School also and such donations are ranging from Rs.3,000/- to Rs.50,000/-. The donations collected from parents of the students are voluntary in nature and forming part of corpus of the Trust, which is evident from declaration given by the donor. The assessee had also accounted said donations in the books of accounts and applied for charitable purpose, and this, facts are not disputed by the AO. Therefore, it is necessary to decide whether the assessee is entitled for the benefit of sec.11 of the Act, in light of reasons given by the AO with reference to the facts brought on record during assessment proceedings.

21. The AO has denied benefit of exemption u/s.11 of the Act, for three reasons. The first and foremost objection raised by the AO was that the assessee is collecting compulsory donations in lieu of new admissions and claiming it as ‘corpus donations’ and voluntary. Second reason given by the AO is that such donations are in contravention of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 & the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009 and finally, the assessee society is not maintaining separate books of accounts for incidental activities as required u/s.11(4A) of the Act. In so far as the first objection of the AO is concerned in light of ‘corpus donations’ received by the assessee society for new admissions to schools, we find that except a mere allegation that said donations are compulsory in nature, there is no evidence with the AO to substantiate its allegation that said donations are not voluntary in nature. Even during the course of survey, the Member of the assessee society Shri J.C.Prakash, very categorically admitted ‘corpus donations’ collected from the parents of students admitted to Sindhi Model Senior Secondary School, Kellys, Chennai, affiliated with CBSE, is on the basis of general appeal made to the parents at the time of admissions, but not compulsory. The parents of the students have voluntarily contributed to the corpus of the Trust by considering the appeal of the assessee society. No parent was forced to pay donations and even in some cases, admission has been given without collecting donation. The allegation of the AO that the society is issued pre-printed forms is devoid of merits. Although, the donations have been issued in pre-printed forms, but each donor has given separate declaration and stated that said donations are voluntary in nature and form part of the corpus of the Trust. Therefore, from the above, it is undoubtedly clear that the AO has made mere allegations of collecting compulsory donations in lieu of admissions.

22. Be that as it may. If you go by the amount of donations received by the assessee society, it cannot be said that said donations are in the nature of ‘Capitation Fees’ in violation of provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992. Further, the purpose and intention of enacting laws for prohibiting acceptance of ‘Capitation Fees’ needs to be understood before applying said laws in general. There was a time, when large number professional institutions are forcing the students to pay ‘Capitation Fees’ for getting admission to professional courses. It came to the notice of the various State Governments that management of professional institutions are collecting huge ‘Capitation Fees’ in lieu of admissions and utilizing said money for their personal benefit and in some case, the tuition fees was very minimal where ‘Capitation Fees’ is in few lakhs. Under those circumstances, the State Governments have enacted a law to prohibit acceptance of ‘Capitation Fees’ in lieu of admissions to professional courses run by the private institutions. Therefore, while applying said law, the purpose and intent has to be seen in light of amount of donations received by various institutions. Further, the Hon’ble Supreme Court also held in the case of T.M.A Pai Foundation & Ors. v. State of Karnataka & Ors. reported in [2002] 8 SEC 481 (SC) that collection is capitation fees in lieu of admission cannot be considered as charity. In fact, there is no dispute that any trust/institution violates law prohibiting collection of capitation fees is not charitable in nature and not entitled for exemption u/s 11 of the Act. In the present case, on the basis of details filed by the assessee, we find that the assessee has received ‘corpus donations’ from parents of students admitted to Seth P.D. Hinduja Sindhi Model Senior Secondary School, Kellys, which is affiliated to CBSE ranging from Rs.25,000/- to Rs.50,000/- and said donations have been received for the first time when the new admission has been granted to students. The amount of donations collected from parents is very small. Further, such donations are voluntarily paid by parents without any compulsion and this fact has been already explained by us. Therefore, going by the amount of donations received by the assessee from parents of students, it cannot be said that said donations are ‘Capitation Fees’ in violation of the provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992. In any event, the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, is not applicable to schools run by the assessee, which is evident from the law itself, because, said enactment is applicable only to professional institutions offering degrees and diplomas. Therefore, the observation of the AO in light of above said Act that the assessee has violated the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, and not entitled for exemption u/s.11 of the Act, is totally absurd and devoid of merits.

23. Coming back to observation of the AO with regard to development fund (corpus) received by the assessee from parents of students admitted to Sindhi Model Matriculation School, Chetpet, Chennai. Admittedly, Sindhi Model Matriculation School, Chetpet, Chennai, is recognized by State Government and offering state curriculum. The said school is governed by the provisions of the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, and there is no dispute. It is also an undisputed fact that the assessee has collected Development Fund ranging from Rs.1,500/- to Rs.15,000/- for various assessment years involved in this appeal. It is started collecting Rs.1,500/- in the year 2012-13, and has been raised to Rs.15,000/- for the FY 2017-18. The Development Fund received by the assessee is very small, and further, said Development Fund is not compulsory which is evident from the list of donations submitted by the assessee, where, it was noticed that in many cases, admission has been given without any donation. Further, the allegation of the AO that said donations are compulsory in nature is only on suspicion and surmise without there being any evidence to support his allegation, because, there is no iota of evidence with the AO, that any parents has lodged compliant with any authority for refusing to give admission without paying donation. Further, the allegation of the AO that the assessee has collected excess fess over and above fees prescribed under the provisions of the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009, is also negated by the assessee by filing relevant details. From the details furnished by the assessee, we find that the AO has computed excess fees by taking into number of students and fees fixed as per said Act without excluding certain Miscellaneous Fees collected by the assessee, which is not at all in nature of tuition fees prescribed under said Act. Therefore, we are of the considered view that the AO has made mere allegations of collecting excess fees in contravention of provisions of the Tamil Nadu Schools (Regulation of Collection of Fee) Act, 2009. Therefore, we are of the considered view that the AO is erred in rejecting exemption u/s.11 of the Act, to the assessee society, on the basis of above observation.

24. Coming back to generating income from incidental activities. It is an admitted fact that the assessee is providing various incidental activities like sale of textbooks to students, plying of buses for the benefit of commutation of students, running of canteen and renting out sports ground for the purpose of sports tournaments. These activities are incidental to the attainment of the main objects of the assessee society, because, in any school these facilities are essential. Therefore, there is no dispute on the incidental activities carried out by the assessee which is necessary for attainment of main objects of imparting education. In fact, the AO is not disputing above facts, but the allegation of the AO is that the assessee did not maintain separate books of accounts for incidental activities as required u/s.11(4A) of the Act.

25. We do not find any merit in the allegation of the AO for simple reason that the AO himself in his assessment order, has computed income and expenditure from various incidental activities and reproduced in tabular form at Page No.12 of his assessment order. From the above, it is undoubtedly clear that there are books of accounts for incidental activities. In any event, maintenance of separate books of accounts for incidental activities gets fully diluted in the era of software accounting, where, segmental accounting entries are posted, which can be easily segregated to ascertain separate income and expenditure from each activity. Further, the AO himself has culled out data from books of accounts maintained by the assessee for each activity and computed income and expenditure separately. From the above, it is clear that there are books of accounts for incidental activities and from said books of accounts, income and expenditure from each activity can be computed. Therefore, we are of the considered view that the allegation of the AO that there is no separate books of accounts for incidental activities as required u/s.11(4A) of the Act, is devoid of merits. In any event, as per the provisions of Sec.2(15) of the Act, providing such activities with certain threshold limits is permitted and as per details furnished by the assessee, we find that income generated by the assessee from incidental activities does not overshooting the threshold limits prescribed therein. Therefore, we are of the considered view that the reasons given by the AO in light of incidental activities carried out by the assessee for rejection of exemption u/s.11 of the Act, is devoid of merits.

26. Coming back to the decision relied upon by the Ld. DR present for the Revenue. The Ld. DR heavily relied upon the decision of the Hon’ble High Court of Madras in the case of CIT v. MAC Public Charitable Trust reported in 450 ITR 368 (Mad.) (HC). The Ld. DR took us to the decision and more particularly Para No.65 and argued that in order to be any donations voluntary contributions, said donations had to be made willingly and without compulsion and the money was to be gifted or given graciously without consideration and in the present case, those conditions are not satisfied. We find that the arguments of the Ld. DR in light of above observations of the Hon’ble High Court fails for simple reason that facts brought on record by the AO clearly indicates that ‘corpus donations’ received by the assessee are voluntary in nature. Further, the AO has not brought on record any contrary evidences to disbelieve the arguments of the assessee. In other words, the evidences available on record clearly show that donations are voluntary in nature, which forms part of corpus of the Trust. Further, the Ld. DR took us to Para No.67 of said judgment and argued that the Ld.CIT(A) observed that there is no compliant from any of the parents for collecting donations and the AO has also not cross-verified. But, the observations of the ld. CIT(A) is contrary to judgment of Hon’ble High Court of Madras, because collection of donations from parents and conducting enquiring about the source of the donors, is not necessary for the AO and for said reason exemption cannot be allowed. We find that there is no dispute with regard to the ratio laid down by the Hon’ble High Court of Madras, that once it is established that donations received by the assessee are ‘Capitation Fees’ as per the provisions of the Tamil Nadu Education Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, then application of said donations for objects of the Trust and further, complaints from donors and subsequent verification by the AO is not relevant. However, fact remains that before applying said observations of the Hon’ble High Court to the present case, one has to understand is there any compulsion in collecting donations in lieu of admissions to schools run by the assessee. As we have already noted in earlier part of this order, there is no compulsion from the assessee to the parents for payment of donation and it is only an appeal from the assessee and response from the parent for donations. Therefore, we are of the considered view that the Ld. DR is erred in referring to the observations of the Hon’ble Madras High Court which was rendered in the context of prohibition of collection of capitation fees. Further, in the said case, it was a clear case of ‘Capitation Fees’ for giving admission to professional course, and further, there were complaints from the parents for forcible collection of donations. Thus, we reject the arguments of the ld. DR.

27. The Ld. DR supported his argument in light of decision of the Hon’ble Supreme Court in the case of Queens Education Society v. CIT reported in [2015] 231 Taxman 286, and argued that if any Society / Trust earns more than 20% of profit from its activities, then, said Institution/Trust cannot be considered as solely existing for charitable purpose. Since, the assessee society has earned more than 20% profit from its activities, the Society itself disentitled for exemption u/s.11 of the Act. We find that the Hon’ble Supreme Court has considered exemption u/s.11 of the Act, in light of super profits earned by various Trusts in the process of imparting education. In the case of Queens Education Society v. CIT (supra), the Hon’ble Supreme Court after considering relevant facts held that when the activity of the Trust/Institution is falls under the definition of charitable purpose, then, even if said Institution earns some profit in the process, which can be said to be incidental to the attainment of main objects, and thus, the benefit of exemption cannot be denied u/s.11 of the Act. Moreover, in the present case as alleged by the Ld. DR, assessee society is not earning huge profits from its activities which is evident from financial statement filed for all these assessment years, where, we find that assessee society is earning a minimum surplus for each year after meeting various expenditure, Further, ‘corpus donations’ collected from various persons has been applied for the objects of the Trust, which is evident from various development activities undertaking by assessee Society. Therefore, we are of the considered view that there is no merit in arguments of the Ld. DR in light of the decision of the Hon’ble Supreme Court in the case of Queens Education Society v. CIT (supra), and thus, we reject the arguments of the Ld. DR.

28. At this stage, it is relevant to consider the decision of Hon’ble Supreme Court in the case of Ahmadabad Urban Development Authority vs CIT reported in [2022] 115 CCH 253 (SC). The Hon’ble Supreme Court has approved the ratio laid down in earlier decision in the case of Queens Education Society v. CIT (supra), where, it has been clearly held that mere fact that substantial surplus or profit were generated could not be a bar for rejecting exemption u/s.11 of the Act. The sum and substance of ratio laid down by various Courts including the Hon’ble Supreme Court is that if any Institution / Trust is engaged in imparting education which falls under definition of charitable purpose, then, in the process, even if Society/Trust earns some surplus, it does not mean that said Trust / Institution solely existing for profit but not for charitable purpose. In the present case, on perusal of the facts available on record, we find that the assessee Society solely exists for charitable purpose, but not for profit which is evident from the activities. The assessee Society is not deriving any huge surplus, which is evident from financial statement. Therefore, we are of the considered view that the arguments of the Ld. DR in light of the decision of the Hon’ble Supreme Court in the case of Queens Education Society v. CIT (supra) are rejected.

29. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the AO is erred in denying the benefit of exemption u/s.11 of the Act, to the assessee Society on the ground that the assessee Society is collecting ‘Capitation Fees’ in lieu of admissions and also not maintaining separate books of accounts for incidental activities. The Ld.CIT(A) after considering relevant facts has rightly held that the assessee is entitled for the benefit of exemption u/s.11 of the Act. Thus, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeals filed by the Revenue for all assessment years.

30. In the result, appeals filed by the Revenue for all the assessment years are dismissed.

Order pronounced on the 15^th day of September, 2023, in Chennai.