THE issue before the Bench is - Whether merely on the basis of some loose papers and cash seized it can be presumed that for all the assessment years the assessee received capitation fee for admission of students in the management quota. NO is the answer.
Facts of the case
The assessee is a trust registered under Section 12AA. The trust is running various educational institutions. A search and survey operation under Sections 132/133A was conducted at various premises of the educational institutions and also at the residence of the Chairman of the Trust. The department proceeded on the premise that huge amounts of capitation fee is collected for admission to professional courses conducted by various educational institutions run by the assessee/trust. Thereafter, notice under Section 153A was issued to the assessee. In response, assessee filed returns admitting "NIL" income for all the assessment years. Pursuant to the same, notice under Section 143(2) of the Act was issued in respect of all the assessment years, followed by issuance of notice under Section 142(1). In response to the notices under Section 142(1), the assessee submitted reply stating that the allegation of receiving capitation fee from students is baseless and solely based on the statement recorded from the Chairman of the Trust, which he had retracted later. It was pointed out that voluntary contributions were received only from philanthropists; family friends; corporate bodies; patients and relatives of patients treated in the hospital; parents and relatives of students. It was also stated that there is no evidence to come to the conclusion that such contributions received are involuntary. Along with the reply, the assessee also enclosed the details sought for by the Assessing Officer. Assessing Officer came to the conclusion that the educational institutions run by the Trust collected huge amount of capitation fee under the guise of donation while admitting students under the management quota to various professional courses and no receipts were given for the capitation fee collected and it is also not disclosed in the income tax returns for taxation purposes. Taking note of the number of students admitted under the management quota in various colleges and by making computation on the basis of an estimate, Assessing Officer determined receipt of a higher amount as capitation fee, in the guise of donation, as against the admitted figure of donation as claimed by the assessee in respect of each assessment year. Thus, the Assessing Officer worked out the income of the trust by multiplying the amount of donation with the number of students admitted under management quota in various courses. The total amount of donation calculated was treated as the income of the trust not being exempt as per Section 13 read with Section 11 for all the assessment years. The Assessing Officer further held that the assessee is not carrying on charitable activities for the purpose of Section 13 read with Section 11 of the Act.
In appeal, in respect of the assessment years 2002-2003 and 2003-2004, CIT(A) rendered a finding that the Assessing Officer has failed to establish a case of breach of Section 10(23C)(vi) and, therefore, Trust will be entitled to the benefit of exemption contained therein. With regard to the finding of the Assessing Officer that the amount stated in the loose sheets 5 to 22 seized during the search is donation received and returned to the students and this donation is capitation fee which is unaccounted, CIT(A) did not accept the findings of the AO that the amount represents involuntary donations received from the students at the time of admission. CIT(A) held that receipt of capitation fee was not proved by any seized document mentioned in the asst. order. With respect to seizure of cash from the residence of the Chairman, CIT(A) held that chairman was having turnover of more than Rs.30 crores in his petrol pump business has declared unaccounted income of Rs.3 crores and AO had accepted the disclosure in the asst. order and has specifically mentioned in asst. order that this unaccounted income is towards the cash found and seized at his residence and other unaccounted asset and expenditure. Thus, CIT(A) did not accept findings of AO that unaccounted cash belonged to the trust and the same forms part of capitation fee received by the assessee trust. CIT(A) observed that there was no investigation done either by the Investigation Wing or the Assessing Officer to prove that donations were not voluntary and they partake the character of capitation fee. He, therefore, held that the presumption drawn by the Assessing Officer that all management quota admissions are subject to capitation fee is based on no material. CIT(A) also accepted the plea of the assessee that there was no benefit derived by the trustees or any member of the Trust. He held that denying exemption under Section 11 without there being a case made out for violation of Section 13 was totally incorrect.
In second appeal, tribunal held that revenue had made a belated attempt to allege violation of Section 13(1)(d). It was held that such an allegation is not justified as the amount has already been included in the income offered by the Chairman of the assessee trust for taxation. The Tribunal rejected the case of the Assessing Officer that what is exempted from taxation under Sections 11 and 12 of the Act is voluntary contribution and not contribution granted against allotment of seats. It further held that the finding of the Assessing Officer that capitation fee collected by the trust should be treated as undisclosed is erroneous.
Having heard the parties, the tribunal held that,
A) ++ The assessee/Trust is running about eight educational institutions. The Tribunal, based on the various documents filed by the assessee, rendered a categoric finding on fact that the assessee is running a number of educational institutions recognized by law and its charitable activities by way of education are bona fide. The department has not produced any evidence to rebut the said finding rendered by the Tribunal.
++ it is not the case of the Assessing Officer that the books of accounts were not maintained properly. All that the Assessing Officer states is that there are certain seized documents relating to refund of fees made to the students, who were not given admission in the colleges of the assessee trust and therefore, there is an element of suspicion in the affairs of the assessee trust.
++ it is the specific case of the assessee that during a particular financial year all the medical seats were taken over by the Government of Puducherry and no seats were available in the hands of the assessee trust for allotment under management quota and, therefore, the amounts collected earlier from the students had to be refunded. It is also not in dispute that these details have been brought out in the accounts maintained by assessee trust. The department has not controverted this finding of fact. It establishes the assessees case of bona fide refund. Nothing material turns on this fact to hold against the assessee.
++ if the Assessing Officer had any doubt about the receipt of capitation fee or the explanation given, he should have conducted enquiry either with the students or with their parents or with any other person interested in the activities carried on by the assessee trust. But, without doing so, the Assessing Officer estimated the collection of contributions on the basis of the number of seats available under management quota multiplied by the amount of contribution attributable to individual seats. Any determination for purpose of tax cannot be based on hypothetical facts or conjectures or surmises. The inference drawn by the Original Authority is based on probability.
++ with regard to the seizure of cash of over Rs.44 Lakhs from the residence of the Chairman of the Assessee Trust, it is not in dispute that the said sum has been assessed in the hands of the Chairman for the assessment year 2008-2009 and the same was received from the petrol pump business, the turnover of which is more than Rs.30 Crores. Moreover, the Assessing Officer has accepted the disclosure of the seized cash as the income of the individual and, therefore, it cannot be said that assessee trust had accepted contributions by way of capitation fee. The assessment of the undisclosed income at the hand of the individual ends the issue there. It has no relevance to the affairs of the Trust and there is no material to hold so.
++ based on the loose sheets and cash seized, which have been held as irrelevant to the present issue, it cannot be held that for all the assessment years the assessee received capitation fee for admission of students in the management quota. This is a perverse inference. Without conducting any enquiry in this regard to make allegation is unsustainable. The information obtained from the Public Information Officer to a query raised under the Right to Information Act to the effect that "There is no any complaint received from any student/parent regarding capitation fee charged by the above institutions so far" also tilts the balance in favour of the assessee. It disproves the department's allegation of involuntary collection of amounts. That apart, the order passed under Section 264 of the Act for the assessment years 1998-1999 to 2001-2002 clearly states that the donation received from students or the parents is not compulsory in nature and, therefore, the same is not capitation fee. There is no material to controvert this fact which is to the knowledge of the department. No endeavour is made to sustain the allegation of involuntary donation. In any event, as rightly held by the Tribunal, it is not relevant in the present case as the allegation is violation of Section 13 r/w Section 11 of the Act.
++ Commissioner of Income Tax (Appeals) and the Tribunal have come to the conclusion that the donations received do not partake the character of capitation fee. There is no element of involuntary nature of donation. A specific finding is given that no investigation has been done to show that any parent or student has complained about the nature of donation. The department has failed to dispel the finding of fact.
++ department pleads that since the assessee had not submitted the list of students, the Assessing Officer had to make an estimate adopting his own methodology. This cannot be accepted for the simple reason that the show cause notice proceeds on the basis that the assessee has to submit the list of donors alone. A reply was submitted by the assessee and in paragraph 6(iii), the Assessing Officer states that all the statements tallied. However, the assessing officer comes to a different conclusion that contribution is not voluntary, and it is relatable to admission of students. This finding of the Assessing Officer is not supported by documents, but on the basis of Assessing Officer's inference.
++ the department has not made out a case of collection of capitation fee under the guise of donation and it has not established a case of involuntary nature of donations. Therefore, the questions of law (i) and (ii) are answered against the revenue and in favour of the assessee.
C) ++ The records were tallied and verified. Therefore, whatever income was offered by the assessee as contributions will be entitled to exemption under Section 11 of the Act.
++ the true intent of Sections 11, 12 and 13 of the Act is utilization of funds for charitable purpose and the same has been highlighted by the Supreme Court in a recent decision in Queen's Education Society v. Commissioner of Income Tax 2015-TIOL-20-SC-IT. The Supreme Court held that the assessing authority must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down and if the activities of the institution are found not to be genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn.
++ for the assessment years 2002-2003 and 2003-2004 as Chief Commissioner of Income Tax-VI, Chennai, having jurisdiction over the case has notified this under Section 10(23C)(vi) that there is no applicability of section 11 or 13 in those two years. The department has not produced any evidence of breach of Section 10(23C)(vi) and, therefore, Trust will be entitled to the benefit of exemption contained therein.
++ department had proceeded on a wrong premise without any basic materials to establish a case of violation of Section 13. Therefore, the Tribunal was right in deleting the addition. The third question of law is answered against the revenue and in favour of the assessee.
D) ++ The case of P.S.Govindasamy Naidu & Sons v. ACIT, 324 ITR 44, relied on by the Counsel for the revenue, is distinguishable on facts. In the said decision, it has been clearly held that the examination of parents and students of the college found that amounts paid were not corpus donation, but capitation fee. Therefore, the reasoning given in the said decision does not apply to the facts of the present case, as the Assessing Officer has not chosen to conduct any enquiry from any student or parent with regard to the donations. Accordingly, the fourth question of law is answered against the revenue and in favour of the assessee.
E) ++ The very basis of the plea of the Revenue regarding violation of Section 13(1)(d) is that a sum of Rs.44 Lakhs was found and seized in the course of the search from the residence of the Chairman of the assessee Trust. With regard to the said seizure, the Assessing Officer has accepted the disclosure of the seized cash as the income of the individual and, therefore, it cannot be said that assessee trust has violated the provisions of Section 13(1)(d). None of the ingredients of Section 13 is attracted to the facts of the present case.
The assessee is a trust registered under Section 12AA. The trust is running various educational institutions. A search and survey operation under Sections 132/133A was conducted at various premises of the educational institutions and also at the residence of the Chairman of the Trust. The department proceeded on the premise that huge amounts of capitation fee is collected for admission to professional courses conducted by various educational institutions run by the assessee/trust. Thereafter, notice under Section 153A was issued to the assessee. In response, assessee filed returns admitting "NIL" income for all the assessment years. Pursuant to the same, notice under Section 143(2) of the Act was issued in respect of all the assessment years, followed by issuance of notice under Section 142(1). In response to the notices under Section 142(1), the assessee submitted reply stating that the allegation of receiving capitation fee from students is baseless and solely based on the statement recorded from the Chairman of the Trust, which he had retracted later. It was pointed out that voluntary contributions were received only from philanthropists; family friends; corporate bodies; patients and relatives of patients treated in the hospital; parents and relatives of students. It was also stated that there is no evidence to come to the conclusion that such contributions received are involuntary. Along with the reply, the assessee also enclosed the details sought for by the Assessing Officer. Assessing Officer came to the conclusion that the educational institutions run by the Trust collected huge amount of capitation fee under the guise of donation while admitting students under the management quota to various professional courses and no receipts were given for the capitation fee collected and it is also not disclosed in the income tax returns for taxation purposes. Taking note of the number of students admitted under the management quota in various colleges and by making computation on the basis of an estimate, Assessing Officer determined receipt of a higher amount as capitation fee, in the guise of donation, as against the admitted figure of donation as claimed by the assessee in respect of each assessment year. Thus, the Assessing Officer worked out the income of the trust by multiplying the amount of donation with the number of students admitted under management quota in various courses. The total amount of donation calculated was treated as the income of the trust not being exempt as per Section 13 read with Section 11 for all the assessment years. The Assessing Officer further held that the assessee is not carrying on charitable activities for the purpose of Section 13 read with Section 11 of the Act.
In appeal, in respect of the assessment years 2002-2003 and 2003-2004, CIT(A) rendered a finding that the Assessing Officer has failed to establish a case of breach of Section 10(23C)(vi) and, therefore, Trust will be entitled to the benefit of exemption contained therein. With regard to the finding of the Assessing Officer that the amount stated in the loose sheets 5 to 22 seized during the search is donation received and returned to the students and this donation is capitation fee which is unaccounted, CIT(A) did not accept the findings of the AO that the amount represents involuntary donations received from the students at the time of admission. CIT(A) held that receipt of capitation fee was not proved by any seized document mentioned in the asst. order. With respect to seizure of cash from the residence of the Chairman, CIT(A) held that chairman was having turnover of more than Rs.30 crores in his petrol pump business has declared unaccounted income of Rs.3 crores and AO had accepted the disclosure in the asst. order and has specifically mentioned in asst. order that this unaccounted income is towards the cash found and seized at his residence and other unaccounted asset and expenditure. Thus, CIT(A) did not accept findings of AO that unaccounted cash belonged to the trust and the same forms part of capitation fee received by the assessee trust. CIT(A) observed that there was no investigation done either by the Investigation Wing or the Assessing Officer to prove that donations were not voluntary and they partake the character of capitation fee. He, therefore, held that the presumption drawn by the Assessing Officer that all management quota admissions are subject to capitation fee is based on no material. CIT(A) also accepted the plea of the assessee that there was no benefit derived by the trustees or any member of the Trust. He held that denying exemption under Section 11 without there being a case made out for violation of Section 13 was totally incorrect.
In second appeal, tribunal held that revenue had made a belated attempt to allege violation of Section 13(1)(d). It was held that such an allegation is not justified as the amount has already been included in the income offered by the Chairman of the assessee trust for taxation. The Tribunal rejected the case of the Assessing Officer that what is exempted from taxation under Sections 11 and 12 of the Act is voluntary contribution and not contribution granted against allotment of seats. It further held that the finding of the Assessing Officer that capitation fee collected by the trust should be treated as undisclosed is erroneous.
Having heard the parties, the tribunal held that,
A) ++ The assessee/Trust is running about eight educational institutions. The Tribunal, based on the various documents filed by the assessee, rendered a categoric finding on fact that the assessee is running a number of educational institutions recognized by law and its charitable activities by way of education are bona fide. The department has not produced any evidence to rebut the said finding rendered by the Tribunal.
++ it is not the case of the Assessing Officer that the books of accounts were not maintained properly. All that the Assessing Officer states is that there are certain seized documents relating to refund of fees made to the students, who were not given admission in the colleges of the assessee trust and therefore, there is an element of suspicion in the affairs of the assessee trust.
++ it is the specific case of the assessee that during a particular financial year all the medical seats were taken over by the Government of Puducherry and no seats were available in the hands of the assessee trust for allotment under management quota and, therefore, the amounts collected earlier from the students had to be refunded. It is also not in dispute that these details have been brought out in the accounts maintained by assessee trust. The department has not controverted this finding of fact. It establishes the assessees case of bona fide refund. Nothing material turns on this fact to hold against the assessee.
++ if the Assessing Officer had any doubt about the receipt of capitation fee or the explanation given, he should have conducted enquiry either with the students or with their parents or with any other person interested in the activities carried on by the assessee trust. But, without doing so, the Assessing Officer estimated the collection of contributions on the basis of the number of seats available under management quota multiplied by the amount of contribution attributable to individual seats. Any determination for purpose of tax cannot be based on hypothetical facts or conjectures or surmises. The inference drawn by the Original Authority is based on probability.
++ with regard to the seizure of cash of over Rs.44 Lakhs from the residence of the Chairman of the Assessee Trust, it is not in dispute that the said sum has been assessed in the hands of the Chairman for the assessment year 2008-2009 and the same was received from the petrol pump business, the turnover of which is more than Rs.30 Crores. Moreover, the Assessing Officer has accepted the disclosure of the seized cash as the income of the individual and, therefore, it cannot be said that assessee trust had accepted contributions by way of capitation fee. The assessment of the undisclosed income at the hand of the individual ends the issue there. It has no relevance to the affairs of the Trust and there is no material to hold so.
++ based on the loose sheets and cash seized, which have been held as irrelevant to the present issue, it cannot be held that for all the assessment years the assessee received capitation fee for admission of students in the management quota. This is a perverse inference. Without conducting any enquiry in this regard to make allegation is unsustainable. The information obtained from the Public Information Officer to a query raised under the Right to Information Act to the effect that "There is no any complaint received from any student/parent regarding capitation fee charged by the above institutions so far" also tilts the balance in favour of the assessee. It disproves the department's allegation of involuntary collection of amounts. That apart, the order passed under Section 264 of the Act for the assessment years 1998-1999 to 2001-2002 clearly states that the donation received from students or the parents is not compulsory in nature and, therefore, the same is not capitation fee. There is no material to controvert this fact which is to the knowledge of the department. No endeavour is made to sustain the allegation of involuntary donation. In any event, as rightly held by the Tribunal, it is not relevant in the present case as the allegation is violation of Section 13 r/w Section 11 of the Act.
++ Commissioner of Income Tax (Appeals) and the Tribunal have come to the conclusion that the donations received do not partake the character of capitation fee. There is no element of involuntary nature of donation. A specific finding is given that no investigation has been done to show that any parent or student has complained about the nature of donation. The department has failed to dispel the finding of fact.
++ department pleads that since the assessee had not submitted the list of students, the Assessing Officer had to make an estimate adopting his own methodology. This cannot be accepted for the simple reason that the show cause notice proceeds on the basis that the assessee has to submit the list of donors alone. A reply was submitted by the assessee and in paragraph 6(iii), the Assessing Officer states that all the statements tallied. However, the assessing officer comes to a different conclusion that contribution is not voluntary, and it is relatable to admission of students. This finding of the Assessing Officer is not supported by documents, but on the basis of Assessing Officer's inference.
++ the department has not made out a case of collection of capitation fee under the guise of donation and it has not established a case of involuntary nature of donations. Therefore, the questions of law (i) and (ii) are answered against the revenue and in favour of the assessee.
C) ++ The records were tallied and verified. Therefore, whatever income was offered by the assessee as contributions will be entitled to exemption under Section 11 of the Act.
++ the true intent of Sections 11, 12 and 13 of the Act is utilization of funds for charitable purpose and the same has been highlighted by the Supreme Court in a recent decision in Queen's Education Society v. Commissioner of Income Tax 2015-TIOL-20-SC-IT. The Supreme Court held that the assessing authority must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down and if the activities of the institution are found not to be genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn.
++ for the assessment years 2002-2003 and 2003-2004 as Chief Commissioner of Income Tax-VI, Chennai, having jurisdiction over the case has notified this under Section 10(23C)(vi) that there is no applicability of section 11 or 13 in those two years. The department has not produced any evidence of breach of Section 10(23C)(vi) and, therefore, Trust will be entitled to the benefit of exemption contained therein.
++ department had proceeded on a wrong premise without any basic materials to establish a case of violation of Section 13. Therefore, the Tribunal was right in deleting the addition. The third question of law is answered against the revenue and in favour of the assessee.
D) ++ The case of P.S.Govindasamy Naidu & Sons v. ACIT, 324 ITR 44, relied on by the Counsel for the revenue, is distinguishable on facts. In the said decision, it has been clearly held that the examination of parents and students of the college found that amounts paid were not corpus donation, but capitation fee. Therefore, the reasoning given in the said decision does not apply to the facts of the present case, as the Assessing Officer has not chosen to conduct any enquiry from any student or parent with regard to the donations. Accordingly, the fourth question of law is answered against the revenue and in favour of the assessee.
E) ++ The very basis of the plea of the Revenue regarding violation of Section 13(1)(d) is that a sum of Rs.44 Lakhs was found and seized in the course of the search from the residence of the Chairman of the assessee Trust. With regard to the said seizure, the Assessing Officer has accepted the disclosure of the seized cash as the income of the individual and, therefore, it cannot be said that assessee trust has violated the provisions of Section 13(1)(d). None of the ingredients of Section 13 is attracted to the facts of the present case.
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