Karnataka H.C : the assessee had received donations of Rs. 28,30,094, from the Engineering/MCA students contrary to the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 and the principles enunciated by the apex court in a number of judgments which was opposed to law and violative of the public policy and consequently, cannot be treated as a charitable organisation

High Court Of Karnataka

DIT (Exemptions) Vs. Sri Belimatha Mahasamsthana Socio Cultural And Educational Trust

Assessment Year 2001-02

Section : 2(15)

K.L. Manjunath And Mrs. B.V. Nagarathna, JJ.

IT Appeal No. 222 Of 2004

March 8, 2010

JUDGMENT

Mrs. B.V. Nagarathna, J. – The Revenue has filed this appeal by challenging the order dated October 22, 2003, passed in I. T. A. No. 498/Bang/ 2003 for the assessment year 2001-02.

2. The facts leading to the filing of this appeal are that the assessee which is in the status of an association of persons for the assessment year 2001-02 filed a return of income declaring “nil” income and claiming exemption under section 11 of the Income-tax Act, 1961. The said return was taken up for scrutiny assessment and the Assessing Officer found that the assessee had not maintained proper books of account and that the assessee was receiving cash from unknown sources which was not explained properly and, consequently, held that the trust was not being administered in accordance with law and consequently, denied the exemption under section 11 of the Act. Accordingly, he held that a sum of Rs. 28,30,094 collected towards donations from students were contrary to law and that the trust was acting opposed to public policy and had, failed to comply with the pre-requisite of a charitable organisation. Further, the Assessing Officer disallowed a sum of Rs. 14,36,500 which was shown as corpus donation as the source of such donations had not been proved by the assessee and, therefore, the said amount was also not allowed as an exemption under section 11(1)(d) of the Act. The Assessing Officer also disallowed a sum of Rs. 6,00,747 by treating the same as cash credit and unaccounted investment. Consequently, the said amounts were brought to tax as income by an order dated August 29, 2002.

3. Being aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) which was rejected by an order dated March 3, 2007. Being aggrieved by the said order, further appeal was preferred before the Income-tax Appellate Tribunal, Bangalore. The Tribunal however, held that the dominant object of the assessee organisation was charitable in nature and that it had a registration under section 12A of the Act and, therefore, was entitled to all benefits under section 11 of the Act. The said order is under challenge in this appeal by raising substantial questions of law.

4. As far as the amount of Rs. 6,00,747 with regard to peak deficit cash balance is concerned, the Tribunal held that the assessee, did not explain the donations of the assessee and held in favour of the Revenue in respect of which a separate appeal has been preferred by the assessee. When the matter was admitted, the following substantial questions of law were formulated as had been done by the appellant in the memorandum of appeal.

“1.Whether the Tribunal failed to examine and record a finding as held by the Assessing Officer that the assessee had received donations of Rs. 28,30,094, from the Engineering/MCA students contrary to the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 and the principles enunciated by the apex court in a number of judgments which was opposed to law and violative of the public policy and consequently, cannot be treated as a charitable organisation ?

2.Whether the Tribunal was correct in holding that the assessee was entitled to exemption/benefit under section 11 of the Act after having recorded a categorical finding that exemption under section 10(23C)(iiiad) of the Act cannot be extended to the assessee and that it had raised cash to meet the expenses without identifying the source ?

3. Whether the Tribunal was correct in holding that as the assessee’s dominant object was charitable all other violations as noted by the Assessing Officer would be relegated to the second place and the assessee would be entitled to the benefit of exemption ?

4. Whether the Tribunal committed an error in failing to take into consideration the disallowances made by the Assessing Officer of peak cash deficit of Rs. 6,00,747 corpus donation of Rs. 14,36,500 being contrary to section 11(1)(c) of the Act and Rs. 1,33,12,616 as excess income over expenditure and consequently, recorded a perverse finding which would have clearly established that the assessee was not entitled to exemption ?”

5.However, after hearing the learned counsel on both sides and on their submissions only the following substantial questions of law are required to be answered in this appeal.

“1. Whether the Tribunal failed to examine and record a finding as held by the Assessing Officer that the assessee had received donations of Rs. 28,30,094 from Engineering/MCA students contrary to the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 and the principles enunciated by the apex court in a number of judgments which was opposed to law and violative of public policy and, consequently, cannot be treated as a charitable organisation ?

2.Whether a sum of Rs. 14,36,500 which was shown as corpus donation by the assessee is contrary to the provisions of section 11(1)(d) of the Act. Therefore, the Tribunal recorded a perverse finding and hence the assessee is not entitled to exemption ?”

6. Learned counsel for the Revenue submits that the respondent/assessee is an educational trust running professional courses. However, in terms of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, it is barred from receiving any kind of donation from the students and in the instant case the Assessing Officer was justified in holding that the amount collected as donations from the students for the purpose of admission to the Engineering/MCA course and the same was in violation of the said Act. The said collection would disentitle the assessee from being entitled to the benefits under the Income-tax Act as a the charitable institution. He further submits that the claim made by the assessee with regard to the corpus donations is not supported by the assessee by giving names and addresses of the donors, the date and mode of receipt and the purpose for which the donations were made and, therefore, the Assessing Officer was right in holding that in the absence of the identity of the alleged donors and the same being reflected in the books of account of the assessee, the said amount would not be entitled to any deduction under the Act. He, therefore, submits that the Tribunal was not justified in reversing the finding on these aspects of the matter and that the substantial questions raised in this appeal would have to be answered in favour of the Revenue.

7. Per contra, learned counsel for the respondents has submitted that the donations made to an extent of Rs. 28,30,094 cannot be attributable to the allotment of any seat to the students or that there is any violation committed by the assessee with regard to the Prohibition of Capitation Fee Act. In fact the said donation cannot be termed as capitation fee, therefore, the Tribunal was justified in concluding that the said amounts would have to be exempted from tax. He has also stated that as far as the corpus donations are concerned, keeping in mind the nature of the organisation and its standing innumerable persons who are acquainted with the trust would make donations and when the said amount is set apart towards the corpus funds the exemption under section 11(1)(a) has to be given under section 11(1)(d) of the Act. He, therefore, contends that there is no merit in this appeal.

8. Having heard the counsel on both sides and on a perusal of the material on record, it is not in dispute that the respondent-assessee is a social, cultural and educational trust, running educational institutions and having various professional courses. However, the contention of the learned counsel for the Revenue, that the amounts were collected for the purpose of allotment of seats to students for the relevant assessment year is not found on any materials and the same is not apparent from the record. Merely because the respondent is an institution which is running professional courses, it could not have been presumed by the Assessing Officer that the said amount which were received as donations was attributable to the allotment of seats in the relevant assessment years. In the absence of there being any foundation for such a contention, we are unable to accept the said contention of the counsel for the Revenue that the donations received to an extent of Rs. 28,30,094 during the said period is in violation of the Prohibition of Capitation Fee Act, 1984, and, therefore, the trust had acted opposed to public policy, consequently, was not entitled to be treated as a charitable organisation. The Tribunal was hence justified in reversing the findings of the Assessing Officer and the first appellate authority on this aspect of the matter and granting relief to the assessee, which is our view is just and proper.

9. As far as the amount of Rs. 14,36,500 which is claimed by the assessee in the name of corpus donation is concerned, though the assessee was not able to give the name and address of the donors as well as the mode payments, etc., the fact that such amount has been received by the trust is not in dispute. The Tribunal in fact has not accepted the contention of the assessee that the said donation has to be treated as corpus donation. On the other hand, the Tribunal has held that the said amount since it has come from third parties the same could have to be treated as income. However, if the said amount is utilised or expended for charitable purpose, then the said amount would be eligible for exemption under section 11(1)(d) of the Act. The Tribunal rightly rejected the claim of the assessee to treat the said amount as corpus donations and has correctly in our view granted the relief under section 11(1)(d) on this aspect of the matter also.

10. For the aforesaid reasons, we find that the substantial questions of law raised in this appeal will have to be answered against the Revenue and accordingly this appeal is dismissed.

[Citation : 336 ITR 694]

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