Gujarat High Court
Director Of Income Tax (Exemption) vs N H Kapadia Education Trust on 3 March, 2020
Author: J. B. Pardiwala
Bench: J.B.Pardiwala, Bhargav D. Karia
C/TAXAP/860/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 860 of 2013
With
R/TAX APPEAL NO. 861 of 2013
With
R/TAX APPEAL NO. 862 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed to YES
see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy of NO
the judgment ?
4 Whether this case involves a substantial question of NO
law as to the interpretation of the Constitution of India
or any order made thereunder ?
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DIRECTOR OF INCOME TAX (EXEMPTION)
Versus
N H KAPADIA EDUCATION TRUST
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Appearance:
MRS MAUNA M BHATT(174) for the Appellant(s) No. 1
MR SN SOPARKAR SENIOR ADVOCATE WITH MR.PARTH
CONTRACTOR(7150) for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 03/03/2020
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C/TAXAP/860/2013 JUDGMENT
COMMON ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1 Since the substantial questions of law formulated in all the captioned Tax Appeals are common, those were heard analogously and are being disposed of by this common judgement and order.
2 For the sake of convenience, the Tax Appeal No.860 of 2013 is treated as the lead matter.
3 This Tax Appeal under Section 260A of the Income Tax Act, 1961 [for short, 'the Act, 1961'] is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad 'C' Bench dated 5th April 2013 in the ITA No.279/Ahd/2013 for the A.Y. 200405.
4 This Tax Appeal came to be admitted on the following substantial questions of law as formulated vide order dated 8th October 2013:
"(i) Whether the Appellate Tribunal has substantially erred in deleting the addition of Rs.2,65,41,525/ ignoring that the receipts from the students at the time of seeking admission was not towards corpus of the Trust but was for the service rendered by the School to the students and hence income of the assessee?
(ii)Whether the Appellate Tribunal has substantially erred in holding that the assessee is entitled to exemption u/s 11 of the Act despite utilization of the Trust funds for the purpose other than the charitable object of the Trust as also applicability of Section 13(1)(c) of the Act?"
5 The aforenoted two substantial questions of law came to be formulated in the following factual background.
6 The respondent assessee is a charitable Trust engaged in the Page 2 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT
charitable activity of imparting education. The objects of the Trust, according to the Trust Deed, are as under:
"(i) To open Educational Institutes for the spread of physical, mental, moral, philosophical and industrial training.
(ii) To grant free scholarship, loan, prize and assistance of books to the students studying in school and colleges.
(iii) To establish or construct or to do activity for maintenance of public institutes like school, colleges, hostels, dharamsalas, hospitals, gyms, library, etc.
(iv) For the progress of the society to undertake scientific industrial and educational research. To help for the maintenance of public institutes.
(vi) To publish quality books for uplift of moral, philosophical and educational qualities of the society.
(vii) To construct monuments for achieving above referred objects or to give donation to such institutes."
7 It appears from the materials on record that the Assessing Officer passed an order of scrutiny assessment under Section 143(3) read with Section 147 of the Act declining to grant the deduction as claimed by the assessee under Sections 11 and 12 of the Act, 1961. The claim towards deduction came to be declined on the ground that the registration of the Trust under Section 12A of the Act, 1961 had been cancelled by the DIT(E), Ahmedabad with effect from 21 st March 1990. The respondent assessee, being dissatisfied with the order passed by the DIT(E), Ahmedabad, preferred an appeal before the Appellate Tribunal, Page 3 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT Ahmedabad. The appeal came to be allowed by the Appellate Tribunal. The Revenue challenged the order passed by the Appellate Tribunal before this High Court. In view of the order passed by the Appellate Tribunal, Ahmedabad, the assessee went in appeal for the relevant assessment year against assessment order for the year consideration before the CIT(A), who, in turn, partly allowed the same. The Revenue, being dissatisfied with the order of the CIT(A), preferred the appeal before the Appellate Tribunal and the same came to be dismissed.
8 It appears that the Trust received donation aggregating to Rs.2,65,41,525/ under the various heads of activity relating to donation. The assessee claimed the same as a corpus donation. The Assessing Officer rejected the claim of the assessee holding the same as revenue receipts and made the addition. The assessee went in appeal before the CIT(A). The CIT(A) deleted the addition holding that although the donation was of revenue nature, yet it still retains the character of donation to corpus funds and such donation is eligible for exemption under Section 11(1)(d) of the Act, 1961.
9 The Revenue went in appeal before the Appellate Tribunal. The Appellate Tribunal dismissed the appeal. The Appellate Tribunal while affirming the order of CIT(A) relied upon the decision of the assessee's own case in the ITA No.1321/Ahd/2011 dated 3rd February 2012.
10 It also appears that the assessee had claimed exemption under Sections 11 and 12 of the Act, 1961 respectively in its return of income. The Assessing Officer declined to grant such exemption under Sections 11 and 12 of the Act, 1961 on the ground that the registration of the Trust had been cancelled under Section 12 (A) of Page 4 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT the Act, 1961. The CIT(A) took the view that the assessee was entitled to exemption under Sections 11 and 12 of the Act because the registration, ultimately, came to be restored by the Appellate Tribunal vide order dated 3rd February 2012 with effect from 21st March 1990.
11 In such circumstances referred to above, the Revenue is here before this Court with the present appeal.
12 Ms. Mauna Bhatt, the learned senior standing counsel appearing for the Revenue vehemently submitted that the Appellate Tribunal committed a serious error in deleting the addition of Rs.2,65,41,525/ overlooking the effect that the receipts were in favour of the students at the time of admission were not towards the corpus of the Trust, but were for the services rendered by the school to the students, and therefore, would constitute an income of the assessee. Ms. Bhatt would submit that the Assessing Officer also noticed that the monthly remuneration of Rs.30,000/ was paid to the Managing Trustee and Rs.12,000/ to the wife of the Managing Trustee. According to Ms. Bhatt, such payment of remuneration could be said to be in violation of Sections 13(1)(c)(ii), 12(2)(c) and 13(2)(g) of the Act, 1961, and therefore, the assessee is not entitled to deduction under Section 11 of the Act, 1961.
13 In such circumstances referred to above, Ms. Bhatt prays that there being merits in this appeal and the same be allowed and the impugned order passed by the Appellate Tribunal be quashed and set aside.
14 On the other hand, this appeal has been opposed by Mr. Soparkar, the learned senior counsel assisted by Mr. Parth Contractor, the learned counsel appearing for the respondent assessee. The learned senior Page 5 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT counsel would submit that no error, not to speak of any error of law could be said to have been committed by the Appellate Tribunal in passing the impugned order. Mr. Soparkar would submit that there is no iota of material to indicate that the assessee Trust had indulged in any illegal activity and is not existing for the educational purposes.
15 Mr. Soparkar invited our attention to the judgement delivered by this Court in the Tax Appeal No.356 of 2012 decided on 28 th September 2018. The Tax Appeal No.356 of 2012 was filed by the Revenue against the very same assessee who is here before us. The issue before the Court in the Tax Appeal No.356 of 2012 was with regard to the restoration of the registration in favour of the Trust accorded under Section 12A of the Act, 1961. According to Mr. Soparkar, the observations made by the Coordinate Bench in the said judgement speak for itself. Mr. Soparkar invited our attention to few relevant observations made by the CIT(A) as well as by the Appellate Tribunal, more particularly, with regard to the corpus donation.
16 In such circumstances referred to above, the learned senior counsel prays that there being no merits in this appeal, the same be dismissed and the substantial questions of law may be answered in favour of the assessee and against the Revenue.
● ANALYSIS:
17 Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the Appellate Tribunal committed any error in passing the impugned order.
18 We must first look into the judgement of this Court in the case of Page 6 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT
very same assessee rendered in the Tax Appeal No.356 of 2012. In the said Tax Appeal, three substantial questions of law were considered. Those are as under:
"[A] Whether the Appellate Tribunal has substantially erred in setting aside the order of DIT(E) u/s 12AA(3) of the act and further restoring the registration granted u/s12A of the I.T. Act?
[B] Whether the Appellate Tribunal has substantially erred in not taking cognizance the latest amendment in the nature of proviso to section 2(15) of the I.T. Act inserted with effect from 01/04/2009?
[C] Whether the Appellate Tribunal has substantially erred in ignoring the fact that in view of the amended provisions of Section 2(15) of the Act, the objects of the assessee association no more remain charitable?"
19 We quote the observations made in the judgement:
"3 Respondentassessee is a Trust registered under the Public Trusts Act and is engaged in educational activities. The Trust runs various schools. The Trust was also granted registration under section 12A of the Income Tax Act, 1961 ('the Act' for short) by an order dated 21.03.1990 by the Commissioner of Income Tax, Ahmedabad.
4 The Director of Income Tax (Exemptions), Ahmedabad, issued a show cause notice dated 10.02.2011 proposing cancellation of registration of the Trust on three principal grounds which can be summarized as under:
I. During the assessment proceedings for assessment year 200809, it was noticed that an amount of Rs.4.50 crores was transferred by the Trust to one of its trustees and his sons who had in turn paid a sum of Rs.3.50 crores to one Sonalben Jaksania towards agreement to purchase land from her. It was averred that no sale deed was executed so far. The transaction with the trustee Muktak Kapadiya and his son was not reflected in the Form10B. According to the Director of Income Tax, the Trust has thus concealed the actual mode of transaction and transferred the funds to the trustee by violating the provisions of section 13(1)(c) of the Act. II. It was seen from the record that the land proposed to be acquired by the Trust is an agricultural land which was not yet controverted into non agricultural use. Objects of the Trust are educational and Page 7 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT not for carrying out agricultural activities. The Trust therefore cannot divert its funds for the purpose of agriculture. III. The Trust had collected a sum of Rs.1.90 crores (rounded off) from students at the time of their admission. This amount was directly credited to the balance and claimed as corpus donation instead of showing it in the income and expenditure account. The Trust had failed to establish that such amount was by way of corpus donations.
5 On the basis of these allegations, the Director of Income Tax wished to come to following conclusions:
"Thus, the trust has violated provisions of section 11(1)(d) and 13(1)(C)(ii) of the I.T. Act, 1961 and is not eligible for registration u/s 12A(I) of the I.T. Act, 1961. It clearly attracts the amended definition of "charitable purpose" in section 2(15) of the I.T. Act, 1961 by insertion of a proviso w.e.f. 1.4.2009 as the aforesaid activities show their commercial nature."
6 In response to such show cause notice, the assessee appeared before the Director and made written as well as oral submissions. The gist of opposition of the Trust is as under:
(I) The registration was granted to the Trust under section 12A of the Act which cannot be cancelled under section 12AA(3) of the Act unless the two grounds on which such cancellation is envisaged are established.
(II)In the present case, there is no allegation of the activities of the Trust not being genuine or that the same not being carried out in accordance with the object of the Trust. Powers under section 12AA(3) of the Act therefore cannot be exercised. (III) With respect to the acquisition of land, it was contended that the payments made to Sonalben Jaksania towards the purchase of agricultural land which had correlation to the object of the Trust to impart education. The Trust wanted to expand and diversify its educational activities on the S.G.Road area which was a fast growing area in the outskirts of Ahmedabad city. It was further contended that no money was retained by the trustees or their family members. The agreement to sell was executed in the capacity as a trustee. The payment made was reflected in the books of the assessee Trust as advance towards land purchase. In fact, the trustees had advanced money to the Trust.
(IV) With respect to the donations received from the students or the parents, it was conveyed that the contributions were made with specific purpose; such as for construction of buildings, staff welfare fund, students' welfare fund etc. It was contended that the accounting treatment given by the Trust to such receipts was Page 8 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT consistently followed by the Trust and was a recognized accounting method. In any case, this cannot be the ground for cancellation of the registration of the Trust.
(V)It was also contended that the amended definition of the term "charitable purpose" contained in section 2(15) of the Act with effect from 01.04.2009 would have no application in the present case. None of the activities of the Trust are in the nature of commercial activities. The educational institute in question run by the Trust is a selffinanced institution and does not depend on Government grant.
7 The Director of Income Tax however was unmoved. He passed an order dated 17.03.2011 canceling registration of the Trust from inception. He referred to the objects of the Trust contained in Trust deed which were all in the nature of carrying out and promoting educational activities and observed that these objects do not envisage involvement of the Trust in transactions of commercial nature permitting the Trust to transfer its funds to the trustees or his sons who could in turn pay part of it towards agreement to sell of the land to the land owner. He observed that the sale deed had still not been executed. He therefore concluded that the Trust was engaged in activities of commercial nature. He then referred to section 2(15) of the Act defining the term 'charitable purpose' which was amended with effect from 01.04.2009.
01.10.2018 8 In the context of amended section 2(15) of the Act, he observed that the activities of the Trust were not genuine and were not being conducted in accordance with the objects of the Trust and therefore, the Trust had lost the status of a charitable organization. Its activities were being carried on along commercial lines.
9 The assessee challenged this decision of the Commissioner before the Tribunal. The Tribunal took note of the documents on record and the rival contentions. Tribunal allowed the assessee's appeal by the impugned judgement. The summary of the Tribunal's consideration and conclusions is as under:
(I) The Tribunal recorded that the assesseeTrust is running educational institution since decades. The activities of the Trust cannot be stated to be nongenuine.
(ii)It was noted that purpose of acquiring land was for expanding educational activities of the Trust. The payment was made to the land holder. It was accounted in the Trust account under the head "advance towards land". Such payment was not reflected in the accounts of the Managing trustee or his family members. The land Page 9 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT was purchased not for investment but to setup educational institution. There was thus no case of altering the objects of the Trust.
(iii) In relation to the amended section 2(15) of the Act, the Tribunal was of the opinion that the amended proviso would apply only in case of advancement of any other object of general public utility and in such a case it shall not be a charitable purpose. Case of the assessee therefore would not fall within the amended section 2(15) of the Act. It was also noticed that the accounts of the assesseeTrust reveal deficit of Rs. 75.18 lacs and expenditure of Rs. 5.80 crores was made towards the educational activities.
(iv) Commenting on section 12AA inserted in the Act w.e.f.
01.04.1997, the Tribunal was of the opinion that for the alleged violations of section 11(1)(d) or section 13(1)(c) of the Act, registration of the Trust cannot be cancelled in exercise of powers under section 12AA(3) of the Act.
10 Appearing for the Revenue, learned counsel Mrs. Bhatt vehemently contended that the Tribunal has committed an error in disturbing order of the Commissioner. Sizeable funds from the corpus of the Trust were transferred to the Managing trustee and his sons ostensibly to purchase agriculture land. Sale was not completed for years later on. The objects of the Trust did not permit the Trust to engage in agriculture activities. Donations were received from students in the nature of capitation fees. It was thus clear that the Trust was engaged in profiteering. The Commissioner was therefore perfectly justified in cancelling the registration.
11 On the other hand, learned counsel Mr Soparkar opposed the appeal contending that the Tribunal has correctly examined the relevant aspects emerging from the record. The Trust desired to purchase land in newly developing area in the outskirts of the city of Ahmedabad where educational institution could be set up. The decision to purchase agriculture land and then to apply for conversion arose out of commercial expediency. The Trust probably hoped to acquire agriculture land in the name of the trustee who enjoyed agriculture status at a cost lesser than the nonagriculture land would be available. The expenditure was debited in the accounts of the Trust. The trustee has never claimed any title or interest in the land. Merely because of some legal complications, the sale deed could not be completed would not imply that the funds of the Trust were diverted for unauthorized use.
12 Counsel further submitted that there is no prohibition against collecting funds from the students particularly, in selffinance institutions. Even educational institutions enjoying registration under the Act are allowed to retain a portion of the profit out of such activity as long as the same is utilized for the purpose of its educational activities.
13 Counsel lastly contended that, in any case, section 12AA(3) of the Page 10 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT
Act did not permit cancellation of registration on the ground of violation of section 11(1)(d) or 13(1)(c) of the Act.
14 Before adverting to the rival contentions, we may take brief note of this statutory provisions. Section 11 of the Act pertains to income from property held for charitable or religious purposes. Subsection (1) of section 11 provides that subject to the provisions of sections 60 to 63, the income referred to in clauses (a) to (d) shall not be included in the total income of the previous year of the person in receipt of the income. Clause(d) of subsection (1) of section 11 pertains to income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. Section 12 of the Act pertains to income of trusts or institutions from contributions. Subsection (1) of section 12 provides that any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that it shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property holding under Trust wholly for charitable or religious purpose and the provisions of that section and section 13 shall apply accordingly. Section 12A prescribes the conditions for applicability of section 11 and 12. Under subsection (1) of section 12A, one of the conditions is requirement of such trust or the educational institution being registered under section 12AA of the Act. Section 12AA of the Act in turn, prescribes the procedure for registration. Subsection (3) which was added to section 12AA w.e.f. 01.10.2004 reads as under:
"(3) Where a trust or an institution has been granted registration under clause (b) of subsection (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)] and subsequently the [Principal Commissioner or] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:
Provided that no order under this subsection shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]
15 In terms of subsection (3) of section 12AA thus, the registration can be cancelled in case of a trust or institution if the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the object of the Trust or institution, thereupon, he would pass an order in writing canceling the registration of trust or new.
Page 11 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021C/TAXAP/860/2013 JUDGMENT 16 Section 13 carries a title "Section 11 not to apply in certain cases".
Subsection (1) of section 13 inter alia provides that nothing contained in section 11 or 12 shall operate so as to to exclude from the total income of the previous year of the person in receipt thereof in case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof if any part of such income or property of the trust or institution is during the previous year unused or applied directly or indirectly for the benefit of any person referred to in subsection (3). 17 From the above provisions, it can be immediately seen that the event of cancellation of registration of a Trust in exercise of powers under subsection (3) of section 12AA of the Act would arise when the Commissioner is satisfied that the activities of such Trust or institution are not genuine or are not being carried out in accordance with the objects of the Trust or institution. Mere breach of the provisions contained in section 11(1)(d) or 13(1)(c) per se would not fall within the either of the two grounds available to the Commissioner to cancel the registration viz. The activity of the Trust not being genuine or not being carried out in accordance with the objects of the Trust. The Tribunal was thus perfectly justified in coming to such a conclusion. Our view that we expressed gets force from the decision of Uttranchal High Court in case of Welham Boy's School. Society vs. Central Board of Direct Taxes and anr reported in 285 ITR 74 19 The Commissioner in order to bring his conclusions within the the fold of subsection (3) of section 12AA of the Act extrapolated his findings that the Trust had diverted its funds for the objects other than for which the Trust was created and the Trust had received donations from the students and the activities of the Trust thus carried on along commercial lines. Both the conclusions, in our opinion, are completely incorrect. The Tribunal had examined the materials on record, agreed with the Trust's contentions that desire on part of the Trust was to acquire land which could be used for setting up educational institution. Agreement to purchase agriculture land was executed in name of the Managing trustee since obviously the Trust should not have even entered into an agreement to purchase agriculture land. Equally, merely because donations are received would not per say imply that the Trust was operating along commercial lines. The Tribunal noted that the Trust was running several self finance educational institutions. Collecting fees for such purpose would be part of the normal activities. Even for an educational institution, to retain a reasonable surplus out of its activities has never been frowned upon by judicial decisions. If at all this is getting more liberal. Prime requirement is that such surplus should not be diverted for any other purpose. It must be utilized for the objects of the Trust. Reference in this respect can be made to decision of Supreme Court in case of Queen's Educational Society vs. Commissioner of Income Tax reported in 372 ITR 699. In the said decision, the Supreme Court considered the parameters for judging whether an institution exist solely for educational purpose and not for Page 12 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT profit. It was observed that the fact, that the institution makes profit, does not necessarily mean it exists for profit. Similar view was expressed by the Supreme Court in case of Visvesvaraya Technological University vs. Assistant Commissioner of Income Tax reported in 384 ITR 37. 20 The Revenue's reliance on the amended section 2(15) is also of no avail. Section 2(15) of the Act defines charitable purpose as to include any relief for the poor, education, yoga, medical relief, preservation of environment including water sheds, forests and wildlife and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. Provisio to subsection (15) to section 2 of the Act was added by the Finance Act, 2010 providing that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration irrespective of the nature of use or application, or retention of the income from such activity. This proviso therefore applies to activity for the advancement of any other object of general public utility. Such activity would be excluded from the definition of charitable purpose if it involves carrying on any activity in the nature of trade, commerce or business or for cess or fee or any other consideration. Clearly, the legislature did not desire this condition or restriction to be attached to the remaining activities which were defined or categorized as charitable purpose under subsection (15) which includes the education. 21 In the result, the questions are answered against the Revenue. Tax Appeal is dismissed."
20 We shall now look into the findings recorded by the CIT(A). It reads thus:
"18. The next ground relates to addition to the donations received towards various funds. The appellant received various donations to various funds established by it for respected activities relating to education as mention in table in para 4 above. During assessment proceeding the appellant claimed the same as corpus donation. The appellant med few confirmations along with PA number, complete address with proof thereof, I have pursued the said confirmation. The said confirmations confirms as under:
"Dear Sir, I, confirm that my son / daughter Hetvi Nikhil Patel is a proud student of your prestigious institute The H.B. Kapadía New High School, Memnagar, Ahmedabad.Page 13 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021
C/TAXAP/860/2013 JUDGMENT We had his/her admission in the year 2004 and had made a corpus donation towards Trust's under mentioned funds No Funds Amount 1 Education Research Fund Rs.3000/ 2 Sports Development Fund Rs.1000/ 3 Library Fund Rs.1000/ 4 Building Fund Rs.3000/ 5 Staff Welfare Fund Rs.1000/ 6 Student's Welfare fund Rs.1000/ Ten Thousand only Rs.
Name : Dr. Nikhil M. Patel My address is: C/421, Pranav Appt. B/h. Sai Mandir Opp. Satadhar Bus Stand, Ghatlodia, Contact No. 9898037357 PAN Card No. AGMPP0449A Signature : _____________ Documents attached.
Pan Card, Voter ID"
18.2 Similar confirmations were filed in respect of various other persons. Though the confirmation reveals that they are in the nature of corpus donation, the claim was rejected by the AO for the reasons stated in pare 4'.3.1 and 432 on page 7 of the order. I Find that without doing any exercise before rejecting the claim is unsustainable in law. Even though the nature maybe revenue receipt but can still retain the character of donation to corpus funds. When a donation is to a corpus. Such corpus can be established for the various objects of the Trust. The different funds established as noted above will still retain the character of Corpus Page 14 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT donation. The law does not require that when the donation is to a Corpus the same cannot be in the nature of use for which such Corpus donation is to be put. Therefore such donation to Corpus fund as confirmed by the donor is eligible for exemption under section 11(1)(d) of the Act. The reasons given for denying deduction U/s 11(1)(d) is that
(i) The Trust is not registered U/s 12A.
(ii) The Trust has violated condition stated in section 13(1)(c](ii); 13(2)
(b) & 13(2)(g) of the Act.
18.3 However, it is found that the order of revocation of registration U/s 12A has been restored by the Hon. ITAT. I have also held that there is no violation of the provision of section 13(1)(c)(ii); 13(2)(b) & 13(2)(g) of the Act. The appellant is therefore entitled is exemption U/s 11(I)(a) as also section 11(I)(d) of the Act. The addition made in regard to various corpus donation received is therefore deleted for both the years. Grounds of appeal Nos. 2.1, 2.2 & 2.3 are allowed. 19. As regards disallowance of claim of depreciation for the reason that the capital expenditure incurred on Fixed Asset has been allowed as expenditure in earlier years as application of funds. On the other hand, it is contended that depreciation is claimed from year to year but the capital expenditure itself was never claimed as application of fund & depreciation fund is created from year to year which is reflected in the Balance Sheet. ! Have pursued the accounts for the years under appeal. I find that only the expenditure incurred on object of Trust including depreciation is claimed as application of income towards object of Trust. On perusal of statement of computation of income, the same does not reveal any claim for capital expenditure as application of income. The depreciation fund is reflected in the Balance Sheet from year to year. Therefore the reasoning given by the AO is not sustainable so as to deny deduction of depreciation as application of income. The issue is also covered in favor of appellant by the decision of Hon. Gujarat High Court in case of CIT Vs Sheth Manilal Ranchhodas Víshram Bhavan Trust (198 ITR 598 ) where in it was held that while computing income U/s 11(1)(a) of the Act, depreciation has to be allowed. ] therefore delete the disallowance of claim of depreciation for both the years. Grounds of appeal Nos. 3.3 & 3.4 are allowed."
21 The findings recorded by the Appellate Tribunal are as under:
"5 After hearing both the parties and perusing the record, we find that there is no dispute about the fact that all the issues involved in these appeals are covered by the decision of this Tribunal in assessee's own case in ITA No. 1321 / Ahd/ 2011 for A.Y. 200809. Relevant portion of the Tribunal in respect of ground No. 1 reads as under:Page 15 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021
C/TAXAP/860/2013 JUDGMENT "(vi) Agitated with the treatment meted out at the findings of the CIT(A), the Revenue has come up with the present appeal. It was the case of the Revenue that the assessee had collected Rs.
1,90,01,319/ from students at the time of admission. This amount was not CREDITED to the income and expenditure but directly credited to the balance sheet. During the course of scrutiny, the assessee had claimed this as a corpus donation. The assessee could not furnish any evidence in support of the claim that the fees and funds collected from the students was a corpus donation. The fees contributed from students and their parents were for services to be rendered by the school. The contribution by the students and parents are quid pro quo (for service rendered mutually). It was, further, contended that these were not donations, but, payments for admission and services to be rendered by the school; that in the statement of income filed along with the return of income; the amount of corpus donation was shown as Nil. It was, further, argued that it was because the entire donation of Rs.1.90 crores has not been shown in the Income & Expenditure account, but, directly credited to balance sheet and no separate claim of deduction u/s 11(1)(d) of respect of the Act in respect of corpus donation has been claimed in the return.
(vii) We have duly considered the submissions of the either party, thoroughly perused the relevant case records and also the voluminous paper book containing inter alia, copies (i) audited annual account with tax audit report, (ii) trust deed. (m) sample receipts towards corpus fund and tuition fees, (iv) banakath with Mrs Sonusl J Jacasania etc furnished by the Ld. AR during the course of hearing.
(a) The core contention of the Revenue, as rightly highlighted by the CIT (A), was that the contributions aggregating to Rs.190 crores made by the parents/students at the tame of admission in the institution were in consideration of the services to be rendered by the school to the students. In contrast, the documentary evidences, adduced by the assessee go to prove that the amounts were, in fact neither fixed nor identical in all the cases and to illustrate the classical example that almost 331 students have been admitted to the Institution without receiving a penny for such a contribution. The assessee had, in fact, furnished a list running into staggering 29 pages showing the names of the students m standardwise and also the contributions towards 'corpus fund' (Pages 111 138 of PB furnished by the Ld. AR. Copies of ledger accounts of different corpus funds produced by the assessee for Page 16 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT verification exhibit that the amounts received have been credited to each fund account of each receipt from the parents/students. Apart from such contributions towards 'corpus funds', it was noticed that the students have also paid towards tuition fess every year. Had the contribution collected been towards education to be imparted by the school as alleged by the Revenue, the institution would not have resorted to charge separately the monthly/quarterly tuition, term and computer fees? Another salient feature noticed from the evidences produced was that the contribution by way of 'corpus donation' ranges Rs.10000 15000 with no consequence of the medium of instruction and the standard in which the ward (student) was to be admitted. But not admitting, if the contributions were to be quid pro quo as canvassed by the Revenue, the same should have been quite different depending upon the medium of instructionwife and standardwise. Another significant feature observed was that the one time payment of voluntary contribution was nonrefundable - towards different purposes. Viz., library, buildings, sports curriculum activities etc. whereas the tuition fees so collected will be spent for academic field such as education to be imparted to the students by way of stationary, workshop, computer education etc. As rightly refuge by the CIT(A) in the ruling of the Hon'ble Apex Court in the case of Kedarnath Jute Mfg. Ltd v. CIT (82 ITR 363 (SC) to outwit the AO's contention that the so called contribution should have been reflected in the I & E account. The AO had rather failed to distinguish the receipt, of corpus funds from tuition fees, namely, to credit the different corpus fund is directly on the basis of the amount received from the parents / students; whereas under
'Educational infrastructure fund account' the credit is by way of appropriation at every month from tuition fees. At a glimpse of the sample copy of Receipt produced by the assessee as part of evidence (P 81 A 82) of paper book), it was noticed that:
Page. 81 "Receipt towards trust's Corpus Fund Received with thanks contribution towards trust's corpus fund of Rs...."
I affirm the donation to corpus fund: Sign of donar"
page 82 : Receipt No...... Form No....... Std.......
Name:...............
Fees received as under:Page 17 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021
C/TAXAP/860/2013 JUDGMENT
Quarterly/monthly tuition fee
(quarter / per month).....
Term fee (one term)
Stationery & Workshop fee
Computer fee
Total
The above illustration makes implicitly clear that there is distinction between the 'tuition fees' and corpus funds.
(b) Further, the Board of Trustees were empowered (source;
subclause 5 of clause 17 free English translation recorded supra) to accept any money for the objects of the trust and, thus, the voluntary contributions given by the parents/students were the exclusive property of the trust which required to be utilized for the objects of the trust only.
(c) Taking into account all the facts as discussed in the foregoing paragraphs, we are of the considered view that the stand of the AO was rather misconceived in holding that the contribution towards different corpus funds aggregating to Rs,1.9 crores as current income of the assessee liable to be taxed whereas the CIT (A) was justified in her finding that the said contributions were in the nature of corpus funds and as such exempt u/s 12 of the Act. Therefore the order of the Ld. CIT(A) is confirmed with respect to this issue."
6 In respect of Ground N o. 2 and 3 the finding of the Tribunal is as under:
"We have conclusively considered the submissions of the assessee as well as the Revenue and also perused the various documentary evidences adduced by the assessee during the course of hearing.
As pointed out by the CIT (A)P the fund provided by the assessee trust has been paid to the vendor through its trustees and their relatives, precisely, to outsmart the restrictions on transfer of agricultural lands to a nonagriculturist the assessee trust. Since the agricultural lands could be purchased only by an agriculturist as such restriction was prevailed at that relevant time, one of the Page 18 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT trustees Mrs. Rupali N Kapadia, being an agriculturist was made as a conduit to get over the restriction.
The AO's allegation that the purchase of the said land was intended by the trustees for their own benefits/gain etc, doesn't hold water as no documentary evidence was brought on record to thwart the assèssee's claim.
With regard to the payment made by the trustees to the vendor, it was explained that the funds provided by the trust has been paid through its trustees for the reasons recorded supra and that the bankhat clearly indicates that the transaction was made for behalf and on the assessee trust only and not for the personal benefit of any of the trustees. As highlighted by the CIT (A) in the impugned order, the payment made towards purchase of land and was shown by the assessee in its books of account under the head 'advance towards land' (Annexure L to the audited annual a/c) and the Managing Trustee had not claimed anywhere in his books of account that the said payments towards purchase of land. To towering all neither the managing trustee nor any of his relatives for that matter have claimed that the said purchase was made on behalf of them or for their own benefits. We have also perused the confirmation of accounts furnished by Sonalben J Jakasania placed at P 89 of paper book. There were also no documentary evidences to attribute that the said transaction took place only to benefit the managing trustee or his relatives except that the funds of the trust were routed through the trustees to the vendor which merely exhibits the expediency which prevailed at that relevant time. Moreover, the utilization of the trust fund was not for purchase of agricultural land as investment, but was a stepping stone to set up an educational institution in that land. We, therefore, do not find any infirmity in the conclusion of the CIT (A) on this point.
With regard to the observation of the AO that the funds of the trust cannot be said to be properly utilized for objects of the trust as no saledeed had been executed or any construction work was carried out, we find that both the contractors whom the money was advanced towards the construction work to be carried on at the site in their letters dt. 20.11.2010 confirmed before the AO that they were in receipt of advances for the proposed construction work. This goes to prove the genuineness and dedication of the assessee trust to set up an educational institution for which, it had executed a banakhat for purchase of land; and for accomplishing the construction of the building by advancing monies to the contractors cannot be castigated as improper utilization of trust funds. In these Page 19 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT circumstances, we do not find any infirmity in the finding of CIT (A) that 'the advance given by the appellant trust to both these contractors cannot be said to be improper utilization ˙an of trust funds."
Moving on to the other allegation of the Revenue that the excessive salaries paid to Shri MN. Kapadia and Smt. Rupalz Kapadia, we would like to reiterate that due to unstinted efforts and farsightedness, Shri Kapadia has been managing a chunk of student community, also carrying on other administrative work, besides coordinate with various Government agencies. His experience, administrative skill and managing a flagship of institution cannot be that of the Principal of a school/college and other staff of the institution whose activities were confined to their ranks, experience and limited role to their assignments. Therefore, the salaries of Shri M,N. Kapadia and Mrs. Rupaii Kapadia cannot be equated with that of other persons working in the institution at the behest of the assessee trust.
With regard to the use of motor cars provided to the trustees cannot also be considered to be excessive amenities provided to them. As they were expected to commute on daytoday basis to various Government agencies and other allied places which were scattered all over the vast city of Ahmedabad, the assessee trust was expected to extend such minimum facilities to its trustees. This cannot be branded at any stretch of imagination that the trustees have been provided with excessive amenities. The AO's other allegation that the ultimate beneficiary from the student fees and contribution being the family of managing trustees was also without any basis or supported by any valid documentary evidence. On the hand the assessee trust has been magnanimous in its endeavor in contributing liberally by way of donations to various educational institutions, besides discharging its social obligations by admitting many needy students without collecting any contributions, providing free education, supplying of text books, uniforms etc; The services rendered by the assessee trust has been acknowledged by:
(i) Visamokinds (page 98104 of P.B.)
(ii) Gujarat Research Organization Unity (page 107 & 108 of P.B.) (planning Group)
(iii) Manav Sadhna Gandhi Ashram (page 109 of P.B.)
(iv) Proch. Org (page 110 of P.B.) In view of the facts and circumstances as deliberated upon in the foregoing paragraphs and also the reasons recorded exhaustively and elaborately in the impugned by the CIT(A), we are of the considered view that the Page 20 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT assessee trust was entitled to exemption u/s. 11 and 12 of the Act. The department appeal is dismissed."
22 The concurrent finding of fact, as recorded by the CIT(A) and the Appellate Tribunal, is that the amount paid by the parents of the students admitted to the assessee's - educational institution was towards the corpus donation account and the same was not collected by way of capitation fee. If it is the case of the Revenue that the amounts paid by the parents of the students admitted to the assessee's - educational institution was not towards the corpus donation account, but it was collected only by way of capitation fee and such amount of capitation fee is not exempted in the hands of the assessee institution, then the assessing authority ought to have taken pains to undertake a detailed inquiry in this regard by oral examination of parents, etc. who admitted their children in the school. There is no doubt and it goes without saying that if the donation is found to have been given for material gain in securing admission, the same cannot be characterised as donation towards charitable purpose and the assessee would not be entitled to have the benefit, but, unfortunately in the case on hand, in the absence of any material on record, we are unable to take such a view.
23 In such circumstances referred to above, we are of the view that we should not disturb the order passed by the Tribunal affirming the order passed by the CIT(A).
24 Before we close this matter, we would like to observe something important.
25 The Apex Court in the case of Ms. Mohini Jain v. State of Karnataka and Ors. (1992) 3 SCC 666, held that capitation fee was Page 21 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT nothing but price of selling education and such "teaching shops" were contrary to the Constitutional scheme and abhorrent to our Indian culture.
26 The 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.
27 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 and the above fees prescribed by the Committee would amount to collection of capitation fee and such an institution would face the legal consequences for same (Vodithala Education Society Vs. ADIT, [2008] 20 SOT 353 (HYD.)) 28 In the case of SCIENTIFIC EDUCATIONAL ADVANCEMENT SOCIETY v. UNION OF INDIA AND ANOTHER [2010], 323 ITR 84 (P&H), the High Court held that the Educational institution should exist solely for purposes of education and if it is not, the society is not eligible for exemption u/s 10 (23C)(vi) of the Act.
29 In the cases of the present nature, the Assessing Officer is well advised to undertake a detailed inquiry by recording the statements of Page 22 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021 C/TAXAP/860/2013 JUDGMENT the parents. What we are trying to convey is that there should be a meaningful inquiry.
30 In the result, all the three Tax Appeals fail and are hereby dismissed. The substantial questions of law as formulated are answered in favour of the assessee and against the Revenue.
(J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) CHANDRESH Page 23 of 23 Downloaded on : Mon Feb 15 00:05:08 IST 2021