Vellore Institute of Technology, Vellore V. DCIT, CHENNAI

ITA 295/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9039 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-02-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T R SENTHIL KUMAR SR
• Assessee Lawyers: A MAHESH
• Keywords: Gift; Exemption for trust; Recovery proceedings; Business income; Income from undisclosed sources; Document seized; Charitable institution; Maximum Marginal Rate; Capital receipt; Benefit of exemption; Commercial expediency; Documents seized
• Section: 143(3); 153A; 234B; 80G; 12A; 12AA; 132

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS.294 TO 296/MDS/2014 ( / ASSESSMENT YEARS: 2002-03 TO 2004-05 ) M/S.VELLORE INSTITUTE OF TECHNOLOGY, 54, THENNAMARAM STREET, VELLORE-632 014. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE.-IV(1), , 108, M.G.ROAD, CHENNAI PAN: AAATN0569M ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MRS. PUSHYA SEETHARAMAN, SR.ADVOCATE FOR J.SREEVIDYA, ADVOCATE & A.MAHESH, C.A. /RESPONDENT BY : MR. T.R.SENTHIL KUMAR, SR.STANDING COUNSEL /DATE OF HEARING : 28 TH MARCH, 2016 /DATE OF PRONOUNCEMENT : 22 ND JUNE 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE THREE APPEALS ARE FILED BY THE ASSESSEE AG GRIEVED BY THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX, APPEALS(CENTRAL)-I, CHENNAI DATED 31.01.2014 I N ITA NOS.195 TO 197/09-10 PASSED UNDER SECTION 153A R.W. S.143(3) & 250(6) OF THE ACT FOR THE ASSESSMENT YEARS 2002-03 TO 2004-05. 2 ITA NOS.294 TO 296/MDS/2014 2. AT THE OUTSET THE LEARNED DEPARTMENTAL REPRESENT ATIVE OBJECTED TO THE HEARING OF THE APPEAL BECAUSE ACCOR DING TO HIM, THE ISSUE WITH RESPECT TO CAPITATION FEE IS PENDI NG BEFORE THE SPECIAL BENCH OF THE HYDERABAD TRIBUNAL AND HE HAD REQUESTED FOR CLUBBING THESE APPEALS ALONG WITH THOSE APPEALS . THE LEARNED ASSESSEES REPRESENTATIVE ON THE OTHER HAND VEHEMEN TLY INSISTED FOR THE APPEAL TO BE HEARD. ON PERUSING THE MATTER THE BENCH DECIDED TO PROCEED WITH THE HEARING OF THE APPEALS BECAUSE ON THE IDENTICAL ISSUE ARISING OUT OF THE SAME SEARCH PROCEEDING U/S.132 OF THE ACT, SAME SEIZED MATERIALS AND SAME FACTS FOR THE ASSESSMENT YEAR 2001-02 THE LEARNED CIT(A) IN ITA NO.165/2008-09 VIDE ORDER DATED 28/05/2010 AS WELL AS THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.1332/MDS/20 10 AND C.O.NO.94/MDS/2010 VIDE ORDER DATED 09.06.2011 HAD ALREADY DECIDED THE MATTER. MOREOVER, THE REVENUE WAS CONTI NUOUSLY PURSUING COERCIVE ACTION FOR RECOVERY OF TAX FROM T HE ASSESSEE AND THE ASSESSEE WAS AGAIN AND AGAIN SEEKING STAY F ROM SUCH RECOVERY OF TAX BY THE DEPARTMENT WHICH WAS HOTLY C ONTESTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE THE TRIBUNAL. THUS THE REVENUE WAS VEHEMENTLY INSISTING FOR ADJOU RNMENT OF THESE APPEALS FROM BEING HEARD AND AT THE SAME TIME BENT UPON 3 ITA NOS.294 TO 296/MDS/2014 COLLETING THE DEMAND OF TAX. IN THIS SITUATION, THE BENCH DECIDED TO PROCEED FOR HEARING THE APPEALS SINCE THE APPEALS W ERE ALSO NOT TRANSFERRED TO THE HYDERABAD BENCH OF THE TRIBUNAL BEFORE THE SPECIAL BENCH FOR HEARING TILL DATE, AND THESE FACT S ARE NOT DISPUTED BY THE REVENUE. 3. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEALS, HOWEVER, THE CRUXES OF THE ISSUES ARE IDENTICAL AND CONCISED HEREIN BELOW FOR ADJUDICATION:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE VALIDITY OF NOTICE UNDER SECTION 153A OF THE ACT DATED 23.9.2008 AND CONSEQUENT ASSESSMENT AS THE SAID NOTICE IS ILLEGAL AND NON-EST IN THE EYE OF LAW AND THEREFORE LIABLE TO BE QUASHED. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN DENYING EXEMPTION UNDER SECTION 11OF T HE ACT ON THE BASIS OF MERE SUSPICION, SURMISES AND CONJECTURES WITHOUT ANY FACTUAL MATERIAL, INFORMATI ON OR EVEN AN IOTA OF EVIDENCE RELATING TO THE ASSESSMENT YEAR 2002-03, 2003-04 & 2004-05. III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD TREATED THE DONATIONS RECEIVED TOWARDS CORPUS FUND AS CAPITATI ON FEES BASED ON SUSPICION, SURMISES AND CONJECTURES AND THEREBY DENIED THE BENEFIT OF EXEMPTION UNDER SECTION 11(1)(D) OF THE ACT AND BROUGHT TO TAXED SU CH RECEIPTS UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS 4 ITA NOS.294 TO 296/MDS/2014 IV) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD TAXED THE ASSESSEE AT THE MAXIMUM MARGINAL RATE INVOKING THE PROVISO TO SECTION 164(2) OF THE ACT INSTEAD OF TAX ING THE ASSESSEE IF AT ALL BY TREATING IT AS AN AOP UND ER SECTION 164(2) OF THE ACT. V) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD LEVIED INTEREST UNDER SECTION 234A & 234B OF THE ACT. VI) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAS UNILATERALLY CHANGED THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE FROM CASH BASIS TO MERCANTILE BASIS. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REGISTERED PUBLIC CHARITABLE TRUST HOLDING REGISTRATION UNDER SECTION 12A OF THE ACT ENGAGED IN THE FIELD OF EDUCATION. EARLIER THE ASSESSEE TRUST WAS ENJOYING THE BENEFIT UNDER SECTION 10(22) OF TH E ACT UPTO THE ASSESSMENT YEAR 1988-89 UNTIL THE OMISSION OF SECTI ON 10(22) OF THE ACT. THE ONLY ACTIVITY OF THE TRUST IS RUNNING AN ENGINEERING COLLEGE DURING THE RELEVANT ASSESSMENT YEARS WHICH IS HAVING STATUS OF DEEMED UNIVERSITY FROM 19.6.2001. 5. ON 06.06.2006, SEARCH & SEIZURE PROCEEDINGS UNDE R SECTION 132 OF THE ACT WAS INITIATED IN THE PREMISES OF THE ASSESSEE AND CHAIRMAN & FOUNDER TRUSTEE SHRI G.VISHWANATHAN AND HIS FOUR 5 ITA NOS.294 TO 296/MDS/2014 SONS. NOTICE UNDER SECTION 153A OF THE ACT WAS ISSU ED TO THE ASSESSEE ON 23.09.2008 AND DULY SERVED ON THE ASSES SEE. SUBSEQUENT TO WHICH ASSESSMENTS WERE COMPLETED UNDE R SECTION 153A OF THE ACT ON 31.12.2009 FOR ALL THE THREE REL EVANT ASSESSMENT YEARS INCLUDING THE ASSESSMENT YEAR 2001 -02. GROUND NO.1: VALIDITY OF NOTICE UNDER SECTION 153A: 6. ON THE ISSUE OF VALIDITY OF NOTICE UNDER SECTION 153A OF THE ACT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS OBSERVED AS FOLLOWS:- 6.1 APPELLANT RAISED GROUNDS AGAINST THE ISSUE OF NOTICE U/S.153A AND ASSESSMENT FOR ASSESSMENT YEARS 2002-0 3 TO 2004-05: THE APPELLANT HAS CONTENDED AGAINST THE ISSUE OF N OTICE UNDER SECTION 153A FOR THE ASSESSMENT YEARS 2002-03 TO 20 04-05 ON THE GROUND THAT SEARCH U/S.132 ITSELF WAS INVALID A S NO UNACCOUNTED INCOME OR ASSETS WERE DISCOVERED FROM I T OR ITS FOUNDER AND MANAGING TRUSTEE SHRI G.VISHWANATHAN AN D THE INCOME RETURNED AS PER THE ACCOUNTS HAS BEEN ACCEPT ED BUT BROUGHT TO TAX BY DENYING EXEMPTION UNDER SECTION 1 1. 6.2 IN THIS REGARD, I HAVE PERUSED THE RECORDS AND FOUND THAT A WARRANT OF AUTHORIZATION WAS ISSUED BY THE D IT(INV) CHENNAI TO CARRY OUT THE SEARCH ACTION IN THE APPEL LANTS CASE. ACCORDINGLY, SEARCH ACTION U/S.132 OF THE ACT WAS C ARRIED OUT ON 6.6.2007. THE PROVISIONS OF SECTION 153A REQUIRE TH E ASSESSING OFFICER TO ISSUE NOTICE UNDER SECTION 153A WHEN A S EARCH IS INITIATED U/S.32 OF THE ACT. IT DOES NOT CONTEMPLAT E THE SEIZURE OF DOCUMENTS OR THE OUTCOME OF SUCH SEIZURES TO HAVE A BEARING IN THE ASSESSMENT, IN CONTRAST TO THE ERSTWHILE SEC TION 158BBC. HENCE, THE CONTENTION OF THE APPELLANT IS REJECTED. AS A RESULT, THE NOTICE UNDER SECTION 153A AND CONSEQUENTIAL ASS ESSMENTS ARE VALID IN LAW. THEREFORE, THE GROUNDS RAISED IN THIS REGARD ARE DISMISSED. 6 ITA NOS.294 TO 296/MDS/2014 7. THE LEARNED AUTHORIZED REPRESENTATIVE HAS SUBMIT TED WRITTEN SUBMISSION BEFORE US CHALLENGING THE VALIDI TY OF NOTICE UNDER SECTION 153A OF THE ACT STATING AS FOLLOWS:- THE ORIGINAL ASSESSMENTS FOR 2002-03 TO 2004-05 HA VE ALREADY BEEN COMPLETED PRIOR TO THE SEARCH. WHILE ASSESSMENT WAS COMPLETED UNDER SECTION 143(1) OF TH E ACT FOR THE ASSESSMENT YEAR 2002-03 THE ASSESSMENTS FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 WERE COMPLETED UNDER SECTION 143(3) OF THE ACT AFTER DUE HEARING. SINCE IN THE CASE OF THE ASSESSEE THERE WAS NO CONCEALED ASS ET OR CONCEALED INCOME, REASSESSMENT UNDER SECTION 153A I S BAD IN LAW. RELIANCE WAS PLACED IN THE FOLLOWING DECIS IONS:- C.RAMAYA REDDY VS. ACIT REPORTED IN 244 CTR 126 (K AR) VISA COMTRADE LTD. VS. UOI REPORTED IN 243 CTR 348( ORI) ASHOK KUMAR SONI VS. DCIT REPORTED IN 72 TTJ 323(JD ) CIT VS. KABUL CHAWLA REPORTED IN 234 TAXMAN 300 (DE L) CIT VS.CONTINENTAL WAREHOUSING CORPORATION IN ITA N O.523 OF 2013(BOM) 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE LEARNED ASSES SING OFFICER HAD ISSUED NOTICE UNDER SECTION 153A OF THE ACT FOR THE SIX 7 ITA NOS.294 TO 296/MDS/2014 ASSESSMENT YEARS FOR THE PERIOD FROM 2002-03 TO 20 07-08 BASED ON THE SEARCH & SEIZURE ACTION CONDUCTED IN THE PRE MISES OF THE ASSESSEE ON 6.6.2007. HE FURTHER SUBMITTED THAT THE PROVISIONS OF THE ACT DOES NOT PROVIDE FOR EXAMINATION/ASCERTAINI NG THE EXISTENCE OF LEGALITY SUSTAINABLE REASON TO BELIEV E TO INVOKE SECTION 132 OF THE ACT. HE FURTHER SUBMITTED THAT V ARIOUS INCRIMINATING DOCUMENTS WERE SEIZED DURING THE COUR SE OF THE SEARCH AND THEREFORE, THE LEARNED ASSESSING OFFICER IS LEGALLY EMPOWERED AS PER SECTION 153A(B) OF THE ACT TO ASSE SS OR REASSESS THE TOTAL INCOME OF THE ASSESSEE FOR THE S IX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR. RE LIANCE WAS PLACED IN THE DECISION OF HONBLE ALLAHABAD HIGH CO URT IN THE CASE OF CIT VS.RAJ KUMAR ARORA REPORTED IN 52TAXMANN.COM /172 WHEREIN IT WAS HELD THAT THE ASSESSING OFFICER HAS POWER TO REASSESS THE RETURNS OF THE ASSESSEE NOT ONLY FOR U NDISCLOSED INCOME FOUND DURING THE SEARCH OPERATION BUT ALSO W ITH REGARD TO MATERIALS THAT WAS AVAILABLE AT THE TIME OF ORIGINA L ASSESSMENT. HE ALSO PLACED RELIANCE IN THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CANARA HOUSING DEVELOPMENT CO. VS. DCIT REPORTED IN 49 TAXMANN.COM 98, WHEREIN IT WAS HELD THAT INITIATION OF PROCEEDINGS UNDER SECTION 153A OF THE ACT DOES NOT DEPEND 8 ITA NOS.294 TO 296/MDS/2014 ON ANY UNDISCLOSED INCOME BEING UNEARTHED DURING TH E COURSE OF SEARCH. 9. AFTER HEARING BOTH SIDES, WE ARE OF THE CONSIDER ED VIEW THAT INITIATION OF PROCEEDINGS UNDER SECTION 153A OF THE ACT BY THE LEARNED ASSESSING OFFICER IS IN ACCORDANCE WITH LAW BECAUSE FROM THE SEARCH PROCEEDINGS VARIOUS MATERIALS REVEALED T HAT THERE IS A POSSIBILITY OF THE ASSESSEE HAVING UNDISCLOSED / CO NCEALED INCOME DUE TO FURNISHING OF INCORRECT PARTICULARS. THEREFO RE, AS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE DECISIONS RELIED UPON BY HIM, WE FIND THAT ISSUANCE OF NOTICE UNDER SECTION 153A IN THE CASE OF THE ASSESSEE IS VALID IN LAW FO R ALL THE THREE ASSESSMENT YEARS. ACCORDINGLY, THIS GROUND RAISED B Y THE ASSESSEE IS DEVOID OF MERITS AND ACCORDINGLY DISMIS SED FOR ALL THE THREE ASSESSMENT YEARS. GROUND NOS.2 & 3 : DENIAL OF EXEMPTION UNDER SECTION 11OF THE ACT BY TREATING THE DONATION RECEIVED AS CAPITAT ION FEES: 10. AS THE RESULT OF THE MATERIALS SEIZED IN THE SE ARCH OPERATION IN THE CASE OF THE ASSESSEE AND THE RELEVANT PROCEE DINGS THE LEARNED ASSESSING OFFICER CAME TO THE CONCLUSION TH AT THE ASSESSEE TRUST IS ENGAGED IN ITS ACTIVITY AS A COMM ERCIAL CONCERN 9 ITA NOS.294 TO 296/MDS/2014 WITH PROFIT MOTIVE BY SALE OF EDUCATION IN THE FORM OF RECEIVING CAPITATION FEES UNDER THE GARB OF VOLUNTARY DONA TIONS. HE FURTHER OPINED THAT THE SURPLUS AMOUNT EARNED BY TH E ASSESSEE BY WAY OF COLLECTING FEES / DONATION/ CAPITATION FEE C EASES TO BE EXEMPT FROM TAX AND THEREFORE LIABLE TO BE TAXED AT THE RATES APPLICABLE TO ASSOCIATION OF PERSONS UNDER SECTIO N 164(2) OF THE ACT. THE LEARNED ASSESSING OFFICER FOR ARRIVING AT THE ABOVE CONCLUSION HAD CITED ELABORATE REASONS IN HIS ORDER AND THEY ARE CONCISED HEREIN BELOW FOR REFERENCE:- I) THE INSTITUTION HAS 15% NON-RESIDENT QUOTA AND I N PRACTICE, NUMBER OF STUDENTS ADMITTED UNDER THIS QU OTA IS ALWAYS LESS AND THEREFORE THE VACANCIES IN THIS POO L ARE THE SUBJECT MATTER OF DISCRETION OF THE MANAGEMENT. II) VACANCIES ARISING OUT OF CANDIDATES WHO HAVE GI VEN UP ADMISSION UNDER THE MERIT QUOTA ARE ALSO FILLED UP BY THE MANAGEMENT USING ITS DISCRETIONARY POWERS. III) FROM THE SWORN STATEMENT OF SHRI G.VISHWANATHA N, MANAGING TRUSTEE RECORDED ON 6.6.2007, IT IS CLEAR THAT THERE IS SCOPE FOR INCREASING THE NRI / MANAGEMENT QUOTA WHICH WILL CONSEQUENTLY REDUCE THE MERIT QUOTA. 10 ITA NOS.294 TO 296/MDS/2014 IV) FROM THE SWORN STATEMENT OF SHRI G.V.SAMPATH, P RO- CHANCELLOR (ADMN) AND SHRI R.VIJAYAKUMAR, SECRETARY TO PRO-CHANCELLOR BOTH RECORDED ON 6.6.2007; IT IS EVI DENT THAT THE ADMISSION OFFICER HAS COMPLETE KNOWLEDGE ABOUT THE REAL STATE OF AFFAIRS OF THE INSTITUTION. V) FROM THE STATEMENT OF THE ADMISSION OFFICER SHRI JAMES JEBASEELAN RECORDED ON 6.6.2007, IT IS CLEAR THAT T HE MANAGEMENT QUOTA IS FILLED UP BY ADMITTING STUDENTS ON PAYMENT OF DONATION. VI) IN SHEET NO.11 UNDER SEIZED ITEM ANN/CRK/LS/S/7 & IN SHEET NO.1 TO 6 UNDER SEIZED ITEM ANN/MM/B & D/S-34 PORTRAYS THAT THERE IS MANAGEMENT AND NRI QUOTA AND FROM SHEET NOS.5, 4, 8 TO 30 ETC., REVEAL THAT THE ADMIS SIONS ARE MADE ON DISCRETIONARY BASIS WHO ARE REFERRED BY SEV ERAL KEY PERSONALITIES. VII) FROM THE ABOVE, IT IS EVIDENT THAT THE INSTITU TION HAS MANAGEMENT QUOTA TO BE FILLED UP BY USING ITS DISCR ETIONARY POWERS WHICH GIVES SCOPE FOR RECEIVING CAPITATION FEES IN THE GARB OF DONATIONS. VIII) THE ASSESSEE HAS BEEN CREDITING EVERY YEAR W ITH SIZEABLE AMOUNT TOWARDS CORPUS FUND APART FROM THE SURPLUS 11 ITA NOS.294 TO 296/MDS/2014 GENERATED FROM THE ACTIVITY OF RUNNING THE INSTITUT ION. THESE AMOUNTS ARE INCREASING YEAR AFTER YEAR. IX) IN THE SWORN STATEMENTS RECORDED ON 6.6.2007 F ROM MR. V.SANKAR, PRO-CHANCELLOR, SON OF MR. VISWANATHAN, MANAGING TRUSTEE, HE HAS ADMITTED FOR RECEIVING RS.8,00,000/- AS CAPITATION FEE FOR GRANTING ADMIS SION TO B.TECH & BIO-TECHNOLOGY COURSE AND FURTHER HE HAD ADMITTED THAT THE DONATIONS ARE DETERMINED BY THE T RUSTEES FOR EACH COURSE DEPENDING UPON THE EXPENDITURE INCU RRED FOR THE RESPECTIVE COURSE LIKE LAB FACILITY ETC. X) THE STATEMENT OF SHRI R.VIJAYAKUMAR, SECRETARY T O PRO- CHANCELLOR RECORDED ON 6.6.2007 ALSO REVEALS THAT T HE INSTITUTION IS COLLECTING CAPITATION FEE FROM THE S TUDENTS. XI) THE STATEMENT RECORDED FROM MR.JAMES JEBASEELAN , ADMISSION OFFICER ON 6.6.207 REVELS THAT IN THE CAS E WHERE STUDENTS WHO DO NOT GET 60% IN HSC THE DONATION REC EIVED ARE REFUNDED WHEN ASKED FOR AND IN CASES WHERE THE STUDENT WITHDRAWS ON HIS OWN EVEN AFTER SECURING 60 % IN HSC THEIR DONATIONS ARE NOT REFUNDED. IT WAS ALSO R EVEALED THAT THE ASSESSEE HAS SIGNED MOU WITH BRAKES INDIA LTD., & 12 ITA NOS.294 TO 296/MDS/2014 TVS GROUP FOR SPONSORING THEIR CANDIDATES IN THE CO URSE CONDUCTED BY THEM. XII) THE STATEMENT RECORDED FROM SHRI D.PRAKASH, FI NANCE OFFICER DATED 7.11.2007 SHOWS THAT THE LUMP SUM PAY MENTS RECEIVED ARE NOT ADVANCE FEES AND THEY ARE NON-REFU NDABLE. XIII) THE FOLLOWING STATEMENT WAS RECORDED FROM SH RI D.PRAKASH, FINANCE OFFICER ON 9.10.2007: 19.PLEASE EXPLAIN THE TRANSACTIONS AND ITS SEQUENC ES INVOLVED IN RESPECT OF CORPUS FUND? THE DONORS NORMALLY APPROACH PRO-CHANCELLOR (ADMN) ADMISSION OFFICER FOR THEIR VOLUNTARY CONTRIBUTION. ONCE THE PAPERS WITH THE BANKING INSTRUMENT GOT APPROVED BY THE PRO-CHANCELL OR (ADMN) IT COMES TO ACCOUNTS FOR ACCOUNTING ENTRY. 20. WHAT IS THE NECESSITY TO GET APPROVAL FROM THE PRO-CHANCELLOR TO RECEIVE CORPUS DONATION FROM INDIVIDUAL OR OTHER ENTITIES? I THINK THE ABOVE ISSUE HAS TO BE CLARIFIED FROM MA NAGEMENT ONLY. 22. IS MR G V SAMPATH , GIVEN AUTHORITY TO DEAL WIT H RECEIPT OF SUCH DONATION FOR THE TRUST, AS HE HAS BEEN APPOIN TED AS PRO- CHANCELLOR OF THE UNIVERSITY TO DEAL WITH THE ADMI NISTRATION OF THE EDUCATIONAL INSTITUTION? THE ABOVE POINT WILL BE CLARIFIED BY THE MANAGEME NT. FROM THE ABOVE, THE LEARNED ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE ABOVE STATEMENTS CLEARLY SHOW THAT THE TRUST I S COLLECTING FIXED AMOUNTS IN LUMP SUM FOR ALLOTMENT OF SEATS UN DER THE 13 ITA NOS.294 TO 296/MDS/2014 MANAGEMENT QUOTA AND THE ADMISSION UNDER THIS SEGME NT CANNOT TAKE PLACE WITHOUT THE PAYMENT AND THE MANAG EMENT DECIDES THE QUANTUM OF PAYMENT TO BE MADE FOR ADMIS SION TO VARIOUS DISCIPLINES DEPENDING UPON THE DEMAND FOR A PARTICULAR DISCIPLINE IN THAT YEAR. THE STATEMENTS SHOW THAT THE NOMENCLATURE OF 'DONATION TO CORPUS FUND' IS A MISNOMER AND THEREFORE THEY CONSTITUTE P ECUNIARY CONSIDERATION FOR ADMISSION, WHICH GOES AGAINST THE OBJECTIVES OF THE TRUST IN THE TRUST DEED WHICH WERE REPRODUCE D ELSEWHERE IN THIS ORDER. THE FACT THAT THE SAID AMOUNTS ARE C OLLECTED IN DEMAND DRAFTS (NOT BY CHEQUES) CANNOT ALTER THE NAT URE OF THE SAID RECEIPT AND THE TREATMENT GIVEN FOR THE SAME I N THE BOOKS OF ACCOUNTS IS INCORRECT AND IT HAS TO BE TAKEN TO BE RECEIPTS IN THE NORMAL COURSE OF BUSINESS AND WOULD FORM PART OF THE SURPLUS. XIII) THE STATEMENT RECORDED FROM THE PARENT SHRI S URENDRA LACHUMAN DAS RECORDED ON 10.10.2007 CONFIRMS THAT H E HAS PAID DONATION OF RS.8,00,000/- BY DEMAND DRAFT TO VIT F OR ADMITTING HIS SON. ANOTHER SEIZED DOCUMENT ANN/MM/B&D/S/19 ALSO C ONFIRMS THAT THE PARENT HAS PAID DONATION OF RS.8,00,000/- TO ADMIT THEIR DAUGHTER. STATEMENT RECORDED FROM THE PARENT SHRI HARI KRISHNAN ON 10.10.2007 ALSO REVEALS THAT HE HAS PAID RS.9,00 ,000/- AS DONATION FOR ADMITTING HIS SON. STATEMENTS WERE ALS O RECORDED FROM THE FOLLOWING PERSONS FROM WHICH MAKE IT EVIDE NT THAT THEY HAVE PAID DONATION FOR ADMITTING THEIR WARD IN THE INSTITUTION: A SUMITRA GHOSH MOTHER OF STUDENT SHIVA GHOSH.15-10-2 007 B.R M KANNAMMAL, MOTHER OF STUDENT JAYAKUMAR12-10-2 007 C. UMA ABIRAMAN, MOTHER OF STUDENT KAVITHA 12-10-2007 D. KABIND SAUD 06-06-2007 E. SIVANAGA REDDY, F /O. POORNANDA REDDY CHALLA 07-06- 2007 VIT-LB U/S133A F.S MOHAN, F /0 PRADEEP , 06-06-2007 VIT-IB U/S133A G. LETTER DATED 15-8-2007 FROM S S MALIK THAT THE 14 ITA NOS.294 TO 296/MDS/2014 INSTITUTE RECEIVES CAPITATION FEE. 30. FROM THE ABOVE THE FOLLOWING FEATURES ARE NOT ICED AS FAR AS DONATIONS ARE CONCERNED: THE LUMP SUM PAYMENTS RECEIVED ARE FROM PARENTS I RELATIVES OF THE STUDENT/FROM SOME SPONSOR WHICH MA Y BE A CONCERN OR AN INDIVIDUAL. THE SUM IS AT A FIXED RATE ACCORDING TO THE BRANCH OF STUDY IE. HIGHER RATE FOR COURSES IN DEMAND AND LOW ER RATE FOR COURSES NOT IN DEMAND. THE SUMS ARE RECEIVED IN THE COURSE OF ADMISSION PROCESS. IT IS NOT RECEIVED; (THROUGHOUT THE YEAR. 'WHATEVER-IS RECEIVED AFTER THE CLOSURE OF ADMISSIO N ARE DONATIONS RECEIVED IN .ADVANCE BY WAY OF RESERVATION FOR THE NEXT ACADEMIC YEAR FROM ANXIOUS PARENTS. WHEN THE ADMISSION IS DENIED TO A CANDIDATE IT IS REFUNDED. IF IT IS A GENUINE DONATION IT CAN EVEN BE RECEIVED BY THE TRUST BY POST, THERE IS NO NECESSITY FOR THE PERSON TO COME TO VELLORE AND MAKE THE DONATION. IN MOST OF THE CASES, CASH IS BROUGHT BY THE AL LEGED DONOR AND DEMAND DRAFT / BANKER'S PAY ORDER (DD/BPO) IS PURCHASED FROM BANKS AT VELLORE AS DIRECTED BY THE TRUST MANAGEMENT. THERE IS NO EVIDENCE TO SHOW THAT DONATIONS WERE RECEIVED FROM CANDIDATES ADMITTED ON MERIT OR FROM THEIR RELATIVES. IN SOME CASES EVEN THE DRAFT PURCHASED BY TH E ALLEGED DONOR FOR MAKING A DONATION IS CANCELLED BY HIMSELF AS HE DID NOT PURSUE ADMISSION IN THE UNIVERSITY. (DOCUMENT IMPOUNDED FROM INDIAN BANK, VIT BRANCH. IT WAS THE CLAIM THAT THE ADMISSION SEEKING STUDEN T BROUGHT / INTRODUCED THE DONOR. THE CLAIM IS NOT CORRECT. PARENTS OF STUDENTS DO NOT REQUIRE ANY INTRODUCTION. THE SEIZED DOCUMENTS RELATING TO CORPUS DONATION DECLARATIONS HAVE DIRECT REFERENCE TO THE STUDENT A ND THE COURSE HE IS ADMITTED IN. THE NAME OF THE STUDENT AND THE COURSE NAME ARE WRITTEN IN PENCIL IN THE CORPUS DONATION DECLARATIO N, WHICH CLEARLY ESTABLISHES THE NEXUS BETWEEN THE ALLEGED DONATION AND ADMISSION OF A STUDENT. THE DONATIONS CANNOT BE THE SUBJECT MATTER OF 15 ITA NOS.294 TO 296/MDS/2014 DISCUSSION, NEGOTIATION AND CONCESSION AS IS SEEN I N THE CASE OF CANDIDATES ADMITTED WITH INFLUENTIAL REFERENCES. DONATIONS CANNOT BE THE SUBJECT MATTER OF REFUND WHERE THE CANDIDATE FAILS TO CLEAR THE SCHOOL EXAMINATION OR SCORES LESS THAN THE REQUISITE PERCENTAGE OF MARKS IN THE SUBJECTS MATHS, PHYSICS AND CHEMISTRY. DONATIONS CANNOT CHANGE ITS COLOUR ACCORDING TO SEASON - BEFORE THE DECLARATION OF RESULTS OF SECONDARY SCHOOL EXAMINATION IN THE FORM OF ADVANCE AND THEREAFTER PARTAKE THE CHARACTER OF CORPUS DONATIONS. DONATIONS CANNOT BE THE SUBJECT MATTER OF CONVENIENCE ACCOUNTING BY OBTAINING MULTIPLE FORMS SO AS TO SUIT THE CONTINGENCIES OF THE MANAGEMENT T O ACCOUNT FOR THE SAME AS DONATION TO CORPUS OR TO ACCOUNT FOR A PORTION TO CORPUS FUND AND BALANCE AS ADVANCE FEES RECEIVED AND THEREAFTER TO REFUND THE SAME BACK TO STUDENTS ON THE BASIS OF STANDARD FORMATS ON WHICH SIGNATURES OF PARENTS ARE OBTAINED AS IF THEY SEEK REFUND OF THE ADVANCE FEES CITING FINANCIAL CONSTRAINTS AND AGREEING TO PAY THE FEES AS AND WHEN THEY BECOME DUE, ALL THESE EVENTS HAPPENING WITHIN A SHORT SPAN OF TIME. XIV) THE SEIZED MATERIALS CONTAIN STANDARD DONATION DECLARATION FORM FILED BY THE ALLEGED DONORS (ANN/MR/B &D/S-12, 14, 15, 16, 17 & 21), AND ADMISSION PROCESS FORMS FILED BY THE STUDENTS DISCLOSING RECEIPT OF ALLEGED DONATIONS ((AAAN/MR/B &D/S- 10,11,13,18,19,20, 22 & 23), ADMISSION REGISTERS DI SCLOSING RECEIPT OF ALLEGED DONATIONS (ANN/MR/B &D/S-1 TO 6) , DETAILS OF CANDIDATES PREFERRED BY KEY PERSONALITIES AND THE D ONATION REQUIRED TO BE PAID IN SUCH CASES (ANN/MR/B &D/S-8 & 9 - FINANCIAL YEAR 2005-06 & 2006-07, 34-ACADEMIC YEAR 2006-07 & 16 ITA NOS.294 TO 296/MDS/2014 2007-08, 24-FINANCIAL YEAR 2007-08 AND CASH DONATIONS RECEIVED FROM PARENTS FOR THE FINANCIAL YEAR 2003-04 AND DETAILS OF REFUND OF ALLEGED DONATIONS -ANN/MR/B &D/S-28 TO 31- FINAN CIAL YEAR 2005-06 TO 2007-08. XV) THE DONATIONS RECEIVED FROM INDIVIDUALS WERE IDENTICAL ACCORDING TO THE DIFFERENT CATEGORY OF COURSES OFFE RED AND COULD BE GROUPED AND ARRANGED IN ASCENDING / DESCENDING O RDER. XVI) THE ASSESSEE WAS NOT ABLE TO FURNISH PROPER EXPLANATION FOR THE DEFECTS, OMISSION AND COMMISSION POINTED OUT BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN HIS SHOW CA USE NOTICE DATED 8.1.2008. XVII) THE ASSESSEE HAS BEEN EARNING HUGE PROFITS YE AR AFTER YEAR VIZ., APPROXIMATELY 11, 8, & 5 CRORES FOR THE ASSES SMENT YEARS 2000-01, 1999-2000 & 1998-99 RESPECTIVELY WHICH SHO WS THE ASSESSEE IS CONDUCTING ITS ACTIVITIES IN BUSINESSLI KE MANNER. XVIII) THE DONATIONS CLAIMED TO BE VOLUNTARILY PAID BY THE DONORS ARE IN FACT IS CAPITATION FEES WHICH IS IN VIOLATIO N OF THE LAW OF THE STATE. XIX) THE TIMINGS AND QUANTUM OF DONATION RECEIVED CANNOT BE BRUSHED ASIDE. 17 ITA NOS.294 TO 296/MDS/2014 XX) THE ADMISSIONS OF STUDENTS IN MANAGEMENT QUOTA ARE BY THE DISCRETION OF THE MANAGEMENT BY PAYMENT OF DONA TION/ CAPITATION FEE ETC. 10.1 WITH THE ABOVE OBSERVATIONS, THE LEARNED ASSES SING OFFICER DENIED THE BENEFIT OF SECTION 11 TO THE ASSESSEE AN D ALSO INVOKED THE PROVISIONS OF SECTION 2(24)(IIA) OF THE ACT FOR THE ASSESSMENT YEAR 2002-03 , 2003-04 AND 2004-05. 11. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) AFTER REPRODUCING THE ENTIRE ORDER OF TH E LEARNED ASSESSING OFFICER OBSERVED AS UNDER:- I) SINCE THERE WERE INSTANCES OF DONATION BEING REF UNDED WHERE THE STUDENT DOES NOT JOIN THE STIPULATED COUR SE, IT IS EVIDENT THAT SUCH PAYMENTS ARE NOT DONATIONS BUT CA PITATION FEES. II) THE INVESTIGATION WING AT THE TIME OF SEARCH HA D OBTAINED STATEMENTS FROM THE PARENTS WHO HAVE STATED THAT TH EY HAVE PAID CAPITATION FEES. III) THE REMAND REPORT OBTAINED BY THE ASSESSING O FFICER STATES AS FOLLOWS:- 18 ITA NOS.294 TO 296/MDS/2014 (PAGE NO.45 OF CIT(A)S ORDER) ONLY 3 PERSONS AS AGAINST 200 PERSONS REQUIRED FOR PERSONAL EXAMINATION, HAVE BEEN PRODUCED BY THE ASSESSEE. ALL THE THREE APPEARED BEFORE THE ADIT (I NV) AND IT IS SEEN FROM THE ADITS REPORT THAT OUT OF T HE THREE ONE PERSON DENIED HAVING FILED ANY AFFIDAVIT AND HA D ALSO STATED THAT SHE HAS NOT PAID ANY AMOUNT TO VII TOWA RDS DONATION. THUS OVERALL IT CAN BE SEEN THAT APART FR OM FURNISHING THE AFFIDAVIT, THE ASSESSEE HAD NOT SUBSTANTIATED HIS CASE BY PRODUCING THE PERSONS CAL LED FOR TO CARRY OUT A MEANINGFUL VERIFICATION IN VIEW OF THE INHERENT CONTRADICTIONS IN THEIR STATEMENT AT DIFFE RENT POINT OF TIME. THOUGH LETTERS HAVE BEEN FILED BY 10 3 OF THEM, IT CANNOT BE GIVEN ANY CREDENCE, IN THE ABSEN CE OF ANY INDEPENDENT CONFIRMATION BY WAY OF A SWORN STATEMENT BEFORE THE UNDERSIGNED, AS THE ASSESSEE D ID NOT PRODUCE THESE PEOPLE IN SPITE OF OPPORTUNITY GI VE. IT IS ALSO A FACT THAT 94 OF THEM DID NOT FILE ANY LETTER S ALSO. THUS, EVEN THE AFFIDAVITS IN RESPECT OF THOSE PEOPL E FILED BY THE ASSESSEE COULD NOT BE GIVEN ANY CREDENCE AS THE CIRCUMSTANCES UNDER WHICH IT AS OBTAINED BY THE 19 ITA NOS.294 TO 296/MDS/2014 ASSESSEE IS NOT KNOWN. THE EARLIER WRITTEN STATEMEN T TAKEN FROM THEM AT THE TIME OF SEARCH CANNOT BE SIM PLY BRUSHED ASIDE JUST BECAUSE ASSESSEE IS FILING SOME AFFIDAVIT FROM THE SAME PERSONS NOW, IN THE ABSENCE OF ANY INDEPENDENT VERIFICATION. THUS DUE TO THE STONEWALLING EFFORTS OF THE ASSESSEE IN NOT PRODUCI NG THESE PEOPLE FOR PERSONAL EXAMINATION, NO MEANINGFU L VERIFICATION COULD BE CONDUCTED AS DESIRED BY THE C IT(A). UNDER THE CIRCUMSTANCES, CONSIDERING THE ELABORATE REASONING AND EVIDENCES BASED ON WHICH THE ADDITION IS MADE IN THE ASSESSMENT ORDER, THE ASSESSEES CONTENTION AT THE APPELLATE STAGE DESERVES TO BE REJECTED. IV) FROM THE ABOVE REMAND REPORT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ARRIVED AT THE FOLLOWING CONCLUSION:- A. THE ASSESSEE FAILED TO PRODUCE THE PERSONS WHO H AVE FURNISHED THE AFFIDAVITS STATING THAT THEY HAVE NOT PAID ANY DONATIONS PERTAINING TO THE RELEVANT ASSESSMENT YEA RS UNDER THESE APPEALS. 20 ITA NOS.294 TO 296/MDS/2014 B. SINCE THE PERSONS WHO FILED THE AFFIDAVITS ARE W ITNESS FOR THE ASSESSEE, IT IS FOR THE ASSESSEE TO ENSURE PROD UCTION OF THESE PERSONS FOR EXAMINATION BEFORE THE ASSESSING OFFICER. C. THE ASSESSEES CONTENTION THAT THE SWORN STATEME NTS WERE NOT FURNISHED AT THE TIME OF SCRUTINY PROCEEDI NGS CANNOT BE ENTERTAINED BECAUSE IT WAS FOR THE ASSESS EE TO APPLY AND OBTAIN COPIES OF SWORN STATEMENTS FROM TH E DEPARTMENT. D. THE REVENUE HAS ONLY RELIED ON THE REGISTERS, RECORDS MAINTAINED BY THE ASSESSEE WHICH ITSELF DEPICT THE ACTUAL STATE OF AFFAIRS OF THE ASSESSEE. E. EVEN DURING THE APPELLATE PROCEEDINGS, THE ASSE SSEE HAS FAILED TO DEMONSTRATE THAT THE ACTIVITIES CARRI ED OUT BY THE ASSESSEE WAS FOR CHARITABLE PURPOSES. F. ENORMOUS SURPLUS FUNDS ARE GENERATED YEAR AFTE R YEAR WHICH ARE TREATED AS CORPUS DONATIONS THEREFORE, THE ASSESSEES PLEA THAT FEES COLLECTED IS IN ACCORDANC E WITH UNIVERSITY GRANTS COMMISSION NORMS CANNOT BE ACCEPT ED. WITH THE ABOVE FINDINGS, THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) UPHELD THE ORDER OF THE LEARNED ASSESSING OFFICER BY CONCLUDING THAT THE ASSESSEE TRUST CARRIES OUT ITS ACTIVITIES ON THE 21 ITA NOS.294 TO 296/MDS/2014 LINES OF COMMERCIAL PRINCIPLES WITH PROFIT MOTIVE A ND THEREFORE THE ASSESSEE CANNOT BE CONSIDERED AS A CHARITABLE INSTI TUTION UNDER SECTION 2(15) OF THE ACT AND HENCE, IT IS NOT ELIGI BLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. 12.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) FURTHER RELIED IN THE DECISION OF THE FOLLOWING CASES: A) V.S.GOVINDASAMY NAIDU & SONS VS. ACIT REPORTED IN 324 ITR 44 WHEREIN IT WAS HELD THAT HAVING REGARD TO THE FACT THAT THE AMOUNT THAT HAD BEEN RECEIVED WAS CAP ITATION FEES, IT COULD NOT BE CHARACTERIZED AS DONATION. SI NCE IT DOES NOT INVOLVE ANY INTERPRETATION AS REGARDS SECTION 1 0(22) OF THE I.T. ACT, WE DO NOT FIND ANY JUSTIFICATION TO A DMIT THIS CASE. IN SUCH CIRCUMSTANCES, THE TAX CASE APPEAL IS REJECTED AT THE ADMISSION STAGE ITSELF AND IS ACCORDINGLY DI SMISSED. B) CIT VS. DURGA PRASAD MORE REPORTED IN 82 ITR 540 AND SUMATI DAYAL REPORTED IN 214 ITR 801 WHEREIN IT WA S HELD THAT HUMAN PROBABILITIES AND REALITIES ARE TO BE TA KEN INTO CONSIDERATION WHILE DEALING WITH IN COMPLEX MATTERS . THEREFORE, IT IS FOR THE ASSESSEE TO PROVE THAT WHY SO MANY 22 ITA NOS.294 TO 296/MDS/2014 PARENTS AND GUARDIANS OF THE STUDENTS STUDYING IN T HIS INSTITUTE ARE OFFERING DONATION TO THE ASSESSEE TRU ST WITHOUT QUID PRO QUO . 12.2 FROM THE FACTS OF THE CASE AND THE ABOVE DECIS IONS, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CAME T O A CONCLUSION THAT THE VOLUNTARY DONATIONS RECEIVED BY THE ASSESSEE ARE CAPITATION FEE WHICH ARE RECEIVED IN VIOLATION OF LAW. FURTHER, THEY ARE FORCED EXTORTION OF MONEY BY THE EDUCATIONAL INSTITUTION WHICH IS SUPPOSED TO RUN AS PUBLIC CHARITABLE TRUST. ACCORDINGLY, THE BENEFIT OF SECTI ON 11 WAS WITHDRAWN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND FURTHER INVOKING THE PROVISIONS OF SECTION 164( 2) OF THE ACT HELD THAT THE RATE OF TAX APPLICABLE WILL BE AT THE MAXIMUM MARGINAL RATE. THUS, THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER. 12.3. THE LEARNED AUTHORIZED REPRESENTATIVE VEHEMEN TLY ARGUED BEFORE US STATING AS UNDER:- A. THE MANAGING TRUSTEE OF THE TRUST IN QUESTION NO.4 (PAGES 1 TO 4 OF THE PAPER BOOK FILED BY THE DEPART MENT) HAS CATEGORICALLY DENIED THAT THERE IS NO PAYMENT OF CA PITATION 23 ITA NOS.294 TO 296/MDS/2014 FEES IN ADMITTING STUDENTS UNDER MANAGEMENT QUOTA. FURTHER HE HAS STATED THAT THE CENTRAL GOVT. GUIDEL INES FIXES FEE FOR NRI STUDENTS AND THE TRUST ONLY RECEIVES SU CH FEES. DONATIONS ARE RECEIVED FROM ONLY INDUSTRIES AND INDUSTRIALISTS. B. THE PRO-CHANCELLOR IN-CHARGE OF ADMISSION (PAGES 8 TO 12 OF DEPARTMENTS PAPER BOOK) HAS STATED THAT ADMISSIONS ARE OFFERED TO THE STUDENTS THROUGH OPEN COUNSELING AS DONE BY ANNA UNIVERSITY. 85% OF THE S EATS ARE FILLED THROUGH MERIT LIST AND REMAINING 15% IS OFFERED TO NRI STUDENTS AND WHEN LAPSED THEY ARE OFFERED TO TH E LOCAL STUDENTS. CAPITATION FEES ARE NOT RECEIVED FROM ANY ONE; ONLY DONATIONS ARE RECEIVED THROUGH CHEQUES/DEMAND DRAFTS FROM INDIVIDUALS/ FIRM/COMPANY. THE QUANTUM OF DONA TIONS ARE DECIDED AND GIVEN BY WELL WISHERS BY SPREAD OF WORDS IN ADMIRATION OF THE INSTITUTION. THERE IS NO CO-RELAT ION BETWEEN ADMISSION AND DONATION. C. THE STATEMENT MADE BY SOME TRUSTEES AND OFFICE BEARERS WILL NOT HAVE ANY REFERENCE BECAUSE THEY WE RE IN THE INSTITUTION FROM THE YEAR 2006 AND HAVE NO KNOW LEDGE ABOUT THE INSTITUTION BEFORE THAT PERIOD. 24 ITA NOS.294 TO 296/MDS/2014 D. IT HAS BEEN CATEGORICALLY HELD BY THE TRIBUNAL I N THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN PARA 22 PAGE 20 THAT THE RETRACTED STATEMENTS OF SH RI V.SANKAR AND SHRI R.VIJAYAKUMAR, WHO WERE NOT EMPLO YED DURING THE RELEVANT ASSESSMENT YEARS, COULD NOT HAV E ANY KNOWLEDGE ON THE STATE OF AFFAIRS OF THE ASSESSEE F OR THE RELEVANT ASSESSMENT YEARS. E. THE APPROVAL UNDER SECTION 80G OF THE ACT WAS PERIODICALLY RENEWED AND AVAILABLE TO THE ASSESSEE DURING WHICH PERIOD THE ASSESSEE HAS RECEIVED DONATIONS A ND THE DONORS WERE ALLOWED THE BENEFIT OF 80G. F. VARIOUS HIGHER JUDICIARY AND THE TRIBUNAL HAS HE LD THAT AS PER SECTION 2(15) THE ACTIVITY OF EDUCATION PER SE IS CHARITABLE IN NATURE AND DOES NOT REQUIRE THE SUBJE CTIVE SATISFACTION OF THE REVENUE AUTHORITIES AND MORALIS TIC AND ALTRUISTIC GROUNDS. RELIANCE WAS PLACED IN THE FOLL OWING DECISIONS:- I) DDIT VS. SHANTI DEVI PROGRESSIVE EDUCATION SOCIE TY -340 ITR 320(DEL) II) DIT VS. GARDEN CITY EDUCATIONAL TRUST -330 ITR 480 (KAR) III) GAUR BRAHMIN VIDYA PRACHARINI SABHA VS. CIT - 34 SOT 371(DEL) IV) ITO VS. KAUSHALYA MEDICAL FOUNDATION -31 SOT 11 9 (MUM) V) ACIT VS. GRAPHIC ERA EDUCATIONAL SOCIETY -108 TT J 608 VI) RELIABLE EDUCATIONAL & ALLIANCE SOCIETY VS. CIT 126 TTJ 407 (DEL) VII) DCIT VS. BEER SHIVA EDUCATIONAL SOCIAL WELFARE SOCIETY 107 ITD 403 (DEL) 25 ITA NOS.294 TO 296/MDS/2014 VIII) DCIT VS. VELLORE INSTITUTE OF TECHNOLOGY 12 T AXMANN.COM 272 (CHENNAI) G. THE HONBLE APEX COURT IN THE CASE OF QUEENS EDUCATIONAL SOCIETY REPORTED IN 372 ITR 699 HAS CONCLUSIVELY HELD (IN PARA 16 OF THE JUDGMENT) THAT GENERATION OF SURPLUS BY AN EDUCATIONAL INSTITUTION CANNOT LEAD TO AN ADVERSE INFERENCE TO DETERMINE WHETHER T HE INSTITUTION EXISTS SOLELY FOR THE PURPOSE OF EDUCAT ION AND NOT FOR THE PURPOSE OF PROFIT UNDER SECTION 10(23C) OF THE ACT. H. THE DECISION IN THE CASE OF CIT VS. SURAT ARTS S ILK CLOTH MANUFACTURERS ASSOCIATION REPORTED IN 121 ITR 1, AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL IN STITUTE VS. CBDT 301 ITR 86 AND IN THE CASE OF ADITHANAAR EDUCATIONAL INSTITUTION VS. CIT REPORTED IN 224 ITR 310, THE HONBLE SUPREME COURT HAS CATEGORICALLY HELD THAT WHEN THE SURPLUS IS PLOUGHED BACK FOR EDUCATIONAL PURPO SES THEN IT SHOULD BE CONSIDERED THAT THE EDUCATIONAL INSTIT UTE EXISTS ONLY FOR EDUCATIONAL PURPOSE AND NOT FOR GENERATING PROFIT. 26 ITA NOS.294 TO 296/MDS/2014 I. RELIANCE WAS ALSO PLACED IN THE CBDT CIRCULAR F.NO.194/16-17-IT(AI) WHEREIN IT IS STATED THAT WHE N THE SURPLUS OF THE TRUST IS USED ONLY FOR RUNNING THE E DUCATIONAL INSTITUTION, THEN THE INSTITUTION SHOULD BE CONSTRU ED TO BE EXISTING FOR THE PURPOSE OF EDUCATION AND NOT FOR T HE PURPOSE OF PROFIT AND THEREBY ELIGIBLE TO THE BENEFIT UNDE R SECTION 10(22) OF THE ACT. 12.4 THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER ARGUED STATING THAT THE VOLUNTARY DONATION RECEIVED BY THE ASSESSEE TRUST CANNOT BE TREATED AS CAPITATION FEES BECAUSE OF T HE FOLLOWING REASONS:- A) THE LIST OF THE DONORS WITH PROOF OF IDENTITY AL ONG WITH FULL ADDRESSES HAS BEEN FURNISHED AT THE TIME OF ORIGINA L ASSESSMENT UNDER SECTION 143(3) OF THE ACT AND AGAI N DURING THE REASSESSMENT UNDER SECTION 153A OF THE A CT. B) THE DONATIONS WERE RECEIVED BY BANK DRAFTS. THE INSTITUTION HAS ISSUED RECEIPTS IN RESPECT OF ALL D ONATIONS. C) EVERY DONOR HAS GIVEN SIGNED WRITTEN DIRECTION T HAT THE DONATION IS MADE TOWARDS CORPUS FUND OF THE INSTITU TION. 27 ITA NOS.294 TO 296/MDS/2014 12.5 RELIANCE WAS PLACED IN THE DECISION OF THE HO NBLE APEX COURT IN CIT VS. BIJLI COTTON MILLS REPORTED IN 116 ITR 60 WHEREIN IT WAS HELD THAT CHARITY COLLECTED BY THE ASSESSEE ALO NG WITH EVERY SALE OF COTTON BALE AND YARN CANNOT BE REGARDED AS INVOLUNTARY COLLECTION TOWARDS CHARITY. FURTHER RELIANCE WAS P LACED IN THE FOLLOWING DECISIONS:- I) CIT VS. TOLLY GUNGE CLUB LTD 107 ITR 776 (SC) II) SRI VENKATA SATYANARAYANA RICE MILLS CONTRACTOR VS. CIT 223 ITR 101 (SC) III) DIT(E) VS. JAIPUR GOLDEN CHARITABLE CLINICAL L AB.TRUST 311 ITR 365(DEL) IV) CIT VS. SRMT STAFF ASSOCIATION 221 ITR 234 (A P) V) ACIT VS. NAGARJUNA EDUCATIONAL SOCIETY 46 SOT 501 (VISA) VI) DCIT VS. NASIK GYMKHANA 77 ITD 500 (PUNE) VII) DCIT VS. VELLORE INSTITUTE OF TECHNOLOGY 12 TAXMAN.COM 272 (CHENNAI) VIII) CIT VS. BENGAL MILS & STEAMERS PRESBYTERIAN A SSOCIATION 140 ITR 586(CAL) 12.6 THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER ARGUED BY STATING THAT MORE THAN 85% OF THE CORPUS DONATION R ECEIVED BY THE ASSESSEE WAS UTILIZED BY THE ASSESSEE TRUST FOR THE PURPOSE OF EDUCATION. IT WAS FURTHER SUBMITTED THAT VARIOUS J UDICIAL AUTHORITIES HAVE HELD THAT THE CORPUS DONATION CANNOT BE TREATE D AS CAPITATION FEES. RELIANCE WAS PLACED IN THE FOLLO WING DECISIONS:- I) CIT VS.KARNATAKA LINGAYAT EDUCATION SOCIETY 37 1 ITR 249(KAR) II) CCIT VS.GEETANJALI UNIVERSITY TRUST 352 ITR 4 33 (RAJ) III) PADANILAM WELFARE TRUST VS. DCIT 10 ITR (TRI B) 479 IV) SAVEETHA INSTITUTE OF MED.&TECH.SCIENCE VS. ACI T 12 ITR (TRIB) 376 V) DECCAN EDUCATION SOCIETY VS. ACIT 172 TTJ 417 (PUNE) VI) MAHARASHTRA ACADEMY OF ENGG. & EDUCATIONAL RESE ARCH VS. CIT-133 TTJ 706 VII) CIVIL SERVICES SOCIETY VS. DIT(E) 143 ITD 408 (DEL) VIII) DCIT VS. VELLORE INSTITUTE OF TECHNOLOGY 12 TAXMA N.COM 272 (CHENNAI) 28 ITA NOS.294 TO 296/MDS/2014 12.7 THE LEARNED AUTHORIZED REPRESENTATIVE ALSO SUB MITTED THAT THE ADMISSION PROCESS FOR THE ASSESSMENT YEAR 2002- 03 WAS MADE ON THE BASIS OF TNPCC RANKS, 2003-04 WAS MADE ON THE BASIS OF AIEEE RANKS AND FOR THE YEAR 2004-05 WAS M ADE ON THE BASIS OF VITEE RANKINGS. 12.8 THE LEARNED AUTHORIZED REPRESENTATIVE ALSO RE LIED IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF G ANGABAI CHARITIES VS. CIT REPORTED IN 197 ITR 416 WHEREIN I T WAS HELD THAT THE CRUX OF THE STATUTORY EXEMPTION UNDER SECTION 1 1(1)(A) OF THE ACT IS NOT THE INCOME EARNED FROM THE PROPERTY HEL D UNDER THE TRUST BUT ACTUAL APPLICATION OF THE SAID INCOME FOR RELIGIOUS AND CHARITABLE PURPOSES. 12.9 THE LEARNED AUTHORIZED REPRESENTATIVE ONCE AG AIN VEHEMENTLY SUBMITTED THAT FOR THE SIMILAR DECISION TAKEN BY THE LEARNED ASSESSING OFFICER ON THE EARLIER OCCASION F OR THE ASSESSMENT YEAR 2001-02 RESULTING FROM THE SAME ACT ION UNDER SECTION 132 OF THE ACT AND THE SAME SEIZED MATERIAL S, THE LEARNED CIT(A) AND THE HONBLE TRIBUNAL IN ITA NO.1332/MDS/ 2010 - C.O.NO.94/MDS/2010 HAS HELD THE ISSUE IN FAVOUR OF THE 29 ITA NOS.294 TO 296/MDS/2014 ASSESSEE. THEREFORE, THE ENTIRE MATTER IS COVERED B Y THAT DECISION FOR THE ASSESSMENT YEAR 2002-03 2003-04 & 2004-05.I T WAS FURTHER SUBMITTED THAT THE LEARNED ASSESSING OFFICE R HAD WITHDRAWN THE BENEFIT UNDER SECTION 11(A) OF THE AC T BASED ON THE SEIZED MATERIALS WHICH DID NOT BELONG TO THE RELEVA NT ASSESSMENT YEARS UNDER CONSIDERATION. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED BEFORE US THAT THE FOLLOWING SEIZED MATERIALS PERTAINING T O THE RELEVANT ASSESSMENT YEARS:- PAGE NO. PARTICULARS APPLICABLE ASSESSMENT YEAR 227 RS.50 LAKHS DONATION BY TVS GROUP COMPANIES TO GET 1 SEAT IN 2002 2 SEATS IN 2003; 2 SEATS IN 2004 & 3 SEATS IN 2005 ALL THE THREE ASSESSMENT YEARS 223 29 TH MAY 2001 LETTER FROM SUNDARAM FIN. LTD SEEKING ADMISSION OF B.SARATH CHANDRAS IN B.E.COMP.SCIENCE COURSE A.Y.2002-03 218 TO 222 VARIOUS LETTERS FROM SUNDARAM FINANCE & BRAKES INDIA SEEKING ADMISSIONS AT VIT 2003-04 228 TO 230 VARIOUS LETTERS FROM SUNDARAM FINANCE & BRAKES INDIA SEEKING ADMISSIONS AT VIT 2004-05 231 TO 234 29 LAKHS DONATION PAID BY BRAKES INDIA, LIGHT ALLOYS PRODUCTS, ABI SHOWWATECH, TURBO ENERGY SEEKING ADMISSIONS AT VIT 2004-05 170 TO 171 SEIZED MATERIALS ANN/MR/B &D/S 100 (SHEETS 1 TO 100 LETTER FROM DR.SURESH KUMAR GUPTA, ALWAR RAJASTHAN SEEKING ADMISSIONS AT VIT FOR B.TECH , BIO TECH FOR HIS SON MRIDUL DEEP GUPTA BY PAYING RS.8 LAKHS 2004-05 90 BOOK MAINTAINED BY THE ASSESSEE UNDER THE CAPTION DONATION PAID BY CASH BY PARENTS OF B.TECH STUDENTS (2003-04 ACADEMIC YEAR) 2004-05 102 SEIZED MATERIALS ANN/MR/B &D/S2 BOOK 2004-05 30 ITA NOS.294 TO 296/MDS/2014 TO 109 MAINTAINED BY THE ASSESSEE UNDER THE CAPTION MANAGEMENT ADMISSIONS PG COURSES (2003-2004 ACADEMIC YEAR) 110 TO 130 SEIZED MATERIALS ANN/MR/B &D/S4 BOOK MAINTAINED BY THE ASSESSEE UNDER THE CAPTION MANAGEMENT ADMISSIONS MBA COURSES (2003-2004 ACADEMIC YEAR) 2004-05 131 TO 139 BOOK MAINTAINED BY THE ASSESSEE UNDER THE CAPTION MANAGEMENT ADMISSIONS IT NETWORKING (2003-04 ACADEMIC YEAR) 2004-05 140 TO 168 SEIZED MATERIALS ANN/MR/B &D/S5 BOOK MAINTAINED BY THE ASSESSEE UNDER THE CAPTION MANAGEMENT ADMISSIONS UG COURSES (2003-2004 ACADEMIC YEAR) 2004-05 13.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHE R ARGUED BEFORE US IN SUPPORT OF THE ORDERS OF THE REVENUE B Y SUBMITTING AS FOLLOWS:- A) FROM THE SWORN STATEMENTS OF THE PRO-CHANCELLO R AND OFFICE BEARERS OF THE INSTITUTION, IT IS EVIDENT THAT THE INSTITUTION WAS RECEIVING CAPITATION FEES. FURTHER THE ASSESSEE COU LD PRODUCE ONLY 3 PARENTS OUT OF 200 PARENTS RELATING TO VARIOUS AS SESSMENT YEARS INCLUDING ASSESSMENT YEAR 2002-03. B) THE ASSESSEE WAS OFFERED WITH AMPLE OPPORTUNI TY TO PRODUCE PERSONS WHO RETRACTED ON THEIR STATEMENTS BUT THE A SSESSEE COULD PRODUCE ONLY ONE PERSON OUT OF 102 SUCH PERSONS. TH EREFORE, THE AFFIDAVIT FILED BY THE REST OF THEM HAS NO EVIDENTI ARY VALUE. THE ONUS IS ON THE ASSESSEE TO PRODUCE ALL THE DONORS W HO HAD RETRACTED THEIR STATEMENTS. 31 ITA NOS.294 TO 296/MDS/2014 C) THE ASSESSEE WAS COLLECTING DONATIONS WHICH AR E NOT VOLUNTARY THEREFORE IT ESTABLISHES THAT THE MOTTO O F THE ASSESSEE IS NOT CHARITABLE BUT TO EARN PROFIT. HUGE SURPLUSES W ERE GENERATED YEAR AFTER YEAR AS FOLLOWS:- INCOME AND EXPENDITURE STATEMENT FOR THE FIN. YEAR ENDING COLLECTION FROM GROSS RECEIPTS SURPLUS AFTER EXPENSES % OF SURPLUS ON GROSS REC. 31.03.2002 COLLEGE 18,47,33,350 9,10,47,721 49.29 MESS 2,40,11,908 49,39,957 20.57 31.03.2003 COLLEGE 29,39,49,651 16,79,50,617 57.14 MESS 3,45,70,314 41,89,636 12.12 31.03.2004 COLLEGE 42,27,90,700 25,83,90,789 61.12 MESS 3,78,89,408 85,33,825 22.52 D) SINCE THE ASSESSEE IS RUNNING THE BUSINESS OF SE LLING EDUCATION, THE CASE LAWS RELIED UPON BY IT IS NOT A PPLICABLE TO THE PRESENT CASE. RELIANCE WAS PLACED ON THE DECISION O F VODITHALA EDUCATION SOCIETY VS. ADIT REPORTED IN 20 SOT 353. E) COLLECTION OF CAPITATION FEE WAS CONTRARY TO C ONSTITUTIONAL SCHEME AND PROHIBITED BY THE GOVERNMENT AND IN THE INSTANT CASE, THE ASSESSEE IS USING EDUCATION AS APPARATU S / MODE TO COLLECT CAPITATION FEES. EXORBITANT MONEY WAS COLLE CTED ILLEGALLY IN THE GUISE OF RUNNING EDUCATIONAL INSTITUTION. THERE FORE, THE ASSESSEE CANNOT BE CONSIDERED AS CHARITABLE INSTITU TION AND HENCE NOT ELIGIBLE FOR BENEFIT UNDER SECTION 11 OF THE ACT. 32 ITA NOS.294 TO 296/MDS/2014 RELIANCE WAS PLACED IN THE FOLLOWING DECISIONS OF T HE HONBLE APEX COURT:- I) MISS. MOHINI JAIN VS. STATE OF KARNATAKA REPORTE D IN 2 SCC 666 (SC) WHEREIN IT WAS HELD THAT CAPITATION FE ES COLLECTED BY PRIVATE EDUCATIONAL INSTITUTION IS NOT HING BUT PRICE FOR SELLING EDUCATION. THE CONCEPT OF TEACHI NG SHOP IS CONTRARY TO THE CONSTITUTIONAL SCHEME AND IS WHOLLY ABHORRENT TO INDIAN CULTURE AND HERITAGE. SOME OF T HE STATE LEGISLATURES PASSED LEGISLATION PROHIBITING COLLECT ION OF CAPITATION FEE AND ALSO MADE THE SAME A PUNISHABLE OFFENCE. II) ISLAMIC ACADEMY OF EDUCATION VS. STATE OF KARNA TAKA REPORTED IN 6 SCC 697(SC) WHEREIN DIRECTIONS WERE G IVEN TO THE STATE GOVTS. TO CONSTITUTE A COMMITTEE HEADED B Y A RETIRED HIGH COURT JUDGE FOR PRESCRIBING FEE STRUCT URE IN PROFESSIONAL COLLEGES. THE APEX COURT FURTHER HELD THAT IF ANY AMOUNT IS CHARGED OTHER THAN THE FEE PRESCRIBED BY THE COMMITTEE UNDER ANY HEAD THE SAME WOULD AMOUNT TO CAPITATION FEE. THEREFORE, COLLECTION OF MONEY OVER AND ABOVE THE FEE PRESCRIBED BY THE COMMITTEE WOULD AMO UNT TO COLLECTION OF CAPITATION FEES. 33 ITA NOS.294 TO 296/MDS/2014 F) THE EDUCATION WOULD REMAIN AS CHARITY WHERE IT IS IMPARTED SYSTEMATICALLY FOR A FEE PRESCRIBED BY THE GOVERNME NT AND IT IS NOT THE INTENTION OF THE PARLIAMENT TO RECOGNIZE ANY IN STITUTION AS CHARITABLE WHERE EDUCATION IS TREATED AS A SALEABLE COMMODITY. G) THE FACTS IN THE ASSESSMENT YEAR 2001-02 IS DIS TINGUISHABLE FROM THE FACTS FOR THE ASSESSMENT YEAR 2002-03 TO 2 004-05 AND THEREFORE THE DECISION OF THE TRIBUNAL FOR THE ASSE SSMENT YEAR 2001-02 IS NOT APPLICABLE TO THE APPEALS FOR THE RE LEVANT ASSESSMENT YEARS 2002-03, 2003-04 & 2004-05. H) RELIANCE WAS PLACED IN THE DECISION OF P.S.GOVI NDASAMY NAIDU & SONS VS. ACIT REPORTED IN 324 ITR 44(MAD) W HEREIN IT WAS HELD THAT AMOUNT PAID BY THE PARENTS OF THE STU DENTS ADMITTED TO THE ASSESSEE EDUCATIONAL INSTITUTION WAS NOT THE CORPUS DONATION BUT IT WAS CAPITATION FEE AND SUCH CAPITAT ION FEE IS NOT EXEMPT IN THE HANDS OF THE ASSESSEE INSTITUTION. 13.2 WITH THE ABOVE SUBMISSIONS AND ARGUMENTS, THE LEARNED DEPARTMENTAL REPRESENTATIVE PRAYED THAT THE ORDERS OF THE LEARNED ASSESSING OFFICER AND LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY BE UPHELD. 34 ITA NOS.294 TO 296/MDS/2014 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, W E FIND MERIT IN THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTA TIVE. IT IS EVIDENT FROM THE FACTS OF THE CASE THAT THE ASSESSM ENT WAS MADE IN THE CASE OF THE ASSESSEE UNDER SECTION 143(3) R. W.S. 147 OF THE ACT FOR THE ASSESSMENT YEAR 2001-02 VIDE ORDER DATE D 30.12.2008 AND UNDER SECTION 153A R.W.S.143(3) OF THE ACT VIDE SEPARATE ORDERS EVENLY DATED 31.12.2009 FOR THE ASSESSMENT YEAR 2002- 03, 2003-04 & 2004-05, WHEREIN THE LEARNED ASSESSIN G OFFICER ON THE IDENTICAL ISSUE BASED ON THE SAME SEARCH MATERI ALS RESULTING FROM THE SAME SEARCH PROCEEDINGS CONDUCTED ON 06.06 .2007 WITHDREW THE BENEFIT OF SECTION 11 TO THE ASSESSEE BY HOLDING THAT THE ASSESSEE WAS RECEIVING CAPITATION FEE FROM THE STUDENTS ADMITTED IN THE INSTITUTION ON THE GARB OF VOLUNTAR Y DONATION. THE TRIBUNAL IN ITS ORDER IN ITA NO. 1332/MDS/2010 & CO NO.94/MDS/2010 DATED 09.06.2011 FOR THE ASSESSMENT YEAR 2001- 02 ( IN PARA 6 ) HAD CONCISED THE OBSERVATION OF TH E LEARNED ASSESSING OFFICER AS FOLLOWS IN THE CASE OF THE ASS ESSEE:- 1. SUBSEQUENT TO THE SEARCH, COMMISSIONER OF INCOM E TAX (CENTRAL) - I ISSUED A NOTICE ON 8.1.2008 PROPOSING TO CANCEL THE REGISTRATION U/S 12AA(3) OF THE I.T. ACT FOR THE AS ST. YEAR 2004-05 ONWARDS STATING IN DETAIL VARIOUS REASONS AND FACTS AND CIRCUMSTANCES BROUGHT TO LIGHT BY THE SEARCH OPERAT IONS. THE APPELLANT HAS NOT PRODUCED ANY SATISFACTORY EXPLANA TION TO ANY OF 35 ITA NOS.294 TO 296/MDS/2014 THE DEFAULTS, OMISSIONS AND COMMISSIONS POINTED OUT IN THE NOTICE OF THE COMMISSIONER OF INCOME TAX WHICH SHOWS THAT THE APPELLANT HAS NO PROPER OR SATISFACTORY EXPLANATION ON FACTS TO S USTAIN ITS CLAIM FOR EXEMPTION US 11/12. 2. THE APPELLANT TRUST HAS BEEN SHOWING HUGE SURPLU S YEAR AFTER YEAR AS SEEN FROM THE FOLLOWING STATISTICS FOR THE PAST 3 YEARS. ASSESSMENT YEAR SURPLUS CORPUS FUND DONATION TOTAL SURPLUS 2000-01 51932115 59765000 57908615 1999-00 27155378 55006760 82162138 1998-99 19985049 35408920 55393969 3 . INVESTIGATION DURING AND SUBSEQUENT TO THE SEARCH DISPROVE THE CLAIM OF THE APPELLANT THAT THE DONATIONS WERE VOLU NTARY CONTRIBUTION TOWARDS CORPUS FUND AND PROVE THAT DONATIONS WERE, IN FACT AND SUBSTANCE, ONLY CAPITATION FEES COLLECTED IN VIOLAT ION OF THE LAWS OF THE STATE. 4. THE APPELLANT HAS BEEN CHARGING VERY HIGH FEES F ROM STUDENTS AND MAKING VARIOUS RECOVERIES MUCH ABOVE ITS COSTS OF O PERATION AS IS EVIDENT FROM HUGE SURPLUSES IN THE INCOME AND EXPEN DITURE ACCOUNT YEAR AFTER YEAR. 5. DONATION IS A VOLUNTARY PAYMENT WITHOUT QUID PRO QUO. STATEMENTS RECORDED DURING THE SEARCH CLEARLY ESTABLISH THAT T HE APPELLANT WAS COLLECTING CAPITATION FEES FOR OFFERING ADMISSIONS AND IS ALSO REFUNDING IT IN CERTAIN CASES CLEARLY SHOWING THAT THE AMOUN T COLLECTED WAS NOT A VOLUNTARY DONATION. 6. THE CORPUS DONATIONS WERE ADMITTEDLY RECEIVED FR OM 123 PARTIES OUT OF WHICH RS. 68,36,000 WAS RECEIVED IN CASH AND RS 58,14,000 BY CHEQUE / DRAFT. 7. IN THE LIGHT OF THE FINDINGS AS A RESULT OF SEAR CH, ONUS RESTS ON THE APPELLANT TO PROVE THAT THE PERSONS MENTIONED AS DO NORS REMITTED TO THE INSTITUTION ON THEIR OWN VOLITION AND WITHOUT E XPECTATION OF ANYTHING IN RETURN. 8. CORPUS DONATIONS OF RS. 1,26,50,000 WERE IN REA LITY NEITHER DONATIONS NOR VOLUNTARY CONTRIBUTIONS AS THESE PAYM ENTS WERE FORCIBLY EXTRACTED FROM THE PARENTS / GUARDIANS AT THE TIME OF ADMISSION OF THEIR CHILDREN INTO THE APPELLANT'S INSTITUTION. 36 ITA NOS.294 TO 296/MDS/2014 9. IN ITS DECISIONS THE HON'BLE SUPREME COURT OF IN DIA HAS MADE IT CLEAR THAT EDUCATION CANNOT BE RUN AS A BUSINESS AN D THAT THE CONCEPT OF TEACHING SHOPS IS CONTRARY TO THE CONSTITUTIONAL SCHEME AND IS WHOLLY ABHORRENT TO THE INDIAN CULTURE AND HERITAGE . WHEN THE APPELLANT RUNS AN EDUCATIONAL INSTITUTION BY COLLEC TING CAPITATION FEES THE SAME CANNOT THEREFORE BE HELD TO BE A CHARITABL E INSTITUTION U/S 2(15) OF THE I.T. ACT AND THE APPELLANT IS NOT ELIGIBLE FOR EXEMPTION U/ S 11. 10. THE APPELLANT HAS TO PROVE THAT CORPUS DONATION S WERE NOT RECEIVED FROM ANY RELATIVES OF THE STUDENTS ADMITTE D IN THE COLLEGE AND DONORS ARE TOTALLY STRANGERS TO THE PARTIES TO THE TRANSACTIONS MOTIVATED PURELY BY PHILANTHROPIC INSTINCT. THE LIS T OF DONORS WAS SUBMITTED BY THE APPELLANT AT THE FAG END OF THE PR OCEEDINGS AND ENQUIRIES MADE WITH RESPECT TO LOCAL PARTIES REVEAL THAT THERE WERE NO SUCH PERSONS AT THE GIVEN ADDRESSES. THE RESPONSE O F PERSONS WHO WERE ISSUED QUESTIONNAIRES DID NOT REACH THE ASSESS ING OFFICER BEFORE CLOSURE OF PROCEEDINGS. 14.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEAR 2001-02 VIDE ORDE R DATED 28.05.2010 IN ITA NO.165/2008-09 HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE AS FOLLOWS:- 16. I HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D AUTHORIZED REPRESENTATIVE. SECTION 2(15) DEFINES CH ARITABLE PURPOSE TO INCLUDE EDUCATION. THE WORD EDUCATION IS NOT DEFINED IN THE I.T. ACT BUT IT IS FAIRLY WELL SETTL ED THAT RUNNING AN EDUCATIONAL INSTITUTION WOULD AMOUNT TO ENGAGING THE IN THE ACTIVITY OF EDUCATION. THE APPELLANT TRUST WHIC H IS RUNNING AN ENGINEERING COLLEGE IS THEREFORE PRIMA F ACIE ENGAGED IN THE EDUCATION AND SO IS ELIGIBLE TO BE T REATED AS A CHARITABLE TRUST. 17. THOUGH THE ASSESSING OFFICER HAS CONCLUDED THAT THE APPELLANT IS ENGAGED IN THE ACTIVITY OF EDUCATION A S BUSINESS, NO EVIDENCE HAS BEEN SHOWN TO SUPPORT SUCH A CONCLUSION. WHILE AN ADVERSE INFERENCE ON THE GENUINENESS OF THE DONATIONS MADE BY SHRI GOPINATH OR BY OTHERS WHO WERE NOT FOUND IN THE ADDRESSES GIVEN OR WHO HAVE NOT RESPONDED TO THE 37 ITA NOS.294 TO 296/MDS/2014 QUESTIONNAIRES OF THE AO MAY BE MADE NO POSITIVE INFERENCE CAN BE MADE THAT THE CORPUS DONATIONS WER E NOTHING BUT PAYMENTS RECEIVED FOR ADMISSIONS GIVEN IN RETURN BY A QUID PRO QUO. DETAILS OF ADMISSION PROCEDURES GIVEN BY THE APPELLANT CLEARLY SHOW THAT THE APPELLANT DID NOT HAVE MUCH DISCRETION IN MAKING TH E ADMISSIONS SO THAT IT COULD COLLECT CAPITATION FEES FOR THE ADMISSIONS. 18. THE BURDEN IS ON THE APPELLANT TO SHOW THAT HE IS ELIGIBLE FOR EXEMPTION U/S 11. THE APPELLANT HAS DI SCHARGED ITS BURDEN BY ESTABLISHING THAT IT IS ENGAGED IN RU NNING AN ENGINEERING COLLEGE WHICH HAS NOT BEEN DISPUTED IN THE ASSESSMENT ORDER. IT I S THE CONTENTION OF THE AO THAT THE EDUCATION IMPARTED BY THE APPELLANT THROUGH THE ENGINEERING COLLEGE IS DONE A S BUSINESS AND SHOULD NOT BE CONSIDERED AS EDUCATION AS DEFINED IN SEC.2(L5). HOWEVER THIS CON TENTION OF THE AO IS NOT SUPPORTED BY EVIDENCE. THEREFORE HOLD THAT THE APPELLANT IS ELIGIBLE FOR EXEMPTION U/S 11. 19. AS EARLIER STATED AN ADVERSE INFERENCE COULD BE DRAWN BASED ON ENQUIRIES IN THE CASE OF SHRI.GOPINATH, LO CAL PARTIES AND NON RECEIPT OF QUESTIONNAIRES SENT BY THE AO REGARDING THE GENUINE NESS OF CORPUS FUND DONATIONS. EVEN IF THE CORPUS FUND DONATIONS ARE NOT TREATED AS GENUINE THEY WOULD STILL BE INCOME DERIVED FROM PROPERTY HE LD IN TRUST HENCE ELIGIBLE FOR EXEMPTION U/S 11 SUBJECT TO THE PROVISIONS OF THAT SECTION WITH RESPECT TO APPLICA TION OF SUCH RECEIPTS FOR THE PURPOSES OF THE TRUST ETC. TH EREFORE, ADDITION OF RS.1,26,50,000/- MADE BY THE ASSESSING OFFICER IS DELETED AND THE ASSESSING OFFICER IS DIRECTED TO TREAT RS.1,26,50,000/- AS INCOME DERIVED FROM PROPERTY HELD UNDER THE TRUST ELIGIBLE FOR EXEMPTION SUBJECT TO P ROVISIONS OF SECTION 11. 14.3 HOWEVER, FOR THE SUBSEQUENT ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05, THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) IN HIS CONSOLIDATED ORDER DATED 31.01.201 4 IN ITA NO.195, 196, 197/9-10 HAS CHANGED HIS STAND BY AGRE EING WITH 38 ITA NOS.294 TO 296/MDS/2014 THE VIEW OF THE LEARNED ASSESSING OFFICER AS OBSERV ED HEREIN ABOVE. 14.4 ON THE EARLIER OCCASION FOR THE ASSESSMENT Y EAR 2001-02, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE RAISED THE FOLLOWING GRO UNDS BEFORE THE TRIBUNAL:- (PARA 8 OF THE TRIBUNAL ORDER IN ITA NO.1332/MDS/20 10 AND C.O.NO.94/MDS/2010) 1A ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS EL IGIBLE FOR EXEMPTION U/S 11. 1B. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN HOLDING THAT NO EVIDENCE HAS BEEN SHOWN TO SUPPORT THAT THE ASSESSEE IS ENGAGED IN THE ACTIVITY OF EDUCATION AS A BUSINE SS WITHOUT CONSIDERING THE ACTUAL EVIDENCE AVAILABLE ON RECORD VIZ. SHOW CAUSE NOTICE ISSUED BY THE COMMISSIONER OF INCOME TAX CEN TRAL RANGE - I PROPOSING TO CANCEL THE REGISTRATION U/S 12AA(3), S TATEMENTS RECORDED DURING THE COURSE OF SEARCH FROM SRI V. SANKAR SON OF THE MANAGING TRUSTEE AND SRI R. VIJAYAKUMAR, SECRETARY TO THE OT HER PRO- CHANCELLOR, LETTERS FROM PARENTS AND REFUND FILES O F DONATIONS, THE DETAILS OF ALL OF WHICH HAVE BEEN CLEARLY MENTIONED IN THE ASSESSMENT ORDER. 1.C. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN HOLDING THAT THE ASSESSEE HAS DISCHARGED ITS BURDEN REGARDING PROVING THE CLAIM U/S 11 WITHOUT CONSIDERING THAT THE ASSES SEE HAS DELAYED FURNISHING THE LIST OF DONORS FOR THE RELEVANT YEAR ESPECIALLY WHEN THE A.O. HAS PROVED THE FACTS FOR THE LATER ASSESSMENT YEARS. 1.D. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN HOLDING THAT 'THE DETAILS OF ADMISSION PROCEDURES G IVEN BY THE APPELLANT CLEARLY SHOW THAT THE APPELLANT DID NOT H AVE MUCH DISCRETION IN MAKING THE ADMISSION SO THAT IT COULD COLLECT TH E CAPITATION FEE FOR THE ADMISSION' WHICH IS CONTRARY TO THE ESTABLISHED FACT AND EVIDENCE AVAILABLE ON RECORD ESPECIALLY WHEN THE MANAGEMENT HAD SUFFICIENT 39 ITA NOS.294 TO 296/MDS/2014 FLEXIBILITY IN ADMITTING THE STUDENTS UNDER THE MAN AGEMENT QUOTA, THE SEATS WERE LITERALLY SOLD AND THE ALLEGED DONATIONS WERE ALSO REFUNDED WITHOUT PROPER AND VALID REASON. 1.E. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS FAILED TO NOTE THAT THE ALLEGED DONATIONS WERE NOT VOLUNTARY BUT WERE ONLY IN THE NATURE OF ONE TIME CAPITATION FEE SINCE VOLUNTA RY DONATIONS WILL NOT BE REQUESTED FOR REFUNDING AND THE ASSESSEE COU LD NOT EXPLAIN THE SPECIAL REASONS FOR THE ALLEGED DONATIONS FROM ACRO SS THE COUNTRY TO THE EXCLUSION OF VARIOUS OTHER SIMILARLY PLACED EDU CATIONAL INSTITUTIONS IN THE SAME REGION.' 14.5 ON THE REVENUES APPEAL BEFORE THE TRIBUNAL F OR THE ASSESSMENT YEAR 2001-02 IN ITA NO.1332/MDS/2010 AND C.O.NO.94/MDS/2010, THE CHENNAI BENCH OF THE TRIBUN AL HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE AS FOLLOWS:- A) CORPUS DONATIONS RECEIVED BY THE ASSESSEE CANN OT BE TREATED AS CAPITATION FEES AND THE SURPLUS EARNED CANNOT BE TREATED AS INCOME FROM BUSINESS. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE CAREFULLY CONSIDERED THE MATERIAL AVAILABLE ON RECORD, INCLUDING THE PAPER BOOKS FILED BY THE ASSESSEE-TRUST. ON PERUSING THE AFORESAID DOCUMENTS AT LENGTH, WE FIND SUBSTANTIAL FORCE IN THE SUBMISS IONS BY THE ASSESSEE. APPARENTLY, THE MAIN SOURCE OF INCOME FOR THE INSTITUTION IS FEES RECEIVED FROM ST UDENTS AND DONATIONS COLLECTED. THE FEE RECEIPTS WOULD DEPEND UPON THE NUMBER OF STUDENTS ADMITTED AND THE FEES CHARGED. THE DOCUMENTS REFERRED TO ABOVE CLEAR LY ESTABLISH THAT BOTH THE NUMBER OF STUDENTS AND THE FEES CHARGEABLE FROM THEM ARE REGULATED AND CONTROLLED B Y AICTE / DOTE THROUGH THE UNIVERSITY OF MADRAS. HENCE, THE ASSESSEE COULD NOT HAVE ENGAGED IN 'PROFITEERING' AS ALLEGED BY THE REVENUE BY INCREAS ING THE STUDENTS STRENGTH NOR COULD IT HAVE CHARGED A HIGHER FEE. WE FIND FROM PAGE 36 OF STATEMENT OF FA CTS 40 ITA NOS.294 TO 296/MDS/2014 THAT THE GOVERNMENT NOTIFICATION PRESCRIBING FEES F OR UNAIDED SELF FINANCING ENGINEERING COLLEGES PRESCRI BES 3 DIFFERENT SCALES OF FEES WITH THE NOMENCLATURES O F (A) FREE SEAT CATEGORY (B) PAYMENT SEAT CATEGORY (C) NON RESIDENT INDIAN STUDENTS WE FIND THAT THERE IS A SIGNIFICANT DIFFERENCE IN THE SCALE OF FEES FOR EAC H CATEGORY OF STUDENTS. OBVIOUSLY, THIS IS BECAUSE THE GOVERNM ENT, IN ITS WISDOM, RECOGNIZES THAT UNAIDED SELF FINANCING EDUCATIONAL INSTITUTIONS CANNOT BE RUN BY CHARGING THE LOWER FEES CHARGED BY AIDED FINANCIAL INSTITUTIONS. THEREFORE, THE GOVERNMENT HAS PERMITTED THEM TO CHA RGE HIGHER FEES FOR THE DIFFERENT CATEGORIES. WE FIND F ROM THE ADMISSION REGULATIONS AND OTHER DOCUMENTS SUBMITTED THAT 5% OF THE SEATS SANCTIONED BY THE UNIVERSITY OF MAD RAS CAN BE GIVEN TO NRI STUDENTS WHO ARE REQUIRED TO PA Y THE HIGHEST SCALE OF FEES OF ` 39200/- + 1000 DOLLARS. OUT OF THE REMAINING SEATS 50% IS UNDER THE 'FREE SEATS CATEGORY' FOR WHICH THE FEE PRESCRIBED IS ONLY RS 1 2800/-, THE REMAINING 50% FALLS UNDER 'PAYMENT SEAT CATEGOR Y' WHICH ATTRACTED A MUCH HIGHER FEE OF RS. 47200/-. T HE REASON FOR NARRATING THE ABOVE FACTS IS TO APPRECIA TE THE BIGGER PICTURE IN THE FIELD OF EDUCATION IN OUR COU NTRY. TRADITIONALLY EDUCATION AND HEALTH WERE CONSIDERED THE EXCLUSIVE OBLIGATIONS OF THE STATE AND WAS EXPECTED TO BE PROVIDED FREE OF COST; SUBSIDIZED RATES OR, AT COST , TO THE DIFFERENT SEGMENTS OF THE SOCIETY, DEPENDING ON THE IR NEED FOR SUPPORT FROM THE STATE. HOWEVER, OVER A PERIOD OF DIFFICULT FINANCIAL TIMES, AND POPULATION EXPLOSION , WHEN THE STATE WAS UNABLE TO FIND THE NECESSARY RESOURCES TO DISCHARGE ITS TRADITIONAL OR CONSTITUTIONAL OBLIGAT IONS, THE STATE FOUND NEW WAYS OF CATERING TO ITS CITIZENS IN THE FIELDS OF EDUCATION AND HEALTH. ONE OF THE WAYS IS WHAT IS POPULARLY CALLED AS 'PUBLIC PRIVATE PARTNERSHIP' IN WHICH THE STATE'S FUNCTION IS OUTSOURCED TO THE PRIVATE S ECTOR. WHILE DOING THIS, THE GOVERNMENT HAD TO TAKE INTO A CCOUNT THE FACT THAT, WHILE ITS ABILITY TO RAISE RESOURCES BY TAX AND BORROWINGS WAS UNLIMITED, AT LEAST IN THEORY, THE R ESOURCES OF THE PRIVATE SECTOR WERE LIMITED. THE STATE HAD F ACED ONE MORE DIFFERENCE BETWEEN THE MOTIVATION FOR INVESTME NTS BY THE STATE AND THE PRIVATE SECTOR; IE. - WHILE THE S TATE CAN LOOK AT THE AFORESAID SERVICES AS A MERE 'COST CENT RE' THE 'PRIVATE SECTOR' NEITHER CAN, NOR BE EXPECTED, TO L OOK AT THESE FUNCTIONS AS A COST CENTRE. HENCE, THE GOVERN MENT DEVISED WAYS BY WHICH THE REVENUES OF SUCH PRIVATE 41 ITA NOS.294 TO 296/MDS/2014 SECTOR UNAIDED EDUCATIONAL INSTITUTIONS COULD BE AUGMENTED SO AS TO PROVIDE ADEQUATE REVENUES TO REC OUP THE INVESTMENT, PROVIDE REASONABLE RETURN ON :- 14 -: ITA 1332/10 & CO 94/10 INVESTMENT AND TO PROVIDE ADEQUA TE SURPLUSES TO FACILITATE EXPANSION AND MODERNIZATION . THE THREE TIER FEE STRUCTURE PRESCRIBED BY THE GOVERNME NT FOR DIFFERENT CATEGORIES OF STUDENTS IS A MEANS TO ACHI EVE THE ABOVE OBJECTIVE. 14. THE REASON FOR PRESENTING AND ANALYZING THE MAC RO VIEW ON THE SUBJECT IS TO APPRECIATE THE POINT THAT THE GOV ERNMENT, IN ITS WISDOM, HAS CONSCIOUSLY PERMITTED CHARGING HIGHER F EES FROM SOME STUDENTS IN THE CASE OF UNAIDED COLLEGES TO AC HIEVE ITS AFORESAID OBJECTIVES. THIS POLICY IS NOTHING BUT A 'CROSS SUBSIDY' BY THE AFFLUENT STUDENTS TO THE NEEDY STUD ENTS, AS THE STATE, WHICH WAS TRADITIONALLY/CONSTITUTIONALLY BOU ND TO PROVIDE THESE SERVICES, COULD NOT DO SO. HENCE, THE CHARGIN G OF HIGHER FEES FROM A CERTAIN PERCENTAGE OF STUDENTS WILL NOT BE DETRIMENTAL TO THE 'CHARITABLE' NATURE OF THE INSTI TUTIONS AS THIS CHARGING OF HIGHER FEES FROM THE AFFLUENT STUDENTS IS DONE ONLY TO SUBSIDISE THE COST OF EDUCATION OF THE NEEDY STU DENTS ESPECIALLY WHEN THIS SCHEME OF 'PUBLIC PRIVATE PART NERSHIP' IS AN INSTRUMENT OF STATE POLICY. WE FIND SUPPORT FOR OUR ABOVE VIEW FROM CIT VS PULIKKAL MEDICAL FOUNDATION PRIVAT E LIMITED, 210 ITR 299 (KER) AND BREACH CANDY HOSPITAL TRUST V S CHIEF CIT 322 ITR 246 (BOM). A CAREFUL APPRECIATION OF TH E AFORESAID MACRO VIEW CAN ONLY LEAD TO THE IRRESISTIBLE CONCLU SION THAT CHARGING OF HIGHER FEES FROM AFFLUENT STUDENTS OR R AISING FUNDS FOR THE LAUDABLE OBJECT OF EDUCATION, WHICH IS TRAD ITIONALLY A STATE FUNCTION, THROUGH DONATIONS, BY AN UNAIDED SE LF FINANCING EDUCATIONAL INSTITUTIONS CANNOT DETER THE 'CHARITAB LE' NATURE OF THE ACTIVITY AND IN ANY VIEW MAKE SUCH ACTIVITY 'CO MMERCIAL' IN NATURE. 15. THERE IS ONE MORE ANGLE FROM WHICH THE PRESENT CASE CAN BE APPROACHED. ALTHOUGH, CHARITABLE INSTITUTIONS EA RN SURPLUS, IF THE PROMOTERS OR THE TRUSTEES OR MEMBERS OF SUCH A CHARITABLE INSTITUTIONS ARE PRECLUDED FROM AND DID NOT IN FACT PARTICIPATE OR GAIN DISTRIBUTION OF THE SURPLUS AND THE ENTIRE SUR PLUS IS ONLY APPLIED OR ACCUMULATED FOR CHARITABLE PURPOSES, THE N OCCURRENCE OF THE SURPLUS WILL NOT IN ANY WAY MILIT ATE AGAINST THE CLAIM OF 'CHARITABLE' NATURE OF THE INSTITUTIONS OR MAKE IT A COMMERCIAL VENTURE - CIT VS PULIKKAL MEDICAL FOUNDA TION PRIVATE LIMITED 210 ITR 301 (KER). 16. WE FIND FROM CLAUSES 19 AND 20 OF THE TRUST DEE D PLACED AT PAGES NO.6 TO 17 OF THE STATEMENT OF FACTS THAT, TH ERE IS AN ABSOLUTE EMBARGO ON ANY BENEFITS OR REMUNERATION TO THE 42 ITA NOS.294 TO 296/MDS/2014 TRUSTEES OR THEIR RELATIVES. IT IS NOT ALSO THE CAS E OF THE REVENUE THAT ANY SUCH BENEFITS HAVE BEEN CONFERRED BY THE A SSESSEE DURING THE YEAR. HENCE, FOR THIS REASON TOO, THE OC CURRENCE OR RECURRENCE OF SURPLUS OF THE ASSESSEE THROUGH ITS E DUCATIONAL ACTIVITY WILL NOT AFFECT ITS ELIGIBILITY FOR BEING CONSIDERED AS A CHARITABLE TRUST ENTITLED TO EXEMPTION U/S 11. SIMI LARLY, THE ASSESSEE'S SUBMISSION THAT IT COULD NOT HAVE OBTAIN ED DONATIONS THROUGH COERCION AS ALLEGED BY THE REVENU E ALSO DESERVES TO BE ACCEPTED, AS WE FIND FROM THE ADMISS ION REGULATIONS OF AICTE THAT THERE WERE ONLY TWO DEFIN ED AREAS OF DISCRETION IN THE MATTER OF ADMISSION VIZ. 5% OF TH E SANCTIONED SEATS FOR NRIS AND FILLING UP OF 'LAPSED SEATS'. WE FIND FROM THE BREAK UP OF ADMISSIONS GIVEN THAT, OUT OF THE 5%, O NLY 3% OF SEATS WERE ALLOTTED TO NRIS AND FURTHER THAT OUT OF THE TOTAL CORPUS FUND DONATION OF `1,26,50,000/- THERE WAS NO DONATION RECEIVED FROM OUTSIDE INDIA. HENCE, THE DISCRETION AVAILABLE IN THIS REGARD COULD NOT HAVE LED TO COLLECTION OF THE AFORESAID DONATIONS. THE LETTER ALONG WITH LIST OF STUDENTS A DMITTED WITH THE DATE OF ADMISSION OF STUDENTS REVEAL THAT THE L AST STUDENT ADMITTED WAS ON 25.10.2000 AS PER THE DIRECTION OF THE UNIVERSITY OF MADRAS, COPY OF WHICH HAS ALSO BEEN F ILED. AS THERE WAS NO 'LAPSED SEAT' WHICH COULD BE FILLED AT THE DISCRETION OF THE ASSESSEE NO DONATIONS COULD HAVE BEEN COLLEC TED IN THIS AREA ALSO. FINALLY, WE FIND FROM THE AFORESAID DOCU MENTS THAT WHILE THE SEATS SANCTIONED BY THE UNIVERSITY OF MAD RAS WAS 535, ONLY 500 STUDENTS WERE ACTUALLY ADMITTED LEAVI NG 35 OF THE SANCTIONED SEATS VACANT. WHEN THE ASSESSEE IS UNABL E TO GET STUDENTS TO FILL UP EVEN THE SANCTIONED STRENGTH, W E FAIL TO UNDERSTAND AS TO HOW IT WOULD BE IN A POSITION TO D EMAND AND GET DONATIONS AT THE TIME OF ADMISSION. 17. FOR THE REASONS AFORESAID, WE HAVE NO RESERVATI ONS IN HOLDING THAT THE ASSESSEE HAD VERY LITTLE DISCRETIO N IN THE MATTER OF ADMISSION OR CHARGING OF FEES DURING THE YEAR AN D THEREFORE, HAVE NO HESITATION IN HOLDING THAT THE CORPUS DONAT IONS RECEIVED CANNOT BE TREATED AS CAPITATION FEES AND THAT THE S URPLUS EARNED BY THE ASSESSEE CANNOT BE ON ACCOUNT OF 'PROFITEERI NG' WARRANTING THE ASSESSMENT OF ASSESSEE'S SURPLUS AS 'INCOME FROM BUSINESS' AND THEREFORE, WE DISMISS GROUND NOS . 1.D AND 1.E RAISED BY THE REVENUE. B) THE EMPLOYEES OF THE ASSESSEE COULD NOT HAVE KNO WLEDGE ON THE ASSESSEES AFFAIRS. 43 ITA NOS.294 TO 296/MDS/2014 22. WE, THEREFORE, HOLD THAT THE CONTENTS OF THE S HOW CAUSE NOTICE U/S 12AA(3) PROPOSING TO CANCEL REGISTRATION FROM A SSESSMENT YEAR 2004-05; THE RETRACTED STATEMENTS OF V. SANKAR AND R. VIJAYAKUMAR WHO WERE NEITHER EMPLOYED NOR HAD ANY POSITION IN T HE ASSESSEE TRUST DURING THE RELEVANT YEAR AND THEREFORE, COULD NOT HAVE HAD KNOWLEDGE OF THE ASSESSEE'S AFFAIRS DURING THE YEAR RELEVANT TO ASSESSMENT YEAR 2001-02; OR THE LETTERS FROM PARENT S IN 2004 AND LATER, REQUESTING FOR REFUND OF MONEY, CAN BE RELIE D UPON BY THE REVENUE TO DENY THE EXEMPTION U/S 11 FOR ASSESSMENT YEAR 2001-02. C) BY EARNING SURPLUS, IT CANNOT BE SAID THAT THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITY. 23. NOT BEING CONTENT WITH DEFENDING THE ORDER OF THE LD. CIT(A) RESTORING THE EXEMPTION U/S 11 AND ASSAILING THE RE VENUE'S GROUNDS OF APPEAL, THE LD.AR ADVANCED ERUDITE ARGUMENTS ON LAW TO JUSTIFY THE GRANT OF EXEMPTION U/S 11 WHICH ARE DEALT WITH HERE UNDER: I. EXEMPTION NOT ANATHEMA TO 'SURPLUS' ARISING OUT OF CHARITABLE ACTIVITY - IF 'SURPLUS' IS APPLIED FOR 'CHARITABLE' PURPOSES. A. THAT THE REVENUE IS IMPORTING THE LANGUAGE OF SE C. 10(22) (DELETED ON 1.4.1999) THAT THE EDUCATIONAL INSTITUTION SHOUL D 'EXIST SOLELY FOR EDUCATION PURPOSES AND NOT FOR PURPOSES OF PROFIT' INTO SEC.11 WHICH HAS NO SUCH CONDITIONS AND THEREFORE, THE GENERATIO N OF 'SURPLUS' WITHIN THE FRAME WORK OF REGULATIONS OF THE COMPETE NT AUTHORITIES CANNOT BE CONSTRUED AS A 'BUSINESS' ACTIVITY OR 'PR OFITEERING' SO AS TO DENY EXEMPTION U/S 11. B. WHEN THE CIT, HIGHEST FUNCTIONARY OF THE REVENUE HAD HIMSELF EXAMINED THE VERY SAME ASPECT ON 18.9.1998 (COPY OF THIS LETTER IS FILED IN PAGE 35 OF VOLUME I OF PAPER BOOK) AND CON CLUDED IN FAVOUR OF THE ASSESSEE, NO NEW FACTS OR CIRCUMSTANCES HAVE BEEN BROUGHT ON RECORD FOR THE YEAR RELATING TO 2001-02 A/Y TO CHAN GE THE COMMISSIONER OF INCOME TAX'S VIEW IN 1998. C. ELEEM OSYNARY AND ALTRUISM ARE IRRELEVANT FOR CLAIMING EXEMPTION U/S 11 - RELYING ON THE COMMENTARY IN THE LAW AND PRACTICE OF INCOME TAX IN KANGA AND PALKHIWALA AND THE CASES CITED THEREIN (PAGE 392). D. CBDT CIRCULAR F.NO.194/16-17-IT(AI) REPRODUCED I N 212 ITR 462 (KER) - 'THE QUESTION FOR CONSIDERATION IS WHETHER AN EDUCA TIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSE BUT WHICH S HOWS SOME SURPLUS AT THE END OF THE YEAR IS ELIGIBLE FOR THIS EXEMPTI ON. IF THE PROFIT OF THE 44 ITA NOS.294 TO 296/MDS/2014 EDUCATIONAL INSTITUTION CAN BE DIVERTED FOR THE PER SONAL USE OF THE PROPRIETOR THEREOF, THEN THE INCOME OF THE EDUCATI ONAL INSTITUTION WILL BE SUBJECT TO TAX. HOWEVER, THERE MAY BE CASES WHER E THE EDUCATIONAL INSTITUTIONS MAY BE OWNED BY THE TRUSTS OF SOCIETIE S TO WHOM THE PROVISIONS OF SECTION 11 MAY BE APPLICABLE. WHERE A LL THE OBJECTS OF THESE TRUSTS ARE EDUCATIONAL, AND THE SURPLUS, IF A NY, FROM RUNNING THE EDUCATIONAL INSTITUTION IS USED FOR EDUCATIONAL PUR POSES ONLY, IT CAN BE HELD THAT THE INSTITUTION IS EXISTING FOR EDUCATION AL PURPOSES AND NOT FOR PURPOSES OF PROFIT.' 24. THE AFORESAID PROPOSITIONS WERE AGAIN BUTTRESSE D BY THE LD.AR BY A LINE OF CASES AS UNDER: ADITANAR EDUCATIONAL INSTITUTION VS. ACIT - 224 ITR 310 (SC) '...RUNNING, MANAGING OR ASSISTING SCHOOLS AND COLL EGES - IS AN EDUCATIONAL INSTITUTION ENTITLED TO EXEMPTI ON AVAILABLE EACH YEAR ON SURPLUS OVER EXPENDITURE, IF THE INSTITUTIO N EXISTED SOLELY FOR EDUCATIONAL PURPOSES - OVERALL VIEW TO BE TAKEN - I NCOME TAX ACT...' '...AVAILABILITY OF THE EXEMPTION SHOULD BE EVALUAT ED EACH YEAR TO FIND OUT WHETHER THE INSTITUTION EXISTED DURING THE RELE VANT YEAR SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT . AFTER MEETING THE EXPENDITURE, IF ANY SURPLUS RESULTS INCIDENTALLY... ' '...IT WILL NOT CEASE TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES, SINCE THE OBJECT IS NOT ONE TO MAKE PROFIT. THE DEC ISIVE OR ACID TEST IS WHETHER, ON AN OVERALL VIEW OF THE MATTER, THE OBJE CT IS TO MAKE PROFIT. IN EVALUATING OR APPRAISING THE ABOVE, ONE SHOULD A LSO BEAR IN MIND THE DISTINCTION / DIFFERENCE BETWEEN THE CORPUS, TH E OBJECTS AND THE POWERS OF THE CONCERNED...' '...10(22) SHOULD BE EVALUATED OR INVESTIGATED EVER Y YEAR AND ONLY IF IT WAS FOUND THAT THE 'INSTITUTION' EXISTED FOR EDUCAT IONAL PURPOSES IN THE RELEVANT YEAR AND EVEN IF ANY PROFIT RESULTED WHICH WAS ONLY INCIDENTAL TO THE PURPOSE OF EDUCATION, THE INCOME WOULD BE... '. AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL IN STITUTES VS. CBDT - 301 ITR 86 (SC) '...THE MERE EXISTENCE OF PR OFIT / SURPLUS DID NOT DISQUALIFY THE INSTITUTION ...'. ACIT VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIA TION - 121 ITR 1 (SC) - 5 MEMBER BENCH '... NOT INVOLVING ANY ACTIVI TY FOR PROFIT - MEANING AND SCOPE ...' '... SO LONG AS THE PURPOSE DOES NOT INVOLVE THE CA RRYING ON OF ANY ACTIVITY FOR PROFIT, THE REQUIREMENT OF THE DEFINIT ION WOULD BE - IT IS IMMATERIAL HOW THE MONIES FOR ACHIEVING OR IMPLEMEN TING SUCH 45 ITA NOS.294 TO 296/MDS/2014 PURPOSE ARE FOUND, WHETHER BY CARRYING ON AN ACTIVI TY FOR PROFIT OR NOT ...' CIT VS. INDIAN INSTITUTE OF COMPUTER TECHNOLOG Y - 244 ITR 371 (KER) BIRLA VIDYA VIHAR TRUST VS. CIT - 136 ITR 445 (CAL) '... EDUCATIONAL INSTITUTION CONDITION PRECEDENT - MUST EXIST SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT - POSITION TO BE DETERMINED WITH REFERENCE TO CUMULATIVE EFFECT OF A LL RELEVANT FACTS ...' '... NEITHER THE FORTUITOUS FACTOR OF HAVING A LARG E SURPLUS IN ANY PARTICULAR YEAR NOR THE SOLITARY FACT OF DIVERTING SOME OF THE INCOME TO OBJECTS CHARITABLE BUT NOT EDUCATIONAL WOULD BE DEC ISIVE OF THE MATTER ...' '... A SOLITARY INSTANCE OF APPLICATION OF INCOME F ROM THE SCHOOLS FOR NON-EDUCATIONAL PURPOSES IN A PRIOR YEAR WAS NOT VE RY MATERIAL. THE FACT THAT THE ASSESSEE TRUST HAD OBJECTS OTHER THAN EDUCATIONAL OBJECTS WAS ALSO NOT MATERIAL...' PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UNION OF INDIA AND OTHERS - 327 ITR 73 (P&H) '...MERELY BECAUSE PROFIT S HAVE RESULTED FROM THE ACTIVITY OF IMPARTING EDUCATION THAT WOULD NOT CHANGE THE CHARACTER OF THE INSTITUTION EXISTING SOLELY FOR ED UCATIONAL PURPOSE ...' '...MERELY BECAUSE THERE ARE SURPLUSES IN THE HANDS OF THE EDUCATIONAL INSTITUTION THAT WOULD NOT IPSO FACTO LEAD TO AN IN EVITABLE CONCLUSION THAT SUCH AN EDUCATIONAL INSTITUTION EXISTS FOR MAK ING PROFITS AND NOT SOLELY FOR EDUCATIONAL PURPOSES ...' '...ACCORDINGLY, IT HAD TO BE ASCERTAINED WHETHER T HE EDUCATIONAL INSTITUTION HAD BEEN APPLYING ITS PROFIT WHOLLY AND EXCLUSIVELY TO THE OBJECT FOR WHICH THE INSTITUTION WAS ESTABLISHED. M ERELY BECAUSE AN INSTITUTION HAD EARNED PROFIT THAT WOULD NOT BE THE DECIDING FACTOR TO CONCLUDE THAT THE EDUCATIONAL INSTITUTION EXISTED F OR PROFIT ...' VANITA VISHRAM TRUST VS. CHIEF COMMISSIONER OF INCO ME - TAX AND ANOTHER - 327 ITR 121 (BOM) '... THE FACT THAT A SU RPLUS MAY INCIDENTALLY ARISE FROM THE ACTIVITIES OF THE TRUST , AFTER MEETING THE EXPENDITURE INCURRED FOR CONDUCTING EDUCATIONAL ACT IVITIES WOULD NOT DISENTITLE THE TRUST OF THE BENEFIT OF THE PROVISIO NS OF SECTION 10(23C)...' MAA SARASWARI EDUCATIONAL TRUST VS. UOI (HP) - '...THEREFORE, IT IS NOT AS IF THE EDUCATIONAL INST ITUTION CANNOT GENERATE ANY SURPLUS. GENERATING SURPLUS AND ACCUMULATION OF INCOME WILL NOT DISQUALIFY AN INSTITUTION FOR THE BENEFITS OF SECTI ON 10(23). SURPLUS IS TO BE UNDERSTOOD IN CONTRADISTINCTION TO GENERATION OF INCOME WITH THE SOLE MOTIVE OF PROFIT IF ONE HAS TO PROPERLY UNDERS TAND THE LEGISLATIVE INTENT OF SECTION 10(23C)(VI)...' 46 ITA NOS.294 TO 296/MDS/2014 '... THOUGH CHARITY IS A LAUDABLE OBJECT, THAT CONS IDERATION IS IRRELEVANT UNDER THE SAID PROVISION. WHAT IS RELEVA NT IS PURPOSE AND ADMINISTRATION OF THE INSTITUTION ONLY FOR EDUCATIO N AND NOTHING MORE OR NOTHING LESS OR ANYTHING ELSE ...' BREACH CANDY HOSPITAL TRUST VS. CHIEF COMMISSIONER (BOM) - 322 ITR 246 (BOM) 25. ON A THOROUGH READING OF THE JUDGMENTS RELIED O N, EXTRACTS FROM WHICH ARE GIVEN ABOVE, WE FIND THAT THEY APPLY IN G REATER FORCE TO THE ASSESSEE, WHOSE CLAIM FOR EXEMPTION IS U/S 11, ALTH OUGH MOST OF THE JUDGMENTS HAVE BEEN RENDERED UNDER SEC.10(22). WE N OTICE THAT, WHILE SEC 10(22) HAD AN EXPRESS CONDITION THAT THE INSTIT UTION SHOULD EXIST 'NOT FOR PURPOSES OF PROFIT' SEC.11 DOES NOT IMPOSE ANY SUCH CONDITION. IF THE INCIDENCE OF PROFIT IS NOT AN IMP EDIMENT FOR ALLOWING EXEMPTION U/S 10(22), AS DECIDED BY THE ABOVE LINE OF CASES AND CBDT CIRCULAR, WE FAIL TO SEE THE REVENUE'S CLAIM THAT T HE SURPLUS WOULD MILITATE THE ASSESSEE'S CLAIM FOR EXEMPTION U/S 11. WE THEREFORE, HOLD THAT THE INCIDENCE OF SURPLUS DURING THE COURSE OF ACTIVITY OF RUNNING THE EDUCATIONAL INSTITUTION WOULD NOT BE A GROUND T O STATE THAT THE ASSESSEE IS CARRYING ON A BUSINESS ACTIVITY SO AS T O FORFEIT EXEMPTION U/S 11. II. APPLICATION OF DOCTRINE OF LEGITIMATE EXPECTATI ON THAT, THE ASSESSEE IS ENTITLED TO CONSISTENCY IN ASSESSMENT O F INCOME FROM THE SAME ACTIVITY OVER DIFFERENT YEARS, ESPECIALLY WHEN THE DEPARTMENT HAS FAILED TO BRING ON RECORD ANY FACTS OR CIRCUMSTANCE S RELATING TO 2001- 02 A/Y, WHEN THE REVENUE HAD BEEN HOLDING THE ASSES SEE, AS A CHARITABLE INSTITUTION FROM ITS INCEPTION IN 1984 U P TO 2000, AS DECIDED, IN THE FOLLOWING CASES: RADHASAOMI SATSANG VS. CIT - 193 ITR 321 (SC) BERGE R PAINTS INDIA LTD. VS. CIT - 266 ITR 99 (SC) UNION OF INDIA VS. S ATHISH PAUNALAL SHAH - 249 ITR 221 (SC) CIT VS. S. KAMALAHASSAN - 1 41 TAXMAN 24 (MAD) CIT VS. S. KAMALAHASSAN - 141 TAXMAN 257 (MAD ) DIT VS. LOVELY RAN SHIKSHA PARISHAD - 266 ITR 349 (DEL) CIT VS. N.P. MATHAW - 280 ITR 44 (KEL) CIT VS. NEO POLYPACK LTD. - 245 ITR 492 (DEL) III. 'EDUCATION' PER SE IS 'CHARITY' IT WAS S UBMITTED THAT, SEC. 2(15) PROVIDING AN INCLUSIVE DEFINITION OF CHARITAB LE PURPOSE, ENUMERATES THE FOLLOWING: RELIEF OF THE POOR; EDUCATION; MEDICAL RELIEF AND ADVANCEMENT OF ANY OTHER OBJ ECT OF GENERAL PUBLIC UTILITY, NOT INVOLVING THE CARRYING ON OF AN Y ACTIVITY FOR PROFIT. 47 ITA NOS.294 TO 296/MDS/2014 26. IT WAS ALSO SUBMITTED THAT THERE ARE NO CONDITI ONS FOR TREATING 'EDUCATION' AS CHARITABLE PURPOSE U/S 2(15) - UNLIK E U/S 10(22) AND THAT THE HON'BLE SUPREME COURT IN THE CASE OF ADDITIONAL CIT VS. SURAT ART SILK MANUFACTURERS ASSOCIATION, 121 ITR 1 (SC), HAS HELD THAT THE PHRASE 'NOT INVOLVING THE CARRYING ON ANY ACTIVITY FOR PROFIT' WOULD GOVERN ONLY THE LAST LIMB OF SEC. 2(15) AND NOT THE EARLIER 3 LIMBS, WHICH INCLUDES 'EDUCATION'. FURTHER, CBDT CIRCULAR NO. 11 OF 2008 DATED 19.12.2008 ALSO CLEARLY ENDORSES THIS VIEW AN D PUTS THE MATTER TO REST. PARA 2.1 AND 2.2 OF THE SAID CIRCULAR READ S AS UNDER: 2.1 'NEWLY INSERTED PROVISO TO SECTION 2(15) WILL N OT APPLY IN RESPECT OF THE FIRST THREE LIMBS OF SECTION 2(15) I.E. EDUC ATION. CONSEQUENTLY, WHERE THE PURPOSE OF A TRUST OR INSTITUTION IS RELI EF OF THE POOR, EDUCATION, IT WILL CONSTITUTE 'CHARITABLE PURPOSE' EVEN IF IT INCIDENTALLY INVOLVES THE CARRYING ON OF COMMERCIAL ACTIVITIES. 2.2 ENTITIES WHOSE OBJECT IS 'EDUCATION' WOULD ALSO CONTINUE TO BE ELIGIBLE OR EXEMPTION AS CHARITABLE INSTITUTIONS EV EN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY SUBJECT TO THE CONDITIONS MENTIONED ABOVE.' 27. THE LD.AR HAS RELIED ON A LINE OF DECISIONS BEL OW, WHICH HAVE HELD UNEQUIVOCALLY THAT 'EDUCATION' PER SE IS 'CHARITY' AND THAT THERE ARE NO STRINGS ATTACHED. P.C. RAJA RATNAM INSTITUTION VS. MUNICIPAL CORPORAT ION OF DELHI & OTHERS - 181 ITR 354 (SC) '...TEST OF CHARITABLE PU RPOSE SATISFIED BY PROOF OF ANY OF THE THREE CONDITIONS OF RELIEF OF P OOR, EDUCATION OR MEDICAL RELIEF....' DIT VS. GARDEN CITY EDUCATIONAL TRUST - 330 ITR 480 (KAR) '... SO LONG AS A TRUST HAS EDUCATION AS ONE OF ITS OBJECTS WHICH IS ONE OF ENUMERATED HEADS WHICH QUALIFIES AND COMES WITHIN S COPE OF CHARITABLE PURPOSE AS ENUMERATED IN SECTION 2(15), IT HAS TO BE ACCEPTED THAT TRUST IS HAVING A CHARITABLE PURPOSE AS ITS OBJECT AND MAY QUALIFY FOR CLAIMING EXEMPTION IN TERMS OF SECT IONS 11 ....' GAUR BRAHMIN VIDYA PRACHARINI SABHA VS. CIT - 304 S OT 371 (DEL) '... IMPARTING OF EDUCATION IS A CHARITABLE PURPOSE AS DEFINED IN SECTION 2(15), IRRESPECTIVE OF THE FACT THAT THE AS SESSEE CHARGES FEE FOR IMPARTING EDUCATION - THERE IS NO CONDITION THAT TO BECOME A CHARITABLE PURPOSE, EDUCATION SHOULD BE IMPARTED FR EE ...' ITO VS. KAUSHALYA MEDICAL FOUNDATION - 31 SOT 119 (MUM) ACI T VS. GRAPHIC ERA EDUCATIONAL SOCIETY - 108 TTJ 608 (DEL) '... ASSESSEE INSTITUTION IS DULY RECOGNIZED BY HNB GARHWAL UNIVE RSITY AND STRICTLY FOLLOWS ALL UNIVERSITY REGULATIONS WITH REGARD TO A DMISSION, CHARGING OF FEES AND COURSE CURRICULUM AND HAS ON ITS GOVERN ING BODY NOMINEES OF STATE GOVERNMENT, HNB UNIVERSITY AND AICTE FUNCT IONING UNDER HUMAN RESOURCE MINISTRY, AND THUS, IN FACT, GOVERNM ENT MANAGED - 48 ITA NOS.294 TO 296/MDS/2014 THEREFORE, THE QUESTION OF FUNCTIONING LIKE A COMME RCIAL PROFIT MAKING INSTITUTION IS TOTALLY UNFOUNDED - ASSETS OF THE SO CIETY CANNOT BE SHARED OR DISTRIBUTED AMONGST ITS MEMBERS AT ANY POINT OF TIME...' '...ASSESSEE RENDERING EDUCATION TO GENERAL PUBLIC FALLS WITHIN CHARITABLE PURPOSE UNDER SECTION 2 (15) ...' RELIAB LE EDUCATIONAL & ALLIANCE SOCIETY VS. CIT - 126 TTI 407 (DEL) '...ED UCATION IS NOW CLEARLY A CHARITABLE PURPOSE WITHIN A MEANING OF SE CTION 2(15) ...' DCIT VS. BEER SHIVA EDUCATIONAL SOCIAL WELFARE SOCI ETY - 107 ITD 403 (DEL) '...WHETHER RELIEF OF POOR, EDUCATION AND MEDICAL RELIEF ARE CHARITABLE ACTIVITIES PER SE AND IF ANY INSTITUTION IS CARRYING OUT ANY OF THESE OBJECTS, THEN SUCH AN INSTITUTION WOULD BE PU RSUING A CHARITABLE PURPOSE - HELD, YES...' '... WHETHER SINCE RUNNING SCHOOLS IN A SYSTEMATIC MANNER WAS INCIDENTAL TO ATTAINMENT OF ONE OF OBJECTS OF SOCIE TY, ASSESSEE'S CASE WAS COVERED UNDER SECTION 11(4A) AND, THEREFORE, EX PENDITURE INCURRED IN COMMERCIAL ACTIVITY WAS NOT ENTITLED TO EXEMPTION UNDER SECTION 11(1)(A) ...' DY. DIT VS. SHANTI DEVI PROGRESSIVE EDUCATION SOCIE TY - (2011) 9 TAXMANN.COM 240 (DEL) O.P. JINDAL GLOBAL UNIVERSITY VS. CIT - 127 ITD 164 (DEL) 28. WE HAVE NO DIFFICULTY IN SUBSCRIBING TO THIS SU BMISSION OF THE ASSESSEE, AS THE LANGUAGE OF THE STATUTE IS CRYSTAL CLEAR AND REQUIRES NO INTERPRETATION, WHATSOEVER, TO HOLD THAT 'EDUCAT ION' PER SE IS A 'CHARITABLE PURPOSE' U/S 2(15). WE ARE SURPRISED BY THE NUMBER OF CASES ON THIS ISSUE AND AMAZED AT THE PROPENSITY OF THE REVENUE TO LITIGATE ON WHAT IS PERHAPS ONE OF THE SIMPLEST DEF INITIONS UNDER THE INCOME TAX ACT. BE THAT AS IT MAY, OUR TASK IN SUBS CRIBING TO THIS SUBMISSION IS MADE EASY BY THE DIRECT DECISIONS ON THIS ISSUE CITED ABOVE, APART FROM THE UNEQUIVOCAL PRONOUNCEMENT IN THE CBDT CIRCULAR REPRODUCED ABOVE. 29. IN COMING TO THE ABOVE CONCLUSION, WE HAVE ALSO FOLLOWED THE DECISION IN THE CASE OF JAYPEE INSTITUTE OF INFORMA TION TECHNOLOGY SOCIETY VS DGIT (EXEMPTIONS) 28 DTR 242 (DEL), WHIC H HAS HELD THAT ' ..... VERY FACT THAT IT IS GRANTED THE STATUS OF DEEMED UNIVERSITY BY UGC IS A CLINCHING FACTOR INSOFAR AS INSTITUTIONALI ZED EDUCATION CONDUCTED BY THE PETITIONER IS CONCERNED ...', WHEN THE REVENUE SOUGHT TO DENY EXEMPTION U/S 10(23C) ON ACCOUNT OF OBJECTS NOT CONSIDERED AS `EDUCATIONAL' BY IT. NO DOUBT THE ASSESSEE BECAM E A `DEEMED UNIVERSITY' ONLY FROM THE FOLLOWING YEAR. HOWEVER, WE ARE NOTICING THIS DECISION ONLY FOR THE PURPOSE OF REINFORCING O UR FINDING THAT ASSESSEE WAS ONLY ENGAGED IN THE ACTIVITY OF EDUCAT ION, WHICH, PER SE, IS A CHARITABLE PURPOSE U/S 2(15). 49 ITA NOS.294 TO 296/MDS/2014 30. AS REGARDS 'EDUCATION IS NOT BUSINESS', IT WAS SUBMITTED BEFORE US, AGAIN, IN OUR OPINION RIGHTLY SO, THAT 'EDUCATI ON' CAN NEVER BE A BUSINESS AND THAT IT WAS SO HELD BY THE APEX COURT IN THE 5 JUDGES BENCH IN UNNIKRISHNAN J.P. VS. STATE OF ANDHRA PRAD ESH AND OTHERS 1993 AIR 2178 - THAT 'IMPARTING EDUCATION CANNOT BE TRADE, BUSINESS OR PROFESSION .... IT MAY PERHAPS FALL UNDER THE CA TEGORY OF OCCUPATION ...'. THE ABOVE RATIO THAT 'EDUCATION IS AN 'OCCUPA TION' ' WAS REAFFIRMED IN THE 11 JUDGES BENCH OF THE APEX COURT IN T.M.A. PAI FOUNDATION AND OTHERS VS. STATE OF KARNATAKA - 8 SC C 481. 31. IN THE LIGHT OF THE CATEGORICAL DECISIONS OF TH E CONSTITUTION BENCH OF THE APEX COURT AFORESAID, THE REVENUE'S ATTEMPT TO CATEGORIZE THE EDUCATIONAL INSTITUTION AS A BUSINESS HAS TO BE REJ ECTED AND THE ASSESSMENT OF ITS SURPLUS AS BUSINESS INCOME WAS RI GHTLY SET ASIDE BY THE LD. CIT(A). AS WE HAVE HELD, FOLLOWING THE APEX COURT JUDGMENTS AFORESAID, THAT THE EDUCATIONAL INSTITUTION IS NOT A BUSINESS AND THAT `EDUCATION' PER SE IS A `CHARITABLE PURPOSE' IN THE EARLIER PARA, WE UPHOLD THE ORDER OF THE LD. CIT(A) ALLOWING THE EXE MPTION U/S 11. D) THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SECT ION 11(4A) OF THE ACT. 32. AS REGARDS EXEMPTION U/S 11 IS FOR 'APPLICATION ' OF INCOME AND NOT SOURCE, WE FIND THIS ARGUMENT BY THE LD.AR TO B E THE MOST ATTRACTIVE AND RELEVANT PROPOSITION IN SUPPORT OF T HE ASSESSEE'S CLAIM FOR EXEMPTION U/S 11. THE ASSESSEE SUBMITTED THAT S EC. 11 (1) PROVIDES THAT '.... FOLLOWING INCOME SHALL NOT BE INCLUDED I N THE TOTAL INCOME ..... INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHO LLY FOR CHARITABLE OR RELIGIOUS PURPOSES TO THE EXTENT IT IS APPLIED F OR SUCH PURPOSES .... 33. THE HON'BLE SUPREME COURT IN GANGABAI CHARITIES VS. CIT 197 ITR 416 (SC) HAS UPHELD THE AFORESAID INTERPRETATIO N AS UNDER: IN PAGE 419 - '... IN ORDER TO CLAIM THE BENEFIT OF SEC. 11 (1) (A) OF THE ACT: 1. THE INCOME IS DERIVED FROM PROPERTY HELD UNDER T HE TRUST. 2. THE TRUST IS WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. 3. THE EXEMPTION IS PERMISSIBLE TO THE EXTENT TO WH ICH TO SUCH INCOME IS APPLIED TO SUCH PURPOSES IN INDIA' AGAIN, IN PAGE 421 THE APEX COURT WENT ON TO HOLD T HAT: 50 ITA NOS.294 TO 296/MDS/2014 'THE CRUX OF STATUTORY EXEMPTION U/S 11(1)(A) OF TH E ACT IS NOT THE INCOME EARNED FROM PROPERTY HELD UNDER TRUST, BUT T HE ACTUAL APPLICATION OF THE SAID INCOME FOR RELIGIOUS AND CH ARITABLE PURPOSES'. 34. WHILE INTERPRETING 'NOT INVOLVING ANY ACTIVITY FOR PROFIT' GOVERNING THE 4TH LIMB OF SEC. 2(15), THE SUPREME COURT IN AD DITIONAL CIT VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION 121 ITR 1 (SC) HAS HELD THAT 'SO LONG AS THE PURPOSE DOES NOT INVOLVE THE CARRYING ON OF ANY ACTIVITY FOR PROFIT, THE REQUIREMENT OF THE DEF INITION WOULD BE MET AND IT IS IMMATERIAL HOW THE MONIES FOR ACHIEVING O R IMPLEMENTING SUCH PURPOSE ARE FOUND, WHETHER BY CARRYING ON AN A CTIVITY FOR PROFIT OR NOT. 35. OTHER DECISIONS IN SUPPORT OF THE ABOVE PREPOSI TION RELIED ON BY THE ASSESSEE ARE: DHARMADEEPTHI VS. CIT 114 ITR 454 (SC) CIT VS. AROO R 115 ITR 418 (KAR) ADDITIONAL CIT VS. A.L.N. RAO CHARITABLE TRUS T 102 ITR 474 (KAR) 36. IN THE ASSESSEE'S CASE, IT IS NOT THE CASE OF T HE REVENUE THAT INCOME HAS NOT BEEN 'APPLIED' FOR CHARITABLE PURPOSES. WE HAVE HELD ABOVE THAT 'EDUCATION' PER SE IS A CHARITABLE PURPOSE. TH E ASSESSEE'S ONLY SOURCE OF INCOME IS THE SURPLUS ARISING FROM OPERAT ING THE EDUCATIONAL INSTITUTION, WHICH IS 'INCOME DERIVED FROM PROPERTY HELD FOR CHARITABLE PURPOSES'. 37. IN THE LIGHT OF THE AFORESAID DECISIONS OF THE APEX COURT, WE HAVE NO HESITATION IN HOLDING THAT AS MORE THAN 75% OF T HE INCOME FROM PROPERTY HELD FOR CHARITABLE PURPOSES HAS BEEN APPL IED BY THE ASSESSEE FOR THE EDUCATIONAL INSTITUTION OF VELLORE ENGINEERING COLLEGE, ITS ENTIRE INCOME (REGARDLESS OF THE MANNE R IN WHICH IT WAS DERIVED OR HEAD UNDER WHICH IT IS COMPUTED) IS EXEM PT U/S 11. 38. THE LD.AR HAS MADE AN ALTERNATE SUBMISSION, AFT ER BEING CAREFUL TO STATE THAT HE WAS NOT ADMITTING OR CONCEDING THE CO NTENTION OF THE REVENUE THAT, EVEN IF THE ACTIVITY OF EDUCATION CAR RIED ON BY THE ASSESSEE IS TREATED AS 'BUSINESS' AS IT RESULTED IN SURPLUSES, ITS INCOME WOULD STILL BE EXEMPT UNDER SEC. 11(4A), WHICH HAS BEEN SUBSTANTIALLY LIBERALIZED FROM 1.4.1992. IT WAS SUBMITTED BEFORE US THAT, AS PER THE LIBERALIZED SEC. 11(4A) A TRUST CARRYING ON 'BUSINE SS' COULD STILL CLAIM EXEMPTION U/S SEC. 11, IF: THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF T HE OBJECTIVES OF THE TRUST AND SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED IN RESPECT OF SUCH BUSINESS. 51 ITA NOS.294 TO 296/MDS/2014 39. THE AR SUBMITTED THAT AS ASSESSEE HAS SATISFIED BOTH THE CONDITIONS, EVEN IN THE WORST CASE SCENARIO OF THE ASSESSEE'S ACTIVITY BEING CATEGORIZED AS 'BUSINESS', ITS INCOME WOULD S TILL BE ENTITLED TO EXEMPTION U/S SEC. 11 PURSUANT TO SUB-SECTION 4A. A CATENA OF DECISIONS HAS BEEN RELIED ON TO DRIVE HOME THIS ALT ERNATIVE SUBMISSION, WHICH TOO WE APPROVE. ACIT VS. THANTHI TRUST - 247 ITR 785 (SC) '...FURTH ER CHANGE OF LAW - REQUIREMENT THAT BUSINESS SHOULD BE INCIDENTAL TO A TTAINMENT OF OBJECTIVES OF TRUST - SATISFIED - INCOME TAX ACT, 1 961, SS. 11(4A) (BEFORE AND AFTER AMENDMENT IN 1992), 13(1)(BB)...' '... INTERPRETATION OF TAXING STATUTES - AMBIGUITY - PROVISION TO BE CONSTRUED IN MANNER THAT BENEFITS ...' '... THE SCO PE OF SUB-SECTION (4A) OF SECTION 11, AS AMENDED IN 1992, IS MORE BEN EFICIAL TO A TRUST OR INSTITUTION THAN THE SCOPE OF THE SUB-SECTION BEFOR E THE AMENDMENT. AS IT STANDS AMENDED IN 1992, ALL THAT IS REQUIRED FOR THE BUSINESS INCOME OF A TRUST OR INSTITUTION TO BE EXEMPT FROM TAX IS THAT THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAINMENT OF THE OBJEC TIVES OF THE TRUST OR INSTITUTION. A BUSINESS WHOSE INCOME IS UTILIZED BY THE TRUST OR THE INSTITUTION FOR THE PURPOSES OF ACHIEVING THE OBJEC TIVES OF THE TRUST OR THE INSTITUTION IS A INSTITUTION ...' DIT(E) VS. WI LLINGTON CHARITABLE TRUST - 330 ITR 24 (MAD) '... CHARITABLE PURPOSE - EXEMPT ION - BUSINESS INCOME IF UTILIZED TOWARDS ACHIEVEMENT OF OBJECT OF ASSESSEE - TRUST IT WOULD BE INCIDENTAL TO ACHIEVEMENT OF OBJECT - ASSE SSING OFFICER TO DECIDE AS TO WHETHER SUCH BUSINESS INCOME USED FOR ATTAINMENT OF OBJECT ...' '...HELD, WHEN A BUSINESS INCOME WAS USED TOWARDS T HE ACHIEVEMENT OF THE OBJECT OF THE TRUST IT WOULD BE INCIDENTAL T O THE ACHIEVEMENT OF THE OBJECT OF THE TRUST NOTWITHSTANDING THE PROFIT AND GAIN INVOLVED THEREIN. ASST. CIT VS. THANTHI TRUST (2001) 247 ITR 785 (SC) APPLIED ...' '... HONOURABLE APEX COURT IN THE ABOVE SAID JUDGME NT WAS PLEASED TO HOLD - SUFFICIENT IS THAT THE INCOME DERIVED FROM T HE BUSINESS FROM A PROPERTY HELD IN TRUST BY THE ASSESSEE IS UTILIZED TOWARDS THE ATTAINMENT OF THE OBJECTIVES - HELD THAT IT IS IRRE LEVANT IF THE BUSINESS IS RUN ON A COMMERCIAL EXPEDIENCY WITH A PROFIT MOTIVE ...' '... WE ARE OF THE VIEW THAT WHEN A BUSINESS INCOME IS USED TOWARD S THE ACHIEVEMENT OF THE OBJECT OF THE TRUST IT WOULD AMOUNT TO INCI DENTAL TO THE ACHIEVEMENT OF THE OBJECT OF THE TRUST NOTWITHSTAND ING THE PROFIT AND GAIN INVOLVED THEREIN...' CIT VS. JANAKIAMMAL AYYANDAR TRUST - 277 ITR 274 (M AD) '... CHARITABLE PURPOSES - CHARITABLE TRUST - EXEMPTION - BUSINESSES - EFFECT OF SUB-SECTION (4A) OF SECTION 11 - INCOME OF BUSIN ESS APPLIED FOR 52 ITA NOS.294 TO 296/MDS/2014 PURPOSES OF TRUST - INCOME ENTITLED TO EXEMPTION - INCOME TAX ACT, 1961 SEC. 11(4A) ...' '...EFFECT OF SUPREME COURT DECISION IN ASST. CIT V S. THANTHI TRUST (2001) 247 ITR 785 ...' '... SUPREME COURT OBSERVED THE SCOPE OF SUB-SECTIO N (4A) OF SECTION 11 OF THE INCOME TAX, AS AMENDED IN 1992, IS MORE B ENEFICIAL TO A TRUST OR INSTITUTION THAN THE SCOPE OF THE SUB-SECTION BE FORE THE AMENDMENT. AS IT STANDS AMENDED IN 1992, ALL THAT IS REQUIRED FOR THE BUSINESS INCOME OF A TRUST OR INSTITUTION TO BE EXEMPT FROM TAX IS THAT THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR INSTITUTION. A BUSINESS WHOSE INCOME IS UT ILIZED BY THE TRUST OR THE INSTITUTION FOR THE PURPOSES OF ACHIEVING THE O BJECTIVES OF THE TRUST OR THE INSTITUTION IS A BUSINESS WHICH IS INCIDENTA L TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR INSTITUTION ...' '... ASSESSMENT YEARS 1994-95 AND 1993-94 ...' CIT VS. SRI NARAYANA GURTUVIAH CHETTY ESTATE & CHARITIES - 326 ITR 662 ( MAD) '... AY - 1996-97 TO 1999-2000 - CHARITABLE PURPOSE - EXEMPTI ON - CHARITABLE TRUST EARNING INCOME BY LETTING OUT PROPERTY AS KAL YANA MANDAPAM - LETTING OUT ACTIVITY FOR FULFILLING OBJECTS OF TRUS T - INCOME DERIVED FROM PROPERTY - TRUST ENTITLED TO EXEMPTION - INCOME TAX ACT, 1961, SEC. 11 - THANTHI TRUST (2001) 247 ITR 785 (SC) APPLIED ...' CIT VS. BIMETAL BEARING LTD. - 152 ITR 85 (MAD) ITO VS. RAO BAHADUR AKD DHARMARAJ EDUCATION CHARITY TRUST - 273 ITR 256 (MAD) '... ASSESSMENT YEAR 1992-93, THE RESPONDENT / ASSESSEE CLAIMED EXEMPTION UNDER SECTIONS 10(22) AND 11 OF T HE INCOME TAX ACT ...' '... EVEN THOUGH THE - ALLEGED TO HAVE BEEN INVOLVE D IN CARRYING ON BUSINESS DURING THE ASSESSMENT YEAR 1992- 93, NOWHE RE IN THE ORDER, HAVE THE AUTHORITIES CONCERNED STATED THAT THE NATU RE OF BUSINESS SAID TO HAVE CARRIED ON BY THE RESPONDENT / ASSESSEE (TR UST) IS IN VIOLATION TO THE PROVISION OF SECTION 11(4A) OF THE ACT - CON CEDEDLY, THE OBJECT OF THE RESPONDENT / ASSESSEE (TRUST) IS TO ESTABLISH, RUN, MANAGE AND ASSIST COLLEGES, SCHOOLS AND OTHER EDUCATIONAL INST ITUTION SOLELY FOR EDUCATIONAL PURPOSE AND IN THAT REGARD TO RAISE OR COLLECT FUNDS, DONATIONS, GIFTS - 10(22) ...' CIT VS. NAHATA CHARI TABLE TRUST - 246 ITR 450 (MAD) '... CHARITABLE PURPOSES - CHARITABLE TRUST - EXEMPTION - EXEMPTION CANNOT BE DENIED SOLELY ON GROUND THAT TRUST CARRIES ON BUSINESS - INCOME TAX ACT, 1961 SEC. 11...' SRI AUR OBINDO ASHRAM HARPEGON WORKSHOP TRUST VS. ACWT - 271 ITR 553 (MAD ) CIT VS. PULIKKAL MEDICAL FOUNDATION PVT. LTD. - PRA 20, 28 & 29 - 210 ITR 299 (KER) CIT VS. ECONOMIC & ENTREPRENEURSHIP DEVEL OPMENT FOUNDATION - 188 ITR 540 (CAL) '... THAT SINCE THE ASSESSEE WAS 53 ITA NOS.294 TO 296/MDS/2014 REGISTERED UNDER SECTION 25 OF THE COMPANIES ACT, 1 956, IT COULD NOT HAVE ANY PROFIT TO DECLARE ANY DIVIDEND ...' GOVERNING BODY OF RANGARAYA MEDICAL COLLEGE VS. TAX OFFICER, A- WARD, CIRCLE I KAKINADA - 117 ITR 284 (AP) '... MER ELY BECAUSE CERTAIN SURPLUS AROSE FROM SOCIETY'S OPERATIONS, IT CANNOT BE HELD THAT THE INSTITUTION WAS RUN FOR PURPOSE OF PROFIT SO LO NG AS NO PERSON OR INDIVIDUAL WAS ENTITLED TO ANY PORTION OF THE PROFI T AND THE SAID PROFIT WAS UTILIZED FOR THE PURPOSE AND FOR THE PROMOTION OF THE OBJECTS OF THE INSTITUTION ...' CIT VS. KSHATRIYA GIRL SCHOOLS MANAGING BOARD - 245 ITR 170 (MAD) SHANTHI DEVI PROGRESSIVE EDUCATION SOCIETY VS . ADIT - 68 ITD 1 (DEL-TM) '... ASSESSMENT YEAR 1993-94 - ASSESSEE SOCIETY, RUNNING TWO SCHOOLS, WAS GRANTED EXEMPTION UNDER SECTION 10 (22) TILL ASSESSMENT YEAR 1992-93 - EXEMPTION WAS DENIED FOR ASSESSMENT YEAR 1993-94 ON GROUND THAT IT WAS COLLECTING ADMISSION FEE, DONATION AND LOANS AND THUS HAD BEEN A SOCIETY FOR PROFIT AND NO T SOLELY FOR EDUCATIONAL PURPOSE - WHETHER SINCE ASSESSEE HAD BE EN DOING THESE ACTIVITIES RIGHT FROM BEGINNING AND SAME WAS WITHIN POWERS GIVEN IN MEMORANDUM, THERE WAS NO REASON TO OBJECT TO SUCH C OLLECTIONS - HELD, YES - SINCE REVENUE COULD NOT POINT OUT ANY CASE WH ERE ANY PART OF PROFIT / INCOME WAS DIVERTED FOR PURPOSE OTHER THAN FOR EDUCATIONAL PURPOSES, EXEMPTION UNDER SECTION 10(22) COULD NOT BE DENIED TO ASSESSEE - HELD, YES ...' '... HAS TO BE EVALUATED EACH YEAR TO FIND OUT ...' '... CIRCULAR F.NO. 194/16-17 IT (AI) ...' '... IT IS QUITE APPARENT TH AT THEIR LORDSHIPS HAVE NOT DISAPPROVED THE PRACTICE OF COLLECTING FUNDS TH ROUGH DONATIONS, GIFTS, ETC., AS LONG AS THESE WERE PLOUGHED BACK IN TO THE SYSTEM ITSELF I.E. OF IMPARTING EDUCATION - NO DISTINCTION WAS DR AWN BETWEEN DONATIONS WHICH WERE VOLUNTARY OR OTHERWISE AS HAS BEEN DONE BY THE ID. JUDICIAL MEMBER ...' ITO VS. MODEL INSTITUTE OF EDUCATION & RESEARCH - 7 7 ITD 375 '... WHETHER BASIC TEST FOR DETERMINING WHETHER INSTITUT ION EXISTS FOR PROFIT IS APPLICATION OF PROFIT AND IN INSTANT CASE APPLIC ATION OF PROFIT IN SHAPE OF EXCESS OF INCOME OVER EXPENDITURE BY AND L ARGE WAS FOR PURPOSE OF EDUCATION - HELD, YES ...' '... THE INSTITUTION MIGHT HAVE HAD PROFIT WHICH WA S IN THE SHAPE OF EXCESS OF INCOME OVER EXPENDITURE. IF SUCH EXCESS C ALLED PROFIT WAS DISTRIBUTED TO THE PERSONS WITHOUT ANY CONSIDERATIO N THEN UNDER THOSE CIRCUMSTANCES, IT WOULD BE HELD THAT THE INSTITUTIO N WAS FOR THE PURPOSE OF PROFIT. IF THE EXCESS OVER EXPENDITURE O F INCOME WAS SUBSEQUENTLY SPENT WITHIN THE INSTITUTION DIRECTLY AND INDIRECTLY WAS FOR THE DEVELOPMENT OF VARIOUS FIELDS AND BRANCHES CLOSELY LINKED WITH THE SYSTEM OF IMPARTING EDUCATION, THEN UNDER SUCH CIRCUMSTANCES, IT 54 ITA NOS.294 TO 296/MDS/2014 COULD NOT BE HELD THAT THE INSTITUTION WAS RUN FOR THE PURPOSE OF PROFIT. THE BASIC TEST FOR DETERMINING WHETHER THE INSTITUT ION FOR PROFIT IS THE APPLICATION FOR PROFIT...' '... THE INSTITUTION MAY HAVE PROFIT WHICH IS IN TH E SHAPE OF EXCESS OF INCOME OVER EXPENDITURE. IF SUCH EXCESS CALLED PROF IT IS DISTRIBUTED TO THE PERSONS WITHOUT ANY CONSIDERATION THEN UNDER TH OSE CIRCUMSTANCES, IT WILL BE HELD THAT THE INSTITUTION IS FOR THE PURPOSE OF PROFIT. IF THE EXCESS OVER EXPENDITURE OF INCOME IS SUBSEQUENTLY SPENT WITHIN THE INSTITUTION DIRECTLY AND INDIRECTLY FOR THE DEVELOPMENT OF VARIOUS FIELDS AND BRANCHES CLOSELY LINKED WITH THE SYSTEM OF IMPARTING EDUCATION THEN UNDER SUCH CIRCUMSTANCES, IT CANNOT BE HELD THAT THE INSTITUTION IS RUN FOR THE PURPOSE OF PROF IT. THE BASIC TEST FOR DETERMINING THE INSTITUTION FOR PROFIT IS THE APPLI CATION OF PROFIT ...' INDIAN INSTITUTE OF BANK VS. DDIT - 74 TTJ 523 (MUM ) '...FACT THAT THE ASSESSEE IS EARNING SURPLUS CONSISTENTLY IN EAC H YEAR IS NOT PROOF PER SE OF A PROFIT MOTIVE - MEMORANDUM OF ASSOCIATI ON OF ASSESSEE PROHIBITS DISTRIBUTION OF PROFITS TO ITS MEMBERS BY WAY OF DIVIDENDS - THAT COULD NOT BE PERMITTED TO BE CHANGED IN ABSENC E OF ANY STRONG FACTUAL OR LEGAL GROUNDS ...' 'IF THE PROFITS OR IN COME OF TRADE OR BUSINESS IS DEVOTED TOWARDS CHARITABLE PURPOSE AND NO PART THEREOF IS DISTRIBUTED AMONG THE MEMBERS AS DIVIDENDS OR BONUS , THEN THAT TRADE OR BUSINESS IS A MEANS TO AN END. IT IS CHARITY' 'THE ESSENTIAL TEST OF A CHARITABLE PURPOSE IS THE DESTINATION OF PROFITS' IF THE PROFITS CONTINUE TO FEED THE CHARITY, THE ME RE OCCURRENCE OF PROFITS WOULD NOT DETRACT FROM THE CHARITABLE NATUR E OF THE ENTERPRISE' CBDT CIRCULAR NO. 642 DT. 15.12.2002 ALSO REINFORCE S THE ASSESSEE'S SUBMISSION IN THE FOLLOWING WORDS: '..... IT IS CLA RIFIED .... W.E.F. 1ST APRIL 1992, PROFITS AND GAINS OF BUSINESS IN THE CA SE OF A TRUST OR INSTITUTION WILL NOT BE LIABLE TO TAX IF THE BUSINE SS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE TRUST OR INSTIT UTION. 40. IN THE LIGHT OF THE AFORESAID CIRCULAR CONCEDIN G THE POSITION IN LAW IN FAVOUR OF THE ASSESSEE AND THE AFORESAID LINE OF DECISIONS OF THE APEX COURT, JURISDICTION MADRAS HIGH COURT AND OTHE R COURTS, WE HOLD THAT, ALTERNATIVELY, THE ASSESSEE IS ENTITLED TO EX EMPTION U/S 11(4A), EVEN IN THE EVENT OF ITS ACTIVITY OF RUNNING AN EDU CATION INSTITUTION IS CATEGORIZED AS A 'BUSINESS'. 55 ITA NOS.294 TO 296/MDS/2014 E) CORPUS DONATION RECEIVED CANNOT BE TREATED AS C APITATION FEE AND THEREFORE ASSESSEE CANNOT BE DENIED BENEFIT UND ER SECTION 11. 41. AS REGARDS CORPUS DONATIONS/CAPITATION FEES, T HE LD. AR SUBMITTED THAT ON FIRST PRINCIPLES, A DONATION TOWA RDS THE CORPUS FUND IS A CAPITAL RECEIPT. HENCE, HE SUBMITTED THAT EVEN IN THE ABSENCE OF ANY SPECIFIC PROVISIONS, A CORPUS DONATION IS A CAP ITAL RECEIPT OUTSIDE THE AMBIT OF 'INCOME'. HE RELIED ON THE FOLLOWING D ECISIONS: KILACHANF DEV CHAND FOUNDATION VS. CIT - 172 ITR 38 2 (BOM); CIT VS. VANCHI TRUST - 127 ITR 227 (KER); CIT VS. BAL UTKARSH SOCIETY - 119 ITR 137 (GUJ) HE FURTHER SUBMITTED THAT A DONATION MAY BE IDENTIFIED AS A CO RPUS DONATION - FROM THE INTENTION OF THE DONOR EXPRESSED IN WRIT ING OR IMPLICATION FROM ITS TREATMENT IN THE ACCOUNTS OF THE DONEE AND MANNER OF UTILIZATION BY THE DONEE 42. IT IS CLAIMED THAT CORPUS FUND DONATIONS HAVE A SPECIFIC WRITTEN DIRECTION TO TREAT THEM AS SUCH BY THE DONORS, IN S UPPORT OF WHICH A COPY OF SUCH DONATION RECEIPT HAS BEEN FILED IN PAG E NO.48 OF THE 'STATEMENT OF FACTS'. THE ASSESSEE IS AUTHORIZED TO ACCEPT SUCH CORPUS DONATIONS BY CLAUSES 3 AND 5(P) OF ITS TRUST DEED F ILED IN PAGES NO.6 TO 17 OF THE 'STATEMENT OF FACTS'. FURTHER, THE ASSESS EE HAS CREDITED THE ENTIRE CORPUS DONATION OF RS.1,26,50,000 TO THE COR PUS FUND ACCOUNT. THE LD AR CONTENDS, IN OUR OPINION RIGHTLY, THAT TH E REVENUE HAS NO BASIS WHATSOEVER TO RECHRISTEN THE `CORPUS DONATION ' AS `CAPITATION FEE' EXCEPT ON HIS PRESUMPTIONS AND ASSERTIONS IN T HE ASSESSMENT ORDER AND ON ACCOUNT OF STATEMENTS BY SRI V. SANKAR AND S RI R. VIJAYAKUMAR. 43. THE LD. AR HAS FURNISHED A LIST OF TRUSTEES DUR ING THE YEAR RELEVANT TO ASSESSMENT YEAR 2001-02, IN WHICH THE NAME OF SR I V. SANKAR IS NOT FOUND. THE ASSESSEE HAS ALSO FILED A CERTIFICATE FR OM THE TRUST THAT SRI V. SANKAR WAS CO-OPTED AS A TRUSTEE ONLY ON 15.12.2 006. SIMILARLY, SRI R. VIJAYAKUMAR, SECRETARY TO THE PRO-CHANCELLOR BECAME AN EMPLOYEE OF VELLORE INSTITUTE OF TECHNOLOGY ONLY ON 2.8.2004, VIDE COPY OF HIS APPOINTMENT ORDER FILED. HE WAS TRANSFE RRED TO BE SECRETARY TO THE PRO-CHANCELLOR ONLY ON 9.6.2006, A S PER COPY OF OFFICE ORDER FILED. IT IS CLAIMED THAT THE STATEMEN TS FROM THE AFORESAID 2 PERSONS WERE OBTAINED UNDER DURESS AND BY COERCION AND HAVE BEEN 56 ITA NOS.294 TO 296/MDS/2014 RETRACTED. BE THAT AS IT MAY, THE FACT REMAINS THAT NEITHER SRI V. SANKAR NOR SRI R. VIJAYAKUMAR WERE EITHER EMPLOYED OR OCCU PYING ANY OFFICIAL POSITION IN THE TRUST DURING THE YEAR RELE VANT TO ASSESSMENT YEAR 2001- 02 AND THEREFORE, THEIR STATEMENTS HAVE NO EVIDENTIARY VALUE FOR ASSESSMENT YEAR 2001-02 AND ARE THEREFORE , DISREGARDED. 44. THE ASSESSEE FURTHER CLAIMED IN ITS WRITTEN SUB MISSION THAT NEITHER BEFORE NOR AFTER THE TAMIL NADU EDUCATIONAL INSTITU TIONS (PROHIBITION OF COLLECTION OF CAPITATION FEE) ACT, 1992 AND TILL THE DATE OF HEARING, THE ASSESSEE HAS EVER BEEN COMPLAINED AGAINST OR IS SUED ANY NOTICE FOR VIOLATION OF THE SAID ACT. IN THE ABSENCE OF AN Y SUCH ACCUSATION EITHER IN THE ASSESSMENT ORDER OR REBUTTAL BY THE L D.DR, WE ARE INCLINED TO ACCEPT THE STATEMENT, ESPECIALLY SINCE THE ASSESSEE'S REPUTATION OF AN INSTITUTION OF RENOWN IS WELL KNOW N AND ACCEPTED IN MANY PARTS OF THE COUNTRY. ASSESSEE'S SUBMISSION TH AT THE 'ONUS OF PROVING THAT THE APPARENT STATE OF AFFAIRS IS NOT R EALLY LIES ON THE PERSON ALLEGING' AS HELD IN CIT VS. DAULATRAM RAWAT MULL 87 ITR 349 (SC) DESERVES ACCEPTANCE. AS WE FIND THAT THE REVEN UE HAS NOT DISCHARGED THIS ONUS AND HAS MERELY MADE ALLEGATION S, WE HOLD THAT THE TAXATION OF CORPUS FUND DONATIONS RECEIVED RS. 1,26,50,000 AS CAPITATION FEES IS WITHOUT ANY BASIS. 45. THE LD. AR RELIED ON A LINE OF CASES WHICH HAVE HELD THAT COLLECTION OF DONATION BY AN INSTITUTION CANNOT BE SAID TO BE WITH A PROFIT MOTIVE. DIT VS. BAGH MUTUAL AID EDUCATION - 298 ITR 190 (DE L) DIT VS. ANDHRA EDUCATIONAL SOCIETY - 155 TAXMAN 157 (DEL) ' ... DONATIONS AND HAD APPLIED ENTIRE FUNDS FOR EDUCATIONAL PURPOS ES IN ACCORDANCE WITH ITS OBJECTS AND HELD THAT IT WAS ENTITLED TO E XEMPTION UNDER SECTION 10(22) ...' SHANTHI DEVI PROGRESSIVE EDUCATION SOCIETY VS. ADI - 68 ITD 1 (DEL- TM) '... EXEMPTION WAS DENIED FOR ASSESSMENT YEAR 1 993-94 ON GROUND THAT IT WAS COLLECTING ADMISSION FEE, DONATI ON AND LOANS AND THUS HAD BEEN A SOCIETY FOR PROFIT AND NOT SOLELY F OR EDUCATIONAL PURPOSE - WHETHER SINCE ASSESSEE HAD BEEN DOING THE SE ACTIVITIES RIGHT FROM BEGINNING AND SAME WAS WITHIN POWERS GIVEN IN MEMORANDUM, THERE WAS NO REASON TO OBJECT TO SUCH COLLECTIONS - SINCE REVENUE COULD NOT POINT OUT ANY CASE WHERE ANY PART OF PROF IT / INCOME WAS DIVERTED FOR PURPOSE OTHER THAN FOR EDUCATIONAL PUR POSES, EXEMPTION UNDER SECTION 10(22) COULD NOT BE DENIED TO ASSESSE E - HELD, YES ...' 57 ITA NOS.294 TO 296/MDS/2014 AGARWAL SHIKSHA SAMITI TRUST VS. CIT - 168 ITR 751 (RAJ) 46. WE ARE INCLINED TO FOLLOW THE AFORESAID LINE O F DECISIONS AND HOLD THAT FOR ALL THE ABOVE REASONS AND FOLLOWING THE AB OVE JUDGMENTS, THE DONATIONS RECEIVED BY THE ASSESSEE TOWARDS `CORPUS FUND' CANNOT BE TREATED AS `CAPITATION FEES'. WE MAY ADD THAT, INDE PENDENT OF THE AFORESAID DECISIONS, ANOTHER BENCH OF THIS TRIBUNAL , OF WHICH ONE OF US WAS A MEMBER, HAS IN THE CASE OF ACIT VS. BALAJI ED UCATIONAL AND CHARITABLE PUBLIC TRUST, ITA NOS. 1476 TO 1482 /NDS /2010 DT. 5.4.2011, HELD THAT 'IN THE ABSENCE OF PROPER ENQUI RIES OR EVIDENCE, DONATIONS RECEIVED CANNOT BE TREATED AS CAPITATION FEES' FOLLOWING THE DECISIONS IN: DIRECTOR OF INCOME TAX (EXEMPTIONS) VS. SRI BELIMAT HA MAHASAMASTHANA SOCIO CULTURAL AND EDUCATIONAL TRUST - 46 DTR (KAR) 290 MAHARASHTRA ACADEMY OF ENGINEERING AND ED UCATIONAL RESEARCH VS. CIT - 133 TTJ 706 (PUNE) GOVERNING BOD Y OF RANGARAYA MEDICAL COLLEGE VS. ITO - 117 ITR 284 (AP ) RAMARAO ADIK EDUCATION SOCIETY VS. CIT - ITA NO. 5742/MUM/2 007 DT. 11.2.2008 PADANILAM WELFARE TRUST VS DY. CIT - I.T. A.NO. 444/MDS/2010 DATED 24.12.2010. 47. THE ALTERNATE SUBMISSION OF THE LD. AR, AGAIN W EARING THE HAT OF CAUTION BY STATING THAT WITHOUT ADMITTING OR CONCED ING THAT, EVEN IF THE CORPUS DONATIONS RECEIVED ARE INDEED CAPITATION FEE S, AS MORE THAN 75% OF THAT AMOUNT HAS ALSO BEEN APPLIED FOR CHARIT ABLE PURPOSES, THE SAID DONATIONS WOULD STILL BE EXEMPT U/S 11 (1)(A). AS WE HAVE ALREADY HELD THAT THE CORPUS FUND DONATIONS RECEIVED CANNOT BE TREATED AS CAPITATION FEES AND AS THE FACTUAL MATRIX OF THE DE TAILS ARE NOT AVAILABLE, WE REFRAIN FROM EXPRESSING OUR DECISION ON THIS ISSUE. THE LD. AR THEN ADVANCED AN INTERESTING ARGUMENT ON THE INTERPRETATION OF 'VOLUNTARY' BY RELYING ON THE DECISION IN CIT VS. B ENGAL MILLS AND STEAMERS PRESBYTERIAN ASSOCIATION 140 ITR 586 (CAL) THAT, IN THE ABSENCE OF A LEGAL RIGHT TO COLLECT DONATIONS BY TH E ASSESSEE AND AN ENFORCEABLE OBLIGATION TO PAY THE DONATIONS AGAINST THE DONOR, ALL DONATIONS RECEIVED BY THE ASSESSEE ARE ONLY 'VOLUNT ARY'. UNDER THESE CIRCUMSTANCES, IT WAS HELD BY THE CALCUTTA HIGH COU RT THAT, AS '... THE ASSOCIATION HAD NO CLAIM OR RIGHT TO THE RECURRENCE OF THE CONTRIBUTIONS WITH UNFAILING REGULARITY AND IN THOS E CIRCUMSTANCES, THE CONTRIBUTIONS WERE NON RECURRING IN CHARACTER AND C OULD NOT BE REGARDED AS INCOME'. 48. WE FIND DIRECT SUPPORT TO THE AFORESAID CONSTRU CTION OF THE TERM `VOLUNTARY' IN ABDUL SALAM VS UOI AIR 1969 ALL 223 - AT 228 WHERE, THE MEANING OF THE TERM HAS BEEN EXPLAINED AS UNDER : 'MEANS DOING OF SOMETHING AS THE RESULT OF FREE EXE RCISE OF THE WILL, BUT NOT SOMETHING DONE UNDER A LEGAL DUTY.' 58 ITA NOS.294 TO 296/MDS/2014 49. EVEN DE-HORS THE ABOVE JUDGMENTS WE FAIL TO SEE AS TO HOW A DONATION, EVEN IF PAID AT THE TIME OF ADMISSION, AN D FOR THE PURPOSE OF SECURING ADMISSION INTO THE ASSESSEE'S INSTITUTION CAN BE SAID TO BE NOT 'VOLUNTARY'. AFTER ALL, EDUCATIONAL INSTITUTIONS HA VE PROLIFERATED IN THE PAST 2 DECADES ON ACCOUNT OF THE GOVERNMENT'S INITI ATIVE TO ROPE IN THE PRIVATE SECTOR TO PERFORM ITS CONSTITUTIONAL OBLIGA TION OF PROVIDING EDUCATION TO ITS CITIZENS. HENCE, A STUDENT OR HIS PARENTS HAVE THE RIGHT OF CHOOSING THE EDUCATIONAL INSTITUTION AND CAN NEV ER BE COMPELLED TO CHOOSE A PARTICULAR INSTITUTION OR PAY DONATION FOR SECURING ADMISSION INTO SUCH INSTITUTION. HENCE, IF A STUDENT OR HIS P ARENTS ARE SO PARTICULAR TO GAIN ADMISSION INTO AN INSTITUTION AN D FOR THAT PURPOSE ARE WILLING TO DONATE MONEY FOR THE IMPROVEMENT OF THE INSTITUTION, THEN IT APPEARS TO US TO BE A 'VOLUNTARY' ACT AND T HEREFORE, EVEN IF THE DONATIONS WERE PAID AT THE TIME OF OR TO SECURE ADM ISSION INTO THE INSTITUTION, IT WILL NOT CEASE TO BE 'VOLUNTARY' SO AS TO FALL OUTSIDE THE AMBIT OF SEC. 11(1)(D) OR 12(1). WE MAY ADD THAT IF SUCH DONATIONS WERE COLLECTED FROM STUDENTS/PARENTS AFTER THE ADMI SSION, THEN THE REVENUE'S CASE MAY BE ON A BETTER FOOTING, AS THEN, IT COULD BE SAID THAT SUCH DONATIONS WERE NOT `VOLUNTARY', BUT UNDER COMPULSION, AS THE STUDENT WAS AT THE MERCY OF THE INSTITUTION. HOWEVE R, WE FAIL TO SEE HOW THE ASSESSEE COULD HAVE COMPELLED A STUDENT/PAR ENT BEFORE BEING ADMITTED TO ITS INSTITUTION. WE ARE INCLINED TO LOO K AT THIS MATTER FROM ANOTHER DIMENSION TOO. SEC. 2(24)(IIA), SEC. 11(1)( D) AND SEC. 12(1) ALL USE THE TERM 'CONTRIBUTION' AND NOT 'DONATION'. NEI THER OF THESE 2 TERMS HAVE BEEN DEFINED BY THE INCOME TAX ACT. WE WILL TH EREFORE, HAVE TO ADOPT THE PLAIN ENGLISH MEANING OF THESE WORDS SOME OF WHICH ARE: CONTRIBUTION LAW DEFINITION 1. THE RIGHT OF A DEBTOR WHO HAS PAID THE ENTIRETY OF A DEBT OWED BY HER AND OTHERS TO RECOVER THE OTHERS ' PROPORTIONA TE SHARE OF THE DEBT. 2. THE RIGHT OF A JOINT TORTFEASOR WHO HAS PAID MOR E THAN HER PROPORTIONATE SHARE OF A JUDGMENT TO RECOVER THE AM OUNT IN EXCESS OF HER SHARE FROM THE OTHER TORTFEASORS. 3. THE RIGHT OF A JOINT TORTFEASOR TO DEMAND THAT T HE OTHER TORTFEASORS SUPPLY THEIR PROPORTIONATE SHARE OF WHAT IS REQUIRE D TO COMPENSATE THE INJURED PARTY. 4. A PAYMENT MADE BY A CO-DEBTOR OR JOINT TORTFEASO R OF HER PROPORTIONATE SHARE OF WHAT IS DUE. SEE ALSO INDEMN ITY. WEBSTER'S NEW WORLD LAW DICTIONARY COPYRIGHT 2010 BY WILEY PUBLISHING, INC.,HOBOKEN, NEWJERSEY. USED BY ARRANG EMENT WITH JOHN WILEY & SONS, INC DONATION, CONTRACTS. THE ACT BY WHICH THE OWNER OF A THING, VOLUNTARILY TRANSFERS THE TITLE A ND POSSESSION OF THE SAME, FROM HIMSELF TO ANOTHER PERSON, WITHOUT ANY C ONSIDERATION; A GIFT.(Q.V.) A DONATION IS NEVER PERFECTED UNTIL IT IS HAS BEEN ACCEPTED, 59 ITA NOS.294 TO 296/MDS/2014 FOR THE ACCEPTANCE (Q.V.) IS REQUISITE TO MAKE THE DONATION COMPLETE. VIDE ASSENT, AND AYL. PAND. TIT. 9 CLEF DES LOIS RO M. H.T. A LAW DICTIONARY, ADAPTED TO THE CONSTITUTION AND L AWS OF THE UNITED STATES. BY JOHN BOUVIER. PUBLISHED THE OXFORD DICTI ONARY DEFINES `CONTRIBUTION' AS: 'A SUM OF MONEY THAT IS GIVEN TO A PERSON OR AN ORGANIZATION IN ORDER TO HELP PAY FOR SOMETHING - C ONTRIBUTION (TO SOMETHING) A SUM OF MONEY THAT YOU PAY REGULARLY TO YOUR EMPLOYER OR THE GOVERNMENT IN ORDER TO PAY FOR BENEFITS SUCH AS HEALTH INSURANCE, A PENSION, ETC. - MONTHLY CONTRIBUTIONS TO THE PENS ION SCHEME NATIONAL INSURANCE CONTRIBUTIONS - CONTRIBUTION (TO SOMETHIN G) THE ACT OF GIVING SOMETHING, ESPECIALLY MONEY, TO HELP A PERSON OR AN ORGANIZATION; `DONATION' IS DEFINED BY THE OXFORD DICTIONARY AS: 'SOMETHING THAT IS GIVEN TO A PERSON OR AN ORGANIZA TION SUCH AS A CHARITY, IN ORDER TO HELP THEM; THE ACT OF GIVING S OMETHING IN THIS WAY' 50. ON READING THE ABOVE TWO TERMS, IT APPEARS TO U S THAT - 1. CONTRIBUTION' IS A TERM OF WIDER IMPORT THAN 'DO NATION' AND IT INCLUDES 'DONATION'. 2. WHILE 'CONTRIBUTION' MAY HAVE QUID PRO QUO, A DO NATION DOES NOT HAVE QUID PRO QUO. 3. 'CONTRIBUTION' MAY BE EITHER 'VOLUNTARY' OR UNDE R A LEGAL OR CONTRACTUAL OBLIGATION, BUT A 'DONATION' CAN ONLY BE 'VOLUNTARY '. 51. WE THEN HAVE TO ASCERTAIN THE MEANING OF `VOLUN TARY', WHICH HAS BEEN DEFINED AS: VOLUNTARY ADJ. DONE OR UNDERTAKEN OF ONE'S OWN FREE WILL: A VOLU NTARY DECISION TO LEAVE THE JOB. NORMALLY CONTROLLED BY OR SUBJECT TO INDIVIDUAL V OLITION: VOLUNTARY MUSCLE CONTRACTIONS. CAPABLE OF MAKING CHOICES; HAVING THE FACULTY OF WILL. SUPPORTED BY CONTRIBUTIONS OR CHARITABLE DONATIONS RATHER THAN B Y GOVERNMENT APPROPRIATIONS: VOLUNTARY HOSPITALS. LAW A. WITHOUT LEGAL OBLIGATION OR CONSIDERATION: A VOLUNTARY CONVEYANCE OF PROPERTY. B. DONE DELIBERATELY; INTENTIONAL: VOLUNTARY MANSLA UGHTER. [MIDDLE ENGLISH, FROM LATIN VOLUNT RIUS, FROM VOLUNT S, CHO ICE, FROM VELLE, VOL-, TO WISH; SEE WEL-1 IN INDO-EUROPEAN ROOTS.] SYNONYMS: VOLUNTARY, INTENTIONAL, DELIBERATE, WILLFUL, WILLING THESE ADJ ECTIVES MEAN BEING OR RESULTING FROM ONE'S OWN FREE WILL. VOLUNTARY IMPLI ES THE OPERATION OF UNFORCED CHOICE: 'IGNORANCE, WHEN IT IS VOLUNTARY, IS CRIMINAL' (SAMUEL JOHNSON). 60 ITA NOS.294 TO 296/MDS/2014 INTENTIONAL APPLIES TO SOMETHING UNDERTAKEN TO FURT HER A PLAN OR REALIZE AN AIM: 'I WILL ABSTAIN FROM ALL INTENTIONAL WRONGD OING AND HARM' (HIPPOCRATIC OATH). DELIBERATE STRESSES PREMEDITATION AND FULL AWARENES S OF THE CHARACTER AND CONSEQUENCES OF ONE'S ACTS: TAKING DELIBERATE A ND DECISIVE ACTION. WILLFUL IMPLIES DELIBERATE, HEADSTRONG PERSISTENCE IN A SELF- DETERMINED COURSE OF ACTION: A WILLFUL WASTE OF TIME. WILLING SUGGESTS READY OR CHEERFUL ACQUIESCENCE IN THE PROPOSALS OR REQUIREME NTS OF ANOTHER: 'THE FIRST REQUISITE OF A GOOD CITIZEN ... IS THAT HE SH ALL BE ABLE AND WILLING TO PULL HIS WEIGHT' (THEODORE ROOSEVELT). THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LA NGUAGE, FOURTH EDITION COPYRIGHT 2000 BY HOUGHTON MIFFLIN COMPANY . UPDATED IN 2009. PUBLISHED BY HOUGHTON MIFFLIN COMPANY. ALL RI GHTS RESERVED. 52. WHEN WE READ SECTIONS 2(24)(IIA), 11(1)(D) AND 12(1) USING THE PHRASE ''VOLUNTARY' CONTRIBUTION' IN THE LIGHT OF T HE PLAIN ENGLISH MEANINGS OF THE AFORESAID TERMS, THE WISDOM OF THE LEGISLATURE IN QUALIFYING THE TERM 'CONTRIBUTION' BY 'VOLUNTARY' B ECOMES CRYSTAL CLEAR. AS EXPLAINED ABOVE, SINCE 'CONTRIBUTION' MAY BE EITHER 'VOLUNTARY' OR UNDER A LEGAL OR CONTRACTUAL OBLIGATION, THE STATUTE HAS PR ESCRIBED THAT 'VOLUNTARY CONTRIBUTIONS' WILL BE DEEMED TO BE INCOME - OTHERW ISE, SUCH CONTRIBUTIONS WILL BE CAPITAL RECEIPTS ON FIRST PRI NCIPLES. AS CONTRIBUTIONS PURSUANT TO LEGAL OR CONTRACTUAL OBLIGATIONS ARE IN COME ON FIRST PRINCIPLES, THERE WAS NO NEED TO SPECIFY SUCH CONTR IBUTIONS IN THE DEFINITION AFORESAID. IN THIS REGARD, THE DECISION IN THE CASE OF CIT VS. HYDERABAD RACE CLUB CHARITABLE TRUST, 262 ITR 194 ( AP) IS REVEALING. IN THAT CASE THE HON'BLE ANDHRA PRADESH HIGH COURT, AFTER EXAMINING THE MEANING OF 'CONTRIBUTION' HAS HELD THAT, EVEN THE I NCOME FROM LICENSING OF RACING AND BETTING CAN BE 'VOLUNTARY' 'CONTRIBUTION ' WITHIN THE MEANING OF SEC. 12. THIS JUDGEMENT DIRECTLY ENDORSES THE ME ANING THAT WE HAVE UNDERSTOOD IN THE ABOVE PARA. THE BOMBAY HIGH COURT IN THE CASE OF CIT VS TRUSTEES OF VISHA NIMA CHARITY TRUST 138 ITR 564 (BOM) HELD THAT SALE PROCEEDS OF TICKETS FOR AN ENTERTAINMENT SHOW AND A DVERTISEMENT CHARGES FOR A SOUVENIR ARE `VOLUNTARY CONTRIBUTIONS' U/S 12 (1). 53. IN THE CASE OF CIT VS. SRI BILLESWARA CHARITABL E TRUST - 145 ITR 29 (MAD) IT HAS BEEN HELD IN PAGE 29 - '........ WHEN PARLIAMENT SPEAKS OF INCOME DERIVED FROM VOLUNTARY CONTRIBUTIONS, WHICH VOLUNTARY CONTRIBUTIONS ARE ORDINARILY WINDFALLS, THE LEGITIM ATE IMPLICATION TO BE READ INTO THE STATUE IS THAT VOLUNTARY CONTRIBUTION S PER SE ARE NOT REGARDED AS INCOME AT ALL. ON A PROPER CONSTRUCTION OF SEC. 12(1) AND SEC. 12(2) OF THE I.T. ACT, 1961, VOLUNTARY CONTRIB UTIONS DIRECTED TO BE HELD AS PART OF THE CORPUS OF THE DONEE CANNOT BE H ELD TO BE INCOME FOR THE PURPOSE OF APPLYING SEC. 12(2) ...' . IN PAGE 3 2-33 - '... THE MATTER MAY BE LOOKED AT FROM THE POINT OF VIEW OF THE CHAR ITY AS WELL. IT MAY BE THAT A CHARITY LIVES ON VOLUNTARY CONTRIBUTIONS AND PUBLIC DONATIONS. IN MOST CASES, THE CHARITIES MAY HAVE TO TOO LONG TO O BTAIN THE DONATIONS OR VOLUNTARY CONTRIBUTIONS. THE CHARITY MAY ALSO HAVE TO LOOK EVERYWHERE, 61 ITA NOS.294 TO 296/MDS/2014 EVEN HEAVENWARD, FOR CONTRIBUTIONS AND DONATIONS OF MONEY AND WINDFALLS. THERE IS NO EXERCISE OF CONTROL OVER WIN DFALLS IN THE SENSE THAT ONE CANNOT SAY THAT SOME MORE IS EXPECTED OR WOULD COME IN OR THAT ENOUGH HAD ALREADY BEEN SECURED. THE ESSENCE THEREF ORE, OF A WINDFALL OR VOLUNTARY CONTRIBUTION AS OPPOSED TO INCOME IS THAT IT IS UNEXPECTED. THE CHARACTERISTIC OF INCOME IS THAT IT IS A PERIODICAL MONETARY RETURN COMING IN WITH REGULARITY OR AT LEAST EXPECTED REGULARITY. SO, VOLUNTARY CONTRIBUTIONS PER SE ARE NOT DEALT WITH BY SEC. 12( 1) OF THE ACT. THEY NEED NOT BE, IN ORDER TO STAND OUTSIDE THE FIELD OF TAXA TION, BECAUSE, THEY ARE WINDFALLS AND HENCE THE VERY ANTITHESIS OF INCOME A ND, THEREFORE, THERE IS NO NEED TO EXEMPT THEM OR TO EXCLUDE THEM FROM THE TOTAL INCOME. THEY STAY OUT ON ACCOUNT OF THEIR INNATE CHARACTER AS NO N-INCOME. WHAT SEC. 12(1) MEANT BEFORE ITS AMENDMENT IN 1972 WAS THAT W HILE VOLUNTARY CONTRIBUTIONS ARE NON-INCOME, EVEN WHAT IS UNDOUBTE DLY INCOME OF CHARITIES, IS NOT TO BE CHARGED TO TAX, IF THE SOUR CE OF SUCH INCOME IS TRACEABLE TO VOLUNTARY CONTRIBUTIONS. TO PUT IT DIF FERENTLY, PARLIAMENT WAS EXTREMELY CHARITABLE TO CHARITIES. THAT WAS THE LIB ERALITY OF SEC. 12(1) OF THE ACT, AS IT STOOD PRIOR TO APRIL 1, 1973, THAT V OLUNTARY CONTRIBUTIONS ARE NON-INCOME AND EVEN INCOME DERIVED FROM SUCH CO NTRIBUTIONS ARE EXEMPT FROM TAX IN CERTAIN CIRCUMSTANCES WENT UNNOT ICED AND WAS LOST SIGHT OF. ADDED TO THIS, SECTION 12(1) HAD ALSO BEE N INTERPRETED IN SUCH A MANNER AND IN A SLANTING FASHION AS WELL, WITH THE RESULT THAT ADVANTAGE WAS TAKEN OF IT TO PUT DOWN IN THE STATUTE BOOK THE RECEIPT THEORY ABOUT VOLUNTARY CONTRIBUTIONS. UNDER THE PRESENT SECTION, THE EXPRESSION 'INCOME .....DERIVED FROM VOLUNTARY CONTRIBUTIONS' HAS BEEN AVOIDED AND VOLUNTARY CONTRIBUTIONS ARE STRAIGHT AWAY DEEMED TO BE INCOME. THIS SHOWS THAT BUT FOR THE DEEMING, THOSE WOULD NOT BE TAXABLE GESTURE OF PARLIAMENTARY ALMS GIVING TO CHARITIES. THE SECTION NOW KEEPS OUT ONLY VOLUNTARY CONTRIBUTIONS TIED UP WITH A DIRECTION TH AT THE CHARITY MUST USE IT AS PART OF THE TRUST CORPUS. FOR THE REST, WHAT IS UNDOUBTEDLY NON- INCOME, IS NOW DEEMED TO BE INCOME ON THE BASIS OF PRECEDENTS, WHICH PARLIAMENT HAD TAKE ADVANTAGE OF TO CUT DOWN THE AM PLITUDE OF EXEMPTION FROM TAXATION ENJOYED BY THE CHARITIES... ' . 54. PER PAGE 783 OF VOLUME 783 OF CORPUS JURIS SECU NDUM: 'HOWEVER, THE EXPRESSION 'DONATION' IS NOT EQUIVALE NT TO 'GIFT'; BUT A DONATION .... NEED NOT HAVE ALL OF THE ESSENTIALS O F A GIFT. 55. THUS, A GIFT MUST BE WITHOUT A CONSIDERATION, B UT A DONATION MAY BE FOR A CONSIDERATION; AND A GIFT MUST BE ENTIRELY EX ECUTED, WHILE A DONATION NEED NOT BE. THE TERM DONATION IS MORE APT LY USED TO DESCRIBE THAT WHICH IS GIVEN TO A PUBLIC CAUSE OR CHARITY TH AN TO INDICATE A BOUNTY TO AN INDIVIDUAL (CORPUS JURIS SECUNDUM, VOL. 38, P AGE 783). 56. VIEWED IN THIS PERSPECTIVE, WE HAVE NO DOUBT IN OUR MIND THAT THE 'CORPUS DONATIONS' RECEIVED BY THE ASSESSEE PURSUAN T TO SPECIFIC WRITTEN DIRECTION FROM THE DONOR TO THAT EFFECT AS PER A SA MPLE COPY OF THE RECEIPT 62 ITA NOS.294 TO 296/MDS/2014 FILED BEFORE US THAT THESE `CORPUS DONATIONS' ARE O NLY 'VOLUNTARY CONTRIBUTIONS' ENVISAGE BY SECTIONS 2(24)(IIA), 11( 1)(D) AND 12(1) AND THEREFORE, WE HOLD THAT THESE CORPUS DONATIONS ARE EXEMPT U/S 11(1)(D). 57. THE LD.AR FURTHER ADVANCED ANOTHER ATTRACTIVE A RGUMENT BY RELYING ON CIT VS. TOLLYGUNGE CLUB LIMITED - 107 ITR 776 (S C) TO SUBMIT THAT THE CORPUS DONATION, EVEN ASSUMING, WITHOUT ADMITTING, WAS COLLECTED AT THE TIME OF ADMISSION, IT WILL NOT FORM PART OF 'INCOME ' OF THE TRUST BUT WOULD ONLY BE A CAPITAL RECEIPT. IN THAT CASE, A SURCHARG E WAS LEVIED ON THE ADMISSION OF MEMBERS INTO A CLUB FOR THE PURPOSE OF CHARITY AND THE SURCHARGE WAS CLAIMED TO BE HELD IN TRUST FOR CHARI TABLE PURPOSES AND WAS ACTUALLY EXPENDED FOR CHARITABLE PURPOSES. IT W AS HELD THAT '... THE SURCHARGE WAS NOT A PART OF THE PRICE FOR ADMISSION BUT WAS A PAYMENT MADE FOR THE SPECIFIC PURPOSE OF BEING APPLIED TO L OCAL CHARITIES. ... THE ONLY REQUISITES WHICH MUST BE SATISFIED ARE THAT THERE SHOULD BE 'PURPOSES INDEPENDENT OF THE DONEE TO WHICH THE SUB JECT MATTER OF THE GIFT IS REQUIRED TO BE APPLIED AND AN OBLIGATION ON THE DONEE TO SATISFY THOSE PURPOSES' 58. APPLYING THE RATIO OF THIS DECISION, IT WAS SUB MITTED THAT EVEN ASSUMING, WITHOUT ADMITTING THAT THE CORPUS DONATIO NS WERE RECEIVED AT THE TIME OF ADMISSION, THE FACT THAT IT WAS RECEIVE D WITH A SPECIFIC WRITTEN DIRECTION FROM THE DONOR THAT THE DONATION WAS TOWA RDS THE CORPUS FUND OF THE TRUST FOLLOWED UP BY THE FACTUM OF ACTUAL AP PLICATION OF THE DONATION FOR THE CAPITAL PURPOSES OF THE TRUST WOUL D, BY VIRTUE OF THE RATIO OF THE SAID JUDGMENT WOULD TAKE THE CORPUS DONATION S RECEIVED OUTSIDE THE AMBIT OF INCOME BEING A CAPITAL RECEIPT. AS THI S ATTRACTIVE ARGUMENT IS FORTIFIED BY THE AFORESAID DECISION OF THE APEX COU RT, WE ACCEPT THE SAME AND HOLD THAT, EVEN ON THIS SCORE, THE CORPUS DONAT ION RECEIVED CANNOT BE TREATED AS CAPITATION FEE RECEIPT. 59. REGARDING ASSESSING OFFICER'S POWER TO DETERMIN E WHETHER TRUST IS CHARITABLE, IT WAS SUBMITTED THAT ONCE THE TRUST IS REGISTERED U/S 12A, THE ASSESSING OFFICER HAS NO LOCO-STANDI TO DECIDE AS T O WHETHER IT IS 'CHARITABLE' OR OTHERWISE. EXPLAINING THE SCHEME OF ASSESSMENT OF TRUSTS, IT WAS CONTENDED THAT THE PREROGATIVE OF DECIDING A ND REGISTERING A TRUST AS 'CHARITABLE' OR 'RELIGIOUS' VESTED WITH THE COMM ISSIONER OF INCOME TAX AT THE THRESHOLD LEVEL OF GRANTING REGISTRATION U/S 12A / 12AA. IT WAS FURTHER SUBMITTED THAT ONCE THE TRUST IS REGISTERED BY THE CIT UNDER A PARTICULAR CATEGORY, THE PROCESS OF DEFINITION AND CLASSIFICATION OF THE ACTIVITY CEASES AND THAT THEREAFTER THE ASSESSING O FFICER IS NOT EMPOWERED TO REVIEW THE DECISION MAKING IN THE DOMA IN OF THE HIGHER AUTHORITY - THE COMMISSIONER OF INCOME TAX. THE AFO RESAID SUBMISSION WAS REINFORCED BY THE LD.AR BY RELYING THE FOLLOWIN G CASES: 63 ITA NOS.294 TO 296/MDS/2014 ACIT VS. SURAT CITY GYMKHANA - 300 ITR 214 (SC) '.. . CHARITABLE TRUST - REGISTRATION - FURTHER PROBE INTO OBJECTS AFTER REG ISTRATION - NOT PERMISSIBLE ...' '...THE REGISTRATION OF A TRUST UNDER SECTION 12A O F THE INCOME TAX ACT, 1961, ONCE DONE IS A FAIT ACCOMPLI AND THE ASSESSIN G OFFICER CANNOT THEREAFTER MAKE FURTHER PROBE INTO THE OBJECTS OF T HE TRUST ...' HIRALAL BHAGWATI VS. CIT - 246 ITR 188 (GUJ) '... O NCE THE REGISTRATION UNDER SECTION 12A(A) OF THE ACT WAS GRANTED, THE IN COME TAX OFFICER WAS NOT JUSTIFIED IN REFUSING THE BENEFITS ON THE GROUN D THAT IT WAS NOT FOR THE BENEFIT OF THE PUBLIC AT LARGE ...' ADIT (EXEMPTION) VS. RAISTANI SIKSHA SAMITHI - 23 S OT 124 (HYD) '... CHARITABLE TRUST - EXEMPTION UNDER SECTION 11 - ROL E OF ASSESSING OFFICER AFTER REGISTRATION UNDER SEC. 12AA - AFTER REGISTRA TION UNDER SEC. 12AA, THE ROLE OF ASSESSING OFFICER IS LIMITED TO DENYING EXEMPTION UNDER SEC. 11 QUA INCOME NOT FOUND APPLIED FOR CHARITABLE PURP OSES AND DOES NOT EXTEND TO HOLDING THAT TRUST OR INSTITUTION IS NOT ESTABLISHED FOR CHARITABLE PURPOSE HENCE NOT ELIGIBLE FOR EXEMPTION UNDER SEC. 11 ...' '... THE ROLE OF THE ASSESSING OFFICER IN SUCH CASE S STOPS HERE. BUT HE CANNOT GO FURTHER OVERRULING A SUPERIOR AUTHORITY T O HOLD THAT THE TRUST OR INSTITUTION IS NOT ESTABLISHED FOR CHARITABLE PURPO SE. THEREFORE, THE ASSESSING OFFICER HAS EXCEEDED HIS JURISDICTION IN SAYING THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER SEC. 11 . HE CAN SAY SO, ONLY WHEN THE INCOME IS NOT APPLIED FOR THE STATED PURPO SE, BUT NOT OTHERWISE ...' ITO VS. TRILOK TIRATH VIDYAVATI CHUTTANI CHARITABLE TRUST - 90 ITD 569 (CHD) '...WHEN ONCE THE CHARACTER OF THE INSTITUTIO N BEING CHARITABLE IS ACCEPTED BY THE COMMISSIONER AT THE TIME OF GRANTIN G REGISTRATION, THE ASSESSING OFFICER CANNOT QUESTION THE CHARITABLE CH ARACTER OF THE INSTITUTION AT THE TIME OF COMPLETING THE ASSESSMEN T AND THE ASSESSEE CANNOT BE DENIED EXEMPTION IN RESPECT OF INCOME ON THE GROUND THAT IT IS NOT A CHARITABLE INSTITUTION ...' CALICUT ISLAMIC C ULTURAL SOCIETY VS. ACIT - 28 SOT 148 (COCH) '... ONCE THE REGISTRATION IS G RANTED TO THE ASSESSEE BY THE COMMISSIONER OF INCOME TAX, ASSESSI NG OFFICER CANNOT GO INTO PROBING THE OBJECTS AND THE PURPOSES OF THE TRUST OR INSTITUTION AND THAT IS WITHIN THE EXCLUSIVE DOMAIN AND JURISDI CTION OF THE COMMISSIONER OF INCOME TAX. WHAT ASSESSING OFFICER CAN DO THAT HE CAN AT THE MOST INVESTIGATE THE MATTER WITHIN THE FOUR CORNERS OF SEC. 13. IN THIS CASE THE ASSESSING OFFICER HAS GONE WITH INVES TIGATING AND PROBING THE BASIC OBJECTS OF THE TRUST BY ENTERING INTO SHO ES OF THE COMMISSIONER OF INCOME TAX AND SUCH EXERCISE IS NOT PERMISSIBLE ...' ITO VS. BABA DHALL EDUCATIONAL SOCIETY OF INDIA - 27 SOT 391 (DE L) '...ONCE REGISTRATION WAS GRANTED BY THE CIT UNDER SEC. 12AA , IT COULD NOT BE SAID THAT THE OBJECTS OF THE TRUST WERE NOT CHARITABLE - ON THE DATE WHEN ASSESSMENT WAS FRAMED, THE ORDER OF CIT REGISTERING THE TRUST UNDER SEC. 12A / 12AA WAS AVAILABLE WITH THE ASSESSING OFFICER ...' 64 ITA NOS.294 TO 296/MDS/2014 60. THE LD. AR FURTHER SUBMITTED THAT THE POWER/DUT Y OF THE ASSESSING OFFICER DURING ASSESSMENT ARE AS UNDER: (I) TO DETERMINE WHETHER THE REQUIRED % OF INCOME H AS BEEN APPLIED / ACCUMULATED IN ACCORDANCE WITH SEC. 11; (II) TO DETERMINE WHETHER CONDITIONS LAID DOWN IN S EC. 12A HAVE BEEN COMPLIED WITH AND (III) TO DETERMINE WHETHER SEC. 13 HAS BEEN VIOLATE D. IT WAS SUBMITTED THAT THE ASSESSING OFFICER CANNOT TRAVEL BEYOND THE AFORESAID FUNCTIONS AND USURP THE POWERS OF THE COM MISSIONER OF INCOME TAX, TO DETERMINE AS TO WHETHER THE ACTIVITIES OF T HE TRUST ARE CHARITABLE. 61. AS THIS SUBMISSION BY THE LD. AR IS ON THE BASI S OF THE DIRECT DECISION OF THE APEX COURT IN ACIT VS. SURAT CITY GYMKHANA - 300 ITR 214 (SC), APART FROM THE OTHER DECISIONS ON THIS ISSUE CITED ABOVE, WE RESPECTFULLY FOLLOW THE DECISION OF THE APEX COURT AND HOLD THAT THE ASSESSING OFFICER HAS NO POWER TO DETERMINE WHETHER THE ACTIVITY OF T HE ASSESSEE WAS CHARITABLE IN NATURE AND THEREFORE, EVEN ON THIS SC ORE THE DENIAL OF EXEMPTION U/S 11 BY HOLDING THAT THE ACTIVITY OF TH E TRUST WAS NOT CHARITABLE DESERVES TO BE REJECTED. 62. FOR ALL THE REASONS AFORESAID, WE UPHOLD THE OR DER OF THE LD. CIT(A) IN HOLDING THAT THE TRUST IS ELIGIBLE FOR EXEMPTION U/S 11 IN RESPECT OF ITS SURPLUS FROM EDUCATION ACTIVITIES AND CORPUS DONATI ONS RECEIVED AND DISMISS THE REVENUE'S APPEAL. 15. FROM THE ABOVE, IT IS EVIDENT THAT THE TRIBUN AL IN ITA NO.1332/MDS/2010 & C.O.NO.94/MDS/2010 VIDE ORDER DA TED 9.6.2011 ON THE EARLIER OCCASION IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 BASED ON THE SAME SEARC H MATERIALS, IN THE SAME SEARCH PROCEEDINGS AND ON TH E SAME FACTS HAS DECIDED THAT :- A) CORPUS DONATIONS RECEIVED BY THE ASSESSEE CANN OT BE TREATED AS CAPITATION FEES AND THE SURPLUS EARNED CANNOT BE TREATED AS INCOME FROM BUSINESS. 65 ITA NOS.294 TO 296/MDS/2014 B) THE EMPLOYEES OF THE ASSESSEE COULD NOT HAVE KNO WLEDGE ON THE ASSESSEES AFFAIRS. C) BY EARNING SURPLUS, IT CANNOT BE SAID THAT THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITY. D) THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SECT ION 11(4A) OF THE ACT. E) CORPUS DONATION RECEIVED CANNOT BE TREATED AS C APITATION FEE AND THEREFORE ASSESSEE CANNOT BE DENIED BENEFIT UND ER SECTION 11. THEREFORE, FOR THE RELEVANT ASSESSMENT YEARS 2002-0 3, 2003-04 AND 2004-05 WHERE THE ASSESSMENTS ARE BASED ON THE SAME SEARCH MATERIALS, IN THE SAME SEARCH PROCEEDINGS AN D BASED ON THE SAME FACTS, WE ARE BOUND TO FOLLOW THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL MENTIONED SUPRA. 16. FURTHER, WE FIND IN THE PAPER BOOK FILED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTAINING 1 TO 270 PAG ES THAT:- A) IN PAGE NO.124 SWORN STATEMENTS OF THE PARENTS / OFFICIALS OF THE TRUST ARE ENCLOSED AND THEY WERE T AKEN INTO CONSIDERATION WHILE DECIDING THE ISSUE BY THE TRIBU NAL FOR THE ASSESSMENT YEAR 2001-02. MOREOVER THE REVENUE ITSELF HAS ADMITTED THAT MOST OF THE PARENTS HAVE R ETRACTED THEIR STATEMENTS. THE GRIEVANCE OF THE REVENUE IS T HAT THE 66 ITA NOS.294 TO 296/MDS/2014 ASSESSEE HAS NOT PRODUCED THOSE PARENTS BEFORE THEM BUT THE FACT REMAINS THAT THE REVENUE HAS FAILED TO INVOKE THEIR POWERS TO SUMMON THEM TO FIND OUT THE TRUTH. B) PAGE NO.85 TO 89 REFERS TO SEIZED MATERIALS SHO WING PAYMENT OF RS.8,00,000/- FOR GRANTING ADMISSION ON AGREED BASIS. FROM THESE LETTERS IT CANNOT BE CONCL USIVELY SAID THAT THEY ARE CAPITATION FEES OR FORCED PAYMEN TS FOR ADMISSIONS, THOUGH AN AIR OF SUSPICION MAY ARISE. C) PAGE NO.90 REFERS TO LIST OF DONATIONS PAID AS CASH BY PARENTS. DONATIONS ARE NOT PROHIBITED TO BE COLL ECTED BY THE CHARITABLE INSTITUTIONS. IN FACT, SUSTENANCE OF THE INSTITUTIONS DEPENDS ON THE DONATIONS RECEIVED AS C HARITY. D) PAGE NO.91 TO 98 REFERS ABOUT THE NAME OF CANDIDATES AND THE NAME OF THE PERSONS WHO HAVE REFERRED THE CANDIDATES. IN THE REMARKS COLUMN, IT IS MENTIONED TO PAY, NRI QUOTA, NIL ETC. THIS ALSO D OES NOT CONCLUSIVELY PROVE THAT THE ASSESSEE IS RECEIVING D ONATION BY FORCE OR CAPITATION FEE. E) PAGE NO.99 TO101 CONTAINS DETAILS OF ADMISSION SUCH AS MERIT CANDIDATES, NRI CANDIDATES, MANAGEMEN T 67 ITA NOS.294 TO 296/MDS/2014 QUOTA ADMISSIONS ETC., THIS ALSO DOES NOT SUGGEST A NY VIOLATION OF LAW. F) PAGE 102 TO 109 CONTAINS XEROX COPY OF THE MANAGEMENT ADMISSION REGISTER OF POST-GRADUATION COURSES. IN ONE COLUMN WE FIND REFERENCE OF FIGURES SUCH AS 1.5, 0.5, 6, 4 ETC., WHICH MAY SUGGEST THAT 1,50 ,000/- 1,00,000/- ETC., ARE AMOUNT RECEIVABLES BUT THAT IS ALSO NOT A CONCLUSIVE PROOF FOR RECEIPT OF CAPITATION FEE. G) SIMILAR XEROX COPY OF REGISTERS PERTAINING TO MANAGEMENT ADMISSION FOR PG COURSES ARE FOUND IN TH E PAGES, 110 TO 139, 140 TO 169 OF THE PAPER BOOK FRO M WHICH NO CONCLUSIVE ADERVESE INFERENCE CAN BE MADE OUT. I) PAGE NO.170 TO 175 ALSO REFERS TO PAYMENT SUCH AS RS.8,00,000/- 2,00,000/- 1,00,000/- AND 4,00,000/- , HOWEVER NO CONCLUSIVE INFERENCE CAN BE MADE THAT TH EY ARE CAPITATION FEES. J) PAGE NO.176 TO 193 CONTAIN SHEETS WHEREIN THE RE MARK COLUMN IT IS MENTIONED AS TO PAY 2 TO PAY 3 TO PAY 4 NIL PAYMENT ETC., HOWEVER NO CONCLUSIVE INFERENC E CAN BE MADE THAT THEY ARE CAPITATION FEES. 68 ITA NOS.294 TO 296/MDS/2014 K) PAGE 194 TO 199 CONTAINS LETTERS FOR REFUND OF D ONATIONS BUT THERE IS NOTHING TO SUGGEST THAT THEY ARE FORCE D PAYMENTS THOUGH AN AIR OF SUSPICION MAY ARISE. L) PAGE NO.200 TO 238 ALSO CONTAINS CERTAIN REQUEST S FOR REFUNDS FROM CANDIDATES AND LETTERS FROM COMPANIES SUCH AS SUNDARAM FINANCE, BRAKES INDIA LTD., ETC., REQUE STING FOR THEIR CANDIDATES TO BE ACCOMMODATED ON SPONSORSHIPS. WE DO NOT FIND THIS PRACTICE TO BE IN VIOLATION OF ANY LAW. M) IN PAGE NO.239 & 240 THERE ARE REFERENCE ABOUT S OME PAYMENTS, ADMISSIONS ETC., BUT THEY CANNOT BE CONCLUSIVELY SAID THAT IT IS CAPITATION FEE THOUGH IT MAY RAISE AN AIR OF SUSPICION. N) PAGE NO.241 SHOWS COURSE-WISE SUMMARY OF DONATIO N WHICH CANNOT BE CONCLUDED THAT THEY ARE CAPITATION FEES. O) PAGE NO.242 TO 244 SHOWS THAT THE INSTITUTION HA S COLLECTED SOME SPECIAL FEE AND MADE CERTAIN REFUND. NO SPECIFIC INFERENCE OF VIOLATIONS CAN BE MADE OUT FR OM THESE OFFICIAL NOTES. P) PAGE NOS.245 TO 255 CONTAINS XEROX COPY OF LETTE RS FROM PARENTS REGARDING PAYMENT MADE FOR TUITION FEE , 69 ITA NOS.294 TO 296/MDS/2014 HOSTEL FEE, ADVANCE AND DONATIONS. AGAIN THESE DO N OT SUGGEST THAT THE ASSESSEE IS RECEIVING CAPITATION F EES. 17. THE ABOVE PAPER BOOK FILED BY THE REVENUE HAS A LSO BEEN TAKEN INTO CONSIDERATION BY THE TRIBUNAL WHILE DECI DING THE APPEAL FOR THE ASSESSMENT YEAR 2001-02. FURTHER, ON PERUSI NG THE ABOVE MENTIONED PAPER BOOK FILED BY THE LEARNED DEPARTMEN TAL REPRESENTATIVE, WE ARE OF THE CONSIDERED VIEW THAT BASED ON SURMISES AND CONJECTURES, IT CANNOT BE PRESUMED THA T THE DONATIONS RECEIVED BY THE ASSESSEE ARE CAPITATION F EES OR FORCED EXTORTION OF MONEY FROM THE STUDENTS FOR GRANTING A DMISSION. THEREFORE, EVEN THOUGH THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS CITED CERTAIN SEARCH MATERIALS BELONGING TO REL EVANT ASSESSMENT YEARS IN PARA NO.13 HEREINABOVE TO ESTAB LISH THAT THE ASSESSEE WAS COLLECTING CAPITATION FEE, WE DO NOT F IND ANY MERIT IN THE SAME. 18. FURTHER, WE FIND THE DECISION OF THE HONBLE JU RISDICTIONAL HIGH COURT AND THE HONBLE APEX COURT CITED BY THE LEARNED ASSESSEES REPRESENTATIVE TO BE VERY MUCH RELEVANT AND THEY ARE REPRODUCED HEREIN BELOW FOR REFERENCE. 70 ITA NOS.294 TO 296/MDS/2014 I) IN CIT VS. BALAJI EDUCATIONAL & CHARITABLE PUBLI C TRUST (MAD) REPORTED IN 374 ITR 274, THE HONBLE MADRAS HIGH CO URT HELD AS FOLLOWS:- HELD, DISMISSING THE APPEAL, (I) THAT THE COMMISSI ONER (APPEALS) AND THE TRIBUNAL HAD COME TO THE CONCLUSION THAT TH E DONATIONS RECEIVED DID NOT PARTAKE OF THE CHARACTER OF CAPITA TION FEE. THERE WAS NO ELEMENT OF INVOLUNTARY NATURE IN THE DONATIO NS. A SPECIFIC FINDING WAS GIVEN THAT NO INVESTIGATION HAD BEEN DO NE TO SHOW THAT ANY PARENT OR STUDENT HAD COMPLAINED ABOUT THE NATU RE OF THE DONATION. THE DEPARTMENT HAD FAILED TO DISPEL THE F INDING OF FACT. FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 AS THE CHIEF COMMISSIONER HAVING JURISDICTION OVER THE CASE HAD NOTIFIED UNDER SECTION 10(23C)(VI) THERE WAS NO APPLICABILITY OF S ECTION 11 OR SECTION 13 IN THOSE TWO YEARS. THE DEPARTMENT HAD N OT PRODUCED ANY EVIDENCE OF BREACH OF SECTION 10(23C)(VI) OF TH E ACT AND, THEREFORE, THE ASSESSEE-TRUST WOULD BE ENTITLED TO THE BENEFIT OF EXEMPTION CONTAINED THEREIN. THE DEPARTMENT HAD PRO CEEDED ON A WRONG PREMISE WITHOUT ANY BASIC MATERIALS TO ESTABL ISH A CASE OF VIOLATION OF SECTION 13 OF THE ACT. THEREFORE, THE TRIBUNAL WAS RIGHT IN DELETING THE ADDITION OF CAPITATION FEES. (II) THAT THE ASSESSING OFFICER HAD ACCEPTED THE DI SCLOSURE OF THE SEIZED CASH AS THE INCOME OF THE INDIVIDUAL AND, TH EREFORE IT COULD NOT BE SAID THAT ASSESSEE-TRUST HAD VIOLATED THE PR OVISIONS OF SECTION 13(1)(D). II) IN QUEENS EDUCATIONAL SOCIETY VS. CIT REPORTED IN 372 ITR 699(SC) THE HONBLE SUPREME COURT HELD AS FOLLOWS: - THE LAW COMMON TO SUB-CLAUSES (IIIAD) AND (VI) OF SECTION 10(23C) OF THE INCOME-TAX ACT, 1961, MAY BE SUMMED UP AS FOLLOWS : (1) WHERE AN EDUCATIONAL INSTITUTION CARR IES ON THE ACTIVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSO NS, THE FACT THAT IT MAKES A SURPLUS DOES NOT LEAD TO THE CONCLUSION THAT IT CEASES TO EXIST SOLELY FOR EDUCATIONAL PURPOSES AND BECOME S AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT. (2) T HE PREDOMINANT OBJECT TEST MUST BE APPLIEDTHE PURPOSE OF EDUCATIO N SHOULD NOT BE SUBMERGED BY A PROFIT-MAKING MOTIVE. (3) A DISTI NCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS AND AN INS TITUTION BEING CARRIED ON FOR PROFIT. NO INFERENCE ARISES THAT MERELY 71 ITA NOS.294 TO 296/MDS/2014 BECAUSE IMPARTING EDUCATION RESULTS IN MAKING A PRO FIT, IT BECOMES AN ACTIVITY FOR PROFIT. (4) IF AFTER MEETIN G EXPENDITURE, A SURPLUS ARISES INCIDENTALLY FROM THE ACTIVITY CARRI ED ON BY THE EDUCATIONAL INSTITUTION, IT WILL NOT CEASE TO BE ON E EXISTING SOLELY FOR EDUCATIONAL PURPOSES. (5) THE ULTIMATE TEST IS WHETHER ON AN OVERALL VIEW OF THE MATTER IN THE ASSESSMENT YEAR I N QUESTION THE OBJECT IS TO MAKE PROFIT AS OPPOSED TO EDUCATING PE RSONS. THESE TESTS WOULD ALL APPLY TO DETERMINE WHETHER AN EDUCA TIONAL INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. ADDL. CIT V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC),ADITANAR EDUCATIO NAL INSTITUTION V. ADDL. CIT [1997] 224 ITR 310 (SC) AN D AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE V. CBDT [2008] 301 ITR 86 (SC) APPLIED. IT IS CLEAR THAT WHEN A SURPLUS IS PLOUGHED BACK FO R EDUCATIONAL PURPOSES, THE EDUCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. S. RM. M. CT. M. TIRUPPANI TRUST V. CIT [1998] 230 ITR 636 (SC) RELIED ON. THE TESTS LAID DOWN IN SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC), ADITANAR EDUCATIONAL INSTITUTION [1997] 224 ITR 310 (SC) AND AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE [2008] 301 ITR 86 (SC) WOULD APPLY TO DETERMINE WHETHER AN EDUCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT . THE THIRTEENTH PROVISO TO SECTION 10(23C) IS OF GREAT IMPORTANCE I N THAT ASSESSING AUTHORITIES MUST CONTINUOUSLY MONITOR FROM ASSESSME NT YEAR TO ASSESSMENT YEAR WHETHER SUCH INSTITUTIONS CONTINUE TO APPLY THEIR INCOME AND INVEST OR DEPOSIT THEIR FUNDS IN ACCORDA NCE WITH THE LAW LAID DOWN. FURTHER, IT IS OF GREAT IMPORTANCE THAT THE ACTIVITIES OF SUCH INSTITUTIONS BE LOOKED AT CAREFULLY. IF THEY ARE NO T GENUINE, OR ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH ALL OR ANY OF THE CONDITIONS SUBJECT TO WHICH APPROVAL HAS BEEN GIVEN, SUCH APPR OVAL AND EXEMPTION MUST FORTHWITH BE WITHDRAWN. 19. BASED ON OUR ABOVE DISCUSSIONS, THE FACTS OF T HE CASE AND THE DECISIONS CITED BY THE LEARNED ASSESSEES REPRE SENTATIVE, WE HEREBY HOLD THAT THE SAME DECISION OF THE EARLIER ORDER OF THE TRIBUNAL 72 ITA NOS.294 TO 296/MDS/2014 IN ITANO.1332/MDS/2010 AND C.O.NO.94/MDS/2010 FOR T HE ASSESSMENT YEAR 2001-2 WILL PREVAIL FOR THE ASSESSM ENT YEARS 2002-03, 2003-04 AND 2004-05 ALSO, WHICH IS AS FOLL OWS:- A) CORPUS DONATIONS RECEIVED BY THE ASSESSEE CANN OT BE TREATED AS CAPITATION FEES AND THE SURPLUS EARNED CANNOT BE TREATED AS INCOME FROM BUSINESS. B) THE EMPLOYEES OF THE ASSESSEE COULD NOT HAVE KNO WLEDGE ON THE ASSESSEES AFFAIRS. C) BY EARNING SURPLUS, IT CANNOT BE SAID THAT THE ASSESSEE IS CARRYING ON BUSINESS ACTIVITY. D) THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SECT ION 11(4A) OF THE ACT. E) CORPUS DONATION RECEIVED CANNOT BE TREATED AS C APITATION FEE AND THEREFORE ASSESSEE CANNOT BE DENIED BENEFIT UND ER SECTION 11. ACCORDINGLY, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO GRANT THE BENEFIT OF SECTION 11 TO THE ASSESSEE AND DELETE THE ADDITION MADE BY DENYING SUCH BENEFITS FOR ALL THE RELEVANT ASSESSMENT YEARS 2002-03, 2003-04 & 2004-05. THUS, THE GROUND NOS. 2 & 4 IS DECIDED IN FAVOUR OF THE ASSES SEE. WE ALSO MAKE IT CLEAR THAT WE HAVE PERUSED THE CITATIONS RE LIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER WE FIN D THE SAME ARE DISTINGUISHABLE TO THE FACTS OF THE CASES HEREI N BEFORE US. 73 ITA NOS.294 TO 296/MDS/2014 GROUND NOS.4 TO 6 : MAXIMUM MARGINAL RATE OF TAX AS PER SECTION 164(2) OF THE ACT, INTEREST UNDER SECTION 234A & 23 4B AND CHANGE IN METHOD OF ACCOUNTING BY REVENUE FROM CASH BASIS TO MERCANTILE BASIS. 20. SINCE WE HAVE HELD THAT THE ASSESSEE IS ENTITLE D TO THE BENEFIT OF SECTION 11 OF THE ACT, THE ISSUE WITH RE SPECT TO LEVY OF TAX AT MAXIMUM MARGINAL RATE UNDER SECTION 164(2) OF THE ACT WILL NOT ARISE IN THE CASE OF THE ASSESSEE AND ACCORDING LY INTEREST UNDER SECTION 234A & 234B OF THE ACT CANNOT BE LEVI ED. FURTHER SINCE THE ASSESSEE IS A CHARITABLE INSTITUTION HAVI NG REGISTRATION UNDER SECTION 12A OF THE ACT, APPLICATION OF INCOME HAS TO BE MADE ON THE BASIS OF RECEIPT OF INCOME AS PER SECTI ON 11 & 12 OF THE ACT AND THEREFORE BOOKS OF ACCOUNTS HAVE TO BE NECESSARILY MAINTAINED ON CASH BASIS. THEREFORE, WE HEREBY DIRE CT THE LEARNED ASSESSING OFFICER NOT TO CHANGE THE METHOD OF ACCOU NTING ADOPTED BY THE ASSESSEE WHICH IS ON CASH BASIS. TH US, THE GROUNDS 4 TO 6 RAISED IN THESE APPEALS ARE ALSO DEC IDED IN FAVOUR OF THE ASSESSEE. 21. IN THE RESULT, ALL THE THREE APPEALS OF THE ASS ESSEE FOR THE ASSESSMENT YEAR 2002-03, 2003-04 & 2004-5 ARE ALLOW ED. 74 ITA NOS.294 TO 296/MDS/2014 ORDER PRONOUNCED IN THE OPEN COURT ON THE 22 ND JUNE, 2016 SD/- SD/- ( ' $ % ) ( . ) (CHALLA NAGENDRA PRASAD ) ( A.MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 22 ND JUNE, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF