The Commissioner Of Income Taxcentral Iii108, M.g.roadchennai – 600 034 v. Balaji Educational & Charitable Public Trustno.3A, 3[Rd] Street, Jai Durga Complexnew

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 24.3.2015 CORAM THE HON'BLE MR.JUSTICE R.SUDHAKARAND THE HON'BLE MR.JUSTICE R.KARUPPIAH T.C.(A).Nos.1052 to 1058 of 2014 The Commissioner of Income TaxCentral III108, M.G.RoadChennai – 600 034. .. Appellant Vs. Balaji Educational & Charitable Public TrustNo.3A, 3[rd] Street, Jai Durga ComplexNew No.60, 1[st] Avenue, Ashok NagarChennai – 600 083. .. Respondent PRAYER: Appeals under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal, “A' Bench, Chennai, dated 5.4.2011 made in I.T.A.Nos.1476 to 1482/Mds/2010 for the assessment years 2002-2003 to 2008-2009 respectively. For Appellant :Mr.T.R.SenthilkumarStanding Counsel For Respondent : Mr.S.Sridhar (2) J U D G M E N T(Delivered by R.SUDHAKAR, J.) These appeals are filed by the Revenue under Section 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal, “A' Bench, Chennai, dated 5.4.2011 made in I.T.A.Nos.1476 to 1482/Mds/2010 for the assessment years 2002-2003 to 2008-2009 respectively, raising the following questions of law: (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in not considering that the capitation fee received by the assessee trust is a revenue receipt liable for taxation under the Income Tax Act, 1961?right in not considering that the capitation fee received by the assessee trust is a revenue receipt liable for taxation under the Income Tax Act, 1961? (ii)Whether on the facts and in the circumstances of the case, the Tribunal was right in not considering that the trust was receiving capitation fee for admission of students under management quota, as it would clearly prove that it was not doing any charitable activities as per Section 2(15) of the Act?circumstances of the case, the Tribunal was right in not considering that the trust was receiving capitation fee for admission of students under management quota, as it would clearly prove that it was not doing any charitable activities as per Section 2(15) of the Act? (iii)Whether on the facts and in the circumstances of the case, the Tribunal was right in deleting the addition of capitation fees received from students who were admitted in the management quota? (iv)Whether on the facts and in the circumstances of the case, the Tribunal was right in not following the jurisdictional High Courtjudgmentinthecaseof P.S.Govindasamy Naidu & Sons v. ACIT, 324 ITR 44? 2.1. The facts in a nutshell are as under: The respondent/ assessee is a trust registered under Section 12AA of the Income Tax Act, 1961 (for brevity, “the Act”). The trust is running various educational institutions, namely, (i) Bharathiyar College of Engineering Technology, Karaikal; (ii) Mahatma Gandhi Medical College, Pondy; (iii) Indira Gandhi Institute of Dental Science, Pondy; (iv) Kasturba Gandhi Nursing College, Pondy; (v) Sri Venkateswara College of Education, Pondy; (vi) Rajiv Gandhi College of Engineering and Technologies and others, for conducting various professional courses such as Engineering, MBA, Nursing and other Para-Medical courses, etc. 2.2. A search and survey operation under Sections 132/133A of the Act was conducted at various premises of the educational institutions and also at the residence of the Chairman of the Trust on 13.8.2007. The department proceeded on the premise that huge amounts of capitation fee is collected for admission to professional courses conducted by various educational institutions run by the assessee/trust. 2.2. A search and survey operation under Sections 132/133A of the Act was conducted at various premises of the educational institutions and also at the residence of the Chairman of the Trust on 13.8.2007. The department proceeded on the premise that huge amounts of capitation fee is collected for admission to professional courses conducted by various educational institutions run by the assessee/trust. 2.3. Thereafter, notice under Section 153A of the Act dated 4.9.2008 was issued to the assessee. In response, on 6.10.2008, the assessee filed returns admitting “NIL” income for all the assessment years. Pursuant to the same, notice under Section 143(2) of the Act was issued on 9.7.2009 in respect of all the assessment years, followed by issuance of notice under Section 142(1) of the Act on 6.11.2009, annexing a detailed questionnaire regarding the case. 2.4. At this juncture, for better clarity on the manner in which the department proceeded in the matter, we take up the annexure to one such notice issued under Section 142(1) of the Act, wherein after referring to the statement of the Chairman of the Trust, in query (viii), the Assistant Commissioner of Income Tax records that in the return of income filed by the assessee certain amount has been admitted as donation collected, whereas on the basis of the statement of the Chairman and the inference drawn by the Assessing Officer, a higher amount should be shown as donation. A specific query has been posed in query (x) as follows: “(x) In your audited accounts filed with the return of income you have shown Voluntary Contribution ofRs.13,18,24,217/-ascomparedto Rs.2,40,00,000/- in the FY 2005-06. You are caused to furnish evidence for the amount of Voluntary Contribution and also furnish list of persons from whom Voluntary Contribution have been received.” 2.5. In response to the notices under Section 142(1) of the Act, the assessee submitted reply on 9.12.2009 stating that the allegation of receiving capitation fee from students is baseless and solely based on the statement recorded from the Chairman of the Trust, which he had retracted later. It was pointed out that voluntary contributions were received only from philanthropists; family friends; corporate bodies; patients and relatives of patients treated in the hospital; parents and relatives of students. It was also stated that there is no evidence to come to the conclusion that such contributions received are involuntary. Along with the reply, the assessee also enclosed the details sought for by the Assessing Officer. 2.6. Based on these materials, the Assessing Officer came to the conclusion that the educational institutions run by the Trust collected huge amount of capitation fee under the guise of donation while admitting students under the management quota to various professional courses and no receipts were given for the capitation fee collected and it is also not disclosed in the income tax returns for taxation purposes. 2.7. To buttress the above said stand of the department, the statement recorded from the Chairman of the Trust at the time of search is relied upon, more particularly, the reply given to Question No.8. The said statement of the Chairman contains two components – one is in relation to the fees charged for the courses and other relates to donation. In the said statement, it is averred that they charge regular fees for government quota students and it is not denied that there were donations taken in respect of NRI quota. It was clarified by stating that they did not get donations from all the students or their relatives. It was also stated that in respect of Kasturba Gandhi Nursing College, no donations are taken. In reply to Question No.9, the Chairman of the assessee-Trust states that around Rs.10 Crores was received as donations by Mahatma Gandhi Medical College and around 2 to 3 Crores for Engineering College. components – one is in relation to the fees charged for the courses and other relates to donation. In the said statement, it is averred that they charge regular fees for government quota students and it is not denied that there were donations taken in respect of NRI quota. It was clarified by stating that they did not get donations from all the students or their relatives. It was also stated that in respect of Kasturba Gandhi Nursing College, no donations are taken. In reply to Question No.9, the Chairman of the assessee-Trust states that around Rs.10 Crores was received as donations by Mahatma Gandhi Medical College and around 2 to 3 Crores for Engineering College. 2.8. On this basis, the Assessing Officer came to the conclusion that these donations are nothing but capitation fee. Taking note of the number of students admitted under the management quota in various colleges and by making computation on the basis of an estimate, for which he falls back on the statement of the Chairman, the Assessing Officer determined receipt of a higher amount as capitation fee, in the guise of donation, as against the admitted figure of donation as claimed by the assessee in respect of each assessment year. 2.9. To arrive at such conclusion, the Assessing Officer relied upon two other relevant factors, which are admitted and not in dispute, which we find have been uniformly applied in all these cases. For instance, the relevant portion of the Assessment Order passed for the assessment year 2002-2003 is extracted hereunder: “5.3. The loose sheets 5 to 22 in LS Sl.No.3 of ANN/SO/B&D/LS seized during the search and referred to in the questionnaire issued to the assessee, contain the list of the students along with the details of amount received, repaid and total paid and balance. The following amounts are appearing in the above seized document: Shri Rajagopalan, in his statement dated 12.11.2007 has stated that the above amount was refund of fees to students who have not joined the institution during the year 2005-06. From this, it is ascertained that the donation collected from the students have been returned to them since they have not joined the institution, which further confirms the fact that the assessee have been collecting capitation fees in the name of donation, but not accounting the same in its books of accounts. 5.4. It is further seen that during the search conducted at the residence of Shri Rajagopalan, Chairman, who was at the helm of affairs of the Trust, huge cash amounting to more than Rs.44 lakhs was found from his bed room, which he said, belonged to the Trust. In reply to question no.5, it was stated by Shri M.K.Rajagopalan that the cash book of the Trust was not maintained on day to day basis and that the aforesaid cash, found at his residence during the search, was not recorded in the books of account. In view of these facts, there is no doubt that the Trust did not fulfill the conditions laid down in Clause (iv) of section 80G(5) of the Act.” 2.10. The Assessing Officer, after considering the response of the Chairman of the assessee-trust retracting his earlier statement, rejected the explanation given by assessee stating 2.10. The Assessing Officer, after considering the response of the Chairman of the assessee-trust retracting his earlier statement, rejected the explanation given by assessee stating that retraction is belated; and that the assessee failed to submit the list of students admitted under management quota. It is also observed that the assessee was asked to submit the list of persons making voluntary contributions and this was tallied to verify the assessee's claim that the donations were not related to admissions under management quota. Thereafter, the Assessing Officer held that voluntary contributions were related to admissions of students and rejected the assessee's contention. Thus, the Assessing Officer worked out the income of the trust by multiplying the amount of donation with the number of students admitted under management quota in various courses. The total amount of donation calculated was treated as the income of the trust not being exempt as per Section 13 read with Section 11 of the Act for all the assessment years. 2.11. The Assessing Officer further held that the assessee is not carrying on charitable activities for the purpose of Section 13 read with Section 11 of the Act. In fine, the Assessing Officer concluded as follows: “9. In view of the discussions made above and the decisions relied upon, I hold that the assessee earned income under the head voluntary contributions in the books of the assessee are not actually voluntary and that these are only selling of seats in exchange of capitation fees. The amount of capitation fee thus collected by the assessee is treated as undisclosed capitation fees being not exempt as per section 13 r.w.s. 11 of the I.T.Act.” 2.12. Similar orders have been passed for all the assessment years by the Assessing Officer. These facts are not disputed by the learned counsel for the appellant department. 3.1. The assessee, aggrieved by such assessment, pursued the matter before the Commissioner of Income Tax (Appeals), inter alia, contending that the finding with regard to violation of Section 13 read with Section 11 of the Act is perverse and not based on materials and the rejection of the return filed on the basis of voluntary contributions is not tenable, as the so-called amount of donation, alleged to be involuntary, determined by the Assessing Officer is based on hypothetical formula and not based on any materials available on record. That the finding is perverse in law as the ingredients of Section 13 is not attracted to the facts of the present case. 3.2. It was the contention of the assessee that in respect of the assessment years 2002-2003 and 2003-2004, the Chief Commissioner of Income Tax-VI, Chennai, having jurisdiction over the case, has notified in terms of Section 10(23C)(vi) of the Act that there is no applicability of Section 11 or 13 in those years and, therefore, there is no applicability of Sections 11 or 13 in those years as the income of the trust is exempted under Section 10(23C)(vi) of the Act. The relevant portion of the said observation reads as follows: “For two asst. years i.e., 02-03 and 03-04 as CCIT-VI, Chennai having jurisdiction over the case has notified this u/s.10(23C)(vi), there is no applicability of section 11 or 13 in those two years. The income of the trust is exempt u/s.10(23C)(vi) for those two years.” Insofar as these two assessment years is concerned, the Commissioner of Income Tax (Appeals) rendered a finding that the Assessing Officer has failed to establish a case of breach of Section 10(23C)(vi) of the Act and, therefore, the respondent/ Trust will be entitled to the benefit of exemption contained therein. “For two asst. years i.e., 02-03 and 03-04 as CCIT-VI, Chennai having jurisdiction over the case has notified this u/s.10(23C)(vi), there is no applicability of section 11 or 13 in those two years. The income of the trust is exempt u/s.10(23C)(vi) for those two years.” Insofar as these two assessment years is concerned, the Commissioner of Income Tax (Appeals) rendered a finding that the Assessing Officer has failed to establish a case of breach of Section 10(23C)(vi) of the Act and, therefore, the respondent/ Trust will be entitled to the benefit of exemption contained therein. 3.3. With regard to the finding of the Assessing Officer that the amount stated in the loose sheets 5 to 22 seized during the search is donation received and returned to the students and this donation is capitation fee which is unaccounted, it is the specific case of the assessee that the amount reflected in the loose sheets is relatable to refund of fees to students who have not joined the institution during the year 2005-2006. The stand of the assessee is that it has returned the fees because of non admission of those students during that year in view of the restraint imposed by the Government of Puducherry to the effect that all the seats of medical college will go to the Government quota and no admission can be made under to the management quota and, therefore, the assessee had no other option except to refund the fees collected. However, the Assessing Officer misdirected himself to state that the amount, which was later returned, was received as donation from the students and the same is unaccounted. This factual mistake was agitated before the Commissioner of Income Tax (Appeals) and accepted by the said authority. The relevant portion of the said order reads as under: “The content of this seized document as mentioned by the AO shows that some amount was received and part of it is refunded and balance of the amount is mentioned in the seized document. These papers were confronted to Sri MKR, Managing Trustee of the Trust who had stated that the contents of the paper is the fee collected from the students which was refunded to the students as the admissions were denied to those students and all these entries are recorded in the books of accounts. The reason for the same was explained that for financial year 06-07 the Govt. of Pondicherry took a decision that all the seats of medical college will go to the Govt. quota and no admission will be left to the management quota. Therefore, the trust has to refund the fees collected from the students as they could not give admission to those students. There is no further enquiry contrary to the statement of Sri MKR done either by the Investigation wing or by the AO. However, AO has mentioned that the above figure is the donation received and returned to the students and this donation is capitation fee and the same is unaccounted. To arrive at this conclusion, the AO has not mentioned any reason in the asst. order. In the light of specific statement of Sri MKR on thispaper and without disproving the same it was notlogical on the part of the AO to draw the adverseinference about the contents of the seizeddocument. In view of the above, it would beimproper to accept the findings of the learned AOthat the amount represents involuntary donationsreceived from the students at the time ofadmission. Therefore, in my view the only seizedmaterial referred by the AO in the entire asst.order does not prove the receipt of capitation feeby the appellant institution for taking admission ofthe students in the management quota. Hencereceipt of capitation fee is not proved by any”seized document mentioned in the asst. order. (emphasis supplied) 3.4. The next issue is relating to seizure of cash of Rs.44 (emphasis supplied) 3.4. The next issue is relating to seizure of cash of Rs.44 Lakhs from the residence of the Chairman. It is the specific case of the assessee that the said amount was not recorded in the books of account, but the Chairman had offered this amount as income in his own hands and paid tax thereon. It was pleaded that the said amount is not relatable to the affairs of the trust nor is the amount relatable to receipt for or on behalf of the Trust. The finding of the Commissioner of Income (Appeals), in this regard, is as follows: “2. Cash of Rs.44 lakhs found and seized at the residence of Sri M.K.Rajagopalan, Managing Trustee of the appellant trust: There is no doubt that the cash of Rs.44 lakhs was found and seized from the bed room of Sri M.K.Rajagopalan during the search operation of on 13/14.8.07. During the statement on 13.8.07, Sri M.K.R has stated that the cash belongs to the trust. However, subsequently on 31.8.07, statement of M.K.R. was recorded by the ADIT and offered Rs.2 crores as additional income and has specifically mentioned that this disclosure of unaccounted income is on account of various assets. His statement has been reproduced in this order earlier. Further employee of the appellant trust Sri Bhaskar on the date of search has stated that he has not sent any cash to the residence of Sri M.K.R. In continuation of his above statement, he has filed a return of income declaring undisclosed income of Rs.3 crores. The AO has accepted this disclosure and has even mentioned in the asst. order that this unaccounted income of Rs.3 crores includes the cash found at his residence. Therefore, the AO has given the finding in the asst. order of Sri MKR in individual capacity that the said cash belongs to Sri MKR and therefore the same cannot belong to the trust also. When the copy of sworn statement recorded on 13.8.07 was given to Sri MKR he has retracted the said statement that the cash belongs to the trust. He has produced the medical certificate in support of 50% hearing disability. Furtherance to thestatement of disclosure of unaccounted income, SriMKR, having turnover of more than Rs.30 crores inhis petrol pump business has declared unaccountedincome of Rs.3 crores, the AO has accepted thedisclosure in the asst. order and has specificallymentioned in asst. order that this unaccountedincome is towards the cash found and seized at hisresidence and other unaccounted asset andexpenditure.In view of the above finding, it isdifficult to accept that this unaccounted cashbelongs to the appellant trust and the same formspart of capitation fee received by the appellanttrust. Hence cash found at the residence of SriMKR also does not support the receipt of capitation”fee by the appellant trust. (emphasis supplied) 3.5. De hors the above two relevant issues, the other issue that was decided by the Commissioner of Income Tax (Appeals) is whether donations received by the Trust would partake the character of capitation fee or involuntary donation. To refute the plea of the department that donations are not voluntary, the assessee relied upon the order passed by the Commissioner of Income Tax, Puducherry, having jurisdiction over the assessee at that time, who passed an order under Section 264 of the Act for the assessment years 1998-1999 to 2001-2002, where a finding has been given that the donation received from students or the parents are not compulsory in nature and, therefore, the same is not capitation fee. To buttress this argument, it was pointed out that there was no material in the form of statement from any one of the donors – students or parents or any such person to the effect that donations received by the trust from whatever source was not voluntary and that it will partake the character of capitation fee. The assessee also relied upon a response dated 14.7.2014 received from the Public Information Officer for a query raised under the Right to Information Act, wherein it is stated that “There is no any complaint received from any student/parent regarding capitation fee charged by the above institutions so far.” 3.6. On the above said issue, the Commissioner of Income Tax (Appeals) observed that there is no investigation done either by the Investigation Wing or the Assessing Officer to prove that donations were not voluntary and they partake the character of capitation fee. He, therefore, held that the presumption drawn by the Assessing Officer that all management quota admissions are subject to capitation fee is based on no material. 3.7. The Commissioner of Income Tax (Appeals) also accepted the plea of the assessee that there was no benefit derived by the trustees or any member of the Trust. The source of income to the charitable institution is of no relevance. What is relevant is the application of income for providing exemption under Section 11 of the Act. It is for the department to prove that there is mis-utilization of the income of the trust as stated in Section 13 of the Act. He, therefore, holds that denying exemption under Section 11 of the Act without there being a case made out for violation of Section 13 of the Act is totally incorrect. He further held that receipt of donation at uniform rate for admission in management quota is not supported by any material evidence. He, therefore, allowed the appeals of the assessee. 4.1. The department pursued the matter before the Tribunal. The case of the department was summarized by the Tribunal in paragraph (28) as under: “28. That the only ground pointed out by the Assessing Officer to refuse exemption is that the assessee has violated the provisions of law contained in sec. 13. Section 13 contains different sub-sections and clauses to address different situations of violation. Therefore, it is necessary to cite the specific sub section and clause to allege that the assessee has violated the law stated in sec. 13. In the present case, the Assessing Officer-has not referred to any such subSection or clauseof sec.13. He has made a bald reference to section13 and proceeded to deny the benefits of”exemption available to the assessee u/s 11. (emphasis supplied) 4.2. The Tribunal held that the Revenue had made a belated attempt to allege violation of Section 13(1)(d) of the Act. In fact, the issue was clarified in paragraph (29) of the order of the Tribunal, which reads as under: “29. It is only now that the learned Commissioner appearing for the Revenue makes a belatedattempt to bring the case of alleged violation u/s.13(1)(d) stating that the seizure of cash of Rs.44lakhs from the residence of the Chairman of theassessee trust is an appropriation of funds of thetrust for his personal benefits. But such anallegation is not justified as the said amount hasalready been included in the income offered by theChairman of the assessee trust for taxation.” (emphasis supplied) 4.3. The Tribunal rejected the case of the Assessing Officer that what is exempted from taxation under Sections 11 and 12 of the Act is voluntary contribution and not contribution granted against allotment of seats. It further held that the finding of the Assessing Officer that capitation fee collected by the trust should be treated as undisclosed is erroneous. (emphasis supplied) 4.3. The Tribunal rejected the case of the Assessing Officer that what is exempted from taxation under Sections 11 and 12 of the Act is voluntary contribution and not contribution granted against allotment of seats. It further held that the finding of the Assessing Officer that capitation fee collected by the trust should be treated as undisclosed is erroneous. 4.4. We shall now consider the issue as to how the Tribunal has considered the facts, as has been addressed by the Original Authority and the Commissioner of Income Tax (Appeals). The Tribunal, as in the case of the Commissioner of Income Tax (Appeals), relied upon the order passed under Section 264 of the Act by the jurisdictional Commissioner for the assessment years 1998-1999 to 2001-2002, to come to the conclusion that the donations received from students or the parents are voluntary in nature. Similar allegations made by the Revenue have been considered and rejected, as admission of students is done as per the procedure prescribed by the Director of Health and Family Welfare Services, Government of Puducherry. For clarity, we set out paragraph (33) of the order passed by the Tribunal: “33.1. The first such conclusion is that there is no basis for the Assessing Officer to allege that the activities carried on by the assessee trust are not genuine. The assessing authority himself has noted down the names of about eight prominent educational institutions carried on by the assessee trust on the face of the assessment order. The same is reproduced in para 2 of this order. These institutions included medical and engineering colleges. The paper book filed before us contains copies of relevant documents and certificates in pages 326 to 360, issued by appropriate authorities, which prove that the assessee is carrying on its educational activities by running a number of institutions within the domain of central and state laws. The letter of Dy. Director of Public Health, Govt. of Puducherry, at page 326 of the paper book permits the assessee's medical college to utilize the facilities of the Govt. hospitals for the clinical practice of medical students. Page 327 is acopy of the letter issued by the Puducherry HealthSecretariat regarding the constitution of PermanentAdmission Committee under the Chairmanship ofHon'ble Justice A.Ramamurthy (Retd.,) MadrasHigh Court. A copy of the procedure on admission of medical students issued by the Director of Health and Family Welfare Services, Govt. of Puducherry, is available in page 331. Page 332 contains a copy of the letter from Directorate of Higher & Technical Education. A copy of the recognition report issued by Medical Council of India is placed in pages 330 to 337. Accreditation Status conferred by All India Council for Technical Education is available at pages 338 and 339 and so also in pages 340 and 341. A copy of the order of Govt. of India in the Ministry of Human Resource Development is available in pages 342 and 343 granting the status of “deemed-tobe-university” u/s 3 of the UGC Act 1956. Pages 344 to 360 contain copies of various Memorandum of Association entered into between the medical college run by the assessee trust and various public sector undertaking including BSNL to provide for in-house medical facilities to the employees of those public sector enterprises. All these materialsgo to prove that the assessee trust is running anumber of educational institutions recognized bylaw and by the public and its charitable activitiesby way of education are bonafide. The allegation”of the Revenue has no force. (emphasis supplied) 4.5. The plea of the revenue that no regular books of account are maintained by the assessee trust has been rejected by the Tribunal after referring to the order passed under Section 264 of the Act for the assessment years 1998-1999 to 2001-2002, in the following manner: (emphasis supplied) 4.5. The plea of the revenue that no regular books of account are maintained by the assessee trust has been rejected by the Tribunal after referring to the order passed under Section 264 of the Act for the assessment years 1998-1999 to 2001-2002, in the following manner: “33.2. Another allegation made out by the Revenue is that the assessee trust is not maintaining regular books of accounts. This is without any basis. The Commissioner, Pondicherry in his order passed u/s 264 for the assessment years 1998-99 to 2001-02 has examined a similar allegation made out by the Revenue that the assessee was not maintaining proper books of account. After detailed examination of the materials and evidences placed before him, the CIT came to the conclusion that the assessee was maintaining regular books of accounts in its ordinary course of activities. As far as the impugned assessment years are concerned, there again the Assessing Officer has not brought any adverse materials on record to substantiate the allegation that the assessee is not maintaining proper accounts. It is a fact to be borne in mind that the assessee has been claiming exemption of its income from taxation on the ground of educational activities since long in the past. Earlier it was enjoying the said benefit u/s. 10(22) and 10(23C)(vi) and thereafter u/s 11 and 13. The assessee is registered u/s 12AA of the Income Tax Act 1961. The assessee is filing regular returns before the assessing authority. The assessing authority himself has stated in his order that he has examined the returns of income in the light of the books of accounts, financial statements and balance sheets of the assessee trust. Even in the course of search operations, the assessing authority has no case that proper accounts werenot maintained by the assessee trust except theallegation regarding the nature of certain seizeddocuments relating to the refund of fees made tothe students, who were not given admission in thecolleges of the assessee trust. We do not find anyreason to endorse the above allegation made outby the Revenue, which is without any basis.” (emphasis supplied) 4.6. Thereafter, the Tribunal proceeded to go into the core issue of violation of the provision of Section 13(1)(d) of the Act, which prompted the Assessing Officer to deny the benefit of Section 11 of the Act to the assessee. The Tribunal, as in the case of Commissioner of Income Tax (Appeals), was inclined to discard the two findings rendered by the Assessing Officer based on: (i) loose sheets relating to return of fees; and (ii) seizure of cash from the residence of the Chairman. The relevant portion of the finding of the Tribunal in this regard is as under: “33.3. The next grievance of the Revenue is that the assessee trust has violated the provision of sec. 13(1)(d), which enabled the Assessing Officer (emphasis supplied) 4.6. Thereafter, the Tribunal proceeded to go into the core issue of violation of the provision of Section 13(1)(d) of the Act, which prompted the Assessing Officer to deny the benefit of Section 11 of the Act to the assessee. The Tribunal, as in the case of Commissioner of Income Tax (Appeals), was inclined to discard the two findings rendered by the Assessing Officer based on: (i) loose sheets relating to return of fees; and (ii) seizure of cash from the residence of the Chairman. The relevant portion of the finding of the Tribunal in this regard is as under: “33.3. The next grievance of the Revenue is that the assessee trust has violated the provision of sec. 13(1)(d), which enabled the Assessing Officer to deny the benefits of sec. 11 to the assessee. The basis of such a findings is that a sum of Rs.44 lakhs was found and seized in the course of search from the residence of the Chairman of the assessee trust. In spite of repetition, we have to state thatthe said sum of Rs.44 lakhs has been explained as'income' of the Chairman of the assessee trust andthe said amount has been offered for taxation inthe return of income filed by the Chairman in theregular course. Apart from that, the mostinteresting aspect is that there is no case that asum of Rs.44 lakhs was applied by the Chairmanfor any of his personal requirements. The onlycomplaint is that the said sum was found in hispossession at his residence. There is nothing unnatural in the Chairman of the assessee trust keeping the money in his custody, even if it is belonged to the assessee trust. Money cannot be kept in the educational institutions run by the assessee trust or in the Trust Office. Either the money has to be kept in a bank or in the safe custody of responsible persons. The Chairman of the assessee trust is a responsible person. The money was found in his custody. Even if that amount belonged to the assessee trust, think for a while, it is not possible to hold that the Chairman has utilized that much amount of money for his personal benefit. Keeping the money belonging tothe assessee trust is essentially different fromspending the money belonging to the assesseetrust. The assessing authority has equated safekeeping of money to spending of the money. 33.4. The basis of allegation of the Assessing Officer regarding accepting capitation fee is that certain entries found in the seized materials relating to the refund of amounts collected from certain students, who were not ultimately admitted in the colleges run by the trust. The assessee has explained that during that particular financial year all the medical seats were taken over by the Govt. of Pondicherry and no seats were available in the hands of the assessee trust for allotment under management quota. It was in that contingency, the amounts collected earlier from the students had to be refunded. These details have been brought out in the accounts maintained by the assessee trust. If the Assessing Officer had anystrong intuition about capitation fee on the basis ofthis solitary opinion, the Assessing Officer shouldhave conducted proper enquiries before coming toa conclusion against the assessee trust. Theassessing authority has not conducted any suchenquiries either with the students or with the parents of the students or with any other personinterested in the activities carried on by theassessee trust.” (emphasis supplied) parents of the students or with any other personinterested in the activities carried on by theassessee trust.” (emphasis supplied) 4.7. The question, as has been posed by the Tribunal, is whether the contributions or donations are voluntary or involuntary and what is the effect of such donation. The Tribunal was of the view that there is no concept of involuntary contributions and went on to hold that voluntary contributions should be treated as income under Section 12 of the Act and that corpus donations to be treated as capital receipt under Section 11(1)(d) of the Act and corpus donations are not generally in the nature of income. It further held that voluntary contributions are taxable only if not applied for charitable purposes. The emphasis is on, not applying the same for charitable purposes. 4.8. Whether contribution is voluntary or involuntary and its implication in relation to these provisions was considered by the Tribunal in the following manner: “35. To proceed further, we have to examine the scheme of law of charities provided under the Income-tax Act, 1961. There is no concept of involuntary contributions in that scheme. The only distinction recognized by law is the voluntary contributions to be treated as income under section 12 and the corpus donations to be treated as capital receipt under section 11(1)(d). The corpus donations are not generally in the nature of income. The voluntary contributions are taxableonly if not applied for charitable purposes. In the-present case, the assesseetrust itself has treatedthe contributions as voluntary contributions in thenature of income. The assessee claims exemptionunder section 11 not on the basis of the nature ofcontributions but for the reason that thecontributions were applied for charitable purposes.When the assessee-trust itself has treated the contributions as voluntary contribution in the nature of income, which is the best situation that the Revenue would always welcome, what is the relevance of arguing whether the contributions were voluntary or not? 36. Even if the contributions are treated as not voluntary what could be the legal consequence of that finding? Whether the Revenue will treat such involuntary contributions as capital and give exemption from taxation? No, it will not. The Revenue will still find such involuntary contribution as income liable for taxation. If so, what is the real distinction between voluntary contribution and involuntary contribution as far as the taxation of charities is concerned? In both cases, it will be brought for taxation if the assessee has not utilised the contributions for charitable purposes. 37. The expression "voluntary contributions" isused in the Act instead of "contributions" to-highlight the principle of noncompulsion inmatters of participating in charitable activities andto underline the gratuitous nature of donations andcharitable activities. There is no compulsion inmaking contributions to charities. If the expression was "contributions" there could be a naunce of compulsion like contribution to provident fund and the like. 38. Therefore, we find that whether it is treated as voluntary or involuntary,the only course of actionavailable before law is to see whether suchcontributions have been treated by the assessee asthe income and also applied for charitable purposes.” (emphasis supplied) This reasoning of the Tribunal, we are inclined to accept. 38. Therefore, we find that whether it is treated as voluntary or involuntary,the only course of actionavailable before law is to see whether suchcontributions have been treated by the assessee asthe income and also applied for charitable purposes.” (emphasis supplied) This reasoning of the Tribunal, we are inclined to accept. 4.9. The finding of the Tribunal is that the department has not established a case that the assessee had in this case not utilized the donations or income for charitable purpose. The clear finding of the Tribunal is that if the assessee had not utilized the amount for charitable purpose, it would automatically become taxable and the assessee would not be entitled to exemption. But, on the contrary, without there being a finding of violation of Section 13 of the Act, an inference is drawn on an alleged receipt of donation and consequently, the allegation is made that there is a violation of Section 13(1)(d) of the Act. A hypothetical finding is given that because capitation fee is charged, it is not an income in terms of Section 11 of the Act and, therefore, there is a violation of Section 13(1)(d) of the Act. The Tribunal held that such a reasoning cannot be accepted because if the donations are offered for income and if the department wants to disprove the nature of income on the basis of material, as has been pointed out by the Commissioner of Income Tax (Appeals), it should be borne out by records based on investigation, which the Assessing Officer failed to do, except falling back on a statement which is not supported by materials. 4.10. On the activities of the trust, the Tribunal has given a finding that the activities of the assessee trust are genuine educational activities entitled to be treated as charitable activities and there is no evidence on record to show that the assessee has accepted capitation fee for allotment of seats. The Tribunal relied on the decisions of various courts to show that the activities of the trust alone are relevant for the purpose of allowing the benefit of exemption under Sections 11 and 12 of the Act. In fine, the Tribunal held as follows: “44. The above judicial pronouncement makes it clear thatthe litmus test of charitable institution isthe test of application of the funds and not thecolour of donations received by the institution. 45. In the facts and circumstances we find that these appeals filed by the Revenue are liable to be dismissed. The cross-objections filed by the assessee-trust become infructuous and, therefore, to be dismissed.” 4.11. Aggrieved by the said order, the revenue has filed these appeals. 5. We have heard Mr.T.R.Senthilkumar, learned Standing Counsel for the revenue and Mr.S.Sridhar, learned counsel for the assessee and perused the orders passed by the Tribunal and the authorities below. 6. Before adverting to the merits of the case, it is apposite to refer to Sections 11, 12 and 13 of the Income Tax Act: “Section 11. Income from property held for charitable or religious purposes.- (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; 6. Before adverting to the merits of the case, it is apposite to refer to Sections 11, 12 and 13 of the Income Tax Act: “Section 11. Income from property held for charitable or religious purposes.- (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India ; and where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent. of the income from such property; (c) income derived from property held under trust-- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India ; Provided that the Board, by ge