I-T - Huge capital fee mopped up by medical institutions to provide admission to applicants is to be construed as voluntary donation by parents for charitable purposes - NO: HC
BY TIOL NEWS SERVICE
BANGALORE, FEB 13, 2018: THE issue is - Whether huge Capitation fee collected by Medical Institutions to provide seats to the applicants, can be treated as voluntary contribution for charitable purposes by the parents. NO is the verdict.
Facts of the case
The Assessee, a Trust situated at Raichur, which is said to be running thirteen educational institutions, had been granted exemption from payment of Income Tax under the Certificate issued by the CIT u/s 12AA(1) of the Act. Subsequently, in order to avail the exemption u/s 10(23C), the Chief CIT, Hubli granted such approval in favour of assessee Trust. However, the approval itself provided that the Chief Commissioner, might at any time after giving a reasonable opportunity of hearing, could withdraw such approval and such approval shall not apply in relation to anonymous donations in terms of Proviso-15 to Section 10(23C). However, such approval would be treated as void if it was subsequently found that it had been obtained by fraud or misappropriation. In the meanwhile, a search and seizure operation was carried out at various places including educational institutions and residential houses of the Trustees, wherein it was found that the Trust was collecting cash donations from students (Capitation Fees) for Admission to the Medical Courses run by the Medical College of the Trust and such cash donations were also used for construction of Temple inside the Trust premises, paying speed money for getting approvals, incurring election expenses of one of the Trustees, Sunki Rajender Reddy, for his election, to buy personal Assets for the Trustees and for money laundering for claiming bogus Long Term Capital Gains and Gifts etc. On the basis of the said material, the Department issued a notice to the assessee Trust to show cause as to why the approval u/s 10(23C) should not be withdrawn. Though the assessee filed its detailed objections, however they were rejected.
On Writ, the HC held that,
++ it is seen that the Trust in question having the cloak of an Educational Trust, to enjoy the exemption from Income Tax obtained the approval u/s 10(23-C), was thoroughly misused and abused by the Trustees who appear to be Members of the same family or closely related and appear to have used the entity of an exempted juristic person of the "assessee Trust for purposes other than the pure Educational purposes. It is revealed that the Trust not only acted against public policy and the directions of the Supreme Court by collection of Capitation Fees from various students for Admission to its Medical College and a staggering sum of Rs.52.00 crores was collected by them under the innocuous name given to part of it as 'Anonymous Donations' and which the counsel for assessee Trust also tried to explain that they were voluntary anonymous donations by the alumni students or parents of the students is nothing but a sham excuse. The huge Capitation Fees collected by such Medical Colleges and other Institutions to provide seats to the intending students can be anything but voluntary contribution for charitable and pious purposes by the parents or students and such lame excuses could hardly be convincing for any Tax Authority, much less this Court. This itself would disentitle the Educational Trust from the benefit of exemption u/s 10(23-C) of the Act;
++ the other facts against the Trust like payment of huge honorarium to the Trustees, huge amounts paid as Lease Rent to Sunki Rajender Reddy, Swathi Rajender Reddy, Amrut Reddy and Nandika are also glaring and very damaging for the very foundation of exemption to the Educational Institutions. The Authority concerned has also found that Rs.86.10 crores was shown for the Financial Years 2010-11 to 2014-15 under the Heading "TRF", (Transfer to Trustees) for building up their personal assets and other pay offs or payment of speed money etc. for seeking approvals etc. This clearly shows that the Educational Trust was running like a business establishment, rather than for educational purpose. It cannot be expected of the Authority to ask on each single entry in the Accounts of the Trust, the explanation of assessee Trust or other Trustees and if a reasonable opinion could be formed on the basis of the material gathered during the course of search and seizure operations that the assessee Trust does not exist solely for the purpose of education. The search warrants appear to have been issued against the Trust as well as other Trustees who were Members of the same family and it can be reasonably ascertained that they would know of the case against them. The burden clearly lied upon them to establish their bona fides in the matter to prove that the Educational Trust in question was not being used for other purposes other than within the four corners of Section 10(23-C) of the Act;
++ it is further seen that the compliance with the principles of natural justice was fully made in the present case in as much as the Show Cause Notice was duly given to the Trust in which even reference to search action was made and it was also stated that the amounts collected by way of donations were used by the Trustees for their personal purposes and for purchase of personal assets and for obtaining accommodation entries etc. and thus it was a comprehensive Show Cause Notice to which even a detailed Reply was filed by the Trust but which was not found to be satisfactory by the Respondent Authority and in the opinion of this Court rightly so. The Medical Education in our country in the past few decades has earned more a bad reputation and the vicious cycle of the Medical Education or Engineering Education in our country thriving on illegal Donations, Capitation Fees, arbitrary allocation of Private Management seats etc. and illegal manner in which the approvals from Government Authorities were obtained, has faced the wrath of the Courts on several occasions up to the Apex Court of the country and a series of judgments in this regard have been given by the various High Courts and Supreme Court. The purpose of exempting such Institutions from Income Tax was obviously to restrict such exemption upon a very strict compliance with the parameters for the same and only bona fide, chaste and pure Educational Institutions could expect such exemptions from the Income Tax which as per the said norms and the rules of interpretation of such provisions of exemption have to be strictly construed by the Courts of law.
(See 2018-TIOL-261-HC-KAR-IT)
