Pranav B Prem

The Income Tax Appellate Tribunal (ITAT), Chennai Bench 'A' (SMC), comprising George George K. (Vice President), has held that the Income Tax Department must conduct an independent enquiry or verification before concluding that donations received by a charitable trust are involuntary or non-voluntary. The Tribunal observed that the First Appellate Authority (FAA) had sustained an addition made by the Assessing Officer (AO) without conducting any independent verification or analysis and had instead relied on assumptions and presumptions rather than factual evidence. “The findings of the FAA appear to rest on presumptions, surmises, and conjectures, rather than on any concrete material or evidence,” the Tribunal stated, adding that the FAA failed to discharge its burden of proof to establish that the donations were not voluntary.

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Background

The assessee, M/s. Lakshmiammal Progressive Educational Trust, is a public charitable trust registered under Section 12AA of the Income Tax Act, 1961, engaged in running an educational institution. For the Assessment Year 2018-19, the trust filed its return declaring a surplus of ₹49,03,218 and claimed exemption under Section 11 of the Act. During scrutiny, the Assessing Officer noticed that the trust had received donations of ₹31,60,400 in cash and directed it to furnish details. As the assessee failed to provide the details before completion of assessment, the AO treated the amount as anonymous donations and taxed it under Section 115BBC. On appeal, the First Appellate Authority (FAA) accepted that the donations were not anonymous but held that they were not voluntary, claiming they were part of the procedure for student admissions, and consequently denied the exemption under Section 11.

Assessee’s Contentions

The assessee argued that the FAA wrongly relied on the Madras High Court decision in CIT v. MAC Public Charitable Trust (450 ITR 368), which had been stayed by the Supreme Court on December 4, 2023. It also cited the Tribunal’s decision in Joseph’s Institute of Science & Technology Trust v. PCIT (ITA Nos.1618–1620/CHNY/2020), which held that, following the Apex Court’s stay, the High Court ruling was no longer binding. The assessee submitted that the donations were voluntary contributions, supported by letters from donors, and that there was no material evidence to suggest coercion or linkage with school admissions.

Tribunal’s Findings

The Tribunal held that the FAA failed to conduct any independent enquiry or verification to ascertain the nature of the donations and merely relied on conjectures. It emphasized that findings must be based on evidence and not presumptions. The Tribunal noted that the donations were received from 808 students or their parents, with an average amount of ₹3,911 per person, which could not be categorized as capitation fees. It also observed that donations were made by students who had been studying in the school for years, further disproving any link between donations and admissions.

It clarified that the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 did not apply to schools, as held by ITAT Chennai in DCIT v. Sindhi Educational Society (ITA Nos. 975–981/Chny/2022). “No material evidence has been brought on record by the Revenue to show that the donations were compulsory or collected as capitation fees,” the bench stated. Finding the FAA’s conclusions general and unsupported by evidence, the Tribunal held that the donations were voluntary in nature and therefore not taxable.

Order

Accordingly, the ITAT set aside the FAA’s order and allowed the appeal, holding that:

• The donations were voluntary contributions, not linked to admissions.

• The addition sustained under Section 11 was unsustainable in law and on facts.

• The Revenue’s failure to verify or investigate rendered its finding invalid.

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“Considering the material placed on record by the assessee, the donations are found to be voluntary in nature, and hence, cannot be treated as income chargeable to tax,” the Tribunal ruled. By allowing the appeal, the ITAT Chennai Bench reaffirmed that tax authorities must undertake independent verification before branding charitable donations as involuntary or coercive. The decision underscores that mere assumptions or generalized observations cannot override documentary evidence in charitable trust assessments.

Appearance

Counsel for Appellant/ Assessee: Shri S.R. Srikrishna, CA

Counsel for Respondent/ Department: Ms. V. Supraja, Addl. CIT

Cause Title: M/s. Lakshmiammal Progressive Educational Trust v. The Income Tax Officer

Case No: ITA No.: 2193/CHNY/2025

Coram: George George K. (Vice President)