Commissioner of Income Tax v MAC Public Charitable Trust (2022) 144,  54

Assessee trust had three trust having common trustee. One trust runs a college, asked parents of students to donate to another trust in exchange for securing seats in the college.

The trust requested parents to donate from their own bank accounts or those of their friends and relatives to this other trust.

This second trust then donated the same amount to a third sister trust, which in turn donated the amount to the assessee trust running the college.

The assessee trust claimed this amount as exempt under section 11 as voluntary contribution. However, the Assessing Officer (AO) rejected the claim, stating that the donation was actually capitation fees.

The Madras High Court ordered that the transferring of funds from one trust to another is prohibited by law and that the real beneficiary of the donation is the assessee trust. As a result, the donation received is considered as capitation fees in a quid pro quo manner, and the exemption under section 11 cannot be allowed.

The court also ordered the cancellation of registration under section 12A.