2013 (7) TMI 261 - HC - Income Tax

Exemption u/s 10(23C)(vi) - educational society - CIT rejected the application on the ground that collection of donations from pupils would amount to an act for the purpose of profit and therefore does not fulfill the objectives mentioned in Section 10(23C)(vi) of the Act. - Held that - Petitioner having not explained the rules and regulations more appropriately, relating to the collection of donations from pupils contrary to provisions of Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, coupled with the failure to explain, with material particulars, over the discretion to be exercised by the Executive Committee over such donations, no exception can be taken to the reasons findings and conclusions arrived at by the CCIT s in the order Annexure-A. In the absence of explanation, it cannot be said that it is not the actual user but the likelihood and the capacity of the trustees to do so which is important, the exercise of discretion by the Executive Committee to put to use the donation is of primary concern - Following the decision of Reliance Motor Company Private Limited -vs- Commissioner of Income Tax 1994 (8) TMI 22 - MADRAS High Court - Decided against the assessee.

Summary

Issues:
1. Rejection of application for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Consideration of donations from pupils as an act for profit.
3. Interpretation of the purpose of profit in educational institutions.
4. Compliance with Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984.
5. Discretion of the Executive Committee over collected donations.

Analysis:
The judgment deals with the rejection of the petitioner's application for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961, by the Chief Commissioner of Income Tax (CCIT). The petitioner's application was rejected based on the grounds that the collection of donations from pupils could be construed as an act for profit, which goes against the objectives of the Act. The CCIT considered the petitioner's bylaws, rules, regulations, and financial records but concluded that collecting donations from students, in addition to regular fees, was not in line with the purpose of education without profit motive.

The petitioner argued that the rejection was unjustified, emphasizing that there were no monetary profits in the educational activities. However, the CCIT's decision was upheld, stating that the discretion of the Executive Committee over collected donations was crucial. The CCIT highlighted that the donations collected should be used solely for educational purposes and not for profit-seeking activities. The judgment emphasized the importance of adhering to the prescribed regulations and laws, such as the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984.

The court noted that the petitioner failed to adequately explain the rules and regulations regarding the collection of donations from pupils and the discretion of the Executive Committee over these funds. Citing a precedent from the High Court of Madras, the judgment emphasized that the actual use of donations and the discretion exercised by the trustees were essential factors in determining the profit motive of educational institutions. Ultimately, the court found the petition lacking merit and upheld the CCIT's decision to reject the application for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.