2015 (5) TMI 260 - HC - Income Tax

Registration of trust granted under section 12A cancelled - ITAT restored registration - Held that - The donations received by the society cannot be construed as capitation fee for the admission of students by the KLE University. Providing hostel to the students/ staff working for the society is incidental to achieve the object of providing education, namely, the object of the society. The Revenue appears to have not properly appreciated the legal point that though the chairman and a few members of the society are the chairman and members of the KLE University , they are separate legal entities. There is no violation of any of the conditions stipulated under the Income-tax Act, warranting for cancellation of registration of the society, thus Tribunal on proper appreciation of the grounds urged by the society and the Revenue, has rightly restored the registration. - Decided in favour of assessee.

Issues Involved:
1. Whether the donations received by the society were capitation fees.
2. Whether the society's activities were genuine and in accordance with its charitable objects.
3. Whether the society's running of hostels and hospitals constituted commercial activities.
4. Whether the cancellation of the society's registration under section 12A was justified.

Issue-wise Detailed Analysis:

1. Donations as Capitation Fees:
The Revenue contended that donations received by the society were essentially capitation fees for admissions to KLE University. The Assessing Officer, upon scrutiny, believed that there was a direct nexus between the donations and admissions. However, the society argued that the donations were voluntary and not linked to admissions. The Tribunal found no evidence of donations being capitation fees and concluded that the donations did not affect the society's charitable status.

2. Genuineness and Accordance with Charitable Objects:
The Revenue argued that the society's activities were not genuine and deviated from its charitable objects, suggesting a profit motive. The society countered by stating that it was engaged in providing education through numerous institutions and that all activities, including running hostels and hospitals, were incidental to its educational purpose. The Tribunal determined that the society adhered to its charitable objectives and that its activities were genuine.

3. Commercial Activities - Hostels and Hospitals:
The Revenue asserted that the society's operation of hostels and hospitals was commercial in nature, disqualifying it from being a charitable institution. The society maintained that these facilities were integral to its educational mission, providing necessary support to students and staff. The Tribunal agreed with the society, noting that such activities were incidental to its educational purpose and did not constitute commercial activities.

4. Justification for Cancellation of Registration:
The Revenue issued a show-cause notice and subsequently cancelled the society's registration under section 12A, citing non-genuine activities and deviation from charitable purposes. The society challenged this, arguing that it met all conditions for charitable status and that the cancellation was unwarranted. The Tribunal found no violation of conditions warranting cancellation and restored the society's registration.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that:
- The donations could not be construed as capitation fees.
- Providing hostels and hospitals was incidental to the society's educational objectives.
- The society and KLE University, despite overlapping management, were separate legal entities.
- There was no violation of conditions under the Income-tax Act justifying the cancellation of registration.

Order:
The appeal by the Revenue was rejected, and the Tribunal's decision to restore the society's registration was upheld.

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