2014 (10) TMI 1046 - HC - Income Tax

Exemption u/s 11 - Withdrawal of registration u/s 12AA by the CIT - Whether the Tribunal is justified in holding that the activities of the KLE University are genuine and withdrawal of registration by the CIT was erroneous? - HELD THAT - Our answer to the above point is in the affirmative for the following reasons i. that the donations received by the KLE society cannot be construed as capitation fee for the admission of students by the KLE university; ii. that the revenue appears to have not properly appreciated the legal point that though the Chairman and few members of the Society are the Chairman and members of the KLE University , they are separate legal entities; iii. that there is no violation of any of the conditions stipulated under the IT Act, warranting for cancellation of registration of the society; iv. that the Tribunal on proper appreciation of the grounds urged by the Society and the Revenue has rightly restored the registration. In view of the above, there is no merit in the contentions urged by the learned counsel for the Revenue and the decisions cited by him are of no avail.

Summary

Issues:
Challenging common order under Section 260-A of the Income Tax Act, 1961 for Assessment Years 2008-09 and 2009-10.

Analysis:
1. Registration of KLE University: The respondent-assessee, KLE University, was registered under Section 12-A of the Income Tax Act. However, the Commissioner of Income Tax initiated proceedings under Section 12-AA(3) against the university, alleging collection of donations as capitation fees for medical course admissions, contrary to the law. The Revenue canceled the registration granted to KLE University, leading to an appeal before the Tribunal.

2. Contentions of the Appellant/Revenue: The Revenue argued that donations to KLE Society were capitation fees for student admissions at KLE University, violating laws. They contended that the university's activities were not genuine and deviated from its charitable purpose, justifying the cancellation of registration. The Revenue cited various legal precedents to support their case.

3. Contentions of the Respondent/KLE University: The respondent argued that donations to KLE Society did not constitute capitation fees for university admissions. They emphasized the separate legal entities of KLE Society and KLE University, despite shared members. The respondent maintained that the university operated within its charitable objectives without profit motives or income division.

4. Substantial Question of Law: The key legal issue was whether the Tribunal was correct in finding KLE University's activities genuine and the cancellation of registration by the CIT erroneous.

5. Court's Decision: The Court affirmed the Tribunal's decision, ruling in favor of KLE University. The Court held that donations to KLE Society were not capitation fees for university admissions. It emphasized the separate legal identities of the society and the university, finding no violation of IT Act conditions justifying registration cancellation. The Court concluded that the Tribunal correctly restored the registration, rejecting the Revenue's contentions and legal precedents cited.

6. Final Order: The Court dismissed the appeals, upholding the Tribunal's decision and rejecting the Revenue's arguments.