2016 (5) TMI 1024 - AT - Income Tax

Denial of exemption u/s.11 - nature of activities - non-submission of 12A registration certificate - Donation received against management quota seats - Held that - Since in the instant case nothing has been brought on record that the certificate u/s.80G was not granted to the assessee in the past and since registration u/s.12A is one of the prerequisite for granting of certificate u/s.80G and the 80G certificates produced by the assessee for the past several years are not found to be false or untrue, therefore, it has to be held under the facts of the instant case that there is registration u/s.12A of the I.T. Act. The first issue on which the AO has denied the benefit of section 11 for non submission of 12A registration certificate is accordingly rejected. Regarding Donation received against management quota seats - Held that - donations are spent only for the purpose of education and no part of the funds of the trust has been diverted for the personal benefit of any of the trustees - Nothing has been brought on record that the donations received from various persons has not been entered the books of the assessee or has been utilized by any of the trustees or their relatives or has been utilized for purposes other than education and since neither any of the donor nor the AO has lodged any complaint before the Government authorities for violation of the Act, therefore, the revenue authorities in our opinion are not justified in denying the exemption u/s.11 of the I.T. Act to the assessee on the ground of violation of provisions of section 11(1)(d) of the I.T. Act. We accordingly set aside the order of the CIT(A) and direct the AO to allow the claim of exemption u/s.11 of the I.T. Act. - Decided in favour 0f assessee

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act due to non-submission of the registration certificate under Section 12A.
2. Alleged violation of Section 11(1)(d) by accepting capitation fees in the guise of donations for admissions.
3. Denial of exemption under Section 11 for donations received.
4. Depreciation calculation at commercial rates.
5. Entitlement for exemption under Section 10(23C)(iiiab).

Issue-wise Analysis:

1. Denial of Exemption under Section 11 due to Non-submission of Section 12A Certificate:
The assessee trust, established in 1934, was denied exemption under Section 11 for the assessment years 2008-09 and 2009-10 due to the inability to produce the registration certificate under Section 12A. The trust argued that it had been claiming exemption under Section 11 for many years and had received approvals under Section 80G, which implicitly required Section 12A registration. The Tribunal found that the trust had been granted exemption under Section 80G for several years, and this would not have been possible without Section 12A registration. The Tribunal cited the decision of the Hon’ble Gujarat High Court in Adivasi Kheti Vikas Yojana, directing the issuance of a duplicate certificate when the original is not traceable. The Tribunal concluded that the denial of exemption under Section 11 on the grounds of non-submission of the Section 12A certificate was unjustified.

2. Alleged Violation of Section 11(1)(d) by Accepting Capitation Fees in the Guise of Donations:
The AO alleged that the trust collected capitation fees disguised as donations for admissions, violating Section 11(1)(d). The assessee countered that the donations were voluntary and used for charitable purposes. The Tribunal noted that the trust's activities were solely educational, and there was no evidence of funds being misused or diverted for personal benefit. It was also observed that no complaints were filed by donors or the AO under the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. Referring to various judicial precedents, including the decision in the case of Deccan Education Society, the Tribunal held that the collection of donations, even if linked to admissions, did not disentitle the trust from exemption under Section 11, provided the funds were used for educational purposes.

3. Denial of Exemption under Section 11 for Donations Received:
The AO denied exemption for donations received, treating them as capitation fees. The Tribunal found that the donations were accounted for and utilized for educational purposes. It referred to the decision in the case of Sadvidya Educational Institution, where it was held that voluntary contributions for building funds or development fees, even if linked to admissions, were eligible for exemption under Section 11 if used for charitable purposes. The Tribunal concluded that the denial of exemption for donations received was not justified.

4. Depreciation Calculation at Commercial Rates:
The assessee argued for depreciation calculation at commercial rates based on the original cost of acquisition of fixed assets. The CIT(A) dismissed this ground, stating it was not raised during assessment proceedings and lacked supporting details. The Tribunal did not adjudicate this ground, considering it academic in nature due to the success of the primary grounds.

5. Entitlement for Exemption under Section 10(23C)(iiiab):
The assessee claimed entitlement for exemption under Section 10(23C)(iiiab), arguing that it existed solely for educational purposes and was substantially financed by the government. The Tribunal referred to the decision in the case of Deccan Education Society, which supported the claim for exemption under Section 10(23C)(iiiab). The Tribunal found merit in the assessee's argument and held that the trust was entitled to exemption under Section 10(23C)(iiiab).

Conclusion:
The Tribunal allowed the appeals filed by the assessee, granting exemption under Section 11 and Section 10(23C)(iiiab), and rejecting the grounds for denial based on non-submission of the Section 12A certificate and alleged capitation fees. The grounds related to depreciation calculation were not adjudicated due to the success of the primary grounds.