2021 (10) TMI 26 - AT - Income Tax

Exemption u/s 11 and 12 - guidelines laid down by AICTE Regulations have not been followed with respect to admissions to NRI quota and interest of unsuspecting innocent and uninformed students has been harmed - Whether CIT(A) was correct in not appreciating that even though the assessee does not strictly fall in the ambit of the AICTE Act, it is bound to follow the spirit of law on admission to NRI quota, which has not been adhered to and thus the assessee was rightly held not eligible for exemption u/s 11 and 12 of the Act? - HELD THAT - As mentioned earlier, no adverse inference has also been given as regards fee concession/ scholarships given to students, details of which are available on record whereas in the case of P.A. Inamdar v. State of Maharashtra 2005 (8) TMI 614 - SUPREME COURT have held that differential fee structure is allowable pay higher fees could be charged from richer students with the purpose of subsidising the students from economically weaker section. The denial of exemption under section 11 and 12 by the Assessing Officer cannot be sustained. Assessing Officer is directed to allow exemption under section 11 and 12 with all consequential benefits. - Decided against revenue.

Issues Involved:
1. Eligibility for exemption under sections 11 and 12 of the Income Tax Act.
2. Adherence to AICTE regulations for NRI quota admissions.
3. Determination of charitable purpose and its impact on tax exemption.

Issue-wise Detailed Analysis:

1. Eligibility for exemption under sections 11 and 12 of the Income Tax Act:
The Revenue challenged the eligibility of the assessee for exemption under sections 11 and 12, arguing that the institution did not adhere to the spirit of the AICTE Act regarding NRI quota admissions, thus disqualifying it from being considered a charitable entity. The Assessing Officer (AO) held that the institution's actions in admitting NRI-sponsored students, rather than NRIs themselves, violated AICTE regulations and Supreme Court guidelines. Consequently, the AO concluded that the institution did not exist solely for charitable purposes, as required for tax exemption under sections 11 and 12.

2. Adherence to AICTE regulations for NRI quota admissions:
The AO noted several violations of AICTE regulations, including:
- Admission of students who were sponsored by NRIs rather than being NRIs themselves.
- Lack of adherence to the defined admission process for NRI quota seats.
- Charging equivalent NRI fees from students admitted under vacant NRI seats.
The AO argued that these violations indicated a breach of statutory directions and guidelines, leading to the conclusion that the institution was not operating for charitable purposes.

3. Determination of charitable purpose and its impact on tax exemption:
The CIT(A) considered whether the alleged violations impacted the institution's status as a charitable entity. The CIT(A) observed that the institution provided education and had implemented a merit-cum-means fee concession scheme, which benefited economically weaker students. The CIT(A) relied on the Rajasthan High Court's decision in CCIT vs. Geetanjali University Trust, which held that failure to follow prescribed admission rules did not necessarily negate an institution's charitable purpose. The CIT(A) concluded that the AICTE Act did not apply to the appellant, and the AO had not demonstrated that the institution's activities were profit-oriented or that education was not imparted to admitted students. Therefore, the CIT(A) directed the AO to allow the exemption under sections 11 and 12.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, affirming that the Revenue could not provide contrary evidence to rebut the CIT(A)'s findings. The Tribunal dismissed the Revenue's appeal, concluding that the institution's actions did not disqualify it from being considered a charitable entity and eligible for tax exemption under sections 11 and 12. The Tribunal also dismissed the Revenue's ground to add, alter, or amend any grounds of appeal, as no such leave was sought during the hearing. The appeal of the Revenue was dismissed in its entirety.

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