2023 (6) TMI 1220 - HC - Income Tax

Exemption u/s 11 - Receipt of voluntary contributions/corpus fund or capitation fee - AO held that there was violation under the KEI (Prohibition of Capitation Fee) Act, and accordingly, brought the money collected by the assessee to tax - ITAT deleted the additions - HELD THAT - AO, based on assumption and surmise, has held that there was violation under the KEI (Prohibition of Capitation Fee) Act by the assessee and that incorrect assumption has been rightly reversed by the ITAT. So far as the authority in New Noble Educational Society is concerned, the Apex Court 2022 (10) TMI 855 - SUPREME COURT has held that the registration under different statues is also a relevant consideration while deciding the application for approval under Section 10(23C) of the Act. In the case on hand, we are not dealing with a situation where the IT Department was considering any application for granting exemption. On the other hand, the department had issued the exemption certificate and the AO on an incorrect assumption has treated the money collected by the assessee as capitation fee under the KEI (Prohibition of Capitation Fee) Act. Therefore, the said authority does not lend any support to the Revenue. This court has already taken a view in Kammavari Sangham and the same is applicable to the facts of this case. Decided against revenue.

Summary

Issues:
The issues involved in this case are:
1. Whether the assessee is eligible for exemption under section 11 and 12 of the Act despite collecting more than the fee declared under the 'Karnataka Educational Institutions Prohibition of Capitation Fee Act, 1984' in the form of voluntary contributions/corpus fund.
2. Whether the assessee is entitled to exemption under section 11 and 12 of the Act when profit-making motives overshadow the purpose of running educational institutions and there is evidence of collecting capitation fee in the guise of 'Voluntary Contributions', indicating a shift from charitable activities to commercial endeavors.

Judgment Details:

Issue 1:
The Revenue appealed against the ITAT order granting exemption to the assessee despite collecting more than the notified fee under the KEI (Prohibition of Capitation Fee) Act. The Revenue argued that this violated Sections 11 and 12 of the Act. The ITAT considered the exemption certificate in force and found no violation of the capitation fee act. The ITAT held that the assessee's activities were charitable within the Act, and all funds were reinvested in education, thus allowing exemption under sections 11 and 12.

Issue 2:
The Revenue contended that the assessee's profit-making motives and collection of capitation fee disguised as voluntary contributions disqualified them from exemption under sections 11 and 12. However, the ITAT, based on the uncontradicted affidavit stating no action under the capitation fee act was initiated against the assessee, ruled in favor of the assessee. The High Court emphasized that the exemption certificate was valid at the time of issuance, and the Revenue's assumption of capitation fee violation was unfounded. The court cited precedents supporting the assessee's entitlement to exemption under sections 11 and 12.

In conclusion, the High Court dismissed the Revenue's appeal, holding in favor of the assessee on both issues, emphasizing the importance of the valid exemption certificate and lack of evidence supporting the Revenue's claims of capitation fee violation.