2021 (10) TMI 297 - AT - Income Tax

Exemption u/s.11 - Charitable activity u/s 2(15) - allegation of Violation of trust objects - As per AO trust objects are charitable in nature, it cannot be held that its activities are carried out in accordance with is objects and are genuine, even though it has violated Prohibition of Capitation Fee Act (Government of Maharashtra) 1987 by accepting donation from its own students in the name of building fund, which is not only illegal but also violative of the trust's object of providing education and aid to the poor and deserving students - CIT-A allowed the deduction - HELD THAT - DR could not convert the observations of the CIT(A) with new cogent evidence or information. Further the Ld.DR has fairly accepted the Honble Tribunal decision of set aside of the order of the Pr. CIT(Exemptions) and restoring registration u/s 12A of the Act in 2019 (7) TMI 1868 - ITAT MUMBAI When the assessment was framed by issue of notice u/s 148 of the Act, this order of the Hon ble Tribunal was not available with the A.O and therefore A.O has denied the exemption considering the cancellation of registration by the Pr. CIT(Exemptions). Accordingly we find that the assessee trust was restored with the registration u/s 12A of the Act by the Hon ble Tribunal and the decision was duly considered by the CIT(A) and directed the A.O to grant exemption u/s 11 of the Act. We are of the opinion that the CIT(A) has passed a reasoned and logical order considering the facts, circumstances, provisions of law and the decision of the Hon ble Tribunal. - Decided against revenue.

Summary

Issues Involved:
1. Validity of assessment under Section 147 of the Income Tax Act, 1961.
2. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.
3. Alleged violation of the Prohibition of Capitation Fee Act (Government of Maharashtra) 1987 by the assessee trust.

Detailed Analysis:

1. Validity of Assessment Under Section 147:
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the validity of the assessment under Section 147, which was based on the information received from the Principal Commissioner of Income Tax (Exemptions) [Pr. CIT(E)] regarding the cancellation of the assessee's registration under Section 12AA(3) of the Income Tax Act, 1961. The CIT(A) found that the assessment was in line with the information received and thus valid.

2. Eligibility for Exemption Under Section 11:
The primary contention was whether the assessee trust was eligible for exemption under Section 11 of the Income Tax Act, 1961, despite the cancellation of its registration under Section 12A by the Pr. CIT(E). The CIT(A) noted that the Income Tax Appellate Tribunal (ITAT) had set aside the cancellation of registration by the Pr. CIT(E) and restored the registration under Section 12A. The ITAT found that the sole reason for cancellation was the collection of 'Building Fund' donations, which was not sufficient to cancel the registration as there was no evidence that the trust's activities were not charitable or genuine. Consequently, the CIT(A) directed the Assessing Officer (A.O.) to grant the exemption under Section 11, as the trust's registration had been restored.

3. Alleged Violation of the Prohibition of Capitation Fee Act:
The A.O. had denied the exemption under Section 11, citing that the trust had violated the Prohibition of Capitation Fee Act by collecting donations from students. However, the CIT(A) and ITAT observed that the donations collected were voluntary and used for the development of the trust's infrastructure. The Prohibition of Capitation Fee Act allows for the collection of voluntary donations for development purposes, provided they are not linked to the admission of students. There was no evidence that the donations were used to reserve seats or that the funds were misused. Therefore, the collection of donations did not violate the Act, and the trust's activities remained charitable and genuine.

Conclusion:
The appeal by the revenue was dismissed. The CIT(A)'s decision to grant exemption under Section 11 was upheld, as the trust's registration under Section 12A had been restored by the ITAT, and there was no violation of the Prohibition of Capitation Fee Act. The assessment under Section 147 was deemed valid, and the trust's activities were found to be in accordance with its charitable objects.