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2022 (3) TMI 1339 - AT - Income TaxExemption u/s 11 and 12 - AO denied the benefit of deduction under section 11 to the assessee by holding that the assessee cannot be regarded as existing for charitable purposes under section 2(15) - HELD THAT - We find that the AO on noticing that the assessee was in receipt of voluntary contributions came to the conclusion that the voluntary contributions were received only from students and were admitted in the assessee s educational institutions. According to the AO, the contributions were not given out of free will and was a quid-pro-quo for admission of students in the assessee s educational institutions. There is no material whatsoever for this conclusion drawn by the AO. On the other hand, the AO has proceeded purely on the basis that there was a suggestion and unwritten direction from the assessee for contributions to be made mandatorily for the purpose of securing admission in the assessee s educational institutions. AO, thereafter, concluded that voluntary contributions are nothing but a capitation fee. It is seen that the assessee enjoys registration under section 12A and except for the compliant of the AO that the assessee received voluntary contribution, there has been no other charge in so far as allowing exemption under section 11 is concerned. The receipt of so called capitation fees has been interpreted by the AO as an act which will go against the definition of charitable purpose under section 2(15) - CIT(A) has rightly observed that the conclusions of the AO are without any material and that the receipt of capitation fees has not been established nor were there any proceedings against the assessee under the Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984. In the given circumstances of the case, we are of the view that the conclusions drawn by the CIT(A) that the assessee cannot be denied the benefit under section 11 of the Act cannot be said to be erroneous and we concur with the said findings. Hon ble Karnataka High Court in the case of Children s Educational Society 2013 (7) TMI 519 - KARNATAKA HIGH COURT has held that application of surplus for educational purpose is sufficient to conclude that an educational institution is just solely for educational purpose. In the given facts and circumstances of the case, we find no merits in these appeals by the Revenue and consequently these appeals deserve to be dismissed and are hereby dismissed.
Issues Involved:
1. Eligibility for exemption under sections 11 and 12 of the Income Tax Act, 1961. 2. Allegation of collecting capitation fees under the guise of voluntary contributions. 3. Applicability of the decision in the case of Queen’s Education Society by the Uttarakhand High Court. 4. Compliance with the Karnataka Educational Institutions Prohibition of Capitation Fee Act, 1984. 5. Application of surplus funds for charitable purposes. Issue-wise Detailed Analysis: 1. Eligibility for Exemption under Sections 11 and 12 of the Income Tax Act, 1961: The Revenue challenged the CIT(A)'s decision to grant the assessee exemption under sections 11 and 12 of the Act. The Assessing Officer (AO) had denied this benefit, arguing that the assessee's activities did not qualify as charitable under section 2(15) due to the collection of capitation fees disguised as voluntary contributions. The Tribunal, however, upheld the CIT(A)'s decision, noting that the AO's conclusions were based on assumptions without concrete evidence. The Tribunal found that the assessee's activities aligned with its charitable objectives, and there was no misuse of funds. 2. Allegation of Collecting Capitation Fees Under the Guise of Voluntary Contributions: The AO argued that the voluntary contributions received by the assessee were essentially capitation fees linked to student admissions. The AO claimed these contributions were not voluntary but mandated for securing admissions, thus violating public policy and the Karnataka Educational Institutions Prohibition of Capitation Fee Act, 1984. The Tribunal found no material evidence to support the AO's claims and noted that the competent authority under the said Act had not found any violations by the assessee. Consequently, the Tribunal agreed with the CIT(A) that the AO's conclusions were speculative and unsupported by facts. 3. Applicability of the Decision in the Case of Queen’s Education Society by the Uttarakhand High Court: The AO referenced the Uttarakhand High Court's decision in Queen’s Education Society, which held that systematic profit generation disqualifies an entity from being considered charitable. The Tribunal noted that this decision had been reversed by the Supreme Court. Additionally, the Karnataka High Court in the case of Children’s Educational Society had established that the application of surplus funds for educational purposes suffices to classify an institution as charitable. Thus, the Tribunal found the AO's reliance on the Uttarakhand High Court's decision to be misplaced. 4. Compliance with the Karnataka Educational Institutions Prohibition of Capitation Fee Act, 1984: The AO alleged that the assessee violated the Karnataka Educational Institutions Prohibition of Capitation Fee Act by collecting capitation fees. The Tribunal observed that no proceedings had been initiated against the assessee under this Act, and the competent authority had not found any violations. The Tribunal concurred with the CIT(A) that the AO's presumption of violation was unfounded and could not be a basis for denying the exemption under sections 11 and 12. 5. Application of Surplus Funds for Charitable Purposes: The AO contended that the surplus generated by the assessee was not applied towards its charitable objectives. The Tribunal, however, found that the assessee had been applying its surplus funds for educational purposes, consistent with its charitable objectives. The Tribunal agreed with the CIT(A) that there was no evidence of fund misuse or deviation from the trust's objectives. Conclusion: The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decision to grant the assessee exemption under sections 11 and 12 of the Income Tax Act. The Tribunal found no merit in the AO's allegations and concluded that the assessee's activities were in line with its charitable objectives, and there was no violation of relevant laws or misuse of funds.
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