Karnataka High Court
Pr Commissioner Of Income-1 Tax (Exemptions) V. M/S Rashtreeya Sikshana Samithi Trust
Income Tax Appeal No. 554 Of 2018
Bench- HON’BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON’BLE MR JUSTICE T.G. SHIVASHANKARE GOWDA
Decided On 05-06-2023
Facts of the case-
The respondent assessee in this case is a charitable trust registered under Section 12A of the Income Tax Act, 1961. The trust has also obtained approval under Sections 11 and 12. In the assessment year 2012-13, the assessee initially filed returns of income declaring a nil income. However, the case was selected for scrutiny, and notices under Sections 142(1) and 143(2) of the Income Tax Act were issued. In response, the assessee filed revised returns, claiming the difference between the original and revised returns as corpus donations. The assessee stated that the trust was exempt in the original returns and had disclosed the income under the heading ‘other income’ in the revised returns.
The Additional Commissioner of Income Tax, Exemptions, reviewed the case for scrutiny and assessment. The Assessing Officer (AO) passed an assessment order, considering the income from other sources as income for the trust. The Commissioner of Income Tax (Appeals) [CIT (A)] upheld the AO’s order. However, the Income Tax Appellate Tribunal (ITAT) reversed the AO’s order and held that the assessee was entitled to exemption.
Subsequently, the department challenged the ITAT’s order. The department argued that the assessee had collected a sum of Rs. 27,23,55,000 as a donation in violation of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. According to the department, this violation of the KEI Act rendered the assessee ineligible for exemption, as it would also constitute a violation of Sections 11 and 12 of the Income Tax Act.
In response, the assessee contended that the absence of any action initiated under the KEI Act does not automatically imply that there was no violation. The assessee argued that the income tax authorities have the authority to consider violations of any statute while framing assessments.
Judgement
The honorable bench consisting of Justice P.S. Dinesh Kumar and Justice T.G. Shivashankare Gowda has granted a tax exemption on voluntary donations received by educational institutions. The court’s observation highlighted several crucial factors:
Firstly, the educational institution in question was found to be engaged in charitable education activities as defined by Section 2(15) of the relevant legislation.
Secondly, it was determined that the institution had appropriately applied or accumulated funds in accordance with the requirements outlined in Section 11(1)(a), including the explanation provided therein, as well as Section 11(2).
Furthermore, the institution had obtained proper registration under Section 12A, demonstrating compliance with the relevant provisions.
Importantly, the institution had not violated Section 13, which ensures that there is no private gain and that all funds are solely directed towards educational purposes. This reaffirmed that the accumulation and application of funds adhered to the provisions of Section 11.
Consequently, the court concluded that the assessing officer’s assertion, based on mere assumption and conjecture, that the institution had violated the KEI (Prohibition of Capitation Fee) Act, was unwarranted. The Income Tax Appellate Tribunal (ITAT) appropriately overturned this incorrect assumption.
In light of these findings, the court ordered the grant of exemption under sections 11 and 12 to the assessee, affirming that the institution met all the necessary criteria for tax benefits.
JUDGEMENT REVIEWED BY ABHAY SHUKLA
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