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2024 (6) TMI 1465 - AT - Income TaxDenial of exemption u/s 11 12 - school being run by the assessee society is not recognized by Directorate of Education Government of NCT Delhi - receipt of corpus donations - HELD THAT - Revenue s ground that the assessee is not recognized by the Directorate of Education Government of NCT Delhi has no relevance on the facts of the case. The assessee has been granted Registration u/s 12AA of the Income Tax Act where the CIT granting registration has examined the genuineness of activities of the Trust and its compliance with any requirements of any law as are material for the purpose of achieving its objects. It is settled position of law that once the society/trust/institution is registered u/s 12A the Assessing Officer has no loco-standi to decide as to whether it is charitable or otherwise. Once the trust is registered by the CIT under a particular category the process of definition and classification of the activity ceases. It was held in the case of ACIT vs. Surat City Gymkhana 2008 (4) TMI 16 - SUPREME COURT that the registration of a trust once done u/s 12A is a fait accompli and the Assessing Officer cannot thereafter make further probe in to the objects of the trust. It was similarly held in the case of Hiralal Bhagwati v 2000 (4) TMI 14 - GUJARAT HIGH COURT where held that once the registration under section 12A(a) was granted the grant of benefit and exemptions could not be denied. Receipt of corpus donation - We find that the contribution received have been utilized for the purposes of building the school which is in furtherance of the Trust s objective of imparting education. We are also of the opinion that the Revenue has not established that the contributions received as corpus donation was utilized for purposes other than charitable purposes or there is a violation of provisions of section 13(1) or 13(2) of the I T Act. We are in agreement with the findings of the ld. CIT(A)that the contributions cannot but be treated as voluntary in nature towards corpus donation u/s 11(1)(d). Capitation fee being in the nature of contributions which are voluntary in nature and exempted u/s 11(1)(d) the decision of the Hon ble Karnataka High Court in the case of Kammavari Sangham on which the assessee has relied squarely applies 2022 (11) TMI 672 - KARNATAKA HIGH COURT CIT(A) was justified in allowing the benefit of exemption u/s 11(1) of the Act and deleting the addition. We also note that the ld DR has not controverted the fact that proposal sent by the AO to the DIT(Exemption) for cancellation of registration has not been acted upon or the Department itself has not accepted the charitable nature of the assessee and has denied grant of exemption u/s 11 and 12 in subsequent AYs. Considering all the facts in totality and the legal principle of consistency both the ground raised by the Revenue are dismissed.
The core legal questions considered in this appeal are:
1. Whether the assessee society's activity of running a school without recognition from the Directorate of Education, Government of NCT, Delhi, disqualifies it from claiming exemption under sections 11 and 12 of the Income Tax Act, 1961. 2. Whether the corpus donations amounting to Rs. 56,25,000/- received by the assessee are voluntary in nature and eligible for exemption under section 11(1)(d), or whether they constitute capitation fees collected to secure admission, thereby rendering them non-voluntary and ineligible for exemption. 3. Whether the Assessing Officer (AO) had the authority to deny exemption and treat the assessee as an Association of Persons (AOP) despite the assessee holding registration under section 12A of the Income Tax Act. Issue 1: Impact of Non-Recognition by Directorate of Education on Exemption Claims The relevant legal framework includes the provisions of section 12A of the Income Tax Act, which governs the registration of charitable trusts and institutions, and the principle that once registration under section 12A is granted, the Assessing Officer cannot re-examine the charitable nature of the activities. Precedents relied upon include the Supreme Court decisions in ACIT vs. Surat City Gymkhana and Hiralal Bhagwati v. Commissioner of Income Tax, which establish that registration under section 12A is a "fait accompli" and that the AO lacks locus standi to question the charitable status post-registration. The Court observed that the assessee had valid registration under section 12A and that the Directorate of Education's recognition was irrelevant to the income tax exemption claim. The AO's attempt to deny exemption based on lack of recognition by the Directorate was held to be legally untenable. The registration granted by the Commissioner of Income Tax had already examined the genuineness of the society's activities and compliance with applicable laws. Competing arguments by the Revenue emphasized the lack of recognition as a ground for denying exemption, but these were rejected based on settled judicial precedents. Conclusion: The Court held that non-recognition by the Directorate of Education does not affect the assessee's entitlement to exemption under sections 11 and 12 once registered under section 12A. Issue 2: Nature of Corpus Donations - Voluntary or Capitation Fees The legal framework centers on section 11(1)(d) of the Income Tax Act, which exempts voluntary contributions made with a specific direction (corpus donations) from income chargeable to tax. The distinction between voluntary contributions and capitation fees is crucial, as capitation fees are considered commercial receipts and not eligible for exemption. Key precedents include decisions from the Madras High Court in the Balaji Education case and the Karnataka High Court in Kammavari Sangham, which clarify that the concept of "involuntary contributions" does not exist under the Act. The courts have held that the essential test is whether the contributions are applied for charitable purposes, not the label or characterization of the contributions. The Court analyzed the facts that the corpus donations were utilized for construction of the school building, which is in furtherance of the society's educational objectives. The AO's reliance on statements from donors alleging payments to secure admission (capitation fees) was found insufficient to establish that the contributions were involuntary or commercial in nature. No evidence of coercion or undue pressure was found. The Court also noted that the assessee's registration under section 12A remained valid and that the AO's proposal to cancel registration had not been acted upon. The principle of consistency was invoked, noting that in subsequent assessment years, the Department had accepted the assessee's exemption claims. Competing arguments by the Revenue focused on the donors' statements and the alleged violation of the Karnataka Educational Institution (Prohibition of Capitation Fee) Act, 1984. However, the Court emphasized that the AO cannot deny exemption on the assumption of violation of other statutory provisions without appropriate investigation or findings by the competent authority. Conclusion: The Court held that the corpus donations are voluntary contributions exempt under section 11(1)(d), and the AO's denial of exemption on the basis of alleged capitation fees was not sustainable. Issue 3: Authority of AO to Deny Exemption Post Registration The legal framework includes section 12A and the principles established by the Supreme Court and various High Courts that once a trust or society is registered under section 12A, the AO cannot deny exemption arbitrarily or reclassify the entity unless the registration is cancelled following due process. The Court relied on the Supreme Court's ruling in ACIT vs. Surat City Gymkhana and Hiralal Bhagwati case, which emphasize that registration under section 12A is conclusive regarding the charitable status for income tax purposes, and the AO's role is limited. The Court found that the AO had no power to deny exemption or treat the assessee as an AOP without cancellation of registration, which had not occurred. The Department's failure to act on the cancellation proposal and acceptance of exemption claims in later years supported the assessee's position. Competing arguments by the Revenue were rejected as lacking legal basis. Conclusion: The AO lacked authority to deny exemption under sections 11 and 12 once registration under section 12A was granted and valid. Significant Holdings The Court preserved the following crucial legal reasoning verbatim: "The assessee is a charitable society and is involved in imparting education and the income of the assessee is mainly from the school fees received from the students which are also applied/ spent for running the school. The income of the assessee includes all the fees by whatever name called from the students and the same has to be treated as part of the income as provided u/s 11(1)(a). There is no provision u/s 11 to treat the income in any other way except the corpus donation as provided u/s 11(l)(d) which is treated as exempt and all other income are to be treated as exempt when the same are applied for charitable purposes." "The expression 'voluntary contributions' is used in the Act instead of 'contributions' to highlight the principle of non compulsion in matters of participating in charitable activities and to underline the gratuitous nature of donations and charitable activities. There is no compulsion in making contributions to charities." "Once the society/trust/institution is registered u/s 12A, the Assessing Officer has no loco-standi to decide as to whether it is 'charitable' or otherwise. Once the trust is registered by the CIT under a particular category, the process of definition and classification of the activity ceases." The core principles established include:
Final determinations on each issue were as follows: 1. The assessee's lack of recognition by the Directorate of Education is immaterial to its exemption claim under the Income Tax Act once registered under section 12A. 2. The corpus donations of Rs. 56,25,000/- are voluntary in nature and exempt under section 11(1)(d), as they were applied for charitable purposes, specifically construction of the school building. 3. The AO's denial of exemption and treatment of the assessee as an AOP was without jurisdiction due to the valid registration under section 12A, and the Revenue's appeal on these grounds was dismissed.
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