Case title:
Pr Commissioner of Income-1 Tax (Exemptions) vs M/S Rashtreeya Sikshana Samithi Trust
Date of Order:
5th Day of June, 2023
Bench:
The Hon'ble Mr Justice P.S.Dinesh Kumar and The Hon'ble Mr Justice T.G. Shivashankare Gowda
Parties:
Appellant: Pr Commissioner of Income-1 Tax (Exemptions)
Respondent: M/S Rashtreeya Sikshana Samithi Trust
IMPORTANT PROVISIONS:
Section 260 in the Income- Tax Act, 1995
Decision of High Court or Supreme Court on the case stated
(1) The High Court or the Supreme Court upon hearing any such case shall decide the questions of law raised therein, and shall deliver its judgment thereon containing the grounds on which such decision is founded, and a copy of the judgment shall be sent under the seal of the court and the signature of the Registrar to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment.
(2) The costs of any reference to the High Court or the Supreme Court which shall not include the fee for making the reference shall be in the discretion of the court. D.- Appeals to the Supreme Court.
Time limit for filing appeal: 120 days from the date on which order of Tribunal is received by the assessee or the Principal Chief Commissioner/Principal Commissioner/Chief Commissioner or Commissioner. High Court may admit appeal after 120 days if it is satisfied that there was sufficient cause for delay.
OVERVIEW:
- A charity trust that has been registered under Section 12A of the Income Tax Act of 1961 is the respondent assessee in this case. Additionally, the trust has received Sections 11 and 12 clearance.
- The assessee first filed reports of income for the assessment year 2012–2013 declaring no income. However, the case was chosen for examination, and notices issued in accordance with Sections 142(1) and 143(2) of the Income Tax Act.
- In response, the assessee submitted revised returns and claimed corpus donations for the discrepancy between the original and revised returns.
- In the initial forms, the assessee claimed that the trust was exempt, and in the updated filings, they had declared the revenue under the title "other income."
- For examination and evaluation, the case was assessed by the Additional Commissioner of Income Tax, Exemptions. The Assessing Officer (AO), who considered the income from other sources to be revenue for the trust, issued an assessment order.
- The order of the AO was affirmed by the Commissioner of Income Tax (Appeals) [CIT (A)]. The Income Tax Appellate Tribunal (ITAT) overturned the AO's decision and determined that the assessee was eligible for an exemption.
- The department then appealed the ITAT's ruling.
- The Karnataka Educational Institutions (Prohibition of Capitation Fee Act, 1984) was allegedly broken, according to the department, because the assessee received a donation of Rs. 27,23,55,000 from a third party.
ISSUES RAISED:
1. Whether on the facts and in the circumstances of the case and in law, the Tribunal is correct in law in holding that the assessee is eligible for exemption under section 11 and 12 of the Act though the assessee – trust has collected more than the fee declared or notified through the ‘Karnataka Educational Institutions prohibition of capitation fee Act, 1984’ (by the State Government) in the garb of voluntary contributions / corpus fund and this fact of collecting more than the fee notified has been proved without any dispute in as much as the assessee itself furnishing the details?
2. Whether on the facts and in the circumstances of the case and in law, the Tribunal is correct in holding that the assessee is eligible for exemption under section 11 and 12 of the Act when the purpose of running the educational institutions is overshadowed by profit making motives of the 1 Income Tax Appellate Tribunal - 3 - ITA No. 554/2018 Society and the assessee – trust is making huge surplus every year and is involved in collection of capitation fee in the guise of ‘Voluntary Contributions’ and is evident that the charity is no more in spirit and practice and the assessee is indulging in commercial activity?”
ARGUMENTS ADVANCED BY THE APPELLANT:
The agency claims that because this KEI Act breach also violated Sections 11 and 12 of the Income Tax Act, the assessee was no longer entitled for an exemption.
ARGUMENTS ADVANCED BY THE RESPONDENT:
In response, the assessee argued that there may have been a breach even in the absence of any KEI Act action being taken. The assessee stated that while determining assessments, the income tax authorities are permitted to take any statutory infractions into account.
JUDGEMENT ANALYSIS:
- A tax exemption on voluntary gifts received by educational institutions has been granted by the honorable panel of Justices P.S. Dinesh Kumar and T.G. Shivashankare Gowda. The court's assessment brought numerous significant aspects to light:
- First off, it was determined that the questioned institution of higher learning was carrying out charity educational activities in accordance with Section 2(15) of the pertinent legislation.
- Second, it was found that the institution had properly applied or accumulated funds in accordance with Sections 11(1)(a), including the explanation therein, and 11(2).
- The institution had also successfully registered under Section 12A, proving that it had complied with all applicable rules.
- It is significant to note that the institution had not transgressed Section 13, which guarantees that there is no private benefit and that all monies are used only for educational purposes.
- This confirmed that the collection and use of monies complied with Section 11's rules.
- As a result, the court found that the assessing officer's claim that the institution had broken the KEI (Prohibition of Capitation Fee) Act was unjustified and was based only on speculation and assumption.
- In a proper decision, the Income Tax Appellate Tribunal (ITAT) refuted this unfounded premise.
- These conclusions led the court to rule that the assessee should be granted exemption under sections 11 and 12, confirming that the institution complied with all requirements for tax advantages.
- In Kammavari Sangham v. Deputy Director of Income-tax (Exemptions), court held that the Income Tax Authorities are bound by an exemption certificate as long as it is in effect.
- The assessee also filed an affidavit with the ITAT stating that no action was taken against them in violation of the KEI (Prohibition of Capitation Fee Act). The ITAT took this into account and concluded in paragraph 18 of the challenged order that the Revenue had not violated the aforementioned affidavit.
- As a result, it is factually false for the Revenue to claim that the Assessee violated the KEI (Prohibition of Capitation Fee) Act's provisions.
CONCLUSION:
- The Revenue's claim is not supported by the authority they cite. According to the facts of this case, the court earlier held the same position in the Kammavari Sangham case.
- In conclusion, the ITAT appropriately overturned the AO's decision since it was founded on false presumptions.
- The exemption certificate granted by the department supports the idea that the assessee did not break the KEI Act.
