THE COMMISSIONER OF INCOME TAX V. KLE UNIVERSITY

ITA/5016/2012

AI Insights

The case involves the Commissioner of Income Tax appealing against the decision of the Income Tax Appellate Tribunal which favored KLE University. The core issue was whether the donations received by KLE University for student admissions constituted capitation fees, which are prohibited under the Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984. The Revenue argued that the university's activities were not genuine and deviated from its charitable purposes, while KLE University contended that it operated within its charitable objectives without profit motives. The Tribunal's decision to uphold the university's registration was based on the separation of legal entities between KLE Society and KLE University and the proper appreciation of the activities conducted by the university.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 736287 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 15-10-2014
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX Vs. SURYA EDUCATIONAL & CHARITABLE TRUST, COMMISSIONER OF INCOME TAX Vs. SAVIOR CHARITABLE TRUST, COMMISSIONER OF INCOME TAX Vs. NATIONAL INSTITUTE OF AERONAUTICAL ENGINEERING EDUCATIONAL SOCIETY, COMMISSIONER OF INCOME TAX Vs. LUCKNOW DEVELOPMENT AUTHORITY, MOHINI JAIN Vs. STATE OF KARNATAKA AND OTHERS. CHARITABLE TRUST, INDIAN MEDICAL ASSOCIATION Vs. UNION OF INDIA & OTHERS, P.A. INAMDAR AND OTHERS Vs. STATE OF MAHARASTRA AND OTHERS, ISLAMIC ACADEMY OF EDUCATION & ANR. Vs. STATE OF KARNATAKA AND OTHERS, M/S. VISVESVARAYA TECHNOLOGICAL UNIVERSITY Vs. ASST. COMM. INCOME TAX, VODITHAL EDUCATION SOCIETY Vs. ASSISTANT DIRECTOR OF IT, P.S. GOVINDASAMY NAIDU AND SONS Vs. ASSISTANT COMMISSIONER OF INCOME TAX, SOLE TRUSTEE, LOKA SHIKSHANA TRUST Vs. COMMISSIONER OF INCOME TAX, COMMISSIONER OF INCOME TAX Vs. DURGA PRASAD MORE, SUMATI DAYAL Vs. COMMISSIONER OF INCOME TAX, SANJEEVAMMA HANUMANTHE GOWDA CHARITABLE TRUST Vs. DIRECTOR OF INCOME-TAX (EXEMPTIONS), ADITANAR EDUCATIONAL INSTITUTION ETC. Vs. ADDITIONAL COMMISSIONER OF INCOME TAX, OXFORD UNIVERSITY PRESS, ETC. Vs. COMMISSIONER OF INCOME TAX, THIAGARAJAR CHARITIES Vs. ADDITIONAL COMMISSIONER OF INCOME TAX AND ANOTHER, AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE Vs. CENTRAL BOARD OF DIRECT TAXES & ORS., DIRECTOR OF INCOME TAX Vs. GARDEN CITY EDUCATIONAL TRUST, THE DIRECTOR OF INCOME TAX Vs. M/S. VENKATESHA EDUCATION SOCIETY
• Laws Referred To: Income Tax Act, 1961, Karnataka Societies Registration Act, 1960, Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984
• Result in Favour of: Respondent
• Court: HIGH COURT
• Department Lawyers: S PARTHASARATHI; H R KAMBIYAVAR; GANGADHAR
• Assessee Lawyers: Y V RAVIRAJ
• Keywords: Capitation Fee; Charitable purpose; Exemption denial; Income tax appeal; Registration cancellation
• Section: 11; 260A; 2(15); 12(A); 12-AA(3)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 15th DAY OF OCTOBER 2014 PRESENT THE HON’BLE DR. JUSTICE K. BHAKTHAVATSALA AND THE HON’BLE MR. JUSTICE PRADEEP D.WAINGANKAR INCOME TAX APPEAL NOS.5016/2012 C/W 5017/2012 BETWEEN The Commissioner of Income Tax, Opp. Civil Hospital, Dr. Ambedkar Road, Belgaum. Appellant (Common in both the Appeals) (By Sri Y V Raviraj, Adv., for appellant) AND KLE University, JNMC Campus, Nehru Nagar, Belgaum. Respondent (Common in both the Appeals) (By Sri S Parthasarathi, Sri H R Kambiyavar & Sri Gangadhar, J M, Advs., for respondent) 2 These Income Tax Appeals are filed under Section 260A of the Income Tax Act, 1961, against the order dated 16.3.2012 made in ITA No.9 and 10/PNJ/2012 on the file of Income Tax Appellate Tribunal. These Appeals coming on for hearing, the same having been heard and reserved for pronouncement of Judgment this day, Dr. Bhakthavatsala, J., delivered the following: JUDGMENT These two appeals have been filed by the Revenue under Section 260-A of the Income Tax Act, 1961, challenging the common Order dated 16.03.2012 made in IT Appeal No.9 and 10/PNJ/2012 (for the Assessment Years 2008-09 and 2009-10) on the file of the Income Tax Appellate Tribunal, at Panaji. 2. For the purpose of convenience and better understanding, the respondent-assessee is hereinafter referred to as ‘KLE University’. 3. It is the case of the respondent-assessee that on 09.11.2004, KLE Academy of Higher Education and Research Centre, at Belgaum was registered as Society under the Karnataka Societies Registration Act, 1960, with various objects. As per the UGC notification dated 13.09.2006, the said KLE 3 Academy of Higher Education and Research Centre was changed as “KLE University”. As per order dated 22.11.2007, the Commissioner of Income Tax, Belgaum, registered it under Section 12-A of the Income Tax Act (in short IT Act). Subsequently, the Commissioner of Income Tax initiated proceedings under Section 12-AA(3) of the IT Act, as against the KLE University on the ground that “KLE Society” is collecting donation for admission of students for medical course in KLE University and such donation was presumed to be the capitation fee which is prohibited under the Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984 and that KLE University was not carrying on the charitable activity and therefore, held that KLE University is not entitled for exemption under Section 11 of the Income Tax Act. The Commissioner of Income Tax issued a show-cause notice dated 18.08.2010 to the KLE University to show-cause as to why registration granted under Section 12-A of IT Act shall not be withdrawn. In pursuance of the show-cause notice, KLE University filed its statement of objections. Thereafter, the Revenue, by Order dated 14.12.2011, passed an Order, holding that the activities of the KLE University are not genuine and not remained as charitable purpose within the meaning of Section 2(15) of the 4 Income Tax Act and also not being carried on the activities in accordance with the objects and cancelled the registration granted to the KLE Society under Section 12-A of IT Act, from the assessment year 2008-09. The assessee challenged the same before the Appellate Tribunal. The Tribunal after hearing arguments of the assessee and revenue, passed the impugned common order allowing the appeals and setting aside the Order of the Revenue dated 14.12.2011 passed under Section 12- AA(3) of the IT Act. This is impugned in the appeals. 4. Learned counsel appearing for the appellant/Revenue submits that the information collected about the donations paid to KLE Society by some of the students, who took admission in KLE University in the year 2008-09 is nothing but donation received for admission of the students to KLE University which is contrary to the Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984, and the activities of the University are not genuine and it is not being carried on in accordance with the objects and therefore, the Revenue is justified in cancelling the registration granted to KLE University under Section 12-A of the Income Tax Act from assessment year 2008-09, but the Appellate Tribunal erred in rejecting the 5 grounds urged by the revenue. He submits that the impugned Order of the Appellate Tribunal may be set aside and the order of the Commissioner of Income Tax may be restored. He has cited the following decisions: i. (2013) 355 ITR 280 (P & H) COMMISSIONER OF INCOME TAX Vs. SURYA EDUCATIONAL & CHARITABLE TRUST; ii. (2013) 84 CCH 287 PHHC (COMMISSIONER OF INCOME TAX Vs. SAVIOR CHARITABLE TRUST); iii. (2009) 315 ITR 428 (UTTARAKHAND) (COMMISSIONER OF INCOME TAX Vs. NATIONAL INSTITUTE OF AERONAUTICAL ENGINEERING EDUCATIONAL SOCIETY); iv. (2014) 98 DTR (ALL) 183 (COMMISSIONER OF INCOME TAX Vs. LUCKNOW DEVELOPMENT AUTHORITY); v. (1992) 3 SCC 666 (MOHINI JAIN Vs. STATE OF KARNATAKA AND OTHERS. CHARITABLE TRUST); vi. (2011)7 SCC 179 (INDIAN MEDICAL ASSOCIATION Vs. UNION OF INDIA & OTHERS); 6 vii. (2005) 6 SCC 537 (P.A. INAMDAR AND OTHERS Vs. STATE OF MAHARASTRA AND OTHERS); viii. (2003) 6 SCC 697 (ISLAMIC ACADEMY OF EDUCATION & ANR. Vs. STATE OF KARNATAKA AND OTHERS); ix. ITA Nos.5007-12/13 (KAR) (M/S. VISVESVARAYA TECHNOLOGICAL UNIVERSITY Vs. ASST. COMM. INCOME TAX) (DATED 20.12.2013); x. (2008) 20 SOT 353 (HYD) (VODITHAL EDUCATION SOCIETY Vs. ASSISTANT DIRECTOR OF IT); xi. (2010) 324 ITR 44 (MAD) (P.S. GOVINDASAMY NAIDU AND SONS Vs. ASSISTANT COMMISSIONER OF INCOME TAX); xii. (1975) 101 ITR 234 (SC) (SOLE TRUSTEE, LOKA SHIKSHANA TRUST Vs. COMMISSIONER OF INCOME TAX); xiii. (1971) 82 ITR 540 (SC) (COMMISSIONER OF INCOME TAX Vs. DURGA PRASAD MORE); xiv. (1995) 214 ITR 801 (SC) (SUMATI DAYAL Vs. COMMISSIONER OF INCOME TAX). 7 5. Learned counsel appearing for the respondent/KLE University submits that the Revenue has no authority to hold that the donation paid to KLE Society, is capitation fee for admission of the students to KLE University. It is also contended that KLE Society and KLE University are two different entities and merely because the Chairman and few members of KLE Society are the Chairman and members of KLE University cannot be said that the KLE Society has received capitation fee in the form of donation for admission of some of the students to KLE University. It is also contended that KLE University is carrying on its objects without any deviation and there is neither profit motive nor division of income of the KLE University. Therefore, he submits that there is no merit in the appeals and he relied upon the following decisions: i. (2006) 285 ITR 327 (KARN) (SANJEEVAMMA HANUMANTHE GOWDA CHARITABLE TRUST Vs. DIRECTOR OF INCOME-TAX (EXEMPTIONS); ii. (1997) 224 ITR 310 (SC)(ADITANAR EDUCATIONAL INSTITUTION ETC. Vs. 8 ADDITIONAL COMMISSIONER OF INCOME TAX); iii. (2001) 247 ITR 658 (SC) (OXFORD UNIVERSITY PRESS, ETC. Vs. COMMISSIONER OF INCOME TAX); iv. (1997) 225 ITR 1010 (SC) (THIAGARAJAR CHARITIES Vs. ADDITIONAL COMMISSIONER OF INCOME TAX AND ANOTHER); v. (2008) 301 ITR 86 (SC) (AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE Vs. CENTRAL BOARD OF DIRECT TAXES & ORS.); vi. (2011) 330 ITR 480 (SC) (DIRECTOR OF INCOME TAX Vs. GARDEN CITY EDUCATIONAL TRUST); and vii. ITA NO.182/2011 (THE DIRECTOR OF INCOME TAX Vs. M/S. VENKATESHA EDUCATION SOCIETY) (DB). 6. The substantial question of law that arises for our consideration is as under: “Whether the Tribunal is justified in holding that the activities of the KLE University are genuine 9 and withdrawal of registration by the CIT was erroneous?” 7. Our answer to the above point is in the affirmative for the following reasons: i. that the donations received by the KLE society cannot be construed as capitation fee for the admission of students by the KLE university; ii. that the revenue appears to have not properly appreciated the legal point that though the Chairman and few members of ‘the Society’ are the Chairman and members of ‘the KLE University’, they are separate legal entities; iii. that there is no violation of any of the conditions stipulated under the IT Act, warranting for cancellation of registration of the society; iv. that the Tribunal on proper appreciation of the grounds urged by the Society and the Revenue has rightly restored the registration. 10 In view of the above, there is no merit in the contentions urged by the learned counsel for the Revenue and the decisions cited by him are of no avail. 8. For reasons stated above, we pass the following : ORDER Appeals fail and they are hereby rejected. Sd/- JUDGE Sd/- JUDGE Bjs "