Whether for purpose of exemption u/s 10(23), collection of donation from students by educational body amounts to profit, and thus, calls for rejection of exemption application - YES: HC

THE issue before the Bench is - Whether for the purpose of exemption u/s 10(23), collection of donation from students by educational body amounts to profit, and thus, calls for rejection of exemption application. And the verdict goes against the assessee.

Facts of the case

Assessee is an educational society. It has filed the present writ petition against the order of the CCIT rejecting its application for exemption under Section 10(23C) (vi). It was submitted by the assessee's counsel that the CCIT having considered all relevant material documents such as the memorandum of bylaws of the Society and the rules and regulations attached thereto, in addition to, the books of accounts for the three years preceding the application, though observed that there was no monetary profits in the activity of imparting education, nevertheless, rejected the application on an unjustifiable ground that the collection of donations from pupils would amount to an act for the purpose of profit and therefore it did not fulfill the objectives mentioned in Section 10(23C)(vi).

Held that:

++ the exemption from the application of the Act is available to any University or educational institution imparting education if it is not for the purpose of profit. The CCIT having extracted the objects of the association as recorded in the MOA and the rules and regulations of the Society, stating that donations may also be collected from the pupils and the same shall be decided by the Executive Committee from time to time, opined, that collection of donations from students in addition to regular fees is not an acceptable principle. He further observed that the donations collected are required to be placed at the discretion of the Executive Committee, which could be exercised for a purpose other than education. In that context, the CCIT concluded that such an act of collecting donation and placing it at the discretion of the executive committee, is in the direction of establishing profit motive and for purposes other than imparting education and accordingly, rejected the request of the petitioner;

++ petitioner having not explained the rules and regulations more appropriately, relating to the collection of donations from pupils contrary to provisions of Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, coupled with the failure to explain, with material particulars, over the discretion to be exercised by the Executive Committee over such donations, no exception can be taken to the reasoned findings and conclusions arrived at by the CCIT’s in the order Annexure-A. In the absence of explanation, it cannot be said that it is not the actual user but the likelihood and the capacity of the trustees to do so which is important as held by the High Court of Madras in Reliance Motor Company Private Limited -vs- Commissioner of Income Tax reported in 1995 213 ITR 733, the exercise of discretion by the Executive Committee to put to use the donation is of primary concern.