Capitation fee receipts can defeat charitable exemption, and section 12AA registration does not bar scrutiny of actual activities.

Receipts collected from parents over and above the prescribed tuition fee, when linked to student admissions and not proved to be corpus donations, may be treated as capitation fee under the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. On that basis, the activity is regarded as commercial rather than charitable, affecting exemption under section 11 of the Income-tax Act, 1961. Registration under section 12AA is confined to examination of objects and does not prevent scrutiny of the actual activities in the relevant year when exemption under section 11 is claimed. The note therefore reflects that charitable status depends on both the nature of receipts and the conduct of activities.

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Issues: (i) Whether amounts received from parents of students over and above the prescribed tuition fee constituted capitation fee and, if so, disentitled the assessee to exemption under section 11 of the Income-tax Act, 1961. (ii) Whether grant of registration under section 12AA of the Income-tax Act, 1961 precluded the Assessing Officer from examining the actual nature of activities while deciding exemption under section 11.

Issue (i): Whether amounts received from parents of students over and above the prescribed tuition fee constituted capitation fee and, if so, disentitled the assessee to exemption under section 11 of the Income-tax Act, 1961.

Analysis: The receipts described as voluntary contributions were found to be collected over and above the tuition fee and were linked to admissions of students. The evidence did not establish that they were corpus donations. The Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 prohibits collection of any amount, by whatever name called, in excess of the prescribed fee, and such receipts were held to fall within the statutory definition of capitation fee. Once such receipts were treated as capitation fee, the activity was viewed as commercial in character and as selling education rather than pursuing charitable education.

Conclusion: The receipts were held to be capitation fee and the denial of exemption under section 11 was upheld.

Issue (ii): Whether grant of registration under section 12AA of the Income-tax Act, 1961 precluded the Assessing Officer from examining the actual nature of activities while deciding exemption under section 11.

Analysis: Registration under section 12AA was treated as confined to examination of objects, whereas exemption under section 11 required scrutiny of actual activities during the relevant year. The existence of registration did not prevent the Assessing Officer from examining whether the assessee's conduct showed a charitable activity or a profit-oriented and prohibited collection pattern. The earlier registration proceedings were therefore held to be irrelevant to the exemption dispute.

Conclusion: The Assessing Officer was entitled to examine the nature of activities notwithstanding registration under section 12AA, and the exemption claim failed.

Final Conclusion: The Revenue's objections succeeded and the assessee's exemption claim was rejected because the impugned receipts were treated as capitation fee collected in the course of running educational institutions.

Ratio Decidendi: Amounts collected from students or parents over and above prescribed fees, if not shown to be genuine corpus donations, constitute capitation fee and negate charitable character for exemption under section 11, while registration under section 12AA does not foreclose scrutiny of actual activities.

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