Section 11 exemption upheld where voluntary building fund donations did not amount to capitation fee or misuse of charitable funds.

ITAT Mumbai held that exemption under section 11 could not be denied merely because a trust's registration had earlier been cancelled and it had collected voluntary building fund donations from students. The earlier cancellation had already been set aside, and there was no finding that the trust's objects were non-charitable, its activities were not genuine, or the donations were misapplied. The record also did not show any demand for impermissible capitation fee, reservation of seats, diversion of funds, or departure from educational objects under the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987. The trust's entitlement to exemption was therefore sustained and the Revenue's challenge failed.

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Issues: Whether exemption under section 11 of the Income-tax Act, 1961 could be denied merely because the trust's registration had earlier been cancelled and it had collected building fund donations from students, in the absence of any finding that its objects were non-charitable, its activities were not genuine, or the donations were misused in violation of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987.

Analysis: The reassessment and the denial of exemption were founded principally on the earlier cancellation of registration and the allegation that the assessee had collected donations from students as building fund. The appellate record showed that the cancellation of registration had already been set aside in the assessee's favour, and the donations had been treated as voluntary and applied for the objects of the trust. The reasoning also noted that the capitation fee law applies where amounts are demanded or collected in connection with admission or promotion, whereas no material was brought to show that the assessee had demanded any impermissible fee, reserved seats, diverted funds, or ceased to carry on educational activities in accordance with its objects.

Conclusion: The denial of exemption was unjustified. The assessee remained entitled to exemption under section 11, and the Revenue's challenge failed.

Final Conclusion: The order granting exemption to the trust was sustained and the Revenue's appeal was rejected.

Ratio Decidendi: Exemption under section 11 cannot be denied merely because a trust collected voluntary donations for building fund, unless there is evidence that the trust's objects are not charitable, its activities are not genuine, or the collections amount to impermissible capitation fee or misuse of funds.

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