2011 (11) TMI 678 - HC - Income Tax

Grant of exemption under s. 10(23C)(vi) - genuineness of the activities - Held that - In the present case, respondent No. 3 after examining the record has come to a valid conclusion that there has been a diversion of funds and the institution is not existing solely for educational purposes. Therefore, in our opinion the benefit under s. 10(23C)(vi) of the Act has been rightly declined which cannot be interferred with in exercise of extraordinary writ jurisdiction under Art. 226/227 of the Constitution of India as it is settled law that the Writ Court is not to sit in appeal over the decisions of the authorities and it has only to be seen whether the authorities acted within the scope of their power and a proper procedure was followed and there was no violation of the principles of natural justice. In the present case there is no dispute regarding the fact of diversion of funds to the Diocese of Jalandhar, therefore, there is no illegality and irregularity in the order of the respondent No. 3 declining to grant exemption.

Summary

Issues:
- Rejection of application for exemption under s. 10(23C)(vi) of the IT Act, 1961 for the assessment year 2010-11.
- Whether the institution exists solely for educational purposes as required under s. 10(23C)(vi) of the Act.

Analysis:
1. The petitioner filed a writ petition against the order rejecting their application for exemption under s. 10(23C)(vi) of the IT Act, 1961. The Chief CIT raised issues regarding the religious nature of the trust's objects and payments made to Diocese of Jalandhar without justifiable cause.

2. The Chief CIT concluded that the institution's aims were partly religious due to imparting education to Christians and providing financial aid to the Diocese of Jalandhar. The institution's payments under education extension services were considered, along with the Diocese's memorandum of association, leading to the denial of exemption under s. 10(23C)(vi).

3. The petitioner argued that the institution catered to all religions and employed individuals without discrimination. However, the court upheld the Chief CIT's findings, stating no illegality in the decision that funds were used for religious purposes and diverted to the Diocese of Jalandhar.

4. The respondent's examination revealed that the Diocese's objects were not solely educational, involving managing properties and financial activities beyond education. The court emphasized the requirement under s. 10(23C)(vi) for institutions to exist solely for educational purposes.

5. The court highlighted the statutory obligation for the prescribed authority to ensure the genuineness of an institution's activities. Referring to the Pinegrove International Charitable Trust case, principles were outlined to assess the application of income and adherence to educational objectives.

6. The court affirmed that the institution failed to apply its income exclusively for educational purposes, evidenced by funds diverted to the Diocese of Jalandhar. The respondent's decision to decline exemption was deemed valid, emphasizing the authority's power to withdraw exemptions if funds were misused.

7. It was clarified that the petitioner could reapply, ensuring income application solely for educational purposes. The court dismissed the writ petition, stating that interference was unwarranted, as the authorities acted within their power and followed due procedure.

In conclusion, the court upheld the denial of exemption under s. 10(23C)(vi) due to the institution's failure to exist solely for educational purposes, emphasizing the importance of genuine activities and proper fund utilization.