2011 (11) TMI 151 - HC - Income Tax

Exemption under 12A - Trust providing Education - Admission was not on merit basis and entrance exam - Held That - it cannot be said finally yet that petitioner has committed any such illegality and no such opinion could be formed by the learned Chief Commissioner of Income Tax so long as the matter is pending before the Supreme Court of India and is not decided against the petitioner Trust. - the present writ petition is allowed and setting aside the impugned order of the chief commissioner of Income tax for fresh decision.

Summary

Issues:
1. Denial of exemption from tax under Section 10(23C) of the Income Tax Act, 1961 based on alleged illegal admissions by the petitioner Trust for Assessment Year 2008-2009.
2. Validity of the Chief Commissioner of Income Tax's decision to reject the application for exemption.
3. Consideration of alleged illegal admissions as a basis for denying approval under Section 10(23C) of the Act.
4. Discrepancy in the authority's decision regarding approval for subsequent years.

Analysis:

1. The petitioner Trust, running a medical college with attached hospital, filed a writ petition challenging the Chief Commissioner of Income Tax's order rejecting the application for exemption from tax under Section 10(23C) for Assessment Year 2008-2009. The admissions made by the Trust were deemed illegal by the High Court, leading to the denial of exemption. The matter was sub judice before the Apex Court, and the Trust contended that the admissions were legally made, emphasizing the right to litigate the issue.

2. The petitioner argued that the denial of exemption based on pending litigation regarding admissions was unjustified, as subsequent approvals were granted for the following years. The respondent Department contended that the illegality in admissions for 2008 justified the denial of approval under Section 10(23C) by inferring a profit motive. The court noted the single reason cited by the Chief Commissioner for denial.

3. The court highlighted the importance of the right to litigate for institutions seeking tax exemption under Section 10(23C) based on educational purposes and the absence of profit motive. The nexus between profit motive and alleged illegal admissions was deemed remote without additional adverse material. The court emphasized that the legality of admissions was not the sole criterion for exemption, especially with the matter pending before the Supreme Court.

4. The court found the inconsistency in the authority's decisions regarding approval for subsequent years concerning the same alleged illegal admissions. This discrepancy undermined the argument for denial of approval based solely on the admissions. The court allowed the writ petition, setting aside the Chief Commissioner's order and directing a fresh decision for Assessment Year 2008-2009 to 2010-11, considering relevant factors and affording the petitioner Trust an opportunity to be heard.

This detailed analysis covers the issues raised in the judgment, providing a comprehensive understanding of the legal reasoning and implications involved.