2011 (3) TMI 1425 - HC - Income Tax

Exemption under section 10(22) of the Income-tax Act 1961 - Scope of the word education used in Clause 15 of section 2 of the Act of 1961 - application of the petitioners filed under section 10(23C)(vi) of the Income-tax Act 1961 has been rejected Held that - objects mentioned in the memorandum of association of the society are correlated with the education and the petitioner-society exists solely for the purpose of education. It has not entered into any business in the relevant period neither it diversified its fund for any other purposes application of the petitioner-society has been rejected at threshold without considering the activities of the society petitioner society has not used the amount and income for any other business activities order passed by the authority is illegal and against the provisions of section 10(23C)(vi) of the Act 1961 petition of the petitioners is allowed application filed by the petitioner for grant of approval under section 10(23C)(vi) of the Act of 1961 is hereby accepted

Issues Involved:
1. Rejection of exemption application under section 10(23C)(vi) of the Income-tax Act, 1961.
2. Examination of the objects of the petitioner-society.
3. Consistency in granting exemptions in previous years.
4. Interpretation of "educational purposes" under section 10(23C)(vi).

Detailed Analysis:

1. Rejection of Exemption Application:
The petitioners challenged the order dated 18-2-2008, which rejected their application for exemption under section 10(23C)(vi) of the Income-tax Act, 1961. The Chief Commissioner of Income-tax had sought clarifications regarding the society's claim of existing solely for educational purposes, but ultimately rejected the application, citing non-educational objects.

2. Examination of the Objects of the Petitioner-Society:
The petitioner-society, registered under the M.P. Society Registration Act, 1973, operates Little Angels High School. The society's memorandum included objects such as maintaining a library, conducting classes in stitching, embroidery, and adult education, which the authority deemed non-educational. However, the court found that these activities align with modern educational concepts and practical examinations as per the Board of Secondary Education's guidelines. The court concluded that the objects (c) and (d) were educational in nature.

3. Consistency in Granting Exemptions in Previous Years:
The petitioners argued that their applications for exemption were accepted in previous years (2003-2004 to 2005-2006) under similar circumstances, and the rejection for the year 2006-2007 was inconsistent. The court noted that the petitioner-society had deleted the contentious clauses (c) and (d) from its memorandum after the 2006-2007 period, reinforcing its commitment to educational purposes.

4. Interpretation of "Educational Purposes":
The court referred to several Supreme Court judgments to interpret "educational purposes" under section 10(23C)(vi). The term was understood to mean systematic instruction and training, not merely profit-making activities. The court emphasized that incidental surplus from educational activities does not disqualify an institution from exemption if its primary purpose is education. The court found that the petitioner-society's activities met this criterion.

Conclusion:
The court quashed the impugned order dated 18-2-2008, deeming it arbitrary and illegal. The application for exemption under section 10(23C)(vi) was accepted, as the petitioner-society's objects and activities were found to be solely for educational purposes. There was no order as to costs.

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