2011 (11) TMI 470 - HC - Income Tax

Approval u/s 10(23C) - denial of claim as existing educational institutions are eligible and unless educational activities commence, it cannot be said that the University is existing - Held that - It has not been controverted by authority concerned or Revenue that the petitioner is a University established solely for educational purposes. The petitioner has applied for approval on 29.01.2009 soon after it was included in the schedule and has categorically averred that a Global Law College has started in September, 2009. In a period of 8 months, the petitioner was able to obtain recognition from the Bar Council of India, UGC, and has also set up infrastructure for starting law courses. Therefore, the petitioner is existing educational institution. The approval u/s 10 (23C) (vi) is a onetime approval after its amendment w.e.f. 24.11.2006. Approval is not for any assessment year specific. Thus the argument raised that the petitioner can be considered to be an existing educational institution in the next A.Y. is wholly unwarranted. Chief CIT, Panchkula is directed to pass an order in terms of the observations made above. See Oxford University Press (2001 (1) TMI 79 - SUPREME COURT)- Decided in favor of assessee.

Issues Involved:
1. Eligibility for approval under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Interpretation of "aggregate annual receipts" and "existing solely for educational purposes."
3. Applicability of judgments related to educational institutions and their income.

Detailed Analysis:

1. Eligibility for Approval under Section 10(23C)(vi) of the Income Tax Act, 1961:
The petitioner challenged the order of the Chief Commissioner of Income Tax (Exemption), Panchkula, which declined their application for approval under Section 10(23C)(vi) of the Income Tax Act, 1961. The petitioner, a University established under the Haryana Private Universities Act, 2006, sought this approval to avail tax exemption. The Chief Commissioner denied the approval on the grounds that the University had not yet commenced educational activities, which is a primary condition for such approval.

2. Interpretation of "Aggregate Annual Receipts" and "Existing Solely for Educational Purposes":
The petitioner argued that "aggregate annual receipts" should include all voluntary contributions, and that the primary object of the institution should be educational, not profit-oriented. However, the Chief Commissioner held that the University must be actively engaged in educational activities to be eligible for approval. The petitioner contended that the requirement to actively engage in educational activities is not explicitly stated in the statute and relied on various judgments to support their case.

3. Applicability of Judgments Related to Educational Institutions and Their Income:
The petitioner cited several judgments, including Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, Commissioner of Income Tax, West Bengal-VII, Calcutta Vs. Doon Foundation, and Commissioner of Income Tax Vs. Sree Narayana Chandrika Trust. These cases emphasized that the primary object of the institution should be educational and not for profit. The petitioner argued that the University's objective is solely educational, as mandated by the Haryana Act, and thus should be eligible for approval under Section 10(23C)(vi).

Court's Findings:
The court found that the Chief Commissioner's order was not sustainable. It held that the petitioner University is established solely for educational purposes and not for profit, as required by Section 10(23C)(vi). The court emphasized that the term "existing" should not be narrowly interpreted to mean only institutions that are already operational. Instead, it should include institutions that are in the process of being established and are taking steps towards becoming operational.

The court also noted that the approval under Section 10(23C)(vi) is a one-time event and not specific to any assessment year. Therefore, the petitioner's application for approval should be considered based on their objectives and the steps they have taken towards achieving those objectives.

Conclusion:
The court set aside the order of the Chief Commissioner of Income Tax, Panchkula, and directed them to pass a new order in line with the court's observations. The court concluded that the petitioner University is eligible for approval under Section 10(23C)(vi) of the Income Tax Act, 1961, as it exists solely for educational purposes and not for profit.

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