2013 (3) TMI 150 - HC - Income Tax

Registration u/s 12A(a) rejected - as per revenue Trust was not satisfying the essential conditions for exemption under Section 10(23C) as it had violated the procedure of admission as laid down by the Government / Medical Council - Held that - A plain reading of provisions of Section 10(23C) (vi) & (via) would reveal that what is required for the purpose of seeking approval thereunder is that the University or other educational institution should exist solely for educational purposes and not for purposes of profit . It is nowhere the case or finding of the CCIT that on account of the said defect in the admission procedure, the Trust ceased to exist solely for educational purposes and / or it existed for the purposes of profit. Further, it is not the case of the appellants that the students who were admitted were not imparted education in the college in which they were admitted and / or the admissions granted were fake or non-existent or that the income generated by admitting the said students was not used for the purpose of the Trust. The emphasis on part of the CCIT that the purpose of education would not be served if the education is for students who have been illegally admitted and the purpose of education as contemplated in the section would be served only if the students have been legally admitted and not otherwise, appears to be going beyond the requirements of the section. Of course, the requirement of an educational institution to provide admissions strictly in accordance with the prescribed rules, regulations and statute cannot be less emphasized, rather the same need to be adhered to in letter and spirit, but then, the said violation cannot lead to its loosing the character as an entity existing solely for the purpose of education. As decided in Rajan Purohit Vs. Rajasthan University of Health Sciences 2013 (3) TMI 137 - SUPREME COURT that there was no agreement between the College and the State Government to admit students into its MBBS course on the basis of RPMT 2008 and the finding of the High Court in this regard is erroneous and the High Court could not have directed the College to fill up its seats on the basis of merit of students as determined in RPMT 2008. Hence, the direction of the High Court to fill up the seats by students selected or waitlisted in the RPMT 2008 is set aside. As none of the 117 students who were otherwise eligible for admission to the MBBS course will be disturbed from pursuing their MBBS course, subject to the condition that they will each pay a sum of Rs.3 lakhs within a period of three months from today to the State Government. Thus no reason to interfere with the order passed by the Single Judge, who has left it to the CCIT to decide afresh the proceedings for assessment year 2008-09 and onwards till assessment year 2010-11 by passing fresh speaking order after affording opportunity of hearing to the petitioner-Trust.

Summary

Issues Involved:
1. Legality of admissions made by the Trust.
2. Eligibility of the Trust for exemption under Section 10(23C) of the Income Tax Act, 1961.
3. Applicability of the High Court and Supreme Court judgments on the Trust's exemption status.

Detailed Analysis:

1. Legality of Admissions:
The Trust's admissions for the academic year 2008-09 were deemed illegal by the High Court because the admissions were not made on a merit basis from the merit list/waiting list prepared on the basis of RPMT, 2008. The Medical Council of India and Rajasthan University had approved the RPMT system, which the Trust violated by admitting students through its own advertisement and other means. The High Court held that such admissions were mandatory and had to be complied with, and the Division Bench concurred, declaring the admissions illegal. However, the Supreme Court later modified this judgment, stating that there was no agreement between the College and the State Government to admit students on the basis of RPMT 2008, and the College's admissions were contrary to the MCI Regulations but allowed the students to continue their courses under specific conditions.

2. Eligibility for Exemption under Section 10(23C):
The Chief Commissioner of Income Tax (CCIT) rejected the Trust's application for exemption under Section 10(23C) of the Income Tax Act, 1961, on the grounds that the Trust did not satisfy the essential conditions for exemption. The CCIT emphasized that the purpose of education would not be served if the education was for students who had been illegally admitted. The CCIT argued that an institution that violated the prescribed admission procedures could not qualify as an educational institution under Section 10(23C). However, the learned Single Judge opined that the legality of the admissions was still sub judice before the Supreme Court, and the CCIT could not form a final opinion against the Trust until the matter was decided by the Supreme Court. The Judge also noted that the Trust's right to litigate and seek exemption should be considered within the parameters of Section 10(23C), which focuses on the institution's purpose of education and non-profit motive, rather than the admission procedure alone.

3. Applicability of High Court and Supreme Court Judgments:
The Supreme Court's judgment modified the High Court's decision, holding that there was no agreement to admit students based on RPMT 2008 and that the College's admissions were contrary to the MCI Regulations. The Supreme Court allowed the students to continue their courses under specific conditions and directed the College to surrender seats to the State Government in a phased manner. The learned Single Judge highlighted that the subsequent approval granted to the Trust for the assessment year 2010-11 and onwards indicated an inconsistency in the CCIT's orders. The Judge concluded that the alleged illegal admissions alone could not be a valid basis for denying approval under Section 10(23C), especially since the matter was pending before the Supreme Court. The Judge directed the CCIT to decide afresh the proceedings for the assessment years 2008-09 to 2010-11 after affording an opportunity of hearing to the Trust.

Conclusion:
The appeal filed by the appellants was dismissed, and the order passed by the learned Single Judge was upheld. The CCIT was directed to decide afresh the proceedings for the assessment years 2008-09 to 2010-11 by passing a fresh speaking order after affording an opportunity of hearing to the Trust. The special appeal failed, and no costs were awarded.