2014 (2) TMI 72 - HC - Income Tax

Application for exemption u/s 10(23C)(vi) - Held that - Relying upon the decision in Aditanar Educational Institution v. Addl. CIT 1997 (2) TMI 3 - SUPREME Court - The applicability of section 10(22) should be evaluated or investigated every year and only if it is found that the institution exists for educational purposes in the relevant year and even if any profit results which is only incidental to the purpose of education, the income would be exempt - After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit - The decisive or acid test is whether on an overall view of the matter, the object is to make profit - In evaluating or appraising the above, one should also bear in mind the distinction/ difference between the corpus, the objects and the powers of the concerned entity - Decided in favour of petitioner.

Summary

Issues Involved:
1. Entitlement of Petitioner No. 2 to exemption under section 10(23C)(vi) of the Income-tax Act, 1961.
2. Legality and validity of the order dated October 12, 2011, passed by the Chief Commissioner of Income-tax, Shillong.

Detailed Analysis:

Issue 1: Entitlement to Exemption under Section 10(23C)(vi)
The petitioners challenged the legality of the Chief Commissioner's order rejecting their application for exemption under section 10(23C)(vi) of the Income-tax Act, 1961. Petitioner No. 1, a trust named "Sree Kanya Pathshala Trust," primarily aims to impart education to girls and runs Petitioner No. 2, an educational institution existing solely for educational purposes and not for profit. The petitioners argued that they met the criteria for exemption under the aforementioned section. The relevant legal provisions, including section 10(23C)(vi), were examined, which allows for the exclusion of income from educational institutions existing solely for educational purposes and not for profit from total income, provided they are approved by the prescribed authority, i.e., the Chief Commissioner or the Director General.

Issue 2: Legality and Validity of the Impugned Order
The Chief Commissioner of Income-tax, Shillong, rejected the petitioners' application on two grounds:
1. The objectives of the trust were not solely for carrying out educational activities, as evidenced by the non-application of 85% of its income towards educational and charitable purposes.
2. The educational activity of the trust was limited to Tinsukia district in Assam.

The court found both reasons to be fallacious. Referring to the Supreme Court's decision in Aditanar Educational Institution v. Addl. CIT, it was emphasized that the availability of exemption should be evaluated each year to determine if the institution exists solely for educational purposes and not for profit. Surplus income resulting incidentally from lawful educational activities does not disqualify the institution from exemption. The decisive test is whether the institution's primary objective is to make a profit, which should be assessed by considering the overall view of the matter.

Conclusion:
The court concluded that the Chief Commissioner's decision was unsustainable. The impugned order dated October 12, 2011, was set aside and quashed. The matter was remanded back to the Chief Commissioner of Income-tax, Shillong, for a fresh decision in accordance with the law, to be taken within four weeks from the receipt of a certified copy of the order. The writ petition was allowed without any order as to costs.