2014 (8) TMI 172 - HC - Income Tax

Exemption u/s 10(23C)(vi) Requirement of approval under Rule 2BC Gross receipts to be lower than Rupees one crore Held that - In American Hotel & Lodging Association, Educational Institute Vs. Central Board of Direct Taxes 2008 (5) TMI 17 - SUPREME COURT OF INDIA it has been held that the petitioner society is running an educational institution - Merely because there are other objects of the society does not mean that the educational institution is not existing solely for educational purpose - The emphasis of the word solely is in relation to the educational institution, which is running not for the purpose of making profit and is not in relation to the objects of the society - the authority is required to consider the nature and genuineness of the activities - mere existence that there is some profit does not disqualify the petitioner if the sole purpose of existence was not profit making but educational activities - the threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standardized form in terms of the first proviso - Director General of Income Tax (Investigation) had misdirected itself in not considering the conditions mentioned u/s 10(23C)(vi) of the Act the order of the DGIT(Investigation) is set aside Decided in favour of assessee.

Issues Involved:
1. Eligibility for exemption under Section 10(23C)(vi) of the Income Tax Act.
2. Validity of the rejection of exemption applications by the Director General of Income Tax.
3. Whether previous applications for exemption are deemed to be approved due to non-disposal within the stipulated time.

Detailed Analysis:

1. Eligibility for Exemption under Section 10(23C)(vi) of the Income Tax Act:
The petitioner, a registered society running an educational institution, sought exemption under Section 10(23C)(vi) of the Income Tax Act. The provision grants exemption to any income received by an educational institution existing solely for educational purposes and not for profit. The petitioner contended that their institution met these criteria and had previously enjoyed exemption under the now-omitted Section 10(22) of the Act.

2. Validity of the Rejection of Exemption Applications:
The Director General of Income Tax (Investigation) rejected the exemption application for the assessment year 2010-11 on the grounds that the society was not existing solely for educational purposes, citing rising expenditures and income from commercial activities like bus services. The authority also noted that previous applications were not before him and thus, no orders could be passed on them. The court found that the prescribed authority had misdirected itself by not considering the stipulated conditions under Section 10(23C)(vi) and had relied on irrelevant considerations. The court referenced the Supreme Court's judgment in American Hotel & Lodging Association, which clarified that the primary consideration should be whether the institution exists solely for educational purposes and not for profit, and not the incidental profits arising from its activities.

3. Deemed Approval of Previous Applications:
The petitioner argued that applications for the assessment years 2003-04 to 2009-10 should be deemed approved as they were not disposed of within the stipulated period of 12 months, as per the ninth proviso to Section 10(23C)(vi) inserted by the Taxation Laws Amendment Act, 2006. The court noted conflicting views on this matter: one Division Bench held that non-disposal within the stipulated period results in deemed approval, while another Bench disagreed and referred the matter to a larger Bench. The court found that the applications were addressed to the prescribed authority and sent through proper channels but were not forwarded for reasons unknown. The court directed the prescribed authority to summon these applications and pass appropriate orders, considering the petitioner's contention of deemed approval.

Conclusion:
The court quashed the impugned order passed by the Director General of Income Tax (Investigation), Lucknow, and remitted the matter to the prescribed authority to pass a fresh order on the application for the assessment year 2010-11 within four months. The prescribed authority was also directed to summon and decide on the applications for the assessment years 2003-04 to 2009-10, considering the petitioner's argument of deemed approval. Each party was ordered to bear its own costs.

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