2015 (5) TMI 124 - HC - Income Tax

Exemption u/s 10(23C)(vi) rejected - Held that - Object Nos. 3, 4 & 5 of the Memorandum of Association seem to be ancillary for educational purposes and the main object of the society still remains as educational purpose. Since, the only consideration required is as to whether assessee is for education purpose and is not indulged in profit making object and Object Nos.3, 4 & 5 are ancillary to educational purposes and none of the object seems to be for profit making purpose, therefore, rejection of the application moved under Section 10 (23C) (vi) seems to be totally unjustified. - Decided in favour of assessee.

Summary

Issues:
Challenge to rejection of exemption application under Section 10 (23C) (vi) of the Income Tax Act based on the Memorandum of Association's Object Nos. 3, 4 & 5 not being solely for educational purposes.

Analysis:
The petitioner, a registered society running an educational institution, sought exemption under Section 10 (23C) (vi) of the Income Tax Act for the financial year 2008-09. The application was rejected by the Prescribed Authority citing that Object Nos. 3, 4 & 5 in the Memorandum of Association did not align with "solely for educational purposes." The Revenue contended that the exemption application should have been moved by the educational institution, not the registered society. However, the Court held that since the society was running the educational institute and had no other income sources, it was entitled to seek exemption. The Court rejected the Revenue's argument, emphasizing that the application was validly made by the registered society.

The Court referred to Section 10 (23C) (vi) which requires institutions to exist solely for educational purposes and not for profit. Citing precedents like Aditanar Educational Institution case, it reiterated the need to evaluate each year if the institution operated solely for educational purposes. The Court also relied on the Surat Art Silk Cloth Manufacturers Association case, emphasizing the test of the predominant object being educational, not profit-oriented. These principles were further upheld in subsequent judgments by the Apex Court.

Analyzing the Memorandum of Society's Objects, the Court found that none of the 22 objects aimed at profit-making. Object Nos. 3, 4 & 5 were deemed ancillary to educational purposes, with the primary goal remaining educational. As none of the objects indicated profit-making intentions, the rejection of the exemption application was deemed unjustified. Consequently, the Court allowed the petition, quashed the impugned order, and remitted the matter to the Prescribed Authority for a fresh decision within ninety days, considering the Court's observations.