2016 (2) TMI 803 - HC - Income Tax

Eligibility of exemption under section 10(23C) (iiiad) - annual receipt of the society was less than the prescribed limit i.e., One Crore - Held that - . In view of the said explanation offered by the appellant and considering the scope of an enquiry by the prescribed authority for grant of approval under Section 10(23C)(vi) of the Act as explained by the Apex Court in American Hotel & Lodging Assn. Educational Institute vs CBDT (2008 (5) TMI 17 - SUPREME COURT OF INDIA ), we are of the opinion that the matter requires reconsideration by the respondent.

Summary

Issues:
1. Rejection of exemption under section 10(23C)(vi) of the Income Tax Act, 1961.
2. Failure to explain rules and regulations relating to the collection of donations from pupils.
3. Appellant's compliance with the rules and regulations of the society.
4. Reconsideration of the matter by the Chief Commissioner of Income Tax.

Analysis:
1. The appeal was against the rejection of the appellant's application seeking an exemption under section 10(23C)(vi) of the Income Tax Act, 1961. The rejection was based on the grounds that the collection of donations from pupils could be construed as an act for profit, contrary to the objectives of the Act. The learned Single Judge upheld the rejection, citing the appellant's failure to adequately explain the rules and regulations governing donation collection.

2. The appellant, in the appeal proceedings, submitted an affidavit clarifying that the society had not collected any donations from pupils despite having a provision in the rules and regulations allowing for it. The intention behind including the donation clause was to utilize any collected donations for the society's objectives. The appellant emphasized that the society's funds were not diverted for the trustees' benefits, and the funds were genuinely used for the society's purposes.

3. The High Court, after considering the appellant's explanation and the scope of the enquiry required for approval under Section 10(23C)(vi) of the Act, referred to a relevant judgment by the Apex Court. The court concluded that the matter warranted reconsideration by the Chief Commissioner of Income Tax. The order passed by the learned Single Judge was set aside, and the case was remitted to the Chief Commissioner for a fresh review in accordance with the law and the guidance provided by the Apex Court judgment.

4. The Chief Commissioner of Income Tax, Bangalore, was directed to reconsider the matter, taking into account the appellant's explanation and the legal principles outlined in the judgment. Both parties were allowed to present their contentions, and the appellant was instructed to appear before the Chief Commissioner without further notice. The Chief Commissioner was required to issue a decision within four weeks from the specified appearance date.

In conclusion, the High Court allowed the writ appeal, emphasizing the need for a thorough reconsideration of the appellant's eligibility for exemption under the Income Tax Act, 1961.