2017 (5) TMI 1620 - HC - Income Tax

Claim u/s 10(23c)(vi) denied - non adherence to conditions precedent for invoking Section 10 (23C)(vi) - Held that - Though, finding has been recorded that the petitioner- Society has other purposes apart from the educational purposes but no supporting reasons have been assigned in the order impugned to hold that institution does not exists solely for the educational purposes though number of documents and audited accounts for three financial years have been filed by the petitioner-Society Applying the ratio of law laid down by the Supreme Court in above referred case of Queen s Educational Society 2015 (3) TMI 619 - SUPREME COURT in the facts of the present case, it is quite vivid that the conditions precedent for invoking Section 10 (23C)(vi) of the Act, 1961 has not been considered by Chief Commissioner of Income Tax in its proper perspective and, therefore, I deem it expedient to set aside the impugned order and remit back the matter to the Chief Commissioner of Income Tax to decide the petitioner s application afresh

Issues:
1. Rejection of application for exemption under Section 10(23c)(vi) of the Income Tax Act, 1961.
2. Whether the institution exists solely for educational purposes.
3. Investment of surplus amount in infrastructural development.
4. Application of the law regarding educational institutions making surplus income.
5. Consideration of the conditions precedent for invoking Section 10(23C)(vi) of the Act, 1961.

Issue 1: Rejection of application for exemption under Section 10(23c)(vi) of the Income Tax Act, 1961:
The petitioner, a registered society running educational institutions, filed an application for exemption under Section 10(23c)(vi) of the Act for the assessment year 2008-2009. The Chief Commissioner of Income Tax rejected the application on the grounds that the institution failed to prove its existence solely for educational purposes and had invested surplus funds in infrastructural development. The petitioner challenged this rejection through a writ petition.

Issue 2: Whether the institution exists solely for educational purposes:
The Chief Commissioner held that the institution did not exist solely for educational purposes due to investments in infrastructural development. The petitioner argued that there was no finding that income was used for non-educational purposes. The petitioner cited a Supreme Court case overturning a similar decision by the Uttarakhand High Court, emphasizing that surplus income does not negate the educational purpose of an institution.

Issue 3: Investment of surplus amount in infrastructural development:
The respondent contended that surplus funds were invested in infrastructural development, indicating non-educational purposes. However, the petitioner argued that the specific purpose of these investments was not determined, and no evidence showed diversion of income from educational activities.

Issue 4: Application of the law regarding educational institutions making surplus income:
The court referred to the Supreme Court's ruling emphasizing that the purpose of education should not be overshadowed by profit-making motives. Merely making a surplus does not transform an educational institution into a profit-seeking entity. The court highlighted the distinction between generating surplus and operating for profit, emphasizing that incidental surplus does not change the institution's educational nature.

Issue 5: Consideration of the conditions precedent for invoking Section 10(23C)(vi) of the Act, 1961:
The court applied the Supreme Court's precedent to the case, concluding that the Chief Commissioner did not consider the conditions for invoking Section 10(23C)(vi) properly. The court set aside the order and remitted the matter back to the Chief Commissioner for a fresh decision, emphasizing adherence to the principles laid down by the Supreme Court and other relevant laws within a specified timeframe.

In conclusion, the writ petition was partially allowed, and the matter was remitted for reconsideration in accordance with the legal principles outlined by the Supreme Court.

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