2016 (11) TMI 293 - HC - Income Tax

Application for registration under Section 10 (23C)(vi) rejected - petitioner has shown M/s Amarnath Builders Private Limited (for short the Company ) as a creditor for the sum of about ₹ 37 lacs - Held that - Company has leased land in favour of the petitioner for the purpose of running the educational institution thereon. We will refer to the lease later with reference to the other objection. If the company has granted an interest free loan to the petitioner for the purpose of establishing and running the educational institution, the exemption cannot be refused. The mere receipt of an interest free loan is not indicative of a commercial activity for profit. However, whether the loan was in fact so granted as alleged by the petitioner is another matter which respondent No.3 would consider in the event of a fresh application or an additional affidavit in support of the existing application being filed. Whether there is nothing to indicate as to what would happen to the construction put up on the land leased by the company to the petitioner for the purpose of setting up the educational institution - Held that - The company and the petitioner had admittedly entered into a lease deed dated 12.10.2011 under which the company leased in favour of the petitioner land measuring in the aggregate about 5,600 square meters in a colony developed by the said company. The lease was at a nominal rent of ₹ 72, 800/- for a period of 30 years. The period of 30 years was extendable on terms and conditions to be mutually agreed upon. On the expiry of the lease by efflux of time, the lessee, i.e. the petitioner would be entitled to remove the construction upon the leased land. The lease deed is clear. In fact, it confers a benefit upon the petitioner to the extent that although the construction is put up by the lessor i.e. the Company at its own cost as stipulated in Clause 1, the petitioner is entitled under Clause 6 to remove the construction upon the expiry of the terms of the lease. There is no ambiguity in these provisos. The terms and conditions of the lease deed cannot be a ground for refusing the exemption sought under Section 10 (23C)(vi). The petition is, therefore, disposed of with liberty to the petitioner to either file a fresh affidavit in support of its existing application or a fresh application containing the necessary undertakings confining its activities only to educational purposes

Summary

Issues:
1. Challenge to the rejection of registration under Section 10 (23C)(vi) of the Income Tax Act, 1961.
2. Eligibility for exemption under Section 10 (23C)(vi) for educational institutions.
3. Interpretation of activities solely for educational purposes under Section 10 (23C)(vi).
4. Consideration of interest-free loans for educational purposes.
5. Impact of lease agreements on educational institution exemptions.

Detailed Analysis:
Issue 1: The petitioner challenged the rejection of registration under Section 10 (23C)(vi) of the Income Tax Act, 1961. The application for registration was filed on 27.09.2013, seeking exemption for educational purposes. The rejection was based on the petitioner's intention to carry out activities beyond educational purposes.

Issue 2: The eligibility for exemption under Section 10 (23C)(vi) for educational institutions was scrutinized. The provision requires institutions to exist solely for educational purposes, excluding charitable or profit motives. Any deviation from this mandate disqualifies an institution from claiming the exemption.

Issue 3: The interpretation of activities solely for educational purposes under Section 10 (23C)(vi) was crucial. The court emphasized that the provision explicitly mentions educational institutions existing solely for educational purposes, excluding any other charitable or profit-oriented activities. Any mixed activities would render an institution ineligible for the exemption.

Issue 4: The consideration of interest-free loans for educational purposes was pivotal. The petitioner received an interest-free loan from a company to establish an educational institution. The court highlighted that the mere receipt of such a loan does not signify commercial activities for profit. However, the authenticity of the loan purpose would be assessed in a fresh application or affidavit.

Issue 5: The impact of lease agreements on educational institution exemptions was analyzed. The lease agreement between the petitioner and a company allowed the petitioner to remove constructions upon lease expiry. The court clarified that lease terms should not hinder an institution's eligibility for exemption under Section 10 (23C)(vi).

In conclusion, the court disposed of the petition, granting the petitioner the opportunity to submit a fresh application or affidavit affirming activities solely for educational purposes. The decision emphasized adherence to statutory requirements for claiming exemptions, ensuring clarity on the institution's objectives.