2017 (3) TMI 1245 - HC - Income Tax

Grant of exemption under Section 10(23C)(via) rejected - Held that - In the facts of the present case, it is seen that the objects of the assessee society are solely for the purposes of education and medical care and not for purpose of profit. It is only if it is found that the assessee has been carrying on its activities for the purposes of profit, contrary to its objects, the prescribed authority would be justified in rejecting the application for approval under Section 10(23C)(vi) of the Act. Merely because it charges fees for educational courses (as in the case of any school or college) or that it entered into arrangements with other institutions (again charitable) to set up satellite centers, to give medical treatment, or that its treatment involves a layered subsidization programme, would not justify rejection of its application. For these reasons, the impugned order, denying exemption under Section 10(23) was not justified; the order dated 27 April,2012 is hereby quashed. The Revenue is directed to consider the petitioner s application, process it and pass necessary orders in accordance with law, within four weeks from today. The writ petition is allowed in these terms.

Issues Involved:
1. Whether the petitioner society exists solely for philanthropic purposes or for profit.
2. Whether the collaboration agreements with other trusts indicate a profit motive.
3. Whether the petitioner’s educational activities disqualify it from exemption.
4. Whether the petitioner’s omission to renew exemption applications affects its eligibility.
5. Whether the petitioner’s dual claims under Section 11 and Section 10(23C) affect its exemption status.

Detailed Analysis:

1. Philanthropic Purposes vs. Profit Motive:
The petitioner argued that its activities were charitable under Section 2(15) of the Income Tax Act, emphasizing that its fees were reasonable and aimed at covering running expenses without profit motives. The Revenue, however, concluded that the petitioner’s charges, especially for subsidized treatments, were beyond the reach of poor people and thus indicated a profit motive. The court found that the petitioner’s main objective was to provide comprehensive eye care, and incidental profits did not negate its charitable status. The dominant purpose test was applied, indicating that as long as the primary objective was charitable, incidental profits did not disqualify the petitioner from exemption.

2. Collaboration Agreements:
The Revenue highlighted that the petitioner’s agreements with other trusts allowed for treatment on a payment basis, suggesting a profit motive. The court, however, noted that the petitioner’s main objective remained charitable and that collaborations were incidental to achieving its primary purpose. The agreements did not inherently indicate a profit-driven motive but were part of the petitioner’s broader charitable activities.

3. Educational Activities:
The petitioner’s educational activities, including training courses and collaborations with IGNOU, were scrutinized by the Revenue, which argued that these activities indicated a profit motive. The court referenced precedents indicating that educational activities, even if they generate surplus, do not disqualify an institution from being considered charitable. The petitioner’s educational activities were deemed incidental to its primary charitable purpose, thus not affecting its eligibility for exemption.

4. Omission to Renew Exemption Applications:
The Revenue pointed out that the petitioner did not apply for renewal of exemption for certain years, which was used to argue against its eligibility. The court noted that the petitioner had claimed exemption under Section 11 during those years and that the omission did not inherently disqualify it from exemption under Section 10(23C) for subsequent years. The petitioner’s activities continued to align with its charitable objectives.

5. Dual Claims under Section 11 and Section 10(23C):
The Revenue argued that the petitioner’s simultaneous claims under Section 11 and Section 10(23C) indicated a profit motive. The court clarified that the provisions of Section 11 and Section 10(23C) operate independently, and dual claims do not inherently indicate a profit motive. The primary objective of the petitioner remained charitable, and the dual claims did not affect its eligibility for exemption.

Conclusion:
The court quashed the impugned order dated 27 April 2012, which denied the petitioner’s exemption application under Section 10(23C)(via) of the Income Tax Act. The court directed the Revenue to reconsider the petitioner’s application and pass necessary orders within four weeks, emphasizing that the petitioner’s primary objective was charitable and incidental profits did not negate its eligibility for exemption. The writ petition was allowed in these terms.

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