2018 (6) TMI 62 - AT - Income Tax

Rejection of approval u/s 10(23C)(vi) - proof of charitable activities - proof of existence solely for educational purposes - Held that - In the instant case the assessee is having objects other than educational objects and during hearing the ld.AR could not controvert that the said objects are non-educational and primary objects. Therefore, we do not find any error in the order of the Ld. CIT(E) in rejecting the application of the assessee for grant of approval u/s 10(23C) of the Act. Accordingly, we uphold the order of the Ld. CIT(E) and dismiss the appeal of the assessee.

Summary

Issues Involved:
1. Rejection of approval under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Determination of whether the assessee's objects are solely for educational purposes or include non-educational objects.

Detailed Analysis:

Issue 1: Rejection of Approval under Section 10(23C)(vi) of the Income Tax Act, 1961

The appeal by the assessee was directed against the order of the Commissioner of Income Tax (Exemptions), Hyderabad, which rejected the application for approval under Section 10(23C)(vi) of the Income Tax Act, 1961. The assessee, an educational institution, applied for exemption of its income under Section 10(23C)(vi) for the assessment year 2013-14. The Chief Commissioner of Income Tax found that the assessee society's objects included non-educational purposes such as encouraging sportsmanship, publishing materials for knowledge diffusion, and providing residential accommodation and financial assistance to social workers, staff, students, and orphans.

Issue 2: Determination of Whether the Assessee's Objects are Solely for Educational Purposes

The primary requirement for approval under Section 10(23C)(vi) is that the institution must exist solely for educational purposes. The High Court of Andhra Pradesh and Telangana directed the Chief Commissioner to verify whether the non-educational objects were ancillary and incidental to the primary educational purpose. Upon review, the Commissioner of Income Tax (Exemptions) found that the non-educational objects were primary and independent, not ancillary or incidental to the educational objects. Consequently, the application for approval was rejected.

The Tribunal noted that the assessee's Memorandum of Association included non-educational objects, which disqualified the institution from approval under Section 10(23C)(vi). The Tribunal cited relevant case law, including the decision of the A.P. High Court in the case of New Noble Educational Society, which emphasized that if an institution has objects other than education, it cannot be regarded as existing solely for educational purposes.

The Tribunal also referenced the decision of the Madras High Court in Reliance Motor Company Limited Vs. CIT, which stated that the actual use of funds for educational purposes is irrelevant if the institution's objects allow for non-educational use. The Tribunal concluded that the assessee did not meet the requirement of existing solely for educational purposes and upheld the rejection of the application.

Conclusion:

The Tribunal dismissed the appeal, affirming that the assessee's inclusion of non-educational objects in its Memorandum of Association disqualified it from approval under Section 10(23C)(vi). The Tribunal emphasized the necessity for an institution to exist solely for educational purposes to qualify for the exemption.