2018 (10) TMI 1305 - HC - Income Tax

Revision filed u/s 264 - declining the grant of approval u/s 10(23C)(vi) r.w.s. 11 - whether an educational institution is existing solely for educational purposes or not, has to be considered and decided not merely by mechanically reading and reproducing the relevant provisions of law but by considering the nature of the activity and the hidden principles behind it, which in my considered view, is essential. Held that - It is not established by the revenue that the petitioner is carrying on any other activities for profit other than running the school. Therefore, when the only predominant activity is being carried on by the petitioner trust, viz.,the running of the school as stated mere spending a meagre amount, out of the total income derived by the trust, towards the distribution of sarees to mothers and grandmothers of children studying in the school, cannot stand in the way of the Assessing Officer to deny the benefit under Section 10(23C) (iiiad). Thus find that the respondents are not justified in rejecting the claim of the petitioner under Section 10(23C) (iiiad) of the said Act. Accordingly, the writ petition is allowed and the impugned order is set aside. Consequently, the respondents are directed to consider the claim of the petitioner under Section 10(23C) (iiiad).

Summary

Issues Involved:
1. Retrospective application of Section 12AA registration.
2. Eligibility for exemption under Section 10(23C)(iiiad).

Detailed Analysis:

1. Retrospective Application of Section 12AA Registration:

The petitioner, a trust running an educational institution, sought retrospective application of its Section 12AA registration granted with effect from 01.04.2015 to the assessment year 2014-15. The petitioner argued that the first proviso to Section 12A(2) should apply, allowing the benefits of registration to be extended to prior years if the assessment proceedings were pending.

The court noted that the registration under Section 12AA was granted on 30.05.2016, effective from 01.04.2015, which was after the assessment year 2014-15. The court emphasized that Section 12A(2) and its first proviso clearly state that the registration can only apply retrospectively if the assessment proceedings for the earlier years were pending before the Assessing Officer at the time of registration. Since the assessment for the year 2014-15 was completed on 28.02.2016, before the registration date, no assessment proceedings were pending. Thus, the court concluded that the petitioner could not benefit from the retrospective application of Section 12AA registration for the assessment year 2014-15.

2. Eligibility for Exemption under Section 10(23C)(iiiad):

The petitioner alternatively claimed exemption under Section 10(23C)(iiiad), arguing that it existed solely for educational purposes and its gross receipts were below the statutory threshold limit of ?1 crore. The Revenue contended that the petitioner did not exist solely for educational purposes, citing a sum of ?54,300 spent on distributing sarees to mothers and grandmothers of the students, which they argued was not an educational purpose.

The court examined the predominant object of the trust, as stated in the Trust Deed, which was to administer, establish, and maintain educational institutions. The court acknowledged that the trust also engaged in other charitable activities, such as providing medical relief, but emphasized that these activities were minimal and incidental to the main educational purpose.

The court reasoned that the distribution of sarees was intended to encourage mothers and grandmothers to send their children to school, thus indirectly supporting the educational purpose. The court cited various judgments, including those from the Bombay and Karnataka High Courts, which supported the view that incidental charitable activities do not negate the primary educational purpose of an institution.

The court concluded that the petitioner met the criteria for exemption under Section 10(23C)(iiiad) as it existed solely for educational purposes, and the incidental expenditure did not alter this predominant object. Therefore, the court directed the respondents to grant the petitioner the exemption under Section 10(23C)(iiiad) for the assessment year 2014-15.

Conclusion:

The court allowed the writ petition, set aside the impugned order, and directed the respondents to grant the petitioner exemption under Section 10(23C)(iiiad) for the assessment year 2014-15 within four weeks. The petitioner's claim for retrospective application of Section 12AA registration was rejected, but the alternative claim under Section 10(23C)(iiiad) was upheld.