2020 (10) TMI 883 - HC - Income Tax

Grant of approval for exemption u/s.10(23C)(vi) - admitted fact that the assessee was granted permission to run the school by the Director of School Education Chennai since 1997 - HELD THAT - We are not inclined to admit the present Appeal as we find that no substantial question of law arises in the present Appeal filed by the Revenue. The position of law is very clear. Undisputedly, the Assessee has been filing its Return of income as Association of Persons (Educational Institution) with the Respondent/Income Tax Department. Assessee (AOP) is also undisputedly covered by the definition of 'Person' as defined in Section 2(31) of the Act. Since the AOP is recognised as a person for the purpose of Income Tax Act, 1961 and Section 10(23C) of the Act also grants exemption to a person engaged in deriving income from specified sources including the University or Educational Institution, covered by this provision and on these facts, there is no dispute before us that the appellant Educational Institution was duly registered with the State Registered Authorities and was only engaged in the educational activities. No reason to deny the exemption or registration under Section 10(23C) of the Act which was denied by the learned Chief Commissioner. Tribunal has rightly discussed the relevant provisions of the Act and finding that the Appellant Educational Institution is undoubtedly, an Institution covered by the provisions of Section 10(23C)(vi) of the Act and therefore, as an AOP, it was entitled to exemption irrespective of the fact whether it had separate registration under other law as an Institution or Society or not. The requirement of the Applicant being a registered Body or juristic person is not there in Section 10(23C) of the Income Tax Act. The definition of 'Person' who is entitled to exemption under Section 10(23C)(vi) of the Act is clear enough and it specifically covers Association of Persons (AOP), which need not be a registered Body. The submission made on behalf of the Revenue that unless the Applicant under Section 10(23C) of the Act is independently registered, the Revenue may not have control over it is fallacious, since the Appellant/Assessee is admittedly filing its Returns of Income as AOP. Unless the finding of facts are given on the basis of evidence that the Assessee does not meet the parameters of Section 10(23C) of the Act, the exemption claimed by the Assessee cannot be denied on the ground that it does not have independent Memorandum of Association, Bye laws, etc. and this is not a sustainable ground to deny the exemption as required under Section 10(23C) of the Act and the definition of person under Section 2(31) as quoted above. Tribunal has not committed any error in reversing the order of the learned Chief Commissioner and directing the grant of exemption to the Appellant/Assessee under section 10(23C)(vi) - Decided in favour off assessee.

Summary

Issues Involved:
1. Whether the Tribunal was correct in directing the Chief Commissioner of Income Tax to grant approval for exemption under Section 10(23C)(vi) of the Income Tax Act.
2. Whether the Assessee School, managed by a separate society, can independently apply for such exemption.
3. The requirement of independent registration or constitution for an entity to claim exemption under Section 10(23C) of the Income Tax Act.

Detailed Analysis:

Issue 1: Tribunal's Direction to Grant Exemption
The Revenue filed a Tax Case under Section 260-A of the Income Tax Act, challenging the Tribunal’s order that directed the Chief Commissioner of Income Tax to grant exemption to the Assessee School under Section 10(23C)(vi). The Tribunal found that the Assessee School, managed by the Sengunthar Education Board, qualified as an "Institution" for exemption under Section 10(23C)(vi). The Tribunal noted that the school had been granted permission to operate by the Director of School Education and had been filing returns as an Association of Persons (AOP). The Tribunal also observed that there was no allegation that the Assessee did not exist solely for educational purposes.

Issue 2: Independent Application for Exemption
The Revenue argued that the Assessee School, controlled by the Sengunthar Education Board, a separate society, could not independently apply for exemption under Section 10(23C). The Chief Commissioner had refused the exemption on the grounds that the school did not have an independent constitution, bye-laws, or a registered document with a competent authority. The Tribunal, however, found that the school, managed by a registered society, qualified as an "Institution" under the Income Tax Act and was entitled to the exemption.

Issue 3: Requirement of Independent Registration or Constitution
The Tribunal and the High Court both concluded that there is no requirement under Section 10(23C) for an entity to have an independent registration or constitution to claim exemption. The definition of "person" under Section 2(31) of the Income Tax Act includes an AOP, which covers the Assessee School. The High Court emphasized that the Income Tax Act recognizes entities like AOPs and HUFs, which do not have independent juristic existence but are entitled to file returns and be assessed in their capacity. The High Court dismissed the Revenue’s argument that without independent registration, the Revenue could not control the Assessee, noting that the Assessee had been filing returns as an AOP.

Conclusion:
The High Court upheld the Tribunal's decision, affirming that the Assessee School, as an AOP managed by a registered society, qualified for exemption under Section 10(23C)(vi) of the Income Tax Act. The Court found no substantial question of law in the Revenue’s appeal and dismissed it, confirming that the requirement for independent registration or constitution is not mandated by the Act for claiming such exemptions.