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2022 (4) TMI 1328 - HC - Income TaxExemption u/s 10 (23C) (vi) - Exemption denied as Petitioner had collected fees under the head Placement and Training from the students which was not in conformity with the fees prescribed - According to the Petitioner, the fees collected for Placement and Training are part and parcel of the educational activities for which the fees structure has also been prescribed by the AICTE and Industry Department of the Government of Odisha - CCIT rejected the prayer of the Petitioner on the ground that the Petitioner-Trust did not exist solely for educational purposes - HELD THAT - The essential purpose of the Trust is to run both institutions on non-profit basis. That essential object does not appear to have changed. Secondly, the explanation offered for the incidental expenses as part of the imparting of training appears to be a plausible one. Too narrow a view could not have been taken of the purposes for which the expenses were incurred even if they were not strictly for educational purposes. They were for purposes incidental to the imparting of training and did not take away from the character of the institutions, which were essentially being run on a non-profit basis. Consequently, the Court is of the view that neither the collection of the amount towards placement and training nor its utilisation by the Petitioner can be said to be in a manner that is not solely for educational purposes. There appears to be a sufficient nexus demonstrated by the Petitioner between the expenditure incurred on the incidental activities of providing food, lodging and transport and other facilities to the trainers, the trainees and the staff etc. and the object for which the Petitioner s institutions are operating. This cannot be completely separated from the essential activity of imparting education and training. Consequently, the Court sets aside the impugned order of the CCIT and directs that an exemption will be granted to the petitioner from payment of tax under Section 10 (23C) (vi) of the Act for the FY 2008-09, the consequential orders shall be passed within a period of 4 weeks.
Issues Involved:
1. Denial of exemption under Section 10 (23C) (vi) of the Income Tax Act, 1961. 2. Collection and utilization of fees under the head 'Placement and Training'. Issue-wise Detailed Analysis: 1. Denial of Exemption under Section 10 (23C) (vi) of the Income Tax Act, 1961: The Orissa Trust of Technical Education and Training challenged the order dated 5th October 2012 by the Chief Commissioner of Income Tax (CCIT), Orissa, Bhubaneswar, which declined to grant exemption under Section 10 (23C) (vi) of the Income Tax Act for the financial year 2008-09. This was the second round of litigation after an earlier order dated 30th September 2010 was set aside by the High Court, which remanded the matter for re-examination. The Trust, registered through a trust deed, aimed to impart scientific and technical education without profit motive, establishing two educational institutions. They applied for exemption under Section 10 (23C) (vi) for FY 2008-09, but the CCIT, after an enquiry, initially rejected the application, stating the Trust did not exist solely for educational purposes and was involved in non-educational activities like horticulture. Upon remand, the CCIT maintained the rejection, citing discrepancies in fees collected under 'Placement and Training' and their utilization, which were not solely for educational purposes. 2. Collection and Utilization of Fees under the Head 'Placement and Training': The CCIT's examination revealed that the fees collected under 'Placement and Training' were ?4000 from most students and ?5000 from 23 students, which was in excess of the prescribed fees. The reconciliation statement showed a discrepancy between the collected amount of ?12,14,000 and the ledger account amount of ?11,94,000, which the Petitioner failed to justify as advance fees for the next year. Regarding utilization, the CCIT noted that ?7,31,189 was spent on direct expenses for Placement and Training, while ?4,62,811 was spent on indirect expenses like fooding, hostel room rent, and mementos, which were not considered solely for educational purposes. The explanation for these incidental expenses was deemed vague and non-specific. The Court, however, found the explanation for the excess collection and its refund plausible and criticized the CCIT's narrow view on the utilization of fees. It referenced the Supreme Court's decisions in Aditanar Educational Institution v. Addl. CIT and American Hotel and Lodging Association Educational Institute v. Central Board of Direct Taxes, emphasizing that incidental surpluses do not negate the non-profit educational purpose. The Court concluded that the essential purpose of the Trust remained non-profit, and the incidental expenses were part of imparting education and training. Thus, the collection and utilization of fees were deemed solely for educational purposes. Conclusion: The High Court set aside the CCIT's order, directing that the exemption under Section 10 (23C) (vi) be granted for FY 2008-09, with consequential orders to be passed within four weeks. The petition was allowed with no order as to costs.
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