2024 (5) TMI 703 - HC - Income Tax

Approval u/s 10(23C) and 11 - requirement of the charitable institution society or trust etc. to solely engage itself in education or educational activities and not engage in any activity of profit - reference to business and profits in the seventh proviso to Section 10(23C) and Section 11(4A) - HELD THAT - In view of the fact that the Assessing Officer in his order reached to the conclusion that the Trust had claimed exemptions under Sections 10(23C)(iiiab) of the Income Tax Act 1961 as it is substantially financed by the Government receiving grant of Rs. 89, 19, 294/- against gross receipts of Rs.2, 66, 32, 390/- which is more that 20% and the expenditure of Rs.2, 56, 60, 780/- had been incurred by the Trust towards its aims and objects in carrying out activities in the field of education and the expenditures having been incurred with respect to that alone the exemptions were rightly granted. Thus we find that the order passed by the ITAT as well as the assessing officer do not require to be interfered with keeping in view the observations and directions passed by Hon ble the Supreme Court in New Noble Educational Society s case 2022 (10) TMI 855 - SUPREME COURT - Thus no substantial question of law arises in the present case.

Summary

Issues involved:
Appeal against ITAT order quashing CIT order.

Issue 1: Applicability of Rule 2BBB during assessment year 2012-13.
The ITAT found Rule 2BBB not applicable during the said assessment year as it came into force later. The argument based on previous judgments was deemed misconceived, as the Supreme Court clarified that institutions must solely engage in educational activities without profit motives. The Assessing Officer correctly granted exemptions to the Trust as it met the criteria of being substantially financed by the Government and utilizing funds for educational purposes. Therefore, the ITAT and assessing officer's decisions were upheld based on the Supreme Court's guidance.

Issue 2: Interpretation of expression 'solely' in relation to educational activities.
The Supreme Court clarified that charitable institutions must focus solely on education-related activities without engaging in profit-oriented objectives. Surplus generated during educational activities is permissible, as long as it is not the primary objective. The Court disapproved previous interpretations of the term 'solely' and emphasized the importance of genuine compliance with state laws for institutions seeking approval under Section 10(23C). The recent insertion of a proviso further reinforces the need for adherence to state laws.

Outcome:
No substantial question of law arose in the case, leading to the dismissal of the appeal. All pending applications were disposed of accordingly.