2025 (3) TMI 138 - AT - Income Tax

Rejection of application for approval u/s 10(23C)(vi) - status of assessee changed from society to Section 8 Company as filed an application in Form no.56D on 11/04/2008 seeking grant of fresh approval u/s 10(23C)(vi) - HELD THAT - It is undisputed fact that the assessee was a Society an approved educational institution under section 10(23C)(vi). The said society is converted into Section 8 Company on 18/02/2024 as going concern under section 366 to 374 of Part 1- Chapter XXI of the Companies Act 2013. The learned CIT(E) has compared object clauses of both the entities i.e. Society (prior to conversion) and Section 8 Company (after conversion) and noticed that certain objects like Rehabilitation Centre Medical Centre Medical Institutions Clinics providing free medical services to poor people have been added in the present object clauses which were not there in the previous object clauses of the Society. He held that these objects are related to medical facilities and not related to education hence assessee is not eligible for approval under section 10(23C)(vi). As upon conversion of Society into Section 8 Company there is no change in activities of the assessee. There is no finding in the impugned order passed by learned CIT(E) that the assessee is carrying on any activity other than education and more importantly the conversion has been made on the basis of going concern implying that the entire activities of the erstwhile society has been taken over by the assessee company and the assessee company is carrying on exactly the same operations as were being performed by the erstwhile society. The main objection of the learned CIT(E) that the words used Rehabilitation Centre Medical Centre Medical Institutions Clinics providing free medical services to poor people and nowhere has the learned CIT(E) either brought on record as to whether these activities are actually being performed by the Assessee or that the Assessee is undertaking any activity other than imparting of education. The learned CIT(E) in our opinion has lost sight of the fact that the Assessee is solely engaged in the activity of providing education and is running educational institutes as mentioned herein above which is in the field of Engineering apart from also running certain Junior Colleges. CIT(E) has further misinterpreted the said activities mentioned in the object clause as not being related to imparting education losing sight of the fact that in case of imparting medical education it is imperative that the institute also operates medical centres apart from running medical colleges wherein the students undergoing medical education get practical exposure which is essential in providing quality medical education. We find those in the argument of the Ld. Counsel that all medical institutions imparting education also parallelly operate a medical college wherein patients are treated and the medical students are given practical training in the field of education and as such running such medical centres are part and parcel of imparting medical education and as such cannot be read in isolation as has wrongly been interpreted by the learned CIT(E). Thus firstly wherein the assessee has not undertaken any of the objects which formed the basis for rejection of the approval under section 10(23C) coupled with the fact that the said objects are akin to imparting medical education and further the objects of the Assessee having been suitably modified by removing the words which were held to be objectionable by the learned CIT(E) in our opinion there remains no reason for the approval under section 10(23)(vi) to be withheld and consequently relying on the findings given hereinabove we remit the matter back to the file of learned CIT(E) solely for the reason to verify the revised objects of the Assessee to ensure that the words earlier held objectionable by the learned CIT(E) have been deleted and after taking the revised objects on record grant the approval under section 10(23C)(vi) as claimed by the assessee. Assessee ground allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

• Whether the assessee is eligible for approval under section 10(23C)(vi) of the Income Tax Act, 1961, which pertains to institutions existing solely for educational purposes and not for profit.
• Whether the inclusion of certain objects in the memorandum of association (MoA) disqualifies the assessee from being considered solely for educational purposes.
• Whether the assessee is eligible for approval under section 80G of the Income Tax Act, which relates to donations made to certain funds, charitable institutions, etc.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Approval under Section 10(23C)(vi)

• Relevant Legal Framework and Precedents: Section 10(23C)(vi) of the Income Tax Act provides that any income received by an educational institution existing solely for educational purposes and not for profit is exempt from tax. The Supreme Court's decision in M/S New Noble Educational Society v. CCIT emphasized that institutions must solely exist for educational purposes to qualify for this exemption.
• Court's Interpretation and Reasoning: The Tribunal noted that the assessee was previously registered as a society and was approved under section 10(23C)(vi). Upon conversion to a Section 8 Company, the objects in the MoA included activities such as running rehabilitation centers and clinics, which the CIT(E) argued were not solely educational.
• Key Evidence and Findings: The Tribunal found that the inclusion of terms like "Rehabilitation Centre" and "Clinics" in the MoA was intended for potential future activities related to medical education, which requires such facilities.
• Application of Law to Facts: The Tribunal applied the Supreme Court's interpretation that institutions must solely focus on education to qualify for the exemption. However, it found that the assessee's current activities were solely educational, and the inclusion of potential future activities should not disqualify it.
• Treatment of Competing Arguments: The Tribunal considered the CIT(E)'s argument that the objects were not solely educational but found that the assessee had not engaged in non-educational activities. The Tribunal also noted the assessee's modification of its MoA to remove the contentious objects.
• Conclusions: The Tribunal concluded that the assessee's current activities were solely educational and remitted the matter back to the CIT(E) to verify the revised objects and grant approval under section 10(23C)(vi).

Issue 2: Eligibility for Approval under Section 80G

• Relevant Legal Framework: Section 80G of the Income Tax Act allows deductions for donations to certain funds and charitable institutions. Approval under this section requires compliance with specific conditions.
• Application of Law to Facts: The Tribunal directed the CIT(E) to reconsider the approval under section 80G in light of the revised objects and the decision regarding section 10(23C)(vi).
• Conclusions: The Tribunal set aside the CIT(E)'s order and directed a fresh adjudication of the section 80G approval, considering the revised objects and compliance with the law.

3. SIGNIFICANT HOLDINGS

• The Tribunal emphasized the principle that for an institution to qualify for exemption under section 10(23C)(vi), it must solely exist for educational purposes. However, potential future activities not yet undertaken should not disqualify the institution.
• The Tribunal noted, "The interpretation of Section 10 (23C) therefore, is that the trust or educational institution must solely exist for the object it professes (in this case, education, or educational activity only), and not for profit."
• The Tribunal remitted the matter back to the CIT(E) to verify the revised objects and grant approval under section 10(23C)(vi), highlighting the importance of current activities over potential future activities.
• For section 80G, the Tribunal directed a fresh adjudication, emphasizing the need to consider the revised objects and compliance with the law.