2010 (5) TMI 170 - HC - Income Tax

Exemption u/s 10(23C)(iv) CIT rejected the application of the petitioner for grant of exemption under Section 10(23C) (iv) of the Income Tax Act 1961 on the ground of commercial activities - society was set up by the Government of Haryana to facilitate and simplify the admission procedure to the Technical Institutes in the University Departments Government/Government aided/ Private Institutions located in the State of Haryana. Held that - merely because the society has accumulated some profit does not mean that the petitioner society is not achieving its object for which it was established. Merely because the society has earned some profit does not make the society disentitle for the exemption - The Chief Commissioner Income Tax Panchkula is directed to decide the application of the petitioner

Summary

Issues:
Challenge to rejection of exemption under Section 10(23C) (iv) of the Income Tax Act, 1961 by the Chief Commissioner, Income Tax, Panchkula.

Analysis:
1. The petitioner, a society set up by the Government of Haryana to streamline admission procedures for Technical Institutes, sought exemption under Section 10(23C) (iv) of the Income Tax Act, 1961. The Chief Commissioner, Income Tax, Panchkula, rejected the application citing commercial activities.

2. The Chief Commissioner highlighted the restriction on charitable purposes involving trade, commerce, or business activities. The petitioner society earned significant income from registration fees, counseling fees, and bank interest, leading to a surplus. The Chief Commissioner questioned the charitable nature of the society's activities due to the profit motive and commercial resemblance.

3. The court considered the nature of the petitioner society's activities, emphasizing its role in facilitating admissions and providing scholarships to students. Referring to precedents, the court stressed that the utilization of income for charitable purposes is crucial, not just the source of income. The court noted that the mere accumulation of profit does not disqualify an entity from claiming exemption.

4. Relying on previous judgments, the court emphasized that the utilization of income for charitable objectives is paramount. The court found that the petitioner society, being government-initiated and engaging in non-commercial activities, remained eligible for exemption despite accumulating profit. The court set aside the Chief Commissioner's order and directed a reevaluation of the petitioner's application within three months.

5. The judgment underscores the importance of assessing the actual utilization of income for charitable purposes rather than solely focusing on profit accumulation. It upholds the eligibility of government-backed entities engaging in non-commercial activities for tax exemptions under relevant provisions of the Income Tax Act, 1961.