2009 (2) TMI 426 - HC - Income Tax

Exemption- Educational Institution- The Chief Commissioner held that assessee was generating huge surplus year after year and that accumulation of capital expenditure for the assets of the school out of the income was not adequate to claim exemption. Held that- the Chief Commissioner had rightly holding that the assessee was required to apply 75 percent of its income for the educational purposes of the assessee upto the assessment year 2001-02. thereafter, from the assessment year 2002-03, the application of income had to be 85 percent. The assessee could accumulated only 15 percent of the income and if there was any excess accumulation then it had to be applied for the objects of the society within a period of five years. Accordingly the exemption in respect of the assessment year 2008-09 to 2010-11 was to be refused.

Summary

Issues:
1. Exemption under section 10(23C)(vi) of the Income-tax Act, 1961 for assessment years 2008-09 to 2010-11.

Analysis:
The judgment delivered by M. M. Kumar J. of the Punjab and Haryana High Court pertained to a petition challenging the Chief Commissioner of Income-tax's order declining exemption under section 10(23C)(vi) of the Income-tax Act, 1961 for the assessment years 2008-09 to 2010-11. The Chief Commissioner based the denial on the grounds that the petitioner, an educational institution, consistently generated significant surpluses and failed to meet the prescribed percentage of income application for educational purposes. Citing the Supreme Court's decision in the case of Municipal Corporation of Delhi v. Children Book Trust [1992] 3 SCC 390, the Chief Commissioner emphasized the necessity of adequate income application for exemption eligibility.

The High Court concurred with the Chief Commissioner's decision, noting that the petitioner was obligated to apply 75% of its income for educational purposes until the assessment year 2001-02, with the requirement increasing to 85% from the assessment year 2002-03 onwards. The judgment clarified that accumulation of only 15% of income was permissible, with any excess accumulation mandated for utilization towards the society's objectives within five years. Consequently, the High Court upheld the refusal of exemption for the assessment years 2008-09 to 2010-11, deeming the Chief Commissioner's order legally sound.

Following extensive deliberation with learned counsel, the High Court determined that no legal deficiencies existed in the Chief Commissioner's order that would necessitate the petition's admission. Consequently, the writ petition was dismissed, affirming the Chief Commissioner's decision to deny exemption under section 10(23C)(vi) of the Income-tax Act, 1961 for the specified assessment years.