2013 (7) TMI 367 - HC - Income Tax

Exemption u/s 10(23C)(iv) - Assessee society running inter college - Amendment made in Petitioner s object clause - CIT rejected claiming that society has not been formed with the sole object of imparting education, but its memorandum of association reflects that it has other aims and objects as well - Held that - petitioner society is registered charitable society with the Registrar of Societies and is also registered under Section 12A with its objects of establishing, running and maintaining educational institutions. It has a school by the name of C.P. Vidya Niketan Inter College. At present the society does not have any activity other than running and maintaining educational institutions - There are adequate safeguards, that if the activities other than educational activities are undertaken, the exemption may be withdrawn, but in the absence of any such allegation it cannot be said merely on the enumeration of the activities, which are all primarily connected with education and charity that the society does not exist solely for the purpose of imparting education - in the absence of any allegation or material, the object clause providing for other charitable activities, would not disentitle the society from approval under Section 10 (23C) (vi) of exemption - mere possibility, that the society may in future pursue activities, which are not charitable, or closely connected with education for making profit, would not constitute the grounds to reject the approval under Section 10 (23C) (vi) - Following decision of AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE Versus CBDT & OTHERS 2008 (5) TMI 17 - SUPREME COURT OF INDIA , Vanita Vishram Trust v. Chief Commissioner of Income Tax & Anr. 2010 (5) TMI 102 - BOMBAY HIGH COURT and EWING CHRISTIAN COLLEGE SOCIETY Versus CHIEF COMMISSIONER OF INCOME-TAX 2009 (5) TMI 103 - ALLAHABAD HIGH COURT - Decided in favour of assessee. Principal of natural justice - Held that - Chief Commissioner of Income Tax did not give sufficient opportunity to the petitioner, to place documents relevant to the enquiry before rejecting the application - when the petitioner was required to produce the audit report under Rule 16CC in Form 10BB, and the petitioner was granted time to furnish the same within three days - there was no hurry to close the enquiry in as much as the rejection of the application will visit serious consequence on the petitioner in as much as having exceeded the aggregate receipts over and above Rupees One crore, the income of the society in the absence of the exemption under Section 10 (23C) (vi) would not qualify for exemption.

Summary

Issues Involved:
1. Rejection of exemption application under Section 10(23C)(vi) of the Income Tax Act.
2. Adequate opportunity to produce the audit report.
3. Interpretation of "solely for educational purposes" under Section 10(23C)(vi).
4. Compliance with procedural requirements under Section 10(23C)(vi).

Issue-wise Detailed Analysis:

1. Rejection of exemption application under Section 10(23C)(vi) of the Income Tax Act:
The petitioner, a society registered under the Societies Registration Act, applied for exemption under Section 10(23C)(vi) of the Income Tax Act, claiming it exists solely for educational purposes. The Chief Commissioner of Income Tax, Ghaziabad, rejected the application on two grounds: (a) the society had objectives beyond solely imparting education, and (b) the society failed to file the mandatory audit report under Rule 16CC (Form 10BB). The petitioner argued that its primary activity was running an educational institution and that other objectives were incidental to its main purpose.

2. Adequate opportunity to produce the audit report:
The petitioner contended that the Chief Commissioner did not provide sufficient opportunity to produce the audit report. The hearing was conducted on the same day the petitioner was required to produce the audit report, and although the petitioner sought time to submit the report, the order was passed without allowing adequate time. The court found that the Chief Commissioner did not give sufficient opportunity to the petitioner to place relevant documents before rejecting the application.

3. Interpretation of "solely for educational purposes" under Section 10(23C)(vi):
The court examined whether the petitioner society existed solely for educational purposes. It was noted that the society's primary activity was running C.P. Vidya Niketan Inter College, and there was no material evidence suggesting the society engaged in non-educational activities. The court referenced various judgments, including American Hotel and Lodging Association Educational Institute v. Central Board of Direct Taxes & Ors., which emphasized that the actual activities of the institution should be considered rather than its objectives alone.

4. Compliance with procedural requirements under Section 10(23C)(vi):
The court analyzed the procedural requirements under Section 10(23C)(vi), including the necessity for the prescribed authority to conduct an enquiry and call for documents to verify the genuineness of the applicant's activities. The court noted that the Chief Commissioner did not complete the enquiry as required under the Second Proviso to Section 10(23C)(vi) and did not examine the relevant records before forming an opinion.

Conclusion:
The court allowed the writ petition, setting aside the order dated 27.5.2011 passed by the Chief Commissioner of Income Tax, Ghaziabad. It directed the Chief Commissioner to decide the application afresh, confined to the enquiry under the Second Proviso to Section 10(23C) of the Act, and to provide a fresh notice to the petitioner to submit the requisite documents. The court emphasized that the mere possibility of future non-educational activities should not be grounds for rejecting the approval under Section 10(23C)(vi).