2013 (11) TMI 620 - HC - Income Tax

Exemption under Section 10(23C)(vi) - Charitable purpose - educational institutions profit motive - Held that - applicant society is not existing solely for educational purposes as its main motive seems to be making profit by charging higher fees from students. Further, the applicant is existing for purposes of profit and therefore the application received on 26.3.2008 for grant of exemption u/s 10 (23C)(vi) is rejected. Plain language in Section 10 (23C) (vi) of the Act read with first and second Proviso and the law laid down by Hon ble Supreme Court in the judgment in the case of American Hotel 2008 (5) TMI 17 - SUPREME COURT OF INDIA , to call for such document including annual accounts or information from the petitioner to check the genuineness of the activities of the petitioner institution which power was earlier not there with the prescribed authority under Section 10(22) of the Act Chief Commissioner has been conferred powers to ascertain while judging the genuineness of the activities of the petitioner institution as to whether the petitioner applies its income wholly and exclusively to the objects for which it is constituted/established Decided against the Assessee.

Summary

Issues Involved:

1. Maintainability of the application under Section 10(23C)(vi) for the assessment year 2007-08.
2. Whether the petitioner society exists solely for educational purposes and not for profit.
3. Whether the funds of the society have been diverted for personal use.
4. Consideration of the judgment of the Supreme Court in the case of American Hotel & Lodging Association Educational Institute vs. CBDT.

Issue-wise Detailed Analysis:

1. Maintainability of the application under Section 10(23C)(vi) for the assessment year 2007-08:

The court noted that the petitioner moved the application under Section 10(23C)(vi) on 26.3.2008, which was beyond the stipulated time frame as per the 14th Proviso to Section 10(23C)(vi) of the Act. The application was required to be made on or before the 30th day of September of the relevant assessment year. Therefore, the application was not maintainable for the assessment year 2007-08. The court found no error in the impugned order regarding this issue.

2. Whether the petitioner society exists solely for educational purposes and not for profit:

The court examined the scheme of exemption under Section 10(23C)(vi) and emphasized that the institution must exist solely for educational purposes and not for profit. The respondent's findings indicated that the petitioner society was involved in profit-making activities. The society was running coaching activities through a private company without charging rent, and funds were diverted for personal use. The court upheld the respondent's findings that the petitioner society's main motive was profit, not solely educational purposes.

3. Whether the funds of the society have been diverted for personal use:

The respondent's findings, based on documentary evidence, showed that the society's funds were used for personal benefits of the Secretary and his family members. Significant amounts were spent on building construction, repair, and maintenance of properties not owned by the society, and personal expenses were met by the society. The court agreed with the respondent's conclusion that the funds were diverted for personal use, which disqualified the society from exemption under Section 10(23C)(vi).

4. Consideration of the judgment of the Supreme Court in the case of American Hotel & Lodging Association Educational Institute vs. CBDT:

The petitioner relied on the Supreme Court judgment stating that the utilization and application of income should not be considered at the stage of granting approval. However, the court noted that the prescribed authority has the power to call for documents and check the genuineness of the activities to ensure that the institution applies its income solely for educational purposes. The court found that the respondent acted within its jurisdiction and followed the principles laid down by the Supreme Court.

Conclusion:

The court concluded that the respondent authority was competent to call for documents and check the genuineness of the petitioner's activities. The findings that the petitioner society was profit-oriented and diverted funds for personal use were based on substantial evidence. The application for exemption under Section 10(23C)(vi) was correctly rejected for the assessment years 2008-09 and onwards. The writ petition was dismissed, and the impugned order was upheld without any order as to costs.