2013 (11) TMI 1060 - HC - Income Tax

Educational institutions u/s 10(23C) Held that - General observations should not and cannot become the basis of invoking 13th proviso to Section 10(23C) Following ICAI Accounting Research Foundation & Anr. Vs. Director General of Income Tax (Exemptions) & Others 2009 (8) TMI 61 - HIGH COURT OF DELHI - As long as the user of that money is charitable, then the exemption has to be granted - Merely because some remuneration was taken by the Petitioner Foundation for undertaking these projects would not alter the character of these projects, which remained research and consultancy work - The amended definition of charitable purpose would not alter this position The issue was restored for fresh decision. Separate books of accounts Held that - Proviso to Section 10(23C) applies only if the authority comes to the conclusion that the charitable institution is incidentally carrying on business for the purpose of attainment of objects - In these circumstances only, separate books of account are required to be maintained - The petitioner s returns for the earlier years have been duly accepted by the Assessing Officer without any objection or observation that the maintenance of accounts was defective and separate books were not maintained for the incidental business The issue was restored for fresh decision.

Summary

Issues Involved:
1. Whether the petitioner qualifies as an "educational institution" under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Whether the petitioner was indulging in business activities and not maintaining separate books of accounts as required under the Act.
3. The validity of the orders dated 29th July 2009 and 28th February 2012 canceling the petitioner's registration under Section 10(23C)(vi).

Issue-wise Detailed Analysis:

1. Qualification as an "Educational Institution":

The petitioner, a society registered under the Societies Registration Act, 1860, has been granted exemption as a charitable institution under the Income Tax Act since its inception. The dispute centers on whether the activities of the petitioner fall under "other educational institutions" as per Section 10(23C)(vi). The petitioner conducts examinations like the Management Aptitude Test (MAT) and other screening tests, which are recognized by business schools for admissions. The court noted that the term "educational purposes" is not limited to holding classes but includes activities that serve educational purposes, such as conducting examinations and publishing educational materials. The court referenced previous judgments, including the Orissa High Court's decision in Secondary Board of Education vs. ITO and the Supreme Court's decision in Assam State Text Book Production and Publication Corporation Ltd. v. CIT, which supported the broader interpretation of "educational purposes." The court concluded that the petitioner's activities qualify as educational, thus meeting the criteria under Section 10(23C)(vi).

2. Business Activities and Maintenance of Separate Books of Accounts:

The Director General of Income Tax (Exemptions) argued that the petitioner was engaged in business activities, such as conducting short-term management development programs, which were not educational in nature. These programs were held in various hotels for corporate clients, and fees were collected without awarding degrees or diplomas. The court found these observations to be general and lacking in-depth verification. The requirement to maintain separate books of accounts arises only if the institution is incidentally carrying on business for the attainment of its objects. The court emphasized that the authority must be able to ascertain the income earned from business activities separately from charitable activities. The court remitted the matter to the Director General for a detailed examination of whether the petitioner maintained separate books of accounts and whether its activities were genuinely charitable.

3. Validity of the Orders Canceling Registration:

The orders dated 29th July 2009 and 28th February 2012 were challenged for canceling the petitioner's registration under Section 10(23C)(vi). The court noted that the power to cancel a registration is governed by the 13th proviso to Section 10(23C), which requires specific findings that the institution's activities are not genuine or not carried out in accordance with the conditions of approval. The court found the Director General's findings to be vague and lacking detailed examination. The court also noted that the petitioner had been granted exemption under Section 80G of the Act, indicating a contradiction in the impugned orders. Consequently, the court quashed the orders and remitted the matter for reconsideration, directing the Director General to consider the observations made and ascertain full and true facts before deciding on the cancellation afresh.

Conclusion:

The court allowed the writ petitions, quashed the impugned orders, and remitted the matter to the Director General of Income Tax (Exemptions) for a fresh decision, ensuring a thorough examination of the petitioner's activities and compliance with the legal requirements under Section 10(23C)(vi). The petitions were disposed of with no costs.