2014 (12) TMI 14 - HC - Income Tax

Denial of exemption u/s 10(23C)(vi) Educational institution established in rural segment Object of Trust charitable or not - Held that - The Chief Commissioner of Income Tax had rejected the application for exemption u/s 10 (23C)(vi) on the ground that the memorandum of association provided for various other objects, apart from educational activities - While assailing that order, assessee contended that though the un amended bye-laws of the society contain various other aims and objects apart from pursuing educational activities, yet, from the application for approval and the material on record, it was clear that the society was only carrying on educational activities relying upon C.P. Vidya Niketan Inter College Shikshan Society Vs. Union of India & Ors. 2013 (7) TMI 367 - ALLAHABAD HIGH COURT wherein it has been held that the mere presence of objects in the memorandum providing for other charitable activities would not disentitle a society to claim approval u/s 10 (23C) (vi), where it is established that the institution is, in fact, carrying on only educational activities - the order accepts the fact that the activities of the assessee are restricted only to education - the mere fact that a fee is being charged from B Ed students would not establish that the institution exists for profit thus, the rejection of the application for exemption u/s 10 (23C)(vi) has been done in a rather casual manner without the Chief Commissioner applying his mind to the essential ingredients of the provision thus, the order is set aside and the matter is remitted back to the CCIT for fresh decision Decided in favour of assessee.

Summary

Issues:
1. Impugning the legality of an order denying exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Examination of whether the institution exists solely for educational purposes and not for profit.
3. Consideration of the genuineness of the activities of the institution.
4. Analysis of whether the institution charges fees in violation of exemption provisions.
5. Evaluation of the rejection of the application for exemption under Section 10(23C)(vi) by the Chief Commissioner.

Analysis:
The writ petition challenges the order denying exemption under Section 10(23C)(vi) of the Income Tax Act, 1961. The petitioner established an educational institution and applied for exemption, which was initially rejected in 2010. After subsequent legal proceedings, the matter was remitted back to the Chief Commissioner for a fresh decision. The impugned order of 2013 rejected the application based on the institution charging fees for the B Ed course, seemingly violating the exemption provision.

The primary requirement under Section 10(23C)(vi) is whether the institution exists solely for educational purposes and not for profit. The prescribed authority must also ensure the genuineness of the institution's activities. The petitioner argued that the Chief Commissioner failed to consider these requirements and did not raise doubts about the institution's genuineness. The Division Bench emphasized that the presence of other charitable activities in the memorandum does not disqualify an institution if it primarily engages in educational activities.

The Chief Commissioner rejected the application citing the institution's memorandum containing aims beyond education. However, the Division Bench clarified that as long as the institution primarily focuses on education, it remains eligible for exemption. The Chief Commissioner acknowledged that the institution's activities were education-centric, but failed to assess whether it existed for profit. The petitioner demonstrated through financial records that the institution operated at a loss, indicating a non-profit motive. The rejection of the exemption application was deemed casual, lacking proper consideration of essential provisions.

The Court allowed the petition, remitting the proceedings back to the Chief Commissioner for a fresh decision. The Chief Commissioner was directed to conduct a thorough enquiry in accordance with Section 10(23C)(vi) and provide the petitioner with a fair opportunity to be heard. The petitioner expressed readiness to amend the objects clause, although the institution's activities were solely educational. Consequently, the impugned order was set aside without costs, emphasizing the need for a diligent reconsideration of the exemption application.

This detailed analysis highlights the legal intricacies and procedural aspects involved in the judgment, emphasizing the importance of adhering to statutory requirements and ensuring fair assessment in matters of tax exemption under the Income Tax Act, 1961.