2015 (1) TMI 238 - HC - Income Tax

Activity charitable or not - existing solely for educational purpose or not - Refusal to grant registration u/s 10(23C)(vi) whether the assessee society is engaged in charitable/educational activities or not - Held that - The Society came into existence in the year 1910 and on the land, which was taken for 99 years lease, the petitioner has constructed a building for school - So, it is not correct to say that it is not providing education - no other activity was proved by the Department - the CCIT has already granted exempted u/s 12A/12AA of the Income Tax Act w.e.f. 1.4.2007 Relying upon AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE Versus CBDT & OTHERS 2008 (5) TMI 17 - SUPREME COURT OF INDIA - merely because there are other objects of the society does not mean that the educational institution is not existing solely for educational purpose - the emphasis of the word solely is in relation to the educational institution, which is running not for the purpose of making profit and is not in relation to the objects of the society. Applicability of third proviso - Held that - The requirement mentioned in the third proviso can only be tested after the end of the previous year when income is ascertained and thereafter applied. - The threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standardized form in terms of the first proviso - If the prerequisite conditions of actual existence of the educational institution is fulfilled then the question of compliance with the requirements as spelt out in the other provisos would arise - the facts were not analyzed by the authorities below in a proper manner - the documents which were produced, it appears prima facie contradictory facts, which need further investigation thus, the order is set aside and the matter is remitted back to the CCIT and direction made to reconsider the application de-novo for exemption u/s 10(23C) (vi) for the AY 2008-09 and onwards strictly on merit Decided in favour of assessee.

Issues Involved:
1. Refusal of registration under Section 10(23C)(vi) of the Income Tax Act.
2. Determination of whether the petitioner-assessee is engaged in charitable/educational activities.
3. Examination of discrepancies pointed out by the Department.
4. Compliance with the conditions stipulated under Section 10(23C)(vi) and related provisos.

Issue-wise Detailed Analysis:

1. Refusal of registration under Section 10(23C)(vi) of the Income Tax Act:
The petitioner-assessee, a registered society running "YMCA Centenary School," applied for registration under Section 10(23C)(vi) of the Income Tax Act, which exempts income of educational institutions existing solely for educational purposes and not for profit. The Chief Commissioner of Income Tax (CCIT) refused the registration based on a report from the Commissioner of Income Tax (CIT). The petitioner argued that the society is not for profit and fulfills all requirements for exemption, submitting necessary documents and an amended Memorandum of Association.

2. Determination of whether the petitioner-assessee is engaged in charitable/educational activities:
The court examined whether the petitioner society is engaged in charitable/educational activities. The term "charitable purpose" includes activities like the promotion of education and knowledge. The petitioner argued that the society is solely for educational purposes, citing several cases to support their claim. The court found that the society, established in 1910, constructed a school building on leased land and is undoubtedly providing education. The Department failed to prove any other activity beyond education.

3. Examination of discrepancies pointed out by the Department:
The Department pointed out several discrepancies, such as loans given to employees and expenses not related to education. The petitioner countered these claims, showing the balance-sheet where the Bolero Car is listed and explaining that the loans were advances without interest. The court noted that accumulation of income is permissible for charitable purposes, referencing the case of Director of Income Tax (Exemption) vs. Eternal Science of Man's Society.

4. Compliance with the conditions stipulated under Section 10(23C)(vi) and related provisos:
The court referenced the Supreme Court's analysis in American Hotel & Lodging Association, Educational Institute vs. CBDT, which clarified the powers and duties of the prescribed authority in vetting applications for approval. The authority must ascertain whether the institution applies its income wholly and exclusively for its established objects. The court emphasized that the mere existence of profit does not disqualify the institution if the predominant object is educational, not profit-making. The authority must consider the nature, activities, and genuineness of the institution.

Conclusion:
The court found that the facts were not properly analyzed by the authorities below and identified contradictory facts needing further investigation. The impugned order was set aside, and the matter was remanded to the CCIT for de novo consideration of the application for exemption under Section 10(23C)(vi) for the Assessment Year 2008-09 and onwards. The petitioner was directed to submit necessary documentary evidence and cooperate with the competent authority. The writ petition was allowed.

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