2015 (9) TMI 232 - HC - Income Tax

Application seeking approval under Section 10(23-C)(VI) rejected - Held that - Prescribed authority has to ascertain whether the educational institution has been applying its profit wholly and exclusively to the objects for which the institution is established. Merely because institution has earned profit would not be deciding factor to conclude that educational institute exists for profit. To decide the entitlement of institution for exemption under Section 10(23-C)(VI) of the Income Tax Act the test of pre-dominant object of the activity has to be applied by posing the question whether it exists mainly for education and not to earn profit. The perusal of objects of the society/trust would make it clear that predominant object of the trust/society is to impart education besides other charitable purposes. Inclusion of other consequential charitable purposes as mentioned in the trust deed would not lead to the conclusion that institution was established to earn profit.In view of the above, order impugned does not sustain in the eyes of law and is hereby quashed. Consequently, present petition succeeds and is hereby allowed. The Chief Commissioner of Income Tax, Dehradun is directed to decide the application moved by the petitioner afresh in the light of observations made hereinbefore preferably within 90 days from today. - Decided in favour of assessee.

Summary

Issues:
Challenge to rejection of application seeking approval under Section 10(23-C)(VI) of the Income Tax Act based on various grounds.

Analysis:
The petitioner, a registered trust/society with exemption certificates under Sections 12-AA and 80-G of the Income Tax Act, applied for approval under Section 10(23-C)(VI) which was rejected by the Chief Commissioner of Income Tax. The rejection was based on reasons such as having other objects apart from education, disproportionate fee structure, heavy spending on advertisement, and not falling within the ambit of charitable activity. The petitioner challenged this decision through a writ petition.

The judgment relied upon by the Chief Commissioner was overturned by the Hon'ble Apex Court, emphasizing that educational institutions must exist solely for educational purposes and not for profit. The Court reiterated the tests from previous judgments like Surat Art Silk Cloth, Aditanar, and American Hotel and Lodging to determine the predominant object of the institution's activity. The Court highlighted the importance of continuously monitoring such institutions to ensure compliance with the law.

The Court clarified that earning a profit does not disqualify an educational institution from exemption under Section 10(23-C)(VI) as long as the profit is applied wholly and exclusively to the institution's objectives. The key test is whether the institution primarily exists for education and not for profit. The judgment emphasized that including other charitable purposes in the trust deed does not negate the educational institution's primary purpose.

Consequently, the Court found the Chief Commissioner's order unsustainable and quashed it. The petition was allowed, directing the Chief Commissioner to reconsider the petitioner's application within 90 days in line with the Court's observations.