2015 (9) TMI 1306 - HC - Income Tax

Grant of exemption u/s 10(23C) (vi) and (via) rejected - educational institute - profit motive - Held that - The inquiry conducted by the Director General with regard to the application of funds and generation of profit is to be conducted post the grant of approval. If the above conditions are satisfied, in the first instance, the Competent Authority is to grant approval. The Competent Authority is empowered to impose conditions while granting such approval. The inquiry whether the conditions had been complied with or not, as envisaged by the third proviso to Section 10(23C), is to be conducted post grant of approval and not as a condition precedent to grant of approval. Further, merely because some profit is generated does not ipso facto imply that the educational institution is existing for profit motive. We are of the view that the impugned order cannot be sustained inasmuch as the Competent Authority went to the stage post grant of approval for considering whether approval can be granted in the first instance or not. It is an admitted fact in the present case that the only activity of the petitioner is that of running of a school and the petitioner is not indulging in any activity for the purposes of profit and these are the only requirements for grant of approval and, therefore, in the same manner as in the case of Digambar Jain Society (2009 (10) TMI 61 - DELHI HIGH COURT), we issue a writ of mandamus directing the respondents to grant approval to the petitioner under Section 10(23C) (vi) of the said Act for the Assessment Years 2011-12 onwards. However, we are making it clear that the assessing authority can go into the question as to whether the conditions stipulated in the third proviso and the 13th proviso to Section 10(23C) (vi) of the said Act have been met and appropriate orders can be passed by the Assessing Authority in accordance with law. - Decided in favour of assessee.

Summary

Issues:
1. Rejection of application for exemption under Section 10(23C)(vi) and (via) of the Income Tax Act, 1961.
2. Eligibility for exemption based on the nature of activities conducted by the Trust.
3. Interpretation of conditions for grant of exemption under Section 10(23C)(vi).
4. Application of funds and generation of profit by the educational institution.
5. Compliance with prescribed conditions for grant of approval.

Analysis:

Issue 1: The writ petition challenges the rejection of the application for exemption under Section 10(23C)(vi) and (via) of the Income Tax Act, 1961. The Director General of Income Tax rejected the application on the grounds that the Trust, operating a school, did not qualify for exemption under the specified provisions related to hospitals and medical relief.

Issue 2: The Trust's claim for exemption under Section 10(23C)(vi) was also rejected based on the assertion that the Trust, despite being primarily focused on education, engaged in various activities beyond educational purposes as outlined in its Statement of Objects. The Director General concluded that the Trust was not solely existing for educational purposes as required by the Act.

Issue 3: The Court emphasized that for the grant of exemption under Section 10(23C)(vi), the key consideration is the primary activity of the Trust, which in this case was running a school. The Court clarified that the existence of other objects in the Trust's clause does not automatically disqualify it from being considered solely for educational purposes.

Issue 4: The examination of the Trust's application of funds and generation of surplus was deemed a post-approval inquiry. The Court highlighted that the generation of profit does not necessarily indicate a profit motive overriding the educational purpose. The Competent Authority was empowered to impose conditions post-approval to ensure compliance.

Issue 5: The Court set aside the impugned order, directing the authorities to grant approval to the Trust under Section 10(23C)(vi) for the relevant assessment years. The Court emphasized that the Trust's sole activity being education, without profit motives, met the requirements for approval. The assessing authority was tasked with verifying compliance with stipulated conditions post-approval.

In conclusion, the Court allowed the writ petition, issuing a mandamus for the grant of approval to the Trust under Section 10(23C)(vi) while underscoring the assessing authority's role in ensuring compliance with specified conditions post-approval.