2017 (8) TMI 280 - AT - Income Tax

Grant of approval u/s 10(23C)(vi) - solely for education purposes or not - CIT observed that various clauses in the trust deed are not as per the provisions of section 10(23C)(vi) - CIT further observed that, founder trustees are taking undue benefits by drawing a huge remuneration - Held that - In compliance, the assessee-trust had amended its trust deed dated July 26, 2015 removing all the objects other than objects relating to education. What therefore, has to be examined is whether the amended objects clause satisfy the requirement of law or not. Further, where the assessee-trust is already in existence, at the time of seeking the approval, the Revenue can examine whether its activities are being carried out for education purposes or not. In this regard, the learned authorised representative has submitted that the assessee-trust is involved in educational activities and is running Jyoti Vidyapeeth Mahila Vishwavidyalya having more than 2200 students. However, there is a finding given by the learned Principal Chief Commissioner of Income-tax in this regard. The matter relating to powers entrusted to the trustees and its relevance at the time of grant of approval has been discussed in the Central Board of Direct Taxes circular which should be taken into consideration. Regarding the matter relating to payment of remuneration, there are counter-claims without any basis to support the contentions of either of the parties. In the light of the above, as there is not enough material available on record to adjudicate on the matter and the fact that the guidelines laid down by the hon ble Supreme Court in the case of American Hotel and Lodging Association 2008 (5) TMI 17 - SUPREME COURT OF INDIA and the Central Board of Direct Taxes while granting the approval not been considered, we hereby set aside the matter to the file of the learned Principal Chief Commissioner of Income- tax to examine the same afresh - Assessee appeal allowed for statistical purposes.

Issues Involved:
1. The trust having multiple objects and not existing solely for educational purposes.
2. Trustees deriving benefits by drawing salary contrary to the trust deed.
3. The trust being a discretionary trust with sole powers at the discretion of the founder trustees.
4. Violation of the third and thirteenth provisos to section 10(23C)(vi).

Detailed Analysis:

1. The Trust Having Multiple Objects and Not Existing Solely for Educational Purposes:
The Principal Chief Commissioner of Income-tax (PCCIT) denied the trust's approval under section 10(23C)(vi) of the Income-tax Act, 1961, citing that the trust deed had multiple objectives, not solely educational. However, the trust amended its deed on July 26, 2015, removing non-educational objectives. The appellant argued that multiple objectives should not lead to denial of approval, referencing various High Court rulings such as C. P. Vidya Niketan Inter College Shikshan Society v. Union of India, and others, which supported this stance. The Tribunal noted that the PCCIT did not consider the amended deed and the trust's educational activities, including running an educational institution with over 2200 students.

2. Trustees Deriving Benefits by Drawing Salary Contrary to the Trust Deed:
The PCCIT claimed that trustees Dr. Pankaj Garg and Mrs. Vidhushi Garg drew remuneration contrary to the trust deed. The appellant clarified that the trustees were rendering full-time services in professional capacities, not as trustees, and the remuneration was for their professional roles. This dual capacity was not prohibited by the trust deed. The Tribunal observed that the same remuneration was accepted in a previous assessment year without issue and emphasized that reasonableness of remuneration is beyond the scope of inquiry at the approval stage, aligning with the Supreme Court's decision in American Hotel and Lodging Association Educational Institute v. CBDT and CBDT Circular dated August 17, 2015.

3. The Trust Being a Discretionary Trust with Sole Powers at the Discretion of the Founder Trustees:
The PCCIT categorized the trust as a discretionary trust, implying undefined beneficiaries or indeterminable shares, which is applicable to private trusts, not charitable ones. The appellant argued that the trust was charitable and managed by trustees per the trust deed, which was supported by CBDT Circulars clarifying that excessive powers of founder trustees do not warrant denial of approval. The Tribunal noted that the PCCIT's categorization was based on a misunderstanding of the law and trust deed amendments.

4. Violation of the Third and Thirteenth Provisos to Section 10(23C)(vi):
The PCCIT argued that a clause in the trust deed allowing investment in financial gain projects violated the third and thirteenth provisos of section 10(23C)(vi). The Tribunal highlighted that these provisos are regulatory mechanisms to be assessed during annual assessments, not at the approval stage, as per the Supreme Court's ruling and CBDT Circular. The PCCIT's rejection was based on apprehension, not actual violation.

Conclusion:
The Tribunal found that the PCCIT did not consider the amended trust deed, the actual educational activities, and the guidelines laid down by the Supreme Court and CBDT. It set aside the matter for fresh examination by the PCCIT, ensuring compliance with legal guidelines and providing the trust a reasonable opportunity to present its case. The appeal was allowed for statistical purposes, and the order was pronounced on May 29, 2017.

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