2017 (12) TMI 1324 - AT - Income Tax

Rejecting approval u/s. 10(23C) - aims and objectives - Held that - The fourth object is only identical and ancillary to the primary object of education. It may be true that assessee does not run a school to consider this objective, but the objects of the trust are incorporated for future use only. If there is no object, the trust would be prevented in opening/running a school. Therefore, having an object should not prevent the assessee in claiming exemption of income u/s. 10(23C)(vi). Moreover, the reading of object (badly drafted indeed, giving different meaning) indicates that the main intention is to make efforts to pick up children from various villages, engaged to worth with reference to Child Labour Act and giving them admission in school. The intention is to educate the children, who are exploited in villages with reference to Child Labour Act. This object in our view is ancilliary to the main object of education. Therefore, we are of the view that the objection of Ld.CIT(E) is not maintainable. Considering the above, we set aside the order of Ld.CIT(E) and restore the issue to the file of Ld.CIT(E) to grant exemption, if other conditions are satisfied. Ld.CIT(E) can also place a condition that if the funds are utilised for any other purpose other than for education, the exemption can be withdrawn at any time, so as to protect the interest of Revenue.

Summary

Issues:
1. Rejection of approval under section 10(23C) by the Commissioner of Income Tax (Exemptions).
2. Interpretation of the aims and objects of a society for educational exemption.
3. Determination of whether certain objects of a society are solely for educational purposes.
4. Application of legal principles regarding the primary purpose of an educational institution.
5. Consideration of ancillary objects in relation to the main educational purpose for exemption.

Analysis:
1. The appeal was filed against the rejection of approval under section 10(23C) by the Commissioner of Income Tax (Exemptions). The Assessee contended that the rejection was erroneous both on facts and in law, as the object of admitting children engaged in child labor for education was connected to education.

2. The Assessee, a trust recognized under section 12A of the Income Tax Act, runs a pharmacy college and sought exemption under section 10(23C)(vi) of the Act. The rejection was based on the finding that the society's aims and objects were not solely for educational purposes, as they included activities related to child labor, which were deemed unrelated to the pharmacy college's operation.

3. The High Court's decision emphasized that if the primary purpose of an institution is educational, ancillary or incidental objects do not disqualify it from exemption. The test is whether non-educational objects are the main purpose or ancillary to the dominant educational purpose. The Assessee's objective of picking up children engaged in child labor was considered ancillary to the primary educational goal.

4. The judgment highlighted that objects like maintaining unity among members or solving social problems do not establish an institution as solely for educational purposes. The publication of journals and seminars for educational enhancement was deemed incidental and ancillary to the primary educational objective, supporting the Assessee's case.

5. Ultimately, the Tribunal set aside the Commissioner's order, noting that the object related to child labor was ancillary to the main educational purpose. The Tribunal directed the Commissioner to reevaluate the exemption application, with a provision to withdraw exemption if funds were misused. This decision underscored the importance of the primary educational purpose in determining exemption eligibility.