2018 (4) TMI 96 - HC - Income Tax

Grant of exemption u/s 10(23C)(vi) denied - Society has moved the Application and not the Institution - proof of charitable activities - Held that - The appellant has not thought it fit to reject the Application on the ground that the Application has not been moved by the Institution. True it is that the proviso to Section 10(23C)(6) inter alia contemplated that the Application is to be made by the Institution. It is accordingly that the Officer has also in this context found that in order to qualify for grant of exemption under Sub-Section (23C) the Institution should exist only for educational purpose which is not the case of the writ petitioner Society. Objects of the Society include objects such as eradication of untouchability dealing with environmental pollution plantation AIDS Education achievement of communal harmony over all local development promotion of fruit bearing trees and plantation in the hill areas. Here we must notice that there is a definite case for the respondent / writ petitioner that the respondent/ writ petitioner is only running one Institution and there is no other Institution which is being run by it and in fact even it has a case that there is no other activity. As under the Memorandum of objects there are various objects other than education. What Section 10(23C)(6) of the Act actually does contemplate is that income received by any person on behalf of the Institution which is an educational institution and that Institution should exist solely for educational purpose and not for the purpose of profit other than those mentioned in Clauses (iiiab) (iiiad). It is also to be approved by the Prescribed Authority. Therefore the requirement of law must be that the educational institution is to exist solely for educational purpose and it should not exist for the purpose of profit. Underlying object appears to be that the words existing solely are to be understood in the context of the words not for the purpose of profit . In the light of this we would think that the Appeal must be partly allowed and the portion of the judgment directing exemption to be granted must be set aside and instead a direction must be issued to the appellant to re-consider the matter in the light of the judgment of the Hon ble Apex Court in the case of American Hotel Lodging Association Educational Institute v. CBDT reported in (2008 (5) TMI 17 - SUPREME COURT OF INDIA and also Queen s Educational Society vs. Commissioner of Income Tax (2015 (3) TMI 619 - SUPREME COURT).

Summary

Issues Involved:
1. Application for condonation of delay.
2. Denial of exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.
3. Whether the society qualifies as an educational institution existing solely for educational purposes and not for profit.
4. The legal standing of the society to apply for exemption instead of the educational institution itself.

Detailed Analysis:

1. Application for Condonation of Delay:
The court addressed the application for condonation of delay in filing the special appeal, noting a delay of 31 days. After hearing arguments from both parties, the court allowed the application, condoning the delay.

2. Denial of Exemption under Section 10(23C)(vi):
The petitioner, a registered society running an educational institution, sought exemption under Section 10(23C)(vi) of the Income Tax Act, 1961. The application was initially rejected on the grounds that the society had multiple objectives beyond education and that the fee structure was designed to generate maximum revenue, which could be used for expansion, not considered a charitable activity. The court referenced several judgments, including those of the Hon'ble Apex Court and High Courts, to assess the validity of these grounds.

3. Qualification as an Educational Institution Existing Solely for Educational Purposes:
The court examined whether the society’s activities met the criteria of existing solely for educational purposes and not for profit. The learned Single Judge had allowed the writ petition, quashed the impugned order, and directed the appellant to grant exemption. However, the appellate court noted that the learned Single Judge should not have granted exemption without applying the tests laid down by the Hon'ble Apex Court in relevant cases. The court emphasized that making a surplus does not necessarily imply a profit-making motive if the primary purpose is education.

4. Legal Standing of the Society to Apply for Exemption:
The appellant contended that the application should have been made by the educational institution itself, not the society. The court rejected this contention, citing previous judgments that allowed societies running educational institutions to apply for exemptions. The court noted that the application was made on behalf of the institution, and the society, being a juristic person, was competent to apply.

Conclusion:
The court upheld the quashing of the order denying exemption but set aside the direction to grant exemption immediately. Instead, it directed the appellant to reconsider the application in light of the judgments of the Hon'ble Apex Court in American Hotel & Lodging Association Educational Institute v. CBDT and Queen’s Educational Society vs. Commissioner of Income Tax. The reconsideration must be completed within six weeks after giving the writ petitioner an opportunity to present their case.