2020 (1) TMI 223 - HC - Income Tax

Rejection of the applications filed seeking approval in terms of section 10(23C)(vi) - petitioner has set up and manages several Universities, Schools and Educational campuses in different parts of the Country and sought an approval for exemption - HELD THAT - The scope of enquiry when granting approval in terms of Section 10(23C)(vi) of the Act has been considered by the Supreme Court in two Judgments, viz., Queen's Education Society V. Commissioner of Income Tax 2015 (3) TMI 619 - SUPREME COURT and American Hotel and Lodging Association, Educational Institute V. CBDT (2008 (5) TMI 17 - SUPREME COURT ) . The Bench has specifically noted the distinction between satisfaction in regard to prima facie conditions required for the grant of approval and the monitoring conditions relating to application/accumulation/deployment of income as well as other compliances. The Bench has stated that the grant of approval would only require a satisfaction of the Officer in regard to the existence of the University and the avowed objects. The question of whether the Society has, in fact, complied with the statutory provisions strictly is a matter of assessment and would be dealt with by the Assessing Officer in the course of assessment itself. Respondent has, in the impugned orders adopted a view that is premature and Writ Petitions are allowed. Delay in filling application for Section 10(23C) - HELD THAT - The 14th proviso to Section 10(23) was amended by Finance (No.2) Act, 2009 with effect from 01.04.2009. The notes and clauses to the Finance Bill (see 314 ITR 130 (ST.)) state that the insertion of the proviso was to permit applications to be filed upto 30th September of the relevant assessment year, instead of restricting the date to 31st of March of the financial year. The purpose was thus to expand the time for filing till 30.9.2012 and not restrict it to only the six months between 1.4.2012 and 30.9.2012. In the present case, the application has been filed in November, 2011 itself and in the light of the object of the amendment noticed above, the application is well within time. Society did not exist solely for 'educational purpose' as required under Section 10(23C) - HELD THAT - The purpose of the aforesaid clauses is, in my view, only to enable the acquisition of assets by the petitioner. This does not, in my view, lead to the inference that the Society is engaging in other commercial ventures apart from dissemination of education. As stated elsewhere, the monitoring of the activities of the petitioner is a matter of assessment by the Assessing Officer and the Commissioner has, in my view, overstepped in assuming that the mere mention of the aforesaid two activities disentitles the petitioner to the approval and exemption sought.

Summary

Issues:
Challenging orders of rejection under section 10(23c)(vi) of the Income Tax Act, 1961 for approval. Interpretation of objects in the Memorandum of Association (MOA) for educational purposes. Timeliness of application filing for approval under Section 10(23C).

Analysis:

Challenging Rejection Orders:
The petitioners, educational institutions, challenged rejection orders of their applications seeking approval under section 10(23c)(vi) of the Income Tax Act, 1961. The rejection was based on the interpretation of the objects stated in the Memorandum of Association (MOA) of the institutions. The Commissioner of Income Tax noted incriminating documents found during a survey but clarified no adverse inference was drawn as investigations were ongoing.

Interpretation of MOA Objects:
The rejection was primarily due to one of the objects in the MOA being deemed as 'general public utility' rather than 'education,' as required under Section 10(23C). The clause in question included activities like extra mural studies and field outreach, which were considered outside the scope of educational purposes. Despite the institution's defense that these activities were not pursued in reality, the approval was denied.

Guidelines for Educational Institutions:
The institution cited guidelines issued by the University Grants Commission to support the inclusion of certain clauses in their MOA. The guidelines emphasized engagement with society through extra mural programs but were not mandatory. The institution claimed no such programs were conducted, leaving room for the Assessing Authority to address any discrepancies during assessment.

Timeliness of Application Filing:
Regarding the timeliness of application filing, the Assessing Authority rejected applications citing a clerical error in the year mentioned. However, the High Court disagreed, citing an amendment to the 14th proviso of Section 10(23C) allowing applications to be filed until 30th September of the relevant assessment year, expanding the filing period beyond the financial year.

Judicial Interpretation and Decision:
The High Court referred to Supreme Court judgments emphasizing the distinction between satisfaction for approval and monitoring compliance. The Court held that premature views were adopted by the Assessing Authority, leading to the allowance of certain writ petitions challenging the rejection orders.

Conclusion:
The High Court set aside the impugned orders, directing the respondent to issue approvals sought by the petitioners within a specified timeframe. The Court emphasized that the mere mention of certain activities in the MOA did not disentitle the institutions from seeking approval and exemption under Section 10(23C) for educational purposes.