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2020 (1) TMI 868 - HC - Income TaxDeduction u/s 10(23C)(VI) - Secondary education - petitioner is a body corporate constituted under the Board of Secondary Education Act and is an instrumentality of the State for imparting secondary education - HELD THAT - The petitioner-Board of Secondary Education, Odisha is constituted under the Board of Secondary Education Act 10 of 1953 (for short the Act ), inter alia, to provide secondary education in the State of Odisha by preparing course for education in secondary preuniversity stage and to conduct examination for those, who have completed prescribed courses of study and to award certificates to successful candidates and also performing other statutory duties incidental thereto. Therefore, establishment of Board is only for imparting secondary education throughout the State of Odisha under Section 3 of the Act to regulate control and develop secondary education in the State of Odisha. The word Education has been used in Section-2(15) of the Income Tax Act in sense of systematic instruction, schooling or training and not in wide and extended sense according to which every acquisition of further knowledge. Imparting secondary education has never been treated as trade or business and the citizen of the country have a fundamental right of secondary education. Article 21 prescribes that every child/citizen of this country has a right to free education until he completes the age of 14. At the age of 14 one may complete Secondary Education and it is also a duty cast on a State to safeguard fundamental right of citizen which includes education up to the age of 14 years. Therefore, the sole existence of Board is to impart secondary education, which safeguards the duty cast on a State. Taking into consideration the activities taken by the petitioner s institution, which is responsible for education up to secondary education in the State while carrying out its statutory liability and obligation, the notices issued as at Annexures-1, 2 and 3 describing it to be commercial activities, in our considered opinion, are not sustainable as the issue is covered by the decision in the case of Rajasthan Hindi Granth Academy v- Deputy Commissioner of Income Tax 1999 (8) TMI 14 - RAJASTHAN HIGH COURT - the assessee will be entitled for the benefit u/s 10(23)(iiiab). - Decided in favour of assessee.
Issues Involved:
1. Validity of the order dated 18.01.2007 passed by the Chief Commissioner of Income Tax (CCIT) under Section 10(23C)(VI) of the Income Tax Act, 1961. 2. Legitimacy of demand notices issued under Annexures-2 and 3. 3. Requirement of exemption certificate for the petitioner under Section 10(23C)(VI). 4. Applicability of previous judicial decisions to the current case. Issue-wise Detailed Analysis: 1. Validity of the Order Dated 18.01.2007 by CCIT: The petitioner challenged the order passed by the Chief Commissioner of Income Tax (CCIT) on 18.01.2007, which denied the exemption under Section 10(23C)(VI) of the Income Tax Act, 1961. The petitioner argued that the CCIT did not adequately consider whether the Board, established to impart secondary education, required an exemption certificate. The CCIT's rejection was based on findings of serious irregularities in the accounts, non-applicability of previous High Court decisions, and the observation that only a minor portion of the petitioner's activities was related to running a school, thus failing to meet the criteria of existing solely for educational purposes. 2. Legitimacy of Demand Notices Issued Under Annexures-2 and 3: The petitioner also contested the demand notices issued under Annexures-2 and 3, which described the Board’s activities as commercial. The court found these notices unsustainable, citing that the Board's activities were in line with its statutory obligation to provide secondary education, thus not constituting commercial activities. This view was supported by the decision of the Rajasthan High Court in the case of Rajasthan Hindi Granth Academy v. Deputy Commissioner of Income Tax, which emphasized that educational institutions should not be treated as commercial entities if their surplus is used solely for educational purposes. 3. Requirement of Exemption Certificate Under Section 10(23C)(VI): The petitioner argued that an exemption certificate was not necessary for an institution like the Board, which was established solely for educational purposes. The court noted that previously, under Section 10(22), institutions like the petitioner were automatically exempted from tax. However, with the introduction of Section 10(23C), the requirement for an exemption certificate from the prescribed authority (CCIT or Director General) was mandated. The court acknowledged that the CCIT's order failed to address the core issue of whether the Board’s primary purpose was educational, which should have been the determining factor for exemption. 4. Applicability of Previous Judicial Decisions: The petitioner relied on various judicial decisions, including those from the Calcutta High Court, Delhi High Court, Orissa High Court, and Rajasthan High Court, to support their claim for exemption. The court referred to these decisions, particularly emphasizing the Rajasthan High Court's ruling in the Rajasthan Hindi Granth Academy case, which held that institutions established for educational purposes and substantially financed by the government should be granted exemption under Section 10(23C). The court also cited the Supreme Court's decision in Assam State Text Book Production & Publication Corporation v. CIT, which recognized that government-controlled educational institutions should be exempt from tax. Conclusion: Taking into consideration the statutory obligations and activities of the petitioner, the court quashed the notices issued under Annexures-1, 2, and 3, and allowed the writ petition to the extent that the Board's activities were not commercial but educational in nature, thus entitling them to the exemption under Section 10(23C)(VI). The court emphasized that the CCIT's order did not adequately address the primary purpose of the Board, which was solely for educational purposes.
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