2021 (4) TMI 250 - AT - Income Tax

Grant of approval u/s 10(23C)(vi) denied - assessee is a society running a school, namely Rainbow World School - as difficult to verify the activities of the applicant society and arrived at the conclusion whether it existed solely for education? - HELD THAT - For the purpose of granting approval the prescribed authority is to satisfy himself about the objects and activities of the applicant university/institution, whether its income qualifies for exemption as such under the said provision. In the present case undoubtedly the Ld.CIT(E) has considered the aims and objects of the applicant society and has found no anomaly in the same vis a vis it existing solely for the purpose of education. The reason for the Ld.CIT(E) arriving at the conclusion that it was difficult to verify the activities of the society and come to the conclusion it existed solely for education, was the inadmissible claim of exemption by the applicant assessee in the preceding two years. We are unable to concur with the Ld. CIT(E) on this score. The claim of exemption in the preceding two years is admittedly inadmissible for the reason that it was in contravention of the provisions of section 10 (23C)(iiad) which grant exemption to similar entities without approval subject to receipt of income upto limit prescribed therein The claim being inadmissible in the preceding years on account of receipts exceeding a specified limit, surely does not impinge upon its character of an institution existing solely for the purpose of education. The findings of the Ld.CIT(E) that the same impinges on the extent and quality of surplus being generated by the applicant society is a very general and farfetched observation/finding with no factual basis at all and, therefore, is of no relevance, in our view. Applicant society is not eligible for approval u/s 10 (23C)(vi) on account of the decision of Pinegrove International Charitable Trust 2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT which addressed the issue whether the societies registered as such qualified as institutions for the purpose of grant of exemption u/s 10 (23C)(vi) - We find that the Ld. CIT(E) has clearly misread and misapplied the said decision as rightly pointed out by the Ld. Counsel for the assessee. The Hon ble High Court in the said decision had clearly held the societies also as eligible educational institutions for exemption u/s 10 (23C)(vi) of the Act as is evident from the relevant portion of the order reproduced in the order of the Ld. CIT(E) also. The assessee, admittedly being registered as a society, it qualified for exemption u/s 10 (23C)(vi) of the Act, as per the said decision. In view of the same, the findings of the Ld.CIT(E) on this account also, we find is incorrect. We hold that there was no basis at all for denial of approval u/s 10 (23C)(vi) - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for approval under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Incorrect claim of exemption under Section 10(23C)(iiiad) in preceding years.
3. Interpretation of the Pinegrove International Charitable Trust case.
4. Timeliness of the order passed by CIT(E).

Detailed Analysis:

1. Eligibility for approval under Section 10(23C)(vi) of the Income Tax Act, 1961:
The primary issue was whether the assessee, a society running a school, qualified for approval under Section 10(23C)(vi) of the Income Tax Act, 1961. The assessee had applied for this approval to claim income exemption. The CIT(E) denied the approval, arguing that the assessee did not meet the criteria. However, the Tribunal found that the CIT(E) had no basis for this denial. The Tribunal observed that the CIT(E) had considered the aims and objects of the society and found no anomaly in them vis-à-vis it existing solely for the purpose of education. Therefore, the Tribunal directed the CIT(E) to grant the approval in accordance with the law.

2. Incorrect claim of exemption under Section 10(23C)(iiiad) in preceding years:
The CIT(E) noted that the assessee had incorrectly claimed exemption under Section 10(23C)(iiiad) in the preceding two years, as its aggregate receipts exceeded ?1 crore. The Tribunal, however, opined that this incorrect claim did not impinge upon the character of the institution as one existing solely for educational purposes. The Tribunal emphasized that the inadmissible claim in the preceding years was due to the receipts exceeding the specified limit and did not affect the institution's educational purpose.

3. Interpretation of the Pinegrove International Charitable Trust case:
The CIT(E) relied on the Pinegrove International Charitable Trust case to deny the approval, arguing that the educational institution was not registered as a society in the spirit of the ratio laid down by the Hon’ble Jurisdictional High Court. The Tribunal found that the CIT(E) had misread and misapplied this decision. The Tribunal clarified that the High Court had held that societies registered as such were eligible educational institutions for exemption under Section 10(23C)(vi). Since the assessee was registered as a society, it qualified for the exemption as per the said decision.

4. Timeliness of the order passed by CIT(E):
The assessee contended that the order passed by the CIT(E) was time-barred, as it was issued after one year of filing the application. However, the Tribunal did not specifically address this issue in the judgment, focusing instead on the substantive grounds for denial of approval.

Conclusion:
The Tribunal concluded that there was no basis for the denial of approval under Section 10(23C)(vi) of the Act. It set aside the order of the CIT(E) and directed the CIT(E) to grant approval to the assessee society in accordance with the law. The appeal of the assessee was allowed, and the order was pronounced on 30.03.2021.