2022 (8) TMI 853 - AT - Income Tax

Exemption u/s 10(23C) (vi) - denial of benefit was actually withdrawal of the exemption which was provided to the assessee with its former name - appellant is an institution established by the Government of India, Ministry of Road Transport and Highway and was previously known by the name National Institute for Training of Highway Engineers (NITHE) - As argued assessee Appellant society is an extended arm of the Government, formed and running with an object to give the technical training and necessary professional grounding in the field of Highway engineering including bridges to ensure an efficient, safe, reliable and economic highway system as in integral part of nation's economy, and without considering these facts on record, the CIT (Exemption) has arbitrarily rejected the application by wrongly inferring that the Appellant Society is not doing any charity and is running on commercial lines only because it has surplus - HELD THAT - Broadening of objectives did not in any way change the nature of objectives of the institution or its functionality. It continued to be an institution to give technical training and necessary professional grounding in the field of highway engineers including bridges to ensure an efficient, safe, reliable and economic highway system as an integral part of nation s economy. Tax Authority has questioned the charitable objectives of the appellant. An important aspect that is over looked by the Ld. Tax Authority is that appellant is an autonomous institution of a Ministry of Road Transport and Highway, Government of India. The initial funding was from this administrative ministry and even the land for building has been purchased in name of President of India. The Bench is of view that there cannot be a more sacrosanct purpose of an institution like the present appellant which is giving formal training to professionals like highway engineers, who otherwise would not have any training or continued learning, from ordinary academic institutions or Universities. A self sustaining autonomous institution is rather expected to be generating receipts for its subsistence rather then being dependent on the Government for aid. So, merely collection of fee for training programs cannot make an autonomous institution to be commercial, as observed by the Ld. Tax Authority. It is actually imperative for the Tax Authorities examining applications under section 10(23C)(vi) of the Act, to reflect in their orders that matter has been examined on basis of tests recognized by the Hon ble Apex Court in Queens Educational Society Case 2015 (3) TMI 619 - SUPREME COURT to determine whether an educational institution exists solely for educational purposes and not for purposes of profit and which has not been done in present case by the Ld. Tax Authority. The impugned order is not sustainable and same is set aside. CIT(E) is directed to issue the exemption certificate to 10(23C)(vi) of the Act for the relevant assessment years. Decided in favour of assessee.

Issues Involved:
1. Rejection of application under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Consideration of previous exemption granted.
3. Assessment of the nature and objectives of the institution.
4. Application of the principle of res judicata.
5. Evaluation of the institution's activities as charitable or commercial.

Detailed Analysis:

1. Rejection of Application under Section 10(23C)(vi):
The appellant challenged the rejection of their application under Section 10(23C)(vi) by the CIT (Exemptions), Lucknow, arguing that the rejection was arbitrary and illegal. The appellant contended that their society, previously known as the National Institute for Training of Highway Engineers (NITHE), had been granted exemption under Section 10(23C)(vi) for AY 2007-08 onwards and that this exemption should continue despite the change in name to Indian Academy of Highway Engineers (IAHE).

2. Consideration of Previous Exemption Granted:
The appellant argued that the CIT (Exemptions) failed to consider the existing exemption granted in 2008 and the fact that the institution's objectives and functional nature remained unchanged despite the name change. The Tribunal observed that the CIT (Exemptions) did not provide sustainable reasoning for disallowing the benefit previously granted and merely relied on reports from the Assessing Officers.

3. Assessment of the Nature and Objectives of the Institution:
The Tribunal noted that the appellant institution, an autonomous body under the Ministry of Road Transport and Highways, continued to impart technical training and professional grounding in highway engineering. The Tribunal emphasized that the institution's objectives had not changed and that it continued to serve a public purpose by providing training to highway engineers. The Tribunal also highlighted that the initial funding and land for the institution were provided by the Government of India, reinforcing its public and charitable nature.

4. Application of the Principle of Res Judicata:
The Tribunal addressed the argument by the Revenue that the principle of res judicata did not apply. However, the Tribunal clarified that the issue was not about res judicata but about examining the changed circumstances considered by the CIT (Exemptions). The Tribunal found no such changed circumstances or reasons in the impugned order.

5. Evaluation of the Institution's Activities as Charitable or Commercial:
The Tribunal rejected the CIT (Exemptions)'s conclusion that the appellant's activities were commercial because of the surplus generated from training programs. The Tribunal referenced the Supreme Court judgment in Queens Educational Society vs. CIT, which clarified that generating a surplus does not necessarily imply a profit motive. The Tribunal emphasized that the institution's activities were educational and not for profit, and the collection of fees for training programs did not make it a commercial entity.

Conclusion:
The Tribunal set aside the impugned order, directing the CIT (Exemptions) to issue the exemption certificate under Section 10(23C)(vi) for the relevant assessment years. The Tribunal underscored the need for Tax Authorities to apply the tests recognized by the Supreme Court to determine whether an educational institution exists solely for educational purposes and not for profit. The order was pronounced and signed in open court on June 30, 2022.

← Previous Next →