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2023 (3) TMI 562 - HC - Income TaxClaim of exemption u/s. 10(22) and section 10(23C)(vi) - whether any income of university or other educational institution, existing solely for educational purpose and not for purposes of profit? - HELD THAT - Once it is established that the ASB/the petitioners exist to provide education and not for profit, the exemption cannot be denied. The Supreme Court in the case of American Hotel 2008 (5) TMI 17 - SUPREME COURT has held that at the time of granting approval u/s. 10(23C)(vi) of the Act, the prescribed authority should not go into the examination of monitoring provision. That is the job of the assessing officer. In our view, in the present case there was absolutely no requirement to certify the correctness of the accounts of SAIESF as held by respondent no. 4 as being impossible and therefore, being led to believe that the conditions of clause (a) of the 3rd proviso to Section 10(23C)(vi) are not satisfied. As a matter of record, the department has granted ASB/the petitioners exemption under sections 10(22) and 10(23C)(vi) of the Act since AY 1999-2000 to 2002-03 and AY 2006-07 to AY 2026-27. It is therefore substantiated that the petitioner only exists for educational purposes and not for profit. The current matters under the writ petitions are covered by the petitioner s own case for A.Y. 1999-00, A.Y. 2000-01 and A.Y. 2001-02 by the decision of the Hob ble Delhi High Court 2015 (8) TMI 717 - DELHI HIGH COURT Special Leave Petition of the Tax Authorities against the said order of the Delhi High Court has been dismissed by the Supreme Court 2008 (5) TMI 17 - SUPREME COURT . The principles as laid down in the decision of the Supreme Court in the case of American Hotel (supra) apply to the current matters under the petition. The respondents can be concerned only with the application of income in the hands of ASB/the petitioners once received in India. This is because in the present case, ASB/the Petitioners are not transferring/repatriating any money outside India to any person or entity. Therefore, in our view the respondents can have absolutely no concern about the receipts and expenses made by an entity outside the country merely because it is transferring its surplus or even a portion thereof to an entity in India. In this case, the petitioners inasmuch as it would strictly be the concern between the person or entity transferring the surplus and the authorities of that country. Furthermore, it is not the case of the respondents that having received the monies in India, ASB/the petitioners have not utilized the funds in accordance with the objects for which it was founded. The respondents have not substantiated their bald statement that ASB/the petitioners have not invested the surplus money in accordance with law which in any event would not be a criteria at the initial stage of approval as held by the Apex Court in New Noble Society (supra). The most relevant proviso for deciding this appeal is the thirteenth proviso. Under that proviso, the circumstances are given under which the prescribed authority is empowered to withdraw the approval earlier granted. Under that proviso, if the prescribed authority is satisfied that the trust, fund, university or other educational institution etc. has not applied its income in accordance with the third proviso or if it finds that such institution, trust or fund etc. has not invested / deposited its funds in accordance with the third proviso or that the activities of such funds or institution or trust etc., are not genuine or that its activities are not being carried out in accordance with the conditions subject to which approval is granted that the prescribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein - we find no merit in the contentions of the respondents and consequently allow the petition in terms of prayer clause (a) and (b).
Issues Involved:
1. Eligibility for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961. 2. Compliance with conditions for exemption, including the application of income and investment of surplus funds. 3. Relevance of foreign entity (SAIESF) transactions and their impact on the exemption claim. Detailed Analysis: 1. Eligibility for Exemption under Section 10(23C)(vi): The petitioners, trustees of the American School of Bombay Education Trust (ASB), sought to set aside the impugned order dated 27th February 2009 and direct the respondents to grant them the exemption under Section 10(23C)(vi) for AY 2002-03 to AY 2005-06. The main condition for claiming exemption under this section is that the institution shall exist solely for the purpose of providing education and not for profit. The petitioners argued that ASB meets this requirement, as established in previous assessments and judicial decisions, including those by the Delhi High Court and the Supreme Court in the case of American Hotel & Lodging Association, Educational Institute v/s. CBDT (2008) 170 Taxman 306 (SC). 2. Compliance with Conditions for Exemption: The petitioners contended that the scope of verification at the stage of registration is limited to ascertaining that the institution exists solely for educational purposes and not for profit, as per the Supreme Court's decision in American Hotel (supra). The monitoring conditions, such as the application of income and investment of surplus in prescribed modes, are to be verified at a later stage by the Tax Authority. The petitioners provided evidence that SAIESF, a supporting entity in the USA, is a non-profit organization, subject to scrutiny by the US Government, and that all its expenses were for the educational purposes of ASB. The accounts of SAIESF were compiled by a Certified Public Accountant and scrutinized by the Internal Revenue Services (IRS) of the USA. 3. Relevance of Foreign Entity Transactions: The respondents argued that part of the receipts and expenses were handled by SAIESF in the USA, making it difficult to verify compliance with Section 11(5) of the Act. They contended that the exemption provisions are to be strictly construed and that the surplus had not been invested in the prescribed modes. However, the petitioners argued that the income earned and expenses incurred outside India by SAIESF should not concern the Indian Income Tax Department, as the money was repatriated to India and used for educational purposes. The Supreme Court in American Hotel (supra) held that the application of income need not be confined to India. Conclusion: The court concluded that the petitioners are entitled to the exemption under Section 10(23C)(vi) as they exist solely for educational purposes and not for profit. The court found no merit in the respondents' contentions regarding the difficulty in verifying SAIESF's accounts and the investment of surplus funds. The court allowed the petition, directing the respondents to grant the exemption for the relevant assessment years. The decision emphasized that the monitoring of funds and compliance with investment conditions should be done at a later stage by the Tax Authority. The court also noted that the principles laid down in the Supreme Court's decision in American Hotel (supra) and the Delhi High Court's judgment in the petitioner's own case for earlier years apply to the present matter.
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