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2024 (3) TMI 482 - HC - Income TaxExemption u/s 10 (23C) (vi) - generation of surplus from year to year - exemption denied as surplus being generated is not incidental to educational purposes - HELD THAT - This Court observes that the Ministry of Finance, Department of Revenue, Central Board of Direct Tax issued a Circular bearing No. 14/2015 (F.No.197/38/2015-ITA-I) dated 17.08.2015, stating therein that representations have been received seeking clarification on certain issues relating to grant of approval and claim of exemption u/s 10 (23C) (vi) and vide the said circular, it was clarified that the mere generation of surplus from year to year cannot be a basis for rejection of application under Section 10(23C) (vi) of the Act of 1961. The petitioner is claiming that it is being run as a Trust solely for educational purposes, and thus, seeking the exemption under Section 10 (23C) (vi) of the Act of 1961, and the generation of surplus from year to year cannot be bar in seeking such exemption under the said provision of law. This Court further observes that after the judgment rendered by the Hon ble Apex Court in case of Queen s Educational Society 2015 (3) TMI 619 - SUPREME COURT and issuance of the aforementioned clarificatory Circular, the case of the present petitioner needs to be duly considered by the respondents. Thus, in light of the aforesaid observations and looking into the factual matrix of the present case, particularly, the precedent of Queen s Educational Society (supra) and the aforementioned clarificatory circular, the present petition is partly allowed; accordingly, while quashing and setting aside the impugned order matter is remanded back to the respondents with a direction to re-consider and decide the application in question preferred by the petitioner under Section 10 (23C) (vi).
Issues:
The issues involved in the judgment are the rejection of the petitioner's application for exemption under Section 10 (23C) (vi) of the Income Tax Act, 1961 by the Chief Commissioner of Income Tax, Jodhpur, and the contention of the petitioner that it is engaged solely in educational purposes. Issue 1: Rejection of Application for Exemption The petitioner, a Charitable Trust registered under various authorities, filed an application seeking exemption under Section 10 (23C) (vi) of the Income Tax Act, 1961. Despite responding to queries and providing information, the application was rejected by the respondents through an order dated 26.11.2013. The respondent-Chief Commissioner concluded that the petitioner was generating surplus income not incidental to educational purposes, thus not qualifying for the exemption. Issue 2: Contention of the Petitioner The petitioner argued that it is exclusively engaged in educational activities, falling under Section 10 (23C) (vi) of the Act. It was emphasized that the surplus generated is a natural outcome of running an educational institution for charitable purposes. Citing relevant case laws, the petitioner contended that the rejection of the application was arbitrary and illegal. Judgment After considering the submissions and perusing the record, the Court observed that the petitioner had duly filed the application seeking exemption. The rejection was based on the belief that the petitioner was running for profit, which was disputed by the petitioner. The Court noted that the judgment of the Uttarakhand High Court, relied upon by the respondents, was overruled by the Supreme Court. Additionally, a circular issued by the Central Board of Direct Tax clarified that mere generation of surplus cannot be a basis for rejection of the application under Section 10 (23C) (vi). Conclusion In light of the observations and the legal precedents, the Court partly allowed the petition. The impugned order was quashed and set aside, with a direction for the respondents to re-consider and decide the application in accordance with the law and the clarifications provided. The respondents were instructed to complete this re-evaluation within three months from the date of the judgment.
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