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TMI Blog2013 (7) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... se of imparting education - in the absence of any allegation or material, the object clause providing for other charitable activities, would not disentitle the society from approval under Section 10 (23C) (vi) of exemption - mere possibility, that the society may in future pursue activities, which are not charitable, or closely connected with education for making profit, would not constitute the grounds to reject the approval under Section 10 (23C) (vi) - Following decision of AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTE Versus CBDT & OTHERS [2008 (5) TMI 17 - SUPREME COURT OF INDIA], Vanita Vishram Trust v. Chief Commissioner of Income Tax & Anr. [2010 (5) TMI 102 - BOMBAY HIGH COURT] and EWING CHRISTIAN COLLEGE SOCIETY Versus CHIEF COMMISSIONER OF INCOME-TAX [2009 (5) TMI 103 - ALLAHABAD HIGH COURT] - Decided in favour of assessee. Principal of natural justice - Held that:- Chief Commissioner of Income Tax did not give sufficient opportunity to the petitioner, to place documents relevant to the enquiry before rejecting the application - when the petitioner was required to produce the audit report under Rule 16CC in Form 10BB, and the petitioner was granted time t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anj, Distt. Farrukhabad. A notice was issued to the society on 13.5.2011. It was heard on 19.5.2011 on which date it was required to produce audit report along with other relevant details, documents and accounts. The application was rejected by the Chief Commissioner of Income Tax, Ghaziabad (the Prescribed Authority) on 27.5.2011 on the grounds; (a) the application for approval under Section 10 (23C) (vi) is available to an educational institution existing solely for the purpose of imparting education, while the application has been made by a society having many activities that appear to be other than educational such as to make appropriate efforts for upliftment of public in social and cultural field etc., and (b) the applicant has not filed the mandatory audit report under Rule 16CC (Form 10BB). As such the application is not maintainable. 6. As the order is not appellable, the society has filed this writ petition on the grounds that the rejection of petitioner's application for the reason that it has many other objectives, which seemingly are not related to education, is arbitrary and contrary to the decision of this Court in Ewing Christian College Society v. CCIT, 318 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce the report and was orally directed to furnish the same within next three days. In view of the fact that hearing took place on 27.5.2011, which was Friday, the report could be produced by Monday. However, on 27.5.2011 itself the Commissioner of Income Tax passed orders without providing adequate opportunity to produce the audit report. 9. Shri Navin Sinha has relied upon Digember Jain Society for Child Welfare v. Director General of Income Tax (Exemptions), (2009) 185 Taxman 255 (Delhi); Vanita Vishram Trust v. Chief commissioner of Income Tax Anr., (2010) 327 ITR 121 (Bom); City Montessory School (Regs.) v. Union of India Ors., (2009) 315 ITR 48 (All) and American Hotel and Lodging Association Educational Institute v. Central Board of Direct Taxes Ors., (2008) 301 ITR 86 (SC) in support of his submissions. 10. In City Montessory School (Regd.) (Supra) the petitioner society was a registered society running a school. Initially the income was not taxable, hence no returns were filed. When notice under Section 142 (i) was issued, a return was filed for the assessment year 1991-92, with the claim for exemption under Section 10 (22). The Tribunal allowed the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e society was assessed to income for the previous assessment years for the total income at Nil and in the circumstances the order rejecting the application under Section 10 (23C) (vi) was quashed. A writ of mandamus was issued to the respondents to give exemption, however while doing so the respondent was made free to incorporate stipulation and condition in terms of the Third Proviso, subject to undertaking given by the petitioner that the petitioner society will not breach any of these conditions and that any surplus fund shall be utilized only for educational purposes and will not be diverted to other non-educational objects. 12. In Vanita Vishram Trust v. Chief Commissioner of Income Tax Anr. (Supra) the Bombay High Court held that though the memorandum of association contains varied objects, so long as the record demonstrates that the assessee only conducts educational institutions, it must be regarded as existing solely for the purpose of education. The surplus may incidentally arise from the activities of the trust, after meeting the expenditure incurred for conducting educational activities but that wold not dis-entitle the trust of the benefit of the provisions of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucational purposes and not for profit if the aggregate annual receipts do not exceed an amount prescribed. Where the aggregate receipts exceed the amount prescribed, then the approval of the prescribed authority is mandated in order to enable the institution to obtain the benefit of the exemption contained in sub-clause (vi). The provisos which have been enacted by Parliament regulate the manner in which applications are to be made, the grounds of an application and verification of compliance with the provision. Under the first proviso, an application under sub-clause (vi) has to be made in the prescribed form to the prescribed authority for the grant or continuance of an exemption. The prescribed authority, before approving an institution, University or educational institution is entitled to call for documents including audited annual accounts or information in order to satisfy itself about the genuineness of the activities carried on. The prescribed authority is empowered to make such enquiries as it deems necessary. The third proviso stipulates inter alia that where a University or other educational institution referred to in sub-clause (vi) applies its income or accumulates it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... training in fine arts. A number of ancillary objects have been adverted therein including provision of libraries and gymnasiums, publication of books and by means of pecuniary and other help to students of the institution. A holistic reading of the object clause would establish beyond doubt that the sole purpose for the establishment of the Petitioner was to further the cause of education amongst women belonging to a particular class, as stated therein. Though the objects clause contained varied objects including the management and development of movable and immovable properties, the statement of fact before the Court which is not disputed is that the only activity which has been carried out by the Trust ever since its inception is the conduct of educational institutions. The Court, it must be emphasized, is not dealing with an institution which has sought approval for the first time or which has been set up in the proximate past. The Trust has a history of over eighty years during the course of which the only activity is of conducting educational institutions." 13. In American Hotels Lodging Association Educational Institute (Supra) the Supreme Court analysed the provisos to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions as it deems fit provided they are not in conflict with the provisions of the 1961 Act (including the abovementioned monitoring conditions). While imposing stipulations subject to which approval is granted, the PA may insist on certain percentage of accounting Income to be utilized/applied for imparting education in India. While making such stipulations, the PA has to examine the activities in India which the applicant has undertaken in its Constitution, MoUs. and Agreement with Government of India/National Council. In this case, broadly the activities undertaken by the appellant are - conducting classical education by providing course materials, designing courses, conducting exams, granting diplomas, supervising exams, all under the terms of an Agreement entered into with Institutions of the Government of India. Similarly, the PA may grant approvals on such terms and conditions as it deems fit in case where the Institute applies for initial approval for the first time. The PA must give an opportunity to the applicant-institute to comply with the monitoring conditions which have been stipulated for the first time by the third proviso. Therefore, cases where earlier the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment made to the object clause of the petitioner society, it can be said to exist solely for the purposes of education as provided under Section 10 (23C) and whether the petitioner society was given adequate opportunity to establish in the enquiry held by the Chief Commissioner to satisfy him about the activities of the society to qualify for exemption. 18. Section 10(23C) falls in Chapter III, which provides for incomes, which do not form part of total income. It exempts the income of various funds, societies and trusts, which are set up for charitable purposes and which includes Prime Minister's National Relief Fund; Prime Minister's Fund (Promotion of Folk Act); Prime Minister Aid to Student Fund; or the National Foundation of Communal Harmony; University or other educational institutions existing solely for educational purposes and not for profit, and which is wholly or substantially financed by the Governmetn or hospitals, Universities with receipts which do not exceed the amounts of annual receipts prescribed. Section 10 (23C) (vi) provides:- "any university or other educational institution existing solely for educational purposes and no6 for purposes of profit, oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 12AA or to any fund or trust or institution or University or other educational institution and to that extent the proviso states that such payment shall not be treated as application of income to the objects for which such trust or fund or educational institution is established. The 12th Proviso is the matter of detail. Under the 13th Proviso circumstances are given under which Prescribed Authority is empowered to withdraw the approval earlier granted. 21. In Sole Trustee, Loka Shikshana Trust v. Commissioner of Income Tax, Mysore, 1975 (101) ITR 234, it was held that word 'education' in Section 2 (15) of the Act connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling, and has not been used in the wide and extensive sense according to which every acquisition of further knowledge constitutes education. It further held that ordinarily, profit motive is a normal incident of business activity and if the activity of a trust consists of the carrying on of a business and there are no restrictions on its making profit, the court would be well justified in assuming, in the absence of some indication to the contrary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merican Hotel and Lodging Association Educational Institute (Supra) as well as the view taken by this Court in Ewing Christian College Society (Supra) in which it was held that where it is not disputed that the society runs an educational institution, and is not for the purposes of making profit, merely because the object of the society is also to serve the church and the nation would not mean that the educational institution not existing solely for educational purpose. 24. In the facts and circumstances, we are of the opinion that as of now the petitioner society running educational institution by the name of C.P. Vidya Niketan Inter College at Kaimganj, Distt. Farrukhabad imparts education to students from Class VI to XII, in the absence of any allegation or material, the object clause providing for other charitable activities, would not disentitle the society from approval under Section 10 (23C) (vi) of exemption. The proviso added to Section 10 (23C) (vi), specially Proviso 2, 3, 12 and 13, give sufficient powers to check the abuse of the exemption. The mere possibility, therefore, that the society may in future pursue activities, which are not charitable, or closely connecte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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