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TMI Blog2015 (12) TMI 1901X X X X Extracts X X X X X X X X Extracts X X X X ..... of 12% was charged to obviate the profit by way of interest and divert the money to its members in the garb of payment of interest on the loan given. For the assessment year 2005-06, the rate of interest was increased from 12% to 18% and in 2006-07 the rate of interest was increased to 21%. This increase in rate of interest was to ensure that the income of the society was diverted to its members in the garb of payment of interest. The increase in the rate of interest could be seen on account of the increase in the income of the society. There is also a specific finding that the bye-laws had no provision for taking loan on interest, though, subsequently, the amendment was made in its bye-laws during the financial year 2006-07, which will have no effect in so far as the present application of the petitioner is concerned. Thus an irresistible inference can be drawn that the petitioner's society, even if it was running an educational institution solely for education purposes, yet it was with the intention of earning a profit and it was not for a non-profit purpose. On this short ground, we are of the opinion that the order of the Commissioner does not require any interference. Deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the reply of the petitioner. The extract of the judgment of this Court is quoted hereunder:-- though in the impugned order it is stated 'a reply dated 24.12.2007 was received which has been considered but not found satisfactory' the Income Tax Officer has not disclosed any reason in his order to show as to why reply was not found satisfactory. 4. And further observed: The writ petition is allowed. The order dated 28.02.2008 passed by the Income Tax Officer (Tech.) for the Chief Commissioner of Income Tax, Kanpur is set aside. The Chief Commissioner of Income Tax, Kanpur is directed to pass fresh order after considering the reply of the petitioner giving sufficient reasons. 5. During the pendency of the writ petition certain developments had taken place, inasmuch as same objections were being raised in the assessment proceedings for the assessment years 2005-06 to 2008-09 in relation to the expenditure shown towards interest paid to its members on the unsecured loans given by them. The Tribunal allowed these expenditures relating to payment of interest at the rate of 12% for the assessment year 2005-06 and 18% for the assessment year 2006-07, 2007-08 and 2008-09. The cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a diversion of the income of the society by making payments of interest to its members was not illegal but permissible and an allowable expenditure under Section 13(1)(c) of the Act, which has been granted by the Tribunal for the subsequent assessment years, which fact was not considered on the pretext that subsequent events could not be considered since a limited direction was given by the High Court. The learned Senior Counsel further observed that there was no diversion of fund and the Commissioner committed an error in holding that the petitioner's institution is not a non-profit organization. 10. The learned Senior Counsel further submitted that the authority was only required to consider the nature and genuineness of the activities of the petitioner's institution and the conditions set out in the 3rd proviso to Section 10(23c)(vi) of the Act was not to be tested at the stage of approval since the required facts would take place in future. The learned Senior Counsel urged that the requirement mentioned in the 3rd proviso could only be tested when assessment proceedings were made and the authority at that stage would consider the requirement provided in the 3rd provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. The Supreme Court held:-- We shall now consider the effect of insertion of provisos to Section 10(23C)(vi) vide Finance (No. 2) Act, 1998. Section 10(23C)(vi) is analogous to Section 10(22). To that extent, the judgments of this Court as applicable to Section 10(22) would equally apply to Section 10(23C)(vi). The problem arises with the insertion of the provisos to Section 10(23C)(vi). With the insertion of the provisos to Section 10(23C)(vi) the applicant who seeks approval has not only to show that it is an institution existing solely for educational purposes which was also the requirement under Section 10(22) but it has now to obtain initial approval from the prescribed authority, in terms of Section 10(23C)(vi) by making an application in the standardized form as mentioned in the first proviso to that section. That condition of obtaining approval from the prescribed authority came to be inserted because Section 10(22) was abused by some educational institutions/universities. This proviso was inserted along with other provisos because there was no monitoring mechanism to check abuse of exemption provision. With the insertion of the first proviso, the prescribed authority is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein. In the instant case, it is not disputed that the petitioner society is running an educational institution. Merely because there are other objects of the society does not mean that the educational institution is not existing solely for educational purpose. The emphasis of the word solely is in relation to the educational institution, which is running not for the purpose of making profit and is not in relation to the objects of the society. 13. Having heard the learned counsel for the parties at some length, we find that the authority was not right in holding that he would only consider the reply already filed by the petitioner and that he would not consider the subsequent reply filed or that he would not consider the subsequent events that had taken place. We are of the opinion that when the High Court remitted the matter back to the Commissioner to consider the reply of the petitioner and pass a fresh order, the High Court did not confine the reply of the petitioner to be considered, which had already been filed but the Commissioner was required to consider all the replies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a facie, should come to a conclusion whether the educational institution is running for the purpose of profit or otherwise. If the Commissioner prima facie comes to the conclusion that the institution is not running for profit then the Commissioner is bound to grant exemption but if the Commissioner finds that the institution is running for profit then it can certainly decline to grant exemption. 17. In the light of the aforesaid, we find from the perusal of the impugned order that based on a survey, a show cause notice was given and, thereafter, a finding has been given that the profits of the institution are being diverted to the members of the society in the garb of payment of interest on the unsecured loans given by them. The genuineness of this transaction has been doubted. A specific finding has been given that at the time when the members gave the loan, no rate of interest was payable by the institution but subsequently, for the subsequent assessment years, the rate of interest of 12% was charged to obviate the profit by way of interest and divert the money to its members in the garb of payment of interest on the loan given. For the assessment year 2005-06, the rate of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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