High Court Of Allahabad
Allahabad Young Mens Christian Association vs. CCIT
Section 10(23C)
Assessment year 2008-09
Dr. Satish Chandra And Tarun Agarwala, JJ.
Writ Tax No. 2053 Of 2009
January 6, 2015
ORDER
Satish Chandra, J. – By this writ petition the petitioner-assessee has assailed the order dated 25.03.2009 passed by the Chief Commissioner of Income Tax, Allahabad (hereinafter referred as CCIT), whereby he has refused the registration of the petitioner-assessee under Section 10(23C)(vi) of the Income Tax Act.
2. The brief facts of the case are that the petitioner-assessee is a registered society registered under the Societies Registration Act, and is running a school namely “YMCA Centenary School”. The Society presently has only two objects as per record and the same are as under :
“1. To control, run and manage educational institutions for imparting education to students right from the Nursery level to College level.
2. To establish and manage educational institutions and to construct or acquire and run or manage hostels for boys and students of our college for furtherance of their education.”
3. The petitioner-assessee has applied for the Registration under Section 10(23C)(vi) of the Income Tax Act which is as under :—
” …any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause(iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority “
4. The CCIT has sought the report from the Commissioner of Income Tax (hereinafter referred as CIT) on 1.4.2008 and the same was received on 11.2.2009. On the basis of the report, the respondent no. 1 (CCIT) has refused the registration. Being aggrieved, the petitioner-assessee has filed the present writ petition.
5. With this background Shri Rakesh Ranjan Agrawal, learned Senior Counsel assisted by Shri Suyash Agrawal, learned counsel submits that the petitioner-assessee is a Trust set up at Allahabad. The Trust Society is running an Educational Institution, which is not for the purpose of profit.
6. The petitioner has made an application in Form 56D read with Rule 2/ca of the Income Tax Rules before the CCIT for exemption under Section 10(23C)(vi) alongwith the amended copy of the Memorandum of Association, audit report, and other required documents. The petitioner is fulfilling all the requirements, and necessary documents were submitted, but CCIT has refused the exemption for the Assessment Year 2008-09 and onwards though, the registration was granted under Section 12AA vide letter dated 25.09.2008 w.e.f. 1.4.2007.
7. The learned counsel further submits that the Registration Form for the Assessment Year 2008-09 was filed in the name of the Society, where it was claimed that the activities being carried out by the Society in the name of YMCA Centenary School and the same are wholly for education purpose. The lease was granted for 99 years in the year 1910 and the building on the said lease land was erected long back as per lease-deed. In the balance-sheet the value of the building after depreciation reduced to nil.
8. He also submits that it is wrong to say that the Society is not running an educational institution. According to the learned counsel, the Society is providing education and the same is not for profit. To support his argument, he relied upon the ratio laid down in the following cases :—
1. American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86/170 Taxman 306 (SC);
2. City Montesari School v. Union of India [2009] 315 ITR 48/[2010] 191 Taxman 208 (All.);
3. Ewing Christian College Society v. Chief CIT [2009] 318 ITR 160 (All.);
4. Vanita Vaishram Trust v. Chief CIT [2010] 327 ITR 121/192 Taxman 389 (Bom.);
5. CP Vidya Niketan Inter College Shikshan Socity v. Union of India [2013] 359 ITR 322/213 Taxman 139/40 taxmann.com 76 (All.);
6. Vinjane Centre v. Dy. CIT [2002] 258 ITR 191/133 Taxman 330 (Mad.); and
7. Simpkins School v. DG Income Tax (Inv.) [2014] 367 ITR 335/226 Taxman 160/50 taxmann.com 139 (All.).
9. Lastly, learned counsel readout the charitable purpose mentioned under Section 2(15) of the Income Tax Act 1961, and submits that the assessee is fulfilling all the conditions to avail the exemption.
10. On the other hand, learned counsel for the Department justified the impugned order. He submits that there are various discrepancies, which have been pointed out in the impugned order. The petitioner has given loan to its employees, which is not fulfilling the objects and many of these expenses are not for the purpose of the education, even though they might have served some other social objects. Surplus income shown by the petitioner is increasing and using for activities which are aimed at enhancing the income of the institution. The fee charged from the students is on a higher side and, in each year, there is an element of profit. So, the petitioner is not existing solely for educational purpose and its main motive is to make the profit by charging higher fee from the students. To support his arguments, he relied upon the ration laid down in the following cases :
1. CIT v. Queen’s Educational Society [2009] 319 ITR 160/177 Taxman 326 (Uttaranchal) and
2. CIT v. Sir M. Visveswaraya Educational Trust [2009] 319 ITR 425 (Kar.).
11. We have heard both the parties at length and gone through the material available on record. From the record, it appears that the Society came into existence in the year 1910 and on the land, which was taken for 99 years lease, the petitioner has constructed a building for school. So, it is not correct to say that it is not providing education. Undoubtedly, the petitioner is an educational institution, who is providing education. No other activity was proved by the Department. Moreover, the CCIT has already granted exempted under Section 12A/12AA of the Income Tax Act w.e.f. 1.4.2007.
12. Before us the issue is whether the assessee society is engaged in charitable/educational activities or not.
13. The expression “charity” or “charitable purpose” do not admit of a rigid definition. In order to understand what these expressions legally convey, one can merely enumerate its various aspects and characteristics as they have been recognized by the laws of a particular country. For construing the words ‘education or charitable purposes’, it is necessary to investigate the meaning of these words in the particular system of jurisprudence that may be followed by the assessee.
14. In Mayne’s Hindu Law and Usage, 11th Edition, at page 911, “purta” or charitable acts are referred to as acts of construction of tanks, wells with flights of steps, temples, planting of groves, the gift of good, dharmasalas (rest houses) and places for supplying drinking water, the relief of the sick, the establishment of processions for the honour of deities and so on. Gifts for the promotion of education and knowledge were also considered charitable activities specially what is based on meritorious. In the facts and circumstances on the case specially by nomenclature of the assessee, it appears prima-facie that it is engaged for “educational activities”.
15. From the impugned order, it appears that for denying the exemption, various reasons have been given. For example it was stated that the petitioner is not having car in its balance-sheet, but claiming the expenses for repair and maintenance of the car.
16. During the course of the arguments, the learned counsel has shown the balance-sheet, where the Bolero Car has been shown in the name of the Society. Similarly, the loan was not given as stated in the impugned order, but it was an advance to the employees on various occasions, for which no interest was charged. Regarding the accumulation of the income, it may be stated that the same is permissible as per ratio laid down in the case of DIT (Exemption) v. Eternal Science of Man’s Society [2007] 290 ITR 535/[2006] 155 Taxman 42 (Delhi), where it was held that :
“Accumulation of income is permissible for a plurality of purpose. The respondent-trust had accumulated its income for six different purposes. There was no controversy about five of the said objects being charitable in character. The criticism about the sixth object was that it permitted acquisition of property whether movable or otherwise for the achievement of other objects for which the trust/society had been established. The trust in question had been established in terms of a memorandum. It was not the case of the Revenue that any one of the objects out of the 22 objects enumerated therein was not a charitable object. If that be so, clause (f) permitting acquisition of movable or immovable property for achievement of one of those purposes would necessarily imply that the property was acquired for one of the charitable purpose stipulated in the memorandum.”
17. In American Hotel & Lodging Association, Educational Institute (supra), the Supreme Court analysed the provision and found that the second proviso lays down the powers and duties of the prescribed authority for vetting an application for approval and that the prescribed authority was empowered to call for the documents including annual accounts or information to check the genuineness of the activities of the institution. Under the third proviso, the prescribed authority, while judging the genuineness of the activities of the applicant was required to ascertain whether the applicant applies its income wholly and exclusively for the objects for which it was constituted or established. The Supreme Court held that there was a difference between stipulation of the conditions and compliance therewith. The threshold conditions are the actual existence of an educational institution and approval of the prescribed authority. It is only if the pre-conditions of the actual existence of an educational institution is fulfilled that the question of compliance with the stipulations set out in the provisos would arise. The Supreme Court held:—
“We shall now consider the effect of insertion of provisos to Section 10(23C)(vi) vide Finance 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 required to vet the application. This vetting process is stipulated by the second proviso. It is important to note that the second proviso also indicates the powers and duties of the prescribed authority. While considering the approval application in the second proviso, the prescribed authority is empowered before giving approval to call for such documents including annual accounts or information from the applicant to check the genuineness of the activities of the applicant institution. Earlier that power was not there with the prescribed authority. Under the third proviso, the prescribed authority has to ascertain while judging the genuineness of the activities of the applicant institution as to whether the applicant applies its income wholly and exclusively to the objects for which it is constituted/established. Under the twelfth proviso, the prescribed authority is required to examine cases where an applicant does not apply its income during the year of receipt and accumulates it but makes payment therefrom to any trust or institution registered under 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 idea underlying the twelfth proviso is to provide guidance to the prescribed authority as to the meaning of the words “application of income to the objects for which the institution is established”. Therefore, the twelfth proviso is the matter of detail. 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 fund 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 then the prescribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein.”
18. 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.
19. In American Hotel & Lodging Association, Educational Institute (supra) the authority is required to consider the nature and genuineness of the activities. The third proviso only sets out the conditions, which must be adhered to by the institution and compliance therewith is not to be tested at the stage of approval since they require considerations of facts and findings, which takes place in future. The requirement mentioned in the third proviso can only be tested after the end of the previous year when income is ascertained and thereafter applied. Further, the Supreme Court held that the authority is only required to examine that the petitioner’s institution comes within the phrase “exists solely for the educational purpose and not for profit”. Other conditions like application of income is not to be examined at this stage. The authority is only required to examine the nature, activities and genuineness of the institution. The mere existence that there is some profit does not disqualify the petitioner if the sole purpose of existence was not profit making but educational activities. The authority has to find out the predominant object of the activity and see whether the institution exists solely for education and not to earn profit. Merely because some profit arises from its activity will not mean that the predominant object of the activity is to earn profit and that it is not an educational activity. In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether balance of income has been applied wholly and exclusively to the object for which the institution is not established and in deciding the character of the recipient it was not necessary to look at the profits of each year but to consider the nature and the activities undertaken.
20. The Supreme Court held that the threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standardised form in terms of the first proviso. If the prerequisite conditions of actual existence of the educational institution is fulfilled then the question of compliance with the requirements as spelt out in the other provisos would arise. At this stage, such considerations are not required.
21. From the record, it also appears that the facts were not analyzed by the authorities below in a proper manner. Before us the documents which were produced, it appears prima facie contradictory facts, which need further investigation. In these circumstances, we deem it fit to set aside the impugned order and remand the matter to the CCIT. Hence, without entering into the merits of the case, we set aside the impugned order and direct the competent authority (CCIT) to reconsider the application denovo for exemption under Section 10(23C) (vi) for the Assessment Year 2008-09 and onwards strictly on merit. The petitioner is also directed to submit necessary documentary evidence, if any and cooperate.
The writ petition is, accordingly, allowed.
[Citation : 371 ITR 23]
