Allahabad H.C : Where assessee, a society, was running a degree college and it made an application for approval under section 10(23C)(vi) said application could not be rejected merely on ground that it was not filed by educational institution itself

High Court Of Allahabad

Neeraj Janhitkari Gramin Sewa Sansthan vs. CCIT

Assessment Year : 2009-10

Section : 10(23C)

Manoj Kumar Gupta And Prakash Krishna, JJ.

Writ Tax No. 1714 Of 2010

July 4, 2013

ORDER

1. The petitioner is a society registered under the Societies Registration Act, 1860 vide registration no. 545/199091 dated 3-9-1990. It is running a co-educational degree college in the name and style of Ch. Natthu Singh Yadav Mahavidyalaya Dihuli Barnahal, Karhal, Mainpuri. It is stated that the College is located in a backward area and is imparting education to boys and girls by charging a very nominal fees. Fee is being charged to meet out the running cost and surplus is being used for developing necessary infrastructure to promote education. It has further been claimed that the institution is providing fee concession to poor, handicapped and disabled students while no fee is being charged from SC and ST students.

2. The petitioner society is registered with the Income Tax Department having Pan No. AABTN 2289D. It made an application in prescribed form for approval under section 10(23C)(vi) of the Income Tax Act for assessment year 2009-2010 onwards. The said application has been rejected by impugned order dated 31-8-2010 passed by the Chief Commissioner Income Tax, Ghaziabad on following grounds :-

(A) The approval u/s. 10(23C)(vi) of the Act is available only to an educational institution existing solely for the educational purposes while the memorandum of the society stipulates other objects as well.

(B) The application for exemption of the Income Tax should have been filed by the educational institution while the application in the instant case has been made by the society.

(C) The aims and objects of the society provides for free education but the income and expenditure account filed along with the application shows that the institution has been charging fees and which is against the objects of the society.

3. Challenging the said order, petitioner has come up in writ petition before this court.

4. We have heard Sri Ashish Bansal, advocate for the petitioner and Sri Shambhu Chopra, learned counsel appearing for the department.

5. Learned counsel for the petitioner submitted that for obtaining approval from the Prescribed Authority under clause (vi) of section 10(23C) it is not necessary that the application should have been filed by the educational institution itself. Such an application has to be filed by ‘person’ as defined under section 2(31) of the Act which, according to him in the instant case is the society. Elaborating his argument he further submitted that the ‘person’ contemplated by section 2(31) of the Act may be having income from various sources but under section 10, such of its income which falls under any of the clauses stipulated thereunder is exempt and not income from other sources. Thus, it is not necessary that the ‘person’ which in the instant case is the society, should be having income only from one or other source stipulated under various clauses of section 10 and from no other source.

6. He further submitted that Rule 2-CA of the Income Tax Rules, 1962 which provides for application for approval being made in form 56D by educational institution is procedural one and cannot restrict or whittle down the scope and ambit of the statutory provision, i.e. section 10 which is applicable to a ‘person’ as defined under section 2(31) of the Act. Alternatively, he submits that it has been the specific case of petitioner society that it is engaged only in running the Education institutions and is not perusing any other object mentioned in its original bye-laws. In support of his contentions, he placed strong reliance on the judgement of this court dated 16-10-2012 passed in Writ petition No. 1185 of 2011 C.P. Vidya Niketan Inter College Shikshan Society v. Union of India. He has also placed reliance on the judgement of the Apex Court in Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310, Pinegrove International Charitable Trust v. Union of India [2010] 188 Taxman 402/327 ITR 73 (Punj & Har.), Digember Jain Society for Child Welfare v. Director General of Income-Tax (Exemptions) [2009] 185 Taxman 255 (Delhi) and American Hotel & Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86/170 Taxman 306 (SC).

7. On the other hand, Sri Shambhu Chopra, counsel for the department contended that the application filed by the petitioner society was rightly rejected as not maintainable and since the society has not been formed with the sole object of imparting education, but its memorandum of association reflects that it has other aims and objects as well and, therefore, it has rightly been denied approval u/s. 10(23C)(vi).

8. The first and foremost question which is required to be considered is whether the application for approval u/s. 10(23C)(vi) at the instance of the petitioner society was maintainable or nor and if the view taken by the prescribed authority that such application should have been filed by the educational institution itself, is legally sustainable. Before insertion of section u/s.10(23C)(vi), such cases were covered by section 10(22) which was to the following effect :-

“10(22) any income of an university or other educational institution, existing solely for educational purposes and not for purposes of profit.”

The aforesaid provision was amended by Finance No.2 Act, 1998, w.e.f. 1-4-1999 and in its place section 10(23C)(vi) has been inserted which is as follows :-

“10(23C)(vi) 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; or…”

9. In the case of American Hotel and Lodging Association Educational Institute (supra), Supreme Court considered the effect of insertion of section 10(23C)(vi) of the Income Tax Act, 1961 and held that the amended provisions are analogous to section 10(23). Punjab & Haryana High Court had the occasion to consider the effect of section 10(23C)(vi) in its judgement reported in Pinegrove International Charitable Trust (supra), while replying to a specific question whether a society registered under the Societies Registration Act, 1860 is eligible to apply for exemption u/s. 10(23C)(vi) of the Act. The question was answered in favour of the society by holding that the application for approval u/s. 10(23C) (vi) is maintainable at the instance of a society. While taking the aforesaid view, reliance was placed on the judgement of the Apex Court in the case of Aditanar Educational Institution (supra). Relevant paragraph whereof is reproduced below :-

“Counsel for the Revenue mainly stressed the plea that the exemption under Section 10(22) of the Act would apply only to educational institutions as such. According to him, in this case, the assessee might be financing for running an educational institution, but it is not itself an educational institution. As noted earlier, the Tribunal held that the assessee was an institution existing for educational purposes and not for the purposes of earning any profit and the assessee itself could be termed as an “educational institution” coming within Section 10(22) of the Act. The High Court has concurred with this view. The High Court has further held that the medium through which the assessee could effectuate its objects is the college and by employing this medium, the assessee imparts education and it cannot be stated that the assessee is only a financing body and does not, on facts, come within the scope of “other educational institution” occurring in Section 10(22) of the Act. Reliance was placed on the decision of the Allahabad High court in Katra Education Society v. Income Tax Officer [1978] 111 ITR 420), to hold that an educational society could be regarded as an educational institution if the society was running an educational institution. We are of the view that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit could be regarded as “other educational institution” coming within section 10(22) of the Act. (See CIT v. Doon Foundation – [1985] 154 ITR 208 (Cal) and Agarwal Shiksha Samiti Trust v. CIT [1987] 168 ITR 751 (Raj). It will be rather unreal and hyper-technical to hold that the assessee-society is only a financing body and will not come within the scope of “other educational institution” as specified in section 10(22) of the Act.”

10. Similar view has been taken by Delhi High Court in its judgement in Digember Jain Society For Child Welfare (supra) wherein it was observed as under :-

“The Supreme Court in Aditanar Educational Institution v. Additional CIT [1997] 224 ITR 310, has held that a society or a trust or other similar body running educational institutions solely for educational purposes and having the overall object of not to make any profit can be regarded as ‘other educational institution’ even if some surplus arises from its activities.

When we apply the principles laid down by the apex court in the aforesaid judgements, it becomes clear that the petitioner-society has mainly been formed within the objective of carrying out educational activity. There is no purpose of profit. As of today, its only activity is education, namely, running of various schools and no other activity.”

11. In view of the authoritative pronouncement of law by the Apex Court and various High Courts, we have no hesitation in holding that the application filed by the petitioner society cannot be rejected on the ground that it is not at the instance of “educational institution” as referred to under section 10(23C)(vi) of the Act and Rule 2-CA of the Income Tax Rules, 1962.

12. The next question which now arises for consideration is whether an application can be rejected on the ground that the memorandum of association of the society provides for various other objects apart from educational activities. In this regard, the argument of learned counsel for the petitioner is that even though under the unamended bye-laws of the society, various other aims and objects were mentioned but according to application for approval and the material on record, the society is only carrying on educational activities. In this regard, specific assertion has been made in paragraph 2 of the application for approval. In paragraph 7 of the application, there is a specific assertion that the only source of income of the society is the nominal fees being charged from students and it has no other source of income. Learned counsel for the petitioner has placed strong reliance on the judgement of this court in the case of C.P. Vidya Niketan Inter College Shikshan Society (supra). We find that there the petitioner was a society which had made an application for approval u/s.10(23C)(vi) and its application for approval was rejected on the ground that benefit of section 10(23C)(vi) is available only 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. Therein, this court had held that even though the aims and objects of the society may contain several objects but if it has been proved by material on record that the society is not perusing any other activity apart from education then in such case, the society will qualify for grant of approval u/s. 10(23C) (vi) of the Act. It was observed as under :-

“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 connected with education for making profit, would not constitute the grounds to reject the approval under Section 10 (23C)(vi).”

13. Perusal of the impugned order shows that the pleading in this regard have not been taken into consideration. Further, in the impugned orders, although, there is a finding that the society is having many objects other than educational, but there is no application of mind to the assertion made by the society that it is only pursuing the educational activity and no other. In view of the Division Bench decision of this Court in case of C.P. Vidya Niketan Inter College Shikshan Society (supra), in case, the society is pursuing only educational objects and no other activity then the application by such a society for grant of approval u/s. 10(23C) (vi) cannot be rejected on the ground that its aims and objects contain several other objects apart from educational and application by such a society is perfectly maintainable.

14. Sri Shambhu Chopra, appearing for the department could not point out any distinguishing feature but rather accepted that the judgement of the Division Bench in C.P. Vidya Niketan Inter College Shikshan Society (supra) will have full application to the facts of the instant case.

15. Respectively following such judgement, the impugned order dated 31-8-2010 passed by the Chief Commissioner, Income Tax, Ghaziabad is quashed. The matter is remitted back to the Prescribed authority for a fresh decision in accordance with the observations made above. It is desirable that the said decision may be taken by the Prescribed Authority within three months from the date of production of a certified copy of this order before it.

16. Since the matter is being remitted to the Prescribed Authority and, therefore, this court is not going into the other questions which may also be pressed and decided by the concerned authority afresh strictly in accordance with law.

17. Subject to the above, the writ petition is allowed. No orders as to costs.

[Citation : 360 ITR 168]