High Court Of Andhra Pradesh
R. R. M. Educational Society vs. CCIT
Assessment Year : 2008-09
Section : 10(23C), 2(15)
V. V. S. Rao And Ramesh Ranganathan, JJ.
W.P. No. 26985 Of 2010
November 23, 2010
Ramesh Ranganathan, J. – The relief sought for in this writ petition is to declare the proceedings of the 1st respondent – Chief Commissioner of Income Tax dated 26.5.2010 as illegal and arbitrary. A consequential direction is sought to the 1st respondent to grant approval to the petitioner under Section 10(23C)(vi) of the Income Tax Act, 1961 (hereinafter called “the Act”).
2. The objects of the petitioner, a society registered under the Andhra Pradesh (Telangana Areas) Public Societies Registration Act, 1350 Fasli with Registration No.6402/99 dated 8.9.1999 are as follows:
(i) To open, run and continue an institution for providing Higher, Technical and Medical Education and Training to the student community of students to promote literacy and eradicate unemployment;
(ii) To open, run and continue the Hostels for the poor students community;
(iii) To organize seminars, workshops, debates, camps and forums etc., for poor student community
(iv) To encourage social, educational and literary activities among the students;
(v) To open run and continue primary, secondary and High Schools for students, and
(vi) to conduct cultural programmes, help for poor people of community for their study.
3. The aforesaid objects are said to have been amended in the meeting held on 27.1.2010, and the amended objects registered with the Registrar of Societies on 24.8.2009. The objects, after amendment, are as under:
(a) To open, run continue an institution for providing Higher, Technical and Medical Education and Training to the student community of students to promote Literacy and Eradicate Unemployment and
(b) To open, run and continue primary, secondary and high schools for students.
4. It is the petitioner’s case that they have been running various educational institutions, including P.G. colleges, Engineering colleges etc., after obtaining necessary approval from the appropriate authorities; and they have been filing income tax returns regularly claiming exemption under the Income Tax Act, 1961 (hereinafter called the “Act”) on the ground that their existence is solely for educational purposes, and not for profit. They submitted an application in Form 56D, along with necessary enclosures, on 27.5.2009 before the Director of Income Tax (Exemptions), seeking approval under Section 10(23C)(vi) of the Act. The Dy. Commissioner of Income Tax issued notice dated 3.5.2010 informing the petitioner that, in view of the time limit prescribed under the fourteenth provision to Section 10(23C) of the Act, the application filed by them on 27.5.2009, in so far as it related to the assessment year 2008-09, was not in accordance with the proviso and was beyond time; some of their objects were non-educational in nature; inclusion of such objects indicated that the society did not exist solely for the purpose of education; and, as they were not registered under Section 43 of the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987 (A.P. Act 30 of 1987), their application was liable to be rejected. The petitioner was asked to furnish details of the corpus fund deposit of Rs. 35.00 lakhs appearing in the balance sheet on 31.3.2008. They were directed to appear before the 1st respondent for hearing on 14.5.2010. The petitioner submitted their reply to the show cause notice on 17.5.2010. However their application was rejected by the 1st respondent by proceedings dated 26.5.2010 on the ground that, in so far as the assessment year 2008-09 was concerned, the application filed by them on 27.5.2009 was beyond time; and, in so far as the assessment year 2009-10 was concerned, some of their objects were non-educational, and they were not registered under A.P. Act 30/87. It is this order of the 1st respondent dated 26.5.2010 which is under challenge in this writ petition.
5. The order of the 1st respondent is under challenge on the ground that he ought to have condoned the delay in filing the application in seeking approval by adopting a liberal approach; the only activity carried on by the petitioner ever since their inception was to conduct educational activities; and the 1st respondent ought to have considered the amended objects as has been done in the case of similarly placed institutions.
6. Under the first proviso to Section 10(23C)(vi) of the Act, educational institutions are required to make an application, in the prescribed form and manner, to the prescribed authority for the purpose of grant of exemption or continuance thereof. The second proviso enables the prescribed authority, before approving any educational institution under sub-clause (vi), to call for such documents including audited annual accounts or information from the educational institution, as it thinks necessary, in order to satisfy itself about the genuineness of the activities of such educational institution. The second proviso also enables the prescribed authority to make such enquiries as it deems necessary. The fourteenth proviso to Section 10(23C) of the Act, in its entirety, was inserted by the Finance Act, 2006 with effect from 1.6.2006 and, prior to its amendment by Finance Act, 2009, required an educational institution which makes an application, on or after the first day of June, 2006, for the purpose of grant of exemption or continuance thereof to make an application at any time during the financial year immediately preceding the assessment year. After its amendment by Finance Act, 2009, with retrospective effect from 1.4.2009, the fourteenth proviso to Section 10(23C) stipulates that where an educational institution, referred to in the first proviso, makes an application, on or after the first day of June, 2006, for the purpose of grant of exemption or continuance thereof, such application shall be made on or before the 30th day of September of the relevant assessment year for which the exemption is sought.
7. Admittedly the petitioner submitted their application, for the assessment year 2008-09, only on 27.5.2009. Even after the amendment to the fourteenth proviso, by Finance Act 2009, with retrospective effect from 1.4.2009, the application is required to be made on or before the 30th day of September of the relevant assessment year and, as such, the application ought to have been filed on or before 30th of September 2008. Before the amendment, the fourteenth proviso required the application to be made in the financial year immediately preceding the assessment year, in which case the application for the assessment year 2008-09 ought to have been made on or before 31.3.2008.
8. No power is vested with the Chief CIT to entertain an application, filed under Section 10(23C)(vi), beyond the statutory period by condoning the delay in presenting the application. In this context, it is relevant to reproduce the Notes on Clauses to the Finance Bill, 2006 which reads thus:-
“Providing a time-limit for application for grant of exemption or continuance of exemption for certain charitable and religions trusts and institutions and certain educational and medical institutions.
Under the existing provisions contained in Sub-clauses (iv), (v), (vi) and (via) of Clause (23C) of Section 10, there is no time-limit for any university or other educational institution or any hospital or other institutions, or any fund or trust or institution specified therein to make an application for issue or notification/grant of approval or continuance thereof.
It is proposed to insert a new proviso in Clause (23C), so as to provide a time-limit for the purposes of making an application under the said sub-clause. Such application for grant of exemption or continuance thereof under any of these sub-clauses shall have to be filed at any time during the financial year immediately preceding the assessment year from which such exemption is sought. Such application cannot be made for any earlier period. The proposed amendment shall apply only in respect of applications which are made on or after 1st June, 2006.
This amendment will take effect from 1st June, 2006.”
9. The fourteenth proviso to Section 10(23C), has been inserted by the Finance Act 2006, inter alia, to provide for a period of limitation for entertaining applications, under Section 10(23C)(vi) for grant of exemption, on or after the 1st June, 2006. The legislature has, however, not made any provision for condonation of the delay in presenting such an application. The Chief CIT, being a creature of the statute, cannot travel beyond the statutory provisions, and could not, therefore, have condoned the delay in presenting the application under Section 10(23C)(vi) beyond the period of limitation. Roland Educational and Charitable Trust v. Chief CIT  309 ITR 50 (Orissa)
10. In as much as the Fourteenth proviso does not empower the Chief Commissioner of Income Tax to condone the delay in filing the application, the order passed by him, rejecting the petitioner’s application for the assessment year 2008-09 on the ground that it was belated, cannot be faulted.
11. In order to be eligible for exemption, under Section 10(23C)(vi) of the Act, it is necessary that there must exist an educational institution. Secondly, such institution must exist solely for educational purposes and, thirdly, the institution should not exist for the purpose of profit. ( CIT v. Sorabji Nusserwanji Parekh  201 ITR 939/ 66 Taxman 411 (Guj.). In deciding the character of the recipient of the income, it is necessary to consider the nature of the activities undertaken. If the activity has no co-relation to education, exemption has to be denied. The recipient of the income must have the character of an educational institution to be ascertained from its objects. (Aditanar Educational Institution v. Addl. CIT  224 ITR 310 / 90 Taxman 528 (SC). The emphasis in Section 10(23C)(vi) is on the word “solely”. “Solely’ means exclusively and not primarily. (CIT v. Gurukul Ghatkeswar Trust  201 Taxman 180 (AP) (Mag.)/ 13 taxmann.com 68 (AP); CIT v. Maharaja Sawai Mansinghji Museum Trust  169 ITR 379/ 33 Taxman 279 (Raj.). In using the expression, “solely”, the legislature has made it clear that it intends to exempt the income of the institutions established solely for educational purposes and not for commercial activities. (Oxford University Press v. CIT  247 ITR 658/ 115 Taxman 69 (SC). This requirement would militate against an institution pursuing objects other than education. (Vanita Vishram Trust v. Chief CIT  327 ITR 121 /92 Taxman 389 (Bom.). Even if one of the objects enables the institution to undertake commercial activities, it would not be entitled for approval under Section 10(23-C)(vi) of the Act. (American Hotel & Lodging Association Educational Institute v. CBDT  301 ITR 86 / 170 Taxman 306 (SC). It is only if the objects reveal that the very being of the assessee-society, as an educational institution, is exclusively for educational purposes and not for profit, would the assessee be entitled for exemption under Section 10(23-C)(vi) of the Act. (Gurukul Ghatkeswar Trust (supra ).
12. In case of a dispute, whether the claim of the assessee to be exempted from tax is admissible or not, it is necessary for the assessee to establish that it is part of an institution which is engaged solely for educational purposes and not for the purposes of profit, and the income in respect of which exemption is claimed is a part of the income of the institution. (Oxford University Press (supra)). The activities of the institution, its objects, its source of income and its utilization, must be analysed by the prescribed authority to ascertain whether it exists solely for education and not for profit, and it is his duty to ascertain whether the income is applied wholly and exclusively for the educational objects for which purpose the applicant is established. (Addl. CIT v. Surat Art Silk Cloth Manufacturing Association  121 ITR 1 (SC); American Hotel & Lodging Association Educational Institute (supra).
13. The test of predominant object of the activity is to be seen, whether it exists solely for education and not to earn profit. (Surat Art Silk Cloth Manufacturers Association (supra); American Hotel & Lodging Association Educational Institute (supra) ; Pinegrove International Charitable Trust v. Union of India  327 ITR 73 / 188 Taxman 402 (Punj. & Har.) . The decisive test is whether, on an overall view of the matter, the object is to carry on educational activities or to make profit. (Aditanar Educational Institution (supra).
14. If there are several objects of a society some of which relate to “education” and others which do not, and the trustees or the managers in their discretion are entitled to apply the income or property to any of those objects, the institution would not be liable to be regarded as one existing solely for educational purposes, and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and everyone of the objects must relate to “education” in order that the institution may be held entitled for the benefits under Section 10(23-C)(vi) of the Act. If the primary or dominant purpose of an institution is “educational”, another object which is merely ancillary or incidental to the primary or dominant purpose would not disentitle the institution from the benefit. The test which has, therefore, to be applied is whether the object, which is said to be non-educational, is the main or primary object of the institution or it is ancillary or incidental to the dominant or primary object which is “educational”. (Surat Art Silk Cloth Manufacturers Association (supra)). The test is the genuineness of the purpose tested by the obligation created to spend the money exclusively on “education”. If that obligation is there, the income becomes entitled to exemption. ( Sole Trustee, Loka Shikshana Trust v. CIT  101 ITR 234 (SC)
15. Under the third proviso to Section 10(23-C)(vi) the prescribed authority has to ascertain, while examining the genuineness of the activities of the institution, whether the applicant applies its income wholly and exclusively to the objects for which it is established. The applicant has not only to impart, but must also apply its income exclusively for the purposes of, education. (American Hotel & Lodging Association Educational Institute (supra)). The words ‘not for the purposes of profit’ accompanying the words ‘existing solely for educational purposes’ has to be read and interpreted keeping in view the third proviso to Section 10(23C)(vi) which prescribes the methodology for utilization and accumulation of income at the hands of the educational institution. As a result 85% of the income has to be applied by the educational society for the purpose of education. The third proviso requires the applicant society to apply its income, or accumulate it for application, wholly and exclusively, to the objects for which it is established. The word ‘wholly’ refers to the quantum of expenditure and the word ‘exclusively’ refers to the motive, object or the purpose of expenditure. (Pinegrove International Charitable Trust (supra); Vanita Vishram Trust (supra).
16. The threshold conditions are aimed at discovering the actual existence of an educational institution and approval of the prescribed authority for which an application in the standardized form, in terms of the first proviso, has to be given by every applicant. If the educational institution actually exists for educational purposes alone should the prescribed authority permit it to operate. (American Hotel & Lodging Association Educational Institute (supra); Pinegrove International Charitable Trust (supra).
17. The objects of the petitioner, as it originally stood, included “to eradicate unemployment”; “to encourage social activities among the students” and to “help poor people of community for their study”. These objects do not relate solely to education. The sense in which the word “education” has been used, in Section 2(15) of the Income Tax Act, is the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word “education”, in Section 2(15), has not been used in that wide and extended sense according to which every acquisition of further knowledge constitutes education. What education connotes, in that clause, is the process of training and developing the knowledge, skill, mind and character of students by formal schooling. (Sole Trustee, Loka Shikshana Trust (supra). This definition of ‘education’ is wide enough to cover the case of an “educational institution” as, under Section 10(23-C)(vi), the “educational institution” must exist “solely” for educational purposes. (Maharaj Sawai Mansinghji Museum Trust (supra). The element of imparting education to students, or the element of normal schooling where there are teachers and taught, must be present so as to fall within the sweep of Section 10(23-C)(vi) of the Act. Such an institution may, incidentally, take up other activities for the benefit of students or in furtherance of their education. It may invest its funds or it may provide scholarships or other financial assistance which may be helpful to the students in pursuing their studies. Such incidental activities alone, in the absence of the actual activity of imparting education by normal schooling or normal conduct of classes, would not be sufficient for the purpose of qualifying the institution for the benefit of Section 10(23-C)(vi). (Sorabji Nusserwanji Parekh (supra). Section 2(15) is wider in terms than Section 10(23-C) (vi) of the Act. If the assessee’s case does not fall within Section 2(15), it is difficult to put it in Section 10(23-C) (vi) of the Act. (Maharaj Sawai Mansinghji Museum Trust (supra)
18. While the petitioner would contend that the objects were amended on 27.1.2010, it defies reason as to how the said objects amended on 27.1.2010 could have been registered, prior thereto, with the Registrar of Societies on 24.8.2009. The A.P. Societies Registration Act, 2001 (AP Act 35 of 2001) repealed the Societies Registration Act in its application to the Andhra Area of the State of Andhra Pradesh, and the A.P. (Telangana Area) Public Societies Registration Act, 1350 fasli. Section 8 of A.P. Act 35 of 2001 relates to amendment of the memorandum and bye-laws of a society. Under sub-section (1) thereof a society, by a special resolution, may alter the provisions of the memorandum with respect to a change of its objects. Under sub-section (3) any alteration of the memorandum of the society shall not be valid unless such alteration is registered under the Act. Under Section 8(4) if any alteration of the memorandum is filed, and if they are not contrary to the provisions of the Act, the Registrar shall register the same, and certify registration of such alteration within thirty days from the date of receipt of the resolution. This certificate is conclusive evidence that all the requirements of the Act, with respect to the alteration and the certification thereof, have been complied with and, henceforth, the memorandum, as so altered, shall be the memorandum of the society. On a conjoint reading of sub-sections (3) and (4) of Section 8, it is only when the amendment to the objects of the society is intimated to the Registrar and the Registrar, on being satisfied that the amendment is not contrary to the provisions of the Act, registers and certifies such an alteration would it be a valid alteration under the Act. It is only from the date the Registrar certifies the alteration that the amendment, to the objects of the society, comes into force.
19. The amended objects also included “eradicating unemployment”. While this object may be charitable in nature, it is not solely for the purpose of education which is the requirement under Section 10(23C)(vi) of the Act. The order of the 1st respondent, in rejecting the petitioner’s application for the assessment year 2009-10 on the ground that their objects were non-educational, cannot be faulted. Even if the petitioner’s contention that registration under A.P. Act 30/87 is not a condition precedent, in view of the judgment of this Court in New Noble Educational Society v. Chief CIT  201 Taxman 33/ 12 taxmann.com 267 (AP), is to be accepted, since the object of “eradicating employment” can neither be said to be integrally connected with or as being ancillary to, the object of providing education, the order of the 1st respondent in rejecting the petitioner’s application for exemption under Section 10(23C)(vi) for the assessment year 2009-10 cannot be faulted.
The writ petition fails and is, accordingly, dismissed. However, in the circumstances, without costs.
[Citation : 339 ITR 323]