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Income Tax Appellate Tribunal, CHANDIGARH BENCH ‘B, CHANDIGARH
Before: SMT.ANNAPURNA GUPTA & SHRI R.L. NEGI
Per Annapurna Gupta, Accountant Member:
The appeal filed by the assessee is directed against the order of Learned Commissioner of Income Tax (Exemptions) [in short the ‘ Ld.CIT(E)], Chandigarh dated 19.06.2019 ,denying grant of approval u/s 10(23C(vi) of the Income Tax Act, 1961 (in short ‘the Act’).
The brief facts relating to the case are that the applicant/assessee is a society running a school, namely Rainbow World School. The stated aims and objects of the society as mentioned in para 2 of the CIT(E)’s order are as under:
2. The stated ostensible aims and objects of the society are to admit and teach the students from Nursery to XII class of undeveloped rural and of urban areas up to range of 25 kilometers; to admit and teach students of all community without any discrimination incase, colour, creed, poor and rich etc; to establish, run and manage senior secondary schools, secondary schools, Nursery schools, Degree Colleges, Pharmacy Colleges, College of Nursing, Physical Education College etc; Providing vocational training to the unemployed youth, women widows, adolescent girls etc. on sewing, handicraft and other vocational courses.
The applicant/assessee had applied for grant of approval for the purpose of claiming its income exempt, as
per the provisions of section 10(23C)(vi) of the Act, vide its application in Form No.56D dated 04.06.2018. The Ld.CIT(E) after taking note of the aims and objects of the applicant society proceeded to determine whether its activities were in sync with the stated objects and accordingly sought certain clarifications/documents to be provided by the assessee, which find mention at para 3 of the order. Due reply of the same was filed by the applicant/assessee as noted at para 4 of the order. That after going through the same the Ld.CIT(E) noted that in the preceding two years the aggregate receipt of the applicant/assessee had exceeded Rs.1 crore, while the assessee had claimed exemption of its income u/s 10(23C)(iiiad) of the Act incorrectly. He further held that the applicant/assessee’s educational institute is not registered as a society in the spirit of the ratio laid down by the Hon'ble Jurisdictional High Court in the case of Pinegrove International Charitable Trust and, therefore, was not eligible for approval u/s 10(23C)(vi) of the Act. He relied upon the decision of the ITAT Chandigarh Bench in the case of M/s Prakash Education Society Vs. CIT in in this regard. The Ld.CIT(E) noted that inadmissible claim of exemption in past by the assessee impinged on the extent and quality of surpluses being generated by the applicant society and whether they were being redeployed into education. Considering all of the above he held that it was difficult to verify the activities of the applicant society and arrived at the conclusion whether it existed solely for education. Accordingly, he rejected the application filed by the assessee for grant of approval u/s 10(23C)(vi) of the Act. The relevant findings of the Ld.CIT(E) at paras 4 to 7 of the order are as under:
“4. On 02.04.2019, Sh. Pawam Singh, C-A, counsel for the applicant attended this office and filed written submissions in response to above noted queries. After perusal of submissions, it got emerged that the applicant society had aggregate receipts above Rs.I Crore in last two years. The summary of aggregate receipts of applicant society is given below:-
F.Y. Gross Receipts (Rs.) 2016-17 1,51,10,795 2017-18 2,02,80,586 5. A further perusal of the copy of the ITRs with reference to the Income and Expenditure Accounts, reveals that applicant has claimed inadmissible exemption u/s 10(23C)(iiiad) in the preceding years as its aggregate receipts had exceeded Rs.01 Crore in F.Y 2016- 17 and F.Y 2017-18.
Further in the case of Pinegrove International Charitable Trust the Hon'ble Haryana High Court in CWP No. 6031 of 2009 has clearly addressed the question that whether an institution registered as a Society under the Societies Registration Act, 1860, lose its character as an educational institution, eligible to apply for exemption under Section 10(23C)(vi) of the Act? The Hon'ble at para 8.13(4) of the order in the case of par<i B.! 3(4) of the order in the case of Pinegrove International Charitable Trust summed up as under:- “The educational institutions, which are registered as a society would continue to retain their character as such and would be eligible to apply for exemption under Section 10(23C)(vi) of the Act.” It is clear that the educational institution (being run at present) is not registered as a society the spirit of the ratio laid down in the case of Pinegrove International Charitable Trust. In the instant case applicant being a society prima fade does not get covered under section 10(23C)(vi) of the Act. This view is further upheld by Hon'ble ITAT Chandigarh “B” Bench in the case of M/s Prakash Education Society Vs, CIT (Exemptions) Chandigarh in ITA No.1083/Chd/2016.
7. Keeping in the view of decision of the Hon'ble Punjab & Haryana High Court and also the Hon'ble ITAT Division bench “B” Chandigarh (refer para '6), it is safe to conclude that the applicant being society is not entitled for approval u/s 10(23C)(vi). Further inadmissible claims for exemption in past also impinge on the extent and quality of surpluses being generated by the applicant society and whether the same are getting redeployment into education. Taking all the aforesaid into consideration, it is difficult to verify the activities of the society and come to the conclusion that it exists 'solely for education'. Moreover, it can't be said that the school has been registered as society in the present
case. The application u/s 10{23C)(vi) for grant of approval is accordingly rejected.” 4. Aggrieved by the same the assessee has come up in appeal before us, raising the following grounds:
“1. The Learned Commissioner of Income Tax (Exemptions) is not justified in rejecting the application of society for grant of approval u/s 10(23C}(vi) vide order dt. 19.06.2019. As there was apparent mistake in the order passed, application rectification u/s 154 of The Income Tax Act was filed by the assessee on 18.07.2019. However rectification u/s 154 also rejected by the C.I.T.(Ex.), Chandigarh vide order 18.02.2020 without considering the specific pointy raised in rectification letter regarding apparent mistake in original order passed on 19.06.2019. Hence keeping in the facts of the case, as the society fulfils all the criteria for approval i.e.: a) It is registered society b) It is engaged in educational activity and is running a school which is affiliated with C.B.S.E c) It is non profit making institution as per bye laws of the society d) It has filed application for grant of approval u/s10(23C)(vi) on 19.01.2017 i.e. before the close of first financial year in which its gross receipts were likely to exceed Rs.100 Lacs enclosing all the documents. e) None of the above points has been contradicted by the department while passing the order rejecting the approval as all documents were filed by the assessee. Hence rejection of approval u/s I0(23C)(vi) being biased/illegal/unlawful and discriminatory, order passed by C.I.T.(Ex.) should be nullified and approval to the society u/s 10(23C)(vi) should be granted w.e.f the assessment year 2017-18 and onwards.
2. Application for grant of approval u/s 10(23C)(vi) filed by assessee on 04.06.2018, order passed by C.I.T.(Ex). rejecting approval on 19.06.2019 being after one year of filing of application by the assessee is time bar and should be nullified and approval should be granted to the assessee u/s 10(23C)(vi as all necessary documents regarding the matter filed by assessee.” 5. Referring to the findings of the Ld.CIT(E) for arriving at the conclusion that the applicant assessee was not eligible for grant of approval u/s 10(23C)(vi) of the Act, the Ld.Counsel for the assessee contended that they were all either irrelevant, baseless or incorrect for the purpose of grant of approval. Vis-à-vis the assessee having incorrectly claimed exemption u/s 10(23C)(iiiad) of the Act in the preceding two years, the Ld.Counsel for the assessee contended that the incorrect claim of exemption does not impinge upon its character as an institution existing wholly for the purpose of education, which is the only criteria which the applicant assessee needs to fulfill and satisfy for the purpose of grant of approval u/s 10(23C)(vi) of the Act.
As for the applicant society not qualifying as per the decision of the Hon'ble Jurisdictional High Court in the case of Pinegrove International Charitable Trust(supra), the Ld.Counsel for the assessee contended that the same has been incorrectly applied by the Ld.CIT(E) as is evident from the reproduction of the order of the Hon'ble Jurisdictional High Court itself wherein the Hon'ble High Court has clearly stated that the institutions registered as society would be eligible for grant of exemption and Pinegrove International Charitable Trust being registered as a society was, therefore, squarely covered by the aforesaid decision. He qualified for approval u/s 10(23C)(vi) of the Act as per the said decision and the Ld.CIT(E) had incorrectly interpreted the same to be ruling against the assessee. He, therefore, pleaded that the order of the Ld.CIT(E) be set aside and the assessee be granted approval as applied for u/s 10(23C)(vi) of the Act.
6. The Ld. DR heavily relied on the order of the Ld.CIT(E).
We have heard both the parties. The subject matter of appeal before us is the denial of grant of approval u/s 10(23C)(vi) of the Act. The said section is reproduced hereunder:
“S.10 In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- ……………………………………………………… …………………………………………………….. ……………………………………………………..
(23C) any income received by any person on behalf of- …………………………………………………………. …………………………………………………………. ………………………………………………………….
(vi) any university or other educational institution exiting 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.” 7. As is evident from the above that incomes of universities or institutions existing wholly for the purpose of education ,other than those specified u/s 10(23C)(iiiad) of the Act, are exempt subject to being approved for the same by the prescribed authority. The grant of approval is dealt with by the following proviso to section 10(23C)(vi) of the Act:
“Provided that the fund or trust or institution of any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) or sub-cause (vi) or sub-clause (via): Provided further that the prescribed authority, before approving any fund or trust or institution or any university or other educational institution or any hospital or other medial institution, under sub- clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), may call for such documents (including (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf.” 8. As is evident from a bare perusal of the above, For the purpose of granting approval the prescribed authority is to satisfy himself about the objects and activities of the applicant university/institution, whether its income qualifies for exemption as such under the said provision.
Now in the present case undoubtedly the Ld.CIT(E) has considered the aims and objects of the applicant society and has found no anomaly in the same vis a vis it existing solely for the purpose of education. The reason for the Ld.CIT(E) arriving at the conclusion that it was difficult to verify the activities of the society and come to the conclusion it existed solely for education, was the inadmissible claim of exemption by the applicant assessee in the preceding two years. We are unable to concur with the Ld.CIT(E) on this score. The claim of exemption in the preceding two years is admittedly inadmissible for the reason that it was in contravention of the provisions of section 10(23C)(iiad) which grant exemption to similar entities without approval subject to receipt of income upto limit prescribed therein.
Section 10(23C)(iiiad) is reproduced hereunder for clarity:
“S.10.In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- ……………………………………………………… …………………………………………………….. ……………………………………………………..
(23C) any income received by any person on behalf of- …………………………………………………………. …………………………………………………………. …………………………………………………………. (iiiad) any university or other educational institution exiting solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed.” 10. The claim being inadmissible in the preceding years on account of receipts exceeding a specified limit, surely does not impinge upon its character of an institution existing solely for the purpose of education. The findings of the Ld.CIT(E) that the same impinges on the extent and is a very general and farfetched observation/finding with no factual basis at all and, therefore, is of no relevance, in our view. On the contrary, it was explained out by the Ld.Counsel for the assessee that since the assessee had become aware of its income exceeding the limit specified for exemption u/s 10(23C)(iiiad) only in the later part of the preceding years, it applied for grant of approval in the impugned year.
As far as the Ld.CIT(E)’s finding that applicant society is not eligible for approval u/s 10(23C)(vi) of the Act on account of the decision of the Hon'ble Jurisdictional High Court in the case of Pinegrove International Charitable Trust(supra) which addressed the issue whether the societies registered as such qualified as institutions for the purpose of grant of exemption u/s 10(23C)(vi) of the Act, we find that the Ld.CIT(E) has clearly misread and misapplied the said decision as rightly pointed out by the Ld.Counsel for the assessee. The Hon'ble High Court in the said decision had clearly held the societies also as eligible educational institutions for exemption u/s 10(23C)(vi) of the Act as is evident from the relevant portion of the order reproduced in the order of the Ld.CIT(E) also. The assessee ,admittedly being registered as a society, it qualified for exemption u/s 10(23C)(vi) of the Act ,as per the said decision. In view of the same, the findings of the Ld.CIT(E) on this account also, we find is incorrect.
In view of the above we hold that there was no basis at all for denial of approval u/s10(23C)(vi) of the Act and the order passed by the Ld.CIT(E) is set aside and the Ld.CIT(E) is directed to grant approval to the assessee society in accordance with law.
In the result, the appeal of the assessee is allowed.
Order pronounced on 30.03.2021.