President Colonel Educational And Cultural Society vs. Chief Commissioner Income Tax Department

WP No.8005/2013 28/01/2016 Shri Sumit Nema, learned Counsel for the petitioner. Shri R.L.Jain, learned Senior Counsel along with Ms. Veena Mandlik, learned Counsel for the respondent. They are heard. By this Writ Petition under Article 226 of the Constitution of India petitioner is praying for quashment of order dated 28.03.2013 passed by the Chief Commissioner, Income Tax, Indore whereby they rejected the application for extension of exemption under Section 10(23C)(vi) of the Income Tax Act, 1961 for the financial year 2011-12. It is submitted by the learned Counsel for the petitioner that extension of exemption was initially granted for a period of three years i.e. for the financial years 2008-09, 2009-10 and 2010-11 and thereafter, after amendment in the provision of Income Tax which comes in effect from 15.06.2009, he is eligible for life time exemption which has been rejected relying on the order passed by the Uttarakhand High Court passed in Queen's Educational Society V/s. Commissioner of Income Tax wherein it has been held that the Educational Institution should carry out the activity wholly and exclusively for the educational purpose and not for the purpose of earning profit. It is submitted that against the aforesaid order Queen's Educational Society filed a petition which has been allowed by the Apex Court by order dated 16 th March, 2015 passed in the case of Queen's Educational Society V/s. Commissioner of Income Tax reported in (2015) 55 taxmann.com 255 (SC) wherein Hon'ble Apex Court after appreciating the judgment in the case of Aditanar Educational Institution V/s. Additional CIT reported in (1997) 224 ITR 310 (SC) has held as under :- “19. It is clear, therefore, that the Uttarakhand High Court has erred by quoting a non existent passage from an applicable judgment, namely, Aditanar and quoting a portion of a property tax judgment which expressly stated that rulings arising out of the Income Tax Act would not be applicable. Quite apart from this, it also went on to further quote from a portion of the said property tax judgment which was rendered in the context of whether an educational society is supported wholly or in part by voluntary contributions, something which is completely foreign to Section 10(20C)(iiiad). The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall foul of Section 10(23C) is to ignore the language of the Section and to ignore the tests laid down in the Surat Art Silk Cloth Mfrs. Association (supra) case, Aditanar Educational Institution (supra) case and the American Hotel and Lodging case. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit. In fact, in S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 230 ITR 636/96 Taxman 635 (SC), this Court in the context of benefit claimed under Section 11 of the Act held : “9. In the present case, the assessee is not claiming any benefit under Section 11(2) as it cannot; because in respect of this assessment year, the assessee has not complied with the conditions laid down in Section 11(2). The assessee has applied Rs.8 lakhs for charitable purposes in India by purchasing a building which is to be utilized as a hospital. This income, therefore, is entitled to an exemption under Section 11(1). In addition, under Section 11(1)(a), the assessee can accumulate 25% of its total income pertaining to the relevant assessment year and claim exemption in respect thereof. Section 11(1)(a) does not require investment of this limited accumulation in government securities. The balance income of Rs.1,64,210.03 constitutes less than 25% of the income for Assessment Year 1970-71. Therefore, the assessee is entitled to accumulate this income and claim exemption from income tax under Section 11(1)(a).” We set aside the judgment of the Uttarakhand High Court dated 24 th September, 2007. The reasoning of the ITAT (set aside by the High Court) is more in consonance with the law laid down by this Court, and we approve its decision.” In view of the aforesaid, impugned order dated 28.03.2013 is liable to be quashed. Accordingly it is hereby quashed. With the aforesaid, Writ Petition No.8005/13 is allowed. No orders as to costs. (P.K.Jaiswal) (Jarat Kumar Jain) ns Judge Judge