THE COMMISSIONER OF INCOME TAX vs. ADARSH VIDYA NIKETAN

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ITA/28/2017HC Himachal PradeshHPHC01012638201706 April 2022Author: HON'BLE MRS. JUSTICE SABINA,HON'BLE MR. JUSTICE SATYEN VAIDYA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court found no merit in the appeal filed by the Commissioner of Income Tax (Exemptions). The Court noted that the respondent had been running a school for 34 years in rented premises and that the funds were being saved with a view to acquiring its own building in the future. Given the long operational history, the Court held that it could not be alleged that the institute had a profit motive. The Court also acknowledged that the respondent is running the school in rented premises, making it within its rights to create funds for constructing its own building. Consequently, the learned Tribunal was deemed to have rightly allowed the appeal filed by the respondent. The Court did not expressly leave any issue undecided. The operative direction was the dismissal of the appeal.

What were the facts?

The appellant, Commissioner of Income Tax (Exemptions), Chandigarh, filed an appeal challenging an order dated January 24, 2017, passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh. The ITAT had allowed the appeal of the respondent, Adarsh Vidya Niketan, Nahan, a registered society running a school. The respondent had applied for registration under Section 12A of the Income Tax Act, 1961. This application was dismissed by the Commissioner of Income Tax (Exemptions) on September 26, 2016, citing the respondent's suspect status, commercial operation of the school, collection of large fees under various heads not utilized for betterment of education but kept unutilized, and low teacher salaries, indicating a profit motive. The respondent had been running the school for 34 years in rented premises and claimed funds were being saved for a future building.

What were the issues?

1. Whether the ITAT erred in ignoring the contention that an entity availing benefits under Section 10(23C)(iiad) historically should seek approval under Section 10(23C)(vi) and not registration under Section 12A, as these are distinct codes? (Question of law) 2. Whether the ITAT exceeded its jurisdiction in passing the impugned order, as per the scheme of the Act and the decision in Dental Council of India Vs. Subharti K.K. B. Charitable trust and anr? (Question of mixed law and fact) Assessee's Arguments: The respondent argued that funds were being saved for constructing their own building, and given the school's long operational history, it could not be alleged to have a profit motive. They also submitted that provisional registration had been granted under the amended Act for the year 2021. Revenue's Arguments: The revenue contended that the entity was operating the school on commercial lines, collecting large fees not utilized for educational betterment but kept unutilized, and paying low salaries to teachers, indicating a profit motive, thus rejecting the Section 12A registration.

Which sections of the Income-tax Act were involved?

Section 10(23C)(iiad),Section 10(23C)(vi),Section 12A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA ON THE 6th DAY OF APRIL, 2022 BEFORE HON'BLE MS. JUSTICE SABINA & HON'BLE MR. JUSTICE SATYEN VAIDYA INCOME TAX APPEAL No. 28 of 2017. Between:- THE COMMISSIONER OF INCOME TAX (EXEMPTIONS), CHADIGARH. ….APPELLANT. (BY MS. VANDANA KUTHIALA, ADVOCATE) AND ADARSH VIDYA NIKETAN, NAYA BAZAR, NAHAN, DISTT. SIRMOUR, H.P., (A REGISTERED SOCIETY) PAN-AABAA4400A THROUGH ITS PRESIDENT. ...RESPONDENT. (BY MR. VISHAL MOHAN, ADVOCATE). This appeal coming on for hearing this day, Hon'ble Ms. Justice Sabina, delivered the following:-

J U D G M E N T The appellant has filed the instant Appeal challenging the order, dated 24th January, 2017, passed by the Income Tax Appellate Tribunal, Chandigarh in ITA No.1219/CHD/2016. 2. At the time of admission of the appeal, on 24.07.2017, following substantial questions of law were framed:- “(i) Whether the ITAT has erred in ignoring the contention that as per the scheme of the Act, the entity availing the benefits of Section 10(23C) (iiad)) historically and for a number of years should seek approval u/s 10(23C) (vi) and not registration u/s 12A, the two being completely different codes in themselves, one relying on income from property/voluntary donations and the other on receipts? (ii) Whether as per the scheme of the Act and the ratio of the decision of the Hon'ble Supreme Court in the case of passing the impugned order?

3.

We have heard the learned counsel for the parties and have also gone through the record available on the file carefully.

4.

The respondent is running a school and had moved an application seeking registration under Section 12A of the …2…

Income Tax Act, 1961. The application moved by the respondent was dismissed by the Commissioner Income Tax (Exemptions), Chandigarh, vide its order, dated 26th September, 2016. The operative part of the order reads as under:- “9. In the instant case, given all of the above, not only is the applicant's status suspect it is also deemed to have utilised its generic objects to focus mainly on running an educational institution on commercial lines. Large Fees have been collected under several additional heads apart from admission and tuition fees. The same have not been utilised for betterment of education but kept unutilized under separate heads of special funds, building funds and cash in hand. There is no charitable purpose that gets reflected in the way the limb of education has been invoked to impart in the instant case. Charity can't happen in education if despite huge disposal funds (collected unduly from the students) the teachers are paid lowly amounts that don't even enable them to reach the taxable bracket. The legislative intent never has been to accord exemption from taxation to such entities that seek to profiteer under the garb of education. The application under section 12A for grant of registration is accordingly rejected.”

5.

Aggrieved against the said order, the respondent approached the Income Tax Appellate Tribunal and the appeal …3…

filed by the respondent was allowed vide impugned order dated 24th January, 2017. 6. Admittedly, the respondent is running a school for the last 34 years in a rented premises. It is the case of the respondent hat the funds were being saved by it with a view to have its own building in future. Since, the school is being run for the last so many years, it could not be alleged against the respondent that it was an institute with a profit motive. The respondent is running a school in a rented premises, therefore, it is within its right to create funds for constructing its own building for running the school.

7.

In the factual background of this case, the learned tribunal has rightly allowed the appeal filed by the respondent.

8.

It has also been submitted by the learned counsel for the respondent, during the course of arguments, that provisional registration has been granted under the amended Act, for the year 2021. …4…

9.

For the foregoing reasons, we find no merit in the instant appeal and it is dismissed. All pending applications, if any, also stand disposed of.

(Sabina) Judge (Satyen Vaidya) Judge 6th April, 2022. (jai) …5…

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