UBAIDULLA EDUCATIONAL FOUNDATION,RAJAGHIRI vs. CIT (EXEMPTIONS) , CHENNAI

Brief facts of the case as culled out from the record are that the assessee is a company incorporated u/s 25 of the Companies Act, 1956, under the name and style of “M/s. Ubaidullah Educational Foundation”. It is a company limited by guarantee and not having share capital. The liability of the members of this company is limited, as stated in the memorandum of association of the assessee placed on record. This assessee has filed an application in Form No. 56D seeking exemption u/s 10(23C)(vi) of the Act pursuant to its main object of carrying out educational activities. The said application was filed before the Income Tax Officer (Exemptions Ward) – Trichy, for which the acknowledgement date as noted on the communication made by the Income Tax Officer (Exemptions Ward) – Trichy, to the ld. CIT(E), Chennai is 25/09/2017. This communication by the Income Tax Officer (Exemptions Ward) – Trichy, was received in the office of the ld. CIT(E), Chennai on 16/10/2017, acknowledged under the seal and stamp of the said office. Based on this date of receipt i.e., 16/10/2017, ld. CIT(E), took it as the date of filing of application for claiming exemption by the assessee. Ld. CIT(E) called for reports from the Assessing Officer and JCIT (Exemptions), Chennai, based on which a show cause notice was issued to the assessee to explain its case seeking exemption. The main points which were raised in the said show cause notice related to:- “i) From the incidental and ancillary objects of the assessee it was observed that it did not exist solely for the purpose of education. ii) In respect of the main objects of the assessee, the aim of the assessee with special and particular interest for the development of education of Muslim minority section.

Assessee submitted its detailed reply explaining the issues raised in the said show cause notice and substantiated it by furnishing corroborative documents placed on record in the paper book. Ld. CIT(E) rejected the application of the assessee by holding that assessee does not exist solely for the purpose of education since there are several objects which are of general public utility. He also held that provisions of Section 13(1)(b) of the Act are violated and also that fees collected is over and above what has been fixed by the Fee Fixation Committee as the assessee has charged and collected capitation fees from the students.

Aggrieved, the assessee is in appeal before this Tribunal.

Before us, Shri S. Sridhar, Advocate, represented the assessee and Shri AR V Sreenivasan, Addl. CIT, represented the Department. Ld. Counsel for the assessee, pointed out that a detailed written submission along with a paper book containing 65 pages and a case-law paper book containing nine citations as well as a separate compilation of statement of accounts for the years covering Financial Years 2014-15 to 2020-21 are placed on record. In respect of the first issue relating to the ld. CIT(E) holding the application filed by the assessee in Form 56D, as time barred, the ld. Counsel for the assessee, pointed out to the letter of the Income Tax Officer (Exemptions Ward) – Trichy, dt. 30/12/2017 placed at page no. 49 of the paper book which is addressed to the assessee seeking certain details in respect of the Assessment Year: 2017-18 Ubaidulla Educational Foundation 5 application made by the assessee, for grant of exemption under section 10(23C)(vi) of the Act. In this letter, the reference made is to the application filed by the assessee with the ld. CIT(E), Chennai on 25/09/2017. Reference to another communication by Income Tax Officer (Exemptions Ward) – Trichy, to the ld. CIT(E), Chennai, received by the office of the ld. CIT(E) on 16/10/2017, wherein also the acknowledgement date has been mentioned as 25/09/2017, to demonstrate that the said application was filed within due date prescribed i.e., on or before 30/09/2017. Thus, ld. Counsel for the assessee emphasized that rejection of the application by holding it as time barred is factually incorrect and bad in law. Ld. Counsel further submitted that law requires the order granting exemption or rejecting the application, ought to have been passed within 12 months from the end of the month in which such application is received and, therefore, the impugned order which is dt. 31/10/2018, ought to have been passed on or before 30/09/2018. According to the ld. Counsel, the impugned order is bad in law and, therefore, the exemption sought by the assessee u/s 10(23C)(vi) of the Act is deemed to have been granted.

Ld. Counsel for the assessee further submitted that the main object as contained in the memorandum of association of the assessee is to promote the educational interest of Indian community as a whole with special and particular interest for the development of education for Muslim minority section by establishing primary, middle and higher secondary schools, colleges etc. as well as training institutions and conducting industrial training, workshops etc. The ld. Counsel for the assessee, further emphasised on the fact that the assessee has been existing solely for the purpose of education by referring to the financial statements placed on record for the past seven years i.e., from financial years 2014-15 up to 2020- 21.

He then submitted that since it is an undisputed fact about the assessee running an educational institution only and that merely because there are objectives of the assessee which are incidental and ancillary to the attainment of the main objectives cannot lead to draw an adverse conclusion that the educational institution is not existing solely for the purpose of education. He further emphasised that if the primary or dominant purpose

In respect of the issue relating to collection of excess fees as against fixed by the Fee Fixation Committee, ld. Counsel strongly submitted that the allegation made by the ld. CIT(E) at para six of the impugned order that the assessee has collected capitation fees is grossly incorrect, baseless and devoid of any merit.

He submitted that collecting the price for supply of textbooks and notebooks, cost of ID cards and subscription of parent-teachers association, have been wrongly considered by the ld. CIT(E) as capitation fees. To demonstrate this, he referred to one of the sample receipts issued by the assessee to a student, issued against collection of fees wherein no such capitation fees has been collected. A copy of the said receipt is placed at page number 65 of the paperbook.

Ld. Counsel further submitted that ld. CIT(E) has compared the fee collection for the impugned year with the fixation of fees by the committee for the year 2015-16 and hence comparison itself is not justified. Accordingly, ld. Counsel stated that the ld. CIT(E) has erred in rejecting the Assessment Year: 2017-18 Ubaidulla Educational Foundation 8 application for exemption by holding that the assessee is collecting capitation fees which is devoid of any merit.

In respect of the issue raised by the ld. CIT(E), for the violation of provisions u/s 13(1)(b) of the Act, where the aim of the assessee is to promote a special and particular interest for the development of education for Muslim minority section, ld. Counsel submitted that assessee is running its school where students are admitted and imparted education irrespective of their religion, caste or creed. It stated that it is a heterogeneous population of students, representing the Indian community as a whole.

Per contra, ld. Sr. D/R, placed strong reliance on the order of the ld. CIT(E) and submitted that the application has been rightfully rejected as stated by the ld. CIT(E) in its order.

We have heard rival submissions, perused the material available on record as well as the case-laws cited. After giving a thoughtful consideration, we hold as follows:-

First issue relates to the limitation of application filed by the assessee claiming exemption. We take note from the documents placed on record which the ld. Counsel for the assessee has referred. From these documents, it is evidently demonstrated that the registration application for claiming exemption u/s 10(23C)(vi) of the Act was submitted by the assessee before the Income Tax Officer (Exemptions Ward) – Trichy, which was duly acknowledged by him on 25/09/2017. We also take note of the fact that the ld. CIT(E) has taken into cognizance, the date of receipt of the impugned application which is 16/10/2017, which was in respect of the said application, sent by the Income Tax Officer (Exemptions Ward) – Trichy to Assessment Year: 2017-18 Ubaidulla Educational Foundation 9 his office. Admittedly, the fact on record is that the said application was submitted on 25/09/2017 and is within the time limit prescribed by the law.

On the moot point, as to whether the assessee exists solely for the purpose of education or not, we find force in the submissions made by the ld. Counsel for the assessee who has evidently demonstrated from the material placed on record that the primary or dominant object for which the assessee exists is for the purpose of education. Admittedly, it is a fact on record that the assessee is deriving its income/receipts only from running of school and all of its application of income of the receipts are in attainment of the sole objective of carrying out educational purposes. From the assessment orders in the assessee’s own case for the assessment year 2015-

There are adequate safeguards that if the activities other than educational activities are undertaken by the assessee, exemption granted can be withdrawn. Based on the factual matrix in the present case, we are inclined to hold that in the absence of any evidence or material against the assessee showing that it is involved in any other activity other than educational activity, it cannot be denied the exemption claimed u/s 10(23C)(vi) of the Act. For holding so, we find force from the decision of the honourable jurisdictional High Court of Madras in the case of Bosco Educational Academy Private Limited versus CCIT [2021] 127 taxmann.com 776 (Mad.), wherein by placing reliance on the decision of the Hon’ble Apex Court in the case of Queens Educational Society vs. CIT [2015] 55 taxmann.com 255 (SC), it held that the provision as it reads and the law as declared by the Assessment Year: 2017-18 Ubaidulla Educational Foundation 11 Hon’ble Supreme Court indicate that approval has to be granted for an educational institution which satisfies the fundamental requirement of existence for education purposes and does not exist solely for the purpose of profit. It further held that once the approval is granted, it has to be in force for a period of three years. At the same time, it is open for the prescribed authority to stipulate the conditions for ensuring there is no misuse by such educational institution of the approval.

In respect of the observation by the ld. CIT(E) with reference to the report from JCIT (Exemptions), wherein it has been observed that the aim of the assessee is to promote educational interest of the Indian community as a whole with special and particular interest for the development of education for the Muslim minority section, we note that the assessee has obtained approval for running its school from the Director of Matriculation Schools, Chennai, which is an authority under the State of Tamil Nadu which substantiate the claim of the assessee that the beneficiaries of running the school by the assessee is general public at large without restricting admissions to a particular community or caste.

Thus, we conclude that the assessee is entitled to registration for claiming exemption u/s 10(23C)(vi) of the Act and the revenue is accordingly directed to issue the approval certificate to the assessee effective from Assessment Year 2017-18. The prescribed authority while issuing the approval certificate is at liberty to stipulate such conditions in the approval as are necessary for an educational institution to operate so that, the legitimate benefit of exemption under the provisions of Section 10(23C)(vi)