MODI UNIVERSITY OF SCIENCE AND TECHNOLOGY,SIKAR vs. PR. CCIT, JAIPUR, JAIPUR

PER SHRI KUL BHARAT, JM.

This Appeal by the Assessee is directed against the order of Pr. Chief

Commissioner of Income-tax, Rajasthan, dated 29.09.2015 pertaining to A.Y. 2014-

15.

The Assessee has raised the following grounds of Appeal :-

“1. The Ld. Pr. CCIT erred in law as well as on the facts of the case in denying the approval claimed by the appellant university for the FY 2013-14 (relating to AY 2014-15) under the provisions of S. 10(23C)(vi) of the Act. The rejection of the application and denial to the claimed approval as to exemption to its income, being contrary to the provision of law and facts, the appellant institution kindly be held eligible and the Ld. Pr. CCIT be directed to accord approval, as prayed for. 2. The Ld. Pr. CCIT further erred in law as well as on the facts of the case in misinterpreting the law and in wrongly alleging that the appellant institution filed the application premature i.e. before the last date of filing of such application which, being a misconception of law and

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facts, hence, rejection based thereon being contrary to the provision of law and facts, the Ld. Pr. CCIT be directed to accord approval, as prayed for. 3. The Ld. Pr. CCIT also erred in law as well as on the facts of the case in passing the impugned order without specifically confronting the appellant institution on the issue on which the prayer for granting approval, was rejected and thus, violating the principle of nature justice. The impugned order therefore kindly be quashed and satisfied and the appellant institution kindly be held eligible for the approval as prayed for.”

approval u/s 10(23C)(vi) of Income Tax Act, 1961 (hereinafter referred to as the

Act) in the Financial year 2013-14. The said application was rejected on the ground

that the applicant institution started its activity from 1/4/2014 as a different legal

entity. Therefore, the Financial Year 2014-15 is its first year of operation. Hence,

not eligible to file application u/s 10(23C)(vi) for the Financial year 2013-14.

written brief. The submissions of the assessee are reproduced as under:-

Submission:-

1.1 Firstly, it is submitted that the appellant university admittedly came into existence on 16.9.2013 i.e. in FY 13-14(AY 14-15) itself and hence as per the prevalent law, the appellant was fully entitled to file an application accordingly for AY 2014-15. The 14th proviso to S. 10(23)(vi) states that any University seeking approval for a particular AY, ha to file the application on or before 30th day of September of the relevant assessment year. Accordingly, when the University “Must” was seeking approval for FY 13-14 relevant to AY 14-15, it is rightly filed the application on 01.09.2014. i.e. well before 30.09.2014 and well in time, neither before nor delayed.

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The fact that the appellant University commenced its operation in the next year, should not come in the way in as much as commencement of any operational activity, is not a condition precedent or the applicant University seeking registration under this provision. Even after coming into existence, an institution can seek registration for any assessment year and the only condition I that the application has to be filed on or before 30th day of September of that relevant assessment year. However, it appears that Ld. Pr. CCIT has read the mention of “14-15” in the application from 56D (PB 1-4) as FY 14-15 relating to AY 15-16 and accordingly alleged that such application should have been filed on 30.09.2015 which has been filed premature and more so, when as per Institution’s admission, the Institution Must became operational only in FY 14- 15 (AY 15-16) however he ignored the fact that the Institution “MUST” had already come into existence on 16.09.2013 i.e. FY 13-14 (AY 14-15) itself and hence as per law rightly filed the application on 30.9.2014. 1.2 Secondly, the law has prescribed only the last/ulterior and also lutores date of filing the application. It does not provide any apparent restriction or bar on the Institution applicant, to file an application in advance or due date. Thus, in our case the Institution “MUST” rightly filed the application as aforesaid. 1.3 Must already operational: Thirdly, it is also wrong to say that Institution “MUST” became operational only in FY 14-15 in as much as it was already working though earlier sponsoring body “MIST”, whose entire assets and liabilities stood vested in “MIST” by the operational of law on 16.09.2013 itself because of the statutory requirement and this way “MUST” came into existence on 16.09.2013 itself though the statute. Hence the assessee “MUST” must be treated as was operational not only in F.Y. 14-15 but also in earlier year as well. 2. Alternative, otherwise also the requirement of reaching the total receipts to the prescribed extent of Rs. 1cr., is concerned, the earlier “MIST” was already operational (through its Deemed University) and was

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having receipts of around Rs. 45.31 Crore as on (PB-143). Further during the course of hearing (through the ITO) for the purpose of this approval, the appellant “MUST also filed the audited Income and Expenditure Account et. For the year ending 31.03.2015 (PB 164-181) showing receipts of Rs. 46.18 Cr (PB-176) therefore, receipts of MUST as also of MITS both exceeded Rs. 1 Cr. 3.1 In any case, there appears no bar on seeking (and granting) approval either u/s 12A or u/s 10(23)(vi) even if the applicant institution has not become operation by the time if files the application. Kindly refer: 3.2.1 DIT (Exemption) vs. Panna Lalbhai Foundation (2013) 216 Taxman 0148 (Guj.) “Registry once granted can always be cancelled if the activities of the Trust are found to be dubious or non-genuine or contrary to objectives of the Act. Commissioner has power to satisfy himself about objects and the genuineness of the activities, however, commissioner would have no authority to ipso facto reject the application for registration on the ground that Trust has not commenced the activities.”

3.2.2 Hon’ble Allahabad High Court in the case of Hardayal Charitable & Educational Trust Vs. Commissioner of Income Tax reported in 355 ITR 534(ALL) wherein the Hon’ble High Court has held as under:-

“At the time of registration u/s 12AA of the Income Tax Act, which is necessary for claiming exemption u/s 11 & 12 of the Act, the Commissioner of Income Tax is not required to look into the activities, where such activities have not or are in the process of its initiation. Where a trust, set up to achieve its objects of establishing educational institution, is in the process of establishing such institution, and receives donations, the registration u/s 12AA cannot be refused, on the ground that the Trust has not yet commenced the charitable or religious activity. Any enquiry of the nature would amount to putting the cart before the horse. At this stage only genuineness of the objects has to be tested and not the activities, which have not commenced. The enquiry of the Commissioner of Income Tax at such preliminary stage should be restricted to genuineness of the objects and not the activities unless such activities have commenced. The Trust of Society cannot claim exemption, unless it is registered u/s 12AA of the Act and thus at that

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such initial stage the test of the genuineness of the activity cannot be ground on which the registration may be refused.”

3.3.1 On this aspect, a useful reference can be made to a decision in the case of American Hotel and Lodging Association Educational Institute v/s CBDT (2008) 301 ITR 086/216 CTR 377 (DPB 9-25) wherein it was held that:

“Exemption under s. 10(23C)(vi)- Educational institution- Application of income in India vis-à-vis scope of enquiry by prescribed authority- Threshold conditions for exemption under s. 10(23C)(vi) are actual existence of an educational institution and approval of the prescribed authority- it is only if the prerequisite condition of actual existence of the educational institution is fulfilled that the question of compliance of the requirements of the provisos would arise- There is a difference between stipulation of conditions and compliance thereof-To make s. 10(23C)(vi) workable along with the proviso, the monitoring conditions laid down in the third proviso. Viz., application/utilization of income, pattern of investments, etc can be stipulated as condition by the prescribed authority may insist on certain percentage of accounting income to be utilized/applied for imparting education in India- Compliance of the terms and condition stipulated by the prescribed authority would be a matter of decision at the time of assessment- This view namely, that the prescribed authority can stipulate condition while granting approval finds support from cl. (ii) (B)of the thirteenth proviso”.

3.3.2 Following the same the CBDT issued a circular (clarification) F.No. 197/38/2015- ITA-I dated 17.8.2015 (PB 182-185), where from the (relevant extracts) are reproduced hereunder:- “1.2 In this connection, attention is drawn to the decision of Hon’ble supreme Court in case of American Hotel and Lodging Association Educational Institute vs. CBDT (301 ITR 086) in which it has been held that at the time of granting approval u/s 10(23C)(vi), the prescribed authority is to be satisfied that the institution existed during the relevant year solely for educational purpose and not for profit. Once the prescribed authority is satisfied abut fulfillment of this criteria i.e. the threshold pre-condition of actual existence of an educational institution under section 10(23)(vi), it would not be justifiable, in denying approval on other grounds, especially where the compliance depends on events that have not taken place on the date on which the application for grant of approval has been made.

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3.3.3 Also kindly refer Allahabad Young Mens Christian Association vs. CCIT & Anr. (2015) 371 ITR 0023 (All) (DPB 1-8) held that: “Exemption u/s 10(23C)(vi)----Income of certain Trusts of national importance, universities, educational institutions, etc.---- Denial--- Validity--- Assessee a registered society running a school--- Assessee applied for registration u/s 10(23C)(vi)---CCIT refused registration- Held, society came into existence in 1910 and on land taken for 99 years lease—Assessee had constructed a building for school—Assessee is an educational institutions, who is providing education—No other activity was proved by Department –CCIT had already granted exempted u/s 12A/12AA w.e.f. 1.4.2007—In American Hotel & Lodging Association, Education Institute vs. CBDT 2008(301) ITR 86 SC, it was held that threshold conditions are actual existence of an educational institution and approval of prescribed authority—Only if pre-conditions of actual existence of an educational institution is fulfilled that question of compliance with the stipulations set out in the provisos would arise-- -Merely because there are other objects of society does not mean that the educational institution is not existing solely or society does not mean that the educational institution is not existing solely for educational purpose—It was held that authority is only required to examine that assessee’s institution comes within phrase “exists solely for educational purposes and not for profit—Other conditions like application of income is not be examined at this stage---Merely because some profit arises from its activity will not mean that predominant object of activity is to earn profit and that it is not an educational activity ---Facts were not analyzed by authorities below in a proper manner—From documents produced, prima facie facts appeared contradictory which require further investigation—Matter remanded to CCIT---Writ petition allowed.” 1.3--------.It is therefore, clarified that the principle laid down by the Apex Court in American Hotels case (supra) must be followed while considering the applications filed seeking approval for exemption u/s 10(23C)(vi).”

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which can be gathered from the main objects. Such requirement is to be seen only post grant approval. 5. Another objection raised by the Pr. CCIT at page 2 para 2.2 is that the University has violated a condition put in the registration order u/s 12A granted to “MIST”. It is submitted that firstly, such a restriction was placed only on “MIST” and not in the order u/s 12A in case of “MUST”. Secondly, strictly legally speaking, it is not at all a case of transfer of assets and liabilities from only entity to other entity in as much as all the assets and liabilities stood vested in the appellant University “MUST” (kindly refer Audited Balance Sheet PB-175) which was a requirement of the “MUST” Act-2013 dated 16-9-2013 (Kindly refer s. 3(2) (PB-56) & Schedule-1 (PB-79-84) and in accordance there with only, the assets stood vested. Therefore, there was one and the only person i.e. “MIST” the earlier body which, not stood transformed/got restricted as “MUST”. There had been no transferor or transferee. There couldn’t have been any question of transfer otherwise and hence there was no violation. 6. We may clarify that the filling of the separate application u/s 12A and now u/s 10(23C)(vi), are only for the simple reason that the present institution was created through a separate enactment and therefore, the department could have contended that the exemption already granted u/s 12A and or /10(23C)(vi) to the earlier institution being the ‘MIST’ cannot be carried forward and be availed by the present institution ‘MUST’ and it is only under this background, the appellant “MUST” had to file the application u/s 10(23C) 7. On Merits: The Ld. Pr. CIT made and got conducted detailed enquiries as evident from the facts that the various queries (PB 157-159) were raised which were replied time to time (PB 160-163) from which he was fully satisfied. There appears no adverse finding so far as the merits of the case is concerned. The appellant admittedly existed solely for educational and not for the purpose of profit. Similar other institutions have been granted approval hence the authorities kindly be direct to grant approval/exemption.

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record. As per the relevant proviso to Section 10(23C)(vi) of the Act that reads as

under:-

[Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes and application on or after the 1st 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] from which the exemption is sought.]

5.1 From the above provision, it is evident that the application is required to be made on before the 30th day of September of the relevant Assessment Year from

which the exemption is sought. The application was made by the assessee trust on 1st September 2014, the seeking approval for the Financial Year 2013-14. It was

noticed by the Ld. Pr. Chief Commissioner of Income Tax that as per the information

supplied by the assessee, the first year of operation of university of Financial Year is

2014-15. It is the case of the assessee that this Modi University of Science and

Technology that the applicant trust had already came into existence in the Financial

Year 2013-14. Even prior to this educational activity was being carried out. After

considering the totality of the fact that after making application a considerable

period has elapsed. Therefore, we restore this application to the file of the Ld. Pr.

Chief Commissioner of Income Tax, Jaipur to reconsider the application and grant

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exemption from the date when this assessee trust becomes eligible. Thus, grounds

of the assessee’s appeal are allowed for statistical purposes.

statistical purposes. Order is pronounced in the open court on Friday, the 14th day of July 2017.

Sd/- Sd/- ( HkkxpUn ½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 14/07/2017. Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

10 ITA No. 801/JP/2015. M/s Mody University Of Science and Technology, Rajasthan.