MODELLA CARETAKER CENTRE & SCHOOL,DARJEELING vs. CIT(EXEMPTIONS), KOLKATA, KOLKATA

At the outset, we note the appeal of assessee is time barred by 23 days and a condonation petition has been filed along with an affidavit explaining the reasons for the delay. We note that there is reasonable cause for the said delay in filing the appeal for the assessee because assessee is running a school at Siliguri and the order impugned is of Ld. CIT(E), Kolkata and, therefore, the time taken for delay in filing of appeal has been explained to our satisfaction. Hence, we condone the delay and admit the appeal for hearing.

The sole issue involved in this appeal of assessee is against the action of Ld. CIT(E) in rejecting the application of assessee for approval for exemption u/s. 10(23C)(vi) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

Brief facts of the case are that the assessee filed an application in Form 56D dated 17.03.2015 to CCIT, Kolkata-6 for approval of notification for exemption u/s. 10(23C)(vi) of the Act. During the course of the proceedings u/s. 10(23C)(vi) of the Act the assessee filed copies of Balance Sheet and Annual Report for AYs. 2012-13 and 2013-14 and also filed copy of provisional affiliation of CBSE, Delhi and details of cost towards technical and non-technical staff. During the proceeding before Ld. CIT(E), the assessee was also asked to produce the following details: (i) Copies of accounts for FY 2014-15, (ii) Form 10B for FYs 2011-12 to 2013-14 (iii) Details of donations received during the years (iv) Accounts of the society.

According to Ld. CIT(E), since none turned up to explain the aforesaid questions he was constrained to proceed the adjudication of application on merits and observed that the basic condition for approval u/s. 10(23C) of the Act of any educational institution lies in the fact that the institution must be running for sole purpose of education and not for purpose of profit. According to Ld. CIT(E), the following queries need to be answered properly by the assessee so that he can determine the purpose of the institution: i) The query regarding claim of exemption by the assessee remained unexplained in absence of document showing approval u/s. 12AA or 10(23C) or any other section duly approved by any authority. ii) The nature of donation received by the assessee is not apparent to be clear since maintenance fee collected from the students does not have any relation with the educational activity, the receipt of which is not for the sole purpose of education. iii) The purpose and procurement of advance made to the President of the Trust lies unexplained so far as purpose of the institution concerned. iv) Maintenance fee collected from the students indicates the profit making purpose of the institution since not related with educational purpose.

Since the assessee failed to furnish any answers to the aforesaid queries, according to Ld. CIT(E) the purpose of the assessee for running the institution is not established for satisfying the basic and primary conditions as laid down in section 10(23C)(vi) of the Act, and, therefore, the Ld. CIT(E) rejected the assessee’s application for approval of notification for exemption u/s. 10(23C)(vi) of the Act. Aggrieved, assessee is in appeal before us.

It was brought to our notice that the Ld. CIT(E) asked for so many documents and since the applicant was situated at a faraway place at Siliguri from Kolkata, the applicant was not able to produce all the documents required by the Ld. CIT(E) which prompted him to draw adverse inference against the applicant. Here, we would like to clarify that at the time of granting approval u/s. 10(23C)(vi) the Ld. CIT(E) is to be satisfied that the institution/applicant existed during the relevant year solely for educational purposes and not Modella Caretaker Centre & School, AY 2015-16 for profit. Once the Ld. CIT(E) is satisfied about fulfillment of this criteria, i.e. the threshold pre-conditions of actual existence of an educational institution u/s. 10(23C)(vi), it would not be justifiable to deny 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. We would hasten to add that the Ld. CIT(E) while granting approval u/s. 10(23C)(vi) can insist on the approval being granted subject to such terms and conditions which falls within the framework of various provisos to the said clause of sec. 10 of the Act. It is also clarified here that while granting approval u/s. 10(23C)(vi) the Ld. CIT(E) cannot insist on sec. 12A registration because sec. 10(23C)(vi) does not prescribe any such stipulation. Even though for registration u/s. 12A and sec. 10(23C)(vi) some of the compliance criterion may be common to both, does not mean that Ld. CIT(E) can insist the applicant for registration u/s. 12A, when sec. 10(23C)(vi) does not prescribe such a requirement. With the aforesaid observation, we set aside the impugned order and remand the application for approval u/s. 10(23C)(vi) back to the file of Ld. CIT(E) for de-nova consideration and with a direction to pass a reasoned order on the application filed by the assessee institution in accordance to law and while doing so can take guidance from ratio laid by Hon’ble Apex Court order in American Hotel and Lodging Association Vs CBDT(301 ITR 86), after hearing the assessee. Therefore the appeal of assessee is allowed for statistical purposes.

In the result, the appeal of assessee is allowed for statistical purposes.