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Income Tax Appellate Tribunal, CUTTACK BENCH,
Before: SHRI N.S SAINI & SHRI ABY T. VARKEY
Per Bench
This is an appeal filed by the assessee against the order of
Commissioner of Income Tax (Exemptions) Hyderabad, dated 29.7.2016,
for the assessment year 2016-17.
The sole issue involved in this appeal is that the ld Commissioner of
Income Tax (Exemptions) erred in holding that the assessee society is not
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solely for educational purpose, as such is not entitled for grant of exemption
u/s.10(23C)(vi) of the Act.
We have heard the rival submissions and perused the orders of lower
authorities and materials available on record. In the instant case, the Ld
Commissioner of Income Tax (Exemptions) observed that on verification
of the aims and objects of the society mentioned in the Trust Deed
submitted along with its application are found to include the following:
i) To construct community halls and rest houses for public utility.
ii) To start and manage centers for training youths in self- employment and job oriented courses.
iii) To canvass and to have programmes for afforestation and ecological balance.
iv) To have programmes for all round development of villages and rural community.."
Thus, it can be seen that the aims and objects of the society
mentioned supra are not "solely" for educational purposes. He observed
that in the common Order dated 16.11.2010 pronounced by Hon'ble High
Court of Andhra Pradesh held that 'inclusion of non-educational objects in
the Memorandum of Association/bye-laws of the society would disentitle
them from claiming the benefit of exemption under section 10(23C)(vi) of
the Act. The aforesaid objects cannot be characterised as ancillary or
incidental to, or to be integrally connected with, the object of imparting
education’”. The existence of the above mentioned objects which are not
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for educational purpose makes amply clear the intention of the trust that it
is not existing “solely” and exclusively” for the purposes of education. Thus,
the assessee has not fulfilled one of the pre-requisite conditions laid down
under section 10(23C)(vi) of the I.T.Act, 1961. Therefore, he denied
approval u/s.10(23C)(vi) of the I.T.Act, 1961.
Before us, ld A.R. of the assessee filed an order of the Hon’ble
Karnataka High Court in the case of Geetanjali Education society vs The
Assistant Director of Income Tax in I.T.A. Nos.299-300/2013 order dated
24th February, 2014 and submitted that on similar facts and circumstances
of the case, the Hon’ble High Court has allowed approval u/s.10(23C)(vi)
of the Act by observing as under:
”4. The Society is engaged in imparting education in the school run by them is not in dispute. It is also not in dispute that from the Assessment year 2008-09 onwards, the Society was granted registration under Section 12A of the Act. The objects of the Society on the basis of which, the Revenue claim that the Society during the relevant assessment year was not existing solely for education purpose, read thus:-
Clause 3(b): The Society will emphasis on establishment of Urnic, Religious and social institutions with job oriented courses and paramedical institutions; and Clause 3(h): To implement women and child welfare programs.
It is on the basis of these objects, it appears the Tribunal held that the society is engaged in the activities other than educational activity and hence, not entitled to claim benefit u/s.10(23C)(vi)(iiiad) of the Act. Section 10(23C(iiiad) of the Act, read thus:
In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included
(23C) any income received by any person on behalf of –
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(iiiad) any university or other educational institution solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts may be prescribed.
From bare perusal of this provision, it is clear that any income received by any person on behalf of the educational institution "existing" solely for educational purpose and not for purposes of profit and if its aggregate annual receipts do not exceed the amount of annual receipts as may be prescribed, it is entitled for exemption under this provision. The amount of annual receipts prescribed is admittedly Rs.1 crore vide Rule 2BC of the Income Tax Rules, 1962.
In the present cases, before we advert to the submissions advanced by learned counsel for the parties and record our reasons, it would be advantageous to state few admitted facts. The appellant- Society is an Educational Institution which runs the school. The amount of annual receipts of the Society did not exceed Rs.1 crore during both the Assessment Years i.e., 2006-07 and 2007-08. The Society did not have any other activity except running the school during both the Assessment years. In other words, it is not in dispute that except for conducting the school, the Society did not carry on any other activities right from inception, in particular, during the relevant Assessment Years (2006-07 & 2007-08). Even if it is accepted, that the objects of the Society as reflected in clause 3(b) and 3(h) of the Memorandum of Association are not related to education, admittedly, the society did not/is not involved in these activities. It is against these admitted facts, we would now proceeded to consider the submissions advanced on behalf of both sides placing reliance upon the judgments of the Supreme Court and other High Courts.
At the outset, we would like to consider the judgment of the Supreme Court in American Hotel and Lodging Association Educational Institution v. Central Board of Direct Taxes and others[(2008) 301 ITR 86 (SC)], on which, Mr.Aravind, learned counsel appearing for the Revenue placed heavy reliance to contend that mere existence of object/s in the Memorandum of Association not related to the education is sufficient to deny exemption/benefit under the provisions contained in Section 10(23C) (iiiad) of the Act. In American Hotel's case, the Supreme Court was dealing with the provisions contained in Section 10(22) of the Act and the question, for our purpose, fell for its consideration was, whether the activities of the appellant-institute came within the definition of "income of educational institution". The following observations were heavily relied upon by Mr.Aravind, learned counsel for the Revenue.
"Under Section 10(22), one had to closely analyse the activities of the institute, the objects of the institute and its source of income and its utilization. Even if one of the objects enabled the institute to undertake commercial activity, the institute would not be entitled to approval
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under section 10(22). The said section, inter alia, excludes the income of the educational institute from the total income".
It was submitted that mere existence of clause 3(b) and 3(h) in the Memorandum of Association, which enabled the Society to undertake other activities, not related to the educational activities is sufficient to deny exemption as claimed by them for both the assessment years. The Institution in American Hotel, according to memorandum of understanding, had several objects and it is in this backdrop, the following observations made by the Supreme Court are relevant for our purpose:-
"To make the section with the proviso workable we are of the view that the monitoring conditions in the third proviso like application/utilization of income, pattern of investments to be made, etc., could be stipulated as conditions by the prescribed authority subject to which the approval could be granted. For example, in marginal cases like the present case, where the appellant-institute was given exemption up to the financial year ending March 31, 1998 (assessment year 1998-99) and where an application is made on April 7, 1999, within seven days of the new dispensation coming into force, the prescribed authority can grant approval subject to such terms and conditions as it deems fit provided they are not in conflict with the provisions of the 1961 Act (including the abovementioned monitoring conditions). While imposing stipulations subject o which approval is granted, the prescribed authority may insist on certain percentage of accounting income to be utilized/applied for imparting education in India. While making such stipulations, the prescribed authority has to examine the activities in India which the applicant has undertaken in its constitution, memorandum of understanding and agreement with the Government of India/National Council. In this case, broadly the activities undertaken by the appellant are conducting classical education by providing course materials, designing courses, conducting exams, granting diplomas, supervising exams, all under the terms of an agreement entered into with institutions of the Government of India. Similarly, the prescribed authority may grant approvals on such terms and conditions as it deems fit in case where the institute applies for initial approval for the first time. The prescribed authority must give an opportunity to the applicant-institute to comply with the monitoring conditions which have been stipulated for the first time by the third proviso. Therefore, cases where earlier the applicant has obtained exemption(s), as in this case, need not be reopened on the ground that the third proviso has not been complied with. However, after grant of approval, if it is brought to the notice of the prescribed authority that conditions on which approval was given are breached or that the circumstances mentioned in the thirteenth proviso exists then the prescribed authority can withdraw the approval earlier given by following the procedure mentioned in that proviso. The view we have taken, namely, that the prescribed authority can stipulate conditions subject to which approval may be granted finds support from sub-clause (ii) (B) in the thirteenth proviso".
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After making these observations, the Supreme Court set aside the order passed by the Central Board of Direct Taxes and remitted the matter for fresh consideration in accordance with law and while doing so, clarified that, in that case, the appellant had fulfilled, the threshold pre-condition of actual existence of an educational institution under Section 10(23C) (vi) and therefore, on that count, the Central Board of Direct Taxes, would not reject the approval application made by the appellant therein.
From bare perusal of the observations made by the Supreme Court in American Hotel's case, what appears to us, is that the Assessing Officer while considering the case, such as one in hand, has to closely analyse activities of the Institute, objects of the Institute, its sources of income and utilization. In that case, the Supreme Court considered its activities as reflected in the paragraph quoted above and therefore, while remanding the matter, made it clear that the appellant had fulfilled the threshold pre- condition of actual existence of the educational institution under Section 10(23C) (vi) with further direction to the Central Board of Direct Taxes not to reject the approval application on that ground. Two of the objects in that case as reflected in the judgment were also to offer the National Council the lowest possible prices for the products and services sold to or utilized by the schools under the umbrella of the Government of India and so also to utilize Indian Authors whenever possible in the development of customized programmes. The Supreme Court, despite these objects/activities, held that the institution in American Hotel was involved only in educational activities, perhaps on the ground that it was not carrying on those activities.
Sri. Shankar, learned counsel appearing for the appellant at the outset, invited our attention to the judgment of Allahabad High Court in C P Vidya Niketan Inter College Shikshan Society -vs- Union of India and others (2013) 359 ITR 322 (All) (for short C P Vidyaniketan') and submitted that after considering the judgment of the Supreme Court in American Hotel, the High Court held that where it is not disputed that a society runs an educational institution and is not for the purposes of making profit, merely because the object of the Society is also to serve the church and the nation would not mean that the educational institution not existing solely for educational purpose. This observation was made by the High Court after referring to the judgments in C P Vidya Niketan and American Hotel. The Bombay High Court in Vanita Vishram Trust -vs- Chief Commissioner of Income-Tax and another (2010) 327 ITR 121 (Bom) after considering the provision contained in Section 10(23C)(vi) of the Act observed that though the objects clause contained varied objects including the management and development of moveable and immoveable properties, the statement of fact before the Court, which was not disputed, was that the only activity carried out by the Trust ever since its inception was the conduct of educational institutions. The Institution, in that case, had a history of over 80 years during the course of which the only activity was of conducting educational institution.
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In the present case, it is not in dispute that the society has been conducting the primary and secondary school in the State of Karnataka since 2002. Nor is there any dispute before us that save and except for conducting school, the society has carried on any other activities since then. Without expressing any opinion whether the object, as reflected in Clause 3(b) and 3(h) of the Memorandum of Association, are related to education, it is clear that save and except educational activity the assessee did not/do not carry on any other activity is the fact, which is not in dispute. In other words, though the activities as reflected in Clause 3(b) and 3(h), may constitute the purpose, other than the educational purpose, but, during the relevant assessment year, it is not the case of the revenue nor is there any material to show, that the society was running any activities other than the educational activity. In this view of the matter, we are of the considered opinion that the view taken by the Tribunal is not correct and deserves to be set aside. There are adequate safeguards that if the activities other than educational activities are undertaken by the society, exemption granted can be withdrawn. Merely, because there exists object, which is not related to educational activities, in our opinion, is not sufficient to deny the exemption/benefit of Section 10(23C)(iiiad)of the Act. In short, in the absence of any allegation or material against the society showing that they are involved in any other activities than the educational activities, in our opinion, it cannot be denied exemption under Section 10(23C)(iiiad). In the circumstances, we answer both the substantial questions of law in favour of the assessee and against the revenue.”
Ld D.R. could not controvert the submission of ld A.R. of the assessee.
We find that the CIT(A) has relied on the decision of Hon’ble A.P.High
Court in the case of NEW NOBLE EDUCATIONAL SOCIETY & ORS. vs. CHIEF
COMMISSIONER OF INCOME TAX & ANR., 334 ITR 303 (AP), where, the
Hon’ble High Court has held that in order to be eligible for exemption, under
s. 10(23C)(vi) of the Act, it is necessary that there must exist an
educational institution. Secondly, such institution must exist solely for
educational purposes and, thirdly, the institution should not exist for the
purpose of profit. If there are several objects of a society some of which
relate to "education", and others which do not, and the trustees or the
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managers, in their discretion, are entitled to apply the income or property
to any of those objects, the institution would not be eligible to be regarded
as one existing solely for educational purposes, and no part of its income
would be exempt from tax. In other words, where the main objects are
distributive, each and everyone of them must relate to "education" in order
that the institution may be held entitled for the benefits under s.
10(23C)(vi) of the Act. But if the primary or dominant purpose of an
institution is "educational", another object which is merely ancillary or
incidental to the primary or dominant purpose would not disentitle the
institution from the benefit.
We find that the CIT(Exemptions) after examining the objects of the
society has not brought any material on record to show that the other
objects included in the trust deed are not ancillary or incidental objects to
the primary or dominant purpose and that the other objects are primary
objects of the institution. Therefore, the inference drawn by the
CIT(Exemptions) that since trust deed of the society contains other objects
also and, therefore, the society is not eligible for exemption u/s.10(23C)(vi)
of the Act by relying on the decision of Hon’ble A.P.High Court in the case
of New Noble Educational Society (supra) is not correct.
We further find that the Hon’ble Karnataka High Court in the case of
Geetanjali Education Society (supra) has held that even though the objects
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of the society contained other objects which constitute purpose other than
educational purpose but as there is no dispute to the fact that the society
carried on the object of conducting school only, it cannot be denied
exemption u/s.10(23C)(iiiad) of the Act. In the case of the assessee at
hand also, it is not the case of the revenue that the assessee is carrying on
objects which constitute purpose other than educational purposes,
therefore, respectfully following the decision of the Hon’ble Karnataka High
Court in the case of Geetanjali Education Society (supra), we are of the
view that exemption u/s.10(23C) cannot be denied to the assessee society.
Even otherwise, where there are contrary decisions of Hon’ble High
Courts on an issue and none of which is Hon’ble Jurisdictional High court,
then the decision in favour of the assessee should be followed in view of
the decision of Hon’ble Supreme Court in the case of CIT vs.Vegetable
Products Ltd., 88 ITR 192 (SC).
Therefore, respectfully following the decision of Hon’ble Karnataka
High Court in the case of Geetajali Education Society (supra), we set aside
the order of the Commissioner of Income Tax (Exemptions) and direct him
to allow exemption u/s.10 (23C) of the Act to the assessee society. Thus,
this ground of appeal of the assessee is allowed.
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In the result, the appeal filed by the assessee is allowed.
Order pronounced in the court on 28 /02/2017. Sd/- sd/- ( Aby T. Varkey) (N.S.Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER
Cuttack; Dated 28 /02/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Yuvodaya Charitable Trust, At: Basudev Bhawan, PO/Dist: Bolangir 2. The Respondent. CIT (Exemptions), Hyderabad
DR, ITAT, Cuttack 4. Guard file. //True Copy// BY ORDER,
SR.PRIVATE SECRETARY ITAT, Cuttack