MAHARANI LUXMI BAI MEMORIAL EDUCATION SOCIETY V. CHIEF COMMISSIONER OF INCOME TAX

WPMS/1108/2010

AI Insights

The case revolves around the Maharani Luxmi Bai Memorial Educational Society, which operates an educational institution and sought exemption from income tax under Section 10 (23C) (vi) of the Income Tax Act, 1961. The Chief Commissioner of Income Tax, Dehradun, rejected the society's application, stating that certain objects in its Memorandum of Association did not qualify as 'solely for educational purposes'. The society challenged this decision in the High Court of Uttarakhand. The court found that the society, being a juristic person running an educational institution, had the right to apply for the exemption and that the objects in question were ancillary to the educational purposes and did not constitute profit-making activities.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 672862 (HC-UTTARAKHAND)
• Appeal Type: Others
• Pronouncement Date: 27-04-2015
• Assessment Year: misc
• Other Referred Cases: Aditanar Educational Institution v. Additional Commissioner of Income-tax, Additional Commissioner of Income-tax, Gujarat v. Surat Art Silk Cloth Manufacturers Association, American Hotel & Lodging Association, Educational Institute v. Central Board of Direct Taxes & Ors., M/s Queen's Educational Society v. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Department Lawyers: HARI MOHAN BHATIA
• Assessee Lawyers: MOHIT MAULEKHI
• Keywords: Charitable society; Educational institution; Exemption; Income Tax Return; Nil income tax
• Section: 12A; 10(23C)(vi)

Judgement Text

"IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL WRIT PETITION (M/S) No. 1108 of 2010 Maharani Luxmi Bai Memorial Educational Society ….. Petitioner Versus Chief Commissioner of Income Tax, 13-A, Subhash Road, Aykar Bhawan, Dehradun …. Respondent Present : Mr. Mohit Maulekhi, Advocate for the petitioner. Mr. Hari Mohan Bhatia, Advocate for the respondent. Hon’ble Alok Singh, J. (Oral) Present petition has been filed assailing the order dated 29.3.2010 passed by the Prescribed Authority/Chief Commissioner of Income Tax, Dehradun, whereby application of the petitioner moved under Section 10 (23C) (vi) of the Income Tax Act, 1961 seeking exemption was rejected. Brief facts of the present case, inter alia, are that petitioner society is a registered society under the provisions of the Societies Registration Act; petitioner society is running an educational institution in the name and style of Doon (P.G.) College of Agriculture Science and Technology; petitioner society has been granted registration under Section 12A of the Income Tax Act by the Commissioner, Income Tax, Dehradun treating it as a charitable society on 14.3.2008; petitioner society applied for grant of exemption under Section 10 (23C) (vi) of the Income Tax Act for financial year 2008-09 (relevant to assessment year 2009-10) by filing an application in the prescribed Form No. 56D along with the Memorandum of Association of the society; application of the petitioner society was rejected vide 2 impugned order saying that Object Nos. 3, 4 & 5 as mentioned in the Memorandum of Association of the society do not fall within the definition of “solely for educational purposes”; feeling aggrieved, petitioner society has approached this Court by way of filing the present petition under Article 226 of the Constitution of India. I have heard Mr. Mohit Maulekhi, learned counsel for the petitioner society and Mr. Hari Mohan Bhatia, learned counsel for the Revenue, and have carefully perused the record. There is no denial to the fact that petitioner society has applied for exemption under Section 10 (23C) (vi) of the Income Tax Act on 30.3.2009. This is also not denied that petitioner society was accepted as a charitable society and was issued registration certificate under Section 12-A of the Income Tax Act. Mr. Hari Mohan Bhatia, learned counsel appearing for the Revenue, submits that although application of the petitioner society was rejected on the ground that Object Nos. 3, 4 & 5 as mentioned in the Memorandum of Association do not fall within the definition of “solely for educational purposes”, however, this Court must consider that exemption under Section 10 (23C) (vi) of the Income Tax Act should be moved by the educational institution and not by the registered society running the educational institution. According to Mr. Bhatia, since in the present case, application was not moved by the educational institution and was moved by the registered society, therefore, it was not maintainable and, on this ground too, the petitioner society is not entitled for any exemption under Section 10 (23C) (vi) of the Income Tax Act. 3 Undisputedly, petitioner society is running an educational institution and furnished income tax return declaring ‘Nil’ return by claiming exemption and was duly assessed by the income tax authorities as ‘Nil” income tax for the assessment year 2008-09. Mr. Hari Mohan Bhatia, learned counsel appearing for the Revenue, does not dispute that petitioner society does not have any other source of income and return was submitted by the petitioner society pertaining to the educational institution in question only. Since, petitioner registered society is running the education institution, therefore, for all practical purposes, petitioner society is an assessee. Moreover, petitioner registered society is a juristic person and is running educational institute, therefore, in my humble opinion, petitioner society has every right to move exemption application. Since, application of the petitioner society was not rejected on the ground as raised by Mr. Bhatia today that application on Form No. 56D ought to have been moved by the educational institution and not by the registered society, therefore, ground taken by Mr. Bhatia does not hold water and is liable to be turned down and is hereby turned down. Undisputedly, as per clause (vi) of Section 10 (23C), any University or other educational institution existing solely for educational purposes and not for the purposes of profit, other than those mentioned in sub- clause (iiiab) or sub-clause (iiiad) shall be granted approval by the Prescribed Authority on being satisfied that institution is existing solely for educational purposes and not for other purposes of profit. Hon’ble Apex Court, too, in the case of Aditanar Educational Institution v. Additioanl 4 Commissioner of Income-tax reported in (1997) 224 ITR 310 (SC) has held that language of Section 10 (22) of the Income Tax Act is plain and clear and availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and nor for purposes of profit. In the case of Additional Commissioner of Income-tax, Gujarat v. Surat Art Silk Cloth Manufacturers Association reported in (1980) 121 ITR 1 SC, Hon’ble Apex Court has held that test of pre- dominant object of the activity is to see whether it exists solely for educational purposes and not for profit. The judgment of Hon’ble Apex Court in the case of Surat Art Silk Cloth Manufacturers Association (supra) and in the case of Aditanar Educational Institution (supra) were duly relied upon by the Hon’ble Apex Court in the case of American Hotel & Lodging Association, Educational Institute v. Central Board of Direct Taxes & Ors. Reported in (2008) 301 ITR 86 (SC). Judgments were further approved in the recent judgment of Hon’ble Apex Court in the case of M/s Queen’s Educational Society v. Commissioner of Income Tax, Civil Appeal No. 5167 of 2008, decided on 16.3.2015. Thus, as per the settled law, the test of pre- dominant object of the activity is to be seen – As to whether it exists solely for educational purposes and not for purposes of profit. Objects of the Memorandum of the Society are reproduced in paragraph No. 3 of the impugned order, which read as under: 5 “1. To impart the education to the students of the school with the aid of modern equipment and with the help and guidance of the best suited staff members amidst the modern and best surroundings to enable the students to develop their potentialities to the fullest. 2. To generate the ideals of good citizenship, disciplined life and good more character. 3. To foster and develop an active and positive feeling of love and brotherhood for everyone and cultivate a strong sense of patriotism. 4. To ensure an all round development of their personalities through educational social and cultural activities. 5. To foster such education to the poor irrespective of caste, creed and culture. 6. To organize educational programmes such as Adult Education of all types including vocational & Training Programmes either in villages or in slum areas of the country. 7. To train the students to be persons of strong character, initiative, moral drive and leadership, and of tolerant and sympathetic outlook. 8. To establish and maintain Library Reading Rooms, educational clubs to enable the students to be with the worldwide development in the fields of 6 science literature, sports etc. and to further the objects of the society. 9. To construct, demolish, acquire, maintain any building in connection with the school and boarding houses for the residence for the students, employees and worker of the society and affiliate or manage institution of the similar object. 10. To provide scholarship to deserving students. 11. To seek help from the public or Government for finance as and when deemed necessary in the interest of the society. 12. To accept voluntary donations, from the parents of the students or from any other person, firm, society and /or foreign country, who may desire to contribute towards the aims of the society. 13. To organize cultural shows, dramas, fates, fairs and sports to collect funds for the benefit of the society on a non- commercial basis. 14. To seek help from the government for the allotment of lands or buildings for the cause of the society. 15. To buy, purchase, take on lease or in exchange, hire or otherwise acquire any immovable or movable property of any tenure or description and any estate or interest thereon and any rights or privilege, which the society may think necessary or convenient for the promotion of its objects 7 and the construct, maintain and alter any building or erections necessary or convenient for the work of the society. 16. to sell, let, lease, mortgage, gift, dispose of, manage, develop, build or alter or improve or turn to account all or any of the property or assets of the society, as may be thought expedient with a view to the promotion of its object. 17. To engage, employ and remunerate persons for carrying on the work of the society, on such. 18. To borrow or raise money for the purpose of carrying out the aims, and objects of the society on such terms and by giving such security as may be determined from time to time. 19. To invest money of the society, which cannot be applied immediately or at any early date for carrying out its aims and objects. 20. To establish and support or aid in the establishment and support of any charitable association or institutions and to subscribe or guarantee money for charitable purposes in any way connected with the purpose of the society or calculated to further its objects. 21. To co-operate, federate, associate or otherwise to establish contract with other organizations in India or abroad living having similar aims and objects and nature. 8 22. To obtain loan for development of educational institute by pledging the assets , if required, and to give financial help only to other educational institute at its urgent need which is existed solely for educational purposes and not for purposes of profit.” The perusal of all 22 Objects of the Memorandum of Society of the petitioner society would reveal that none of the object is for the purpose of earning profit. The perusal of Object Nos. 3, 4 & 5 of the Memorandum of Society would reveal that petitioner society shall undertake objects as mentioned in Clauses (3), (4) & (5). The perusal of Object Nos. 3, 4 & 5, do not demonstrate that by fulfilling these objects, the society by any means can earn profit. In my humble opinion, Object Nos. 3, 4 & 5 of the Memorandum of Association seem to be ancillary for educational purposes and the main object of the society still remains as educational purpose. Since, the only consideration required is as to whether assessee is for education purpose and is not indulged in profit making object and Object Nos.3, 4 & 5 are ancillary to educational purposes and none of the object seems to be for profit making purpose, therefore, rejection of the application moved under Section 10 (23C) (vi) seems to be totally unjustified. In view of the above, present petition succeeds and is allowed. Impugned order is hereby quashed. Matter stands remitted to the learned Prescribed Authority. Learned Prescribed Authority is 9 directed to take decision afresh in the light of the observations made hereinbefore, preferably within ninety days from today. (Alok Singh, J.) Dated: 27th April, 2015 Avneet/ "