JAYADEV COLLEGE V. CHIEF COMMNR.OF I.T.

WP(C)/13921/2010

AI Insights

The case revolves around a writ petition challenging the order of the Chief Commissioner of Income Tax, Orissa, which rejected the petitioner's application for tax exemption under Section 10(23C)(vi) for the Assessment Year 2009-10. The petitioner argued that their Trust, involved in both educational and non-educational activities, should qualify for the exemption based on precedents and the nature of their activities. However, the Chief Commissioner found that the Trust's activities, including social, cultural, and medical assistance, alongside the financial irregularities noted in their accounts, did not meet the statutory requirement of existing 'solely' for educational purposes. The High Court upheld this decision, emphasizing the Trust's capacity to engage in non-educational activities and the lack of reconciliation in their financial accounts over several years.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 744233 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 20-02-2019
• Assessment Year: misc
• Other Referred Cases: Ewing Christian College Society Vrs. Chief Commissioner of Income Tax, Maharaja Sawai Mansinghji Museum Trust, Loka Shikshana Trust, Reliance Motor Co. Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Educational purposes; Exemption; Non-Educational Purposes; Accounting improprieties
• Section: 2(15); 10(23C)(vi); 10(22)

Judgement Text

"03. 20.02.2019 Heard learned counsel for the parties. By way of this writ petition, the petitioner has challenged the order dated 20.1.2010 passed by the Chief Commissioner of Income Tax, Orissa, Bhubaneswar whereby the application of the petitioner for exemption under Section 10(23C)(vi) for the Assessment Year 2009-10 has been rejected. Learned counsel for the petitioner has taken us to paragraph-11.6 of the writ petition and contended that in view of the decision of the Allahabad High Court in the case of Ewing Christian College Society Vrs. Chief Commissioner of Income Tax, reported in (2009) 318 ITR 160 (All.), the petitioner’s Trust is required to be considered for exemption. He has also taken as to Annexure-2, the order passed by the earlier authority, which suggests that the objects of the Trust contain both educational as well as non-educational clauses and contended that the view taken by the authority is required to be set aside. The Chief Commissioner of Income Tax while considering the application of the Trust for grant of exemption has observed at paragraphs-4 and 5 of its order dated 20.1.2010 in the following manner: “4. I have considered the arguments from the side of the assessee Trust. As already mentioned, one of the basic pre-requisites for considering claim of exemption u/s.10(23C)(vi) is that the educational institution must exist “solely” for educational purposes. The expression “solely” came up for consideration before the Rajasthan High Court in the case of Maharaja Sawai Mansinghji Museum Trust (169 ITR 379). The Hon’ble Court had held that the expression “solely” means exclusively and not primarily. This case was decided in the context of erstwhile provisions of section 10(22) of the Income Tax Act, 1961. Since the provisions of section W.P.(C) No.13921 of 2010 -2- 10(23C)(vi) are similar, the same interpretation will hold good in the context of provisions of section 10(23C)(vi). A plain reading of the objects of the Trust shows the following non-educational and mixed purposes: (i) To undertake programme and projects for advancement of Social, Educational, Economic, Cultural as and Aesthetic interest of the society. (viii) To render medical help and Care to the public by starting dispensaries, Hospitals and Health Centres etc. (ix) To support and render financial assistance to such other institutions or organizations which in the opinion of the trustees would carry out any of the objects of the Trust. (x) To promote or assist in promoting the understanding of History, Culture, Art, Music and Literature of Orissa in particular and India in General.” These clauses are clearly either non-educational or mixed in nature. Even in clause (iv), it is mentioned that the Trust can undertake activity for non-formal education. As already held by the Hon’ble Supreme Court in the case of Loka Shikshana Trust [101 ITR 234 (SC)], the sense in which the word “education” has been used in section 2 (15) is systematic instruction, schooling or training given to the young for preparation for the work of life. The word “education” has not been used in wide and extended sense according to which every acquisition of knowledge would constitute education. This decision makes it very clear that the term education means only formal education aimed at preparing the students and citizens for the work of life and it does not include non-formal type of education. Similarly, clause (ii) of objects of the Trust, it is mentioned that the Trust can undertaken programmes for social and cultural activities to bring awareness into the masses. This part of the object is also clearly non-educational. In this context, it will be relevant to point out that in its instruction dated 29.10.1977, the Central Board of -3- Direct Taxes, had also clarified that if the Trust has the option to apply its surplus for non-educational purposes, it can not be said to exist “solely” for educational purposes and such institutions will not qualify for exemption u/s.10(22). Since the provisions of section 10(23C)(vi) are similar, the same view will hold good in the context of the aforesaid provisions. The interpretation contained in the Board’s instruction finds support from the decision of Reliance Motor Co. Pvt. Ltd. (213 ITR 733 (Madras)]. In the aforesaid case, the Hon’ble Court had categorically held that it is not the actual user but the likelihood of the user and the capacity of the Trust to undertake a particular activity, which is relevant. Though this case law was decided in the context of grant of exemption u/s.80G, but the interpretations given will hold good in the context of the provisions of section 10(23C)(vi) also. In the present case, the objects of the Trust very clearly show that the Trustees have the power and authority to undertake activities other than educational. Therefore, it can not be said that the Trust exists “solely” for educational purpose. 5. It would also be relevant to point out another aspect of the present case. Along with its application for grant of exemption, the assessee Trust had filed audited accounts for the financial years 2005-06 to 2007-08. Subsequently, during the course of hearing, the Ld. ARs have also filed audited accounts for the financial year 2008-09. All these audited accounts show that the auditors have pointed out serious defects in the accounts of the trust in successive years. In the accounts for the year ended 31.03.2006, the auditors made the following observation: “The following accounts are neither reconciled nor details thereof are available for verification. (a) Library Caution Money : Rs.70,476.00Cr. (b) Sri Jayadev College General Account Rs.17,73,144.96 Dr. (c) Loan to student : Rs.4,922.00 Dr.” Similarly, in respect of accounts for the year 2006-07, the auditors had made the following observation: -4- “The following accounts are neither reconciled nor details thereof are available for verification. (a) Sri Jayadev College General Account Rs.17,73,144.96 Dr. (b) Loan to student : Rs.4,992.00 Dr.” Same comments were repeated in respect of the accounts for the years 2007-08 and 2008-09. The observations of the auditors show that for four successive accounting years, the Trust has not reconciled a substantial amount of Rs.17,73,145/- in respect of general account. The observations of the auditors raise serious questions about the correctness of accounts and consequently the genuineness of the activities undertaken by the Trust. Obviously such a Trust can not be considered for exemption u/s.10(23C)(vi), in the face of the accounting improprieties pointed out by the auditors.” The order was passed on 20.1.2010. Though this writ application has been filed since 11.08.2010, since then the impugned order has not been stayed. Taking into consideration the observation of the Commissioner, we are in complete agreement with the view taken by the Commissioner. In that view of the matter, the petitioner-Trust is not entitled to get the benefit of exemption as prayed for. In view of the above, it will not be appropriate to reverse the same after eight years. Accordingly, the writ petition stands dismissed. .……..........………… ( K.S. Jhaveri ) Chief Justice ……………….…….. ( K.R. Mohapatra ) Judge AKK "