Petitioner Society V. Commissioner of Income Tax (Exemptions), Hyderabad

WP/18196/2016

AI Insights

The case revolves around the petitioner-society's application for tax exemption under Section 10(23C)(vi) of the Income Tax Act, 1961, which was initially rejected by the Commissioner of Income Tax (Exemptions). The society's objectives included education, sports, cultural activities, and welfare for orphans. The court had to determine whether these objectives, particularly the non-educational ones, were ancillary to the primary educational objectives of the society. The High Court of Andhra Pradesh, referencing previous judgments, concluded that the society's objects were not solely for educational purposes, leading to the dismissal of the writ petition.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 804940 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 09-06-2016
• Assessment Year: misc
• Other Referred Cases: New Noble Educational Society vs. CCIT, Surat Art Silk Cloth Manufacturers' Association
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: J V PRASAD
• Assessee Lawyers: VEDULA SRINIVAS
• Keywords: Commissioner of Income Tax (Exemptions); Educational purposes; Income tax exemption; Non-profit
• Section: 10(23C)(vi)

Judgement Text

"THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN And THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY Writ Petition No.18196 of 2016 ORDER: (per Hon’ble Sri Justice Ramesh Ranganathan) The order under challenge in this writ petition is the proceedings of the Commissioner of Income Tax (Exemptions), Hyderabad dated 23.03.2016 rejecting the petitioner’s application seeking approval under Section 10(23C)(vi) of the Income Tax Act, 1961 (for short “the Act”) for the assessment year 2014-15. Facts, to the extent necessary, are that the aims and objects of the petitioner-society, prior to its being amended on 30.07.2015, were as under: 1. To give the basic knowledge of education among the illiterate people; 2. To conduct sports and games and cultural activities; 3. To provide national integration; 4. To teach the student as a true citizen; and 5. To conduct welfare activities for orphans. The petitioner sought exemption under Section 10(23C)(vi) of the Act and the 1st respondent, by his order dated 08.09.2015, rejected the petitioner’s request for exemption. In the said order, the 1st respondent referred to the judgment of this Court in New Noble Educational Society vs. CCIT[1], and held that objects 2, 3 and 5 were not solely for educational purposes; and existence of these objects, which were non-educational, made it amply clear that the society was not existing solely for the purposes of education. Aggrieved thereby, the petitioner invoked the jurisdiction of this Court and filed W.P.No.31892 of 2015. In its order, in W.P.No.31892 of 2015 dated 29.12.2015, this Court held that the order of the 1st respondent, in holding that objects 2, 3 and 5 were not solely for educational purposes, could not be faulted. The said order has attained finality and, as such, the aforesaid finding of this Court cannot now be agitated in the present proceedings. In its order, in W.P.No.31892 of 2015 dated 29.12.2015, this Court further observed that the conclusion of the 1st respondent that existence of these objects, which were non-educational, made the society as not existing “solely for educational purposes” could not be accepted in view of the judgment of the Supreme Court in Surat Art Silk Cloth Manufacturers’ Association2. After referring to the said judgment of the Supreme Court, this Court observed that the test which the 1st respondent was required to apply was whether the objects, which were said to be solely for educational purposes, were the main or primary objects for the trust or institution or were ancillary or incidental to the dominant or primary object; and if the dominant or primary object of the society was solely for educational purposes, and not for the purpose of profit, the mere fact that the ancillary or incidental objects were not solely for educational purposes would not disable grant of exemption under Section 10(23C)(vi) of the Act. After referring to the earlier judgment in New Noble Educational Society1, this Court observed that objects 2, 3 and 5 were evidently not solely for educational purposes; and if, however, the 1st respondent were to be satisfied that objects 1 and 4 were solely for educational purposes and these two objects were the primary and dominant objects of the petitioner-society, the 1st respondent, or the appropriate authority under the Act, would then be required to examine whether objects 2, 3 and 5 were ancillary to the primary objects or not. After referring to the contention urged on behalf of the respondents, that objects 1 and 4 were also not solely for educational purposes, this Court observed that, since the 1st respondent had neither examined this aspect nor had he recorded a finding that these two objects were not solely for educational purposes, it would not be appropriate for this Court, in proceedings under Article 226 of the Constitution of India, to take upon itself the task of examining whether objects 1 and 4 were the primary or dominant objects of the petitioner- society, and whether these two objects would fall within the ambit of Section 10(23C)(vi) of the Act as these were matters which either the 1st respondent, or the appropriate authority under the Act, was required to consider. This Court also recorded the submission of Sri Vedula Srinivas, Learned Counsel for the petitioner, that the petitioner did not wish to press for an adjudication on the question whether the amended objects, which came into force from 30.07.2015, would apply retrospectively even for the earlier assessment year 2014-15. The matter was remanded to the 1st respondent to consider whether the pre-amended objects 1 and 4 were the primary or dominant objects of the society; if so, whether these objects were “solely for educational purposes and not for profit”; and whether objects 2, 3 and 5 were ancillary or incidental to the main objects of the society, which must be solely for educational purposes and not for profit. In compliance with the directions of this Court, in W.P.No.31892 of 2015 dated 29.12.2015, the 1st respondent passed the impugned order wherein he held that all the five aims and objects of the society were not “solely” for educational purposes; all these objects were primary/dominant objects with distinctive nature, and they were not ancillary or incidental to one another; it could not be inferred that each and everyone of the object related to education, in order that the institution may be held entitled to the benefits under Section 10(23C)(vi) of the Act; objects 2, 3 and 5 were clearly non-educational and were the main objects of the society; they could not be considered as ancillary or incidental to any other primary objective; inclusion of other objects, which were not for educational purposes, made it amply clear that the society did not exist solely and exclusively for the purpose of education; and he was satisfied that the assessee had not fulfilled the pre-requisite conditions laid down under Section 10(23C)(vi) of the Act. The 1st respondent, thereafter, noted the petitioner’s claim, in their letter dated 25.08.2015, that the aims and objects of the society were amended and the same was registered by the Registrar of Societies on 03.08.2015. The 1st respondent held that, since the amendment was effective only from the date of registration i.e 03.08.2015, it was not relevant for the assessment year 2014-15 for which exemption under Section 10(23C)(vi) of the Act was sought by the assessee; and the fact that the amendments were made by the society itself, suo motu, strengthened the view that the aims and objects of the society were not solely for educational purposes, even in the opinion of the society. The 1st respondent rejected the petitioner’s application for approval. Aggrieved thereby, the present Writ Petition. Before us Sri Vedula Srinivas, learned counsel for the petitioner, would contend that the impugned order was passed by the 1st respondent contrary to the directions of this Court in W.P.No.31892 of 2015 dated 29.12.2015; the 1st respondent had erred in holding that all the five objects were primary and dominant objects; it is only objects 1 and 4 which were the primary objects, and objects 2, 3 and 5 were ancillary thereto; no reasons were assigned by the 1st respondent to come to the conclusion that objects 1 and 4 were not solely for educational purposes; while the amended objects may not apply, it should have been taken into consideration as it reflected the true intent for which the society was established; apart from examining the objects, the 1st respondent ought to have enquired into the actual activity being carried on by the petitioner; and he should have also considered whether the activity being carried on by them was solely for educational purposes or not. On the other hand, Sri J.V.Prasad, learned Senior Standing Counsel for Income Tax, would contend that the 1st respondent had examined the petitioner’s claim, and had specifically held that all the objects (which would include objects 1 and 4) were not solely for the purposes of education; he had also noted that the very fact that the assesee had, suo motu, amended their objects showed that the earlier aims and objects of the society were not solely for educational purposes even in the opinion of the petitioner; and the order of the 1st respondent does not necessitate interference in proceedings under Article 226 of the Constitution of India. Section 10(23C)(vi) of the Act relates to any university or other educational institution existing solely for educational purposes, and not for purposes of profit. It is not every society but only societies, which are educational institutions and are existing solely for educational purposes, which would fall within the ambit of Section 10(23C)(vi) of the Act. Objects 1 and 4 relate to giving basic knowledge of education among illiterate people and to teach the student as a true citizen. The 1st respondent has held that none of the objects (which include objects 1 and 4 also) were solely for educational purposes. The jurisdiction, which this Court exercises under Article 226 of the Constitution of India, is supervisory and not appellate and, save perversity or an error of law apparent from the face of the record, the order under challenge would not necessitate interference. Object No.1 is to give basic knowledge of education to illiterate people, which would include all people who were illiterate, and not merely to students in an education institution. Likewise Object No.4 is to teach students to be true citizens, which is not confined to formal education in an educational institution. Neither of these two objects would fall within the ambit of Section 10(23C)(vi) of the Act which is confined only to educational institutions existing solely for educational purposes. While elaborate reasons have not been assigned by the 1st respondent, his finding that none of the objects relate solely to educational purposes cannot be said to be perverse necessitating interference in proceedings under Article 226 of the Constitution of India. As has been rightly noted by the 1st respondent, the petitioner themselves amended their objects and, instead of objects 1 to 5 earlier, the sole object of the Society from 30.07.2015 onwards is as under: “To provide education, moral and physical training to the students without distinction of caste, creed and colour in accordance with the curriculum laid down by the Education Department, state or central Government fro time to time.” As has been rightly observed by the 1st respondent, the very fact that the petitioner, on their own accord, had amended their objects also supports the view that the earlier aims and objects of the society were, even in their opinion, not solely for educational purposes. As the scope of interference in proceedings under Article 226 of the Constitution of India is limited, and this Court would not act as an appellate authority to sift through and re-appreciate the evidence on record, or to consider whether a view different from that of the 1st respondent can be taken, we see no reason to interfere with the order passed by the 1st respondent. The amended objects were registered only on 30.07.2015, long after expiry of the assessment year 2014-15. The said objects were rightly not taken into consideration by the 1st respondent as the said objects do not have retrospective application. In considering whether an educational institution exists solely for education purposes, satisfying the requirements of Section 10(23)(c)(vi) of the Act, it is only the aim and object of a Society which is required to be examined. Activities, if any, carried on by the Society not authorized by its objects are wholly irrelevant in an enquiry under Section 10(23)(c)(vi) of the Act. Viewed from any angle, the impugned order passed by the first respondent does not necessitate interference. The writ petition fails and is, accordingly, dismissed. Miscellaneous Petitions pending, if any, shall also stand dismissed. There shall be no order as to costs. ______________________________ RAMESH RANGANATHAN, J __________________________________ M.SATYANARAYANA MURTHY, J 09th June, 2016. JSU THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN And THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY Writ Petition No.18196 of 2016 Date: 09.06.2016 JSU [1] 2010 LawSuit (AP) 933 "