Sree Kanya Pathshala Trust V. Chief Commissioner of Income Tax, Shillong

WP(C)/2626/2012

AI Insights

The case involves Sree Kanya Pathshala Trust, which sought exemption under Section 10(23C)(vi) of the Income Tax Act, 1961, for its educational institution, petitioner No.2. The Chief Commissioner of Income Tax, Shillong, rejected their application, leading to this writ petition under Article 226 of the Constitution of India. The main legal issue was whether the educational institution qualifies for tax exemption under the specified section, considering its activities and the trust's objectives. The court examined the trust's deed and the Chief Commissioner's reasons for rejection, ultimately finding them insufficient to deny the exemption.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 816409 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 12-10-2012
• Assessment Year: misc
• Other Referred Cases: Aditanar Educational Institution -Vs- Additional Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Department Lawyers: S SAIKIA
• Assessee Lawyers: KAMAL AGARWAL
• Keywords: Educational institution; Exemption; Income Tax; Legal validity; Trust Deed
• Section: 10(23C)(vi)

Judgement Text

"WP(C) 2626/2012 PRESENT HON’BLE THE CHIEF JUSTICE MR. A.K.GOEL HON’BLE MR JUSTICE UJJAL BHUYAN J U D G M E N T AND O R D E R(CAV) UJJAL BHUYAN, J This petition under article 226 of the Constitution of India challenges the lega lity and validity of the order dated 12-10-2011 passed by the Chief Commissioner of Income Tax, Shillong rejecting the application of the petitioners seeking ex emption under Section 10(23C) (vi) of the Income Tax Act, 1961 (Act) and further seeks a declaration that petitioner No.2 is entitled to exemption under the afo resaid provision. 2. Facts of the case may be briefly noted. 3. Petitioner No.1 is a trust called Sree Kanya Pathshala Trust . The main object of petitioner No.1 is to carry out educational activities, parti cularly to impart education to girls. Petitioner No.2 is one of the units of pet itioner No.1. 4. Since petitioner No.2 is an educational institution existing sol ely for educational purpose and not for the purpose of profit, it sought for exe mption u/s 10(23C)(vi) of the Act. However, the Assessing Officer i.e. Deputy Co mmissioner of Income Tax, Circle-Tinsukia insisted on production of approval of the Chief Commissioner of Income Tax and in this connection, issued notice dated 28-07-2010. At that stage, petitioner No.1 by his letter dated 31-07-2010 reque sted the Chief Commissioner of Income Tax, Shillong for an early action on the a pplication seeking exemption of income from payment of income tax u/s 10(23C) (v i) of the Act. 5. Ultimately, Chief Commissioner of Income Tax, Shillong passed or der dated 12-10-2011 rejecting the prayer of the petitioners by declining to gra nt approval u/s 10(23C) (vi) of the Act. 6. Aggrieved, petitioners have preferred the present writ petition seeking the reliefs as indicated above. 7. Heard Mr. Kamal Agarwal, learned Counsel for the petitioners and Mr. S. Saikia, learned Standing Counsel, Income Tax Department. 8. While Mr. Agarwal, learned Counsel for the petitioners submits t hat the Chief Commissioner of Income Tax had committed a manifest error of law a nd fact while rejecting the claim of the petitioners for exemption of income fro m payment of income tax u/s 10(23C) of the Act, learned Standing Counsel of the Income Tax Department on the other hand supports the impugned order. 9. Submissions made have been considered. 10. Short point for consideration is the entitlement of petitioner N o.2 to exemption of income from forming part of total income for the purpose of levy of income tax u/s 10(23C) of the Act and consequently, the legality and val idity of the impugned order dated 12-10-2011. 11. At the outset, we may refer to the relevant provisions of the Ac t. Section 10 of the Act deals with incomes which do not form part of total inco me. The said Section provides that in computing the total income of a previous y ear of any person, any income falling within any of the clauses mentioned in the said Section shall not be included. Clause (22) and (22A) of the Act, which wer e omitted w.e.f. 01-04-1999, have since been re-enacted in Section 10(23C). Sub- clause (iii ab) of Section 10(23C) provides for any University or other educatio nal institution existing solely for educational purposes and not for the purpose s of profit and which is wholly or substantially financed by the Government. Sub -clause (iii ad) speaks of any University or other educational institution exist ing solely for educational purposes and not for the purposes of profit if the ag gregate annual receipts of such University or educational institution do not exc eed the amount of annual receipts as may be prescribed. As per Sub-clause (vi), income of any University or other educational institution existing solely for ed ucational purposes and not for the purposes of profit, other than those mentione d in Sub-clause (iii ab) or Sub-clause (iii ad) and which may be approved by the prescribed authority, may be excluded from total income for the purpose of inco me tax. As per the relevant rule, prescribed authority is the Chief Commissioner or the Director General, as the case may be. 12. In Aditanar Educational Institution -Vs- Additional Commissioner of Income Tax reported in 224 ITR 310, the Hon’ble Supreme Court examined entit lement of an educational institution to exemption under the then Section 10(22) of the Act, the provisions of which have since been re-enacted in Section 10(23C ) of the Act. The Apex Court considered the scope of Section 10(22) of the Act. It was held that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purp ose of profit could be regarded as other educational institution . It was furth er observed that applicability of Section 10(22) should be evaluated or investig ated every year and only if it is found that the institution exists for educatio nal purposes in the relevant year and even if any profit results which is only i ncidental to the purpose of education, the income would be exempt. It was held a s under :- We may state that the language of section 10(22) of the Act is plain and clear and the 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 not for purposes of profit. After meeting the expenditure, if any s urplus results incidentally from the activity lawfully carried on by the educati onal institution, it will not cease to be one existing solely for educational pu rposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evalu ating or appraising the above, one should also bear in mind the distinction/diff erence between the corpus, the objects and the powers of the concerned entity. 13. Having noticed the legal provisions, we may now refer to the tru st deed of petitioner No.1, which runs petitioner No.2. 14. The trust deed was executed on 10-04-1995, creating a charitable trust called Sree Kanya Pathshala Trust , having its office at Tinsukia. Thoug h a number of objects of the trust have been enumerated, the basic object appear s to be to provide and maintain educational institutions in the country. As noti ced above, though ancillary objects are there but establishment of educational institutions and maintaining them appears to be the core objective of the trust . Clause 3 of the trust deed enumerates the objects of the trust, which are as u nder:- 3. The objects of the Trust shall be as follows : (a) To found, provide, carry on maintain and/or assist in the maintenance in Ind ia, of Schools, including Primary, Middle, High School, Higher Secondary School and College for boys and/or girls where students may obtain classical, cultural, physical, religious, commercial, medical, technical, scientific and general kno wledge of the highest order, throughout the Union of India. (b) To take over, the existing Shri Kanya Pathshala of Tinsukia with all assets liabilities rights and obligations thereof and all land property including furni ture and fixture belonging if any to the said school and maintain and run the sa me by enlarging and enhancing its scope and standard with suitable accommodation and provision for qualified teaching staff, getting recognition and aids from t he Government, and strive for the all out improvement of the institution. (c) to provide for research work, and for the delivery and holding of lectures, demonstrations, exhibitions, public meetings, classes and conferences calculatin g directly or indirectly to propagate and advance the cause of religious teachin gs particularly of the ancient Hindu culture based on the old Hindu scriptures, including Vedas Shastras and Puranas, Ramayan and Mahabharat etc. (d) To provide for, establish and maintain and run Libraries, museums societies, Lecture Halls, and other institutions and to furnish the same with books review s magazines, newspapers and other publications. (e) To collect and preserve old classical manuscripts, writings and literature o f all kinds and painting curies and sculptures. (f) To print, publish, distribute and sell, books, newspapers, magazines, pamphl ets, leaflets, brochures, souvenirs and other publications having its objects te aching, propagation, promotion and development of ancient Hindu culture, literat ure science and technology, and to keep reserved the copyright of all or any of such publications for the trust, if considered necessary. (g) To award grant and present stipends, scholarships, prizes, bonus, medals, st udy-loans and other allowances, concessions, gratuities to students, workers, wr iters, authors, editors and other interested persons in the advancement of educa tion and culture. (h) To declare and give bonus, gratuities pensions or other concessions and allo wances to persons who are or were in the employ of the Trust or of any instituti on or institutions maintained and run by the Trust or the families or dependants of such persons. (i) To help needy persons, whether victims of flood, epidemic, earthquakes, war, civil disturbances or any other cause whatsoever with medicines, clothes, accom modations and rendering all other helps in such manner as the Trustees shall fro m time to time think fit and proper. (j) To extend help and relief in the form of free distribution of medicine or gi ving aids or donations in money or kind to institutions, societies, and other bo dies of medical relief or for advancement of art and culture, and for the overal l mental and physical upliftment of the society in general. (k) To establish support and maintain institution or institutions and societies intended to relieve poverty and distress such as Hospital, Alms-houses, or orpha nages, homes for working girls, homes for refugees, homes for disabled and cripp led persons and helpless widow etc., (l) To establish support and maintain religious and / or social institutions for promoting and spreading religious and social consciousness amongst people, esta blishing and maintaining temples, and monument and preserving or promoting the p reservation of lands, tenements, temples monuments or any other plan or thing of historic interest. (m) To purchase take on lease or hire or otherwise acquire any estate land build ing, easements or other rights or interests in immovable properties and all kind s of movable properties and to sell, let on lease or otherwise dispose of or gra nt rights over any real property or other properties whatsoever belonging to the Trust. (n) To establish support and maintain or assist in the preservation of wells, ta nks, or any other means of water supply, parks, dharamshalas, Atithishalas, rest -houses, roads, paths, water ways, common grazing grounds, veterinary hospitals, institutions catering the general welfare of animal life, cremation grounds clu bs and other public utility subjects for the use and benefit of the general publ ic with the sole object of public charity and without any purpose to make gains. (o) To do all or such other lawful things as are incidental or conducive to the attainment of any one or more of the above or similar objects. (p) To collect raise and receive subscriptions, donations and gifts in cash or k ind for all or any of the objects and to apply the same in accordance with the c onditions, if any, presented by the donors and agreed to by the Trustees not bey ond the objects of this Trust. (q) To take or otherwise acquire and hold shares in any company or corporation. (r) To borrow or raise money with or without security and on such terms and cond itions as the Trustees may think fit and proper. (s) To work for all or any other charitable purposes which may benefit the peopl e in general provided always that and it is hereby declared that if any one or m ore of the objects specified above are held not to be for public charity, the Tr ustees shall not carry out such object or objects as if the same are not incorpo rated in these presents, but the validity of the Trust created by these presents as a Trust for charitable purposes shall not be affected in any manner. 15. The trust deed has to be read as a whole. If the object clause o f the trust deed is read in a holistic manner, it would show beyond any reasonab le doubt that the principal objective of the trust is to establish and maintain educational institutions in the country. 16. We may now refer to the relevant portion of the impugned order p assed by the Chief Commissioner, which is as under:- The applicant school has its own bye laws and constitutions wherein the objects of the school are also mentioned. However, the school being a unit of a trust, it is governed and administered by the trust deed of Sree Kanya Pathsal a Trust whose objectives are not solely for carrying out educational activities . The applicant has also not complied with regards to non-application of 85% of its income towards educational and charitable purpose. The applicant’s education al activity is limited to Tinsukia district only of the state of Assam. Furtherm ore, no legal documents could be produced by the assessee which prohibits applic ation by the assessee-trust of the income derived from educational institutions for other charitable objects of the trust. Final opportunity was granted and the case was fixed for hearing on 22-09-2011 b ut none appeared. Considering the above issues, I am not inclined to grant approval u/s 10(23C)(vi ) in the given circumstances and accordingly the application for approval u/s 10 (23C)(vi) is hereby rejected. 17. A careful reading of the impugned order would show that 2 (two) factors weighed with the Chief Commissioner while rejecting the claim of the pet itioners. Firstly, a view was taken that all the objectives of the trust are not solely for carrying out educational activities which would be evident by the no n-application of 85% of its income towards educational and charitable purpose. S econd factor as expressed in the impugned order is that educational activity of the trust is limited to only Tinsukia district in the State of Assam. 18. In our view, both the factors and the decision of the Chief Comm issioner based thereon are fallacious. In Aditanar Educational Institution (supr a), the Hon’ble Supreme Court held that availability of exemption should be eval uated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. If after me eting the expenditure requirements, any surplus receipts are available incidenta lly from the activity lawfully carried on by the educational institution, it wil l not cease to be one existing solely for educational purposes. The decisive or acid test as pointed out by the Apex Court is whether on an overall view taken, the object is to make profit. In evaluating or appraising the above aspect, the distinction between the corpus, the objects and the powers of the concerned enti ty should be borne in mind. Thus, an overall view has to be taken. 19. Applying the above principle, we are of the view that the decisi on of the Chief Commissioner dated 12-10-2011 cannot be sustained. The same is a ccordingly set aside and quashed. The matter is remanded back to the Chief Commi ssioner of Income Tax, Shillong for a fresh decision in accordance with law. Suc h decision shall be taken within a period of 4 (four) weeks from the date of rec eipt of a certified copy of this order. 20. Writ petition is allowed but without any order as to cost. "