United Education Society V. The Chief Commissioner of Income tax

WA/3012/2013

AI Insights

The case involves M/s. United Education Society, which appealed against the rejection of their application for exemption under section 10(23C)(vi) of the Income Tax Act, 1961. The application was initially rejected by the Chief Commissioner of Income Tax on the grounds that the collection of donations from pupils was considered an act for the purpose of profit, not fulfilling the objectives of the said section. The learned Single Judge upheld this decision, leading to the appeal. The High Court, after considering the explanations provided by the appellant and the relevant Supreme Court judgment, decided that the matter requires reconsideration by the tax authorities.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 793931 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 12-02-2016
• Assessment Year: misc
• Other Referred Cases: American Hotel & Lodging Assn. Educational Institute vs CBDT ((2008)10 SCC 509)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: K K CHYTHANYA
• Keywords: Charitable society; Income tax exemption; Reconsideration; Writ Appeal; Collection of Donations
• Section: 12A; 10(23C)(vi); 13(1)(d)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12TH DAY OF FEBRUARY, 2016 PRESENT THE HON’BLE MR. JUSTICE N.K. PATIL AND THE HON’BLE MRS.JUSTICE S. SUJATHA WRIT APPEAL No.3012/2013 (T-IT) BETWEEN M/s. United Education Society B M Road Hassan-573 201 (Represented by its Secretary Smt. K R Anusuya Aged about 55 years D/o Rudrappa) ….Appellant (By Sri.K.K.Chythanya, Advocate ) AND The Chief Commissioner of Income tax Central Revenue Building Queen’s Road Bangalore-560 001. ..Respondent (By Sri.K.V.Aravind, Advocate) This Appeal is filed under Section 4 of the Karnataka High Court Act praying to set aside the order passed in the Writ Petition No.42179/2012 dated 13.03.2013. 2 This Appeal coming on for hearing, having been heard and reserved for Judgment on 10th February 2016, coming on for pronouncement of Judgment this day, S. Sujatha J., delivered the following. JUDGMENT This appeal is directed against the order passed by the learned Single Judge in Writ Petition No.42179/2012 dated 13.03.2013 whereby the writ petition filed by the appellant is rejected. Appellant’s application in Form No.56D dated 26.09.2011 seeking for an exemption under section 10(23C)(vi) of the Income Tax Act, 1961 (the ‘Act’ for short) was rejected by the respondent vide order dated 28.08.2012, Annexure “A” to the Writ Petition on the ground that the collection of donations from pupils would amount to an act for the purpose of profit and therefore does not fulfill the objectives mentioned in Section 10(23C)(vi) of the Act. On challenge made by the appellant, the learned Single Judge having observed that the appellant has failed to explain the rules and regulations more appropriately, relating to the collection of donations from pupils over the 3 discretion to be exercised by the Executive Committee on such donations rejected the Writ Petition. 2. In this appeal proceedings, the appellant has filed an affidavit dated 14.01.2016, the relevant portion of which reads thus: “3. It is submitted that till AY 2010-11 Appellant was claiming exemption under section 10(23C) (iiiad) of IT Act for the reason that the annual receipt of the society was less than the prescribed limit i.e., One Crore. 4. It is submitted that in the rules and regulation of the society it is stated that “ Donation may also be collected from the pupils and the same shall be decided by the Executive Committee from time to time”. However, the Appellant society has not collected any such donations till date. 5. It is submitted that the intention to insert donation clause under rules and regulation was if any donation was collected, the same would have been utilized towards the objects of society. 6. It is submitted that in no circumstances the funds of the society have been diverted for benefits of the trustees of the society. 7. It is submitted that the funds of the society have been actually utilized towards the objects of the society. It is 4 also evident from the rules and regulation of the society, which reads as follows: 8.(A) Mandatory Clauses incorporated under income tax Act, 1961: 1. Investment Clause: The funds of the Society shall be invested in the modes specified under the provisions of Section 13(1)(d) read with from time to time. 2….. 3….. 4. Dissolution Clause: In the event of dissolution or winding up the Trust/Society, the assets remaining as on the date of the dissolution shall under nocircumstance be distributed among the trustees/members of themanaging committee/governing body but the same shall be transferred to the another charitable trust/Society whose objects are similar to those of this trust/ society and which enjoys recognition under Section 80G of the IT Act, 1961 as amended from time to time. 5….. 7. Clause7: The funds and the/society and no portion of it shall be utilized for payment of the trustees/members by way of profit, interest, dividend etc. 5 8. It is submitted that the Memorandum of association and Rules and Regulations of the society have been amended on 25.06.2013, wherein clause on acceptance of donation has been deleted. The registered amended rules and regulations are herewith enclosed as Annexure H. 9. It is submitted that the Commissioner of Income Tax, Mysore has granted registration under section 12A, dated 27.09.25013 with effect from the Assessment Year 2013-14 onwards.” 3. In view of the said explanation offered by the appellant and considering the scope of an enquiry by the prescribed authority for grant of approval under Section 10(23C)(vi) of the Act as explained by the Apex Court in American Hotel & Lodging Assn. Educational Institute vs CBDT ((2008)10 SCC 509), we are of the opinion that the matter requires reconsideration by the respondent. 4. Accordingly, we set-aside the order passed by the learned Single Judge in W.P.No.42179/2012 dated 13.3.2013 and the matter is remitted to the respondent - Chief Commissioner of Income Tax, Bangalore for reconsideration in accordance with law 6 to consider the explanation offered by the appellant cited at para (3) above and in the light of the judgment of the Apex Court in American Hotel & Lodging Assn. case (supra). All contentions of both the parties are left open. The appellant is directed to appear before the respondent on 25.02.2016 without further notice. The respondent shall pass the orders within four weeks thereafter as indicated above. Writ Appeal allowed. Sd/- JUDGE Sd/- JUDGE brn "