2010 (11) TMI 761 - HC - Income Tax

Memorandum of Association Determines Tax Benefits for Educational Institutions

New Noble Educational Society Versus Chief Commissioner of Income-tax

The court held that the objects in the memorandum of association of a society/trust are conclusive proof of the trust existing solely as an educational ... Approval u/s 10(23C)(vi) rejected - Held that:- The certificate signed by the Commissioner of Endowments, as the appropriate authority under section 43 of the A. P. Act No. 30 of 1987, is but one of the factors, and not conclusive proof, of an assessee under the Income-tax Act being a charitable institution existing solely for the purposes of education - Registration under section 43 of the A. P. Act 30 of 1987 is not a condition precedent for seeking approval under section 10(23C)(vi) of the Act If there are several objects of a society some of which relate to “education”, and others which do not, and the trustees or the managers, in their discretion, are entitled to apply the income or property to any of those objects, the institution would not be eligible to be regarded as one existing solely for educational purposes, and no part of its income would be exempt from tax - The existence of an educational institution, solely for the purposes of education, is a pre-condition for grant of approval and, as the objects aforementioned are not for educational purposes, the Chief Commissioner cannot be faulted for rejecting the applications seeking approval under section 10(23C)(vi) of the Act- Against assessee. Issues Involved:1. Whether the objects in the memorandum of association of a society/trust are conclusive proof of such a trust existing solely as an educational institution entitled for the benefits under section 10(23C)(vi) of the Income-tax Act, 1961.2. Whether registration under section 43 of the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987 (A. P. Act No. 30 of 1987) is a condition precedent for seeking approval under section 10(23C)(vi) of the Income-tax Act, 1961.3. Whether the certificate issued by the Commissioner of Endowments under section 43 of the A. P. Act No. 30 of 1987 is conclusive proof of an assessee being a charitable institution existing solely for the purpose of education.4. Whether the Commissioner of Income-tax can refuse approval under section 10(23C)(vi) of the Income-tax Act, 1961, even if the assessee produces a certificate of registration under section 43 of the A. P. Act No. 30 of 1987.Detailed Analysis:Issue 1: Objects in the Memorandum of AssociationThe court examined whether the objects in the memorandum of association of a society/trust are conclusive proof of such a trust existing solely as an educational institution entitled for the benefits under section 10(23C)(vi) of the Income-tax Act. The court noted that the emphasis in section 10(23C)(vi) is on the word 'solely,' meaning exclusively and not primarily. The court held that in cases where approval is initially sought, the objects in the memorandum of association are conclusive proof of the trust existing solely as an educational institution entitled for the benefits under section 10(23C)(vi). However, for renewal applications, the prescribed authority must also examine whether the income has been applied solely for educational purposes.Issue 2: Registration under A. P. Act No. 30 of 1987The court addressed whether registration under section 43 of the A. P. Act No. 30 of 1987 is a condition precedent for seeking approval under section 10(23C)(vi) of the Income-tax Act. The court held that registration under the A. P. Act No. 30 of 1987 is not a condition precedent for seeking approval under section 10(23C)(vi). However, the Chief Commissioner can prescribe registration under the A. P. Act No. 30 of 1987 as a condition subject to which approval is granted.Issue 3: Certificate of Registration as Conclusive ProofThe court examined whether the certificate issued by the Commissioner of Endowments under section 43 of the A. P. Act No. 30 of 1987 is conclusive proof of an assessee being a charitable institution existing solely for the purpose of education. The court held that the certificate is but one of the factors and not conclusive proof. The Chief Commissioner must independently examine the objects of the applicant-society and satisfy himself that the institution exists solely for educational purposes and not for profit.Issue 4: Refusal of Approval Despite Certificate of RegistrationThe court addressed whether the Commissioner of Income-tax can refuse approval under section 10(23C)(vi) of the Income-tax Act, even if the assessee produces a certificate of registration under section 43 of the A. P. Act No. 30 of 1987. The court held that the Chief Commissioner can refuse approval if, after examining the objects and the application, he is not satisfied that the institution exists solely for educational purposes and not for profit.Separate Judgments:The court examined several writ petitions separately, addressing specific grounds for rejection in each case. For instance, in W.P. No. 12946 of 2010, the court found that the object of publishing journals and magazines for the promotion of education is incidental and ancillary to the primary object of running an educational institution. In W.P. No. 15870 of 2010, the court upheld the rejection on the ground that funds were advanced to another society, which is not considered an application of income solely for educational purposes.Conclusion:The court dismissed W.P. Nos. 12254, 12374, 15870, 21248, 21251, 21257, and 21266 of 2010. For the remaining writ petitions, the court set aside the impugned orders and remanded the matters to the Chief Commissioner of Income-tax for fresh consideration. The Chief Commissioner was directed to pass orders afresh, prescribing registration under the A. P. Act No. 30 of 1987 as a condition for granting approval under section 10(23C)(vi) of the Act, if deemed appropriate.