2012 (8) TMI 645 - HC - Income Tax

Chief Commissioner's Failure to Consider Legal Framework for Educational Income

The court found that the Chief Commissioner failed to adequately consider the updated legal framework and the actual use of income for educational ... Denial of grant of approval for exemption u/s 10(23C)(vi) - assessee was engaged in non-educational activities like horticulture - whether the petitioner Trust is existing solely for educational purpose and not for the purpose of profit - Held that:- In Section 10(23C)(vi) emphasis has been given on the word 'solely' for educational purposes. Solely means exclusively, thus the only the income of the institution established solely for educational purposes and not for commercial activities is entitled for exemption - as the said order is totally silent as to what is the nature and magnitude of horticultural activities carried on by the assessee and what is its annual income and how it is utilized by the assessee thus accepting the assessee's contention with regard to horticultural income,as that there were standing coconut and mango trees in the land acquired by the petitioner for establishment of the educational institution and order to maintain a salubrious and green environment the trees were not cut down but maintained. The petitioner has reflected the receipt in its income and expenditure account. Amount of Rs.15,000/- received has been utilized in the educational activities of the institutions and for infrastructural development. Therefore, it cannot be treated that the profit was earned for non-educational activities - in favour of assessee. Excess collection of fees for placement and training - Held that:- The Chief Commissioner has relied on the Government of India resolution providing for fee structure, 1997 and the Government of Orissa Industries Department Resolution dated 17.09.1998 to come to a conclusion that the fees collected towards 'placement and training' is in excess of what was prescribed by the said resolutions which is no more holds the field in view of the Act, 2007 and the order of the Hon'ble Supreme Court P. A. Inamdar and others Versus State of Maharashtra and others [2005 (8) TMI 614 - SUPREME COURT ] constituted the policy planning body and so also the 'Fee Structure Committee' and directed that other provisions of the Act shall continue to be in force and subsequent notification vide Annexure-4 issued by the Industries Department. That on the issue of deciding whether an institution is existing for profit or not, the mere excess of income over expenditure cannot be decisive - The institutions are obliged to see the placements of their students as per the AICTE Guidelines and train them accordingly. The fee for the same has been permitted to be collected which is for educational purpose - the matter is remitted back to the Chief Commissioner to re-examine the case of the petitioner whether the fees collected under head 'placement and training' is in consonance with the Act, 2007 - in favour of assessee by way of remand. Issues Involved:1. Whether the petitioner Trust exists solely for educational purposes and not for profit.2. Whether the Chief Commissioner is justified in denying approval under Section 10(23C)(vi) of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Whether the petitioner Trust exists solely for educational purposes and not for profit.The petitioner, a registered Trust, established two educational institutions with the objective of providing higher education without profit motive. The institutions are approved by the All India Council for Technical Education (AICTE) for MBA and MCA courses. The petitioner applied for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961, which exempts income of educational institutions existing solely for educational purposes and not for profit.The Chief Commissioner rejected the application, citing non-educational activities like horticulture and fee collection under 'placement and training.' The petitioner argued that horticultural income was minimal and used for educational purposes. They maintained that the placement and training fees were in line with the Orissa Professional Educational Institutions (Regulation of Admission and Fixation of Fee) Act, 2007, and subsequent notifications, which allowed such fees for educational purposes.The court emphasized that for exemption under Section 10(23C)(vi), an institution must exist solely for educational purposes and not for profit. The Chief Commissioner noted a non-educational objective in the Trust Deed but did not provide evidence of activities under this objective. The court found that the Chief Commissioner failed to examine the nature and utilization of horticultural income and the legitimacy of placement and training fees under the updated legal framework.Issue 2: Whether the Chief Commissioner is justified in denying approval under Section 10(23C)(vi) of the Income Tax Act, 1961.The Chief Commissioner based the rejection on the premise that the Trust engaged in non-educational activities and collected fees beyond prescribed limits. The petitioner contended that the fees were authorized by the 2007 Act and Supreme Court orders, making previous resolutions redundant. The court highlighted that the Chief Commissioner relied on outdated resolutions and did not consider the current legal provisions allowing placement and training fees.The court directed the Chief Commissioner to reassess whether the fees collected were in line with the 2007 Act, Supreme Court orders, and relevant notifications. The Chief Commissioner must also determine if the income from placement and training was used for educational purposes. The court set aside the rejection order and remitted the case for re-examination.Conclusion:The court concluded that the Chief Commissioner did not adequately consider the updated legal framework and the actual use of income for educational purposes. The case was remitted for a fresh assessment to determine compliance with Section 10(23C)(vi) of the Income Tax Act, 1961.