2014 (5) TMI 898 - HC - Income Tax

Court grants exemption to educational society under Income Tax Act, citing genuine activities and educational purposes.

Council For The Indian School, Certificate Examinations Versus Director General of Income Tax

Council For The Indian School, Certificate Examinations Versus Director General of Income Tax - [2014] 364 ITR 508 (Del) Issues Involved:1. Denial of exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.2. Whether the petitioner exists solely for educational purposes and not for profit.3. Examination of the genuineness of the petitioner's activities.4. Application of funds for the object of the petitioner society.Detailed Analysis:1. Denial of Exemption under Section 10(23C)(vi) of the Income Tax Act, 1961:The petitioner, a society registered under the Societies Registration Act, challenged the order dated 07.06.2012 by the DGIT(E) refusing to grant exemption under Section 10(23C)(vi) for AY 2008-09 onwards. The DGIT(E) had rejected the application on grounds that the petitioner was not an educational institution but an examination body, and also because it had systematically earned profits which were allegedly diverted in a clandestine manner.2. Whether the Petitioner Exists Solely for Educational Purposes and Not for Profit:The petitioner argued that it is a society established to promote education, including conducting school examinations. It was previously exempt under Section 10(22) of the Act, and the criteria for exemption under Section 10(23C) are identical. The petitioner contended that the surplus generated was for future expansion and modernization, and the fee increase was necessary for these purposes. The respondent, however, argued that the petitioner was functioning for profit, citing the surplus income over expenditure and the steep hike in examination fees.3. Examination of the Genuineness of the Petitioner's Activities:The respondent claimed that the activities of the petitioner were not genuine, as highlighted by the auditor's report which pointed out lapses in awarding a contract to RJB-APL for IT services. The auditor was unable to form an opinion on whether the accounts showed a true and fair view due to these lapses. The petitioner countered that the contract with RJB-APL was a commercial transaction for IT services, and despite complaints, they managed to recover a significant amount from RJB-APL.4. Application of Funds for the Object of the Petitioner Society:The court analyzed whether the funds were applied solely for educational purposes. It was noted that the petitioner's objects and activities fall within 'charitable purposes' under Section 2(15) of the Act. The court emphasized that generating surplus does not negate the educational purpose if the funds are utilized for furthering the organization's objects. The petitioner's surplus was justified for modernization and infrastructure building. The court held that the generation of surplus for such purposes does not exclude the petitioner from exemption under Section 10(23C)(vi).Conclusion:The court concluded that the petitioner exists solely for educational purposes and not for profit. The generation of surplus for modernization and infrastructure does not negate the educational purpose. The court also found that the activities of the petitioner were genuine and that any lapses in the contract with RJB-APL did not imply that funds were not used for educational purposes. The court allowed the writ petition, setting aside the DGIT(E)'s order and granting the exemption under Section 10(23C)(vi) for the relevant years, subject to compliance with the third proviso to Section 10(23C) of the Act.