2011 (11) TMI 811 - HC - Income Tax

HC upholds denial of tax exemption under Section 10(23C)(vi) for institutions not solely for education purposes

The HC upheld the CCIT's refusal to grant approval under Section 10(23C)(vi) for the financial year 2006-07, finding that the petitioner-institution was ... Approval u/s 10(23C) (vi) - CCIT has refused to grant approval on the ground that the petitioner-institution is not existing solely for educational purpose and it is engaged in business which is not incidental to the attainment of its objective of education and also no separate books of accounts are maintained in respect of its business. Whether the petitioner-Xavier Institute of Management, Bhubaneswar is existing solely for educational purpose and not for purpose of profit so as to the income received by it shall not be included in computing its total income for the financial year 2006-07 and thereby it is eligible for exemption ? - HELD THAT:- Law is well settled that the taxation under the Act is the rule and exemption is an exception. Provisions governing exemption from taxation must be given a strict interpretation. The subject can receive only such benefits as is given by the legislation. Hon’ble Supreme Court in Goodyear India Limited & Ors. V. State of Haryana & Ors. & State of Maharashtra & Ors., [1989 (10) TMI 52 - SUPREME COURT] held as fiscal laws must be strictly construed, words must say what these means, nothing should be presumed or implied, these must say so. True test must always be language used. Assumptions and presumptions are not permissible under fiscal provision. In Petron Engineering Construction (P) Ltd., vs. Central Board of Direct Taxes, [1988 (12) TMI 1 - SUPREME COURT] held that it is true that an exemption provision should be liberally construed, but this does not mean that such liberal construction should be made doing violence to the plain meaning of such exemption provisions of the Act, which would defeat the object and intent of the Act. One of the major arguments of the petitioner is that materials have been utilized without confronting the same to the assessee. There are basically two types of materials, i.e., (i) material furnished by the assessee and (ii) material collected behind back of the assessee. It is the latter type of material which needs confrontation, because he is unaware of it. The position is entirely different where inference is drawn on the materials furnished by the assessee which is an admitted fact. In the instant case, CCIT, the fact finding authority has drawn inference from the materials/copy of the accounts furnished by the petitioner-assessee. Therefore, there is no substance in the above said plea of the petitioner. We are of the view that the CCIT is justified in not granting approval under Section 10(23C)(vi) of the I.T. Act for the financial year 2006-07. Issues Involved:1. Eligibility for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.2. Engagement in business incidental to educational purposes.3. Justification of the Chief Commissioner of Income Tax (CCIT) in denying approval under Section 10(23C)(vi).4. Validity of the CCIT's rejection of the rectification application under Section 154 of the Income Tax Act.Detailed Analysis:1. Eligibility for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961:The petitioner, a registered society, challenged the CCIT's order denying approval under Section 10(23C)(vi) of the IT Act for the financial year 2006-07. The CCIT's refusal was based on the grounds that the petitioner-institution was not existing solely for educational purposes, was engaged in business activities not incidental to education, and did not maintain separate books of accounts for its business activities. The petitioner argued that its primary objective was to impart education in business management and related fields, and that its activities, including training and consultancy, were incidental to its educational purposes. The court examined the provisions of Section 10(23C)(vi), which exempts income of educational institutions existing solely for educational purposes and not for profit, provided they are approved by the prescribed authority.2. Engagement in business incidental to educational purposes:The petitioner contended that its activities, including short duration management development programs, feasibility studies, and research activities, were incidental to its educational objectives and should not be construed as business activities. The court noted that the petitioner conducted various programs and projects under its Centre for Development Research & Training (CENDERET), which involved significant income and expenditure. The CCIT observed that no separate books of accounts were maintained for these activities, and a large portion of expenses were merged in the general accounts of the petitioner-institution. The court held that the CCIT was justified in concluding that the petitioner was engaged in business activities not incidental to education.3. Justification of the Chief Commissioner of Income Tax (CCIT) in denying approval under Section 10(23C)(vi):The court examined the CCIT's findings, which included the petitioner's involvement in various non-educational activities, investments in the share market, and the absence of separate books of accounts for its business activities. The court referred to the Supreme Court's judgment in American Hotel & Lodging Association Educational Institute, which emphasized that mere excess of income over expenditure cannot be decisive in determining whether an institution exists for profit. The court concluded that the CCIT's decision to deny approval under Section 10(23C)(vi) was justified, as the petitioner did not meet the conditions required for exemption, including the requirement to exist solely for educational purposes and not for profit.4. Validity of the CCIT's rejection of the rectification application under Section 154 of the Income Tax Act:The petitioner also challenged the CCIT's order rejecting its application for rectification under Section 154 of the IT Act, arguing that the order was passed without giving an opportunity of hearing, thereby violating principles of natural justice. The court noted that the CCIT had held that the issues raised in the rectification application were not covered under Section 154 and did not constitute mistakes apparent from the record. The court found no substance in the petitioner's argument and upheld the CCIT's decision, stating that the rectification application was not entertainable under Section 154.Conclusion:The court dismissed the writ petition, upholding the CCIT's decision to deny approval under Section 10(23C)(vi) for the financial year 2006-07 and the rejection of the rectification application under Section 154. The court emphasized that the petitioner did not meet the conditions for exemption, including the requirement to exist solely for educational purposes and not for profit, and that the CCIT's findings were based on a detailed examination of the petitioner's activities and accounts.