Exemption under Section 10(23C)(vi) Restored for 12A and 80G Educational Society Running Non-Profit Schools Solely Activities

HC held that the petitioner society, registered u/s 12A(a) and 80G and solely running schools, existed for educational purposes and not for profit and was therefore entitled to exemption u/s 10(23C)(vi). The Court noted that its income had consistently been assessed at NIL under s.11 and that past exemptions had been granted, with denial in one year already reversed by CIT(A). The HC quashed the impugned order dated 28.04.2008 and issued a writ of mandamus directing grant of exemption u/s 10(23C)(vi).

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Issues: (i) Whether the petitioner society qualifies for exemption under Section 10(23C)(vi) of the Income-tax Act, 1961 for the relevant assessment years.

Analysis: The petitioner is a registered society formed predominantly to run educational institutions and has historically been granted exemption (earlier under Section 10(22) and until assessment year 2001-02 under Section 10(23C)(vi)). The amended Section 10(23C)(vi) and its provisos require initial approval by the prescribed authority and incorporate monitoring conditions (third proviso) relating to application and investment of funds. Authorities may impose stipulations under the provisos as conditions of approval; institutions which previously enjoyed exemption need not be reopened solely because monitoring conditions were not previously complied with, but the prescribed authority may withdraw approval if conditions are breached. The respondent refused renewal based on the presence of non-educational objects in the memorandum and apprehension of future deviation, rather than any present diversion of funds or breach of conditions. The petitioner has consistently applied its income to educational purposes, assessments show nil taxable income under Section 11 for relevant years, and the petitioner provided an undertaking that surpluses will be used only for educational purposes. In view of the Supreme Court guidance permitting approval subject to stipulated conditions and distinguishing initial applicants from previously exempt bodies, the refusal based on speculative future deviation is unsustainable; the prescribed authority remains free to impose conditions under the third proviso and require an affidavit undertaking.

Conclusion: The petitioner qualifies for exemption under Section 10(23C)(vi) of the Income-tax Act, 1961 and the impugned refusal is quashed; exemption is to be granted subject to such stipulations or conditions as the prescribed authority may impose and subject to an undertaking by the petitioner.

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