2018 (4) TMI 84 - AT - Income Tax

University granted tax exemption under Section 10(23C)(vi) after tribunal finds no profit motive

The tribunal concluded that the appellant university was not established with a profit motive. The CIT(Exemptions) erred in denying the exemption under ... Rejection of the application filed u/s. 10(23C)(vi) - appellant university is a profit making university - appellant university is totally dependent upon Sponsoring Body and whenever the Sponsoring Body wants the University can be dissolved - Held that:- It is a fallacy to state that the appellant university has been constituted for profit motive. It is equally a fallacy to deny the exemption solely on the concern about the assets of the appellant university in the event of dissolution and what would be the fate of the assets created in the event of dissolution of university. The CIT(Exemption) has grossly erred in not considering the financials of the appellant company in the light of the specific directions of the Hon’ble High Court of Gujarat. The fees structure of the appellant university is related to the provisions of the State Government relating to admissions. It is provided that the means may be determined based on economic condition or the situation of the student. Considering the objects of the appellant university in the light of the relevant documentary evidences brought on record we are of the opinion that the appellant university is not established with the profit motive. Therefore, we do not find any reason for denying the exemption u/s. 10(23C)(vi) of the Act. - Decided in favour of assessee Issues Involved:1. Rejection of application for exemption under Section 10(23C)(vi) of the Income Tax Act.2. Compliance with the Gujarat Private Universities Act, 2009.3. Financial independence and profit motive of the appellant university.4. Dissolution of the university and fate of its assets.Detailed Analysis:1. Rejection of Application for Exemption under Section 10(23C)(vi):The appellant university challenged the rejection of its application for exemption under Section 10(23C)(vi) of the Income Tax Act by the CIT(Exemptions). The CIT(Exemptions) initially rejected the application on the grounds that the university was profit-making. The High Court of Gujarat, in Special Civil Application No. 690 of 2015, remanded the matter back to the CIT(Exemptions) for fresh consideration, emphasizing the need to review the final balance sheet and relevant materials regarding the university's income and expenditure.2. Compliance with the Gujarat Private Universities Act, 2009:The appellant university was established under the Gujarat Private Universities Act, 2009, and included in the schedule of the Act by a Gazette Notification dated 11.04.2012. The High Court highlighted that the CIT(Exemptions) should have considered the powers of the State Government under the Private Universities Act, 2009, particularly Section 43, which empowers the State Government to take action against universities under certain circumstances.3. Financial Independence and Profit Motive:The CIT(Exemptions) emphasized that the appellant university was dependent on its Sponsoring Body and could be dissolved at the latter's discretion, with assets reverting to the Sponsoring Body. This was seen as contrary to the spirit of a charitable trust. However, the tribunal found that the appellant university's financial statements and fee structure, as mandated by the State Government, did not indicate a profit motive. The university's objectives included providing free education to underprivileged girls, and its financials showed a deficit, not a surplus.4. Dissolution of the University and Fate of Its Assets:The tribunal addressed concerns about the fate of the university's assets upon dissolution. The Gujarat Private Universities Act, 2009, has specific provisions for the winding up of a university, ensuring that the State Government can make necessary arrangements for the administration of the university until the completion of the syllabus by the last batch of students. The Act also allows the State Government to appoint an administrator to manage the university's affairs and ensure the continuation of its functions.Conclusion:The tribunal concluded that the appellant university was not established with a profit motive and that the CIT(Exemptions) erred in denying the exemption under Section 10(23C)(vi) of the Act. The CIT(Exemptions) failed to consider the financials of the university in light of the High Court's specific directions. The tribunal set aside the findings of the CIT(Exemptions) and directed the grant of exemption under Section 10(23C)(vi) of the Act. The appeal filed by the appellant university was allowed.