2018 (6) TMI 62 - AT - Income Tax

Educational institution denied tax exemption for inclusion of non-educational objects in its Memorandum of Association.

The Tribunal upheld the rejection of an educational institution's application for approval under Section 10(23C)(vi) of the Income Tax Act, 1961. The ... Exist solely for educational purposes and not for purposes of profit - ancillary or incidental objects - objects in memorandum of association to be determinative of institutional character - no provision for conditional grant of approvalExist solely for educational purposes and not for purposes of profit - objects in memorandum of association to be determinative of institutional character - Whether the presence of non-educational objects in the Memorandum of Association disentitles the assessee from approval under section 10(23C)(vi) of the Act - HELD THAT: - Section 10(23C)(vi) requires that an educational institution must exist solely for educational purposes and not for purposes of profit. The CIT(E) found that the assessee's memorandum contains objects which are other than educational and are not ancillary or incidental to educational objects. The Tribunal noted that the assessee's authorised representative failed to controvert the CIT(E)'s finding that those objects are independent and dominant. Reliance placed on jurisdictional and other High Court decisions supports the principle that inclusion of non-educational objects, which permit application of income for non-educational purposes, precludes entitlement to approval under section 10(23C)(vi). Applying that principle to the facts, the Tribunal held that the assessee does not satisfy the statutory requirement of existing solely for educational purposes. [Paras 5, 6, 10]Assessee is not entitled to approval under section 10(23C)(vi) because its memorandum contains non-educational objects that are not ancillary or incidental to education.Ancillary or incidental objects - no provision for conditional grant of approval - Whether the objects pleaded by the assessee are ancillary or incidental to its educational objects and whether conditional approval can be granted - HELD THAT: - The High Court had earlier remitted the matter for the CIT to verify if non-educational objects were ancillary or incidental. On reconsideration the CIT(E) concluded that the specified objects (encouraging sportsmanship/adventurous spirit, printing/publishing for diffusion of knowledge, providing residential accommodation and assistance) are primary and distinctive in nature and cannot be inferred to be ancillary or incidental to educational purposes. The Tribunal accepted that finding as not rebutted by the assessee. The Tribunal further observed that the statute does not permit grant of conditional approval; approval must be granted only where the institution exists solely for educational purposes. [Paras 3, 5, 9]The objects are not ancillary or incidental to education, and conditional approval is not permissible under the statute.Final Conclusion: The order of the Commissioner of Income Tax (Exemptions) rejecting approval under section 10(23C)(vi) is upheld and the assessee's appeal is dismissed for AY 2014-15. Issues Involved:1. Rejection of approval under Section 10(23C)(vi) of the Income Tax Act, 1961.2. Determination of whether the assessee's objects are solely for educational purposes or include non-educational objects.Detailed Analysis:Issue 1: Rejection of Approval under Section 10(23C)(vi) of the Income Tax Act, 1961The appeal by the assessee was directed against the order of the Commissioner of Income Tax (Exemptions), Hyderabad, which rejected the application for approval under Section 10(23C)(vi) of the Income Tax Act, 1961. The assessee, an educational institution, applied for exemption of its income under Section 10(23C)(vi) for the assessment year 2013-14. The Chief Commissioner of Income Tax found that the assessee society's objects included non-educational purposes such as encouraging sportsmanship, publishing materials for knowledge diffusion, and providing residential accommodation and financial assistance to social workers, staff, students, and orphans.Issue 2: Determination of Whether the Assessee's Objects are Solely for Educational PurposesThe primary requirement for approval under Section 10(23C)(vi) is that the institution must exist solely for educational purposes. The High Court of Andhra Pradesh and Telangana directed the Chief Commissioner to verify whether the non-educational objects were ancillary and incidental to the primary educational purpose. Upon review, the Commissioner of Income Tax (Exemptions) found that the non-educational objects were primary and independent, not ancillary or incidental to the educational objects. Consequently, the application for approval was rejected.The Tribunal noted that the assessee's Memorandum of Association included non-educational objects, which disqualified the institution from approval under Section 10(23C)(vi). The Tribunal cited relevant case law, including the decision of the A.P. High Court in the case of New Noble Educational Society, which emphasized that if an institution has objects other than education, it cannot be regarded as existing solely for educational purposes.The Tribunal also referenced the decision of the Madras High Court in Reliance Motor Company Limited Vs. CIT, which stated that the actual use of funds for educational purposes is irrelevant if the institution's objects allow for non-educational use. The Tribunal concluded that the assessee did not meet the requirement of existing solely for educational purposes and upheld the rejection of the application.Conclusion:The Tribunal dismissed the appeal, affirming that the assessee's inclusion of non-educational objects in its Memorandum of Association disqualified it from approval under Section 10(23C)(vi). The Tribunal emphasized the necessity for an institution to exist solely for educational purposes to qualify for the exemption.