2018 (10) TMI 1039 - HC - Income Tax

Tribunal grants tax exemption to educational society under Income Tax Act

The Tribunal ruled in favor of the respondent-society in a case concerning the interpretation of Section 10(23C)(vi) of the Income Tax Act, 1961. It ... Charitable activity - approval u/s 10(23C)(vi) - Absence of the dissolution clause of the trust, there is a lacuna which may be misutilized in the event of dissolution of the managing committee - ITAT allowed claim - Held that:- The Tribunal while allowing the appeal has taken into consideration the aims and objectives of the society and that there is no dispute regarding genuineness of the activities of the society. The reliance was placed upon the assessment order passed under Section 143 (3) of the Act for the assessment year 2012-13. There were categorical findings by the Assessing Officer that the object of the society was educational and it was existing only for educational purposes. The Tribunal has rightly held that the reason for rejection by the CCIT cannot be sustained as the benefit which may or may not accrue under Section 13(3) of the Act, does not have any effect on the genuineness of the activities of the trust. The eventuality relied upon by the CCIT is based on surmises without there being any definite basis that any misutilisation would occur for sure in future. The order passed is in consonance with provisions of Section 10(23C)(vi) of the Act - decided against revenue. Issues:1. Interpretation of Section 10(23C)(vi) of the Income Tax Act, 1961.2. Validity of the dissolution clause in the Memorandum of Association of a Society for grant of exemption under Section 10(23C)(vi).3. Consideration of genuineness of activities of a Society for approval under Section 10(23C)(vi).Issue 1: Interpretation of Section 10(23C)(vi) of the Income Tax Act, 1961The judgment involves a dispute regarding the interpretation of Section 10(23C)(vi) of the Income Tax Act, 1961, which pertains to income received by educational institutions for educational purposes. The Tribunal emphasized that the provision requires approval from the prescribed authority for exemption, focusing on the genuineness of the activities of the trust or institution. The judgment clarifies that the scope of the second proviso to Section 10(23C) is limited to verifying the authenticity of the activities, and in this case, the Chief Commissioner of Income Tax did not question the genuineness of the educational activities of the respondent-society. The Tribunal's decision was based on the objective of the society and the absence of any adverse findings on the educational nature of the institution.Issue 2: Validity of the dissolution clause in the Memorandum of Association of a Society for grant of exemption under Section 10(23C)(vi)The case revolves around the validity of the dissolution clause in the Memorandum of Association of a Society for obtaining exemption under Section 10(23C)(vi) of the Act. The Chief Commissioner of Income Tax raised concerns about the absence of a dissolution clause in the Memorandum of Association, specifically pointing out that the mentioned clause only addressed the dissolution of the managing committee, not the trust itself. The rejection of the exemption application was primarily based on the perceived risk of misutilization of funds in case of dissolution, as the movable and immovable properties were to be managed by the Chairman, President, and Secretary jointly. The Tribunal, however, found that the absence of a dissolution clause did not impact the genuineness of the educational activities of the society, leading to the grant of approval under Section 10(23C)(vi).Issue 3: Consideration of genuineness of activities of a Society for approval under Section 10(23C)(vi)The judgment extensively discusses the genuineness of the activities of the respondent-society for the purpose of approval under Section 10(23C)(vi) of the Act. It highlights that the rejection of the exemption application by the Chief Commissioner of Income Tax was not based on doubts regarding the authenticity of the educational activities of the society but rather on the absence of a dissolution clause in the Memorandum of Association. The Tribunal, in its decision, emphasized the educational objectives of the society, the running of a nursing college affiliated with the Indian Nursing Council, and the previous assessment order confirming the educational nature of the institution. The Tribunal concluded that the concerns raised by the Chief Commissioner were speculative and lacked a concrete basis, thereby allowing the appeal and granting approval under Section 10(23C)(vi).This comprehensive analysis of the judgment delves into the interpretation of relevant legal provisions, the impact of the dissolution clause on exemption eligibility, and the significance of verifying the genuineness of educational activities for approval under Section 10(23C)(vi) of the Income Tax Act, 1961.