2022 (3) TMI 1288 - HC - Income Tax

High Court upholds tax exemption for educational trust under Income Tax Act

The High Court of Orissa analyzed the interpretation of Section 10(23C)(vi) of the Income Tax Act and the validity of orders regarding tax exemption for ... Applicability of provisions of Sec.10(23C)(vi) introduced only w.e.f. 1. 4.1999 - HELD THAT:- As prior to its re-enactment as Section 10 (23C) (vi) of the Act, the very same provision existed in the statute book as Section 10 (22) of the Act. In other words, what was in fact referred to both by the Assessing Officer (AO) and the CIT (A) as far as the present case is concerned, was Section 10 (22) of the Act and not Section 10 (23C) (vi) of the Act. The latter provision was mentioned as Section 10(22)/10(23C) (vi) only to indicate that the same provision has been reenacted as Section 10 (23C) (vi) of the Act with effect from 1st April, 1999. This is not to say that reliance is placed on the re-enacted provisions. Consequently, as far as Question No.(ii) is concerned, the Court finds nothing erroneous in the order of either the CIT (A) or the ITAT. The issue is decided in favour of the Assessee and against the Department. Approval to the Institution u/s 10(23C)(vi) - whether the income earned by the Trust was exclusively from educational activities? - HELD THAT:- Present case does not involve grant of approval by the CCIT, the general proposition in law that the word ‘solely’ appearing in Section 10(23C)(vi) of the Act emphasizes that the income of the Institution has to be from activities which are solely educational and not commercial activities, if the income has to be exempted from tax. This Court was reiterating the settled legal position in this regard as explained in Aditanar Educational Institution v. Additional Commissioner of Income Tax [1997 (2) TMI 3 - SUPREME COURT] followed in American Hotel and Lodging Association Educational Institute v. Central Board of Direct Taxes,[2008 (5) TMI 17 - SUPREME COURT]. The decision of the High Court of Punjab and Haryana in Pinegrove International Charitable Trust v. Union of India, [2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT] and of this Court in The Commissioner of Income Tax v. Silicon Institute of Technology [2014 (11) TMI 588 - ORISSA HIGH COURT] are all to the same effect. While the legal position is clear, each of these cases turned on the peculiar facts on whether the income earned by the institution involved in those cases was from activities which were solely and exclusively ‘educational’. In the present case, the concurrent findings of the CIT (A) and the ITAT that the income earned by the Assessee was from solely educational activity and not commercial activity appears to be based on a proper analysis of all the materials available on record and, therefore, the Court is unable to agree with the contention of the Revenue that either order requires interference. Questions Nos. (i) and (iii) are answered accordingly in favour of the Assessee and against the Revenue. Issues:1. Interpretation of Section 10(23C)(vi) of the Income Tax Act, 1961.2. Validity of the order of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal regarding the tax exemption of an educational trust.Issue 1: Interpretation of Section 10(23C)(vi) of the Income Tax Act, 1961:The court analyzed the reliance placed by the Commissioner of Income Tax (Appeals) on Section 10(23C)(vi) of the Act, introduced from April 1, 1999. It was clarified that the provision referred to was actually Section 10(22) before re-enactment as Section 10(23C)(vi). The court found no error in the order of the CIT (A) or the ITAT, ruling in favor of the Assessee.Issue 2: Validity of the order of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal regarding the tax exemption of an educational trust:The case involved a search and seizure operation in the premises of an Assessee-Trust, leading to additions to the income of the Trust based on cash seized. The CIT (A) set aside the AO's order, determining the Trust's income as exempt under Section 10(22) of the Act. The court upheld the findings of the CIT (A) and ITAT, emphasizing that the income was exclusively from educational activities and not commercial. The court found no legal infirmities in the orders of the CIT (A) or the ITAT, dismissing the appeal in favor of the Assessee.In conclusion, the High Court of Orissa analyzed the interpretation of Section 10(23C)(vi) of the Income Tax Act and the validity of orders regarding tax exemption for an educational trust. The court ruled in favor of the Assessee, finding no errors in the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, emphasizing that the income of the Trust was solely from educational activities, leading to the dismissal of the appeal with no costs awarded.