2025 (3) TMI 138 - AT - Income Tax

Educational institution's conversion to Section 8 company doesn't disqualify approval under section 10(23C)(vi) for tax exemption

G.H.R. Educational Foundation Versus Commissioner of Income Tax Exemption, Pune

G.H.R. Educational Foundation Versus Commissioner of Income Tax Exemption, Pune - [2025] 125 ITR (Trib) 164 1. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are:Whether the assessee is eligible for approval under section 10(23C)(vi) of the Income Tax Act, 1961, which pertains to institutions existing solely for educational purposes and not for profit.Whether the inclusion of certain objects in the memorandum of association (MoA) disqualifies the assessee from being considered solely for educational purposes.Whether the assessee is eligible for approval under section 80G of the Income Tax Act, which relates to donations made to certain funds, charitable institutions, etc.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Eligibility for Approval under Section 10(23C)(vi)Relevant Legal Framework and Precedents: Section 10(23C)(vi) of the Income Tax Act provides that any income received by an educational institution existing solely for educational purposes and not for profit is exempt from tax. The Supreme Court's decision in M/S New Noble Educational Society v. CCIT emphasized that institutions must solely exist for educational purposes to qualify for this exemption.Court's Interpretation and Reasoning: The Tribunal noted that the assessee was previously registered as a society and was approved under section 10(23C)(vi). Upon conversion to a Section 8 Company, the objects in the MoA included activities such as running rehabilitation centers and clinics, which the CIT(E) argued were not solely educational.Key Evidence and Findings: The Tribunal found that the inclusion of terms like 'Rehabilitation Centre' and 'Clinics' in the MoA was intended for potential future activities related to medical education, which requires such facilities.Application of Law to Facts: The Tribunal applied the Supreme Court's interpretation that institutions must solely focus on education to qualify for the exemption. However, it found that the assessee's current activities were solely educational, and the inclusion of potential future activities should not disqualify it.Treatment of Competing Arguments: The Tribunal considered the CIT(E)'s argument that the objects were not solely educational but found that the assessee had not engaged in non-educational activities. The Tribunal also noted the assessee's modification of its MoA to remove the contentious objects.Conclusions: The Tribunal concluded that the assessee's current activities were solely educational and remitted the matter back to the CIT(E) to verify the revised objects and grant approval under section 10(23C)(vi).Issue 2: Eligibility for Approval under Section 80GRelevant Legal Framework: Section 80G of the Income Tax Act allows deductions for donations to certain funds and charitable institutions. Approval under this section requires compliance with specific conditions.Application of Law to Facts: The Tribunal directed the CIT(E) to reconsider the approval under section 80G in light of the revised objects and the decision regarding section 10(23C)(vi).Conclusions: The Tribunal set aside the CIT(E)'s order and directed a fresh adjudication of the section 80G approval, considering the revised objects and compliance with the law.3. SIGNIFICANT HOLDINGSThe Tribunal emphasized the principle that for an institution to qualify for exemption under section 10(23C)(vi), it must solely exist for educational purposes. However, potential future activities not yet undertaken should not disqualify the institution.The Tribunal noted, 'The interpretation of Section 10 (23C) therefore, is that the trust or educational institution must solely exist for the object it professes (in this case, education, or educational activity only), and not for profit.'The Tribunal remitted the matter back to the CIT(E) to verify the revised objects and grant approval under section 10(23C)(vi), highlighting the importance of current activities over potential future activities.For section 80G, the Tribunal directed a fresh adjudication, emphasizing the need to consider the revised objects and compliance with the law.