TaxTMI 
TaxTMI 
TaxTMI 
2010 (11) TMI 761
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....e to focus on the issues which arise for consideration in this batch of writ petitions, and with their consent, the following questions were framed as necessitating adjudication : "(1) Whether the objects in the memorandum of association of a society/trust are conclusive proof of such a trust existing solely as an educational institution entitled for the benefits, and being eligible for approval, under section 10(23C)(vi) of the Act ? (2) Whether registration, under section 43 of the A. P. Act No. 30 of 1987, is a condition precedent for seeking approval under section 10(23C)(vi) of the Income-tax Act, 1961 ? (3) Whether the certificate issued by the Commissioner of Endowments, as the appropriate authority under section 43 of the A. P. Act No. 30 of 1987, is conclusive proof of an assessee being a charitable institution existing solely for the purpose of education ? (4) Even in case the assessee produces a certificate of registration under section 43 of the A. P. Act No. 30 of 1987 can the Commissioner of Income-tax refuse approval/sanction under section 10(23C)(vi) of the Income-tax Act, 1961 ?" 4. Question No. 1 It is contended, on behalf of the p....
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...., should again be ploughed back for educational purposes, and not utilized for any other object ; and diversion of funds to achieve objects, which are not solely for educational purposes, would disentitle the society from being granted approval. 6. In view of the prohibition under section 20A of the A. P. Education Act, denying individuals the right to establish educational institutions, it is only societies/associations/trusts which can establish educational institutions in the State of Andhra Pradesh. In view of section 10(23C)(iiiad) of the Act, read with rule 2BC(1) of the Income-tax Rules, the income received by a person (i.e., the educational agency-society/trust), on behalf of an educational institution existing solely for educational purposes and not for the purpose of profit, shall not be included in their total income if the aggregate annual receipts of such an educational institution do not exceed Rs. one crore. On the other hand, where the annual receipts of an educational institution exceeds Rs. one crore, the benefit of exclusion from the total income is available not under subclause (iiiad) but under sub- clause (vi) of section 10(23C) whereunder approval is ....
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....ve the character of an educational institution to be ascertained from its objects. (Aditanar Educational Institution [1997] 224 ITR 310 (SC)). The emphasis in section 10(23C)(vi) is on the word "solely". "Solely" means exclusively and not primarily. (CIT v. Gurukul Ghatkeswar Trust [2011] 332 ITR 611 (AP) ; CIT v. Maharaja Sawai Mansinghji Museum Trust [1988] 169 ITR 379 (Raj)). In using the said expression, the Legislature has made it clear that it intends to exempt the income of the institutions established solely for educational purposes and not for commercial activities. (Oxford University Press v. CIT [2001] 247 ITR 658 (SC)). This requirement would militate against an institution pursuing the objects other than education. (Vanita Vishram Trust v. Chief CIT [2010] 327 ITR 121 (Bom)). Even if one of the objects enables the institution to undertake commercial activities, it would not be entitled for approval under section 10(23C)(vi) of the Act. (American Hotel and Lodging Association Educational Institute [2008] 301 ITR 86 (SC)). It is only if the objects reveal that the very being of the assessee-society, as an educational institution, is exclusively for educational purposes a....
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....The decisive test is whether, on an overall view of the matter, the object is to carry on educational activities or to make profit. (Aditanar Educational Institution [1997] 224 ITR 310 (SC)). 13. It is useful, in this context, to refer to some of the provisos to section 10(23C)(vi) of the Act. The first proviso requires the applicant to obtain initial approval from the prescribed authority, in terms of section 10(23C)(vi), by making an application in the standardized form. The second proviso not only requires the prescribed authority to vet the application, but also indicates his powers and duties. While considering the application the prescribed authority is empowered to call for such documents, including annual accounts or other information from the applicant, as are necessary to verify the genuineness of the activities of the applicant-institution. Under the third proviso, the prescribed authority has to ascertain, while examining the genuineness of the activities of the institution, whether the applicant applies its income wholly and exclusively to the objects for which it is established. The applicant has not only to impart, but must also apply its income exclusively f....
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....itted by an educational institution, the scope of inquiry is restricted only to ascertain the genuineness of the activities of such an institution. Such an inquiry may even extend to an examination of the accounts of the institution, application of its income to the object and purposes of education and other cognate aspects. Once, on the basis of the genuineness of the activities of an educational institution, approval is granted for exemption then the monitoring provisions would come into play. (Pinegrove International Charitable Trust [2010] 327 ITR 73 (P&H)). 14. The threshold conditions are aimed at discovering the actual existence of an educational institution and approval of the prescribed authority for which an application in the standardized form, in terms of the first proviso, has to be given by every applicant. If the pre-requisite condition, of actual existence of the educational institution, is fulfilled then the question of compliance with the requirements, contemplated by various provisos, would arise. Only if the educational institution actually exists for educational purposes alone should it be permitted to operate subject to the monitoring conditions to be ....
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....(vi) of the Act. In addition, an application in the prescribed proforma should be submitted to the prescribed authority within the time stipulated and the specified documents should be enclosed thereto. However, in cases where an application is submitted, seeking renewal of the exemption granted earlier, the prescribed authority shall, in addition to the conditions aforementioned, also examine whether the income of the applicant-society has been applied solely for the purposes of education in terms of section 10(23C)(vi) of the Act, the provisos thereunder, the Income-tax Rules, and the documents enclosed to the application submitted in Form 56D. 17. Question No. 1 is answered accordingly. 18. Questions Nos. 2, 3 and 4 19. As these questions are inter-linked, and inter-connected with each other, it is convenient to examine all of them together. Learned counsel for the petitioners would submit that, while the petitioners are societies running educational institutions and are not making profit, they are not charitable institutions ; the Income-tax Act does not require registration, under the Andhra Pradesh Charitable and Hindu Religious Institutions an....
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....3)(a) thereof stipulates that the said Act is applicable to all public charitable institutions whether registered or not in accordance with the provisions of the Act. The expression "public charitable institutions"is defined, in the Explanation thereto, to include every charitable institution the administration of which is for the time being, amongst others, carried on by a society. "Charitable institution", in terms of section 2(4) of A. P. Act 30 of 1987, means any establishment, undertaking, organisation or association formed for a charitable purpose. A. P. Act 30 of 1987 is applicable to all charitable institutions regardless of religion. (Parsi Zoroastrian Anjuman of Secunderabad and Hyderabad v. Deputy Commissioner of Endowments [2000] 1 ALT 256 (AP)). "Charitable purpose", under section 2(5) of A. P. Act 30 of 1987, brings within its ambit, amongst others, education also. To find out the object for which a society has been established, the provisions of section 2(5) of A. P. Act 30 of 1987, which only exclude those "exclusively of a religious nature", also has a role to play. (Commissioner of Endowments v. All India Sai Seva Samaj [2001] 6 ALT 539). 22. Application o....
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....registration, the provisions of A. P. Act 30 of 1987 are not applicable is not tenable. The provisions of A. P. Act 30 of 1987 apply to all public charitable institutions whether registered or not in accordance with the provisions of the Act. A public charitable institution is required, in law, to conduct the management of its affairs strictly in accordance with the provisions of A. P. Act 30 of 1987. Registration under A. P. Act 30 of 1987 would also ensure that the activities of the educational agency are monitored by the State agencies. section 58 of A. P. Act 30 of 1987 relates to accounts and audit and, under sub-section (2)(a) thereof, the accounts of every charitable institution the annual income of which, as calculated for the purpose of section 65 for the financial year immediately preceding, exceeds rupees one lakh, shall be subject to concurrent audit by an agency specified by the Government, and the audit shall take place as and when expenditure is incurred. The mere fact that the authorities failed to act in the matter to get the institution registered under the provisions of the Act is of no legal consequence. (Secretary to Government, Revenue (Endowments) Department ....
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....ut it in section 10(23C)(vi) of the Act. (Maharaja Sawai Mansinghji Museum Trust [1988] 169 ITR 379 (Raj)). As "education"falls within the scope of "charitable purpose"both under section 2(5) of A. P. Act 30 of 1987 and section 2(15) of the Income-tax Act and, inasmuch as A. P. Act 30 of 1987 requires all charitable institutions in the State of A. P. to be registered, the Chief Commissioner was justified in holding that the petitioner-societies should have registered themselves under the provisions of A. P. Act 30 of 1987, as failure to so hold would have resulted in one arm of the law being utilized to defeat another arm of the law which would not only be opposed to public policy, but would also bring the law into ridicule. (Bihari Lal Jaiswal v. CIT [1996] 217 ITR 746 (SC)). 25. The question, which next requires examination, is whether failure to so register would necessitate rejection of the petitioner's application, for approval under section 10(23C)(vi), at the threshold or whether the Chief Commissioner ought to have granted approval subject also to the condition that the petitioners register themselves as a charitable institution under A.P. Act 30 of 1987. As noted h....
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....on educational activities. 26. We, accordingly, hold that the certificate signed by the Commissioner of Endowments, as the appropriate authority under section 43 of the A. P. Act No. 30 of 1987, is but one of the factors, and not conclusive proof, of an assessee under the Income-tax Act being a charitable institution existing solely for the purposes of education. Even in case the assessee produces a certificate of registration under section 43 of A.P. Act No. 30 of 1987, the Chief Commissioner has to independently examine the objects of the applicant-society, their application seeking approval under section 10(23C)(vi), and the prescribed documents enclosed thereto, and satisfy himself, in the light of the provisions of section 10(23C)(vi), the provisos thereto, rule 2CA and Form 56D, that the existence of the educational institution is solely for the purposes of education and not for the purpose of profit and, only if he is so satisfied, to grant approval. Registration under section 43 of the A. P. Act 30 of 1987 is not a condition precedent for seeking approval under section 10(23C)(vi) of the Act. The Chief Commissioner can, however, prescribe registration under A. P. Ac....
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....itution would not be eligible to be regarded as one existing solely for educational purposes, and no part of its income would be exempt from tax. In other words, where the main objects are distributive, each and everyone of them must relate to "education" in order that the institution may be held entitled for the benefits under section 10(23C)(vi) of the Act. But if the primary or dominant purpose of an institution is "educational", another object which is merely ancillary or incidental to the primary or dominant purpose would not disentitle the institution from the benefit. The test which has, therefore, to be applied is whether the object, which is said to be non-educational, is the main or primary object of the institution or it is ancillary or incidental to the dominant or primary object which is "educational". (Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC)). The test is the genuineness of the purpose tested by the obligation created to spend the money exclusively on "education". If that obligation is there, the income becomes entitled to exemption. (Sole Trustee, Loka Shikshana Trust [1975] 101 ITR 234 (SC)). 31. Objects of a society, such as mai....
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....mendment, to the objects of the society, comes into force. 33. The existence of an educational institution, solely for the purposes of education, is a pre-condition for grant of approval and, as the objects aforementioned are not for educational purposes, the Chief Commissioner cannot be faulted for rejecting the applications seeking approval under section 10(23C)(vi) of the Act. As the validity of the impugned orders must be upheld, on the ground that the objects of the petitioner-societies include those for non-educational purposes, we see no reason to quash the orders impugned in these writ petitions even though we are satisfied that the applications, in these writ petitions, ought not to have been rejected on the ground of non-registration under A. P. Act 30 of 1987. W. P. No. 12946 of 2010 34. The objects of the petitioner-society included "to publish journals, magazines, or other media for diffusion of useful knowledge for promotion of education". The petitioner-society contended that this object was also for the purposes of education, and formed part of their educational activity; and, in the process of running an educational institution, it was neces....
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....C) of the Act ; and such diversion of funds could not be treated as application of income to the objects of the society as has been clarified under the twelfth proviso to section 10(23C) of the Act. 37. The aforesaid object, which the prescribed authority held not to be for the purposes of education, is incidental and ancillary to the primary object of carrying on educational activities by the educational institution. The Chief Commissioner was, therefore, not justified in rejecting the petitioner's application on this ground. 38. The other ground of rejection is that Rs. 50,00,000 was advanced to a sister educational society. It is contended, on behalf of the petitioners, that the other society is also an educational institution ; and the temporary advance was, in any event, returned during the very same financial year. Under the twelfth proviso to section 10(23C)(vi) of the Act, the prescribed authority is required to examine cases where an applicant does not apply its income during the year of receipt and accumulates it but makes payment therefrom to any other educational institution and, to that extent, the proviso states that such payment shall not be treated a....
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.... other members of the society ; there was a drastic fall in rental expenditure during the financial year 2008-09 as compared to the expenditure under this head for the financial year 2007-08 ; no additions were shown under this head in the depreciation schedule for the financial year 2008-09 which could probably explain the decrease in the rental expenditure in the financial year 2008-09 ; while the gross receipts during the financial year 2008-09 was Rs. 2,75,72,966, the gross receipts for the financial year 2007-08 was Rs. 95,51,384 ; considering the increase in gross receipts in the financial year 2008-09, over the gross receipts during the immediately preceding financial year, reduction in the quantum of expenditure was not comprehensible ; payment of rent to office bearers indicated that the members of the society had personally benefited ; such payment was in violation of the two basic conditions of section 10(23C)(vi) of the Act ; and the certificate appended to the memorandum of association, that the office bearers were not paid from the funds of the association, was false. 43. In W. P. No. 2333 of 2010 the first respondent, on a perusal of the balance-sheet of the ....
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....hority, after giving the petitioner-assessees an opportunity of being heard. It is made clear that in case the prescribed authority, after causing necessary enquiry in this regard, is satisfied that the provisions of section 13(1)(c) are attracted, the petitioners would not be entitled for approval under section 10(23C)(vi) of the Act. W. P. No. 12254 of 2010 45. The following amounts were advanced to the secretary of the petitioner- society. Financial year Lessor deposit (Rs) Other advances (Rs.) 2005-06 10,00,000 12,49,993 2006-07 10,00,000 1,73,555 2007-08 10,00,000 7,97,294 2008-09 10,00,000 7,58,523 46. The first respondent held that these payments indicated that the funds of the society had been applied for the benefit of the secretary of the society, and fell within the ambit of section 13(2)(a) and 13(2)(g) of the Act; Rs. 10,00,000 paid to the secretary of the society was an interest-free deposit and attracted section 13(2)(a) ; the amounts appearing in the name of the secretary under "other advances" were in the nature of "staff advance" which was availed of by him for the purpose of medical treatment of his son and mother ; the society had ....