TaxTMI 
TaxTMI 
2021 (6) TMI 873
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....notification as Clause 3 to Notification No.S.O.852 (E) dated 30.05.2007 applied only to Charitable Institutions. The application was eventually transferred to the 1st respondent/Chief Commissioner of Income Tax-III, Chennai pursuant to which a Show Cause Notice dated 20.12.2013 was issued to the petitioner. The aforesaid Show Cause Notice called upon the petitioner to show cause as to why the application filed by the petitioner should not be rejected for the following five reasons:- "Whereas during the course of consideration of your application seeking exemption u/s 10(23C)(vi) of the Income-tax Act, 1961, for the year 31.03.2010, filed in Form No.56 D on 16.9.2010 before the Commissioner of Income tax-I, Chennai and transferred and received in the office of Director of Income tax(Exemptions) Chennai on 21.12.2012, as well as the report dated 18.12.2013 of Director of Income tax(Exemptions) Chennai, you are required to show cause as to why the application may not be rejected for the following reasons: 1. The application in form No.56D was not filed on 16.09.2010 before the prescribed authority Chief Commissioner of Income tax-III, Chennai through the Director of Income tax(Ex....
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....the meaning of Notification No.S.O.852 (E) dated 30.05.2007 is concerned, it is submitted that the application was based on the understanding of the aforesaid notification and therefore there is no justification in not considering the application in time by the authorities under the Act. 6. It is submitted by the learned counsel for the petitioner that even if the application had been wrongly filed, it was an internal issue to be sorted out by either calling upon the petitioner to re-present the application before the appropriate authority or in the alternative to transfer it to the jurisdictional officer for disposing the application filed by the petitioner on 16.09.2010. However, the respondents took three precious years to transfer application only to issue Show Cause Notice on 20.12.2013. 7. It is further submitted that the application was filed as early as 16.09.2010 and therefore it was incumbent on the part of the Department to have transferred the file to the jurisdictional office of the 1st respondent even if the petitioner had wrongly filed the same before the Chief Commissioner of Income Tax I, Chennai under a bona fide belief that the application was to be filed as pe....
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....ch of the Allahabad High Court by an order dated 05.08.2013 and the Full Bench of the Allahabad High Court has answered the issue against the assessee by its order in Commissioner of Income-tax Vs Muzafar Nagar Development Authority, 372 ITR 209 on 05.02.2015, the decision of the Division Bench of the Allahabad High Court rendered on 03.04.2008 in Society for the Promotion of Education, Allahabad Vs Commissioner of Income-tax, Central, Kanpur, 372 ITR 222 was upheld by the Hon'ble Supreme Court in Commissioner of Income-tax, Kanpur Vs Society for Promotion of Education, Allahabad by its order dated 16.02.2016, 382 ITR 6. 11. The learned counsel for the petitioner further submits that the Karnataka High Court in Director of Income-tax (Exemptions) Vs ST. Ann's Education Society, 425 ITR 642 and Kerala High Court in Commissioner of Income-tax, Cochin Vs TBI Education Trust, 96 Taxmann.Com 356 have also discussed the implication of the above development and has granted relief to the institutions and therefore it is submitted that the petitioner is entitled to deemed approval in terms of Section 10(23C)(vi) of the Income Tax Act, 1961. 12. As far the issue No.2 is concerned, ....
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....er was only incidental and such surplus cannot be construed as profit. 15. It is further submitted that clause 51 & 52 of the Articles of Association of the petitioner's company clearly prohibited the petitioner's company from distributing surplus generated in any year by way of dividend or bonus shares implying surplus generated by the educational institutions was to be only ploughed back for educational purpose and therefore the petitioner was entitled to approval under the aforesaid provisions. 16. As far as the 3rd objection in the Show Cause Notice dated 20.12.2013 is concerned, it is submitted that the petitioner cannot be said to be existing for education purpose of making profit based on clause 55 & 56 of the Memorandum of Association. It is submitted that the petitioner has given an undertaking before the 1st respondent that both the clauses would be amended and therefore the presence of such clauses need not be considered to draw an inference that the petitioner existed to make profit as there is not a single instance of any diversion of the fund for any other business. 17. On facts it is submitted that even if the Memorandum of Association of the company deals....
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....counsel for the respondents/Income Tax Department further submitted that the petitioner has several verticals and the object clause of the petitioner's company was decisive to whether the petitioner was entitled to approval under Section 10(23C)(vi) of the Income Tax Act, 1961. In this connection, the learned counsel for the petitioner places reliance on the following three decisions:- "(i) Sir Shadilal Sugar & General Mills Ltd and another Vs CIT, (1987) 168 ITR 705 (SC) (ii) Sheila Christian Charitable Trust, (2013) 32 Taxman.com 242. (iii) CIT Vs Karimangalam Onriya Pengal Amaipu, (2013) 32 Taxman.com (iv) B.S.Abdur Rahman Institute Vs The Chief Commissioner of Income Tax in W.P.No.34102 of 2015, 787 Taxman 336." 22. She further submits that undertaking to delete the clauses from the Articles Association is not sufficient and therefore the relevant clause as it stood at the time of filing of the application was to be looked into and therefore submits that the impugned order passed by the 1st respondent was liable to be sustained and the writ petition filed by the petitioner has to be rejected. 23. It is submitted that the application dated 16.09.2010 ought to have ....
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....utions/projects/company. 4. To establish, erect, build, manage canteen, refreshment stalls and fast food centres. 5. To impart education and training in acting, direction, photography and music related to film industry and video industry. 6. To buy, sell act as marketing Agents for the products produced by the training centres, educational institutions, employment-related projects, social welfare agencies. 7. To carry on the business of printers, engravers, publishers, book-printers and book-sellers, stationers, art journalists, manufacturers and distributors of and dealers in engravings, prints, pictures, drawings, painting, journals, magazines and any written, engraved, painted or printed production in all their branches and aspects. 8. To carry on and do the business as land developers, township developers, satellite town promoters, developers of housing colonies, real estate dealers by developing and taking into account any land acquired by the Company or in which it is interested or may get interested and in particular by laying out, providing conveniences like roads, drainages, playgrounds, recreation facilities, cinema theatres, constructing residential or commerci....
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....titution." 30. The petitioner had earlier approached the Chief Commissioner of Income Tax-I on a mis-reading of the content of Notification No. S.O.852 (E) dated 20.5.2007 on 16.9.2010 for grant of recognition/approval under Section 10(23C)(vi) of the Income Tax Act, 1961. 31. The application was thereafter transferred to the 1st respondent belatedly. The 1st respondent who is the jurisdictional authority as far as the petitioner is concerned for grant of recognition/approval under Section 10(23C)(vi) of the Income Tax Act, 1961. The 1st respondent thereafter issued show cause notice dated 20.12.2013. The 1st respondent has rejected the application of the petitioner vide impugned order which is now put to test before this Court. 32. Relevant part of Section 10(23 C) (vi) of the Income Tax Act, 1961 which reads as under:- CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME Incomes not included in total income. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- 1....................... ......................... (23C) any income received by any person on behalf of- (....
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....jects and the prescribed authority may also make such inquiries as it deems necessary in this behalf: Provided also that the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via)- (a) applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years; and (b) does not invest or deposit its funds, other than- (i) any assets held by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of the fund, trust or institution or any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1973; (ia) any asset, being equity shares of a public company, held by any univer....
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....ise than in any one or more of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later: Provided also that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business: Provided also that any notification issued by the Central Government under sub-clause (iv) or subclause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification: Provided also th....
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.... any trust or institution registered under section 12AA, being voluntary contribution made with a specific direction that they shall form part of the corpus of the trust or institution shall not be treated as application of income to the objects for which such fund or trust or institution or university or educational institution or hospital or other medical institution, as the case may be, is established: Provided also that for the purposes of determining the amount of application under item (a) of the third proviso, the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head "Profits and gains of business or profession": Provided also that where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in subclause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) does not apply its income during the year of receipt and accumulates it, any payment or credit out of such accumulation to any trust or institution registered under section 12AA or to....
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....the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer: Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes an application on or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be made on or before the 30th day of September of the relevant assessment year from which the exemption is sought : Provided also that any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of the said section shall be included in the total income : Provided also that all pending applications, on which no notification has been issued under sub-clause (iv) or sub-clause (v) before the 1st day of June, 2007, shall stand transferred on that day to the prescribed authority and the prescribed authority may proceed with such applications under those sub-clauses from the stage at which they were ....
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....s Society for Promotion of Education, Allahabad [2016] 382 ITR 6, it has to be noted that the attention of the Hon'ble Supreme Court was not drawn to the reference made to the Full Bench of the Allahabad High Court wherein the ratio of the Allahabad High Court in Society for Promotion of Education, Allahabad Vs CIT 372 ITR 222 was doubted. 36. The attention of the Hon'ble Supreme Court was also not brought to the contra view of the Allahabad High Court in Commissioner of Income Tax VsMuzfar Nagar Development Authority, [2015] 372 ITR 209 on a reference from a Full Bench of the Allahabad High Court, wherein it has answered as follows:- " i. Non disposal of an application for registration, by granting refusing, before the expiry of six months as provided under section 12 AA (2) of the Income Tax Act, 1961 would not result in in a deemed grant of registration; and ii. The judgement of the division bench of the court in Society for the Promotion Of Education Adventure Sport And Conservation of Environment (Supra) does not lay down the correct proposition of law." 37. If above view was brought to the attention of the Hon'ble Supreme Court in CIT Vs Society for Promotion of Edu....
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....ry enactments and the rules made thereunder. For instances, under Rule 174 of erstwhile Central Excise Rules, 1944 as it stood prior to Central Excise Rules, 2002, there was a concept of deemed registration. If an application for registration of a factory was not considered by the jurisdictional authority within a period of sixty days, registration was deemed to have been granted 42. A similar provision for a deemed registration is available under Rule 9(5)b) of the respective Goods and Service Tax Rule 2017. Rule 9(5)(b) of the Central Goods & Service Tax Rules, 2017 which is parimateria with Rule 9(5)(b) of Tamil Nadu Goods & Service Tax Rule, 2017 is reproduced below:- CHAPTER III Registration 8. Application for registration: ..... 9. (1)- (2) (3) - (4) Where no reply is furnished by the applicant in response to the notice issued under sub-rule (2) or where the proper officer is not satisfied with the clarification, information or documents furnished, he shall, for reasons to be recorded in writing, reject such application and inform the applicant electronically in FORM GST REG-05. (5) If the proper officer fails to take any action, - a) within a period of thre....
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....d (b) in the third proviso are a part of compliance/monitoring conditions. As stated, however, there is a difference between application/utilisation of income and outward remittance of income out of India. As discussed above, with the insertion of the provisos in Section 10(23-C)(vi) of the 1961 Act, it is open to the PA to stipulate, while granting approval, that the approval is being given subject to utilisation/application of certain percentage of income, in the accounting sense, towards impartation of education in India. Such exercise would be based on estimation. There is a difference between "accounting income" and "taxable income". At the stage of Section 10, we are concerned with the accounting income. Therefore, it is open to the PA, if it deems fit, to stipulate that certain percentage of accounting income would be utilised for impartation of education in India. Therefore, in our view, it is always open to the PA to impose such terms and conditions as it deems fit. The interpretation we have given is based on harmonious construction of the provisos inserted in Section 10(23-C)(vi) by the Finance (No. 2) Act, 1998. Lastly, we may reiterate that there is a difference betwee....
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....3-C)(iii-ad) and (vi) as follows:- "(1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied-the purpose of education should not be submerged by a profit-making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year concerned the object is to make profit as opposed to educating persons." 53. The provision as it reads and the law as declared by the Hon'ble Supreme Court indicate that approval has to granted if an educational institu....
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....f Association of the petitioner do not allow an interference of profit motive. These two clauses clearly indicate that the surplus generated by the petitioner is to be ploughed back. Thus, there is no profit motive. They read as under:- WINDING UP 55. If the Company is wound up the surplus assets are more than sufficient to repay the whole of the paid-up capital the excess shall be distributed among the members in proportion to the capital paid up on the equity shares held by them, but this article is without prejudice to the right of preference share-holder or holders of any other shares issued upon special conditions. 56. If the Company is wound up, whether voluntarily or otherwise the liquidators may with the sanction of the special resolution, divide among the contributors, in specie or kind, any part of the assets of the Company and may with a like sanction vest any part of the assets of the Company upon such trusts instituted for the benefit of the contributors. 58. The Memorandum of Association of the petitioner also does not indicate the profit motive. The main object of the petitioner indicates that it is in the field of education. There are also indication that the....