TaxTMI 
TaxTMI 
2022 (2) TMI 705
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....e tax (exemption) Mumbai is not justified in refusing to grant approval for exemption u/s 10 (23C) (vi) of The Income Tax Act, 1961, as it is against the facts of the case and untenable in law ii. On the facts and circumstances of the case and in law, the CIT (E) did not provide proper and reasonable opportunity of being heard before refusing to grant approval for exemption u/s 10 (23C) (vi) of The Income Tax Act 1961. As such, the order passed is bad in law and the same is liable to be cancelled iii. on the facts and circumstances of the case and in law, the CIT (E), Mumbai erred in not accepting the order passed by the Asst Charity Commissioner, Greater Mumbai region regarding merger of trust to replace as member in association of persons iv. on the facts and circumstances of the case and in law the learned CIT (E), Mumbai refused the registration on flimsy grounds without appreciating the facts of the case and without applying his mind v. on the facts and circumstances of the case and in law, the CIT (E) erred in not appreciating that names of members of AOP or part of application filed on 31/10/2018 for grant of minority status vi. O....
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.... judicial stamp paper of Rs. 500 however; it was not registered with any authority or even agreement was not notarized. 6. Main object of the Association of person was "(i) for running and to manage an English medium school and allied activities as mutually decided, Under the joint name or in the name of AOP with its principal place of business shall be at Harsihchandra Goregaonkar Road , Gamdevi, Mumbai 400007. (ii) That the AOP shall run, organize and conduct activities of English medium school from preprimary to standard 10th and activities may be extended to other activities with the mutual consent of all the parties Under the joint name or in the name of AOP Sharda mandir High school " 7. The learned CIT examined the application and noted down to mandatory conditions for registration under section 10 (23C) (vi) of The Act stating that (1) the applicant should be a University or an educational institution and, (2) it should exist solely for educational purposes and not for the purposes of the profit. 8. Assessee made following submissions in support of its application and answering queries raised by the learned CIT:- i. assessee submitted a c....
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....amended to provide that any surplus will not be taken by any of the member and the funds will be utilized for the purpose of up gradation of school and educational facilities. Therefore, it was submitted that it was a mistake, which has been rectified by making a supplementary deed. It is also submitted that there is no distribution of the profit during the year to any of the members and the entire surplus has been invested/used for the purpose of education. 9. Based on the above submissions the assessee contested that assessee being an Association of person can be granted exemption u/s 10 (23C) (vi) of The Act as thereis no requirement of getting itself registered u/s 12 A of the income tax act. Assessee is also running a school i.e. an educational institution and no part of the profit is distributed amongst the members or has been spent for non- educational purposes hence, not existing for profit and therefore it is entitled for exemption Under that Section. Assessee also supported its case by citing various judicial precedents. 10. The learned CIT denied the exemption to the assessee vide order dated 30/9/2019 giving mainly the following reasons:- i. as the Associ....
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.... of the Association of person and the Constitution of Association of person can be changed without any control mechanism. He also gave an example that by the supplementary deed the clause 6 of deed of AOP was amended. Thus the AOP cannot be registered u/s 10 (23C) (vi) of the income tax act 11. Therefore, for all these cumulative reasons, he rejected the application of the assessee vide order dated 30/9/2019. 12. The learned authorised representative referred to 3 paper books filed by him. He referred to various documents submitted there in as under :- i. Agreement of association of persons, supplementary deed for association of persons, forms No 56D and form No 10 BB for assessment year 2018 - 19. ii. list of trustees and as well as the rules and regulations applicable in school. iii. object clause for school as well as the trust. iv. letter issued by the education Department and copy of circular issued dated 17/8/2015 for clarification on issue related to claim of exemption Under that Section. v. copy of the annual accounts of the association of persons stating that net profit of Rs. 1,254,386 has been kept as a reserve and surpl....
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.... to other English schools, there is no profit distributed by the assessee which can be verified from the annual accounts and further same is used for the educational purposes and therefore it cannot be said that assessee trust is existing for profit. v. He further submitted that identical issue has been decided by the coordinate bench in case of sardar Pratap Singh education society versus the Commissioner of income tax (exemptions) in ITA number 487//2021 on 11/6/2021 wherein on identical dates the order was passed by the CIT (E) rejecting the application u/s 10 (23C) (vi ) stating that the trust is existing for the profit wherein the coordinate bench recorded the finding that when the surplus in the income and expenditure account has not been distributed by the assessee to any trustees or the relatives as profit or as a dividend and said surplus has been redeployed regularly for the object of educational objects of the trust it can be stated that the assessee trust is existing solely for the purpose of education and not for the purposes of the profit. He referred to the income and expenditure account and stated that in of the surplus has been distributed and in fact, it ....
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....endently in their respective regions. ix. With respect to the generation of the profit he referred to para number [3] of that circular where it has been stated that mere generation of surplus cannot be a basis for rejection of application u/s 10 (23C) of the act. He therefore submitted that the learned CIT - E has acted in contravention of the above circular. x. He further referred to the object clause and stated that he has per paragraph number [4] of the order of the learned CIT exception has been taken that the activities may be extended to other activities, which are not educational. For this proposition he referred to paragraph number [4] of the order and stated that the clause itself is worded to say that the assessee would be organizing and conducting activities of English medium school from preprimary to standard 10th and activities may be extended to other activities with mutual consent of all the parties. However, it does not say that it will carry on any other activity other than the education. He further stated that assessee has always carried on educational activities with respect to the English medium school and its allied activities, which is eviden....
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.... upon by the learned CIT- E. 17. The provisions of Section 10 (23C) (vi) of The Act provides as Under:- 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- (23C) any income received by any person on behalf of- [(vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority; or 18. Thus, the above Section prescribes that any income of any university or other educational institutions, which are existing solely for educational purposes and are not existing for the purposes of profit, shall be exempt from tax if such entities are approved by the prescribed authority. The approval is not required in case of entities, which are substantially financed by the government, or their annual receipt does not exceed Rs. 1 Crore. Thus while granting approval to such entities, prescribed authority has to ensure that the applicant institutions must exist "solely for educational purposes....
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....ct. However for availing exemption u/s 10 (23C) (vi) does not require any such registration. Therefore for availing exemption u/s 10 (23C) there is no requirement for registration Under that Section. 21. The circular also provides that mere generation of surplus cannot be a basis for rejection of application u/s 10(23C) of the act. It further stated that if the surplus is used for educational purposes then the institution can be said to be existing for the purposes of the profit. 22. Honourable Delhi High court in [2018] 92 taxmann.com 132 (Delhi)/[2018] 255 Taxman 78 (Delhi) on provision of section 10 (23C) (vi) after analyzing several decision of Honourable Supreme court has laid down certain parameters for exemption as under:- "21. What emerges from the statutory provisions above, is that when any university or other educational institution exists solely for educational purposes and not for purposes of profit, by virtue of the procedure prescribed, such institutions will be liable to apply for exemption in calculating the total income for the previous year. It is fundamental, such educational institutions have an overarching motive that is educational and not prof....
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....ven if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit making or carrying out a charitable purpose. If it is the former, the purpose would not be a charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost." 23. Likewise, the test to determine the predominant objective was highlighted earlier, in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC), by the application of which it was to be adjudged whether the institution existed solely for education and not for profit. This point was re-iterated in Venu Charitable Society (supra) 246 Taxman 396 (Delhi) as follows: "18. The incidental carrying on of commercial activities is subject to certain conditions stipulated under the seventh proviso....
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....hether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity." 25. This critical test therefore has a conspicuous qualitative value; the of the objectives of the organization are to be determined not merely by the memorandum of objectives of the institution, but, also from the design of how the profits are being directed and utilized and if such application of profits uphold the "charitable purpose" of the organization (as postulated in section 2(15) of the Act) or if the objectives are marred by a profit making motive that emerges more as a business activity rather than an educational purpose. Section 10(23C)(vi) of the Act while guiding the manner of this determination also, provides a certain amount of discretion to the authority assessing the compliance to these conditions for ascertaining whether the requirements of the provision are met with. Such scrutiny is to be carried out every year, irrespective of any preceding pattern in the assessment of the previous years. This point was highlighted i....
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.... recognised as a "person" for the purpose of Income Tax Act, 1961 and Section 10(23C) of the Act also grants exemption to a person engaged in deriving income from specified sources including the University or Educational Institution, covered by this provision and on these facts, there is no dispute before us that the appellant Educational Institution was duly registered with the State Registered Authorities and was only engaged in the educational activities. Therefore, we do not find any reason to deny the exemption or registration under Section 10(23C) of the Act, which was denied by the learned Chief Commissioner. 10. In our opinion, the Tribunal has rightly discussed the relevant provisions of the Act and finding that the Appellant Educational Institution is undoubtedly, an "Institution" covered by the provisions of Section 10(23C) (vi) of the Act and therefore, as an AOP, it was entitled to exemption irrespective of the fact whether it had separate registration under other law as an Institution or Society or not. The requirement of the Applicant being a registered Body or juristic person is not there in Section 10(23C) of the Income Tax Act. The definition of 'Pers....
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.... case that the revenue does not have control over such entities and held that so long the assessee adheres to the parameters required to be satisfied Under that Section and is filing return of income for availing the exemption Under that provision, assessee is entitled for exemption. Further assessee also cannot be denied exemption merely in absence of any independent memorandum of Association/bylaws etc. In the case of the assessee before us, it is evident that undisputedly it is an association of two charitable trusts. Both these charitable trusts are also registered with the income tax authorities. Objects of Assessee / Appellant AOP is education. The Sharda Sikhshna Seva Samiti is a charitable trust registered Under the provisions of The Bombay Public Trust Act 1950 and registered since 24/5/1954. The Lodha trust is also a public trust registered Under The Bombay Public Trust Act 1950. This trust is also engaged in various charitable activities including educational activities and is operating schools at different places. These facts are already available in the management agreement entered into by the entities on 12th day of August 2014. Thus, There is evidence that both these....
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....23 in the assessee educational institution. Therefore, there is no distribution of profit amongst the members of the association of persons. 26. Further Honourable supreme court dismissing SLP of revenue against the decision of Honourable Delhi High court DIT (Exemption) v. Delhi Public School Society [2018] 92 taxmann.com 132/255 Taxman 78/403 ITR 49 (Delhi) in Director of Income-tax (Exemptions) vs Delhi Public Schools Society [2018] 100 taxmann.com 370 (SC) has held that that where assessee society was set up with object of imparting education and it had entered into franchise agreements with satellite schools and also used gains arising out of these agreements in form of franchisee fees for furtherance of educational purposes, it fulfilled requirements to qualify for exemption under section 10 (23C) (vi) of the Act. In the case before honourable Delhi High courts there were joint venture agreements with other association and franchisee fees are earned by that assessee. Thus even earning of franchisee fees and not running those schools directly by the assessee was allowed exemption u/s 10 (23C) (vi) of the Act, provided the surplus is used for educational purposes. The case o....
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....ssessee has earned educational fees and bank interest on fixed deposits. There is no other revenue earned by Assessee. The expenses incurred by the assessee are also met and are with respect to the educational activities only and running of the school. At the end of the year, gross receipt of Rs. 4,54,73,382/- was earned and surplus of Rs. 1,254,386/- remained which went into recoupment of the earlier loss of Rs. 1,634,128/-. The fixed assets schedule of the assessee also shows that it has created assets for education of Rs. 4,62,67,463/- out of the funds generated by the Association of person through its members. Therefore, it is apparent that mere generation of surplus in the income and expenditure account is not the basis for determination that whether the assessee exist not for the purposes of profit. If the surplus is utilized for educational activities then it cannot be said that it is an institution existing for the profit. In the present case, the surplus was utilized only for educational purposes. No evidences lead before us to show that any of the income earned by the assessee institution has been spent for non-educational purposes. This is in consonance with paragraph nu....