Bosco Educational Academy Pvt. Ltd.,New v. The Chief Commissioner Of Income Tax-Iii, The Income Tax Department

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved On 31.03.2021Pronounced On 16.06.2021 CORAM THE HONOURABLE MR.JUSTICE C.SARAVANAN W.P. No. 11828 of 2014andM.P.No. 1 of 2014 Bosco Educational Academy Pvt. Ltd.,New No.174, Old No.383,Madhavaram High Road,Madhavaram, Chennai – 600 060. Vs ... Petitioner 1.The Chief Commissioner of Income Tax-III, The Income Tax Department, 121, Mahatma Gandhi Road, Chennai – 600 034. 2.The Director of Income Tax (Exemptions), The Income Tax Department, 121, Mahatma Gandhi Road, Chennai – 600 034. 3.The Deputy Director of Income Tax (Exemptions) III, The Income Tax Department, 121, Mahatma Gandhi Road, Chennai – 600 034.... Respondents Prayer: Petition filed under Article 226 of the Constitutionof India to issue a Writ of Certiorarified Mandamus, to callfor the records of the petitioner on the file of the firstrespondent to quash the impugned order dated 31.12.2013 issuedin C.No.CCIT III/10(23C)/13-14 in refusing/rejecting the pleafor recognition sought for in terms of Section 10 (23C)(vi) ofthe Income Tax Act, 1961 from the assessment year 2010-11 andconsequently direct the second respondent to grant suchrecognition as prayed for. For Petitioner : Mr.S.Sridhar For Respondents : Ms.Hema Muralikrishnan Senior Standing Counsel https://hcservices.ecourts.gov.in/hcservices/ ORDER The petitioner has challenged the impugned order dated31.12.2013 passed by the 1[st] respondent/Chief Commissioner ofIncome Tax III, Chennai -34. 2. By the impugned order, the 1[st] respondent has rejectedthe application filed by the petitioner on 16.09.2010 beforethe Chief Commissioner of Income Tax I, claiming approval forthe purpose of Section 10 (23C)(vi) of the Income Tax Act,1961. The application was filed before the Chief Commissionerof Income Tax-I, Chennai, on the strength of NotificationNo.S.O.852 (E) dated 30.05.2007. 3. The petitioner claims that it was under a bonafideimpression that the application was to be filed in terms ofClause 8 of the said notification as Clause 3 to NotificationNo.S.O.852 (E) dated 30.05.2007 applied only to CharitableInstitutions. The application was eventually transferred tothe 1[st] respondent/Chief Commissioner of Income Tax-III,Chennai pursuant to which a Show Cause Notice dated 20.12.2013was issued to the petitioner. The aforesaid Show Cause Noticecalled upon the petitioner to show cause as to why theapplication filed by the petitioner should not be rejected forthe following five reasons:- “Whereas during the course of considerationof your application seeking exemption u/s 10(23C)(vi) of the Income-tax Act, 1961, forthe year 31.03.2010, filed in Form No.56 Don 16.9.2010 before the Commissioner ofIncome tax-I, Chennai and transferred andreceived in the office of Director of Incometax(Exemptions) Chennai on 21.12.2012, aswell as the report dated 18.12.2013 ofDirector of Income tax(Exemptions) Chennai,you are required to show cause as to why theapplication may not be rejected for thefollowing reasons: 1. The application in form No.56Dwas not filed on 16.09.2010 before theprescribed authority Chief Commissionerof Income tax-III, Chennai through theDirector of Income tax(Exemptions)Chennai; 2. A perusal of the objects clause(includingmainobjects,objectsincidental or ancillary to the attainmentof the main objects and other objects)shows that the institution is nothttps://hcservices.ecourts.gov.in/hcservices/existing solely for educational purposes and not for purposes of profit. 3. The institution cannot be said tobe existing not for purposes of profitsince the clauses 55 and 56 of theMemorandum of Association provide that incase of winding up, the excess shall bedistributed among the members inproportion to the capital paid up on theequity shares held by them. 2. A perusal of the objects clause(includingmainobjects,objectsincidental or ancillary to the attainmentof the main objects and other objects)shows that the institution is nothttps://hcservices.ecourts.gov.in/hcservices/existing solely for educational purposes and not for purposes of profit. 3. The institution cannot be said tobe existing not for purposes of profitsince the clauses 55 and 56 of theMemorandum of Association provide that incase of winding up, the excess shall bedistributed among the members inproportion to the capital paid up on theequity shares held by them. 4. On a perusal of annual accountsfor the financial years 2009-10 and 2010-11, it was noticed by the Deputy Directorof Income tax (Exemptions)-III, Chennaithat the institution has advanced anamount of Rs.70,43,005/- as buildingadvance for accommodating trustees andtherefore, the investment or deposit ofthe funds of the institution is not inaccordance with the third proviso tosection 10(23C). 5. It was noticed by the DeputyDirector of Income tax(Exemptions)-III,Chennai that there was a fall in grossreceipts of the institution fromRs.1,17,90,705/- in A.Y 2010-11 toRs.86,10,083/- in A.Y 2011-12 eventhoughthe student strength had increased andfor A.Y 2011-12, differences were noticedin the fees charges as per computation of gross fees receivedand fee receipts submitted and theinstitution failed to explain the same. 2. In view of the above discussionyou are requested to file your reply forthis show cause notice either by writtenrepresentation or in person/by theauthorized representative for whichpurpose an opportunity is given by way ofhearing on 27.12.2013(Friday) at 11.30a.m at Room No.316, 3[rd] Floor, AayakarBhavan (Main Building), Mahatma GandhiRoad, Nungambakkam, Chennai – 600034.” 4. The petitioner replied to the above Show Cause Noticewhich has culminated in the impugned order dated 31.12.2013.https://hcservices.ecourts.gov.in/hcservices/In the impugned order, the 1[st] respondent/Chief Commissioner of Income Tax-III, Chennai has accepted the reply of thepetitioner insofar as the reasons stated at Sl.Nos.4 & 5 areconcerned. The impugned order passed by the 1[st] respondent isnow sought to be assailed by the petitioner on the followingground and case laws. 5. As far as the first reason stated in the Show CauseNotice that application was not filed on 16.09.2010 before theprescribed authority within the meaning of NotificationNo.S.O.852 (E) dated 30.05.2007 is concerned, it is submittedthat the application was based on the understanding of theaforesaid notification and therefore there is no justificationin not considering the application in time by the authoritiesunder the Act. 6. It is submitted by the learned counsel for thepetitioner that even if the application had been wronglyfiled, it was an internal issue to be sorted out by eithercalling upon the petitioner to re-present the applicationbefore the appropriate authority or in the alternative totransfer it to the jurisdictional officer for disposing theapplication filed by the petitioner on 16.09.2010. However,the respondents took three precious years to transferapplication only to issue Show Cause Notice on 20.12.2013. 7. It is further submitted that the application wasfiled as early as 16.09.2010 and therefore it was incumbent onthe part of the Department to have transferred the file to thejurisdictional office of the 1[st] respondent even if thepetitioner had wrongly filed the same before the ChiefCommissioner of Income Tax I, Chennai under a bona fide beliefthat the application was to be filed as per clause (viii) ofNotification No.S.O.852(E) [No. 196/2007 (F No. 153/41/2007-TPL) dated 30.05.2007. Therefore, legitimate benefitsavailable to an assessee cannot be denied merely because therespondents took their own sweet will and time to adjudicatethe claim of the petitioner. 7. It is further submitted that the application wasfiled as early as 16.09.2010 and therefore it was incumbent onthe part of the Department to have transferred the file to thejurisdictional office of the 1[st] respondent even if thepetitioner had wrongly filed the same before the ChiefCommissioner of Income Tax I, Chennai under a bona fide beliefthat the application was to be filed as per clause (viii) ofNotification No.S.O.852(E) [No. 196/2007 (F No. 153/41/2007-TPL) dated 30.05.2007. Therefore, legitimate benefitsavailable to an assessee cannot be denied merely because therespondents took their own sweet will and time to adjudicatethe claim of the petitioner. 8. As far as the merits of the case is concerned, itis submitted that exemption under Section 10 (23 C) (vi) ofthe Income Tax Act, 1961, falls within chapter III of the saidAct which is titled as “Income Which Do Not Form Part of TotalIncome”. It is therefore submitted that under section 10,while computing the “total income” as defined in Section 2(40) of the Income Tax Act, 1961, certain categories of “income” as defined in section 2 (24) of a “person” as definedin section 2 (3) of the Income Tax Act, 1961 cannot beincluded. It is submitted that the petitioner was engagedonly in providing educational service and was not engagedgenerally in making profit, even if the Memorandum ofAssociation contains several clauses which may allow an it toengate in business to make profit, the benefit cannot behttps://hcservices.ecourts.gov.in/hcservices/denied. While computing the total income of the previous year of any person, certain categories of incomes have beenexcluded for the purpose by way of grant of relief undersection 10 of the Income Tax Act, 1961. 9. It is submitted that in terms of Section 10(23C) (vi)of the Income Tax Act, 1961, if there is a failure on the partof the respondents to dispose the application within a periodof one year, there is a Deemed approval and therefore thepetitioner is entitled for such approval for a period of threeyears as per the provision as it stood then. It is submittedthat as per the amendment to Section 10(23C) (vi) of theIncome Tax Act, 1961, once an approval is granted, theapproval is to operate in perpetuity and unless circumstanceswarranting the cancellation of approval arise, it cannot bedisturbed. In this connection, a reference is made to thedecision of the Allahabad High Court in Society for thePromotion of Education, Allahabad Vs Commissioner of Income-tax, Central, Kanpur, 372 ITR 222, wherein, the Court revisedthe concept of deemed registration. 10. It is submitted that though the said decision ofthe Allahabad High Court in Society for the Promotion ofEducation, Allahabad (Referred to supra) was questioned and a reference was made tothe Division Bench of the Allahabad High Court by an orderdated 05.08.2013 and the Full Bench of the Allahabad HighCourt has answered the issue against the assessee by its orderin Commissioner of Income-tax Vs Muzafar Nagar DevelopmentAuthority, 372 ITR 209 on 05.02.2015, the decision of theDivision Bench of the Allahabad High Court rendered on03.04.2008 in Society for the Promotion of Education,Allahabad Vs Commissioner of Income-tax, Central, Kanpur, 372ITR 222 was upheld by the Hon'ble Supreme Court inCommissioner of Income-tax, Kanpur Vs Society for Promotion ofEducation, Allahabad by its order dated 16.02.2016, 382 ITR 6. (Referred to supra) was questioned and a reference was made tothe Division Bench of the Allahabad High Court by an orderdated 05.08.2013 and the Full Bench of the Allahabad HighCourt has answered the issue against the assessee by its orderin Commissioner of Income-tax Vs Muzafar Nagar DevelopmentAuthority, 372 ITR 209 on 05.02.2015, the decision of theDivision Bench of the Allahabad High Court rendered on03.04.2008 in Society for the Promotion of Education,Allahabad Vs Commissioner of Income-tax, Central, Kanpur, 372ITR 222 was upheld by the Hon'ble Supreme Court inCommissioner of Income-tax, Kanpur Vs Society for Promotion ofEducation, Allahabad by its order dated 16.02.2016, 382 ITR 6. 11. The learned counsel for the petitioner furthersubmits that the Karnataka High Court in Director of Income-tax (Exemptions) Vs ST.Ann's Education Society, 425 ITR 642and Kerala High Court in Commissioner of Income-tax, Cochin VsTBI Education Trust, 96 Taxmann.Com 356 have also discussedthe implication of the above development and has grantedrelief to the institutions and therefore it is submitted thatthe petitioner is entitled to deemed approval in terms ofSection 10(23C)(vi) of the Income Tax Act, 1961. 12. As far the issue No.2 is concerned, the learnedcounsel for the petitioner relied on the following decisions:-“ (i) Queen's Educational Society VsCommissioner of Income-tax, 372 ITR 699SC. https://hcservices.ecourts.gov.in/hcservices/ (ii) Pinegrove International CharitableTrust Vs Union of India, 327 ITR 73.(iii) Tolani Education Society Vs DeputyDirector of Income-tax (Exemptions)-I(2),Mumbai, 351 ITR 184.(iv) Hindustan Engineering Training CentreVs CCIT in W.P.Nos.9510 & 9511 of 2011.(v) Tamil Nadu Kalvi Kapu Arakkattalai VsCCIT in W.P.No.4320 of 2011.(vi) Tamil Nadu Kalvi Kapu Arakkattalai VsCCIT in W.A.No.18 of 2015.(vii) Allahabad Young Mens ChristianAssociation Vs Chief Commissioner of Income-tax, 371 ITR 23.(viii) New Noble Educational Society VsChief Commissioner of Income-tax, 334 ITR 303.(ix) C.P.Vidya Niketan Inter CollegeShikshan Society Vs Union of India, 359 ITR322.(x) Geetanjali Education Society VsAssistant Director of Income-tax,(Exemptions), [2014] 45 Taxmann.com 206. (xi) Neeraj Janhitkari Gramin SewaSansthan Vs Chief Commissioner of Income-tax,360 ITR 168.(xii) Maa Saraswati Educational Trust VsUnion of India, 353 ITR 312.(xiii) Vanita Vishram Trust Vs ChiefCommissioner of Income-tax, 327 ITR 121.(xiv) Commissioner of Income-tax VsA.M.M.Arunachalam Educational Society, 243 ITR229.(xv) Commissioner of Income-Tax Vs VidyaVikas Vihar, 265 ITR 489.(xvi) Digember Jain Society for ChildWelfare Vs Director General of Income-tax(Exemptions), 329 ITR 459.” 13. The learned counsel for the petitioner submittedthat the approval cannot be rejected merely on the ground ofcertain clause from the Memorandum of Articles of Association.He submits that the approval only can be denied if anyactivity carried out by an educational institutions wascontrary to Section 10 (23C)(vi) of the Income Tax Act, 1961.It has to be examined by the Assessing Officer only whilescrutinizing the returns whether the approval has to becontinued or rejected and therefore prays for allowing thewrit petition. 14. The learned counsel for the petitioner furthersubmitted that the object clause in the Memorandum ofAssociation by itself will not determine whether thehttps://hcservices.ecourts.gov.in/hcservices/Educational Institutions is entitled or dis-entitled for approval under the aforesaid provision of the Income Tax Act,1961. It is further submitted that surplus generated byeducational institutions like the petitioner was only incidental and such surpluscannot be construed as profit. 14. The learned counsel for the petitioner furthersubmitted that the object clause in the Memorandum ofAssociation by itself will not determine whether thehttps://hcservices.ecourts.gov.in/hcservices/Educational Institutions is entitled or dis-entitled for approval under the aforesaid provision of the Income Tax Act,1961. It is further submitted that surplus generated byeducational institutions like the petitioner was only incidental and such surpluscannot be construed as profit. 15. It is further submitted that clause 51 & 52 ofthe Articles of Association of the petitioner's companyclearly prohibited the petitioner's company from distributingsurplus generated in any year by way of dividend or bonusshares implying surplus generated by the educationalinstitutions was to be only ploughed back for educationalpurpose and therefore the petitioner was entitled to approvalunder the aforesaid provisions. 16. As far as the 3[rd] objection in the Show Cause Noticedated 20.12.2013 is concerned, it is submitted that thepetitioner cannot be said to be existing for education purposeof making profit based on clause 55 & 56 of the Memorandum ofAssociation. It is submitted that the petitioner has given anundertaking before the 1[st] respondent that both the clauseswould be amended and therefore the presence of such clausesneed not be considered to draw an inference that thepetitioner existed to make profit as there is not a singleinstance of any diversion of the fund for any other business. 17. On facts it is submitted that even if the Memorandumof Association of the company deals with any other businessactivity for profit, exemption to an educational institutionestablished for educational purpose cannot be denied inabsence of profit and it has to be proved. 18. It is further submitted that under Section 10 (23 C)(vi) of the Income Tax Act, 1961, any income generated by aUniversity or other educational institutions existing solelyfor educational purposes and not for purposes of profit, otherthan those mentioned in sub-clause (iiii ab) or sub-clause(iii ad) is to be proved by the prescribed authority. 19. Countering the arguments advanced by the learnedcounsel for the petitioner, the learned senior standingcounsel for the respondents submits that the decision of theSociety for the Promotion of Education, Allahabad VsCommissioner of Income-tax, Central, Kanpur, 372 ITR 222 hadbeen impliedly overruled after the Full Bench of the AllahabadHigh Court which took a difference view on 05.02.2015 pursuantto a reference made on 05.08.2013 in Commissioner of Income-tax Vs Muzafar Nagar Development Authority, 372 ITR 209 andtherefore the petitioner cannot place reliance on the saiddecision of the Allahabad High Court in the above case. Shefurther submits that the subsequent disposal of the appeal bythe Hon'ble Supreme Court against the decision of the DivisionBench of the Allahabad High Court in Society for the Promotionhttps://hcservices.ecourts.gov.in/hcservices/of Eduction, Allahabad Vs Commissioner of Income-tax, 372 ITR 222 vide its order dated 16.02.2016 in Commissioner of Income-tax, Kanpur Vs Society for Promotion of Education, Allahabadby its order dated 16.02.2016, 382 ITR 6 cannot be said to bea binding proceedings inasmuch as there is no discussion onthe law by the Hon'ble Supreme Court. 20. It is further submitted that, since the petitionerfailed to file application before the appropriate authority intime, the petitioner was not entitled to claim deemedapproval. Coming to the 2[nd] issue, it was submitted thatc thepetitioner was having several verticals and only one of thevertical was for providing education. It showed that thepetitioner was not existing solely for the educationalpurposes and was incorporated for the purposes of profit andtherefore did not satisfy the requirements of Section 10(23C)(vi) of the Income Tax Act, 1961. 20. It is further submitted that, since the petitionerfailed to file application before the appropriate authority intime, the petitioner was not entitled to claim deemedapproval. Coming to the 2[nd] issue, it was submitted thatc thepetitioner was having several verticals and only one of thevertical was for providing education. It showed that thepetitioner was not existing solely for the educationalpurposes and was incorporated for the purposes of profit andtherefore did not satisfy the requirements of Section 10(23C)(vi) of the Income Tax Act, 1961. 21. Rebutting the other submission of the learnedcounsel for the petitioner, the learned senior standingcounsel for the respondents/Income Tax Department furthersubmitted that the petitioner has several verticals and theobject clause of the petitioner's company was decisive towhether the petitioner was entitled to approval under Section10(23C)(vi) of the Income Tax Act, 1961. In this connection,the learned counsel for the petitioner places reliance on thefollowing three decisions:- “ (i) Sir Shadilal Sugar & General MillsLtd and another Vs CIT, (1987) 168 ITR 705(SC) 22. She further submits that undertaking to delete theclauses from the Articles Association is not sufficient andtherefore the relevant clause as it stood at the time offiling of the application was to be looked into and thereforesubmits that the impugned order passed by the 1[st] respondentwas liable to be sustained and the writ petition filed by thepetitioner has to be rejected. 23. It is submitted that the application dated 16.09.2010ought to have been filed with the Chief Commissioner of IncomeTax, Chennai III in the 1[st] instance as per NotificationNo.S.O.852(E) [No. 196/2007 (F.No.153/41/2007-TPL) dated30.05.2007 Notification No.S.O.880(E) dated 14.09.2001. https://hcservices.ecourts.gov.in/hcservices/ 24. The learned counsel submitted that there was no errorin the impugned order passed by the 1[st] respondent as thepetitioner failed to file the application before theprescribed authority namely the 1[st] respondent in the 1[st]instance and instead filed it before the Chief Commissioner ofIncome Tax-I, Chennai merely because the petitioner wasassessed under the jurisdiction of the 1[st] respondent. 25. The learned Senior standing counsel for therespondents also placed reliance on the decision of this Courtin Raja Sir Annamalai Chettiar Trust Vs K.Mahadevan, 160Taxman 128. 26. Heard the learned counsel for the petitioner andthe learned senior standing counsel for the respondents/IncomeTax Department. I have perused the decisions of the courtswhich were cited during the course of hearing. 27. The facts in brief for a fair disposal of the caseis narrated hereinafter. The petitioner is the companyincorporated in the year 1992 and is primarily engaged inrunning school. The main objects of the petitioner as per theMemorandum of Association are varied. They are reproducedbelow:-“III. (A) The main objects to be pursued bythe Company on its incorporation are:1. To plan, organize, establish, getrecognized,administer,run,maintain,supervise, incorporate, amalgamate, take overand manage educational institutions of alllevels, all types and all categories whetherformal or informal and to use various methodsand systems. 2. To carry on research and development,to offer consultancy services, and to educateand offer training in all fields ........” 28. The other objects of the petitioner as per theMemorandum of Association are as follows:- “III.(C) other objects: 1. To impart training to students in varioushobbies like music, singing, dancing, carpentry,pottery, sculpturing, stitching, tailoring,embroidery and doll making. 2. To establish and run all types ofrecreational centres for all round development ofhttps://hcservices.ecourts.gov.in/hcservices/students and others. 2. To carry on research and development,to offer consultancy services, and to educateand offer training in all fields ........” 28. The other objects of the petitioner as per theMemorandum of Association are as follows:- “III.(C) other objects: 1. To impart training to students in varioushobbies like music, singing, dancing, carpentry,pottery, sculpturing, stitching, tailoring,embroidery and doll making. 2. To establish and run all types ofrecreational centres for all round development ofhttps://hcservices.ecourts.gov.in/hcservices/students and others. 3. To carry on the business of forwardingagents, establishing and maintain transportservices and so on and make transport facilitiesavailable to all those connected with any of ourinstitutions/projects/company. 4. To establish, erect, build, managecanteen, refreshment stalls and fast food centres. 5. To impart education and training inacting, direction, photography and music relatedto film industry and video industry.6. To buy, sell act as marketing Agents forthe products produced by the training centres,educationalinstitutions,employment-relatedprojects, social welfare agencies. 7. To carry on the business of printers,engravers, publishers, book-printers and book-sellers,stationers,artjournalists,manufacturers and distributors of and dealers inengravings, prints, pictures, drawings, painting,journals, magazines and any written, engraved,painted or printed production in all theirbranches and aspects. 8. To carry on and do the business as landdevelopers, township developers, satellite townpromoters, developers of housing colonies, realestate dealers by developing and taking intoaccount any land acquired by the Company or inwhich it is interested or may get interested andin particular by laying out, providingconveniences like roads, drainages, playgrounds,recreationfacilities,cinematheatres,constructingresidentialorcommercialaccommodations and selling them on ownershipbasis, hire purchase basis or letting them out onlease or rental basis.9. To carry on the business of engineers,builders, contractors, consulting engineers,architects and designers, fabrication engineers,moulders, mechanical engineers and electricalengineers in relation to the objects mentionedabove.” 29. For the purpose of implementing the requirement ofsub-clauses (vi) and (vi-a) of clause (23-C) of Section 10Section, Rule 2-CA of the Income Tax Rules, 1962, has beenprovided. It reads as follows:-https://hcservices.ecourts.gov.in/hcservices/ “2-CA. Guidelines for approval under sub-clauses (vi) and (vi-a) of clause (23-C) ofSection 10.— (1) The prescribed authority under sub-clauses(vi) and (vi-a) of clause (23-C) of Section 10shall be the Chief Commissioner or DirectorGeneral, to whom the application shall be madeas provided in sub-rule (2). (1-A) The prescribed authority under sub-clauses (vi) and (vi-a) of clause (23-C) ofSection 10 shall be the Central Board ofDirect Taxes constituted under the CentralBoards of Revenue Act, 1963 (54 of 1963) forapplications received prior to the 3rd day ofApril, 2001: Provided that in case of applications receivedprior to the 3rd day of April, 2001 where noorder has been passed granting approval orrejecting the applications as on the 31st dayof May, 2007, the prescribed authority undersub-clauses (vi) and (vi-a) of clause (23-C)of Section 10 shall be the Chief Commissioneror Director General. (2) An application for approval shall be madein Form No. 56-D by any university or othereducational institution or any hospital orother medical institution referred to in sub-clause (vi) or sub-clause (vi-a) of clause(23-C) of Section 10. Provided that in case of applications receivedprior to the 3rd day of April, 2001 where noorder has been passed granting approval orrejecting the applications as on the 31st dayof May, 2007, the prescribed authority undersub-clauses (vi) and (vi-a) of clause (23-C)of Section 10 shall be the Chief Commissioneror Director General. (2) An application for approval shall be madein Form No. 56-D by any university or othereducational institution or any hospital orother medical institution referred to in sub-clause (vi) or sub-clause (vi-a) of clause(23-C) of Section 10. (3) The approval of the Central Board ofDirect Taxes or Chief Commissioner or DirectorGeneral, as the case may be, granted beforethe 1st day of December, 2006 shall at any onetime have effect for a period not exceedingthree assessment years. Explanation.—For the purposes of this rule,‘Chief Commissioner or Director General’ meansthe Chief Commissioner or Director Generalwhom the Central Board of Direct Taxes may,authorise to act as prescribed authority, forthe purposes of sub-clause (vi) or sub-clause(vi-a) of clause (23-C) of Section 10, inrelation to any university or othereducational institution or any hospital orother medical institution.” https://hcservices.ecourts.gov.in/hcservices/ 30. The petitioner had earlier approached the ChiefCommissioner of Income Tax-I on a mis-reading of the contentof Notification No. S.O.852 (E) dated 20.5.2007 on 16.9.2010for grant of recognition/approval under Section 10(23C)(vi) ofthe Income Tax Act, 1961. 31. The application was thereafter transferred to the1[st] respondent belatedly. The 1[st] respondent who is thejurisdictional authority as far as the petitioner is concernedfor grant of recognition/approval under Section 10(23C)(vi) ofthe Income Tax Act, 1961. The 1[st] respondent thereafter issuedshow cause notice dated 20.12.2013. The 1[st] respondent hasrejected the application of the petitioner vide impugned orderwhich is now put to test before this Court. 32. Relevant part of Section 10(23 C) (vi) of the IncomeTax 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 incomefalling within any of the following clausesshall not be included—1…………………..……………………. (23C) any income received by any person onbehalf of— (i)……………..ii) …………………….iii) ……………………….. (iiiab) any university or other educationalinstitution existing solely for educationalpurposes and not for purposes of profit, andwhich is wholly or substantially financed bythe Government; or https://hcservices.ecourts.gov.in/hcservices/(iiiac) ……………….. (iiiad) any university or other educationalinstitution existing solely for educationalpurposes and not for purposes of profit if theaggregate annual receipts of such universityor educational institution do not exceed theamount of annual receipts as may beprescribed; or ………………………. (vi) any university or other educationalinstitution existing solely for educationalpurposes and not for purposes of profit, otherthan those mentioned in sub-clause (iiiab)or sub-clause (iiiad) and which may beapproved by the prescribed authority; or Provided that the fund or trust or institutionor any university or other educationalinstitution or any hospital or other medicalinstitution referred to in sub-clause (iv) orsub-clause (v) or sub-clause (vi) or sub-clause (via) shall make an application in theprescribed form and manner to the prescribedauthority for the purpose of grant of theexemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) or sub-clause(vi) or sub-clause (via) : ………………………. (vi) any university or other educationalinstitution existing solely for educationalpurposes and not for purposes of profit, otherthan those mentioned in sub-clause (iiiab)or sub-clause (iiiad) and which may beapproved by the prescribed authority; or Provided that the fund or trust or institutionor any university or other educationalinstitution or any hospital or other medicalinstitution referred to in sub-clause (iv) orsub-clause (v) or sub-clause (vi) or sub-clause (via) shall make an application in theprescribed form and manner to the prescribedauthority for the purpose of grant of theexemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) or sub-clause(vi) or sub-clause (via) : Provided further that the prescribedauthority, before approving any fund or trustor institution or any university or othereducational institution or any hospital orother medical institution, under sub-clause(iv) or sub-clause (v) or sub-clause (vi) orsub-clause (via), may call for such documents(including audited annual accounts) orinformation from the fund or trust orinstitution or any university or othereducational institution or any hospital orother medical institution, as the case may be,as it thinks necessary in order to satisfyitself about the genuineness of the activitiesof such fund or trust or institution or anyuniversity or other educational institution orany hospital or other medical institution, asthe case may be, and the compliance of suchrequirements under any other law for the timebeing in force by such fund or trust orinstitution or any university or othereducational institution or any hospital orother medical institution, as the case may be,as are material for the purpose of achieving https://hcservices.ecourts.gov.in/hcservices/ its objects and the prescribed authority mayalso make such inquiries as it deems necessaryin this behalf: Provided also that the fund or trust orinstitution or any university or othereducational institution or any hospital orother 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 forapplication, wholly and exclusively to theobjects for which it is established and in acase where more than fifteen per cent of itsincome is accumulated on or after the 1st day of April, 2002, the period of the accumulationof the amount exceeding fifteen per cent ofits 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 orinstitution or any university or othereducational institution or any hospital orother medical institution where such assetsform part of the corpus of the fund, trust orinstitution or any university or othereducational institution or any hospital orother medical institution as on the 1st day ofJune, 1973; (ia) any asset, being equity shares of apublic company, held by any university orother educational institution or any hospitalor other medical institution where such assetsform part of the corpus of any university orother educational institution or any hospitalor other medical institution as on the 1st dayof June, 1998; (ii) any assets (being debentures issued by,or on behalf of, any company or corporation),acquired by the fund, trust or institution oranyuniversityorothereducationalinstitution or any hospital or other medicalinstitution before the 1st day of March, 1983; (iii)any accretion to the shares, forming partof the corpus mentioned in sub-clause (i) https://hcservices.ecourts.gov.in/hcservices/ and sub-clause (ia), by way of bonus sharesallotted to the fund, trust or institutionor any university or other educationalinstitution or any hospital or other medicalinstitution ; (ii) any assets (being debentures issued by,or on behalf of, any company or corporation),acquired by the fund, trust or institution oranyuniversityorothereducationalinstitution or any hospital or other medicalinstitution before the 1st day of March, 1983; (iii)any accretion to the shares, forming partof the corpus mentioned in sub-clause (i) https://hcservices.ecourts.gov.in/hcservices/ and sub-clause (ia), by way of bonus sharesallotted to the fund, trust or institutionor any university or other educationalinstitution or any hospital or other medicalinstitution ; (iv)voluntary contributions received andmaintained in the form of jewellery,furniture or any other article as the Boardmay, by notification in the OfficialGazette, specify, (v) for any period during the previous yearotherwise than in any one or more of the formsor modes specified in sub-section (5) ofsection 11. Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not bedenied in relation to any funds invested ordeposited before the 1st day of April, 1989,otherwise than in any one or more of the formsor modes specified in sub-section (5) ofsection 11 if such funds do not continue toremain so invested or deposited after the 30thday of March, 1993 : Provided also that the exemption under sub-clause (vi) or sub-clause (via) shall not bedenied in relation to any funds invested ordeposited before the 1st day of June, 1998,otherwise than in any one or more of the formsor modes specified in sub-section (5) ofsection 11 if such funds do not continue toremain so invested or deposited after the 30thday of March, 2001: Provided also that the exemption under sub-clause (iv) or sub-clause (v) or sub-clause(vi) or sub-clause (via) shall not be deniedin relation to voluntary contribution, otherthan voluntary contribution in cash orvoluntary contribution of the nature referredto in clause (b) of the third proviso to thissub-clause, subject to the condition that suchvoluntary contribution is not held by thetrust or institution or any university orother educational institution or any hospitalor other medical institution, otherwise thanin any one or more of the forms or modesspecified in sub-section (5) of section 11, https://hcservices.ecourts.gov.in/hcservices/ after the expiry of one year from the end ofthe previous year in which such asset isacquired 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 inrelation to any income of the fund or trust orinstitution or any university or othereducational institution or any hospital orother medical institution, being profits andgains of business, unless the business isincidental to the attainment of its objectivesand separate books of account are maintainedby it in respect of such business: Provided also that any notification issued bythe Central Government under sub-clause (iv)or sub-clause (v), before the date on whichthe Taxation Laws (Amendment) Bill, 2006receives the assent of the President, shall,at any one time, have effect for suchassessment year or years, not exceeding threeassessment years (including an assessment yearor years commencing before the date on whichsuch notification is issued) as may bespecified in the notification: Provided also that any notification issued bythe Central Government under sub-clause (iv)or sub-clause (v), before the date on whichthe Taxation Laws (Amendment) Bill, 2006receives the assent of the President, shall,at any one time, have effect for suchassessment year or years, not exceeding threeassessment years (including an assessment yearor years commencing before the date on whichsuch notification is issued) as may bespecified in the notification: Provided also that where an application underthe first proviso is made on or after the dateon which the Taxation Laws (Amendment) Bill,2006 receives the assent of the President,every notification under sub-clause (iv) orsub-clause (v) shall be issued or approvalunder sub-clause (iv) or sub-clause (v) orsub-clause (vi) or sub-clause (via) shall begranted or an order rejecting the applicationshall be passed within the period of twelvemonths from the end of the month in which suchapplication was received:Provided also that where the total income, ofthe fund or trust or institution or anyuniversity or other educational institution orany hospital or other medical institutionreferred to in sub-clause (iv) or sub-clause(v) or sub-clause (vi) or sub-clause (via),without giving effect to the provisions of thesaid sub-clauses, exceeds the maximum amountwhich is not chargeable to tax in any previousyear, such trust or institution or anyuniversity or other educational institution or https://hcservices.ecourts.gov.in/hcservices/ any hospital or other medical institutionshall get its accounts audited in respect ofthat year by an accountant as defined in theExplanation below sub-section (2) of[24][section 288 before the specified datereferred to in section 44AB and furnish bythat date], the report of such audit in theprescribed form duly signed and verified bysuch accountant and setting forth suchparticulars as may be prescribed: Provided also that any amount of donationreceived by the fund or institution in termsof clause (d) of sub-section (2) of section80G in respect of which accounts of income andexpenditure have not been rendered to theauthority prescribed under clause (v) of sub-section (5C) of that section, in the mannerspecified in that clause, or which has beenutilised for purposes other than providingrelief to the victims of earthquake in Gujarator which remains unutilised in terms of sub-section (5C) of section 80G and nottransferred to the Prime Minister's NationalRelief Fund on or before the 31st day ofMarch, 2004 shall be deemed to be the incomeof the previous year and shall accordingly becharged to tax: Provided also that any amount credited or paidout of income of any fund or trust orinstitution or any university or othereducational institution or any hospital orother medical institution referred to (iv) orsub-clause (v) or sub-clause (vi) or sub-clause (via), to any trust or institutionregistered under section 12AA, being voluntarycontribution made with a specific directionthat they shall form part of the corpus of thetrust or institution shall not be treated asapplication of income to the objects for whichsuch fund or trust or institution oruniversity or educational institution orhospital or other medical institution, as thecase may be, is established: Provided also that for the purposes ofdetermining the amount of application underitem (a) of the third proviso, the provisionsof sub-clause (ia) of clause (a) of section 40and sub-sections (3) and (3A) of section 40A,shall, mutatis mutandis, apply as they applyin computing the income chargeable under the https://hcservices.ecourts.gov.in/hcservices/ head "Profits and gains of business orprofession": Provided also that for the purposes ofdetermining the amount of application underitem (a) of the third proviso, the provisionsof sub-clause (ia) of clause (a) of section 40and sub-sections (3) and (3A) of section 40A,shall, mutatis mutandis, apply as they applyin computing the income chargeable under the https://hcservices.ecourts.gov.in/hcservices/ head "Profits and gains of business orprofession": Provided also that where the fund or trust orinstitution or any university or othereducational institution or any hospital orother medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause(vi) or sub-clause (via) does not apply itsincome during the year of receipt andaccumulates it, any payment or credit out ofsuch accumulation to any trust or institutionregistered under section 12AA or to any fundor trust or institution or any university orother educational institution or any hospitalor other medical institution referred to insub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not betreated as application of income to theobjects for which such fund or trust orinstitution or university or educationalinstitution or hospital or other medicalinstitution, as the case may be, isestablished : Provided also that where the fund orinstitution referred to in sub-clause (iv) ortrust or institution referred to in sub-clause(v) is notified by the Central Government oris approved by the prescribed authority, asthe case may be, or any university or othereducational institution referred to in sub-clause (vi) or any hospital or other medicalinstitution referred to in sub-clause (via),is approved by the prescribed authority andsubsequently that Government or the prescribedauthority is satisfied that— (i) such fund or institution or trust or anyuniversity or other educational institution orany hospital or other medical institution hasnot— (A) applied its income in accordance with theprovisions contained in clause (a) of thethird proviso; or (B) invested or deposited its funds inaccordance with the provisions contained inclause (b) of the third proviso; or (ii) the activities of such fund orinstitution or trust or any university or https://hcservices.ecourts.gov.in/hcservices/ other educational institution or any hospitalor other medical institution— (A) are not genuine; or (B) are not being carried out in accordancewith all or any of the conditions subject towhich it was notified or approved; or (iii) such fund or institution or trust or anyuniversity or other educational institution orany hospital or other medical institution hasnot complied with the requirement of any otherlaw for the time being in force, and theorder, direction or decree, by whatever namecalled, holding that such non-compliance hasoccurred, has either not been disputed or hasattained finality, it may, at any time after giving a reasonableopportunity of showing cause against theproposed action to the concerned fund orinstitution or trust or any university orother educational institution or any hospital