Chandigarh Manav Vikas Trust v. Chief Commissioner Of Income Tax, Ayakr Bhawan, Paota Croad, Jodhpur

HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR D.B. Civil Writ Petition No. 3487/2014 Chandigarh Manav Vikas Trust C/o Chandigarh Hospital, OppositeBus Stand, Hanumangarh Junction. ----Petitioner Versus 1. Chief Commissioner Of Income Tax, Ayakr Bhawan, Paota CRoad, Jodhpur. 2. Commissioner of Income Tax, Rani Bazar, Bikaner. 3. Income Tax Officer, Ward-I, Hanumangarh. ----Respondents HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI HON'BLE MR. JUSTICE MUNNURI LAXMAN Judgment Reserved on 28/02/2024Pronounced on 07/03/2024 1.This writ petition under Articles 226 & 227 of theConstitution of India has been preferred claiming the followingreliefs: “It is, therefore, humbly prayed that the Writ Petitionmay kindly be allowed and by an appropriate, order ordirection:- (i) the impugned Order dated 26/11/2023 (Annexure 13)passed by Respondent No.1, Chief Commissioner of Income Tax, Jodhpur may be quashed and set-aside. (ii) respondent may be directed to issue RegistrationCertificate to the Petitioner Trust. (iii) Any other order or direction which this Hon’ble Courtdeems just and proper may kindly be passed.” 2.The petitioner is a Charitable Trust, registered with the Sub-Registrar, Hanumangarh on 28.11.2023 and with DevasthanDepartment, Bikaner on 22.12.2009. The petitioner is alsoregistered as a Society under Section 12(A) of the Income TaxAct, 1961 (hereinafter referred to as ‘Act of 1961’). Owing to suchdual nomenclature of the petitioner i.e. Trust as well as Society, itshall be henceforth referred in the present judgment as ‘thepetitioner’ only. 2.1. Thereafter the petitioner had filed an application on28.09.2012 seeking exemption under Section 10 (23C) (vi) of theAct of 1961 in the prescribed Form No. 56D for the year 2011-12before the Office of Commissioner of Income Tax, Bikaner, RangeBikaner, and the said application was forwarded to the officer ofthe respondent-Chief Commissioner. Thereafter, due to certaindefects/discrepancies in the application, the petitioner filed a freshapplication and the same was considered, while also keeping intoconsideration the aspect of limitation. 2.2. Subsequently, during the proceedings, the respondent no.3issued a communication dated 28.01.2013, the petitioner wasasked to furnish certain documents in relation to the application inquestion, and was further asked information regarding theeducational institution. The petitioner submitted a reply to the saidcommunication. Thereafter, the respondents issued acommunication and asked the petitioner to appear in personalongwith certain documents, pursuant to which the petitioner hasput in his appearance, and furnished the required information. Therespondents also issued another communication dated 14.08.2013 to the petitioner, and again called upon him to furnish certaininformation, as mentioned in the said communication. 2.3Thereafter, the respondents vide the impugned order dated26.11.2013 rejected the petitioner’s application for granting theexemption under Section 10 (23C) (vi) of the Act of 1961. 3.Learned counsel for the petitioner submitted that thepetitioner is engaged solely in the educational purposes, andtherefore, the petitioner falls under Section 10 (23C) (vi) of theAct of 1961. 3.1. It was further submitted that the respondents issued variousquery letters to the petitioner and the petitioner acted upon eachand every such letter and provided the requisite information, tothe satisfaction of the respondents, to the effect that thepetitioner is engaged exclusively in imparting of education and noother purpose is being carried out by the petitioner, and therefore,the impugned order is not justified in law. 3.Learned counsel for the petitioner submitted that thepetitioner is engaged solely in the educational purposes, andtherefore, the petitioner falls under Section 10 (23C) (vi) of theAct of 1961. 3.1. It was further submitted that the respondents issued variousquery letters to the petitioner and the petitioner acted upon eachand every such letter and provided the requisite information, tothe satisfaction of the respondents, to the effect that thepetitioner is engaged exclusively in imparting of education and noother purpose is being carried out by the petitioner, and therefore,the impugned order is not justified in law. 3.2. It was also submitted that in the impugned order, a findingwas recorded regarding the figures of surplus of income over andabove the expenditure to infer that the petitioner is being run forthe purpose of profits, but even for carrying on an educationinstitution for charity, some surplus is bound to follow for variousreasons, and therefore, the impunged action of the respondents innot extending the exemption to the petitioner is arbitrary andillegal, and thus, the impugned order deserves to be quashed andset aside. 3.3. In support of such submissions, learned counsel relied uponthe following judgments : (a) Queen’s Educational Society Vs Commissioner of Income Tax(2015) 8 SCC 47; (b) Delhi Bureau of Text Books Vs Director of Income Tax (E)(ITA 807, 810, 811/2015 decided on 03.05.2017) by the Hon’bleHigh Court of Delhi; (c) C.P. Vidya Niketan Inter College Shikshan Society Vs Union ofIndia & Ors. (Civil Misc. Writ Petition No.1185/2011, decided on16.10.2012) by the Hon’ble High Court of Allahabad; (d) Neeraj Janhitkari Gramin Sewa Sansthan Vs ChiefCommissioner of Income Tax & Ors. (Writ Tax No.1714/2010,decided on 04.07.2013) by the Hon’ble High Court of Allahabad;and (e)Indus Technical Education Society Vs Union of India & Ors.(Civil Misc. Writ Petition (Tax) No.447/2012, decided on18.12.2015) by the Hon’ble High Court of Allahabad. 4.On the other hand, learned counsel appearing on the behalfof the respondents, while opposing the aforesaid submissionsmade on behalf on the petitioner, submitted that the petitionerdoes not fall under Section 10 (23C) (vi) of the Act of 1961 for thepurposes of exemption, because the surplus being generated isnot incidental to educational purposes. 4.1. It was further submitted that the petitioner is being run oncommercial lines, as it is evident by the expenditure incurred onthe advertisement by the petitioner during the financial year2008-09, amounting to Rs. 41,074/-; an institution, like acoaching center or a private school, which is being run with the business/profitable purposes does not come under the exemption category. 4.2. It was also submitted that for grant of exemption underSection 10 (23C) (vi) of the Act of 1961, it is required that theinstitution concerned is engaged solely in the education purposesand the word ‘solely’ here means ‘exclusively’, meaning thereby,the sole object of the charitable institution must be pertaining toimparting education, as has been held by the Hon’ble Apex Courtin case of The Sole Trustee, Lok Shikshana Trust Vs The Commissioner of Income Tax, Mysore (1976) 1 SCC 254. 5.Heard learned counsel of the parties as well as perused therecord of the case alongwith the judgments cited at the Bar. 6.This Court observes that the petitioner, owing to it being aregistered Trust, filed an application seeking the exemption underSection 10 (23C) (vi) of the Act of 1961 in the prescribed FormNo. 56D for the year 2011-12 before the respondents; whereafter,during the proceedings in question, the respondent no.3 issuedvarious communications to the petitioner calling upon it to furnishcertain documents in relation to the application in question, whichas per the petitioner was duly furnished. Subsequently, therespondents vide the impugned order dated 26.11.2013 rejectedthe petitioner’s application in question. Commissioner of Income Tax, Mysore (1976) 1 SCC 254. 5.Heard learned counsel of the parties as well as perused therecord of the case alongwith the judgments cited at the Bar. 6.This Court observes that the petitioner, owing to it being aregistered Trust, filed an application seeking the exemption underSection 10 (23C) (vi) of the Act of 1961 in the prescribed FormNo. 56D for the year 2011-12 before the respondents; whereafter,during the proceedings in question, the respondent no.3 issuedvarious communications to the petitioner calling upon it to furnishcertain documents in relation to the application in question, whichas per the petitioner was duly furnished. Subsequently, therespondents vide the impugned order dated 26.11.2013 rejectedthe petitioner’s application in question. 7.This Court further observes that the respondent-ChiefCommissioner gave a finding in the impugned order that thepetitioner is being run as an institution for the profitable purposesand regularly earning a surplus income out of its activities, andthus, the petitioner’s case does not fall under the exemption category. In furtherance, the respondent, while passing theimpugned order, relied upon the judgment rendered by theHon’ble High Court of Uttarakhand in case of CIT Vs Queen‘sEducational Society (Uttarakhand) 177 Taxmann 321. ThisCourt also observes that the said judgment was challenged beforethe Hon’ble Apex Court in case of Queen’s Educational Society Vs Commissioner of Income Tax (2015) SCC 47, and thesame was overruled vide judgment dated 16.03.2015 passed bythe Hon’ble Apex Court. Relevant portion of the said judgment dated 16.03.2015 isreproduced as hereunder:- “19. It is clear, therefore, that the Uttarakhand High Court haserred by quoting a non existent passage from an applicablejudgment, namely, Aditanar and quoting a portion of a propertytax judgment which expressly stated that rulings arising out ofthe Income Tax Act would not be applicable. Quite apart fromthis, it also went on to further quote from a portion of the saidproperty tax judgment which was rendered in the context ofwhether an educational society is supported wholly or in part byvoluntary contributions, something which is completely foreignto Section 10(23C) (iiiad). The final conclusion that if a surplus ismade by an educational society and ploughed back to constructits own premises would fall foul of Section 10(23C) is to ignorethe language of the Section and to ignore the tests laid down inthe Surat Art Silk Cloth case, Aditanar case and the AmericanHotel and Lodging case. It is clear that when a surplus isploughed back for educational purposes, the educationalinstitution exists solely for educational purposes and not forpurposes of profit. In fact, in S.RM.M.CT.M. Tiruppani Trust v. Commissioner of Income Tax (1998) 2 SCC 584, this Courtin the context of benefit claimed Under Section 11 of the Actheld: 9. In the present case, the Assessee is not claiming anybenefit Under Section 11(2) as it cannot; because in respect of this assessment year, the Assessee has notcomplied with the conditions laid down in Section 11(2).The Assessee, however, is entitled to claim the benefit ofSection 11(1)(a). In the present case, the Assessee hasapplied Rs. 8 lakhs for charitable purposes in India bypurchasing a building which is to be utilised as a hospital.This income, therefore, is entitled to an exemption UnderSection 11(1). In addition, Under Section 11(1)(a), theAssessee can accumulate 25% of its total incomepertaining to the relevant assessment year and claimexemption in respect thereof. Section 11(1)(a) does notrequire investment of this limited accumulation ingovernment securities. The balance income of Rs.1,64,210.03 constitutes less than 25% of the income forAssessment Year 1970-71. Therefore, the Assessee isentitled to accumulate this income and claim exemptionfrom income tax Under Section 11(1)(a). We set aside the judgment of the Uttarakhand High Court dated24th September, 2007. The reasoning of the ITAT (set aside bythe High Court) is more in consonance with the law laid down bythis Court, and we approve its decision.” 8.This Court also observes that the Ministry of Finance,Department of Revenue, Central Board of Direct Tax issued aCircular bearing No. 14/2015 (F.No.197/38/2015-ITA-I) dated17.08.2015, stating therein that representations have beenreceived seeking clarification on certain issues relating to grant ofapproval and claim of exemption under Section 10 (23C) (vi) ofthe Act of 1961, and vide the said circular, it was clarified that themere generation of surplus from year to year cannot be a basis forrejection of application under Section 10(23C) (vi) of the Act of1961. Relevant portion of the said Circular is reproducedhereunder:- “3. Generation of surplus out of gross receipts A doubt has been raised whether generation of surplus outof gross receipts would necessarily ‘breach’ the thresholdcondition that the educational institution should exist ‘solelyfor educational purpose and not for the purpose of profit’.Perusal of prescribed provisions clearly reveal thatmere generation of surplus cannot be a basis forrejection of application u/s 10(23C)(vi) on theground that it amounts to an activity of the nature ofprofit making. In fact, the third proviso to the said clauseclearly provides thataccumulation of income ispermissible subject to the manner prescribed thereinprovided such accumulation is to be applied “whollyand exclusively to the objects for which it isestablished”. Hence, it is clarified that mere generation ofsurplus by education institution from year to year cannot bea basis for rejection of application u/s 10(23C)(vi) if it isused for education purposes unless the accumulation iscontrary to the manner prescribed under law.” 9.This Court also observes that the petitioner is claiming that itis being run as a Trust solely for educational purposes, and thus,seeking the exemption under Section 10 (23C) (vi) of the Act of1961, and the generation of surplus from year to year cannot bebar in seeking such exemption under the said provision of law.This Court further observes that after the judgment rendered bythe Hon’ble Apex Court in case of Queen’s Educational Society(Supra) and issuance of the aforementioned clarificatory Circular,the case of the present petitioner needs to be duly considered bythe respondents. 10.Thus, in light of the aforesaid observations and looking intothe factual matrix of the present case, particularly, the precedentof Queen’s Educational Society (supra) and the aforementionedclarificatory circular, the present petition is partly allowed; accordingly, while quashing and setting aside the impugned order26.11.2013 (Annexure-13), the matter is remanded back to therespondents with a direction to re-consider and decide theapplication in question preferred by the petitioner under Section10 (23C) (vi) of the Act of 1961, strictly in accordance with law,including due adherence to the aforesaid precedent law as well asthe aforementioned clarificatory circular. Such an exercise shall beundertaken and completed by the respondents within a period ofthree months from the date of receipt of a certified copy of thisjudgment. All pending applications stand disposed of. (MUNNURI LAXMAN),J (DR. PUSHPENDRA SINGH BHATI),J SKant/-