D.b. Civil Special Appeal (W) v. Geetanjali University Trust

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012 The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust Date of Judgment : 21.02.2013 PRESENT HON'BLE MR. JUSTICE DINESH MAHESHWARIHON'BLE MR. JUSTICE ARUN BHANSALI Mr. K.K. Bissa, for the appellant. Mr. Vikas Balia, for the respondent. BY THE COURT (PER HON'BLE BHANSALI, J.):Reportable This appeal has been filed by the appellants aggrieved bythe order dated 24.11.2011 passed by the learned Single Judgein S.B. Civil Writ Petition No.11799/2010, whereby the writpetition filed by the respondent-Trust was allowed and the orderdated 27.1.2010 passed by the Chief Commissioner of IncomeTax ('the CCIT') under Section 10(23C) of the Income Tax Act,1961 ('the Act') was set aside and the authority was left free todecide afresh the proceedings for assessment year 2008-09 andonwards till assessment year 2010-11 by passing fresh speakingorder after affording opportunity of hearing to the Trust. Brief facts of the case are that the writ petitioner-Trust, apublic charitable educational Trust registered under the D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust provisions of the Rajasthan Public Trust Act, 1959, filed writpetition before this Court with the averments, inter-alia, that theTrust was established in the year 2006 solely for educationalpurpose and since its inception; and was imparting education inseveral of its institutions. To indicate the main objects of theTrust, a copy of the Trust deed was filed with the writ petition. Itwas further stated that the Trust applied for and was registeredunder the provisions of Section 12A(a) of the Act for availingexemption under Sections 11 and 12 thereof. The registrationwas granted on 13.2.2007 from the date of inception of the Trusti.e. 29.9.2006. It was then stated in the petition that on9.1.2009, the Trust filed an application seeking exemption of itsincome under Section 10(23C)((vi) of the Act. After exchange ofseveral letters between the Trust and the authorities wherebyseveral queries were raised and the same were answered, theapplication of the Trust was rejected by the order dated27.1.2010, inter-alia, on the ground that the Trust was notsatisfying the essential conditions for exemption under Section10(23C). It was also pointed out in the writ petition that for theassessment year 2010-11 and onwards, the Trust has beengranted approval under Section 10(23C)(vi) of the Act. The order of rejection was challenged on several grounds. Notices of the writ petition were issued and the appellantsfiled detailed reply to the said writ petition inter-alia justifyingthe rejection of the application for exemption filed by the Trust. D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust The order of rejection was challenged on several grounds. Notices of the writ petition were issued and the appellantsfiled detailed reply to the said writ petition inter-alia justifyingthe rejection of the application for exemption filed by the Trust. D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust The main reason stressed for rejection was that the medicalcollege run by the Trust was granted permission for the MBBSMedical Course with annual intake of 150 students, starting fromthe academic year 2008-09. Against the intake of 150 studentsfor MBBS Course, 15% were made available for NRI /management quota, while 85% of the seats were available foropen selection. The college admitted 16 students from a listprepared on the basis of private college Pre-Medical Test, 2008held for BDS dental colleges of Rajasthan and further 101students were admitted based on qualifying marks secured in10+2 examination, through its own advertisement. The saidadmissions were not made on merit basis from the merit list /waiting list prepared on the basis of RPMT, 2008, which systemhas been approved by the Medical Council of India and RajasthanUniversity. It was claimed that the Trust had violated theprocedure of admission as laid down by the Government /Medical Council and, therefore, it did not qualify as an institutewithin the meaning of Section 10(23C)(vi) and (via). It wasfurther stated that the High Court, by order dated 18.3.2009,held that the regulations prescribed by the Medical Council ofIndia were mandatory and have to be complied with; and onaccount of violation by the Trust, the admission made against85% seats by the college were held illegal. The Division Benchalso concurred with the decision of the learned Single Judge andheld the admissions as illegal. The learned Single Judge after hearing the parties held thus : “5. Having heard the learned counsels, this Court isof the opinion that the since question of legality of theadmissions made by thepetitioner Trust is still amatter sub judice before the Apex Court, of course,the Rajasthan High court has held against thepetitioner Trust that such admissions were not made inaccordance with law vide judgment of learned SingleJudge as aforesaid and affirmed by the Division Bench,it cannot be said finally yet that petitioner hascommitted any such illegality & no such opinion couldbe formed by the learned Chief Commissioner ofIncome Tax so long as the matter is pending beforethe Supreme Court of India and is not decided againstthe petitioner Trust. 6. Right to litigate a particular issue in the Court ofLaw is a legal right of any Institution or a CharitableTrust, who is seeking exemption from income tax forwhich sanction is required by the competent authoritywithin the parameters like no profit motive, or objectof education of the Trust etc. laid down under Section10(23C) of the Act which are relevant and not theadmission procedure undertaken by the petitionerTrust. Nexus between the profit motive and allegedillegal admission is too remote and cannot bepresumed without any other adverse material onrecord against the assessee, for drawing such adverseinference. Learned Chief Commissioner of Income Taxvide order dated 27/1/2010 has only assigned onesingle reason as stated above to deny the approvalunder Section 10(23C) of the Act. The relevant portionof the impugned order dated 27/1/2010 is reproducedhereunder for ready reference:- “11. It is also apparent that the Trust isnot satisfying essential condition forexemption u/s 10 (23C) (vi) and (via). As perthe relevant clause, any income received byany person on behalf of any university orother educational purposes. Moreover, theincome earned should be applied wholly andexclusively to the objects for which it isestablished, i.e. for educational purpose. Inthe institution's case, the Hon'ble High Courthas held that the admissions made forAcademic Year 2008-2009 were illegal.The purpose of education would not beserved, if the education is for studentswho have been illegally admitted. Thepurpose of education as contemplated in thesection would be served only if the studentshave been legally admitted and not otherwise.The spending of funds on education ofstudents who have been admitted illegally willnot amount to application of income for the 5 purpose of education. In the Trust's case,neither the condition regarding existence forthe purpose of education nor the application offunds for the objects, are being fulfilled.12. Keeping in view the above discussionand the decision of the Hon'ble High Court, Ihereby reject the Trust's application forapproval under Section 10(23C) (vi) and (via)for A.Y. 2008-09 onwards. Sd/- (MukeshBhanti) Chief Commissioner of Income-tax,Udaipur.” 7. The subsequent order granting such approvalpassed on 17/1/2011 subject to usual conditions readsas under:- “In exercise of powers conferred on meby the sub-clause (vi) of clause (23C) ofSection 10 of the Income tax Act, 1961 (43 of1961) read with rule 2CA of the I.T.Rules,1962, I Chief Commissioner of Income tax,Udaipur hereby accord approval to M/S.GEETANJALI UNIVERSITY Trust, UDAIPUR(PAN: ) for the purpose of thesaid section for the assessment year 2010-11and onwards subject to conditions mentionedhereunder:” 8. If the alleged illegal admissions made by thepetitioner Trust in the year 2008-09 could be a validcriteria or relevant consideration for denying approvalunder section 10(23C) of the Act, such alleged illegaladmissions continued in the subsequent years also asthose students continued to be in the college forsubsequent years also and the same authority on thesame set of facts, once denied the approval andsubsequently granted such approval for subsequentyears. This incongruity in the two orders itself repelsthe argument of learned counsel for the respondentRevenue. 9. In the opinion of this court also, this groundalone as such could not be relevant and a valid basisfor refusing the approval under Section 10(23C) of theAct to the petitioner Trust especially since the matteris still pending before the Hon'ble Supreme Court. Ofcourse, the authority concerned is free to apply itsmind and take into account the relevant considerationwhile deciding the case of petitioner Trust underSection 10(23C) of the Act as laid down in theprovisions of Section 10(23C) itself and if there areother grounds made out of rejection of its case underSection 10(23C) of the Act or say if Hon'ble Supremecourt of India also holds against the petitioner, theauthority concerned may be justified in denying theexemption under Section 10(23C) of the Act.” Consequently, the writ petition was allowed in the terms asindicated herein-before. Consequently, the writ petition was allowed in the terms asindicated herein-before. Assailing the order so passed by the learned Single Judge,it was contended on behalf of the appellants that the Trust wasnot satisfying the essential condition for exemption underSection 10(23C)(vi) of the Act because the income received isexempted only if the institution is existing for educationalpurposes and as the Court has held that the admissions made forthe academic year 2008-09 were illegal, CCIT was justified inrejecting the application. It was also submitted that as the issuewith regard to violation by the Trust, of the admission process aslaid down by the statutory body, has been held against the Trustby the learned Single Judge of this Court and upheld by theDivision Bench, the entity which has violated the prescribedprocedure of admission cannot qualify as an institution for grantof benefit of exemption. Learned counsel for the respondent-Trust opposed thesubmissions as made by the learned counsel for the appellant. Itwas contended that the mere fact that the Courts found somedefects in the admission procedure adopted by the Trust, itcannot be a reason for the CCIT to come to a conclusion that theinstitution does not exist for educational purposes. It wassubmitted that the Trust manages several other institutions likeCollege of Nursing, School of Nursing, College of Physiotherapy,College of Pharmaceutical etc. and as such, by merely relying on D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust the so-called defect in admission procedure in one of theinstitution being run by the Trust, the application could not havebeen rejected. It was further submitted that the judgmentpassed by the Division Bench was carried in appeal before theHon'ble Supreme Court and the Hon'ble Supreme Court in itsjudgment Rajan Purohit Vs. Rajasthan University of HealthSciences 7 Ors.: (2012) 10 SCC 770 has modified the judgmentof the High Court and has allowed the appeals to the extentindicated in the judgment and as such, even the basis indicatedby the CCIT for rejection no longer exists as such. The CCIT, by the order dated 27.1.2010 rejected theapplication filed by the Trust, inter-alia, observing thus : “9.I have examined the contentions raised onbehalf of the Trust, the orders of the Hon'ble HighCourt and the material available on record. Althoughnot spelt out clearly, it appears that a stand has beentaken on behalf of the Trust that the method ofadmission of students to the Medical College is not apre condition for approval u/s 10(23C)(vi) and (via)and therefore the decision of the High Court holdingthat the method of admission was illegal, will not haveany adverse effect on the claim u/s 10(23C)(vi) and(via). The plea is not acceptable. 10.The words “any University or other educationalInstitution” used in the beginning of the section haveto be understood and read in a logical manner in thelight of common principles of law. The words shoulddenote an university or an institution which otherwiseexists within the four corners of law. Any institutionwhich has violated the procedure of admission as laiddown by the Govt./Medical Council will not qualify asan institute as understood in the phrase used in thissection. The admission to a college is the starting pointof the college and the very foundation of its existence.If admission process is illegal, it does not qualify as an'Institution' as envisaged in the opening lines of thesection. It is common understanding that if any entityis referred to in any beneficial provision of law forapproval / registration / exemption etc., it wouldnecessarily mean an entity which is otherwise free ofany defect. An entity which has violated the prescribedprocedure of admission would not qualify as an D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust 8 institute referred to in any law granting any benefit tosuch institute. In my opinion, having violated thesystem of admission as laid down by the State Govt.,Rajasthan University and the Medical Council of India,the Institute does not qualify for any benefit availablein section 10(23C). 11.It is also apparent that the Trust is notsatisfying essential condition for exemption u/s 10(23C)(vi) and (via). As per the relevant clause, anyincome received by any person on behalf of anyuniversity or other educational institution is exemptunder the section if such institution is existing foreducational purposes. Moreover, the income earnedshould be applied wholly and exclusively to the objectsfor which it is established, i.e. For educational purpose.In the institution's case, the Hon'ble High Court hasheld that the admissions made for Academic Year2008-09 were illegal. The purpose of education wouldnot be served, if the education is for students whohave been illegally admitted. The purpose of educationas contemplated in the section would be served only ifthe students have been legally admitted and nototherwise. The spending of funds on education ofstudents who have been admitted illegally will notamount to application of income for the purpose ofeducation. In the Trust's case, neither the conditionregarding existence for the purpose of education northe application of funds for the objects, are beingfulfilled. 12.Keeping in view the above discussion and thedecision of the Hon'ble High Court, I hereby reject the,Trust's application for approval u/s 10(23C)(vi) and(via) for A.Y. 2008-09 onwards.” It would be seen that the learned CCIT was swayedby the fact that 'method of admission' was held illegal by this Courtand, therefore, held that the institution did not qualify as aninstitution as envisaged in the section and as the provision wasbeneficial, the entity otherwise must be free of any defect. It would be appropriate to quote the provisions of Section10(23C) (vi) & (via) of the Act, which read as under:- “Incomes not included in total income. 10.In computing the total income of a previousyear of any person, any income falling within any ofthe following clauses shall not be included-.... .... .... .... .... .... .... .... .... .... .... .... .... .... ....(23C)- any income received by any person on behalfof- Geetanjali University Trust .... .... .... .... .... .... .... .... .... .... .... .... .... .... ....(vi)any university or other educational institutionexisting solely for educational purposes and not forpurposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may beapproved by the prescribed authority; or (via)any hospital or other institution for thereception and treatment of persons suffering fromillness or mental defectiveness or for the reception andtreatment of persons during convalescence or ofpersons requiring medical attention or rehabilitation,existing solely for philanthropic purposes and not forpurposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may beapproved by the prescribed authority:” A plain reading of the said provisions would reveal that A plain reading of the said provisions would reveal that what is required for the purpose of seeking approval thereunderis that the University or other educational institution should exist''solely for educational purposes and not for purposes of profit.It is nowhere the case and / or finding of the learned CCIT thaton account of the said defect in the admission procedure, theTrust ceased to exist solely for educational purposes and / or itexisted for the purposes of profit. Further, it is not the case ofthe appellants that the students who were admitted were notimparted education in the college in which they were admittedand / or the admissions granted were fake or non-existent orthat the income generated by admitting the said students wasnot used for the purpose of the Trust. The emphasis on part ofthe learned CCIT that the purpose of education would not beserved if the education is for students who have been illegallyadmitted and the purpose of education as contemplated in thesection would be served only if the students have been legallyadmitted and not otherwise, appears to be going beyond the D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust requirements of the section. Of course, the requirement of aneducational institution to provide admissions strictly inaccordance with the prescribed rules, regulations and statutecannot be less emphasized, rather the same need to be adheredto in letter and spirit, but then, the said violation cannot lead toits loosing the character as an entity existing solely for thepurpose of education. The Hon'ble Supreme Court in its judgment relatingto the admissions at the college of the Trust, referred to above,while partly allowing the appeal and modifying the judgment ofthis Court, has held as under:- “47. We accordingly hold: 47.1.That there was no agreement between theCollege and the State Government to admit studentsinto its MBBS course on the basis of RPMT 2008 andthe finding of the High Court in this regard iserroneous and the High Court could not have directedthe College to fill up its seats on the basis of merit ofstudents as determined in RPMT 2008 as per the lawlaid down in T.M.A.Pai Foundation as explained inP.A. Inamdar. Hence, the direction of the HighCourt to fill up the seats by students selected or wait-listed in the RPMT 2008 is set aside.47.2. The admissions of 117 students to the MBBScourse for the academic year 2008-2009 in theCollege were contrary to clause (2) of Regulation5 of the MCI Regulations and were not within theright of the College under Article 19(1)(g) of theConstitution as explained by this Court in T.M.A. PaiFoundation and P.A. Inamdar. 47.3.In exercise of our power under Article 142 ofthe Constitution, we direct that none of the 117students who were otherwise eligible for admission tothe MBBS course will be disturbed from pursuingtheir MBBS course, subject to the condition that theywill each pay a sum of Rs.3 lakhs within a period ofthree months from today to the State Governmentand in the event of default, the students will not bepermitted to take the final year examination andthe admission of the defaulting students shall standcancelled and the College will have no liability to repaythe admission fee already paid. The amount so paidto the State Government shall be spent by the State D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust D.B. CIVIL SPECIAL APPEAL (W) NO.128/2012The Chief Commissioner of Income Tax, Udaipur & Anr. vs.Geetanjali University Trust Government for improvement of infrastructure andlaboratories of the Government medical college of theState and for no other purpose.47.4.The College which was responsible formaking the admissions in violation of clause (2) ofRegulation 5 of the MCI Regulations will surrender107 (117 – 10) MBBS seats to the State Governmentphase wise, not more than ten in any academic yearbeginning from the academic year 2012-2013 andthese surrendered seats will be filled up by thestudents selected in RPMT or any other commonentrance test conducted by the State Government ofRajasthan or its agency for admissions to thegovernment colleges and the fees payable by thestudents admitted to the surrendered seats would bethe same as that payable by the students ofgovernment colleges.47.5.The results of the students in the MBBScourse held up on account of interim orders passed bythe Court may now be published.48.The impugned judgment of the High Court ismodified accordingly and the appeals are allowed tothe extent as indicated in this judgment. The pendingI.A. Nos. 3 and 4 stand disposed of.” From the above, it is clear that the entire controversy was regarding procedure of admission and not the legality orcharacter of the institution. In view of the above, we do not find any reason tointerfere with the order passed by the learned Single Judge, whohas left it to the CCIT to decide afresh the proceedings forassessment year 2008-09 and onwards till assessment year2010-11 by passing fresh speaking order after affordingopportunity of hearing to the petitioner-Trust. In the result, the special appeal filed by the appellantsfails, and the same is, therefore, dismissed. No costs. (ARUN BHANSALI)J.RM/ (DINESH MAHESHWARI)J.