Haryana State Counselling Society v. Chief Commissioner, Income Tax, Panchkula

In the High Court of Punjab and Haryana, Chandigarh. CWP No. 8349 of 2009 (O&M) Date of Decision:26.05.2010 Haryana State Counselling Society ....Petitioner Versus Chief Commissioner, Income Tax, Panchkula ....Respondent. Coram:- Hon'ble Mr. Justice Adarsh Kumar Goel Hon'ble Mr. Justice Alok Singh 1.Whether reporters of local news papers may be allowed to see judgement ? judgement ? 2. To be referred to reporters or not ? 3. Whether the judgement should be reported in the Digest ? Present: Ms. Manisha Gandhi, Advocate for the petitioner. Mr. S.K. Garg, Narwana, Advocate for the respondent. ... Alok Singh, J. 1.This is a writ petition filed invoking jurisdiction of this Courtunder Articles 226/227 of the Constitution of India, assailing the orderdated 18.3.2009 passed by the Chief Commissioner, Income Tax,Panchkula, rejecting the application of the petitioner for grant of exemptionunder Section 10(23C) (iv) of the Income Tax Act, 1961. 2.Brief facts of the present case are that the petitioner – societywas set up by the Government of Haryana to facilitate and simplify the admission procedure to the Technical Institutes in the UniversityDepartments, Government/Government aided/ Private Institutions located inthe State of Haryana. Petitioner – society is a self funding societyconducting entire admission procedure for admission to all technicalcourses including post-graduate, under-graduate and diploma education inall Technical Institutes in the University Departments, Government/Government aided/ Private Institutions located in the State of Haryana.Petitioner – society also provides scholarships to the topper students of eachbranch of every course in every institute for the entire duration of thecourse. Petitioner – society also grants scholarships to poor and needystudents from general or reserved category. The entire funds are used forthe students for promoting technical education. The Society has also set upa toll free call centre where students can call for any query or information. 3.Petitioner – society applied for grant of exemption underSection 10(23C) (iv) of the Income Tax Act, 1961. The ChiefCommissioner, Income Tax, Panchkula, has disallowed the application ofthe Society on the ground of commercial activities. Order of the ChiefCommissioner, Income Tax, Panchkula, dated 18.3.2009 is under challengebefore this Court. 4.We have heard learned counsel for the petitioner and perusedthe record. 5.The Chief Commissioner, Income Tax, Panchkula, in paras 13and 15 of the order has held as under:- “13. From the above amendment in the definition of“Charitable purpose”, it is seen that with effect from 1.4.2009i.e. from the assessment year 2009-10 onwards, the scope of the term “advancement of any other object of general publicutlity” as a 'charitable purpose' has been considerablyrestricted by excluding from its ambit any activity in the natureof the trade, commerce or business or any activity of renderingany service in relation to any trade, commerce or business, fora cess or fee or any other consideration, irrespective of thenature of use or application or retention of income from suchactivity. 4.We have heard learned counsel for the petitioner and perusedthe record. 5.The Chief Commissioner, Income Tax, Panchkula, in paras 13and 15 of the order has held as under:- “13. From the above amendment in the definition of“Charitable purpose”, it is seen that with effect from 1.4.2009i.e. from the assessment year 2009-10 onwards, the scope of the term “advancement of any other object of general publicutlity” as a 'charitable purpose' has been considerablyrestricted by excluding from its ambit any activity in the natureof the trade, commerce or business or any activity of renderingany service in relation to any trade, commerce or business, fora cess or fee or any other consideration, irrespective of thenature of use or application or retention of income from suchactivity. 15. A perusal of the income and expenditure amount of theassessee applicant for the financial year 2007-08 i.e.assessment year 2008-09 reveals that during this year, theapplicant society has earned income from registrationfee/counselling fee of Rs.12,42,47,115/- and also sliding fee(for second/subsequent counselling) of Rs.3,05,26,500/-. Apartfrom this, the applicant society has also earned Bank interest ofRs.1,38,36,099/- during this year. Its Income and ExpenditureAccount shows that from the gross income tatallingRs.16,86,09,722/-, the applicant society has shown a surplus ofRs.6,12,82,168/-. Thus in the very first year of its activities,the applicant society had earned a huge surplus/profit ofRs.6,12,82,168/- (36.34%) on the gross income ofRs.16,86,09,722/-. No satisfactory explanation is forthcomingfrom its submissions as to how and why it has earned such ahuge surplus profit if its object and activities are reallycharitable. Its balance sheet shows an amount ofRs.5,87,05,000/- lying with Punjab National Bank, Sector 17C, Chandigarh, an FDR of Rs.7,00,00,000/- with Punjab & SindBank, Indl. Area, Phase I, Chandigarh and it has earned bankinterest of Rs.1,38,36,099/- as per its Income & ExpenditureAccount as mentioned above. It is also charging fees for itsservices and activities which, as is evident from the figuresgiven above, have produced a huge margin of profit and, itsactivities are, therefore, akin to being commercial with profitmotive and cannot be regarded as charitable. Merely becausethe society has ex-officio members from the Government ofHaryana/University and that it has to furnish reports toHaryana Government cannot entitle it to claim exemption. Forconsidering whether the purposes of an institution arecharitable, real nature of its activities has to be seen which asdiscussed in detail above, are in essence, of commercial naturewith profit motive.” 6.There is no dispute that the petitioner – society is set up by theGovernment of Haryana in order to facilitate and simplify the admissionprocedure to the Technical Institutes. There is also no dispute that thepetitioner – society is granting scholarships to the general/reserved categorystudents for the course. 7.The Apex Court in American Hotel and Lodging AssociationEducational Institute Vs. Central Board of Direct Taxes and others,(2008) 10 Supreme Court Cases 509, in paras 38, 44 and 51 has held asunder:- 38. In deciding the character of the recipient, it is notnecessary to look at the profits of each year, but to consider 6.There is no dispute that the petitioner – society is set up by theGovernment of Haryana in order to facilitate and simplify the admissionprocedure to the Technical Institutes. There is also no dispute that thepetitioner – society is granting scholarships to the general/reserved categorystudents for the course. 7.The Apex Court in American Hotel and Lodging AssociationEducational Institute Vs. Central Board of Direct Taxes and others,(2008) 10 Supreme Court Cases 509, in paras 38, 44 and 51 has held asunder:- 38. In deciding the character of the recipient, it is notnecessary to look at the profits of each year, but to consider the nature of the activities undertaken in India. If the Indianactivity has no co-relation to education, exemption has to bedenied. (see judgment of this Court in Oxford University Press[supra]). Therefore, the character of the recipient of incomemust have character of educational institution in India to beascertained from the nature of the activities. If after meetingexpenditure, surplus remains incidentally from the activitycarried on by the educational institution, it will not cease to beone existing solely for educational purposes. In other words,existence of surplus from the activity will not mean absence ofeducational purpose (see judgment of this Court in AditanarEducational Institution v. ACIT, (1997) 224 ITR 310). The testis - the nature of activity. If the activity like running a printingpress takes place it is not educational. Butwhethertheincome/profithasbeen applied for non-educational purpose has to be decided only atthe end of the financial year. 44. Having analysed the provisos to Section 10(23C)(vi) onefinds that there is a difference between stipulation ofconditions and compliance thereof. The threshold conditionsare actual existence of an educational institution and approvalof the prescribed authority for which every applicant has tomove an application in the standardized form in terms of thefirst proviso. It is only if the pre-requisite condition of actualexistence of the educational institution is fulfilled that thequestion of compliance of requirements in the provisos would arise. We find merit in the contention advanced on behalf ofthe appellant that the third proviso contains monitoringconditions/requirements like application, accumulation,deployment of income in specified assets whose compliancedepends on events that have not taken place on the date of theapplication for initial approval. 51. For the sake of clarity, we may reiterate that items such asapplication of income or accumulation of income or investmentin specified assets indicated in clauses (a) and (b) in the thirdproviso are a part of compliance/monitoring conditions. Asstated, however, there is a difference betweenapplication/utilization of income and outward remittance ofincome out of India. As discussed above, with the insertion ofthe provisos in Section 10(23C)(vi) of the 1961 Act, it is opento the PA to stipulate, while granting approval, that theapproval is being given subject to utilization/application ofcertain percentage of income, in the accounting sense, towardsimpartation of education in India. Such exercise would bebased on estimation. There is a difference between `accountingincome' and `taxable income'. At the stage of Section 10, weare concerned with the accounting income. Therefore, it isopen to the PA, if it deems fit, to stipulate that certainpercentage of accounting income would be utilized forimpartation of education in India. Therefore, in our view, it isalways open to the PA to impose such terms and conditions asit deems fit. The interpretation we have given is based on harmonious construction of the provisos inserted in Section 10(23C)(vi) by the Finance Act, 1998. Lastly, we may reiteratethat there is a difference between stipulation by the PA of suchterms and conditions, as it deems fit under the provisos, andthe compliance of those conditions by the appellant. Thecompliance of the terms and conditions stipulated by the PAwould be a matter of decision at the time of assessment asavailability of exemption has to be evaluated every year inorder to find out whether the institution existed during therelevant year solely for educational purposes and not forprofit.” 8.In Dera Baba Jodh Sachiar Vs. Union of India and another(C.W.P. No.68 of 2006 decided on 22.02.2010), we, after placing relianceon the judgement of the Supreme Court in American Hotel and LodgingAssociation Educational Institute Vs. Central Board of Direct Taxes andothers, (2008) 7 DTR (SC) 183, have held as under:- “Having perused the order impugned, we find that learnedCommissioner has not recorded any finding on the question, asto whether income derived by the petitioner trust is being usedfor charitable purposes, as per the object of trust or not.Learned Commissioner refused to grant renewal of exemptiononly on the ground of the source of income. From the perusalof the judgments cited above by learned Counsel for thepetitioner, we are of the view that it is not the source of incomewhich is to be seen, but investment of the income. If income isbeing utilised for charitable purposes as per the object of the trust/society, then exemption ordinarily cannot be refused.” 9.In view of the fact that the petitioner – society is set up by theGovernment of Haryana, neither the Government of Haryana nor thepetitioner – society indulge in any commercial activity and merely becausethe society has accumulated some profit, does not mean that the petitioner –society is not achieving its object for which it was established. Merelybecause the society has earned some profit, does not make the societydisentitle for the exemption. In view of this, order dated 18.3.2009 passedby the Chief Commissioner, Income Tax, Panchkula cannot be sustained. 10Writ petition is allowed. Order dated 18.3.2009 passed by theChief Commissioner, Income Tax, Panchkula is set aside. The ChiefCommissioner, Income Tax, Panchkula is directed to decide the applicationof the petitioner – society in the light of observations made hereinabove,within three months from the date of production of certified copy of thisorder, before him. ( Alok Singh ) Judge 26.05.2010 sk. ( Adarsh Kumar Goel )Judge