M/S Shaheed Nand Kumar Patel Vishwavidyalaya, Garhumaria Road,Raigarh, Chhattisgarh v. Commissioner Of Income Tax (E), Room

(Tax Case No.187/2024) Digitally signedby SISTASISTASOMAYAJULUSOMAYAJULUDate:2024.09.1315:56:29 +0530 2024:CG:35049-DB AFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 187 of 2024 M/s Shaheed Nand Kumar Patel Vishwavidyalaya, Garhumaria Road,Raigarh, Chhattisgarh. ... Appellant versus Commissioner of Income Tax (E), Room No. 201, 2[nd] Floor, REACBhopal, M.P. ... Respondent For Appellant: Mr. Apurv Goyal and Mr. Nikhilesh Begani, Advocates.For Respondent : Mr. Amit Chaudhari and Ms. Ankita Gouraha, Advocates. -Division Bench: Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Amitendra Kishore Prasad, JJ. Order on Board (09/09/2024) Sanjay K. Agrawal, J. 1. This tax case has been preferred under Section 260A of the IncomeTax, 1961 calling in question legality, validity and correctness of theorder dated 31-5-2024 passed by the Income Tax Appellate Tribunal(ITAT), Raipur Bench, Raipur in ITA No.171/RPR/2023 affirmingthe order dated 15-3-2023 passed by the Commissioner of Income Tax, Exemption, Bhopal. 2. This tax case was admitted for hearing on 30-8-2024 by framing the following substantial question of law: - Whether both the Commissioner of Income Tax,Exemption, Bhopal and the Income Tax Appellate Tribunal,Raipur Bench, Raipur are justified in rejecting theapplication preferred by the appellant herein under Section10(23C)(vi) of the Income Tax Act, 1961 by recording afinding perverse to the record and further justified inrejecting the application without recording a finding that theappellant University is not existing solely for educationalpurposes and without recording the satisfaction requiredunder Section 10(23C)(vi) of the Income Tax Act, 1961read with the second proviso appended to it by recording afinding perverse to the record? 3. The appellant / assessee filed an application under Section 10(23C) (iii) in Form 10AB for registration / approval under the newprovisions of the IT Act on 30-9-2022 and in order to process thesaid application and to verify the objects and activities of theassessee, opportunity letters were issued to the appellant / assesseeand various documents/details were also called for. In order toverify the objects and activities of the assessee, various notices wereissued to the appellant on 22-12-2022, 3-1-2023 & 18-1-2023 tosubmit relevant documents / information for registration underSection 10(23C)(iii) of the new provisions of the IT Act, which wasreplied by the appellant herein / assessee. The Commissioner ofIncome Tax, Exemption, Bhopal after considering the documents (Tax Case No.187/2024) submitted by the assessee issued authorisation letter on 30-1-2023for the purpose of physical verification and to conduct enquiriesinto the case of the assessee and accordingly, physical verificationreport was submitted by the Income Tax Officer (E), Bilaspur. Afterperusal of the verification report and other records submitted by theappellant / assessee, the appellant / assessee was required to explain(i) whether accounts of the financial year 2020-21 were not audited;(ii) the details of vehicle expenses and TDS thereon, if any, for thefinancial year 2021-22; (iii) details of examination expenses andTDS thereon for the financial year 2021-22; and (iv) nature anddetails of Corpus Fund, Endowment Fund and RUSA fund showndirectly in balance sheets, for which a show cause notice was issuedto the appellant on 1-3-2023. The appellant replied the show causenotice, but ultimately, the Commissioner of Income Tax, Exemptionnot finding the reply satisfactory, rejected the application againstwhich the assessee preferred an appeal before the ITAT which wasalso dismissed holding that the appellant was unable to furnishnecessary information / details before the CIT(E) which was wellwithin the jurisdiction of the CIT(E) to call for suchdetails/documents/ information against which the appellantpreferred this tax case. 4. Mr. Nikhilesh Begani, learned counsel appearing for the appellant / Page 4 of 10 (Tax Case No.187/2024) assessee, would submit that both the authorities i.e. theCommissioner of Income Tax, Exemption – CIT(E) and the IncomeTax Appellate Tribunal (ITAT) have misdirected themselves inrejecting the application overlooking the provisions contained inSection 10(23C)(iii) of the IT Act, which mandates theconsideration as to whether the appellant University being theeducational institution existing solely for educational purposes andnot for purposes of profit as contained in sub-clause (iii-ab) or sub-clause (iii-ad) by recording a finding which is perverse to therecord, which requires to be set aside in light of the decision of theSupreme Court in the matter of New Noble Educational Society v. Chief Commissioner of Income Tax 1 and another1. 5. Mr. Amit Chaudhari, learned counsel for the respondent / Revenue,would submit that both the authorities have considered theapplication and made enquiry and concurring with the findingrecorded by the CIT(E), the ITAT has recorded finding not tointerfere with the matter and proceeded to dismiss the appeal.would submit that both the authorities have considered theapplication and made enquiry and concurring with the findingrecorded by the CIT(E), the ITAT has recorded finding not tointerfere with the matter and proceeded to dismiss the appeal. 6. We have heard learned counsel for the parties and considered theirrival submissions made herein-above and also gone through therecord carefully and thoroughly as well.rival submissions made herein-above and also gone through therecord carefully and thoroughly as well. 7. Section 10(23C)(vi) of the IT Act states as under: - (Tax Case No.187/2024) “10. Incomes not included in total income.—Incomputing the total income of a previous year of anyperson, any income falling within any of the followingclauses shall not be included— *** (23C) any income received by any person on behalfof— *** (vi) any university or other educationalinstitution existing solely for educational purposesand not for purposes of profit, other than thosementioned in sub-clause (iiiab) or sub-clause (iiiad)and which may be approved by the PrincipalCommissioner or Commissioner; or *** Provided further that the PrincipalCommissioner or Commissioner, on receipt of anapplication made under the first proviso, shall,— (i) where the application is made under clause (i) ofthe said proviso, pass an order in writing grantingapproval to it for a period of five years; (ii) where the application is made under clause (ii) orclause (iii) of the said proviso,— (a) call for such documents or information from itor make such inquiries as he thinks necessary inorder to satisfy himself about— (A) the genuineness of activities of such fundor trust or institution or university or othereducational institution or hospital or othermedial institution; and (B) the compliance of such requirements ofany other law for the time being in force by itas are material for the purpose of achieving itsobjects; and (Tax Case No.187/2024) (b) after satisfying himself about the objects andthe genuineness of its activities under item (A),and compliance of the requirements under item(B), of sub-clause (a),— (A) pass an order in writing granting approvalto it for a period of five years; (B) if he is not so satisfied, pass an order inwriting rejecting such application and alsocancelling its approval after affording it areasonable opportunity of being heard; (iii) where the application is made under clause (iv)of the said proviso, pass an order in writing grantingapproval to it provisionally for a period of three yearsfrom the assessment year from which the registrationis sought, and send a copy of such order to the fundor trust or institution or university or othereducational institution or hospital or other medicalinstitution.” (A) pass an order in writing granting approvalto it for a period of five years; (B) if he is not so satisfied, pass an order inwriting rejecting such application and alsocancelling its approval after affording it areasonable opportunity of being heard; (iii) where the application is made under clause (iv)of the said proviso, pass an order in writing grantingapproval to it provisionally for a period of three yearsfrom the assessment year from which the registrationis sought, and send a copy of such order to the fundor trust or institution or university or othereducational institution or hospital or other medicalinstitution.” 8. The aforesaid provision came up for consideration before the Supreme Court in New Noble Educational Society (supra) andsummarised the conclusions with regard to Section 10(23C) of theIT Act holding that the Commissioner or the authority concerned,while considering an application for approval and the furthermaterial called for (including audited statements), should confinethe inquiry ordinarily to the nature of the income earned andwhether it is for education or education related objects of thesociety (or trust). It has been observed in paragraphs 82 & 83 of thereport as under: - “82. The conclusions of this Court are summarised asfollows: (Tax Case No.187/2024) 82.1. It is held that the requirement of the charitableinstitution, society or trust, etc. to “solely” engage itself ineducation or educational activities, and not engage in anyactivity of profit, means that such institutions cannot haveobjects which are unrelated to education. In other words,all objects of the society, trust, etc. must relate to impartingeducation or be in relation to educational activities. 82.2. Where the objective of the institution appears to beprofit-oriented, such institutions would not be entitled toapproval under Section 10(23-C) of the IT Act. At the sametime, where surplus accrues in a given year or set of yearsper se, it is not a bar, provided such surplus is generated inthe course of providing education or educational activities. 82.3. The seventh proviso to Section 10(23-C), as well asSection 11(4-A) refer to profits which may be“incidentally” generated or earned by the charitableinstitution. In the present case, the same is applicable onlyto those institutions which impart education or are engagedin activities connected to education. 82.4. The reference to “business” and “profits” in theseventh proviso to Section 10(23-C) and Section 11(4-A)merely means that the profits of business which is“incidental” to educational activity, as explained in theearlier part of the judgment i.e. relating to education such assale of textbooks, providing school bus facilities, hostelfacilities, etc. 82.5. The reasoning and conclusions in American Hotel[2]and Queen's Educational Society[3] so far as they pertain tothe interpretation of expression “solely” are herebydisapproved. The judgments are accordingly overruled tothat extent. 82.6. While considering applications for approval underSection 10(23-C), the Commissioner or the authorityconcerned as the case may be under the second proviso isnot bound to examine only the objects of the institution. To 2American Hotel & Lodging Assn. Educational Institute v. CBDT, (2008) 10 SCC 509 :(2008) 301 ITR 86(2008) 301 ITR 86 3Queen's Educational Society v. CIT, (2015) 8 SCC 47 : 7 SCEC 307 (Tax Case No.187/2024) 82.5. The reasoning and conclusions in American Hotel[2]and Queen's Educational Society[3] so far as they pertain tothe interpretation of expression “solely” are herebydisapproved. The judgments are accordingly overruled tothat extent. 82.6. While considering applications for approval underSection 10(23-C), the Commissioner or the authorityconcerned as the case may be under the second proviso isnot bound to examine only the objects of the institution. To 2American Hotel & Lodging Assn. Educational Institute v. CBDT, (2008) 10 SCC 509 :(2008) 301 ITR 86(2008) 301 ITR 86 3Queen's Educational Society v. CIT, (2015) 8 SCC 47 : 7 SCEC 307 (Tax Case No.187/2024) ascertain the genuineness of the institution and the mannerof its functioning, the Commissioner or other authority isfree to call for the audited accounts or other such documentsfor recording satisfaction where the society, trust orinstitution genuinely seeks to achieve the objects which itprofesses. The observations made in American Hotelsuggest that the Commissioner could not call for the recordsand that the examination of such accounts would be at thestage of assessment. Whilst that reasoning undoubtedlyapplies to newly set up charities, trusts, etc. the provisounder Section 10(23-C) is not confined to newly set uptrusts — it also applies to existing ones. The Commissioneror other authority is not in any manner constrained fromexamining accounts and other related documents to see thepattern of income and expenditure. 82.7. It is held that wherever registration of trust orcharities is obligatory under State or local laws, the trust,society, other institution, etc. concerned seeking approvalunder Section 10(23-C) should also comply with provisionsof such State laws. This would enable the Commissioner orauthority concerned to ascertain the genuineness of thetrust, society, etc. This reasoning is reinforced by the recentinsertion of another proviso of Section 10(23-C) with effectfrom 1-4-2021. 83.In a knowledge based, information driven society,true wealth is education — and access to it. Every socialorder accommodates, and even cherishes, charitableendeavour, since it is impelled by the desire to give back,what one has taken or benefitted from society. OurConstitution reflects a value which equates education withcharity. That it is to be treated as neither business, trade,nor commerce, has been declared by one of the mostauthoritative pronouncements of this Court in T.M.A. PaiFoundation[4]. The interpretation of education being the“sole” object of every trust or organisation which seeks topropagate it, through this decision, accords with theconstitutional understanding and, what is more, maintainsits pristine and unsullied nature.” (Tax Case No.187/2024) 83.In a knowledge based, information driven society,true wealth is education — and access to it. Every socialorder accommodates, and even cherishes, charitableendeavour, since it is impelled by the desire to give back,what one has taken or benefitted from society. OurConstitution reflects a value which equates education withcharity. That it is to be treated as neither business, trade,nor commerce, has been declared by one of the mostauthoritative pronouncements of this Court in T.M.A. PaiFoundation[4]. The interpretation of education being the“sole” object of every trust or organisation which seeks topropagate it, through this decision, accords with theconstitutional understanding and, what is more, maintainsits pristine and unsullied nature.” (Tax Case No.187/2024) 9. Reverting to the facts of the present case in light of the principles oflaw laid down by their Lordships of the Supreme Court in NewNoble Educational Society (supra) and catalogued in paragraph 82of the judgment, it would appear that both the authorities havefailed to record a specific finding that the appellant University is notexisting solely for educational purposes and is existing for purposesof profit, which was sine qua non for rejecting the application forregistration under the provisions of Section 10(23C)(vi) of the ITAct. Both the authorities in order to consider the application wouldhave considered the fact whether the University is solely existingfor educational purposes or it is existing for purposes of profit andin case it is affirmative, it could have granted the application and incase it is negative, it could have rejected the application. Both theauthorities have failed to go through the objects of the Universityand failed to record finding with respect to education or educationalactivities. No express finding has been recorded by both theauthorities that the appellant University does not satisfy the objectsand the genuineness of its activities as required under the 2[nd]proviso to Section 10(23C) of the IT Act. 10. In that view of the matter, orders impugned (Annexures A-1 & A-10) passed by both the authorities are hereby set aside and thematter is remitted to the CIT(E), Bhopal to consider and decide the10) passed by both the authorities are hereby set aside and thematter is remitted to the CIT(E), Bhopal to consider and decide the Soma (Tax Case No.187/2024) application under Section 10(23C)(iii) of the IT Act afresh in lightof the decision of the Supreme Court in New Noble EducationalSociety(supra), particularly with regard to the binding law laiddown in paragraph 82 therein, within a period of two months fromthe date of receipt of a copy of this order, on its own merits, inaccordance with law. It is made clear that this Court has notexpressed any opinion on the merits of the application and theCIT(E) will decide the application after hearing the parties, inaccordance with law. 11. The tax case is allowed to the extent sketched herein-above. Sd/-Sd/- (Sanjay K. Agrawal) (Amitendra Kishore Prasad) JUDGE JUDGE