M/S.rajah Sir Annamalaichettiar Foundation v. The Chief Commissioner Of Income Tax, Chennai – Iii

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM : THE HONOURABLE MR.JUSTICE C.SARAVANAN W.P.Nos.29475/2012, 34234/2013 & 1739/2015 and M.P.Nos.1 of 2012, 1 of 2013 and 1 of 2015 M/s.Rajah Sir AnnamalaiChettiar Foundation,No.603, Anna Salai,Chennai 600 006 .. Petitioner in all W.Ps. vs. 1.The Chief Commissioner of Income Tax, Chennai – III, 121, Mahatma Gandhi Road, Chennai 600 034. 2.The Director of Income Tax (Exemptions) Ayakar Bhawan, Annex III Floor, 121, Mahatma Gandhi Road, Chennai 600 034. 3.The Deputy Director of Income Tax (Exemptions) Ayakar Bhawan, Annex III Floor, 121, Mahatma Gandhi Road, Chennai 600 034. .. Respondents in both W.Ps. Prayer in W.P.No.29475 of 2012 : Writ Petition is filed underarticle 226 of the Constitution of India, to issue a Writ ofCertiorarified Mandamus to call for the records inC.No:CCIII/7/10(23C)(vi)/12-13 dated 26.09.2012 and quash thesame and direct the 1[st] respondent to grant exemption to thepetitioner trust under Section 10(23C)(vi) of the Income TaxAct, 1961. 1/9 https://hcservices.ecourts.gov.in/hcservices/ Prayer in W.P.No.34234 of 2013 : Writ Petition is filed underarticle 226 of the Constitution of India, to issue a Writ ofCertiorarified Mandamus to call for the records in C.No:CCIII/10(23C)(vi)/13-14/8 dated 27.09.2013 from the file of the 1[st]respondent and quash the same and consequently direct the 1[st]respondent to grant exemption to the petitioner trust underSection 10(23C)(vi) of the Income Tax Act, 1961. Prayer in W.P.No.1739 of 2015 : Writ Petition is filed underarticle 226 of the Constitution of India, to issue a Writ ofCertiorarified Mandamus to call for the records in C.No:CCIT-III/10(23C)(vi)/13-14/11 dated 29.09.2014 from the file of the1[st] respondent and quash the same and consequently direct the 1[st]respondent to grant exemption to the petitioner trust underSection 10(23C)(vi) of the Income Tax Act, 1961. For Petitioner : Mr.G.Ashokpathy for M/s.Pass Associates( in all W.Ps.) For Respondents : Mrs.Hema Muralikrishnan Senior Standing Counsel C O M M O N O R D E R By this common order, all the three writ petitions arebeing disposed. 2. The petitioner has challenged the following threeimpugned orders passed by the 1[st] respondent namely the ChiefCommissioner of Income Tax Chennai-III. 3. By the said impugned orders, the 1[st] respondent hasdenied the benefit of Section 10 (23C) of the Income Tax Act,1961. 2/9 4. Petitioner is a registered Trust. The Deed of Declarationof Charitable Trust of the petitioner dated 11.2.2009 wasregistered as Document No.146 of 2009 dated 11.2.2009. 5. Earlier the petitioner had filed an application beforethe 2[nd] respondent on 09.02.2010 for registration under Section12 AA of the Income Tax Act, 1961 to claim exemption frompayment of income tax. Later a clarification deeds dated03.08.2012/16.08.2012 were signed. In the said clarificationto the Trust Deed, the petitioner has removed the words ''future Development'' from clause 11 of deed of trust declaringit to be operative from 11.02.2009 6. By an order dated 30.08.2010, the 2[nd] respondent rejectedthe application on the ground that as per clause 11 of the TrustDeed, the trustees were empowered to fix fees and charges to becollected from student was to be after taking into account thecost of running schools including future development of theinstitutions and that such fees will be fixed without an elementof profit. 7. As per the Trust Deed, the fees collected would be usedfor future expansion of the schools and that the petitionertrust would establish a hundred schools before 2014. The 2[nd]respondent noticed that the fee structure was not governed bythe government regulations and as such it cannot be said thatthe objective of the petitioner’s trust was Charitable in natureas has been envisaged in Section 2 (15) of the Income Tax Act,1961. 7. As per the Trust Deed, the fees collected would be usedfor future expansion of the schools and that the petitionertrust would establish a hundred schools before 2014. The 2[nd]respondent noticed that the fee structure was not governed bythe government regulations and as such it cannot be said thatthe objective of the petitioner’s trust was Charitable in natureas has been envisaged in Section 2 (15) of the Income Tax Act,1961. 8. Aggrieved by the order of the 2[nd] respondent, thepetitioner had preferred an appeal before the Income TaxAppellate Tribunal, Chennai. By an order dated 20.6.2011, theorder dated 30.8.2010 passed by the 2[nd] respondent was upheld.The learned counsel for the petitioner submits that an appealunder Section 260 (A) of the Income Tax Act, 1961 is pendingbefore the Division Bench of this Court in T.C.A.No.665 of 2011against the said order 20.06.2011 of the Income Tax AppellateTribunal, Chennai. reference C.No.CC. III/7/10(23C) (vi)/12-13; C.No.CC.No.III/10(23C)(vi)/13-14/8 and C.No. CC IT-III/10 (23C) (vi)/13-14/11dated 26.9.2012, 27.9.2013 and 26.9.2014 passed by the 1[st]respondent namely the Chief Commissioner of Income Tax Chennai-III are identical save that in the last mentioned order , it hasbeen mentioned that since the petition has closed down itsschools, the application cannot be considered. 10.In the impugned order dated 26.9.2014 bearing referenceC.No. CC IT-III/10 (23C) (vi)/13-14/11 passed by the1[st]respondent namely the Chief Commissioner of Income Tax Chennai-III which has been impugned in W.P.No. 1739 of 2015, it has beenrecorded that the petitioner was constrained to close down theschools pursuant to directions of this Court in the order dated3.6.2014 in W.P.Nos. 34709 of 2013 and 40470 2014. 11.Challenging the impugned orders passed by the 1[st]respondent in the first two writ petitions, the learned counselfor the petitioner submits that the petitioner’s schoolqualified as an educational institution solely for educationalpurpose and not for the purpose of profit . 12.The learned counsel for the petitioner further submitsthat under 13[th] proviso to section10 (23C) (vi) only where it isfound that the funds of the trust are not applied in accordancewith provisions contained in clause (a) of the proviso or wherethe activities of such funds or institution or trust or anyuniversity or other educational institutions are not carried outin accordance with all or any of the conditions subject to whichit was notified or approved, it may, at any time after givingreasonable opportunity of showing cause against the proposedaction to the concerned fund or institution or trust or anyuniversity or other educational institution or any hospital orany other medical institution, rescinding the notification or byan order to withdraw the approval as the case may be. 13.The learned counsel for the petitioner further submitsthat the application for approval under the above provision forexemption cannot be denied at the threshold itself merelybecause the petitioner has been declared to be a Non-CharitableTrust by the 2[nd] respondent. He submits that such order of the2[nd] respondent ipso facto cannot justify the decision to deny theapproval contemplated under Section 10 (23C) of the Income Tax 4/9 https://hcservices.ecourts.gov.in/hcservices/ Act, 1961. 14. In support of the present writ petition, the learnedcounsel for the petitioner drew my attention to the followingdecisions of the courts:- i) Aditanar Educational Institution Etc., vs.Additional Commissioner of Income Tax (1997) 139CTR (SC) 7 : (1997) 224 ITR (SC) ii) American Hotel & Lodging AssociationEducational Institute vs Central Board of DirectTaxes & Ors. (2008) 216 CTR (SC) 377 : (2008) 301ITR 86 iii) St.Lawrence Educational Society (REGD) vsCommissioner of Income Tax & Anr(2011) 53 DTR(Del)130 : (2013) 353 ITR 320 (Delhi) 4/9 https://hcservices.ecourts.gov.in/hcservices/ Act, 1961. 14. In support of the present writ petition, the learnedcounsel for the petitioner drew my attention to the followingdecisions of the courts:- i) Aditanar Educational Institution Etc., vs.Additional Commissioner of Income Tax (1997) 139CTR (SC) 7 : (1997) 224 ITR (SC) ii) American Hotel & Lodging AssociationEducational Institute vs Central Board of DirectTaxes & Ors. (2008) 216 CTR (SC) 377 : (2008) 301ITR 86 iii) St.Lawrence Educational Society (REGD) vsCommissioner of Income Tax & Anr(2011) 53 DTR(Del)130 : (2013) 353 ITR 320 (Delhi) iv) Digember Jain Society For Child Welfare vsDirector General of Income Tax (Exemptions)(2010)228 CTR (Del) 517 : (2010)329 ITR 459 v) Vanitha Vishram Trust vs Chief Commissioner ofIncome Tax & Anr.(2010) 233 CTR (Bom) 90: (2010)327 ITR 121vi) City Montessori School (Regd.) vs Union ofIndia & Ors.(2009)225 CTR (All) 188: (2009) 315ITR 191vii) MAA Saraswathi Educational Trust vs Union ofIndia& anr.(2010)236 CTR (HP)400 : (2010) 46 DTR360viii) Pinegrove International Charitable Trust &Ors. Vs Union of India & Ors. (2010)230 CTR (P&H)477 ix) All India Personality Enhancement & CulturalCentre for Scholars, Aipes Society vs DeputyCommissioner of Income Tax (2004) 85 TTJ (Del)514: 91 ITD 240 (Del)x) Assistant Commissioner of Income Tax vs BalBharti Nursery School (2002) 76 TTJ (All) 602 :(2002) 82 ITD 71 (All) 5/9 https://hcservices.ecourts.gov.in/hcservices/ xi) Vodithala Education Society vs AssistantDirector of IT (2008) 20 SOT 353 (Hyd) 15.The learned counsel specifically referred to the decisionof the Hon’ble Supreme Court in Queen’s Educational SocietyVersus Commissioner of Income Tax (2015) 372 IT 699 in supportof the present writ petitions. He submits that the Hon’bleSupreme Court has considered all the above decisions and hasapproved the decision/judgements of the Punjab and Haryana, andthe Bombay High Court. He submits that merely because there weresurplus of income over the expenditure incurred cannot by anystretch of imagination allow an inference to be taken that theeducational institution had profit motive. 16. The learned counsel for the petitioner submits thatdominant nature of the activity of the petitioner trust was inthe field of education and profit was not the motive and merelybecause the trust deed envisaged creation of hundred schools by2014 itself does not mean that the intention was to make profit. 17. Per contra, the learned counsel for the respondentssubmits that the writ petitions are liable to be dismissed asthe issue as to whether the petitioner was charitableinstitution or not is subject matter of T.C.A.No.665 of 2011before this Court. It is submitted that the basis on which the1[st] and 2[nd] respondent can conclude whether an institution is aCharitable institution or is meant for educational purpose withno proper motive is the trust deed. 18. The learned counsel for the respondents submits thatboth for the purpose of Sections 12AA and 10 (23C)(vi) of theIncome Tax Act, 1961 , the Trust Deed is the document based onwhich registration or approval can be granted. She furthersubmits that the impugned orders are well reasoned and requiresno interference and therefore these writ petitions are liable tobe dismissed . 19. I have considered the impugned orders and the submissionof the learned counsel for the petitioner and the respondent.Under 10(23C) (vi) of the Income Tax Act, 1961, while computingtotal income of any person during the previous year, any incomereceived by any person on behalf of any university oreducational institution existing solely for educational purposesand not for purposes of profit may be approved by the prescribed 6/9 https://hcservices.ecourts.gov.in/hcservices/ 19. I have considered the impugned orders and the submissionof the learned counsel for the petitioner and the respondent.Under 10(23C) (vi) of the Income Tax Act, 1961, while computingtotal income of any person during the previous year, any incomereceived by any person on behalf of any university oreducational institution existing solely for educational purposesand not for purposes of profit may be approved by the prescribed 6/9 https://hcservices.ecourts.gov.in/hcservices/ 20. Prima facie it appears that the petitioner’s schools arerun with a profit motive though its activities are carried outunder the Trust Deed which has been registered as a CharitableTrust. Further, the Board of Trustees of the petitioner areauthorised to construct or acquire or take on lease or rent,buildings, land or other immovable properties from the funds ofthe Trust for the purposes and the objects of the Trust. 21.The relevant document that would be relied upon by theprescribed authority for the purpose of grant of approval underthe aforesaid provision would be the constitution of such aperson. In this case, it is the Trust Deed. It states that theobjective of the petitioner’s trust was to provide anorganisation that supports the cause of education, includingpromotion and encouragement of training methods to improve thequality of education by starting institutions to support kindergardens, primary, high and higher secondary education schools.The Board of Trustees are empowered to collect fees or chargesfrom students and others for running educational institutionsfor carrying out the objects of the Trust. 22. The fact that Clause 10 of the Trust Deed states thatthe fees and charges shall be fixed taking into account the costof running including future development thereof though withoutan element of profit motive indicates that the actual intentionof the trust is only to generate income by charging fees whileadmitting children’s to their schools. 23. The Deed of Trust has also not declared the source offund for achieving the purpose. It merely stipulates theTrustees are authorised to borrow monies for the purposes of thetrust with or without security from banks, financialinstitutions or otherwise and also have the power to offer asecurity of any immovable or movable property or other security. 24. The fact that there is no clause for providing freeeducation for children coming from different social andeducational backgrounds and the scholarship to under privilegedchildren shows that there is only profit motive and theinstitutions are to be run only out of fees collected byadmitting children’s to their schools. 7/9 25. The Trust Deed also seems to indicate that the source offunds of the petitioner’s trust is only from the school fees tobe collected during these financial years. Therefore, it cannotbe construed that the petitioner’s Trust’s Schools were not forthe purpose of profit. 26. I find the impugned orders in W.P.Nos.29475 of 2012 and& 34234 of 2013 are well reasoned and requires no interferenceat this stage. I therefore I do not find any merits in thesewrit petitions filed by the petitioner as well. 27. In any event, if the petitioner succeeds in T.C.A.No.665 of 2011, the petitioner would be entitled to claim exemptionas a Charitable Institution. 28. Since the schools run by the petitioner were directed tobe closed, pursuant to the above directions I do not find anymerits in W.P.No.1739 of 2015. Presence of educationalinstitution is sine qua non for grant of approval under Section10 (23C) (vi) of the Income Tax Act, 1961. The impugned orderpassed by the 1[st]respondent is therefore sustainable.Accordingly, W.P.No.1739 of 2015 is dismissed 29. In view of above discussion, these three writ petitionsare dismissed. No costs. Consequently, connected miscellaneouspetitions are closed. Sd/- Asst.Registrar (CS III ) /true copy/Sub Asst. Registrar kkd To 27. In any event, if the petitioner succeeds in T.C.A.No.665 of 2011, the petitioner would be entitled to claim exemptionas a Charitable Institution. 28. Since the schools run by the petitioner were directed tobe closed, pursuant to the above directions I do not find anymerits in W.P.No.1739 of 2015. Presence of educationalinstitution is sine qua non for grant of approval under Section10 (23C) (vi) of the Income Tax Act, 1961. The impugned orderpassed by the 1[st]respondent is therefore sustainable.Accordingly, W.P.No.1739 of 2015 is dismissed 29. In view of above discussion, these three writ petitionsare dismissed. No costs. Consequently, connected miscellaneouspetitions are closed. Sd/- Asst.Registrar (CS III ) /true copy/Sub Asst. Registrar kkd To 1.The Chief Commissioner of Income Tax, Chennai – III, 121, Mahatma Gandhi Road, Chennai 600 034. 8/9 2.The Director of Income Tax (Exemptions) Ayakar Bhawan, Annex III Floor, 121, Mahatma Gandhi Road, Chennai 600 034. Ayakar Bhawan, Annex III Floor, 121, Mahatma Gandhi Road, Chennai 600 034. 3.The Deputy Director of Income Tax (Exemptions) Ayakar Bhawan, Annex III Floor, 121, Mahatma Gandhi Road, Chennai 600 034. (Exemptions) Ayakar Bhawan, Annex III Floor, 121, Mahatma Gandhi Road, Chennai 600 034. +3 ccs to M/s.Pass Associates sr5048+1 cc to Mr.Hema Muralikrishnan Advocate sr4961 Pre-delivery Order Common Order in W.P.Nos.29475/2012, 34234/2013 & 1739/2015and M.P.Nos.1 of 2012, 1 of 2013 and 1 of 2015vgII(co)aa12/03/2020 9/9