Sanatan Dharam Shiksha Samiti v. Chief Commissioner Of Income Tax, Panchkula

Civil Writ Petition No.4155 of 2011.-1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Civil Writ Petition No.4155of 2011Date of decision: 3.10.2011 Sanatan Dharam Shiksha Samiti ...Petitioner Versus Chief Commissioner of Income Tax, Panchkula ...RespondentCivil Writ Petition No.4119of 2011 Vaish Model Primary School Education Society...Petitioner Versus Chief Commissioner of Income Tax, Panchkula ...Respondent CORAM: HON'BLE MR.JUSTICE HEMANT GUPTA HON'BLE MR.JUSTICE G.S.SANDHAWALIA Present: Mr. Sandeep Goyal, Advocate for the petitioner. Ms. Urvashi Dhugga, Sr. Standing Counsel for the respondent. **** G.S.SANDHAWALIA, J. This order will dispose of two Civil Writ Petitions No.4119 and4155 of 2011 as facts and law involved in these petitions are common.However, the facts of Civil Writ Petition No.4155 of 2011 are beingadverted to. The petitioners are aggrieved by the order dated 29.9.2010whereby respondent dismissed their applications in Form 56-D for grant ofexemption under Section 10(23C) (vi) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2009-10. The petitioner-assessee filed an application dated 27.9.2009 inForm 56-D seeking grant of exemption/approval under Section 10(23C) (vi)of the Act on the ground that it was a society registered on 16.9.1992 underthe Society Registration Act, 1860 and for the last 18 years engaged in theactivity of providing education and relied upon aims and objects mentionedin the Memorandum of Association to press forth the ground that it existssolely for education purposes and not for purposes of earning profit.Information was sought by the office of the Income Tax Officer from thepetitioner society on 4.5.2010 whereby it was asked to furnish variousinformation including activities undertaken by the petitioner society, list oftrustees and copy of accounts etc. The said information was accordinglyfurnished on 17.5.2010 to the Income Tax Department and it was alsobrought to the notice of the said officer that the petitioner society wasrunning two schools at Hansi and details of strength of students andownership of lands and rooms was also given. Thereafter, freshinformation was asked for on 20.9.2010 vide Annexure P-6 as to whetherthe society exists solely for education purposes or it has other activitiesalso which were not related to education. The petitioner was also asked toexplain the surplus for the last three assessment years i.e. 30.54%,45.32% and 48.8%, and the petitioner was asked to analyse the aboveprofit with respect to utility thereof. Accordingly, detailed reply wassubmitted on 22.9.2010 and stress was laid down that aims and objects ofthe society were mainly in the context of imparting education and forestablishing schools, hostels, libraries, reading rooms and play groundsetc. And further that income was not to go to the members of the society inany manner rather the society exists solely for imparting education and falls within the ambit of Section 10(23C) (vi) of the Act. As far as the issue ofsurplus of the society and profit, explanation was given in the reply thatpercentage of surplus had been miscalculated by not excludingdepreciation and adding capital expenditure incurred for the purpose ofbenefit of the society. This explanation was further elaborated in arepresentation dated 28.9.2010 and stress was laid down on Section 2(15)of the Act that education itself is a charitable purpose and the term is wideand extensive. Reliance was also placed on various judgments includinggiven the one by the Division Bench of this Court on 29.1.2010 inPinegrove International Charitable Trust Vs. Union of India (UOI) andothers(2010) 327 ITR 73 (P&H) and also the judgment of the sameDivision Bench dated 29.1.2010 in Civil Writ Petition No.858 of 2009(Kashatriya Sabha Maharana Partap Bhawan, Kurukshetra Vs. Unionof India and another)whereby a number of writ petitions including thepetitioners’ writ petition being Civil Writ Petitions No.8258 of 2009 for theassessment years 2005-06 to 2008-09 had been decided in favour of theassessee. Stress was again laid down on the fact that depreciation hadnot been applied for calculating the percentage of surplus and a chart wasprepared wherein percentage of surplus was accordingly reduced aftercalculating depreciation. The respondent, however, vide order dated29.9.2010 rejected the application of the petitioner and concluding portionof the impugned order is reproduced hereunder:- “In conclusion, it may be mentioned here that for the grant ofexemption/approval u/s 10(23C)(vi), the basic requirement ofsub-clause (vi) of clause (23C) of section 10 is that theeducational institution seeking exemption should be existingsolely for the purposes of education and not for the purposes of profit. Here the emphasis is laid on the word ‘solely’. Keeping in view the above facts, it is held that in the light ofobservation of the Supreme Court which were not taken noteof in the case of Pinegrove International Charitable Trust caseby the Hon’ble Punjab & Haryana High Court (C.W.P. No.6031of 2009) order dated 29.1.2010 and the fact that the profits areheld not to be incidental as they do not arise merely for oneyear but systematically, the educational institutions namely“S.D. Modern Public School & S.D. Modern Shishu PublicSchool” do not satisfy the basic condition of existing solely foreducational and not for profit as per section 10(23C)(vi) ofI.T.Act, 1961, The approval sought cannot be granted and theapplication is dismissed.” The petitioner is, thus, aggrieved by the said order of therespondent whereby its application for exemption has been rejected andwhereas the respondent has sought to distinguish the Division Benchjudgement inPinegrove International Charitable Trust’scase (supra) onthe ground that the Division Bench judgment had not taken note ofobservations of the Hon’ble Supreme Court regarding profiteering inP.A.Inamdar and others V. State of Maharashtra and others (2005) 6S.C.C. 537. Notice of motion being issued, respondent has also filedwritten reply through the same officer who has passed the impugned orderjustifying the said order and rejecting the applications on the ground thatreasonable profit should ordinarily vary from 6% to 15% and in the presentcase surplus amounts to as high as 42.06%. After hearing the learned counsel for the parties, we find that the matter is squarely covered by the decision of the Division Bench of this Court inPinegrove International Charitable Trust’s case (supra) whereinthe provisions of Section 10(23C)(vi) of the Act were discussed and thefollowing substantial questions of law were determined by the DivisionBench:- “(A) Whether an educational institution would cease to exist‘solely’ for educational purposes and not for purposes of profitmerely because it has generated surplus income over a periodof 4/5 years after meeting its expenditure? After hearing the learned counsel for the parties, we find that the matter is squarely covered by the decision of the Division Bench of this Court inPinegrove International Charitable Trust’s case (supra) whereinthe provisions of Section 10(23C)(vi) of the Act were discussed and thefollowing substantial questions of law were determined by the DivisionBench:- “(A) Whether an educational institution would cease to exist‘solely’ for educational purposes and not for purposes of profitmerely because it has generated surplus income over a periodof 4/5 years after meeting its expenditure? (B) Whether the amount spent on acquiring/constructingcapital assets wholly and exclusively becomes part of the totalincome or its becomes entitled to exemption under Section 10(23C(vi) of the Act? (C) Whether an institution registered as a Society under theSocieties Registration Act, 1960, lose its character as aneducational institution, eligible to apply for exemption underSection 10(23C)(vi) of the Act? After considering the case law on the subject, the Division Bench came to categorical conclusion after relying upon the judgment ofHon’ble Supreme Court in CIT (Addl.) v. SuratArt Silk Cloth Manufacturers Association, [1980] 121 ITR 1(SC) and AditanarEducational Institution v.Additional Commissioner of Income-tax,[1997] 224 ITR 310that the test of pre-dominant object of the activity is tobe seen whether an institution exists solely for education and not to earnprofit and would not only be difficult of practical realisation but would alsoreflect unsound principle of management. If no profit arises from theactivity, it is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultantprofit. In the present case, the petitioner had earlier approached thiscourt for the assessment years 2005-06 to 2008-09 by way of Civil WritPetition no.8258 of 2009 which was decided on 29.1.2010 along with CivilWrit Petition 858 of 2009 and this Court had quashed the order decliningexemptions and left it open to the respondent to passed afresh order in thelight of various propositions of law culled out by the Division Bench. The observations of respondent whereby it has sought todecline the case of the petitioner for the assessment year 2009-10 byplacing reliance upon the judgment of the Hon’ble Supreme Court inP.A.Inamdar’scase (supra) would be of no help since the issue in the saidcase was not the issue under the Income Tax Act. The Hon’ble SupremeCourt was only deciding the question of minority and non minorityinstitutions, percentage of reservation/control over the said institutions,fixation of quota of admissions in respect of unaided institutions and feestructure etc. Therefore, the reasoning given by respondent is totallyperverse and not sustainable. The respondent has only relied upon fewobservations made regarding fixation of fee while losing sight of the factthat what was the main issue that was being decided. The issue havingbeen directly decided by the Division Bench of this Court, is binding uponthe respondent. Respondent has also rejected the application of the petitioner on theground that assessee’s aims and objects are not related to educationpurposes. The aims and objects of the assessee’s society are reproducedbelow:- “1) Arrangement for education and moral educational for young and Kinder Garten girls and boys. 2) Arrangement for imparting education to the studentsbased upon Indian Culture and Philosophy. 3) Arranging for appropriate programmes for physical,mental, spiritual and moral education to the students. 4) Arrangement of schools, hostels, library, auditoriumsand playgrounds for the students. Running a school in thename of S.D.Modern Public Secondary School at Hansi fromClass 6[th] to Class Plus 2 for achieving objects at 1 to 4mentioned aforesaid. Respondent has also rejected the application of the petitioner on theground that assessee’s aims and objects are not related to educationpurposes. The aims and objects of the assessee’s society are reproducedbelow:- “1) Arrangement for education and moral educational for young and Kinder Garten girls and boys. 2) Arrangement for imparting education to the studentsbased upon Indian Culture and Philosophy. 3) Arranging for appropriate programmes for physical,mental, spiritual and moral education to the students. 4) Arrangement of schools, hostels, library, auditoriumsand playgrounds for the students. Running a school in thename of S.D.Modern Public Secondary School at Hansi fromClass 6[th] to Class Plus 2 for achieving objects at 1 to 4mentioned aforesaid. 5) Purchase of land for running the school, raising buildingthereon and for promoting land in the premises of SanatanDharam Kanya High School Hansi and raising buildingthereon as per the terms and development work thereon onthe various properties of society from time to time and repairthereof, changing structures as per requirement of thebuilding, extension of the buildings and doing all related worksfrom time to time. Selling the movable and immovableproperty of the society as per requirement and distribution ofthe money received and forming society etc. 6) On the land obtained from Sanatan Dharm Kanya HighSchool, Hansi and building raised therein including itsextension shall not be sold off nor given on rent or lease nor itwill be used for residential purpose. 7. Providing free education and residence to poor children and helping them economically. 8. Providing scholarships to bright students. 9. Using the income and funds of the society for theobjectives of the society. 10. Helping the working organisations as per objectives ofthe society. 11. Collecting the money from public and donations or theachieving of objects of the society. Obtaining grant and aidsfrom Central Govt. State Govt., other Govt., semi Govt. Andother organisations. 12. The income, funds and property of the society would beused for the purposes of society only and no member or officebearer of the society would take and dividend, bonus or benefitin direct or indirect manner. In case the society is wound up,then all the properties, receivables and payables of the societyshall be passed on to a society who has similar aims andobjects or would be passed on to central Govt. or HaryanaState Govt. 13) As per Section 2 of the Societies Registration Act, 1860(as amended by the Punjab Act, 1957), the working the societyhas been entrusted to the following founder members of thesociety whose names addresses, profession and designationare given hereunder. .........” A perusal of the above aims and objects goes to show that thesociety which was running two schools from class VI to +2 was devotedsolely for the purpose of education and development work of the saidsociety and as per clause (6) it was further provided that land shall not besold off nor used for residential purposes. Thus the reasoning given by the respondent on this account is also perverse. The respondent has nottaken into account that it has failed to record a finding that theaccumulation of surplus of more than 15% of the income is accumulated onafter the Ist day of April, 2002, the period of accumulation of the amountexceeding 15% of its income has not exceeded five years and, thus, thepetitioner-assessee is not entitled for the said exemption. .........” A perusal of the above aims and objects goes to show that thesociety which was running two schools from class VI to +2 was devotedsolely for the purpose of education and development work of the saidsociety and as per clause (6) it was further provided that land shall not besold off nor used for residential purposes. Thus the reasoning given by the respondent on this account is also perverse. The respondent has nottaken into account that it has failed to record a finding that theaccumulation of surplus of more than 15% of the income is accumulated onafter the Ist day of April, 2002, the period of accumulation of the amountexceeding 15% of its income has not exceeded five years and, thus, thepetitioner-assessee is not entitled for the said exemption. In view of above, both the writ petitions are allowed and theimpugned orders declining the application for exemption under Section 10(23C)(vi) of the Act are quashed. Respondent is directed to re-decide thesaid issue by keeping in mind the principles laid down in case PinegroveInternational Charitable Trust’s case (supra) and the earlier order dated29.1.2010 passed in Civil Writ Petition No.858 of 2009and otherconnected petitions including the petitioner's writ petition being Civil WritPetition No.8258 of 2009 for the assessment years 2005-06 to 2008-09. A photocopy of this order be placed on the file of theconnected case. (G.S.SANDHAWALIA) Judge October 03, 2011Pka (HEMANT GUPTA) Judge