Wp/23853/2010 Of M/S. Church Edcucational Society v. The Chief Commissioner Of Income Tax-1

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITIN No.23853 OF 2010 ORDER:(Per Hon’ble Sri Justice Ramesh Ranganathan) The relief sought for in this Writ Petition is to declare theorder of the 1[st] respondent dated 24.09.2009 as arbitrary, illegal,and consequently direct the 1[st] respondent to grant approval interms of Section 10(23C)(vi) of the Income Tax Act, 1961(hereinafter called the “Act”). The objects of the petitioner, a society registered under theAndhra Pradesh (Telangana areas) Public Societies RegistrationAct, 1350 Fasli with registration No.5733 of 1993 dated30.12.1993, are as under: i.To open, run and continue an instrument for providingHigher, Technical and Medical Education and Training tothe student community of students to promote Literacy andEradicate Unemployment.Higher, Technical and Medical Education and Training tothe student community of students to promote Literacy andEradicate Unemployment. ii.To open, run and continue the Hostels for the poorStudents Community.Students Community. iii.To organize seminars, workshops, debates, camps andforums etc., for poor student community.forums etc., for poor student community. iv.To encourage social, educational and literary activitiesamong the students.among the students. v.To open run and continue primary, secondary and HighSchools for students.Schools for students. vi.To conduct cultural programmes, help for poor people ofcommunity for their study, andcommunity for their study, and vii.To develop Telugu relations in the Society. These objects are said to have been amended in a meeting ofthe society held on 10.09.2009, and to have been registered with the Registrar of Societies on 29.09.2009. The objects, after amendment, are said to be as under: i.To open, run continue an institution for providing Higher,Technical and Medical Education and Training to the studentcommunity of students to promote Literacy and EradicateUnemployment.Technical and Medical Education and Training to the studentcommunity of students to promote Literacy and EradicateUnemployment. ii.To open and run Hostels for the poor Students Community.iii.To organize seminars, workshops, debates camps and forumsetc., for poor students.iii.To organize seminars, workshops, debates camps and forumsetc., for poor students. iv.To encourage social, educational and literary activities amongthe students.the students. v.To open run and continue primary, secondary and HighSchools for students.Schools for students. The petitioner claims to be running various educationalinstitutions, including PG colleges, Engineering colleges etc., afterobtaining necessary approval from the appropriate authorities, andto be providing quality education. It is their case that they havebeen filing income tax returns claiming exemption under the Act onthe ground that they exist solely for educational purposes, and notfor profit. The petitioner claims to have submitted an application, inForm No.56D on 08.01.2006, seeking exemption from theassessment years 2004-2005 onwards, along with necessaryenclosures. The said application is stated to have been submittedbefore the Director of Income Tax (Exemption) on 09.01.2006. The petitioner filed an application in Form 56D on 15.09.2008,along with necessary enclosures. The 1[st] respondent, afterverification, passed orders dated 24.09.2009 according approvalunder Section 10(23)(vi) of the Act from the assessment year2009-2010 onwards. The 1[st] respondent passed another orderdated 24.09.2009 rejecting approval for the assessment years 2004-2005 to 2008-2009 on the ground that it was beyond time,and was invalid as per the fourteenth proviso to Section 10(23C) ofthe Act. The petitioner claims to have submitted an application, inForm No.56D on 08.01.2006, seeking exemption from theassessment years 2004-2005 onwards, along with necessaryenclosures. The said application is stated to have been submittedbefore the Director of Income Tax (Exemption) on 09.01.2006. The petitioner filed an application in Form 56D on 15.09.2008,along with necessary enclosures. The 1[st] respondent, afterverification, passed orders dated 24.09.2009 according approvalunder Section 10(23)(vi) of the Act from the assessment year2009-2010 onwards. The 1[st] respondent passed another orderdated 24.09.2009 rejecting approval for the assessment years 2004-2005 to 2008-2009 on the ground that it was beyond time,and was invalid as per the fourteenth proviso to Section 10(23C) ofthe Act. The petitioner would contend that, since they had submittedan application as long back as on 09.01.2006 seeking approvalunder Section 10(23C) from the assessment year 2004-2005onwards, their application cannot be said to be belated; thesecond application dated 15.09.2008 was filed at the request of the2[nd]/3[rd] respondent on the ground that the earlier application filed by the petitioner was misplaced; the 1[st] respondent ought to havegiven them an opportunity of being heard before passing theimpugned order, which would have enabled them to bring to hernotice that they had filed their first application as early as on09.01.2006; and the 1[st] respondent failed to notice that theamendment, prescribing limitation for the purposes of making anapplication under Section 10(23C), came into force with effectfrom 01.06.2006 after they had submitted their first application on09.01.2006. In his counter affidavit, the 2[nd] respondent-Director ofIncome Tax (Exemption) would state that the Inward Register oftheir office for the relevant period could not be readily traced. Inthe counter affidavit filed on behalf of the 1[st] respondent, theDeputy Commission of Income tax would state that the applicationdated 09.01.2006 is not borne on the records; the 1[st] respondentgranted exemption for the assessment year 2009-2010 and for thesubsequent years since the application was filed in time, and theobjects in the memorandum of the society were appropriately amended in the meeting held on 13.08.2009, a copy of which wasfiled by the department on 22.09.2009; and as the application wasfiled belatedly, and their objects were not “solely” for educationalpurposes, exemption was denied for the earlier assessmentyears. They would deny the allegation that the petitioner had filedtheir application on 15.09.2008 at the request of the department. Itis also stated that the petitioner was given an opportunity ofhearing vide letters dated 21.08.2009 and 09.09.2009; thepetitioner had appeared through their authorized representativeson 18.09.2009 and 22.09.2009, and had also furnished their writtensubmissions; in their letter dated 22.09.2009, filed before the 1[st]respondent, the petitioner had requested that their case beconsidered on merits, and approval under Section 10(23C) begranted atleast from the date of their latest application; and,accordingly, approval under Section 10(23C)(vi) was granted, videletter dated 24.09.2009, from the assessment year 2009-2010. In her order dated 24.09.2009, the 1[st] respondent informedthe petitioner that, in view of the fourteenth proviso to Section10(23C) of the Act, the application made on 15.09.2008, seekingapproval under Section 10(23C)(vi) of the Act, in so far as itrelated to the assessment year 2004-2005 to 2008-2009 wasbeyond time, and was invalid as per the fourteenth proviso toSection 10(23-C) of the Act. By a separate order dated24.09.2009, the petitioner was granted approval under Section10(23C)(vi) for the assessment years 2009-2010 onwards subjectto the conditions mentioned in the order. Under the first proviso to Section 10(23C)(vi) of the Act, In her order dated 24.09.2009, the 1[st] respondent informedthe petitioner that, in view of the fourteenth proviso to Section10(23C) of the Act, the application made on 15.09.2008, seekingapproval under Section 10(23C)(vi) of the Act, in so far as itrelated to the assessment year 2004-2005 to 2008-2009 wasbeyond time, and was invalid as per the fourteenth proviso toSection 10(23-C) of the Act. By a separate order dated24.09.2009, the petitioner was granted approval under Section10(23C)(vi) for the assessment years 2009-2010 onwards subjectto the conditions mentioned in the order. Under the first proviso to Section 10(23C)(vi) of the Act, educational institutions are required to make an application, in theprescribed form and manner, to the prescribed authority for thepurpose of grant of exemption or continuance thereof. The secondproviso enables the prescribed authority, before approving anyeducational institution under sub-clause (vi), to call for suchdocuments including audited annual accounts or information fromthe educational institution, as it thinks necessary, in order tosatisfy itself about the genuineness of the activities of sucheducational institution. The second proviso also enables theprescribed authority to make such enquiries as it deemsnecessary. The fourteenth proviso to Section 10(23C) of the Act,in its entirety, was inserted by the Finance Act 2006 with effectfrom 1.6.2006 and, prior to its amendment by Finance Act, 2009,required an educational institution which makes an application, onor after the first day of June, 2006, for the purpose of grant ofexemption or continuance thereof to make an application at anytime during the financial year immediately preceding theassessment year. After its amendment by Finance Act, 2009, withretrospective effect from 1.4.2009, the fourteenth proviso toSection 10(23C) stipulates that where an educational institution,referred to in the first proviso, makes an application, on or afterthe first day of June, 2006, for the purpose of grant of exemptionor continuance thereof, such application shall be made on orbefore the 30[th] day of September of the relevant assessment yearfor which the exemption is sought. The burden of establishing that an application in Form 56-Dwas filed, as early as on 9.1.2006, lies heavily on the petitioner. The copy of the application placed before this Court does contain the seal of the office of the Director of Exemptions. However, inthe light of the averment in the additional counter affidavit, that thesaid application dated 9.1.2006 is not borne out by the records, theconduct of the petitioner must also be noted. Having filed theapplication on 9.1.2006, it defies reason that the petitioner wouldnot follow up the matter with the 1[st] respondent and would wait fornearly two years to make the subsequent application dated15.9.2008. We are therefore, unable to brush aside thesubmission of Sri J.V.Prasad, Learned Standing Counsel, that theapplication said to have been filed on 9.1.2006 is created only toget over the amendment to the fourteenth proviso which came intoforce with effect from 1.6.2006. The petitioner’s application dated15.9.2008 can only be applicable for the assessment years 2009-10 and beyond, and not for the assessment years prior thereto.Even otherwise the petitioner’s objects, as it originally stood,included “to eradicate unemployment”; “to help poor people ofthe community for their study” and “to develop Telugurelations in the society” are not solely educational in nature. In order to be eligible for exemption, under Section 10(23C)(vi) of the Act, it is necessary that there must exist an educationalinstitution. Secondly, such institution must exist solely foreducational purposes and, thirdly, the institution should not existfor the purpose of profit. (Commissioner of Income Tax v.Sorabji Nusserwanji Parekh[[1]]). In deciding the character of therecipient of the income, it is necessary to consider the nature ofthe activities undertaken. If the activity has no co-relation toeducation, exemption has to be denied. The recipient of the income must have the character of an educational institution to beascertained from its objects. (Aditanar Educational Society v.ACIT[[2]]). The emphasis in Section 10(23C)(vi) is on the word"solely". "Solely' means exclusively and not primarily. (Commissioner of Income-tax, Hyderabad v. GurukulGhatkeswar of Hyderabad[[3]];Commissioner of Income Tax v.Maharaja Sawai Mansinghji Museum Trust[[4]]). In using theexpression, “solely”, the legislature has made it clear that itintends to exempt the income of the institutions established solelyfor educational purposes, and not for commercial activities.(Oxford University Press v. CIT[[5]]). This requirement wouldmilitate against an institution pursuing objects other thaneducation. (Vanita Vishram Trust v. Commissioner of Income-tax[[6]]). Even if one of the objects enables the institution toundertake commercial activities, it would not be entitled forapproval under Section 10(23-C)(vi) of the Act. (American Hotel & Lodging Association Educational Institute v. CBDT[[7]]). It isonly if the objects reveal that the very being of the assessee-society, as an educational institution, is exclusively for educationalpurposes and not for profit, would the assessee be entitled forexemption under Section 10(23-C)(vi) of the Act. (GurukulGhatkeswar of Hyderabad[3]). In case of a dispute, whether the claim of the assessee tobe exempted from tax is admissible or not, it is necessary for theassessee to establish that it is part of an institution which is engaged solely for educational purposes and not for the purposesof profit, and the income in respect of which exemption is claimedis a part of the income of the institution. (Oxford UniversityPress[5]). The activities of the institution, its objects, its source ofincome and its utilization, must be analysed by the prescribedauthority to ascertain whether it exists solely for education and notfor profit, and it is his duty to ascertain whether the income isapplied wholly and exclusively for the educational objects forwhich purpose the applicant is established. (ACIT v. Surat ArtSilk Manufacturers Association[[8]];American Hotel[7]). The test of predominant object of the activity is to be seen,whether it exists solely for education, and not to earn profit. (Addl. Commissioner of Income Tax v. Surat Art Silk ClothManufacturers Association[[9]];American Hotel[7]; PinegroveInternational Charitable Trust v. UOI[[10]]). The decisive test iswhether, on an overall view of the matter, the object is to carry oneducational activities or to make profit. (Aditanar EducationalInstitution[2]). If there are several objects of a society some of whichrelate to “education” and others which do not, and the trustees orthe managers in their discretion are entitled to apply the income orproperty to any of those objects, the institution would not be liableto be regarded as one existing solely for educational purposes,and no part of its income would be exempt from tax. In otherwords, where the main or primary objects are distributive, each If there are several objects of a society some of whichrelate to “education” and others which do not, and the trustees orthe managers in their discretion are entitled to apply the income orproperty to any of those objects, the institution would not be liableto be regarded as one existing solely for educational purposes,and no part of its income would be exempt from tax. In otherwords, where the main or primary objects are distributive, each and everyone of the objects must relate to “education” in order thatthe institution may be held entitled for the benefits under Section10(23-C)(vi) of the Act. If the primary or dominant purpose of aninstitution is “educational”, another object which is merely ancillaryor incidental to the primary or dominant purpose would notdisentitle the institution from the benefit. The test which has,therefore, to be applied is whether the object, which is said to benon-educational, is the main or primary object of the institution orit is ancillary or incidental to the dominant or primary object whichis “educational”. (Surat Art Silk Cloth Manufacturers Association[9]). The test is the genuineness of the purpose testedby the obligation created to spend the money exclusively on"education". If that obligation is there, the income becomes entitledto exemption. (Sole Trustee, Loka Shikshana Trust v.C.I.T[[11]]). Under the third proviso to Section 10(23-C)(vi) theprescribed authority has to ascertain, while examining thegenuineness of the activities of the institution, whether theapplicant applies its income wholly and exclusively to the objectsfor which it is established. The applicant has not only to impart,but must also apply its income exclusively for the purposes of,education. (American Hotel[7]). The words 'not for the purposes of profit' accompanying the words 'existing solely foreducational purposes' has to be read and interpreted keeping inview the third proviso to Section 10(23C)(vi) which prescribes themethodology for utilization and accumulation of income at the hands of the educational institution. As a result 85% of the incomehas to be applied by the educational society for the purpose ofeducation. The third proviso requires the applicant society toapply its income, or accumulate it for application, wholly andexclusively, to the objects for which it is established. The word'wholly' refers to the quantum of expenditure and the word'exclusively' refers to the motive, object or the purpose ofexpenditure. (Pinegrove International Charitable Trust[10]; VanitaVishram Trust[6]). The threshold conditions are aimed at discovering the actualexistence of an educational institution and approval of theprescribed authority for which an application in the standardizedform, in terms of the first proviso, has to be given by everyapplicant. If the educational institution actually exists foreducational purposes alone should the prescribed authority permit it to operate. (American Hotel[7]; Pinegrove InternationalCharitable Trust[10]). The aforesaid objects do not relate to education. The sensein which the word "education" has been used, in Section 2(15) ofthe Income Tax Act, is the systematic instruction, schooling ortraining given to the young in preparation for the work of life. Italso connotes the whole course of scholastic instruction which aperson has received. The word "education", in Section 2(15), hasnot been used in that wide and extended sense according to whichevery acquisition of further knowledge constitutes education. Whateducation connotes, in that clause, is the process of training anddeveloping the knowledge, skill, mind and character of students by it to operate. (American Hotel[7]; Pinegrove InternationalCharitable Trust[10]). The aforesaid objects do not relate to education. The sensein which the word "education" has been used, in Section 2(15) ofthe Income Tax Act, is the systematic instruction, schooling ortraining given to the young in preparation for the work of life. Italso connotes the whole course of scholastic instruction which aperson has received. The word "education", in Section 2(15), hasnot been used in that wide and extended sense according to whichevery acquisition of further knowledge constitutes education. Whateducation connotes, in that clause, is the process of training anddeveloping the knowledge, skill, mind and character of students by formal schooling. (Sole Trustee, Loka Shikshana Trust[11]). Thisdefinition of ‘education’ is wide enough to cover the case of an"educational institution" as, under Section 10(23-C)(vi), the"educational institution" must exist "solely" for educationalpurposes. (Maharaja Sawai Mansinghji Museum Trust[4]) . Theelement of imparting education to students, or the element ofnormal schooling where there are teachers and taught, must bepresent so as to fall within the sweep of Section 10(23-C)(vi) ofthe Act. Such an institution may, incidentally, take up otheractivities for the benefit of students or in furtherance of theireducation. It may invest its funds or it may provide scholarships orother financial assistance which may be helpful to the students inpursuing their studies. Such incidental activities alone, in theabsence of the actual activity of imparting education by normalschooling or normal conduct of classes, would not be sufficient forthe purpose of qualifying the institution for the benefit of Section10(23-C)(vi). (Sorabji Nusserwanji Parekh[1]). Section 2(15) iswider in terms than Section 10(23-C) (vi) of the Act. If theassessee's case does not fall within Section 2(15), it is difficult toput it in Section 10(23-C) (vi) of the Act. (Maharaja SawaiMansinghji Museum Trust[4]). The aforesaid objects can neither said to be integrallyconnected with, nor as being ancillary to the object of “education”and, since the existence of an educational institution solely for thepurpose of education is the sine qua non for granting approvalunder Section 10(23C)(vi) of the Act, the petitioner would not beentitled for exemption under Section 10(23C)(vi) of the Act. The aforesaid objects can neither said to be integrallyconnected with, nor as being ancillary to the object of “education”and, since the existence of an educational institution solely for thepurpose of education is the sine qua non for granting approvalunder Section 10(23C)(vi) of the Act, the petitioner would not beentitled for exemption under Section 10(23C)(vi) of the Act. The objects of the petitioner society are said to have beenamended on 10.9.2009, and to have been registered with theRegistrar of Societies on 29.9.2009. The order of rejection, inissue herein, is for the assessment years 2004-05 to 2008-09 and,since the amended objects came into force after theaforementioned assessment years, the amended objects have noapplication to the facts of the present case. The A.P. SocietiesRegistration Act, 2001 (AP Act 35 of 2001) repealed the SocietiesRegistration Act in its application to the Andhra Area of the Stateof Andhra Pradesh, and the A.P. (Telangana Area) PublicSocieties Registration Act, 1350 fasli. Section 8 of A.P. Act 35 of2001 relates to amendment of the memorandum and bye-laws of asociety. Under sub-section (1) thereof a society, by a specialresolution, may alter the provisions of the memorandum withrespect to a change of its objects. Under sub-section (3) anyalteration of the memorandum of the society shall not be validunless such alteration is registered under the Act. Under Section8(4) if any alteration of the memorandum is filed, and if they arenot contrary to the provisions of the Act, the Registrar shallregister the same, and certify registration of such alteration withinthirty days from the date of receipt of the resolution. Thiscertificate is conclusive evidence that all the requirements of theAct, with respect to the alteration and the certification thereof,have been complied with and, henceforth, the memorandum, as soaltered, shall be the memorandum of the society. On a conjointreading of sub-sections (3) and (4) of Section 8, it is only when theamendment to the objects of the society is intimated to the Registrar and the Registrar, on being satisfied that the amendmentis not contrary to the provisions of the Act, registers and certifiessuch an alteration would it be a valid alteration under the Act. It isonly from the date the Registrar certifies the alteration that theamendment, to the objects of the society, comes into force. Even otherwise the amended objects also include“eradication of unemployment”, which cannot be said to besolely for the purpose of education. It is also neither ancillary toor integrally connected with the object of education. It is, however, submitted that the application was rejectedonly on the ground that the application was filed belatedly, and noton the basis of the objects of the society, this Court ought to setaside the order since the application was filed on time; and the 1[st]respondent must be directed to examine the objects and passorders afresh in accordance with law. The jurisdiction exercisedby this Court under Article 226 of the Constitution of India isdiscretionary, and a Writ is not issued as a matter of course. Awrit of mandamus is not a writ of course or a writ of right but is, asa rule, discretionary. (C.R. Reddy Law College Employees’Association, Eluru, W.G.District Vs. Bar Council of India, NewDelhi)[[12]]. One of the limitations imposed by this Court, on itself,is that it would not exercise jurisdiction unless substantial injusticehas ensued or is likely to ensue. It would not allow itself to beturned into a court of appeal to set right mere errors of law whichdo not occasion injustice. (Sangram Singh Vs. Election Tribunal,Kotah)[[13]]. Ex-facie the objects, both prior to and after its amendment,are not “solely” for the purpose of education and we see no usefulpurpose, therefore, in setting aside the order and remanding thematter back to the Chief Commissioner only to enable him to passan order afresh rejecting the petitioner’s application on this ground. Ex-facie the objects, both prior to and after its amendment,are not “solely” for the purpose of education and we see no usefulpurpose, therefore, in setting aside the order and remanding thematter back to the Chief Commissioner only to enable him to passan order afresh rejecting the petitioner’s application on this ground. The writ petition fails and is, accordingly, dismissed. However, in the circumstances, without costs. _____________ V.V.S.RAO, J ___________________________ RAMESH RANGANATHAN, J 23.11.2010 ASP [1](1993) 201 ITR 939[2](1997) 224 ITR 310[3]Judgment of APHC DB in R.C. No.35 of 1996 dated 29.09.2010[4](1988) 169 ITR 379 (RAJ)[5](2001) 247 ITR 658 (SC)[6](2010) 327 ITR 121 (Bombay)[7](2008) 301 ITR 86 SC [8](1980) 121 ITR 1 (SC) [9](1980) 121 ITR 1(SC[10](2010)327 ITR 73 (P &H [11](1975) 101 ITR 234( SC [12]2004(5) ALD 180 (DB) [13]AIR 1955 S.C.425