Wp/26980/2010 Of M/S. Tarakarama Educational Society v. The Chief Commissioner Of Income -Tax

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITIN No.26980 OF 2010 ORDER:(Per Hon’ble Sri Justice Ramesh Ranganathan) This Writ Petition is filed questioning the order of the 1[st]respondent dated 29.10.2009 whereby the petitioner’s applicationdated 14.10.2008, seeking approval under Section 10(23C)(vi) ofthe Income Tax Act, (hereinafter referred to as the “Act”), in so faras it related to the assessment years 2004-05 to 2008-09, wasrejected. The petitioner, a society registered under the AndhraPradesh (Telangana area) Public Societies Registration Act, 1350Fasli with registration No.1915 of 1987 dated 24.08.1987 had thefollowing objects: i.To open, run and continue an institution for providing Higher,Technical and Medical Education and Training to the studentcommunity of Kannada students, to promote Literacy andEradicate Unemployment.Technical and Medical Education and Training to the studentcommunity of Kannada students, to promote Literacy andEradicate Unemployment. ii.To open, run and continue the Hostels for the poor KannadaStudents Community.Students Community. iii.To organize seminars, workshops, debates, camps and forumsetc.,etc., iv.To encourage social, educational and literary activities amongthe Kannada students.the Kannada students. v.To open run and continue primary, secondary and HighSchools for Kannada students.Schools for Kannada students. vi.To conduct cultural programmes, help for poor people ofcommunity for their study, andcommunity for their study, and vii.To develop Telugu, Kannada linguistic relations in the Society. The aforesaid objects were amended by the petitioner society in its meeting held on 13.08.2009, and they were registered withthe Registrar of Societies on 19.10.2009. The amended objectsread as under: a.To open, run and continue an institution for providing Higher,Technical and Medical Education and Training to the studentcommunity, to promote Literacy and EradicateUnemployment, andTechnical and Medical Education and Training to the studentcommunity, to promote Literacy and EradicateUnemployment, and b.To open, run and continue primary, secondary and highschools for students.schools for students. The petitioner claims to be running various educationalinstitutions such as PG colleges, Engineering colleges, etc. It istheir case that they have been filing income tax returns, claimingexemption under Section 10(23C)(vi) of the Act, as they are aneducational institution existing solely for educational purposes,and not for profit. Pursuant to an application made by them theDirector General of Income Tax (Exemption), by order dated23.03.2006, granted exemption for the assessment year 2002-03. Thereafter the petitioner claims to have submitted an applicationdated 03.12.2005 in Form 56-D for the assessment years 2004-05onwards, along with all necessary enclosures, to the Director ofIncome Tax (Exemption) on 05.12.2005. On the ground that theydid not receive any response thereto, the petitioner claims to havefiled another application in Form 56-D on 27.11.2007, along withnecessary enclosures, for grant of exemption from 2004-05onwards on the oral request of the Director of Income Tax(Exemption). They filed another application in Form 56-D on14.10.2008 along with the enclosures thereto. The 1[st] respondentissued notices dated 12.10.2009 and 21.10.2009 seeking clarification on the petitioner’s objects, and directed them tosubmit a copy of their memorandum of association. The petitionerclaims to have filed a copy thereof on 27.10.2009. The 1[st]respondent, by order dated 29.10.2009, granted approval from theassessment year 2009-10 onwards. On the same day the 1[st]respondent, by another order dated 29.10.2009, rejected thepetitioner’s application for the assessment years 2004-05 to 2008-09 on the ground that it was filed beyond the time stipulated in thefourteenth proviso to Section 10(23C) of the Act. clarification on the petitioner’s objects, and directed them tosubmit a copy of their memorandum of association. The petitionerclaims to have filed a copy thereof on 27.10.2009. The 1[st]respondent, by order dated 29.10.2009, granted approval from theassessment year 2009-10 onwards. On the same day the 1[st]respondent, by another order dated 29.10.2009, rejected thepetitioner’s application for the assessment years 2004-05 to 2008-09 on the ground that it was filed beyond the time stipulated in thefourteenth proviso to Section 10(23C) of the Act. It is the petitioner’s case that, as they had filed applicationspreviously on 05.12.2005 and 27.11.2007, their application is notbelated; their subsequent application dated 14.10.2008 was at therequest of the 2[nd] and 3[rd] respondents; the 1[st] respondent oughtto have given them an opportunity of being heard before passingthe impugned order which would have enabled them to bring to hisnotice that they had filed their first application as long back as on05.12.2005; and the amendment, which placed a limitation formaking an application under Section 10(23C), came into force onlywith effect from 01.06.2006, while the petitioner had submittedtheir first application much prior thereto on 05.12.2005. In her order dated 29.10.2009, the 1[st] respondent held that,in view of the fourteenth proviso to Section 10(23C) of the Act, theapplication made on 14.12.2008 seeking approval under Section10(23C)(vi) of the Income Tax Act, in so far as it related to theassessment year 2004-05 to 2008-09, was beyond time and wasinvalid. 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. While the petitioner would assert that they had submitted anapplication to the Director of Income Tax (Exemption) on05.12.2005 and later on, on 27.11.2007 the impugned order makesno reference thereto. The burden lies heavily on the petitioner-applicant to establish that such an application was indeed filed. The fact that the petitioner kept quiet for nearly two years from05.12.2005 to 27.11.2007 and again for nearly a year from27.11.2007 to 14.10.2008, without making any representationregarding non-consideration of their applications, casts a doubtover their claim of having filed such applications earlier. While the petitioner would assert that they had submitted anapplication to the Director of Income Tax (Exemption) on05.12.2005 and later on, on 27.11.2007 the impugned order makesno reference thereto. The burden lies heavily on the petitioner-applicant to establish that such an application was indeed filed. The fact that the petitioner kept quiet for nearly two years from05.12.2005 to 27.11.2007 and again for nearly a year from27.11.2007 to 14.10.2008, without making any representationregarding non-consideration of their applications, casts a doubtover their claim of having filed such applications earlier. 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 theincome 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 institutions established solely foreducational purposes and not for commercial activities. (Oxford University Press v. CIT[[5]]). This requirement would militateagainst an institution pursuing objects other than education. (Vanita Vishram Trust v. Commissioner of Income-tax[[6]]).Even if one of the objects enables the institution to undertakecommercial activities, it would not be entitled for approval underSection 10(23-C)(vi) of the Act. (American Hotel & Lodging Association Educational Institute v. CBDT[[7]]). It is only if theobjects reveal that the very being of the assessee-society, as aneducational institution, is exclusively for educational purposes andnot for profit, would the assessee be entitled for exemption underSection 10(23-C)(vi) of the Act. (Gurukul Ghatkeswar ofHyderabad[3]). In case of a dispute, whether the claim of the assessee to beexempted from tax is admissible or not, it is necessary for theassessee to establish that it is part of an institution which isengaged 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 not for 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. (SuratArt Silk Cloth Manufacturers Association[8]; American Hotel[7]; Pinegrove International Charitable Trust v. UOI[[9]]) . Thedecisive test is whether, on an overall view of the matter, theobject is to carry on educational activities or to make profit.(Aditanar Educational Institution[2]). for 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. (SuratArt Silk Cloth Manufacturers Association[8]; American Hotel[7]; Pinegrove International Charitable Trust v. UOI[[9]]) . Thedecisive test is whether, on an overall view of the matter, theobject is to carry on educational activities or to make profit.(Aditanar Educational Institution[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, eachand 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 be non-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 ManufacturersAssociation[8]). 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[[10]]). 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 thehands 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 of expenditure. (Pinegrove International Charitable Trust[9]; 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[9]). expenditure. (Pinegrove International Charitable Trust[9]; 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[9]). The objects of the petitioner, as it originally stood, include“to eradicate unemployment” and “to develop Telugu, Kannadalinguistic relationsin the society”. The aforesaid objects do notrelate to education. The sense in which the word "education" hasbeen used, in Section 2(15) of the Income Tax Act, is thesystematic instruction, schooling or training given to the young inpreparation for the work of life. It also connotes the whole courseof scholastic instruction which a person has received. The word"education", in Section 2(15), has not been used in that wide andextended sense according to which every acquisition of furtherknowledge constitutes education. What education connotes, in thatclause, is the process of training and developing the knowledge,skill, mind and character of students by formal schooling. (SoleTrustee, Loka Shikshana Trust[10]). This definition 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 educational purposes. (Maharaja Sawai MansinghjiMuseum Trust[4]). The element of imparting education to students,or the element of normal schooling where there are teachers andtaught, must be present so as to fall within the sweep of Section10(23-C)(vi) of the Act. Such an institution may, incidentally, takeup other activities for the benefit of students or in furtherance oftheir education. It may invest its funds or it may providescholarships or other financial assistance which may be helpful tothe students in pursuing their studies. Such incidental activitiesalone, in the absence of the actual activity of imparting educationby normal schooling or normal conduct of classes, would not besufficient for the purpose of qualifying the institution for the benefitof Section 10(23-C)(vi). (Sorabji Nusserwanji Parekh[1]). Section2(15) is wider 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]). Even if the petitioner’s contention that the fourteenth provisoto Section 23C is not attracted, since they made an applicationprior to its coming into force on 01.06.2006, is to be accepted theaforesaid objects of the petitioner society, as they stood prior toits amendment, include non-educational objects also, and theywould, therefore, not be entitled to grant of exemption underSection 10(23C)(vi) of the Act. The amended objects of the petitioner society are said tohave been registered with the Registrar of Societies only on Even if the petitioner’s contention that the fourteenth provisoto Section 23C is not attracted, since they made an applicationprior to its coming into force on 01.06.2006, is to be accepted theaforesaid objects of the petitioner society, as they stood prior toits amendment, include non-educational objects also, and theywould, therefore, not be entitled to grant of exemption underSection 10(23C)(vi) of the Act. The amended objects of the petitioner society are said tohave been registered with the Registrar of Societies only on 19.10.2009. The A.P. Societies Registration Act, 2001 (AP Act 35of 2001) repealed the Societies Registration Act in its applicationto the Andhra Area of the State of Andhra Pradesh, and the A.P.(Telangana Area) Public Societies Registration Act, 1350 fasli. Section 8 of A.P. Act 35 of 2001 relates to amendment of thememorandum and bye-laws of a society. Under sub-section (1)thereof a society, by a special resolution, may alter the provisionsof the memorandum with respect to a change of its objects. Undersub-section (3) any alteration of the memorandum of the societyshall not be valid unless such alteration is registered under theAct. Under Section 8(4) if any alteration of the memorandum isfiled, and if they are not contrary to the provisions of the Act, theRegistrar shall register the same, and certify registration of suchalteration within thirty days from the date of receipt of theresolution. This certificate is conclusive evidence that all therequirements of the Act, with respect to the alteration and thecertification thereof, have been complied with and, henceforth, thememorandum, as so altered, shall be the memorandum of thesociety. On a conjoint reading of sub-sections (3) and (4) ofSection 8, it is only when the amendment to the objects of thesociety is intimated to the Registrar and the Registrar, on beingsatisfied that the amendment is not contrary to the provisions ofthe Act, registers and certifies such an alteration would it be avalid alteration under the Act. It is only from the date the Registrarcertifies the alteration that the amendment, to the objects of thesociety, comes into force. A conjoint reading of Sections 8(3) and (4) make it clear that it is only from the date the Registrar certifies the alteration that theamendment of the objects of the petitioner society come intoforce. Even if the petitioner’s contention, that the amendedobjects were registered on 19.10.2009, is to be accepted, it is onlyfrom that date that the amended objects come into force, and notprior thereto. As such it is only the pre-amended objects whichwill continue to remain in force upto the assessment year 2009-10.In any event the amended objects also include “eradicatingunemployment”. This object is also not educational in nature. The petitioner would, however, contend that this is not aground on which the 1[st] petitioner has rejected their application. The jurisdiction exercised by this Court under Article 226 of theConstitution of India is discretionary, and a Writ is not issued as amatter of course. A writ of mandamus is not a writ of course or awrit of right but is, as a rule, discretionary. (C.R. Reddy LawCollege Employees’ Association, Eluru, W.G.District Vs. Bar Council of India, New Delhi[[11]]). One of the limitations imposedby this Court, on itself, is that it would not exercise jurisdictionunless substantial injustice has ensued or is likely to ensue. Itwould not allow itself to be turned into a court of appeal to set rightmere errors of law which do not occasion injustice. (SangramSingh Vs. Election Tribunal, Kotah[[12]]). Since the objects, both prior and after its amendment, exfacie show that they are not solely educational in nature, we seeno reason to exercise discretion under Article 226 of theConstitution of India to entertain this writ petition. The Writ Petition fails and is, accordingly, dismissed. circumstances, without costs. However, in the _____________ V.V.S.RAO, J ___________________________ RAMESH RANGANATHAN, J 23.11.2010 MRKR Council of India, New Delhi[[11]]). One of the limitations imposedby this Court, on itself, is that it would not exercise jurisdictionunless substantial injustice has ensued or is likely to ensue. Itwould not allow itself to be turned into a court of appeal to set rightmere errors of law which do not occasion injustice. (SangramSingh Vs. Election Tribunal, Kotah[[12]]). Since the objects, both prior and after its amendment, exfacie show that they are not solely educational in nature, we seeno reason to exercise discretion under Article 226 of theConstitution of India to entertain this writ petition. The Writ Petition fails and is, accordingly, dismissed. circumstances, without costs. However, in the _____________ V.V.S.RAO, J ___________________________ RAMESH RANGANATHAN, J 23.11.2010 MRKR [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](2010)327 ITR 73 (P &H [10](1975) 101 ITR 234( SC [11]2004(5) ALD 180 (DB) [12]AIR 1955 S.C.425