Wp/26981/2010 Of M/S. Kamareddy College Educational Society v. The Chief Commissioner Of Income -Tax

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITIN No.26981 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 26.05.2010 as arbitrary andillegal. A consequential direction is sought to the 1[st] respondent togrant approval to the petitioner society in terms of Section 10(23C)(vi) of the Income Tax Act (hereinafter referred to as the “Act”). The petitioner, a society registered under the AndhraPradesh (Telangana area) Public Societies Registration Act 1350Fasli with registration No.79 of 1964 dated 15.05.1964, had thefollowing objects: i.To establish run maintain and expend various types ofeducational institutions and ancillary establishment includingschools, colleges, hostels, libraries in Kamareddy Taluq, directlyby itself or jointly with or exclusively through other concernedinstitutions approved by the Society operating in the Taluk, or,lastly through personal specifically nominated by it in respect ofany particular institution or institutions;educational institutions and ancillary establishment includingschools, colleges, hostels, libraries in Kamareddy Taluq, directlyby itself or jointly with or exclusively through other concernedinstitutions approved by the Society operating in the Taluk, or,lastly through personal specifically nominated by it in respect ofany particular institution or institutions; ii.To provide further technical education for students. iii.To open and establish hostels for the sake of students of theInstitutions under the management of the Society and to conductthem in such a manner that the physical, moral and mentalimprovement is brought amongst the students.Institutions under the management of the Society and to conductthem in such a manner that the physical, moral and mentalimprovement is brought amongst the students.iv.To do all such things which are incidental or conducive to theattainment of the above objects.attainment of the above objects. These objects are said to have been amended by the petitionersociety in its meeting held on 28.01.2010, and to have beenregistered with the Registrar of Societies on 29.06.2009. The amended objects of the society are as under: i.To establish, run, maintain and expend various types ofeducational institutions and ancillary establishments includingSchools, Colleges, Hostels, libraries in Kamareddy Taluq, directlyby itself or jointly with or exclusively through other concernedinstitutions approved by the Society operating in the Taluq, or,lastly through personal specifically nominated by it in respect ofany particular institution or institutions; ii.To provide further, technical education for students. The petitioner society is running various educationalinstitutions such as PG colleges, Engineering colleges etc, afterobtaining necessary approvals from the appropriate authorities. Itis their case that they have been filing income tax returns claimingexemption under the provisions of the Act on the ground that theyexist solely for the purposes of education. The petitioner made anapplication, for grant of exemption, in Form No.56D along with allnecessary enclosures before the Director of Income Tax(Exemption) on 27.05.2009 for the assessment year 2008-09. TheDirector of Income Tax is said to have forwarded the application tothe 1[st] respondent. The Deputy Commissioner of Income Taxissued notice dated 053.05.2010 informing the petitioner that theapplication filed by them on 27.05.2009, in so far as it related tothe assessment year 2008-09, was not in accordance with thefourteenth proviso to Section 10(23C), and was beyond time; andin so far as the application related to the assessment years 2009-10, they were not registered under Section 43(1) of the AndhraPradesh Charitable and Hindu Religious Institutions andEndowments Act, 1987, (A.P. Act No.30 of 1987); as such theywere not a charitable institution and were, therefore, not entitled for exemption. The petitioner was called upon to submit theirobjections to the show cause notice. They were directed tofurnish details of the Corpus Fund Deposit of Rs.80 lakhsappearing in the balance sheet, and to appear before the 1[st]respondent for a hearing on 14.05.2010. In their reply dated17.05.2010, the petitioner sought condonation of the delay in filingthe application. They contended that A.P. Act 30 of 1987 was notapplicable since they had not sought approval as a charitable andreligious institution; and the corpus fund of Rs.80 lakhs was beingmaintained in a Fixed deposit in the joint names of the RegionalOfficer, Southern Regional Office, AICTE, Chennai. They claimedto have submitted a photostat copy of the fixed deposit receipt,with UCO bank, to the 1[st] respondent. The 1[st] respondent, by his order dated 26.05.2010, rejectedthe petitioner’s application for the assessment year 2008-09 on theground that the application submitted by them on 27.05.2009 wasbeyond the time stipulated in the fourteenth proviso to Section10(23C); and, for the assessment year 2009-10, on the groundthat, since the petitioner was not registered under A.P. Act 30 of1987, they were not a charitable institution and were not entitledfor exemption under Section 10(23C)(iv) of the Act. Aggrievedthereby the present Writ Petition. The petitioner would contend that A.P. Act 30 of 1987 hadno role to play in the functioning of their institution; they wereseeking approval as an educational institution under Section10(23C)(vi) and not as a charitable institution; the 1[st] respondent had erred in holding that Section 10(23C)(vi) would apply only ifthey existed for charitable purposes and, if there was no charityinvolved, it would mean that the institution was being run for profit;the 1[st] respondent ought to have condoned the delay in filing theapplication by adopting a liberal approach in view of the reasonsstated in the application for condonation of the delay; the petitionerwas registered under Section 12-AA of the Act, and was under thebonafide impression that the provisions of Section 10(23C) werenot attracted; the application under Section 10(23C) was madeafter receipt of professional advice, and the delay was whollyunintentional and not deliberate. 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 such aneducational 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, on or 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. or 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. No power is vested with the Chief CIT to entertain anapplication, filed under Section 10(23C)(vi), beyond the statutoryperiod by condoning the delay in presenting the application. In thiscontext, it is relevant to reproduce the Notes on Clauses to theFinance Bill, 2006 which reads thus:- “Providing a time-limit for application for grant of exemption orcontinuance of exemption for certain charitable and religionstrusts and institutions and certain educational and medicalinstitutions. Under the existing provisions contained in Sub-clauses (iv),(v), (vi) and (via) of Clause (23C) of Section 10, there is notime-limit for any university or other educational institution orany hospital or other institutions, or any fund or trust orinstitution specified therein to make an application for issue ornotification/grant of approval or continuance thereof. It is proposed to insert a new proviso in Clause (23C), so asto provide a time-limit for the purposes of making anapplication under the said sub-clause. Such application forgrant of exemption or continuance thereof under any of thesesub-clauses shall have to be filed at any time during thefinancial year immediately preceding the assessment yearfrom which such exemption is sought. Such application cannot be made for any earlier period. The proposedamendment shall apply only in respect of applications whichare made on or after 1st June, 2006. This amendment will take effect from 1st June, 2006.” The fourteenth proviso to Section 10(23C), has beeninserted by the Finance Act 2006, inter alia, to provide for a periodof limitation for entertaining an application, under Section 10(23C)(vi) for grant of exemption, on or after the 1[st] June, 2006. Thelegislature has, however, not made any provision for condonationof the delay in presenting such an application. The Chief CIT,being a creature of the statute, cannot travel beyond the statutoryprovisions, and does not have the jurisdiction to entertain anapplication filed under Section 10(23C)(vi) beyond the statutoryperiod of limitation or to condone the delay in presenting the saidapplication. The petitioner’s application for the assessment year 2008-09 was submitted only on 27.05.2009. Since the amendment tothe fourteenth proviso to Finance Act, 2009 came into operationonly from 01.04.2009, it has no application to the assessment year2008-09. Prior to its amendment, the fourteenth proviso requiredthe petitioner to submit the application, seeking exemption underSection 10(23-C)(vi) of the Act, during the financial yearimmediately preceding the assessment year for which approval issought and, since approval was sought for the assessment year2008-09, the petitioner ought to have submitted the application onor before the 31[st] of March, 2008 and not subsequent thereto. Thefourteenth proviso does not empower the Chief Commissioner of Income-tax to condone the delay in submitting the application and,in the absence of any such power of condonation, the firstrespondent cannot be faulted for rejecting the petitioner’sapplication, seeking exemption for the assessment year 2008-09,on the ground of its belated submission. However, rejection of the application for the assessmentyear 2009-10 on the ground that the petitioner was not registeredunder Section 43(1) of A.P. Act 30 of 1987 cannot be sustained. As held by this Court in M/s. New Noble Educational Society v. Income-tax to condone the delay in submitting the application and,in the absence of any such power of condonation, the firstrespondent cannot be faulted for rejecting the petitioner’sapplication, seeking exemption for the assessment year 2008-09,on the ground of its belated submission. However, rejection of the application for the assessmentyear 2009-10 on the ground that the petitioner was not registeredunder Section 43(1) of A.P. Act 30 of 1987 cannot be sustained. As held by this Court in M/s. New Noble Educational Society v. The Chief Commissioner of Income-tax[[1]],registration underSection 43(1) of A.P. Act 30 of 1987 is not a precondition for grantof approval and the first respondent can, if he so chooses,prescribe registration under A.P. Act 30 of 1987 as a conditionsubject to which approval may be granted. The first respondentwas, therefore, in error in rejecting the petitioner’s application forthe assessment year 2009-10 on this ground. The impugnedorder, to the extent it relates to the assessment year 2009-10, isset aside and the matter is remanded back to the 1[st] respondentwho shall consider the petitioner’s application, seeking exemption,under Section 10(23C)(vi) of the Act for the assessment year2009-10, after giving the petitioner an opportunity of being heard,afresh and pass orders thereupon in accordance with law. The Writ Petition is disposed of accordingly. No costs _____________ V.V.S.RAO, J ___________________________ RAMESH RANGANATHAN, J 23.11.2010 MRKR [1]Judgment in W.P.No.21248 of 2010 and batch dated 11.11.2010