TMI Blog2014 (8) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... d authority for which every applicant has to move an application in the standardized form in terms of the first proviso - Director General of Income Tax (Investigation) had misdirected itself in not considering the conditions mentioned u/s 10(23C)(vi) of the Act – the order of the DGIT(Investigation) is set aside – Decided in favour of assessee. - Civil Misc. Writ Petition (Tax) No. 937 of 2011 - - - Dated:- 4-8-2014 - Hon'ble Tarun Agarwala And Hon'ble Dr. Satish Chandra,JJ. ORDER (Per: Tarun Agarwala, J.) The petitioner is a society duly registered under the Societies Registration Act since 1982 and is running an educational institution known as Simpkins School at Agra. The petitioner has been enjoying exemption under Section 10(22) of the Income Tax Act, 1961 (hereinafter referred to as the Act) upto the assessment year 1998-99. By Finance Act No.2 of 1998 w.e.f. 1st April, 1999 Section (22) of the Act was omitted and an analogous provision Section 10(23C)(vi) was brought into existence with effect from the same date. Under Rule 2BC of the Income Tax Rules if the gross receipts are below ₹ 1 crore, approval is not required but if the gross receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The authority further found that the society was also earning for the purpose of profit for which certain commercial activities were being conducted. These findings were based upon perusal of the assessment orders passed by the Assessing Officer for previous assessment years. The authority further held that the appellate orders of the Commissioner of Income Tax (Appeals) granting exemption for the assessment year 1999-00 to 2002-03 was not applicable to the facts and circumstances of the case. The petitioner, being aggrieved, has filed the present writ petition praying not only for the quashing of the order passed by the Director General of Income Tax (Investigation), Lucknow but has also prayed for a writ of mandamus commanding the Direction General of Income Tax (Investigation) to grant approval to the petitioner under Section 10(23C)(vi) of the Act and further prayed that a writ of mandamus should be issued holding that the applications dated 22nd March, 2003, 31st May, 2006, 27th March, 2007, 31st March, 2009 under Section 10(23C)(vi) of the Act for the assessment years 2003-04 to 2009-10 are deemed to have been sanctioned/approved under the 9th proviso to Section 10(23C)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf:] Third Proviso: - Provided also that the fund or trust or institution [or any university or other educational institution or any hospital or other medical institution] referred to in sub-clause (iv) or sub-clause (v) [ or sub-clause (vi) or sub-clause (via)]. Thirteenth Proviso: - Provided also that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) is notified by the Central Government [or is approved by the prescribed authority, as the case may be,] or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd proviso lays down the powers and duties of the prescribed authority for vetting an application for approval and that the prescribed authority was empowered to call for the documents including annual accounts or information to check the genuineness of the activities of the institution. Under the third proviso, the prescribed authority, while judging the genuineness of the activities of the applicant was required to ascertain whether the applicant applies its income wholly and exclusively for the objects for which it was constituted or established. The Supreme Court held that there was a difference between stipulation of the conditions and compliance therewith. The threshold conditions are the actual existence of an educational institution and approval of the prescribed authority. It is only if the pre-conditions of the actual existence of an educational institution is fulfilled that the question of compliance with the stipulations set out in the provisos would arise. The Supreme Court held:- We shall now consider the effect of insertion of provisos to Section 10(23C)(vi) vide Finance Act, 1998. Section 10(23C)(vi) is analogous to Section 10(22). To that extent, the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the prescribed authority as to the meaning of the words application of income to the objects for which the institution is established . Therefore, the twelfth proviso is the matter of detail. The most relevant proviso for deciding this appeal is the thirteenth proviso. Under that proviso, the circumstances are given under which the prescribed authority is empowered to withdraw the approval earlier granted. Under that proviso, if the prescribed authority is satisfied that the trust, fund, university or other educational institution etc. has not applied its income in accordance with the third proviso or if it finds that such institution, trust or fund etc. has not invested/deposited its funds in accordance with the third proviso or that the activities of such fund or institution or trust etc. are not genuine or that its activities are not being carried out in accordance with the conditions subject to which approval is granted then the prescribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein. In the instant case, it is not disputed that the petitioner society is running an educational institution. Merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed form in terms of the first proviso. If the prerequisite conditions of actual existence of the educational institution is fulfilled then the question of compliance with the requirements as spelt out in the other provisos would arise. At this stage, such considerations are not required. We find from the impugned order that the Director General of Income Tax (Investigation) had misdirected itself in not considering the stipulated conditions mentioned under Section 10(23C)(vi) of the Act and had digressed from the main issue in considering irrelevant consideration. We find that the prescribed authority has considered the expenditures depicted by the petitioner in the previous assessment years. We find that the prescribed authority has considered the findings of the Assessing Officer, which findings have been set aside in appeal by the appellate authority. Consequently, on this short ground the impugned order cannot be sustained. The contention of the learned Senior Counsel appearing for the petitioner that previous applications for exemption for the assessment year 2003-04 to 2009-10 are deemed to be approved and, consequently, a writ of mandamus should be issued cannot be ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the applications inviting certain queries from the petitioner but for reasons best known, it was not forwarded by these authorities to the prescribed authority, namely, Director General of Income Tax (Investigation). It may be pointed out that the application for approval under Section 10(23C)(vi) of the Act has to be filed as per the procedure prescribed under Rule 2CA of the Income Tax Rules in the prescribed format, namely, Form 56D. The instructions given under the heading Notes in Form 56D provides as under:- Notes: 1. The application form should be sent to the [Chief Commissioner or Director General whom the Central Board of Direct Taxes may authorise to act as prescribed authority for the purposes of sub-clause (vi) or sub-clause (via) of clause (23C) of Section 10 through the Commissioner of Income Tax or Director of Income Tax (Exemptions)] having jurisdiction over the university or other educational institution or hospital or other medical institution referred to in serial number 1 of this Form. Four copies of the application form along with the enclosures should be sent. A perusal of the aforesaid indicates that the application form has to be sent th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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