2009 (5) TMI 41 - HC - Income Tax

Exemption u/s 10 (23C) - application for grant of approval of the prescribed authority u/s 10(23C)(vi) rejected by Chief Commissioner of Income Tax petitioner assessee is a charitable institution which is engaged wholly for the purposes of education especially when no material has been brought to prove that there was any element of personal profit - deposits/investments of surplus is permissible as per the proviso of Section 10(23C). Hence assessee is entitled for the exemption u/s 10(23C)(vi) - impugned order is quashed

Summary

Issues Involved:

1. Legitimacy of the petitioner's application for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.
2. Compliance with procedural requirements for exemption under Section 10(23C)(vi).
3. Validity of the Chief Commissioner of Income Tax's rejection of the exemption application.
4. Consideration of past recommendations and judicial decisions.
5. Examination of the petitioner's financial and operational conduct.
6. Impact of previous legal proceedings and judgments on the current application.

Issue-wise Detailed Analysis:

1. Legitimacy of the petitioner's application for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961:

The petitioner, a society registered under the Societies Registration Act, 1860, operates an educational institution named "City Montessori School" with 20 branches in Lucknow. The society sought exemption for the Assessment Years 1999-2000, 2000-01, and 2001-02 under Section 10(23C)(vi) of the Income Tax Act, 1961. The application was initially filed on 4.2.1999 following the repeal of Section 10(22) and the introduction of Section 10(23C).

2. Compliance with procedural requirements for exemption under Section 10(23C)(vi):

The petitioner complied with the procedural requirements by filing the necessary applications and providing audited accounts and balance sheets for the relevant years. The Chief Commissioner of Income Tax was required to examine the genuineness of the institution's activities and its compliance with the statutory requirements.

3. Validity of the Chief Commissioner of Income Tax's rejection of the exemption application:

The Chief Commissioner rejected the application on 11.4.2008, citing non-production of books of accounts and failure to demonstrate that profits/surpluses were exclusively used for educational purposes. However, the court found that the petitioner had submitted all required documents and that the rejection was influenced by the contempt proceedings initiated against the Chief Commissioner.

4. Consideration of past recommendations and judicial decisions:

The court noted that the petitioner had previously received favorable recommendations from the Additional Commissioner of Income Tax, the Commissioner of Income Tax, and the Chief Commissioner of Income Tax. These recommendations highlighted the institution's non-profit nature and its significant contributions to education. The court also referenced several Supreme Court decisions supporting the petitioner's case, including Aditanar Educational Institution v. Additional CIT and American Hotel & Lodging Association Educational Institute v. Central Board of Direct Taxes.

5. Examination of the petitioner's financial and operational conduct:

The court examined the petitioner's financial records and found that any surplus income was utilized for the expansion of the educational institution, not for personal profit. The court emphasized that the petitioner's activities were solely for educational purposes and that the society's constitution prohibited the diversion of profits to any individual or organization.

6. Impact of previous legal proceedings and judgments on the current application:

The court acknowledged the impact of previous legal proceedings, including the quashing of the search and seizure conducted by the Income Tax Department and the setting aside of the transfer order dated 8.12.2000. These judgments reinforced the petitioner's compliance with legal requirements and supported its claim for exemption.

Conclusion:

The court concluded that the petitioner is a charitable institution engaged solely in educational activities and is entitled to exemption under Section 10(23C)(vi) of the Income Tax Act, 1961. The impugned order dated 11.4.2008 was quashed, and the Chief Commissioner of Income Tax was directed to issue the certificate of approval within four weeks and to consider the pending applications dated 27.03.2001 and 16.03.2004 in accordance with the law.