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Manas Sewa Samiti Versus Chief Commissioner of Income Tax, Union of India And Another

2015 (11) TMI 413 - ALLAHABAD HIGH COURT

Registration under Section 10 (23C)(vi) denied - as per revenue the petitioner has several objects and was not running the institute solely for educational purposes - Held that:- A categorical assertion has been made that the petitioner is only running an educational institution and is not carrying on any other activity. This fact has not been denied by the respondents in their counter affidavit. The finding given by the Commissioner that the petitioner-society does not exist solely for educatio .....

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TMI 619 - SUPREME COURT ) has to be considered. Further, we find that the Commissioner has considered the profit before applying the depreciation, which is incorrect. The authority is required to consider the profit after allowing depreciation and is also further required to consider the investment made by the petitioner in the creation of fixed assets. These investments of capital nature are required to be considered while calculating the money spent by them in the educational activity. Further .....

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s commercial in nature or is being done with the intention to earn more profit. Such finding given by the authority is patently erroneous. - Decided in favour of assessee. - Civil Misc. Writ Petition No. 455 of 2014, Civil Misc. Writ Petition No. 609 of 2013 - Dated:- 2-11-2015 - Hon'ble Tarun Agarwala And Hon'ble Vinod Kumar Misra, JJ. ORDER ( Per: Tarun Agarwala, J. ) 1. The petitioner is a Society registered under the Societies Registration Act. The petitioner has various objects. One .....

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(hereinafter referred to as the Act). The returns were filed accordingly which were accepted by the department and the petitioner- society was declared non taxable. 2. For the assessment year 2007-08, the petitioner filed its return showing an income of ₹ 86,81,911/-, which was not accepted. The Assessing Officer found that the income of the petitioner was above ₹ 10 crores and, accordingly, disallowed the exemption claimed by the petitioner under Section 10 (23C) (iiiad) of the Act .....

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has several objects and was not running the institute solely for educational purposes. Writ Petition No. 692 of 2010 was filed, which was allowed by judgment dated 17.5.2013 and the matter was remitted to the authority to pass a fresh order in accordance with the observation made therein. Pursuant to the direction of the Court, the Chief Commissioner of Income Tax, Ghaziabad at Kanpur passed the impugned order dated 19.9.2013 again rejecting the application for registration. The petitioner, bein .....

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has made huge loans/advances to the interested persons/concerns in violation of 3rd and 13th proviso to section 10(23C)." 5. Similarly, for the assessment year 2010-11, the application of the petitioner was rejected by the authority by an order dated 21.9.2011, against which, writ petition No.18 of 2012 was filed. For the assessment year 2011-12, the petitioner's application was rejected by an order dated 21.9.2011, against which writ petition No.609 of 2013 was filed. Since the issue r .....

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causes shall not be included -.... (23C) Any income received any any person on behalf of -... (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority. The First, second, third, thirteenth and fourteenth Proviso of Section 10 (23C) reads as under: "First Proviso: - Provided that the fund or trust or .....

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fund or trust or institution or any hospital or other medial institution, under sub-clause (iv) or sub-clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution 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 .....

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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 in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that .....

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r medical institution- (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may at at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, .....

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day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be made on or before the 30th day of September of the relevant assessment year from which the exemption is sought." 8. The aforesaid provision was analysed by the Supreme Court in American Hotel and Lodging Association Educational Institution Vs. CBDT (2008) 301 ITR 86 (SC) holding that if the petitioner fulfills the threshold conditions of an educational institute under Section 10(23C) .....

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ormation 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 existe .....

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Court as applicable to Section 10(22) would equally apply to Section 10(23C)(vi). The problem arises with the insertion of the provisos to Section 10(23C)(vi). With the insertion of the provisos to Section 10(23C)(vi) the applicant who seeks approval has not only to show that it is an institution existing solely for educational purposes which was also the requirement under Section 10 (22) but it has now to obtain initial approval from the prescribed authority, in terms of Section 10(23C)(vi) by .....

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. This vetting process is stipulated by the second proviso. It is important to note that the second proviso also indicates the powers and duties of the prescribed authority. While considering the approval application in the second proviso, the prescribed authority is empowered before giving approval to call for such documents including annual accounts or information from the applicant to check the genuineness of the activities of the applicant institution. Earlier that power was not there with t .....

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y trust or institution registered under section 12AA or to any fund or trust or institution or university or other educational institution and to that extent the proviso states that such payment shall not be treated as application of income to the objects for which such trust or fund or educational institution is established. The idea underlying the twelfth proviso is to provide guidance to the prescribed authority as to the meaning of the words 'application of income to the objects for whic .....

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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 .....

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rity was required to consider the nature and genuineness of the activities of the applicant institution. The conditions set out in the third proviso was not to be tested at the stage of approval since the required facts would take place in future. The requirement mentioned in the third proviso could only be tested when assessment proceedings were being made and, the authority, at that stage, would consider the requirement provided in the third proviso. At the stage of registration, the authority .....

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y this Court in Allahabad Young Men's Christian Association Vs. Chief Commissioner of Income Tax and others, (2015) 371 ITR 23 (All), Simpkins School Vs. Director General of Income-Tax(Investigation) And Others, (2014) 367 ITR 335 (All), Sunbeam Academy Educational Society Vs. Chief Commissioner of Income-Tax And Others, (2014) 365 ITR 378 (All). The Delhi High Court in Director of Income-Tax (Exemption) Vs. ACME Educational Society, (2010) 326 ITR 146 (Delhi) held that advancing of an inter .....

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makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. The Supreme Court held that the predominant object must be applied. 12. It will be noticed that the section has three requirements- (a) the educational institution must exist solely for educational purposes, (b) it should not be for purposes of profit, and (c) the aggregate annual receipts of such institution should not exceed the am .....

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ased on no reasoning. No finding has been given on this aspect. In our opinion, this finding is perverse. 14. Further, the mere fact that the petitioner is making profit does not indicate that it is carrying on the activity solely for the purpose of making a profit and that it ceases to be for an educational purpose. In our opinion, the predominant test as given by the Supreme Court in American Hotel (Supra) and Queen's Educational Society (Supra) has to be considered. Further, we find that .....

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