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MUDRA FOUNDATION FOR COMMUNICATIONS RESEARCH AND EDUCATION Versus CHIEF COMMISSIONER OF INCOME TAX – AHMEDABAD-IV

2016 (1) TMI 42 - GUJARAT HIGH COURT

Certificate under Section 10(23C)(vi) refused - certificate under Section 12A already issued - Held that:- It is an admitted position that a certificate under Section 12A of the Act has already been issued in favour of the petitioner and the same has continued till date. Therefore, it is etablished that the petitioner-institution is a charitable trust as far as applicability of the Income Tax Act is concerned.

As far as object 3(i) which has been relied upon by Mr Bhatt, learned Senio .....

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n the manner and method, the regular schools or colleges adopt to teach. In the progressive world, it is expected from certain institutions that they educate, teach and train persons so that those persons can compete similar experts worldwide. Therefore, we are not in agreement with the submissions made by Mr Bhatt, learned Senior Counsel that the sole object of the institution is not to impart education. By providing latest information and thereafter training to those persons who are already in .....

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rting education in a specialised field. Hence, the petition is allowed. Certificate under Section 10(23C)(vi) to be allowed - Decided in favour of assessee - SPECIAL CIVIL APPLICATION NO. 6086 of 2015 - Dated:- 29-7-2015 - MR. A.J.DESAI AND MR. A.G.URAIZEE, JJ. FOR THE PETITIONER : MR B S SOPARKAR, ADVOCATE FOR THE RESPONDENT : MRS MAUNA M BHATT, ADVOCATE ORAL ORDER (PER : HONOURABLE MR.JUSTICE A.J.DESAI) Rule. Ms Mauna Bhatt, learned advocate for the respondent waives service of notice of Rule .....

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ome-tax Act, 1961 ('the Act', for short) has been refused. The respondent authority has filed its affidavit-in-reply opposing the grant of any relief as prayed for by the petitioner. 3 The brief facts emerging on the record are that the petitioner is a society registered under the Societies Registration Act, 1860 as well as under the provisions of the Bombay Public Trusts Act, 1950. It is the case of the petitioner that the institution is engaged in imparting higher and specialised educa .....

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ing a writ petition, which was withdrawn at a later stage in view of the fact that only show-cause notice was under challenge. However, the procedure initiated by the Director of Incometax (Exemption) under Section 12AA(3) of the Act were dropped by an order dated 3rd March 2014 and accordingly the registration granted in favour of the petitioner under Section 12A of the Act remained intact. 4 The petitioner submitted an application for getting an exemption certificate under Section 10(23C)(vi) .....

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. 5 Mr Bandish Soparkar, learned advocate for the petitioner has vehemently submitted that the respondent Commissioner has grossly erred in rejecting the application on the ground that - (i) The applicant does not have education as the sole purpose, (ii) The applicant is engaged in conducting coaching/training courses for and on behalf of industry, trade and commercial organisations; (iii) The applicant is engaged in various social activities of general public and public utility; and (iv) the ap .....

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ession of communication in which they have been trained. The object of the institution is also to prepare all talented, mature young persons for career leading to communication with responsibility for the public at large. By taking us through the objects of the petitioner institution he would submit that the institution has always fixed and demanded such fees and other charges which shall not exceed the cost of training, hostel expenses, etc. He would submit that one of the objects of the petiti .....

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bmit that the petitioner educational institution is existing solely for the educational purposes and not for the purpose of profit though the petitioner institution might have surplus funds after the expenditure for the purpose of imparting education in better and different ways. He would, therefore, submit that the conclusions arrived at by the respondent that the applicant does not have the education as the sole purpose, is on wrong premise and therefore the same is required to be discarded. A .....

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further submit that the petitioner cannot be said to have been engaged in activity of rendering service in relation to trade, commerce or business. The institution is offering different types of courses and the students who join the institution have to attend the classes. Renowned Professors from India as well as foreign countries, deliver the lectures and provide material which may help them in educating themselves in their own field. He, therefore, would submit that these observations are req .....

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able activity, but for the purpose of profit, would submit that the impugned order itself does not prima facie establish that the income received by the petitioner trust has been used for any other purpose than the objects mentioned in the Memorandum of Association. He would submit that the respondent was aware about the objects of the petitioner institution when the authority has issued the notice under Section 12A of the Act and the authority had never raised any objection in the past with reg .....

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pex Court he would submit that by considering several decisions of different High Courts the Honourable Apex Court has dealt with the provisions of Section 10(23C) (vi) of the Act and has observed that if it is found that an educational institution carries on the activity of education primarily for educating persons, the fact that it 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. .....

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r earning profit is on a wrong footing and therefore these observations are also contrary to the provisions of law as well as ratio laid down by the Honourable Supreme Court as well as different High Courts. He would further submit that the objects referred to in clause 3 of the Memorandum of Association are interwoven and are meant for providing education only. 9 Mr Soparkar has also relied upon a decision in the case of Director of Income-tax (Exemption) v. Ahmedabad Management Association (20 .....

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h the application submitted by the petitioner to issue exemption certificate in its favour under Section 10(23C)(vi) of the Act has been refused may be set aside. 10 On the other hand, Mr M.R.Bhatt, learned Senior Advocate assisted by Mrs Mauna Bhatt, learned counsel for the respondent has vehemently opposed the petition and would submit that the respondent authority has dealt with the case of the petitioner institution in detail and has rightly come to all the conclusions which are reflected in .....

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ection 2(15) of the Act, which defines the charitable purpose. He would submit that the petitioner-institution is involved in such activities which would establish that it is rendering its services in relation to trade, commerce and business nad for which the petitioner is collecting remuneration in the name of fees from those persons who attend the seminars organised by the institution for the betterment of the trade, commerce or business. He would submit that the sole object of the petitioner- .....

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, which is not the case of the petitioner. He would further submit that even if it is believed that most of the activities of the petitioner institution are relating to education, but if it is found that one of the objects of the present petitioner is not imparting education, then the petitioner would not be entitled for the certificate as claimed by it. He would submit that the authority had rightly observed that the fee collected by the petitioner institution is exorbitant, which would not ben .....

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admitted position that a certificate under Section 12A of the Act has already been issued in favour of the petitioner and the same has continued till date. Therefore, it is etablished that the petitioner-institution is a charitable trust as far as applicability of the Income Tax Act is concerned. 15 As far as the object of the institution which are referred in the Memorandum of Association are concerned, the same are reproduced hereunder for ready reference: 3. The objects for which the Society .....

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cation in which they have been trained or, in appropriate cases, to instruct others in the practice of Communication; (b) to select and prepare outstanding and talented mature young persons for careers leading to Communication including Advertising responsibility. (c) to award diplomas, certificates and other distinctions to candidates trained, and to prescribe standards of proficiency before the award of such diplomas, certificates and other distinctions; (d) to institute and award fellowships, .....

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es, surveys, discussions, seminars, conferences, workshops, shows and exhibitions relating to the use of Communications and allied techniques and methods leading to improved marketing and productivity. (i) to meet the needs of Indian Industry and Commerce in respect of upto date information about market conditions for introducing new products, promotional sales of existing products etc., though surveys, research reports and publication of periodicals, magazines and other printing material. (j) t .....

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of professional or honorary or technical membership of office as the Society may consider necessary; (ii) to establish and administer or assist in establishing and administering schools, colleges, training centers and the like which would help the objects of the Society. (iii) to institute chairs, subscribe or give donations to and financially or otherwise aid to any other Society, Institution whose objects and activities are similar to the objects of the Society; or give charity/relief to the n .....

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r such specific purpose only. (v) to acquire by gift, purchase, exchange, lease or hire or otherwise any lands, buildings, easements and any other property movable and/or immovable and for any estate or interest for furtherance of ail or any of the objectives of the Society. (vi) to sell, manage, exchange, transfer, mortgage, pledge, hypothecate gift, lease, dispose off or otherwise deal with any property, whatsoever belonging to the Society for the best interest of the Society. (vii) to commenc .....

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and to equip them as may be necessary and to manage and administer the same. (ix) To maintain and repair and keep maintained and in repair the buildings and structures for the time being belonging to the Society and whenever so required to replace the furniture and fittings, books equipment and other movable property therein and to reconstruct and/or rebuild the said buildings and structures or such part or parts of them as required for reconstruction. (x) To establish a depreciation fund to mee .....

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re, hold securities of the Government of India or of any State Government of Public Body or Post Office or National Savings Certificates or stocks, shares and securities, to which the Society is legally entitled to subscribe and hold. (xii) To take, receive, hold, expend, administer and use any gift whether of monies or other property movable or any bequests of Foundation, whether subjects to any special trust or not, for the objects of the Society or any of them and to accept the office of and .....

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objects of the Society in conformity with the applicable laws. (xiv) To receive grants-in-aid or any other form of financial and material assistance from the Central and State Governments or other Government agencies for due performance of the objects of the Society. (xv) To made rules and By-laws for the conduct of the affairs of the Society and to add, to amend, vary or rescind them from time to time: (xvi) To monies received by the Society by way of grants, gifts, donations, loans, benefactio .....

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he applicable laws. Any surplus funds out of the funds received u/s 35(1)(iii) of the Income Tax Act, 1961, not needed for immediate research work will be invested by the organization in accordance with the modes specified in the Section 11(2), 11(3) and 11(5) of the Income Tax Act, 1961 as amended from time to time. (xix) To prepare and maintain accounts and other relevant records and to prepare an annual statement of accounts including the balance sheet of the Society in such forms as may be p .....

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maintain their own activity schedules and accounts, on the understanding that the activities of these sub-systems are within the broad frame work of objectives of the Society. If any of the sub-systems is likely to generate funds, separate books of accounts will be maintained for such fund generating activities. (xxiii)to delegate any of its powers to the Management Committee of the Sub-system or any of the committee or Sub-Committees constituted by it. 16 If the objects mentioned in the memora .....

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ding advertising with teaching them their responsibilities towards the public at large. Clause (f) makes it clear that the fee collected shall no exceed the cost of training, hostel expenses etc., and the petitioner society shall not be precluded from subsidising such costs. As far as object 3(i) which has been relied upon by Mr Bhatt, learned Senior Counsel, we are of the opinion that by providing training to the individuals as well as those persons who have been sent by the companies to meet t .....

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educate, teach and train persons so that those persons can compete similar experts worldwide. Therefore, we are not in agreement with the submissions made by Mr Bhatt, learned Senior Counsel that the sole object of the institution is not to impart education. By providing latest information and thereafter training to those persons who are already in the field of advertising communication, etc. and in such process if certain persons become super-specialists in particular field and for which the i .....

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of the institution have ever been used for other purpose than the purpose of promoting educational activities including research, etc. by relying upon the case of Aditanar Educational Institution v. Additional Commissioner of Income Tax, (1997) 224 ITR 310the Honourable Supreme Court in paragraph 9 has held that the overall future of the matter is to be examined while considering the object of the institution i.e. whether the same is established to make profit or not. In paragraph 10 of the afo .....

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paragraph 11 of the judgment, which reads as under: 11. Thus, the law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it 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. (2) The predominant object test must be applied - the purpose of edu .....

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ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons. 18 The Honourable Supreme Court while dealing with the case of Queen's Educational Society (supra) has dealt with the decision of the Division Bench of Punjab and Haryana High Court in the case of Pine Grove International Charitable Trust v. Union of India, [2010] 327 ITR 273 and has confirmed the view expressed by the Punjab and Haryana Hig .....

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ificate under Section 10(23C)(vi) of the Act. The relevant paragraph viz. paragraph 25 of the aforesaid judgment in the case of Queen's Educational Society (supra) reads as under: 25. We approve the judgments of the Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside the judgment of the Uttarakhand High Court and since the Chief CIT s orders cancelling exemption which were set aside by the Punjab and Haryana High Court were passed almost solely upon the law declared by .....

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