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M/s Karunya University Versus The Director of Income Tax (Exemptions)

2016 (6) TMI 299 - ITAT CHENNAI

Application for approval under Section 10(23C)(vi) rejected - whether the assessee-institution can invest any part of its accumulated income or the current income on the equity of non-resident subsidiary company and claim exemption as application of income? - Held that:- The fact remains that the assessee invested its funds in the equity shares of a company incorporated outside India. The third proviso to Section 10(23C) of the Act clearly says that the assessee cannot invest in the equity share .....

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- Decided against assessee. - ITA No. 1907/Mds/2015 - Dated:- 1-6-2016 - Shri N. R. S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellant : Sh. R. Vijayaraghavan, Advocate For the Respondent : Sh. Sundar Rao, CIT ORDER Per N. R. S. Ganesan, Judicial Member This appeal of the assessee is directed against the order of the Chief Commissioner of Income Tax-3, Chennai, dated 26.06.2015, rejecting the application of the assessee for approval under Section 10(23C .....

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shares of a wholly owned subsidiary company, namely, Karunya Israel Ltd., Israel, contrary to third proviso to Section 10(23C) of the Act. The Chief Commissioner has also found that the funds of the assessee were not invested in India and it was invested in Israel. According to the Ld. counsel, in order to set up a Liaison Office in Jerusalem, Israel, the assessee intended to acquire a building at Jerusalem. The laws of Israel did not permit acquisition of property by Trust or individual, theref .....

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educational institution of the assessee exists solely for the profit. 3. Referring to third proviso to Section 10(23C) of the Act, the Ld.counsel for the assessee submitted that the assessee was expected to apply its income or accumulate the same wholly and exclusively towards its objects for which it was established. Placing reliance on the judgment of Apex Court in American Hotel & Lodging Association Educational Institute v. Central Board of Direct Taxes (2008) 301 ITR 86, the Ld.counsel .....

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a . In the absence of the word in India in Section 10(23C)(vi) of the Act, the Chief Commissioner cannot import the word in India while reading the third proviso Section 10(23C)(vi) of the Act. According to the Ld. counsel, Section 10(23C)(vi) of the Act does not require application of income in India, therefore, merely because the assessee applies its income at Jerusalem at Israel that does not stand in the way of granting approval under Section 10(23C)(vi) of the Act. 4. On the contrary, Shri .....

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n 11, 12 or 10(23C) of the Act. It is not the intention of the Parliament to give exemption for application of income outside the country. According to the Ld. D.R., the Income-tax Act is applicable only within the territorial jurisdiction of India and its application cannot be extended outside the territorial jurisdiction of India. If the exemption provided under Section 11, 12 or 10(23C) of the Act is extended to application of income outside the country, then it would defeat the very purpose .....

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he word in India ? The Ld. D.R. fairly submitted that he leaves the matter to the discretion of the Tribunal. The Ld. D.R. further submitted that admittedly the funds of the assessee were invested in equity shares of the subsidiary company at Israel. The company was held by the assessee s educational institution. Therefore, it is a violation of third proviso to Section 10(23C)(vi) of the Act. The Ld. D.R. further submitted that what is prohibited under proviso to Section 10(23C) of the Act is in .....

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modes prescribed under Section 11(5) of the Act. Therefore, according to the Ld. D.R., the assessee is not entitled for approval under Section 10(23C) of the Act. 5. We have considered the rival submissions on either side and perused the relevant material available on record. The Chief Commissioner rejected the application of the assessee on three grounds - (i) the assessee-company applied its funds outside the country; (ii) the assessee invested funds in the equity shares of the subsidiary com .....

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tity established educational institution in India. Therefore, the Apex Court found that the prescribed authority can impose stipulations insisting on certain percentage of accounting income to be utilized / applied for imparting education in India. The compliance of terms and conditions stipulated by the prescribed authority would be a matter of decision at the time of assessment. In the case before us, the assessee is an Indian institution investing its funds generated out of its charitable act .....

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