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

Approval under Section 10(23C)(vi) - 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 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 activ .....

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In this case, the investment was made in violation of mode prescribed under Section 11(5) of the Act. Since the investment was made in violation of statutory provision, this Tribunal is of the considered opinion that the assessee-institution violated the statutory provision at the initial stage itself. Therefore, it is not entitled for approval under Section 10(23C)(vi) of the Act. - Decided against assessee - ITA No.1907/Mds/2015 - Dated:- 1-6-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHR .....

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e, submitted that the assessee is an educational institution applied for approval under Section 10(23C)(vi) of the Act. The Ld.counsel further submitted that the assessee-institution exists solely for the education purpose and not for the purpose of profit. The Chief Commissioner rejected the application of the assessee on the ground that the assessee invested in 10,000 equity shares of a wholly owned subsidiary company, namely, Karunya Israel Ltd., Israel, contrary to third proviso to Section 1 .....

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he company was incorporated as a profit organization. Subsequently the company was changed to a non-profit organization and a fresh certificate of incorporation was issued on 04.05.2015. Therefore, according to the Ld. counsel, Karunya Israel Ltd. was changed from a profit organization to a non-profit organization. Hence, according to the Ld. counsel, it cannot be said that the educational institution of the assessee exists solely for the profit. 3. Referring to third proviso to Section 10(23C) .....

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e granting approval under Section 10(23C)(vi) of the Act, the prescribed authority may insist that certain percentage of accounting income to be applied for imparting education in India. The Ld.counsel further submitted that Section 10(23C)(vi) of the Act clearly says application of income to the object for which the institution was established and does not use the word in India . In the absence of the word in India in Section 10(23C)(vi) of the Act, the Chief Commissioner cannot import the word .....

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ed deemed university status by University Grants Commission. It is an admitted fact that the assessee has invested its funds in equity shares of a wholly owned subsidiary company incorporated at Israel. According to the Ld. D.R., Indian Income-tax Act provides exemption in respect of income earned by Indian resident on its application for charitable purpose, either under Section 11, 12 or 10(23C) of the Act. It is not the intention of the Parliament to give exemption for application of income ou .....

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sted or diverted outside the country in the guise of application for charitable purpose. Therefore, according to the Ld. D.R., the income has to be applied only in India. On a query from the Bench, when the Supreme Court held that Section 10(23C) of the Act does not say that income has to be applied in India, can the Chief Commissioner re-write Income-tax Act by incorporating the word in India ? The Ld. D.R. fairly submitted that he leaves the matter to the discretion of the Tribunal. The Ld. D. .....

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ibed in Section 11(5) of the Act, the assessee is not entitled for approval under Section 10(23C) of the Act. Referring to Section 11(5) of the Act, the Ld. D.R. submitted that the funds of the educational institution have to be invested as per the mode prescribed in Section 11(5) of the Act. The investment in the equity shares of a company outside the country is not one of the modes prescribed under Section 11(5) of the Act. Therefore, according to the Ld. D.R., the assessee is not entitled for .....

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n Educational Institute (supra) examined the provisions of Section 10(23C)(vi) of the Act elaborately and found that third proviso to Section 10(23C)(vi) of the Act confines the words application of income to the objects for which the institution was established and it does not use the words in India for accumulation of income. The assessee before the Apex Court is a foreign entity established educational institution in India. Therefore, the Apex Court found that the prescribed authority can imp .....

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