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2016 (9) TMI 1193 - GUJARAT HIGH COURT

2016 (9) TMI 1193 - GUJARAT HIGH COURT - TM - Application for approval under section 10(23C) rejected - Held that:- It can thus be seen that generating certain surplus after carrying out educational activities by itself would not indicate that the institution did not exist for educational purposes but for the purposes of making profit. Whether the surplus so generated was utilized for the purposes of educational activities also would be a relevant consideration. Be that as it may, when the petit .....

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s stand has been that no excess fee was charged. It was only collection of form application money which gave a wrong picture. Even this aspect, it would be open for the petitioner to point out to the Commissioner upon remand. - The last objection of the Commissioner is regarding non-filing of the audit report as required under the 10th Proviso to section 10(23C). This proviso provides that where the total income of the trust or institution referred to in clause (vi) besides others without gi .....

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xes and others reported in [2008 (5) TMI 17 - SUPREME COURT OF INDIA ] the Supreme Court had occasion to examine these provisions and held that the threshold conditions are actually existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application. Various provisos under section 10(23C) for requirements and the same of the provisos were seen as laying down monitoring conditions in order to make the section workable. In case of Q .....

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ion, the impugned order is set aside. The proceedings are placed back before the Commissioner for fresh consideration and disposal in accordance with law. The petitioner will have opportunity to place additional material and made submissions before the Commissioner before final order is passed, which shall be done bearing in mind the observations made by the Supreme Court in case of Queen's Educational Society ( 2015 (3) TMI 619 - SUPREME COURT ) and other decisions cited therein preferably by 3 .....

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Act, 1961 ['the Act' for short]. 2. Brief facts are as under: The petitioner is a University established under the Gujarat Act No. 19 of 2005. The petitioner is a trust registered under the Bombay Public Trust Act and enjoys registration under section 12AA of the Act and approval under section 80G(5) of the Act. Later on, the petitioner was also declared as a Deemed University by the University Grants Commission vide notification dated 05.02.2007. The University is engaged in imparting e .....

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eeking exemption under section 10(23C)(vi) of the Act under the prescribed format. The Chief Commissioner-the competent authority had some prima facie doubt about granting such application. He, therefore, issued a letter dated 30.11.2011 seeking clarification on certain points from the petitioner. He conveyed to the petitioner that the accounts of the University showed profit of extremely high percentage which was 80.35%, 67.37% and 58.91% for assessment years 2008-09, 200-10 and 2010-11 respect .....

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C) of the Act and asked to explain why on such ground also the application should not be rejected. 4. In response to such communication, the petitioner replied under a letter dated 14.12.2011 and contended inter alia that the University is not established for profit motive. The return of income included gross receipts and huge expenses from all units of the University. Major portion of the income was on account of accepting donations for creating infrastructure such as college building, library, .....

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the figures represented by the petitioner regarding accumulation of the profit were not correct. The petitioner had accumulated sizeable profit of ₹ 1.14 crores, 47.35 lacs and 44.74 lacs for the assessment years 2009-10, 2010-11 and 2011-12 respectively. The institution had charged fees in excess of what was fixed by the fee regulatory committee. The trust was required to file audit report in terms of the 10th proviso to section 10(23C) which it failed. On such grounds, the application ca .....

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Society vs. Commissioner of Income Tax reported in 372 ITR 699. He further submitted that the entire surplus was used for the purpose of education. No fee in excess of what was prescribed by the fee regulatory committee was charged. The small amount was charged for allotment of forms which was mistakenly treated as fees. He lastly contended that the requirement of the proviso under section 10(23C) of filing audit report would arise at the stage of filing of the return. The application under sec .....

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passed the impugned order which calls for no interference. He further submitted that the further requirements under the third proviso to section 10(23C) could not be verified since the petitioner did not supply necessary information in this regard. Counsel relied on the decision of Bombay High Court in case of Yash Society vs. Chief Commissioner of Income Tax and ors reported in 375 ITR 152 in which, the Court finding that the institution, which claimed to be existing for philanthropic purposes .....

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purposes of profit, other than those mentioned in sub clause (iiiab) or sub clause (iiiad) and which may be approved by the prescribed authority, or 9. Section 10(23C) contains various provisos. Relevant provisos for our purpose read as under: Provided also that the fund or trust or institution [or any university or other educational institution or any hospital or other medical institution] referred to in sub-clause (iv) or subclause (v) [or sub-clause (vi) or sub-clause (via)]- [(a) applies its .....

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ional institution or any hospital or other medical institution] where such assets form part of the corpus of the fund, trust or institution [or any university or other educational institution or any hospital or other medical institution] as on the 1st day of June, 1973; [(ia) any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other e .....

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es allotted to the fund, trust or institution [or any university or other educational institution or any hospital or other medical institution]; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, 10. for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; Provided also that where the tota .....

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all get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub section (2) or section 288 and furnish alongwith the return of income for the relevant assessment year, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: 10. In terms of clause (vi) of section 10(23C), any income received by university or other educational institution existing solely for ed .....

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not exceed the amount of annual receipts as may be prescribed. Therefore, any university or educational institution claiming to be existing solely for educational purposes and not for purposes of profit but whose aggregate annual receipts exceed the amount of annual receipts which may have been prescribed, would have to apply for approval under clause (vi) of section 10(23C), if it is desired of seeking exemption for the income received by it. 11. In this background, we may examine the objection .....

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sting for the purposes of education has been considered by the Supreme Court in numerous occasions. In one of the later judgements in case of Queen's Educational Society (supra) all previous judgements on the point were considered. Reference was made to the decision of Supreme Court in case of Commissioner of Income Tax vs Surat Art Silk Cloth Manufacturers Association [1980] reported in 121 ITR 1 (SC), in which, the question arose as to what is the meaning of expression activity for profit. .....

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eld and observed 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 Commissioner of Income Tax s orders cancelling exemption which were set aside by the Punjab and Haryana High Court were passed almost solely upon the law declared by the Uttarakhand High Court, it is clear that these orders cannot stand. Consequently, Revenue s appeals from the Punjab and Haryana Hi .....

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that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must f .....

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g profit. Whether the surplus so generated was utilized for the purposes of educational activities also would be a relevant consideration. Be that as it may, when the petitioner contends that the Commissioner had not taken into account correct figures and was thus misguided into coming to the conclusion that the petitioner had generated sizeable profit, it would be appropriate to request the Commissioner to reconsider the issue with the assistance of the petitioner. 14. Before doing so, we may d .....

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der the 10th Proviso to section 10(23C). This proviso provides that where the total income of the trust or institution referred to in clause (vi) besides others without giving effect to the exemption clauses exceeds the tax exemption limit such trust or the institution shall get its accounts audited and furnish the same alongwith return of income. This requirement obviously would arise at the time of filing of the return and not at the time of filing of application for approval and was therefore .....

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