TMI Blog2018 (10) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner under Section 10(23C) (iiiad) of the said Act. Accordingly, the writ petition is allowed and the impugned order is set aside. Consequently, the respondents are directed to consider the claim of the petitioner under Section 10(23C) (iiiad). - W.P.No.11301 of 2018 And WMP No.13199 of 2018 - - - Dated:- 10-10-2018 - Mr. Justice K. Ravichandrabaabu For the Petitioner : Mr.T.Vasudevan For the Respondents : Mrs.Hema Muralikrishnan Senior Standing Counsel (I.T) ORDER The petitioner is aggrieved against the order dated 28.03.2018 passed by the first respondent in rejecting the revision filed under Section 264 of the Income Tax Act, 1961. 2.The case of the petitioner is as follows: a) The petitioner is a Trust established predominantly with an object of providing school education to all sections of society. The only activity of the petitioner Trust is running of an educational institution called Sri Sathya Sai Balagurukulam Matriculation School in Hosur. For the assessment year 2014-15, the petitioner filed its return of income declaring income under other sources as ₹ 18,80,804/-. This comprised of Tuition fees - ₹ 16,66,950 + Special fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the statute with a view not to affect charitable trusts and societies carrying on genuine charitable objects in the earlier years and also satisfy the conditions for exemption as per Section 11. Thus, it was submitted that the benefit of registration granted in subsequent year has to be made applicable in the earlier assessment years for which assessment proceedings are pending and prayed for grant of the benefit of exemption under Section 11 for the assessment year 2014-15. c) Before the first respondent, the petitioner also raised an alternative submission stating that, being an educational institution and wholly engaged in providing elementary education through its school and also that the gross receipts of the petitioner-trust, being less than the statutory threshold limit of ₹ 1 crore, it is entitled to the benefit of Sec.10(23C)(iiiad) of the Act. It was submitted that the one-off expenditure of ₹ 54,300/- on women welfare project cannot be considered to be a non-charitable activity in order to deny the benefit of exemption. The petitioner also stated that in the event of the amount of ₹ 54300 treated as not for educational purposes and in violation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2014-15 or for any other assessment year, was pending before the Assessing Officer as on that date. The return was processed on 28.02.2016 prior to the date of registration granted on 30.05.2016. Therefore, the retrospective effect referred to under first proviso to Section 12A is not applicable to the case of the petitioner. Reliance placed by the petitioner on CBDT Circular No.1/2015 dated 21.01.2015 is misplaced. The circular says that after 01.06.2007, the registration under Section 12AA shall be effective only prospectively. The said circular does not say even if the proceedings are not pending the registration granted will have retrospective effect. The alternate claim of exemption under Section 10(23C)(iiiad) of the Act is also not permissible. The application of such exemption under Section 10(23C)(iiiad) would arise only in respect of the educational institutions, which are existing solely for education purposes. The assessee in its own admission in the petition filed under Section 264 stated that it has few other clauses to aid public charity and had carried out such charitable acts like providing clothing and food to mothers and grandmothers of the school going c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. 6.Heard both sides. 7.The petitioner is an educational trust. It is evident from the Trust Deed registered as Document No.367 of 2009 on the file of the Sub-Registrar, Kelamangalam that the predominant object of the trust is to administer, establish and maintain schools and other educational institutions and to impart education without any restrictions as to caste, community or religion. The petitioner was granted a registration under Section 12AA of the Income Tax Act, 1961 as a public charitable trust, by an order dated 30.05.2016 issued by the Commissioner of Income Tax Act (Exemptions) with effect from 01.04.2015. Thus, there is no dispute to the fact that the petitioner trust, having been declared as a public charitable trust and granted registration under Section 12AA of the said Act, is entitled to all the benefit that will flow out of such registration from the date on which it takes effect. 8.The dispute between the parties is in respect of the assessment year 2014-2015. The petitioner filed their return of income for the said assessment year 2014-2015 on 11.01.2016 admitting nil income. The return was processed under Section 143(1) on 28.02.2016, computing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2016 was granted with effect from 01.04.2015 only. Therefore, admittedly such registration was not in force during the assessment year 2014-15. It is contended that the first proviso to Section 12A(2) entitles the petitioner to get the benefit of the exemption even in respect of the previous assessment year namely the subject matter assessment year 2014-15. 11.The learned counsel for the petitioner relied on the Circular 1/15 dated 21.01.2015 in support of his contention that the registration granted to a trust is to be applied retrospectively to earlier years also. I do not think that the reliance placed on the above said circular would serve any purpose more particularly, when the position of law is very clear that on the date of registration, assessment proceedings for previous assessment year/years should be pending before the Assessing Officer to extend the benefit of registration. Section 12A(2) first proviso is very specific on that aspect. Hence, I do not think that the petitioner is entitled to rely upon the said circular. 12. Further, perusal of Section 12A(2) and its first proviso would show that the effect of registration granted to the trust under Section 12A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , such income is not taxable and on the other hand, gets exempted from levy of tax. It is the contention of the petitioner that since the petitioner trust is existing solely for educational purposes without having any purpose of profit, the respondent is not entitled to bring the disputed income to tax. 16. On the other hand, it is submitted by the revenue that the petitioner has not satisfied the mandatory requirement that it should exist solely for educational purposes, as other activities of the trust do not relate to educational purpose. Therefore, it is contended that the income brought to tax is just and proper. 17. There is no dispute to the fact that the petitioner trust is running an educational institution by name Sri Sathya Sai Balagurukulam Matriculation School in Hosur for providing elementary school education without distinction of caste and creed, from 1997. Though the Trust Deed refers few other charitable activities such as providing medical relief to the poor, relief to orphans, etc., the pre dominant object of the trust is evidently seen as administering, establishing and maintaining schools and other educational institutions to impart education to poo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... predominant activity of the institution, the nature of spending the money so received by such institution to its various activities, has to be ascertained and adjudged going by the ultimate purpose for which it was spent. If the event of spending and the purpose for which such event took place, have some nexus to achieve the main object viz., the predominant activity of the institution, then such spending on an allied activity cannot be looked in isolation from the main object. 22. An institution solely existing for educational purposes, if indulges in certain allied charitable activities, such as feeding and clothing poor, giving some medical aid to those people, etc., certainly, such activities cannot alter the predominant object of such institution. While 'the imparting education' is like the water flowing in the main channel, certain incidental other charitable activities done by such institution, here and there, cannot be considered as major breach of the channel, but as the reach of the 'overflown' water from the main channel to the adjacent lands. So long as the desired destination of the channel (the institution) is evidently existing and being achieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis is either out of place or context. Therefore, if somebody come forward to do some charity to the needy poor, the Revenue, instead of applying hypertechnical objections to deny exemption on such activities, which, in effect, would only discourage such noble object, should find a way out to sustain such spending and grant exemption, so as to encourage and allow the said noble object to continue and survive forever. 26. At this juncture, I am reminded of the 'Midday Meal Scheme' started by the Great Leader Sri K.Kamarajar in the schools of this State. The object behind such Scheme is known to everyone. Only in order to attract and invite the students to attend the school, the great Leader thought that if the starving stomach of the poor children is fed, there will not be any difficulty for them to attend the school regularly. Such forethought, undoubtedly, was aimed only for educating the poor children. Therefore, no one can say that such feeding the poor student was not for educational purposes. Therefore, the object behind such kind of activity cannot be decided on the face of such activity, but by considering overall aspect of such activity. 27. It is relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A number of ancillary objects have been adverted therein including provision of libraries and gymnasiums, publication of books and by means of pecuniary and other help to students of the institution. A holistic reading of the object clause would establish beyond doubt that the sole purpose for the establishment of the Petitioner was to further the cause of education amongst women belonging to a particular class, as stated therein. Though the objects clause contained varied objects including the management and development of movable and immovable properties, the statement of fact before the Court which is not disputed is that the only activity which has been carried out by the Trust ever since its inception is the conduct of educational institutions. The Court, it must be emphasized, is not dealing with an institution which has sought approval for the first time or which has been set up in the proximate past. The Trust has a history of over eighty years during the course of which the only activity is of conducting educational institutions. 11. The fact that the Trust exists solely for educational purposes is evidenced from the assessment orders for Assessment Years 2000-01 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst Respondent. Firstly, though the Memorandum of Association contains varied objects, so long as the record demonstrates that the assessee only conducts educational institutions, 1 (1997) 224 ITR 310 it must be regarded as existing solely for the purpose of education. No other activity is carried on. Secondly, the fact that a surplus may incidentally arise from the activities of the Trust, after meeting the expenditure incurred for conducting educational activities would not disentitle the Trust of the benefit of the p rovisions of S ection 10 ( 23-C). (emphasis supplied) 28. The Karnataka High Court in 2015(5) TMI 260, The Commissioner of Income Tax vs Karnataka , has observed that providing hostel to the students/staff working for the Society is incidental to achieve the objection of providing education, namely, object of the Society. 29. In 2018(8) TMI 382, Navadisha Educational Trust vs The Chief Commissioner of Income Tax, the learned Judge of this Court, while disposing W.P.No.5560 of 2012 dated 20.07.2018, has observed at paragraphs 4 and 6 as follows: 4. The first respondent has passed the impugned order stating that Section 10(23C)(vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the above decisions would show that the contention raised by the Revenue against the petitioner with regard to their entitlement under Section 10(23C)(iiiad) is liable to be rejected. 31. The learned counsel for the Revenue relied on 2012(20) taxmann 269 (AP.), R.R.M.Educational Society vs Chief Commissioner of Income Tax, a Division Bench decision of the Andhra Pradesh High Court in support of her contention. Perusal of the facts and circumstances of the said case would show that the question raised before the Andhra Pradesh High Court was whether the object of the 'eradicating unemployment' adopted by the assessee was integrally connected with or as being ancillary to provide education. The Andhra Pradesh High Court found that they are two different objects and that eradicating unemployment, though may be charitable in nature, is not to be construed as solely for the educational purposes, as required under Section 10(23C)(vi) of the Income Tax Act. I do not think that the above decision, which is factually distinguishable, can be applied to the facts and circumstances of the present case. 32. It is not established by the revenue that the petitioner is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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