The writ petition seeks to impugn the legality of an order passed by the Chief Commissioner of Income Tax, Ghaziabad on 10/11 October 2013 denying to the petitioner an exemption under Section 10 (23C) (vi) of the Income Tax Act, 1961.
The petitioner is stated to have established an educational institution called Ch. Natthu Singh Yadav Mahavidyalaya in a rural segment situated at Dihuli in Barnahal, District Mainpuri. After obtaining the recognition of the National Council for Teacher Education (NCTE) for running the B Ed degree course, affiliation was obtained from the Dr Bhim Rao Ambedkar University, Agra. Apart from the B Ed course, the institution imparts education leading to the conferment of B A, B Sc & M Sc degrees. The first academic session commenced in 2004 - 05. Since receipts exceeded the threshold limit of Rupees one crore, an application under Section 10 (23C) (vi) was filed before the Chief Commissioner, Income Tax, Ghaziabad on 30 September 2009. The application was rejected on 31 August 2010, which led to the filing of an earlier writ petition (Writ Petition No. 1714 of 2010). In the interregnum, the petitioner filed an application for registration under Section 12AA which was allowed by the Commissioner of Income Tax, Aligarh by an order dated 27 June 2011 read with a subsequent order dated 26 July 2011 effective from assessment year 2011-12. The earlier writ petition was allowed by an order of the Division Bench dated 4 July 2013 and while quashing the order passed by the Chief Commissioner of Income Tax, proceedings were remitted back to the authority for a fresh decision in accordance with law. On remand, the application has been rejected by the impugned order dated 10 October 2013. The only ground on which the application has been rejected is that under clause (6) of the Memorandum, the institution is required to impart training for technical, industrial, business and medical education free of cost and to enable the unemployed to obtain self-employment. However, it has been found that the petitioner has charged fees for the B Ed course which would violate the objects as stated in clause (6) of the memorandum.
The exemption provision of Section 10(23C) (vi) of the Income Tax Act, 1961 refers to the following:
"(vi) any university or other educational institution existing solely for educational purposes and not for 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"
Under the second proviso to Section 10 (23C) (vi), it has been stipulated as follows:
"Provided further that the prescribed authority, before approving any fund or trust or institution or any university or other educational institution or any hospital or other medical institution, under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf."
The submission which has been urged on behalf of the petitioner is that the primary requirement is whether the university or educational institution exists solely for educational purposes and not for the purposes of profit. Moreover, under the second proviso, the prescribed authority has, upon enquiry, to satisfy itself about the genuineness of the activities of the institution. In the present case, it has been urged that the Chief Commissioner has not applied his mind to the substantive requirement of sub-clause (vi) nor does the impugned order raise doubt on the genuineness of the activities of the institution. Hence, it has been submitted that the Chief Commissioner has failed to act in accordance with the terms of the remit which was made by the Division Bench in the earlier round of proceedings in which the previous order declining exemption was set set aside.
The Chief Commissioner of Income Tax, as noted earlier, had rejected the application for exemption under Section 10 (23C)(vi) on the ground that the memorandum of association provided for various other objects, apart from educational activities. While assailing that order, it was urged on behalf of the petitioner that though the unamended bye-laws of the society contain various other aims and objects apart from pursuing educational activities, yet, from the application for approval and the material on record, it was clear that the society was only carrying on educational activities. The Division Bench relied upon a judgment of this Court in C.P. Vidya Niketan Inter College Shikshan Society Vs. Union of India & Ors.1, in which it was held that the mere presence of objects in the memorandum providing for other charitable activities would not disentitle a society to claim approval under Section 10 (23C) (vi), where it is established that the institution is, in fact, carrying on only educational activities. In that context, the Division Bench held as follows:
"In the facts and circumstances, we are of the opinion that as of now the petitioner society running educational institution by the name of C.P. Vidya Niketan Inter College at Kaimganj, Distt. Farrukhabad imparts education to students from Class VI to XII, in the absence of any allegation or material, the object clause providing for other charitable activities, would not disentitle the society from approval under Section 10 (23C) (vi) of exemption. The proviso added to Section 10 (23C) (vi), specially Proviso 2, 3, 12 and 13, give sufficient powers to check the abuse of the exemption. The mere possibility, therefore, that the society may in future pursue activities, which are not charitable, or closely connected with education for making profit, would not constitute the grounds to reject the approval under Section 10 (23C) (vi)."
In this view of the matter, the proceedings were remitted back to the Chief Commissioner of Income Tax.
On remand, the Chief Commissioner of Income Tax was required to consider as to whether the institution exists solely for educational purposes and not for the purpose of profit. Moreover, under the second proviso, he was empowered to hold an enquiry to satisfy himself about the genuineness of the activities of the institution. Now, it must be noted that the impugned order accepts the fact that the activities of the assessee are restricted only to education. Hence, on this aspect, the Chief Commissioner observed that no adverse inference was being drawn. Consequently, it is evident that even according to the Chief Commissioner, the educational institution exists solely for educational purposes.
The next limb or ingredient to which the Chief Commissioner had to apply his mind was whether the institution exists for profit. The mere fact that a fee is being charged from B Ed students would not establish that the institution exists for profit. In fact, learned counsel appearing on behalf of the petitioner has placed reliance on the income and expenditure account for the year ending 31 March 2009 which shows that the total expenditure of the B Ed unit was Rs. 20,35,545/- whereas the fee received from B Ed students was only Rs. 2.32 lacs resulting in an excess of expenditure over income of Rs. 18,01,980/-. This aspect, which is of relevance, has not been considered in the impugned order. The submission of the petitioner before the Court is that the institution is subject to regulations of NCTE and does not charge any fees in excess of what is prescribed under the regulations of the affiliating university.
In this view of the matter, we are of the view that the rejection of the application for exemption under Section 10 (23C)(vi) has been done in a rather casual manner without the Chief Commissioner applying his mind to the essential ingredients of the provision.
At this stage, we may also observe that the learned counsel appearing on behalf of the petitioner has stated before the Court that the petitioner is ready and willing to even amend the objects clause by way of abundant caution, though as found by the Chief Commissioner himself, the institution does not carry on any other activity save and except for education.
Accordingly, and for the aforesaid reasons, we are of the view that the petition must be allowed and the proceedings should be remitted back to the Chief Commissioner of Income Tax, Ghaziabad for a fresh decision. We, accordingly, set aside the impugned order dated 10/11 October 2013 (Annexure - IX). The proceedings shall stand restored to the file of the Chief Commissioner, Income Tax, Ghaziabad. The Chief Commissioner would now hold an enquiry as required under Section 10 (23C)(vi) and pass a fresh order after furnishing to the petitioner a reasonable opportunity of being heard.
The petition is, accordingly, allowed in the aforesaid terms. In the circumstances of the case, there shall be no order as to costs.