Hon'ble Mahesh Chandra Tripathi, J.
(Per: Tarun Agarwala, J.) By means of this petition, the petitioner has prayed for the quashing of the order dated 16th October, 2008 passed by the Chief Commissioner of Income Tax, Allahabad rejecting the application of the petitioner for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961 (hereinafter referred to as Act).
The facts leading to the filing of the writ petition is that the petitioner is a trust and on account of its charitable activities has been registered under Section 12AA of the Act. The trust has various objects and one of the objects is education. Based on this object, the petitioner is running and managing two educational institutions. Since the institution was existing solely for educational purposes and not for the purposes of profit. The petitioner applied for exemption under Section 10(23C)(vi) of the Act for the assessment year 2005-06. The said application was rejected by the Chief Commissioner of Income Tax by the impugned order dated 16th August, 2008 against which the present writ petition has been filed.
The Chief Commissioner has rejected the application on various grounds, namely, that the objects mentioned in the will for which the trust was to be created has been altered in the objects of the trust and, whereas, under the will, educational institution was a residuary clause, under the trust deed, education has become the main clause. Further, the trust has various objects and that education was one of the objects. The Chief Commissioner found that the other objects of the trust did not directly relate to education and, consequently, was of the opinion that the trust was not existing solely for educational purposes as envisaged under Section 10(23C)(vi) of the Act and, accordingly, rejected the application.
We have heard at length Sri Praveen Kumar, the learned counsel for the petitioner and Sri Dhananjay Awasthi, the learned counsel for the respondent.
In order to appreciate the submission of the learned counsel for the parties and the findings given in the impugned order, it would be relevant to peruse section 10(23C)(vi) of the Act, which reads as under:
" Section 10:- In computing the total income of a previous year of any person, any income falling within any of the following causes shall not be included -
"First Proviso: - Provided 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 sub-clause (v) [or sub-clause (vi) or sub-clause (via) shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under sub-clause (iv) or sub-clause (v) [or sub-clause (via)]:
Second Proviso: - Provided further that the prescribed authority, before approving any fund or trust or institution or any hospital or other medial institution, under sub-clause (iv) 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 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:] Fourteenth Proviso: - [Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes an application or or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be [made on or before the 30th day of September of the relevant assessment year] from which the exemption is sought:]."
The Supreme Court in American Hotel & Lodging Association, Educational Institute Vs. Central Board of Direct Taxes, 2008 (301) ITR 86 analysed the aforesaid provisions and while setting aside the order and remitting the matter back for afresh consideration, the Supreme Court clarified that if the petitioner fulfils the threshold conditions of the actual existence of an educational institution under Section 10(23C)(vi) of the Act, the authority could not reject the application.
The Supreme Court found that the second proviso lays down the powers and duties of the prescribed authority for vetting an application for approval and that the prescribed authority was empowered to call for the documents including annual accounts or information to check the genuineness of the activities of the institution. Under the third proviso, the prescribed authority, while judging the genuineness of the activities of the applicant was required to ascertain whether the applicant applies its income wholly and exclusively for the objects for which it was constituted or established. The Supreme Court held that there was a difference between stipulation of the conditions and compliance therewith. The threshold conditions are the actual existence of an educational institution and approval of the prescribed authority. It is only if the pre-conditions of the actual existence of an educational institution is fulfilled that the question of compliance with the stipulations set out in the provisos would arise. The Supreme Court in American Hotel & Lodging Association, Educational Institute (supra) held:-
"We shall now consider the effect of insertion of provisos to Section 10(23C)(vi) vide Finance Act, 1998. Section 10(23C)(vi) is analogous to Section 10(22). To that extent, the judgments of this Court as applicable to Section 10(22) would equally apply to Section 10(23C)(vi). The problem arises with the insertion of the provisos to Section 10(23C)(vi). With the insertion of the provisos to Section 10(23C)(vi) the applicant who seeks approval has not only to show that it is an institution existing solely for educational purposes [which was also the requirement under Section 10 (22)] but it has now to obtain initial approval from the prescribed authority, in terms of Section 10(23C)(vi) by making an application in the standardized form as mentioned in the first proviso to that section. That condition of obtaining approval from the prescribed authority came to be inserted because Section 10(22) was abused by some educational institutions/universities. This proviso was inserted along with other provisos because there was no monitoring mechanism to check abuse of exemption provision. With the insertion of the first proviso, the prescribed authority is required to vet the application. This vetting process is stipulated by the second proviso. It is important to note that the second proviso also indicates the powers and duties of the prescribed authority. While considering the approval application in the second proviso, the prescribed authority is empowered before giving approval to call for such documents including annual accounts or information from the applicant to check the genuineness of the activities of the applicant institution. Earlier that power was not there with the prescribed authority. Under the third proviso, the prescribed authority has to ascertain while judging the genuineness of the activities of the applicant institution as to whether the applicant applies its income wholly and exclusively to the objects for which it is constituted/established. Under the twelfth proviso, the prescribed authority is required to examine cases where an applicant does not apply its income during the year of receipt and accumulates it but makes payment therefrom to any trust or institution registered under section 12AA or to any fund or trust or institution or university or other educational institution and to that extent the proviso states that such payment shall not be treated as application of income to the objects for which such trust or fund or educational institution is established. The idea underlying the twelfth proviso is to provide guidance to the prescribed authority as to the meaning of the words "application of income to the objects for which the institution is established". Therefore, the twelfth proviso is the matter of detail. The most relevant proviso for deciding this appeal is the thirteenth proviso. Under that proviso, the circumstances are given under which the prescribed authority is empowered to withdraw the approval earlier granted. Under that proviso, if the prescribed authority is satisfied that the trust, fund, university or other educational institution etc. has not applied its income in accordance with the third proviso or if it finds that such institution, trust or fund etc. has not invested/deposited its funds in accordance with the third proviso or that the activities of such fund or institution or trust etc. are not genuine or that its activities are not being carried out in accordance with the conditions subject to which approval is granted then the prescribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein."
The question in the present case is, whether the requirement of clause-(vi) of sub-Section (23C) of Section 10 of the Act has been fulfilled or not. It is not disputed that the petitioner trust is running two educational institutions and that it is not for the purpose of making profit. Merely because there are other objects of the trust, which is not educational does not mean that the educational institution is not existing solely for educational purpose. The emphasis of the word "solely" is in relation to the educational institution which is running not for the purpose of making profit and it is not in relation to the objects of the trust. It is immaterial whether the trust has various objects. The words under Section 10(23C) of the Act, namely, "any income received by any person on behalf of himself" in the instant case, any income received by a trust on behalf of any educational institution existing solely for educational purpose and not for purposes of profit means that the educational institution itself must exists solely for educational purposes and not for purposes of profits. It is irrelevant as to whether the trust has other objects other than educational purposes.
Our view stands fortified by the decision of the Supreme Court in American Hotel & Lodging Association, Educational Institute (supra), which states that there is a difference between stipulation of conditions and compliance therewith. The threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standardised form in terms of the first proviso. If the prerequisite conditions of actual existence of the educational institution is fulfilled then the question of compliance with the requirements as spelt out in the other provisos would arise. At this stage, such considerations are not required.
We find from the impugned order that the Chief Commissioner of Income Tax has misdirected itself in not considering the stipulated conditions mentioned under Section 10(23C)(vi) of the Act and has digressed from the main issue in considering the objects mentioned in the will in contradiction to the objects of the trust, which is not required to be considered. Once a trust deed has been formed and created, the authority cannot go behind the cause leading to the formation of the trust. The Court again reiterates that merely because the trust has other objects would not mean that the educational institution, which is being managed by the trust is not existing solely for educational purpose.
This being the position, we are of the considered view that the impugned order passed Chief Commissioner of Income Tax cannot be sustained and is quashed. The writ petition is allowed. The matter is remitted back to the Chief Commissioner of Income Tax to pass a fresh order in the light of the observation made above after giving an opportunity of hearing to the petitioner.
Date:3.7.2014 Bhaskar (Mahesh Chandra Tripathi, J.) (Tarun Agarwala, J.)