HIGH COURT OF BOMBAY
Tolani Education Society
Versus
Deputy Director of Income-tax (Exemptions) – I(2), Mumbai
Dr. D.Y. CHANDRACHUD And A.A. SAYED, JJ.
WRIT PETITION NO. 1167 OF 2012
JANUARY 31, 2013
S.E. Dastur, Nitesh Joshi, Atul K. Jasani and P.C. Tripathi for the Petitioner. A.R. Malhotra for the Respondent.
JUDGMENT
Dr. D.Y. Chandrachud, J. – Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.
2. The Petitioner which is registered as a public trust under the Bombay Public Trusts Act, 1950 since 30 October 1980 and is a Society registered under the Societies’ Registration Act, 1960 was formed with the main object of promoting education in different branches of learning. The Petitioner conducts a college of commerce in Mumbai. The college is affiliated to the University of Mumbai and receives aid from the State government. A Certificate of Registration was granted to the Petitioner on 11 December 1980 under Section 12A of the Income Tax Act, 1961. On 10 May 2004, the Petitioner made an application for exemption under Section 10 (23C)(vi) for Assessment Year 2003-04. By a communication dated 26 September 2005, the Office of the Director of Income-tax (Exemption) informed the Petitioner that since from its accounts it appeared that the Petitioner had derived a substantial income by way of government grants for the years ending on 31 March 2001, 31 March 2002 and 31 March 2003, the file pertaining to the claim of exemption under Section 10(23C)(vi) was closed. The Petitioner was informed that “the cases which are wholly or substantially financed by the Government are covered by the provisions of Section 10(23C)(iiiab).” A certificate was issued to the Petitioner under Section 80(G)(5) on 4 September 2008.
3. Between 1985-86 and 2005-06, the Petitioner was allowed the benefit of the provisions of Section 11. For Assessment Year 2006-07 and 2007-08, the claim of exemption under Section 10(23C)(iiiab) was allowed. For Assessment Year 2006-07 that claim was allowed in pursuance of an order under Section 143(3) whereas, for Assessment Year 2007-08, an intimation was issued under Section 143(i) accepting the claim of exemption under Section 10(23C)(iiiab). For Assessment Year 2008-09, the benefit of Section 10(23C)(iiiab) was denied to the Petitioner though, admittedly the benefit of Section 11 was granted. The assessing officer has held that in order to be an institution substantially funded by government, the institution must receive at least 75% of its receipts from government grants. Reliance for this inference has been placed on the provisions of the Comptroller and Auditor General (Duties, Powers and conditions of Service) Act, 1971. The Petitioner is in Appeal for Assessment Year 2008-09 before the C.I.T. (A). For Assessment Year 2009-10, the benefit of the exemption under Section 10(23C)(iiiab) was allowed and an intimation was furnished under Section 143(1). Assessment proceedings for Assessment Year 2010-11 are in progress. For Assessment Year 2011-12, the Petitioner submitted an application for the grant of an exemption under Clause (vi) of Section 10(23C) to the Chief Commissioner of Income-tax. By an order dated 29 November 2011, the Chief Commissioner of Income-tax, Mumbai has held that (i) Since the grants which are received by the Petitioner from the Government form a substantial part of the total receipts, the Petitioner does not fall within the purview of Section 10(23C)(vi); (ii) the Petitioner does not meet the requirement of an institution existing solely for educational purposes and not for the purposes of profit and that, consequently, the Application for the grant of approval under Section 10(23C)(vi) for Assessment Year 2011-12 onwards stood rejected.
4. The college conducted by the Petitioner is in receipt of grants from the State Government and is an aided institution. On the one hand the Director of Exemptions informed the Petitioner by a communication dated 26 September 2005 that being an institution wholly or substantially financed by the Government, the case of the Petitioner would not be governed by Clause (vi) of Section 10(23C), but by Section 10(23C)(iiiab). This position is reiterated in the order of the Chief Commissioner of Income-tax dated 29 November 2011 (which is impugned in these proceedings). The Petitioner is nonetheless denied the benefit of an exemption under Section 10(23C)(iiiab) by the Assessing Officer. In the affidavit-in-reply that has been filed on behalf of the Revenue, it has been stated that the fact that the Petitioner is in receipt of government grants and has a deficit is not conclusive proof of its existence solely for educational purposes and not for the purposes of making profits. The affidavit-in-reply seeks to sustain the validity of both the order denying the benefit of an exemption under Section 10(23C)(iiiab) as well as of the order of the Chief Commissioner denying the benefit of the provisions of Clause (vi) of Section 10(23C). In sum and substance, the grievance of the Petitioner is that it is be entitled to the benefit of an exemption under Section 10(23C) and if the Assessing Officer comes to the conclusion as he has that the benefit of the exemption under Clause (iiiab) is to be denied, the Petitioner would in that case be entitled in law to the benefit of the exemption under Clause (vi). The grievance of the Petitioner is that the Revenue has not taken a firm position since while on the one hand the Chief Commissioner of Income-tax took the view that the benefit of Clause (vi) of Section 10(23C) could not be availed of on the ground that the Petitioner is in receipt of substantial grants from the State Government (thereby implying that the Petitioner would be governed by the provisions of Clause (iiiab)), yet an inconsistent stand is sought to be taken by the Assessing Officer. Hence it has been urged that as a result of a palpably inconsistent line of reasoning adopted by two arms of the revenue, the assessee is left without a remedy but to move these proceedings under Article 226 of the Constitution of India.
5. In order to appreciate the nature of the controversy, a reference to the statutory provisions having a bearing on the Petition would be in order. Section 10 enunciates categories of income which are not to be included in computing the total income of the previous year of any person. Clause (23C) provides for any income received by any person on behalf inter-alia of a university or other educational institution falling within the purview of sub-clauses (iiiab), (iiiad) and (vi). For convenience of reference it should be appropriate to extract those three clauses for clarity :
“Sub-clause (iiiab) – Any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government ;
Sub-clause (iiiad) – Any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; and
Sub-clause (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.”
6. Sub-clauses (iiiab), (iiiad) and (vi) apply to universities or other educational institutions. All the three clauses required that such institutions must exist solely for educational purposes and not for the purposes of profit. Sub-clause (iiiab) applies to those institutions which are wholly or substantially financed by the government. Sub-clause (iiiad) applies to those institutions whose annual aggregate receipts do not exceed such amount as may be prescribed. Sub-clause (vi) covers universities or educational institutions, other than those mentioned in sub-clauses (iiiab) or (iiiad) and which may be approved by the prescribed authority. For an institution which is wholly or substantially financed by government and which falls within the purview of Sub-clause (iiiab), no requirement of an approval of the prescribed authority is mandated. Similarly, under Sub-clause (iiiad) no requirement of approval is stipulated in the case of those institutions whose aggregate annual receipts are below such amount as may be prescribed. On the other hand, sub-clause (vi) of Section 10(23C) which covers institutions other than those falling under sub-clauses (iiiab) or (iiiad) requires the approval of the prescribed authority before a claim to exemption can be allowed. An application under sub-clause (vi) for approval is required by the fourteenth proviso to Section 10(23C) to be filed on or before 30 September of the relevant Assessment Year.
7. Now in this background, it will be necessary to consider the legality of the order that has been passed by the Chief Commissioner, denying the benefit of the exemption under sub-Clause (vi) of Section 10(23C). The first part of the order of the Chief Commissioner makes a reference to the fact that the Petitioner is an aided institution, being in receipt of financial aid from the State Government of Maharashtra towards salary grants. The Petitioner also receives financial assistance from the University Grants Commission (U.G.C.) for the purchase of library books, equipment and such other requirements. The Chief Commissioner noted that for Assessment Years 2008-09, 2009-10, 2010-11 and 2011-12, the percentage of grants received as a proportion of the expenditure incurred on the objects of the trust, was 56%, 63%, 52% and 58%. On this ground, the Chief Commissioner came to the conclusion that the Petitioner is in receipt of government grants which form a substantial part of the total receipts and consequently, the case of the Petitioner would not fall within the purview of Section 10(23C)(vi). On this aspect, the line of reasoning of the Chief Commissioner would indicate that since a substantial part of the total receipts of the Petitioner consists of aid received from the Government, it would not fall within the purview of sub-clause (vi) for the reason that an institution which is wholly or substantially financed by the Government falls within the ambit of sub-clause (iiiab). Sub-clause (vi) as noted earlier applies to those institutions which do not fall within the ambit of sub-clause (iiiab) or sub-clause (iiiad). The line of reasoning of the Chief Commissioner would therefore suggest that he was of the view that an institution which is in receipt of substantial grants from the Government would consequently not fall within the ambit of sub-clause (vi). Since a substantially or wholly grant aided institution would fall under sub-clause (iiiab), clause (vi) which is more of a residuary provision would not apply. The Chief Commissioner is correct in so far as he indicates that an institution which falls within the ambit of sub-clause (iiiab) would not fall within the purview of sub-clause (vi) since Clause (vi) applies to those institutions which do not fall within the ambit of either Sub-clauses (iiiab) or (iiiad). But having observed thus, the Chief Commissioner inquired into the further question as to whether the Petitioner fulfills the criterion for the grant of approval under sub-clause (vi) viz. of being an institution which exists solely for educational purposes and not for the purposes of profit. Though the Chief Commissioner inquired into this question for the purposes of his determination under sub-clause (vi) of Section 10(23C), the requirement that an institution must exist solely for educational purposes and not for the purposes of profit one which is common both to sub-clause (iiiab) as well as sub-clause (iiiad). Hence, the grievance of the Petitioner is that while on the one hand the Chief Commissioner has held that Sub-clause (vi) would not be applicable to an institution which is in receipt of substantial grants from the Government (such an institution being governed by Sub-clause (iiiab)), at the same time, the finding that the Petitioner does not exist solely for educational purposes and not for the purposes of profit would, in effect, not merely lead to the rejection of the exemption under Sub-clause (vi) but would also affect the claim of the Petitioner to the grant of an exemption under Sub-clause (iiiab) as well.
8. In view of the finding of the Chief Commissioner that the Petitioner does not exist solely for educational purposes and not for the purposes of profit, it becomes necessary for the Court to scrutinize the validity of that finding. The Chief Commissioner has held, in the course of his order, that the fees which were collected by the Petitioner as reflected in the income and expenditure account for the year ending on 31 March 2011 would indicate that the Petitioner did not exist solely for educational purposes. To support this finding, the Chief Commissioner has relied upon certain receipts which are part of the following table contained in the impugned order :-
