HIGH COURT OF RAJASTHAN
Chief Commissioner of Income-tax
Geetanjali University Trust
DINESH MAHESHWARI AND Arun Bhansali, JJ.
D. B. CIVIL SPECIAL APPEAL (W) NO. 128 OF 2012
FEBRUARY 21, 2013
This appeal has been filed by the appellants aggrieved by the order dated 24.11.2011 passed by the learned Single Judge in S.B. Civil Writ Petition No.11799/2010, whereby the writ petition filed by the respondent-Trust was allowed and the order dated 27.1.2010 passed by the Chief Commissioner of Income Tax (‘the CCIT’) under Section 10(23C) of the Income Tax Act, 1961 (‘the Act’) was set aside and the authority was left free to decide afresh the proceedings for assessment year 2008-09 and onwards till assessment year 2010-11 by passing fresh speaking order after affording opportunity of hearing to the Trust.
2. Brief facts of the case are that the writ petitioner-Trust, a public charitable educational Trust registered under the provisions of the Rajasthan Public Trust Act, 1959, filed writ petition before this Court with the averments, inter-alia, that the Trust was established in the year 2006 solely for educational purpose and since its inception; and was imparting education in several of its institutions. To indicate the main objects of the Trust, a copy of the Trust deed was filed with the writ petition. It was further stated that the Trust applied for and was registered under the provisions of Section 12A(a) of the Act for availing exemption under Sections 11 and 12 thereof. The registration was granted on 13.2.2007 from the date of inception of the Trust i.e. 29.9.2006. It was then stated in the petition that on 9.1.2009, the Trust filed an application seeking exemption of its income under Section 10(23C)((vi) of the Act. After exchange of several letters between the Trust and the authorities whereby several queries were raised and the same were answered, the application of the Trust was rejected by the order dated 27.1.2010, inter-alia, on the ground that the Trust was not satisfying the essential conditions for exemption under Section 10(23C). It was also pointed out in the writ petition that for the assessment year 2010-11 and onwards, the Trust has been granted approval under Section 10(23C)(vi) of the Act.
3. The order of rejection was challenged on several grounds.
3.1 Notices of the writ petition were issued and the appellants filed detailed reply to the said writ petition inter-alia justifying the rejection of the application for exemption filed by the Trust. The main reason stressed for rejection was that the medical college run by the Trust was granted permission for the MBBS Medical Course with annual intake of 150 students, starting from the academic year 2008-09. Against the intake of 150 students for MBBS Course, 15% were made available for NRI/management quota, while 85% of the seats were available for open selection. The college admitted 16 students from a list prepared on the basis of private college Pre-Medical Test, 2008 held for BDS dental colleges of Rajasthan and further 101 students were admitted based on qualifying marks secured in 10+2 examination, through its own advertisement. The said admissions were not made on merit basis from the merit list / waiting list prepared on the basis of RPMT, 2008, which system has been approved by the Medical Council of India and Rajasthan University. It was claimed that the Trust had violated the procedure of admission as laid down by the Government / Medical Council and, therefore, it did not qualify as an institute within the meaning of Section 10(23C)(vi) and (via). It was further stated that the High Court, by order dated 18.3.2009, held that the regulations prescribed by the Medical Council of India were mandatory and have to be complied with; and on account of violation by the Trust, the admission made against 85% seats by the college were held illegal. The Division Bench also concurred with the decision of the learned Single Judge and held the admissions as illegal.
4. The learned Single Judge after hearing the parties held thus :
“5. Having heard the learned counsels, this Court is of the opinion that the since question of legality of the admissions made by the petitioner Trust is still a matter sub judice before the Apex Court, of course, the Rajasthan High court has held against the petitioner Trust that such admissions were not made in accordance with law vide judgment of learned Single Judge as aforesaid and affirmed by the Division Bench, it cannot be said finally yet that petitioner has committed any such illegality & no such opinion could be formed by the learned Chief Commissioner of Income Tax so long as the matter is pending before the Supreme Court of India and is not decided against the petitioner Trust.
6. Right to litigate a particular issue in the Court of Law is a legal right of any Institution or a Charitable Trust, who is seeking exemption from income tax for which sanction is required by the competent authority within the parameters like no profit motive, or object of education of the Trust etc. laid down under Section 10(23C) of the Act which are relevant and not the admission procedure undertaken by the petitioner Trust. Nexus between the profit motive and alleged illegal admission is too remote and cannot be presumed without any other adverse material on record against the assessee, for drawing such adverse inference. Learned Chief Commissioner of Income Tax vide order dated 27/1/2010 has only assigned one single reason as stated above to deny the approval under Section 10(23C) of the Act. The relevant portion of the impugned order dated 27/1/2010 is reproduced hereunder for ready reference:-
“11. It is also apparent that the Trust is not satisfying essential condition for exemption u/s 10(23C)(vi) and (via). As per the relevant clause, any income received by any person on behalf of any university or other educational purposes. Moreover, the income earned should be applied wholly and exclusively to the objects for which it is established, i.e. for educational purpose. In the institution’s case, the Hon’ble High Court has held that the admissions made for Academic Year 2008-2009 were illegal. The purpose of education would not be served, if the education is for students who have been illegally admitted. The purpose of education as contemplated in the section would be served only if the students have been legally admitted and not otherwise. The spending of funds on education of students who have been admitted illegally will not amount to application of income for the purpose of education. In the Trust’s case, neither the condition regarding existence for the purpose of education nor the application of funds for the objects, are being fulfilled.
12. Keeping in view the above discussion and the decision of the Hon’ble High Court, I hereby reject the Trust’s application for approval under Section 10(23C)(vi) and (via) for A.Y. 2008-09 onwards.
Chief Commissioner of Income-tax,
7. The subsequent order granting such approval passed on 17/1/2011 subject to usual conditions reads as under:-Online GST Certification Course by TaxGuru & MSME- Click here to Join
“In exercise of powers conferred on me by the sub-clause (vi) of clause (23C) of Section 10 of the Income tax Act, 1961 (43 of 1961) read with rule 2CA of the I.T. Rules, 1962, I Chief Commissioner of Income tax, Udaipur hereby accord approval to M/S. GEETANJALI UNIVERSITY Trust, UDAIPUR (PAN: AAATG9525E) for the purpose of the said section for the assessment year 2010-11 and onwards subject to conditions mentioned hereunder:”
8. If the alleged illegal admissions made by the petitioner Trust in the year 2008-09 could be a valid criteria or relevant consideration for denying approval under section 10(23C) of the Act, such alleged illegal admissions continued in the subsequent years also as those students continued to be in the college for subsequent years also and the same authority on the same set of facts, once denied the approval and subsequently granted such approval for subsequent years. This incongruity in the two orders itself repels the argument of learned counsel for the respondent Revenue.
9. In the opinion of this court also, this ground alone as such could not be relevant and a valid basis for refusing the approval under Section 10(23C) of the Act to the petitioner Trust especially since the matter is still pending before the Hon’ble Supreme Court. Of course, the authority concerned is free to apply its mind and take into account the relevant consideration while deciding the case of petitioner Trust under Section 10(23C) of the Act as laid down in the provisions of Section 10(23C) itself and if there are other grounds made out of rejection of its case under Section 10(23C) of the Act or say if Hon’ble Supreme court of India also holds against the petitioner, the authority concerned may be justified in denying the exemption under Section 10(23C) of the Act.”
Consequently, the writ petition was allowed in the terms as indicated hereinbefore.
5. Assailing the order so passed by the learned Single Judge, it was contended on behalf of the appellants that the Trust was not satisfying the essential condition for exemption under Section 10(23C)(vi) of the Act because the income received is exempted only if the institution is existing for educational purposes and as the Court has held that the admissions made for the academic year 2008-09 were illegal, CCIT was justified in rejecting the application. It was also submitted that as the issue with regard to violation by the Trust, of the admission process as laid down by the statutory body, has been held against the Trust by the learned Single Judge of this Court and upheld by the Division Bench, the entity which has violated the prescribed procedure of admission cannot qualify as an institution for grant of benefit of exemption.
6. Learned counsel for the respondent-Trust opposed the submissions as made by the learned counsel for the appellant. It was contended that the mere fact that the Courts found some defects in the admission procedure adopted by the Trust, it cannot be a reason for the CCIT to come to a conclusion that the institution does not exist for educational purposes. It was submitted that the Trust manages several other institutions like College of Nursing, School of Nursing, College of Physiotherapy, College of Pharmaceutical etc. and as such, by merely relying on the so-called defect in admission procedure in one of the institution being run by the Trust, the application could not have been rejected. It was further submitted that the judgment passed by the Division Bench was carried in appeal before the Hon’ble Supreme Court and the Hon’ble Supreme Court in its judgment RajanPurohit v. Rajasthan University of Health Sciences  10 SCC 770 has modified the judgment of the High Court and has allowed the appeals to the extent indicated in the judgment and as such, even the basis indicated by the CCIT for rejection no longer exists as such.
7. The CCIT, by the order dated 27.1.2010 rejected the application filed by the Trust, inter-alia, observing thus :
“9. I have examined the contentions raised on behalf of the Trust, the orders of the Hon’ble High Court and the material available on record. Although not spelt out clearly, it appears that a stand has been taken on behalf of the Trust that the method of admission of students to the Medical College is not a pre condition for approval u/s 10(23C)(vi) and (via) and therefore the decision of the High Court holding that the method of admission was illegal, will not have any adverse effect on the claim u/s 10(23C)(vi) and (via). The plea is not acceptable.
10. The words “any University or other educational Institution” used in the beginning of the section have to be understood and read in a logical manner in the light of common principles of law. The words should denote an university or an institution which otherwise exists within the four corners of law. Any institution which has violated the procedure of admission as laid down by the Govt./Medical Council will not qualify as an institute as understood in the phrase used in this section. The admission to a college is the starting point of the college and the very foundation of its existence. If admission process is illegal, it does not qualify as an ‘Institution’ as envisaged in the opening lines of the section. It is common understanding that if any entity is referred to in any beneficial provision of law for approval/registration/exemption etc., it would necessarily mean an entity which is otherwise free of any defect. An entity which has violated the prescribed procedure of admission would not qualify as an institute referred to in any law granting any benefit to such institute. In my opinion, having violated the system of admission as laid down by the State Govt., Rajasthan University and the Medical Council of India, the Institute does not qualify for any benefit available in section 10(23C).
11. It is also apparent that the Trust is not satisfying essential condition for exemption u/s 10(23C)(vi) and (via). As per the relevant clause, any income received by any person on behalf of any university or other educational institution is exempt under the section if such institution is existing for educational purposes. Moreover, the income earned should be applied wholly and exclusively to the objects for which it is established, i.e. For educational purpose. In the institution’s case, the Hon’ble High Court has held that the admissions made for Academic Year 2008-09 were illegal. The purpose of education would not be served, if the education is for students who have been illegally admitted. The purpose of education as contemplated in the section would be served only if the students have been legally admitted and not otherwise. The spending of funds on education of students who have been admitted illegally will not amount to application of income for the purpose of education. In the Trust’s case, neither the condition regarding existence for the purpose of education nor the application of funds for the objects, are being fulfilled.
12. Keeping in view the above discussion and the decision of the Hon’ble High Court, I hereby reject the, Trust’s application for approval u/s 10(23C)(vi) and (via) for A.Y. 2008-09 onwards.”
8. It would be seen that the learned CCIT was swayed by the fact that ‘method of admission’ was held illegal by this Court and, therefore, held that the institution did not qualify as an institution as envisaged in the section and as the provision was beneficial, the entity otherwise must be free of any defect.
9. It would be appropriate to quote the provisions of Section 10(23C) (vi) & (via) of the Act, which read as under:-
“Incomes not included in total income.
10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-
…. …. …. …. …. …. …. …. …. …. …. …. …. …. ….
(23C)- any income received by any person on behalf of-
…. …. …. …. …. …. …. …. …. …. …. …. …. …. ….
(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
(via) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiac) or sub-clause (iiiae) and which may be approved by the prescribed authority:”
10. A plain reading of the said provisions would reveal that what is required for the purpose of seeking approval thereunder is that the University or other educational institution should exist ‘solely for educational purposes and not for purposes of profit’. It is nowhere the case and/or finding of the learned CCIT that on account of the said defect in the admission procedure, the Trust ceased to exist solely for educational purposes and/or it existed for the purposes of profit. Further, it is not the case of the appellants that the students who were admitted were not imparted education in the college in which they were admitted and/or the admissions granted were fake or non-existent or that the income generated by admitting the said students was not used for the purpose of the Trust. The emphasis on part of the learned CCIT that the purpose of education would not be served if the education is for students who have been illegally admitted and the purpose of education as contemplated in the section would be served only if the students have been legally admitted and not otherwise, appears to be going beyond the requirements of the section. Of course, the requirement of an educational institution to provide admissions strictly in accordance with the prescribed rules, regulations and statute cannot be less emphasized, rather the same need to be adhered to in letter and spirit, but then, the said violation cannot lead to its loosing the character as an entity existing solely for the purpose of education.
11. The Hon’ble Supreme Court in its judgment relating to the admissions at the college of the Trust, referred to above, while partly allowing the appeal and modifying the judgment of this Court, has held as under:-
“47. We accordingly hold:
47.1 That there was no agreement between the College and the State Government to admit students into its MBBS course on the basis of RPMT 2008 and the finding of the High Court in this regard is erroneous and the High Court could not have directed the College to fill up its seats on the basis of merit of students as determined in RPMT 2008 as per the law laid down in T.M.A. Pai Foundation as explained in P.A. Inamdar. Hence, the direction of the High Court to fill up the seats by students selected or wait-listed in the RPMT 2008 is set aside.
47.2 The admissions of 117 students to the MBBS course for the academic year 2008-2009 in the College were contrary to clause (2) of Regulation 5 of the MCI Regulations and were not within the right of the College under Article 19(1)(g) of the Constitution as explained by this Court in T.M.A. Pai Foundation and P.A. Inamdar.
47.3 In exercise of our power under Article 142 of the Constitution, we direct that none of the 117 students who were otherwise eligible for admission to the MBBS course will be disturbed from pursuing their MBBS course, subject to the condition that they will each pay a sum of Rs.3 lakhs within a period of three months from today to the State Government and in the event of default, the students will not be permitted to take the final year examination and the admission of the defaulting students shall stand cancelled and the College will have no liability to repay the admission fee already paid. The amount so paid to the State Government shall be spent by the State Government for improvement of infrastructure and laboratories of the Government medical college of the State and for no other purpose.
47.4 The College which was responsible for making the admissions in violation of clause (2) of Regulation 5 of the MCI Regulations will surrender 107 (117 – 10) MBBS seats to the State Government phase wise, not more than ten in any academic year beginning from the academic year 2012-2013 and these surrendered seats will be filled up by the students selected in RPMT or any other common entrance test conducted by the State Government of Rajasthan or its agency for admissions to the government colleges and the fees payable by the students admitted to the surrendered seats would be the same as that payable by the students of government colleges.
47.5 The results of the students in the MBBS course held up on account of interim orders passed by the Court may now be published.
48. The impugned judgment of the High Court is modified accordingly and the appeals are allowed to the extent as indicated in this judgment. The pending I.A. Nos. 3 and 4 stand disposed of.”
12. From the above, it is clear that the entire controversy was regarding procedure of admission and not the legality or character of the institution.
13. In view of the above, we do not find any reason to interfere with the order passed by the learned Single Judge, who has left it to the CCIT to decide afresh the proceedings for assessment year 2008-09 and onwards till assessment year 2010-11 by passing fresh speaking order after affording opportunity of hearing to the petitioner-Trust.
14. In the result, the special appeal filed by the appellants fails, and the same is, therefore, dismissed.