Case Law Details
In case of Ram Piyari Devi Charitable Trust Vs. Director General Of Income Tax, Delhi High Court held that in order to claim exemption u/s 10 (23C) (vi) , there should be existence of educational institution and approval of prescribed authority .Where assessee-trust, running a school , fulfilled both above mentioned conditions , its claim for exemption was to be allowed.
Facts of the case
- The assessee Trust is running a school . It filed application for grant of exemption u/s 10 (23C) (vi) and (via).
- The DG rejected the application on the ground that the said provisions relate to hospitals and medical relief and since the petitioner is running a school, the petitioner is not eligible to apply in the said category. The Director General has further held that from the documents submitted by the petitioner it was apparent that the school was meant for students whose parents belong to Higher Income Group and there was generation of surplus during the various years, which showed that the school was being run as a business.
- The assessee filed writ before HC.
Contention of Assessee
The trust is running a school and apart from that, no other activity is being carried on by the trust. It is contended that merely because there are other objects mentioned in the object clause of the Trust, does not ipso facto imply that the trust does not exist solely for educational purposes. It is contended that at the time of grant of exemption, the prescribed authority is empowered to impose conditions, failure to comply with which can result in withdrawal of approval.
HELD BY HIGH COURT
- The decision of the Supreme Court in American Hotel & Lodging Association, Educational Institute v. Central Board of Direct Taxes and Ors., 2008 (301) ITR 86 SC, wherein it was held that the requirements of Section 10(23C) (vi) as laid down by the Supreme Court are: (i) existence of an educational institution and (ii) approval of the prescribed authority for the purposes of grant of exemption for which an application in the prescribed form has been filed. In the present case, the petitioner satisfies both the tests. There is admittedly an educational institution in existence and the petitioner has also moved an application in the prescribed form.
- The inquiry conducted by the Director General with regard to the application of funds and generation of profit is to be conducted post the grant of approval. If the above conditions are satisfied, in the first instance, the Competent Authority is to grant approval. The Competent Authority is empowered to impose conditions while granting such approval. The inquiry whether the conditions had been complied with or not, as envisaged by the third proviso to Section 10(23C), is to be conducted post grant of approval and not as a condition precedent to grant of approval.
- Further, merely because some profit is generated does not ipso facto imply that the educational institution is existing for profit motive. The court is of the view that the impugned order cannot be sustained inasmuch as the Competent Authority went to the stage post grant of approval for considering whether approval can be granted in the first instance or not.
