Case Law Details
Shaheed Nand Kumar Patel Vishwavidyalaya Vs CIT (Chhattisgarh High Court)
allowing the Appeal filed by the Assessee University thereby quashing & setting aside the Orders of the CIT(Exemptions) & the Income Tax Appellate Tribunal, Raipur Bench rejecting the application for registration of the University (State Government University) under section 10(23C)(vi) of the Income Tax Act. The Hon’ble High Court elucidates & explains the law laid down by the Hon’ble Supreme Court in the case of Chief Commissioner v. New Noble Educational Society (2023) 6 SCC 649/[2022] 448 ITR 594 (SC) in the matters of Registration/Approval under section 10(23C)(vi) and expounds that both the lower authorities have failed to record a specific finding that the University is not existing solely for educational purposes and is existing for purposes of profit, such a finding was sine qua non and unexceptionable before rejecting the application for registration under the provisions of section 10(23C)(vi) of the IT Act. If it is found in the affirmative that the University fulfills the said conditions, then the registration could be granted. Further, the Hon’ble High Court explicates that the both the authorities have failed to go through the Objects of the University and has also failed to record a finding with respect to education or educational activities nor have expressly recorded that the appellant does not satisfy the objects and the genuineness of its activities as per the prescription of 2nd Proviso to section 10(23C). The matter was remitted to the CIT(Exemptions) to consider & decide the application u/s.10(23C)(vi) afresh in the light of principles laid down by the Hon’ble Supreme Court in New Noble Educational’s case within a period of two months. {Shaheed Nand Kumar Patel Vishwavidyalaya v. Commissioner of Income Tax (Exemptions) [2024] 163 taxmann. com 719 (Raipur – Trib.)[31-05-2024] reversed & disapproved.}
FULL TEXT OF THE JUDGMENT/ORDER OF CHHATTISGARH HIGH COURT
1. This tax case has been preferred under Section 260A of the Income Tax, 1961 calling in question legality, validity and correctness of the order dated 31-5-2024 passed by the Income Tax Appellate Tribunal (ITAT), Raipur Bench, Raipur in ITA No.171/RPR/2023 affirming the order dated 15-3-2023 passed by the Commissioner of Income Tax, Exemption, Bhopal.
2. This tax case was admitted for hearing on 30-8-2024 by framing the following substantial question of law: –
Whether both the Commissioner of Income Tax, Exemption, Bhopal and the Income Tax Appellate Tribunal, Raipur Bench, Raipur are justified in rejecting the application preferred by the appellant herein under Section 10(23C)(vi) of the Income Tax Act, 1961 by recording a finding perverse to the record and further justified in
rejecting the application without recording a finding that the appellant University is not existing solely for educational purposes and without recording the satisfaction required under Section 10(23C)(vi) of the Income Tax Act, 1961 read with the second proviso appended to it by recording a finding perverse to the record?
3. The appellant / assessee filed an application under Section 10(23C) (iii) in Form 10AB for registration / approval under the new provisions of the IT Act on 30-9-2022 and in order to process the said application and to verify the objects and activities of the assessee, opportunity letters were issued to the appellant / assessee and various documents/details were also called for. In order to verify the objects and activities of the assessee, various notices were issued to the appellant on 22-12-2022, 3-1-2023 & 18-1-2023 to submit relevant documents / information for registration under Section 10(23C)(iii) of the new provisions of the IT Act, which was replied by the appellant herein / assessee. The Commissioner of Income Tax, Exemption, Bhopal after considering the documents submitted by the assessee issued authorisation letter on 30-1-2023 for the purpose of physical verification and to conduct enquiries into the case of the assessee and accordingly, physical verification report was submitted by the Income Tax Officer (E), Bilaspur. After perusal of the verification report and other records submitted by the appellant / assessee, the appellant / assessee was required to explain (i) whether accounts of the financial year 2020-21 were not audited; (ii) the details of vehicle expenses and TDS thereon, if any, for the financial year 2021-22; (iii) details of examination expenses and TDS thereon for the financial year 2021-22; and (iv) nature and details of Corpus Fund, Endowment Fund and RUSA fund shown directly in balance sheets, for which a show cause notice was issued to the appellant on 1-3-2023. The appellant replied the show cause notice, but ultimately, the Commissioner of Income Tax, Exemption not finding the reply satisfactory, rejected the application against which the assessee preferred an appeal before the ITAT which was also dismissed holding that the appellant was unable to furnish necessary information / details before the CIT(E) which was well within the jurisdiction of the CIT(E) to call for such details/documents/ information against which the appellant preferred this tax case.
4. Mr. Nikhilesh Begani, learned counsel appearing for the appellant / assessee, would submit that both the authorities i.e. the Commissioner of Income Tax, Exemption – CIT(E) and the Income Tax Appellate Tribunal (ITAT) have misdirected themselves in rejecting the application overlooking the provisions contained in Section 10(23C)(iii) of the IT Act, which mandates the consideration as to whether the appellant University being the educational institution existing solely for educational purposes and not for purposes of profit as contained in sub-clause (iii-ab) or sub-clause (iii-ad) by recording a finding which is perverse to the record, which requires to be set aside in light of the decision of the Supreme Court in the matter of New Noble Educational Society v. Chief Commissioner of Income Tax 1 and another (2023) 6 SCC 649.
5. Mr. Amit Chaudhari, learned counsel for the respondent / Revenue, would submit that both the authorities have considered the application and made enquiry and concurring with the finding recorded by the CIT(E), the ITAT has recorded finding not to interfere with the matter and proceeded to dismiss the appeal.
6. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also gone through the record carefully and thoroughly as well.
7. Section 10(23C)(vi) of the IT Act states as under: –
“10. Incomes not included in total income.—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 Principal Commissioner or Commissioner; or
* * *
Provided further that the Principal Commissioner or Commissioner, on receipt of an application made under the first proviso, shall,—
(i) where the application is made under clause (i) of the said proviso, pass an order in writing granting approval to it for a period of five years;
(ii) where the application is made under clause (ii) or clause (iii) of the said proviso,—
(a) call for such documents or information from it or make such inquiries as he thinks necessary in order to satisfy himself about—
(A) the genuineness of activities of such fund or trust or institution or university or other educational institution or hospital or other medial institution; and
(B) the compliance of such requirements of any other law for the time being in force by it as are material for the purpose of achieving its objects; and
(b) after satisfying himself about the objects and the genuineness of its activities under item (A), and compliance of the requirements under item (B), of sub-clause (a),—
(A) pass an order in writing granting approval to it for a period of five years;
(B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its approval after affording it a reasonable opportunity of being heard;
(iii) where the application is made under clause (iv) of the said proviso, pass an order in writing granting approval to it provisionally for a period of three years from the assessment year from which the registration is sought, and send a copy of such order to the fund or trust or institution or university or other educational institution or hospital or other medical institution.”
8. The aforesaid provision came up for consideration before the Supreme Court in New Noble Educational Society (supra) and summarised the conclusions with regard to Section 10(23C) of the IT Act holding that the Commissioner or the authority concerned, while considering an application for approval and the further material called for (including audited statements), should confine the inquiry ordinarily to the nature of the income earned and whether it is for education or education related objects of the society (or trust). It has been observed in paragraphs 82 & 83 of the report as under: –
“82. The conclusions of this Court are summarised as follows:
82.1. It is held that the requirement of the charitable institution, society or trust, etc. to “solely” engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education. In other words, all objects of the society, trust, etc. must relate to imparting education or be in relation to educational activities.
82.2. Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23-C) of the IT Act. At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities.
82.3. The seventh proviso to Section 10(23-C), as well as Section 11(4-A) refer to profits which may be “incidentally” generated or earned by the charitable institution. In the present case, the same is applicable only to those institutions which impart education or are engaged in activities connected to education.
82.4. The reference to “business” and “profits” in the seventh proviso to Section 10(23-C) and Section 11(4-A) merely means that the profits of business which is “incidental” to educational activity, as explained in the earlier part of the judgment i.e. relating to education such as sale of textbooks, providing school bus facilities, hostel
facilities, etc.
82.5. The reasoning and conclusions in American Hotel2 and Queen’s Educational Society3 so far as they pertain to
the interpretation of expression “solely” are hereby disapproved. The judgments are accordingly overruled to that extent.
82.6. While considering applications for approval under Section 10(23-C), the Commissioner or the authority concerned as the case may be under the second proviso is not bound to examine only the objects of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The observations made in American Hotel suggest that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts, etc. the proviso under Section 10(23-C) is not confined to newly set up trusts — it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure.
82.7. It is held that wherever registration of trust or charities is obligatory under State or local laws, the trust, society, other institution, etc. concerned seeking approval under Section 10(23-C) should also comply with provisions of such State laws. This would enable the Commissioner or authority concerned to ascertain the genuineness of the trust, society, etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23-C) with effect from 1-4-2021.
83. In a knowledge based, information driven society, true wealth is education — and access to it. Every social order accommodates, and even cherishes, charitable endeavour, since it is impelled by the desire to give back, what one has taken or benefitted from society. Our Constitution reflects a value which equates education with charity. That it is to be treated as neither business, trade, nor commerce, has been declared by one of the most authoritative pronouncements of this Court in T.M.A. Pai Foundation4 . The interpretation of education being the “sole” object of every trust or organisation which seeks to propagate it, through this decision, accords with the constitutional understanding and, what is more, maintains its pristine and unsullied nature.”
9. Reverting to the facts of the present case in light of the principles of law laid down by their Lordships of the Supreme Court in New Noble Educational Society (supra) and catalogued in paragraph 82 of the judgment, it would appear that both the authorities have failed to record a specific finding that the appellant University is not existing solely for educational purposes and is existing for purposes of profit, which was sine qua non for rejecting the application for registration under the provisions of Section 10(23C)(vi) of the IT Act. Both the authorities in order to consider the application would have considered the fact whether the University is solely existing for educational purposes or it is existing for purposes of profit and in case it is affirmative, it could have granted the application and in case it is negative, it could have rejected the application. Both the authorities have failed to go through the objects of the University and failed to record finding with respect to education or educational activities. No express finding has been recorded by both the authorities that the appellant University does not satisfy the objects and the genuineness of its activities as required under the 2nd proviso to Section 10(23C) of the IT Act.
10. In that view of the matter, orders impugned (Annexures A-1 & A-10) passed by both the authorities are hereby set aside and the matter is remitted to the CIT(E), Bhopal to consider and decide the application under Section 10(23C)(iii) of the IT Act afresh in light of the decision of the Supreme Court in New Noble Educational Society (supra), particularly with regard to the binding law laid down in paragraph 82 therein, within a period of two months from the date of receipt of a copy of this order, on its own merits, in accordance with law. It is made clear that this Court has not expressed any opinion on the merits of the application and the CIT(E) will decide the application after hearing the parties, in accordance with law.
11. The tax case is allowed to the extent sketched herein-above.
Notes:-
1(2023) 6 SCC 649
2American Hotel & Lodging Assn. Educational Institute v. CBDT, (2008) 10 SCC 509 : (2008) 301 ITR 86
3Queen’s Educational Society v. CIT, (2015) 8 SCC 47 : 7 SCEC 307
4T.M.A. Pai Foundation v. State of Karnataka, (2002) 8 SCC 481 : 2 SCEC 1
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