IT APPEAL NO. 2913 (AHD.) OF 2015
[ASSESSMENT YEAR 2013-14]

RAJPAL YADAV, JUDICIAL MEMBER 
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER

Deepak R. Shah, AR for the Appellant. 
Jagdish, CIT-DR for the Respondent.

ORDER

Rajpal Yadav, Accountant Member - Assessee is in appeal before the Tribunal against the order of Chief Commissioner of Income-tax dated 29.9.2014.

2. Grievance of the assessee is that the ld. CCIT has erred in rejecting application moved by the assessee under section 10(23C)(vi) of the Income Tax Act for the Asstt. Year 2013-14.

3. Registry has pointed out that appeal is time barred by 311 days. In order to explain the delay, affidavit of Shri Haresh V. Patel, a trustee of appellant trust has been filed. In this affidavit, it has been deposed that ld. CIT has rejected application of the assessee vide order dated 29.9.2014 and appeal bearing ITA No.2930/Ahd/2014 was filed before the Tribunal on 10.10.2014. This appeal was dismissed by the Tribunal on 10.4.2015 being not maintainable. At that point of time, no appeal was provided against order passed under section 10(23)(c)(vi) of the Income Tax Act. Therefore, the assessee has filed Special Civil Application No.10233 of 2015 before the Hon'ble Gujarat High Court. This application was filed on 9.6.2015 i.e. immediately after withdrawal of the appeal from the Tribunal. During the pendency of this appeal, there has been amendment in the Income Tax Act whereby clause (f) to Section 253(1) has been added. By virtue of this amendment an appeal has been provided before the Tribunal against the order of the prescribed authority passed under section 10(23)(c)(vi) of the Act. The assessee has withdrawn SCA from the Hon'ble High Court and filed present appeal before the Tribunal on 16.10.2015. On the strength of these details, it has been pleaded that appeal is not time barred, rather, there is a procedural delay. After going through the record, we find that the assessee was always vigilant. It has wrongly availed remedy of appeal before the Tribunal in 2014, but after disposal of the appeal, being not maintainable, it went to Hon'ble High Court by way of SCA. All these steps have been taken within period of limitation that was available for filing the appeal. These steps indicate that the assessee was always serious and vigilant in safeguarding its right. There is no dilatory strategy by the assessee in prosecuting the litigation. Considering the above facts and circumstances, we condone the delay of 311 days in filing the appeal before the Tribunal and proceed to decide the appeal on merit.

4. The ld. counsel for the assessee, at the very outset, submitted that the assessee-trust came into existence on 1.1.2015. It was registered under Bombay Public Trust Act, 1950 on 29.10.1954. First page of the Registration has been placed on page no.1 of the paper book. Copy of the trust deed has also been placed on pageno.1 to 9. The trust has applied for registration under section 12A(a) of the Act on 18.2.1999. Registration has been granted to the trust vide order dated 25.8.1999. This registration has been granted w.e.f. 1.4.1998. The assessee has also been granted registration under section 80G of the Act. Copies of these registration certificates are available at page nos.103 and 104 of the paper book. The assessee filed an application in form No.56D on 29.9.2011 seeking issuance of exemption certificate under section 10(23)(c) (vi). The stand of the assessee was that it has been existing solely for educational purpose and it fulfilled all other requisite conditions. Ld. CIT has made reference to object clause of the trust deed and observed that under clauses (b) and (c), the applicant trust is empowered to collect funds and accept funds and it can manage other institutions. Therefore, it cannot be construed that assessee solely existing for the educational purpose. This application of the applicant-trust has been rejected. The ld. counsel for the assessee while impugning the order of the CCIT contended that the ld. CCIT has made reference to the decision of the Hon'ble Supreme Court in the case of Dharmaposhanam Co. v. CIT [1978] 114 ITR 463. The ld. CCIT has made reference to last paragraphs of this judgment, but failed to note complete paragraphs. He has just picked up few lines and drew inference contrary to proposition laid down in this decision. He further contended that the ld. CCIT noted that in the main object of the trust under clause (2)(c) of the Trust deed it has been provided that Trust can manage any public institution of village. But it is only ancillary object. It has never been acted upon by the assessee. The Hon'ble Supreme Court in the case of Dharmaposhanam Co. (supra) has also observed that if there is an evidence, pointing out to the conclusion that assessee has not carried out any other activity, as mentioned in ancillary object, but exclusively carried out agriculture activity, then status of the assessee will be decided by ignoring the existence of such ancillary objects. He emphasised that the ld. CIT (A) has made reference to few lines from the judgment of the Hon'ble supreme Court and used them out of context. He took us through complete paragraph which read as under:

"It has been urged on behalf of the appellant that what should be taken into consideration is the activity actually conducted by the assessee, and not what is open to it under the provisions of its Memorandum of Association. We do not agree. Whether a trust is for charitable purposes falls to be determined by reference to all the objects for which the trust has been brought into existence. See Tennent Plays, Ltd. v. Commissioner of Inland Revenue (3) and Incorporated Council of Law Reporting for England and Wales v. Attorney-General and Commissioners of Inland Revenue (4). In Rex v. The Special Commissioners of Income-Tax (5), it was pointed out by the Court of Appeal in England that if the settlor reserves to himself the power of appointment under which he might appoint to non-charitable purposes, the trust cannot claim exemption even though the power of appointment is in fact exercised in favour of a charitable object. It would be a different case where one or more of the objects mentioned in the Memorandum of Association although included therein were never intended to be undertaken. If there is evidence pointing to that conclusion clearly the Court will ignore the object and proceed to consider the case as if it did not exist in the Memorandum. In C.I.T. Kerala v. Dharmodayam Co. (supra), it was that basis on which this Court proceeded when it observed that the assessee had never engaged itself in any industry or in any other activity of public interest.

On the aforesaid considerations, we endorse the final conclusion of the High Court and hold that it rightly answered the question referred to it in the several references in the negative, in favour of the respondent and against the appellant.

These appeals are dismissed with costs, limited to one set only."

5. Apart from the above, he made reference to the following decisions and contended that in all these decisions, it has been considered that if the assessee has not undertaken other objects mentioned in the object clause of the trust-deed, and only working for education, then exemption under section 10(23C)(vi) will not be denied to the assessee.

6. On the other hand, the ld. DR contended that present appeal is not maintainable before the Tribunal, because power to grant approval under section 10(23C)(vi) has been conferred upon the Commissioner w.e.f 15.11.2014. He made reference to Rule 2CA and Form No.56D of the Income Tax Rules, 1962. Prior to this, CCIT was authorized to grant such approval. After conferment of the power upon the Commissioner, amendment has been made in section 253 of the Income Tax Act, whereby, clause (f) has been appended w.e.f. 1.6.2015. In the present case, impugned order was passed by CCIT and therefore, it is not amenable to appeal before the Tribunal. He made reference to the decision of the Hon'ble High Court of Orissa in the case of Orissa Trust of Technical Educational v. Chief CIT [2009] 178 Taxman 363. He placed on record copy of the Hon'ble High Court.

7. We have duly considered rival contentions and gone through the record carefully. Section 253 of the Income Tax Act provides a right to the assessee to file appeal before the Tribunal against the orders mentioned therein. It is pertinent to take note of this section. It reads as under:

"253. (1) Any assessee aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order-
(a) . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
[(f) an order passed by the prescribed authority under sub-clause (vi) or sub-clause (via) of clause (23C) of section 10]"
8. In the appeal to the Tribunal under section 253(1) of the Act, any assessee aggrieved by any of the following orders may appeal to the Appellate Tribunal against such orders.

9. Order passed by the prescribed authority under sub-clause (vi) and sub-clause (via) of clause (23C) of Section 10. A bare perusal of the above provision would indicate that appeal has been provided against the order of the prescribed authority passed under section 10(23C)(vi). The prescribed authority can be Commissioner or Chief Commissioner or any other Authority. If Legislature has no intention to provide an appeal against the order passed by the Chief Commissioner of Income Tax, then that could have been specifically provided in the clause. It could be provided that appeal would lie to the Tribunal against the order passed by the Commissioner or any other prescribed authority below the rank of Commissioner. But no such procedure has been provided. As far as the decision relied upon by the ld. DR is concerned, that is not applicable on the facts of the present case. In that case, the assessee has filed an application to the Chief Commissioner for seeking approval under section 10(23C). These were applicable for F.Y.1998-99 to 2005-06. The ld. Chief Commissioner kept the application pending, and ultimately rejected them by order dated 2.2.2007. The assessee alleged that when the applications were made to the Chief Commissioner he was not empowered to grant approval. It was CBDT which alone could grant approval. Therefore, CCIT was not competent to reject or allow the application of the assessee. In that context, the Hon'ble Court has held that the CCIT has no power to adjudicate the applications. Admittedly, in the present case, no such fetter has been imposed upon the Tribunal. No doubt the order was passed by the CCIT and when he passed the order, appeal to the Tribunal was not provided. But Tribunal has power to condone the delay for entertaining any appeal and the power of the Tribunal has not been restricted against the impugned order. The ld. DR cannot draw any benefit from this decision, and the appeal is maintainable before the Tribunal.

10. As far as merit of the case is concerned, we find that following clause of the Trust-deed has been considered by the Prescribed Authority:

11. The ld. prescribed authority was of the opinion that under clause (b) and (c), the assessee could entertain any other objects than education. Therefore, the assessee is not entitled for approval under section 10(23C)(vi) of the Act. This situation has been considered in the judgement relied upon by the ld. counsel for the assessee. It is pertinent to make reference to the observations of the Hon'ble Allahbad High Court in the case of C.P. Vidya Niketan Inter College Shikshan Society (supra). It reads as under:

"23. In the present case the petitioner society is registered charitable society with the Registrar of Societies and is also registered under Section 12A with its objects of establishing, running and maintaining educational institutions. It has a school by the name of C.P. Vidya Niketan Inter College. At present the society does not have any activity other than running and maintaining educational institutions. The other objects and purposes in the 'Smriti Patra' may, if such objects are undertaken, may constitute such purpose, to be other than educational purpose, but at present it cannot be said nor there is any allegation or material either brought before the Chief Commissioner of Income Tax, Ghaziabad or referred to in the counter affidavit, which may be other than education. There are adequate safeguards, that if the activities other than educational activities are undertaken, the exemption may be withdrawn, but in the absence of any such allegation it cannot be said merely on the enumeration of the activities, which are all primarily connected with education and charity that the society does not exist solely for the purpose of imparting education. The case in hand is quite similar to that of Vanita Vishram Trust v. Chief Commissioner of Income Tax & Anr. (supra), and satisfies the tests laid down in American Hotel and Lodging Association Educational Institute (supra) as well as the view taken by this Court in Ewing Christian College Society (supra) in which it was held that where it is not disputed that the society runs an educational institution, and is not for the purposes of making profit, merely because the object of the society is also to serve the church and the nation would not mean that the educational institution not existing solely for educational purpose.

24. In the facts and circumstances, we are of the opinion that as of now the petitioner society running educational institution by the name of C.P. Vidya Niketan Inter College at Kaimganj, Distt. Farrukhabad imparts education to students from Class VI to XII, in the absence of any allegation or material, the object clause providing for other charitable activities, would not disentitle the society from approval under Section 10 (23C) (vi) of exemption. The proviso added to Section 10 (23C) (vi), specially Proviso 2, 3, 12 and 13, give sufficient powers to check the abuse of the exemption. The mere possibility, therefore, that the society may in future pursue activities, which are not charitable, or closely connected with education for making profit, would not constitute the grounds to reject the approval under Section 10 (23C) (vi).

25. On the question of satisfaction of the Prescribed Authority of the conditions of the Second Proviso to Section 10 (23C) (vi), we are of the view that the Chief Commissioner of Income Tax did not give sufficient opportunity to the petitioner, to place documents relevant to the enquiry before rejecting the application. The contents of paragraph 9 of the writ petition that the hearing proceeded on the same day on 27.5.2011, when the petitioner was required to produce the audit report under Rule 16CC in Form 10BB, and the petitioner was granted time to furnish the same within three days, has not been specifically denied in the counter affidavit. The reply is rather argumentative. We also find that there was no hurry to close the enquiry in as much as the rejection of the application will visit serious consequence on the petitioner in as much as having exceeded the aggregate receipts over and above Rupees One crore, the income of the society in the absence of the exemption under Section 10 (23C) (vi) would not qualify for exemption."

12. Similarly, the Hon'ble Allahabad High Court has again considered in the case of CIT v. Hardayal Charitable & Education Trust [2014] 46 taxmann.com 16/[2015] 228 Taxman 330 (Mag.) (All.). The observation of the Hon'ble High Court reads asunder:

"6. Before the Tribunal, it was sought to be asserted on behalf of the Department that the assessee does not exist solely for educational purposes since in its Memorandum, it is permitted to follow, what the Tribunal described, certain generalised objects which go beyond educational activities. In this regard, the Tribunal relied upon a decision of this Court in Neeraj Janhitkari Gramin Sewa Sansthan v. Chief CIT [2014] 360 ITR 168/[2013] 218 Taxman 61/36 taxmann.com 105 (All.), in holding that where a society is pursuing only educational objects and no activity is carried out, an application for approval under sub-clause (6) of section 10(23C) cannot be rejected on the ground that the object clause may contain several other objects apart from educational objects. The Tribunal held that there may be certain dormant objects which have never been pursued in reality by the assessee and the mere existence thereof in a Memorandum constituting the assessee would not be sufficient to decline an exemption.

7. In determining as to whether the assessee is entitled to the benefit of clause (iiiad) of section 10(23C), the following requirements must be fulfilled: firstly the assessee should be a university or educational institution; secondly, the assessee must not exist solely for the purposes of profit; thirdly the aggregate annual receipts must not exceed the amount as prescribed. The amount prescribed is Rs. 1 crore. An assessee cannot be held not to exist solely for educational purposes merely on the basis that the object clause under which the assessee is constituted contains certain generalised objects, so long as the assessee had carried on no other activity save and except conducting education. This principle had been laid down in a judgment of the Bombay High Court in VanitaVishram Trust v. Chief CIT [2010] 327 ITR 121/192 Taxman 389 (Bom.). This view has been followed by a Division Bench of this Court in C.P. VidyaNiketan Inter College Shikshan Society v. Union of India [2013] 359 ITR 322/213 Taxman 139/40 taxmann.com 76 (All.) and Neeraj Janhitkari Gramin Sewa Sansthan (supra).

8. In the present case, it has never been the contention of the revenue either before the CIT (A) or before the Tribunal that the assessee had carried on any activity other than education. The Assessing Officer, it may be noted, relied on the prospectus of the assessee which made a reference to the business carried on by a Private Limited Company in the same "group" as the assessee. These observations which are extracted in the order of the Assessing Officer are from the order passed by the CIT-II, Agra on 23 August 2011 rejecting the request of the assessee for registration under section 12AA. This view was, however, as noted earlier, reversed in a judgment of Division Bench of this Court dated 15 March 2013 against which no challenge has been preferred by the revenue before the Supreme Court. But that apart, it must be noted that the assessee is a trust and not a Private Limited Company. The trust admittedly does not carry on any other business save and except conducting education.

9. Finally, it may be necessary to note that the entitlement of the assessee to the exemption under section 10(23C) was dealt with by the CIT (A). We find no reason or justification to hold that the CIT (A) ought to have remitted the proceedings before the Assessing Officer. The material to arrive at such a conclusion was before the CIT (A). The only objection which was raised on behalf of the revenue has been found to be untenable."

13. The Hon'ble Karntaka High Court has also got occasion to consider the issue. The Hon'ble Karnataka High Court has made reference to the decision of the Hon'ble Allahabad High Court in the case of C.P. Vidya Niketan Inter College Shikshan Society (supra) and concurred with this. The finding recorded by the Hon'ble Karnataka High Court is also worth note.

"10. After making these observations, the Supreme Court set aside the order passed by the Central Board of Direct Taxes and remitted the matter for fresh consideration in accordance with law and while doing so, clarified that, in that case, the appellant had fulfilled, the threshold pre-condition of actual existence of an educational institution Under section 10(23C) (vi) and therefore, on that count, the Central Board of Direct Taxes, would not reject the approval application made by the appellant therein.

11. From bare perusal of the observations made by the Supreme Court in American Hotel's case, what appears to us, is that the Assessing Officer while considering the case, such as one in hand, has to closely analyse activities of the Institute, objects of the Institute, its sources of income and utilization. In that case, the Supreme Court considered its activities as reflected in the paragraph quoted above and therefore, while remanding the matter, made it clear that the appellant had fulfilled the threshold pre-condition of actual existence of the educational institution under section 10(23C) (vi) with further direction to the Central Board of Direct Taxes not to reject the approval application on that ground. Two of the objects in that case as reflected in the judgment were also to offer the National Council the lowest possible prices for the products and services sold to or utilized by the schools under the umbrella of the Government of India and so also to utilize Indian Authors whenever possible in the development of customized programmes. The Supreme Court, despite these objects/activities, held that the institution in American Hotel was involved only in educational activities, perhaps on the ground that it was not carrying on those activities.

12. Sri. Shankar, learned counsel appearing for the appellant at the outset, invited our attention to the judgment of Allahabad High Court in C P Vidya Niketan Inter College Shikshan Society v Union of India and others (2013) 359 ITR 322 (All) (for short C P Vidyaniketan') and submitted that after considering the judgment of the Supreme Court in American Hotel, the High Court held that where it is not disputed that a society runs an educational institution and is not for the purposes of making profit, merely because the object of the Society is also to serve the church and the nation would not mean that the educational institution not existing solely for educational purpose. This observation was made by the High Court after referring to the judgments in C P Vidya Niketan and American Hotel. The Bombay High Court in Vanita Vishram Trust v. Chief Commissioner of Income-Tax and another (2010) 327 ITR 121 (Bom.) after considering the provision contained in Section 10(23C)(vi) of the Act observed that though the objects clause contained varied objects including the management and development of moveable and immoveable properties, the statement of fact before the Court, which was not disputed, was that the only activity carried out by the Trust ever since its inception was the conduct of educational institutions. The Institution, in that case, had a history of over 80 years during the course of which the only activity was of conducting educational institution.

13. In the present case, it is not in dispute that the society has been conducting the primary and secondary school in the State of Karnataka since 2002. Nor is there any dispute before us that save and except for conducting school, the society has carried on any other activities since then. Without expressing any opinion whether the object, as reflected in Clause 3(b) and 3(h) of the Memorandum of Association, are related to education, it is clear that save and except educational activity the assessee did not/do not carry on any other activity is the fact, which is not in dispute. In other words, though the activities as reflected in Clause 3(b) and 3(h), may constitute the purpose, other than the educational purpose, but, during the relevant assessment year, it is not the case of the revenue nor is there any material to show, that the society was running any activities other than the educational activity. In this view of the matter, we are of the considered opinion that the view taken by the Tribunal is not correct and deserves to be set aside. There are adequate safeguards that if the activities other than educational activities are undertaken by the society, exemption granted can be withdrawn. Merely, because there exists object, which is not related to educational activities, in our opinion, is not sufficient to deny the exemption/benefit of Section 10(23C)(iiiad)of the Act. In short, in the absence of any allegation or material against the society showing that they are involved in any other activities than the educational activities, in our opinion, it cannot be denied exemption under Section 10(23C)(iiiad). In the circumstances, we answer both the substantial questions of law in favour of the assessee and against the revenue."

14. In the light of the above, if we examine the facts of the present case, then it would reveal that the assessee trust came to existence in 1954. It is running educational institutions. It has been registered under Section 12AA of the Act since 25.8.1998. It is also enjoying the exemption under section 80G. Thus, the department has never doubted about the genuineness of the activities of the trust and purpose of its existence. While rejecting the application of the Trust under section 10(23C), the ld. CCIT has not pointed out any specific aspect. He only harboured a belief that assessee might have some ancillary activities not associated with education. This is only a hypothetical observation. In all these decisions, it has been propounded that if the assessee has not taken other objections mentioned in the trust deed, and exclusively carried out activities of education, then approval under section 10(23C) will not be denied. Respectfully following these decisions, we allow the appeal of the assessee and direct the prescribed authority to grant approval under section 10(234C)(vi) of the Income Tax Act to the assessee for the Asstt. Year 2013-14.

15. In the result, the appeal of the assessee is allowed.