Generation Of Surplus From Year To Year Cannot Be Bar For Trust In Seeking Section 10 (23C) (vi) Exemption: Rajasthan High Court

The Rajasthan High Court has held that the assessee is being run as a trust solely for educational purposes, thus seeking the exemption under Section 10(23C)(vi) of the Income Tax Act of 1961, and the generation of surplus from year to year cannot be a bar in seeking such an exemption under the provision of law.

The bench of Justice Pushpendra Singh Bhati and Justice Munnuri Laxman has observed that mere generation of surplus cannot be a basis for rejection of an application under Section 10(23C)(vi) on the ground that it amounts to an activity of the nature of profit-making. In fact, the third proviso to the said clause clearly provides that accumulation of income is permissible subject to the manner prescribed therein, provided such accumulation is to be applied “wholly and exclusively to the objects for which it is established.”

As per Section 10(23C) (vi), income from any university or other educational institution that exists solely for educational purposes and not for the purpose of profit should not be included in the taxable income.

The petitioner/assessee is a charitable trust, registered with the Sub-Registrar, Hanumangarh, on November 28, 2023, and with the Devasthan Department, Bikaner, on December 22, 2009. The petitioner is also registered as a society under Section 12(A) of the Income Tax Act, 1961.

The petitioner had filed an application seeking exemption under Section 10(23C)(vi) in the prescribed Form No. 56D for the year 2011–12 before the Office of Commissioner of Income Tax, Bikaner, Range Bikaner, and the application was forwarded to the officer of the respondent, the Chief Commissioner. Due to certain defects or discrepancies in the application, the petitioner filed a fresh application, and the same was considered while also keeping into consideration the aspect of limitation.

Subsequently, during the proceedings, the respondent issued a communication in which the petitioner was asked to furnish certain documents in relation to the application and further asked for information regarding the educational institution. The petitioner submitted a reply. The respondents issued a communication and asked the petitioner to appear in person along with certain documents.

The respondents rejected the petitioner's application for granting the exemption under Section 10 (23C)(vi). In the order, a finding was recorded regarding the figures of surplus income and expenditure to infer that the petitioner is being run for the purpose of profits.

The petitioner contended that it is engaged solely for educational purposes, and therefore, the petitioner falls under Section 10(23C)(vi) of the Act of 1961. The respondents issued various query letters to the petitioner, and the petitioner acted upon each and every such letter and provided the requisite information, to the satisfaction of the respondents, to the effect that the petitioner is engaged exclusively in imparting education and no other purpose is being carried out by the petitioner, and therefore, the order is not justified in law.

The department contended that the petitioner does not fall under Section 10 (23C) (vi) for the purposes of exemption because the surplus being generated is not incidental to educational purposes.

The court observed that the Ministry of Finance, Department of Revenue, and Central Board of Direct Tax issued a Circular bearing No. 14/2015 (F.No. 197/38/2015-ITA-I) dated August 17, 2015, stating that representations have been received seeking clarification on certain issues relating to the grant of approval and claim of exemption under Section 10 (23C) (vi). It was clarified that the mere generation of surplus from year to year cannot be a basis for rejection of an application under Section 10(23C)(vi).

The court remanded the matter back to the respondents with a direction to reconsider and decide the application in question preferred by the petitioner under Section 10(23C)(vi) strictly in accordance with the law.

Counsel For Petitioner: Sharad Kothari

Counsel For Respondent: K.K. Bissa

Case Title: Chandigarh Manav Vikas Trust Versus Chief Commissioner Of Income Tax

Case No.: D.B. Civil Writ Petition No. 3487/2014

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