By TIOL News Service

VISAKHAPATNAM, AUG 07, 2018: THE issue before the Bench is - Whether the approval for exemption u/s 10(23C)(vi) can be granted to a educational institution, even if the MoA also includes non educational objects. And the verdict is NO.

Facts of the case

The assessee , an educational institution applied for seeking exemption of its income u/s 10(23C)(vi) for the relevant AY. However, the CCIT found that the MoA of the assessee there were included other objects also apart from the educational objects, such as to encourage sportsman and adventurous spirit in the pupils and those connected with the institution and also to print, publish and exhibit films, journals, periodicals, books for the diffusion of useful knowledge. Therefore, the CCIT was of the view that the primary requirement for approval is solely educational objects and since the assessee was also having other than educational objects, the assessee‘s application for grant of approval was rejected.

Being aggrieved, the assessee filed a writ petition before the High Court. The High Court observed that the objects of the assessee were not solely for educational purposes and directed the CCIT to verify whether objects other than for education were held to be ancillary and incidental to the primary dominant object. According to the High Court, the CCIT did not recorded any finding, with regard to the objects cited were ancillary and incidental to the education objects or not, hence, remitted the matter back to consider the matter afresh after giving opportunity to the assessee for reconsidering the issues on merits.

Meanwhile, due to restructuring of the department, the jurisdiction had been transferred to the CIT(E) and the assessee. After considering the submissions made by the assessee, the CIT(E) found that all the objects were primary and dominant objects independent of other objects with distinctive nature and they were not ancillary or incidental to any of the other objects mentioned in the MoA. Accordingly, he held that the society did not exist solely and exclusively for the purpose of education and rejected the application of the assessee for approval u/s 10(23C).

The Tribunal held that,

++ as per the provisions of section 10(23C) of the Act, the primary requirement is the assessee should exist solely for the purpose of education. In the instant case, the objects mentioned include non educational objects and the assessee is not satisfied the condition of existence solely for educational purposes. The assessee relied on the decision of Ganga Educational Society Vs. CIT(E) of ITAT Hyderabad Bench. The facts of the cases are distinguishable and not applicable to the assessee. In the cited case of Ganga education society the ITAT observed that the objects of the society are incidental and ancillary to the primary objects. The facts of the Allahabad High Court decision in the case of Yougmen Christian Association Vs. CIT are distinguishable on the facts of the assessee‘s case. In the cited case Allahabad High court in Yougmen Christian Association (YMCA) the institution was existing for educational purpose from 1910 and the department could not prove any other activity. For denying the exemption various objections were given such as not having a car and claiming the depreciation and expenses for repair and giving loans etc. Hence the both the case laws relied up on by the assessee do not any way come to it‘s help;

++ the other objects are clearly non educational and are the main objects of the society. As observed by the CIT(E), they cannot be considered as ancillary or incidental objects to the primary objects as argued by the counsel for the assessee. The assessee argued for conditional grant of approval but there is no such provision in the Act for conditional grant of approval. As discussed earlier the approval would be granted only if the institution exists solely for educational purposes. The assessee is having objects other than educational objects and during hearing the counsel for the assessee could not controvert that the said objects are non-educational and primary objects. Therefore, there is no error in the order of the CIT(E) in rejecting the application of the assessee for grant of approval u/s 10(23C) of the Act.

(See 2018-TIOL-1237-ITAT-VIZAG)