Madras High Court
M/S.Malco Vidyalaya Matriculation ... vs Chief Commissioner Of Income Tax on 24 January, 2019
Author: G.R.Swaminathan
Bench: G.R.Swaminathan
1
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED: 24.01.2019
CORAM:
THE HONOURABLE MR.JUSTICE G.R.SWAMINATHAN
WP(MD)No.640 of 2015
and
MP(MD)No.1 of 2015
M/s.Malco Vidyalaya Matriculation Higher
Secondary School,
Mettur Dam – 636 402,
Salem District,
Rep.by its Trustee C.Murugeswaran ... Petitioner
Vs-
Chief Commissioner of Income Tax,
No.44, Williams Road,
Cantonment, Trichy. ... Respondent
PRAYER: Writ Petition is filed under Article 226 of the Constitution of
India, to issue a Writ of Certiorarified Mandamus, to call for the
records in C.No.935(4)/CCIT/TRY/2013-14 dated 17.09.2014 relating
to the assessment year 2014-15 on the file of the respondent and
quash the same and further direct the respondent to grant the
exemption sought u/s.10(23C) (vi) of the Income Tax, 1961.
http://www.judis.nic.in
2
For Petitioner : Mr.A.Chandrasekaran
For Respondent : Mr.N.Dilipkumar
ORDER
The petitioner is a recognized Matriculation Higher Secondary School. It has been functioning since 1959. When Madras Aluminium Company (Malco) was set up, the management of the school was taken over by the company in the year 1969. Malco had set up a trust known as Malco Educational Trust which has been running the institution since 1986. The Trust is enjoying exemption in terms of Section 12 AA of the Income Tax Act. However, the petitioner school has been recognised as a regular assessee under the Income Tax Act, 1961. Even though the Trust which is running a school was granted registration under Section 12 AA of the Act vide approval dated 21.01.1987, in view of the accrual of more benefits, the petitioner submitted an application for obtaining exemption under Section 10 (23 C) (vi) of the Act. The application submitted by the school was however rejected by the impugned order dated 17.09.2014 by the respondent. The same is assailed in this writ petition.
http://www.judis.nic.in 3
2.Heard the learned counsel for the petitioner and the learned standing counsel appearing for the respondent.
3.The respondent had filed a detailed counter affidavit and the learned standing counsel reiterated all the contentions set out therein. The learned standing counsel submitted that the reasons assigned in the impugned order are sound and that no interference is warranted at the hands of this Court.
4.A mere reading of the impugned order indicates that the petitioner's application stood rejected principally for two reasons. The first reason is that the writ petitioner did not establish his claim that the institution is being run solely for the purpose of education. The other reason for rejection was that since the institution had been generating surplus of over 15 to 20%, it cannot be an institution which is existing for “not for profit purpose”. The respondent chose to go by the decision of the Hon'ble Karnataka High Court reported in (2014) 42 Taxmann.com 237 (Viswesvarayya Techhnological University vs. ACIT). The respondent appears to have been swayed http://www.judis.nic.in 4 mainly by the fact that the petitioner did not submit any written memorandum containing the objects for which the school is being run.
5.Section 10(23C)(vi) of the Income Tax Act, 1961 reads that in computation of total income of previous year, income received by any person on behalf of 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 prescribed authority shall not be included.
6.The petitioner's application dated 28.09.2013 clearly mentions that the school is being run solely for educational purposes. The school has been issued with recognition orders by the concerned authorities. It is further mentioned that all the funds generated by the institution have been utilized for the school development purpose only. The funds of the school are invested in school building, computers & accessories, furniture, lab equipments, http://www.judis.nic.in 5 library books and water plant etc., It has further been asserted in the application itself that it is not carrying on any business. The trustees have been the top executives of Malco and the correspondent of the school.
7.When the applicant itself is an educational institution, namely, the school, this Court fails to understand as to why the respondent has been insisting that there should be a written memorandum containing the objects of the school. The object of the applicant can only be to run the school and nothing else. This has been made explicit in the application form itself. Of course, the educational agency for the applicant is a trust. But then, the school has been enjoying the status of an independent assessee. Since it is only the school that seeks exemption in terms of Section 10(23)(C)(vi)of the Income Tax Act, 1961, there is no need or necessity for the school to take recourse to invoke the provisions of the trust deed of the educational agency. The Malco Education Trust may have larger objects connected with education.
http://www.judis.nic.in 6
8.The petitioner's school being an independent assessee has made it clear that it is being run for educational purposes alone. The petitioner can only make a positive assertion. If the authority is possessed of some material which may indicate that the petitioner is having some other activities also, then the application can be rejected on that ground. But, no such material has been projected in the impugned order.
9.The respondent also erred in going by the decision of the Hon'ble Karnataka High Court reported in (2014) 42 Taxmann.com 237 (Viswesvarayya Techhnological University vs. ACIT). Merely because there has been a surplus generation beyond a percentage in a year, that would not mean that the petitioner institution would not come under the category of “not for profit institution”. The petitioner has stated that whatever surplus is generated would go only towards the development of the school. The petitioner cannot be faulted for parking the surplus in an interest bearing account. In fact, the petitioner must be complimented for managing their finances in a http://www.judis.nic.in 7 prudent manner. Only if it can be shown that there has been diversion of the surplus generated by the institution, the authority would be justified in rejecting the application or withdrawing the exemption granted. This power of the authority is always available upon discovery of materials that are adverse to the petitioner. But, no such material has been indicated in the impugned order.
10.This Court therefore has to necessarily hold that the approach of the respondent suffers from misdirection in law. The respondent assumed that the writ petitioner must produce a written memorandum setting out their objects. In the statutory provision, there is no such requirement. The respondent has needlessly assumed that the writ petitioner is withholding some material. The petitioner is a school and necessarily its activities will have to be only for educational purposes. The petitioner cannot have any other activity. In any event, the respondent has not indicated the extraneous activities of the petitioner. The petitioner cannot be called upon to prove the negative. Likewise, the petitioner has been unfairly characterized as a profiteering institution. The petitioner has http://www.judis.nic.in 8 categorically stated that the surplus generated by the institution is being utilized only for the development of the school.
11.But, the learned standing counsel for the respondent submitted that the returns of the previous years have not been produced. The learned counsel appearing for the writ petitioner even while controverting the stand of the respondent, submitted that if the matter is remitted to the file of the respondent, they would place all the relevant papers.
12.In this view of the matter, the order impugned in this writ petition is set aside and the matter is remitted to the file of the respondent to pass orders afresh in accordance with law. The respondent shall issue a notice to the petitioner fixing the date for enquiry. On the said date, the petitioner shall appear and place all the relevant materials in support of their application for exemption in terms of Section 10(23)(C)(vi) of the Income Act, 1961. Thereafter, the respondent shall pass appropriate orders in accordance with law. http://www.judis.nic.in 9
13.The writ petition is allowed on these terms. No costs. Consequently, connected miscellaneous petition is closed.
24.01.2019 Skm To The Chief Commissioner of Income Tax, No.44, Williams Road, Cantonment, Trichy.
http://www.judis.nic.in 10 G.R.SWAMINATHAN, J.
Skm WP(MD)No.640 of 2015 and MP(MD)No.1 of 2015 24.01.2019 http://www.judis.nic.in