Education Institutions can avail Exemption Only If Exist Solely for the Purpose of Imparting Education: Uttarakhand HC [Read Judgment]

In Chief Commissioner of Income Tax Versus M/s J.B. Memorial Manas Academy Management Society, Uttarakhand High Court has held that education institutions can avail exemption only if exist solely for the purpose of imparting education.

In instant case Petitioner called M/s J.B. Memorial Manas Academy Management Society is a registered Society registered under the Registration societies Act 1860. Therein aim and object are stated in Memorandum of Association which clearly mentioned that it really exists for imparting education. Society runs an academy affiliated to the CBSE for students of Nursery up to class 12.

Here Petitioner Society applied for the grant of exemption under Section 10(23C) (vi) of the Income Tax Act, for the FY 2011-12 by filing Annexure-4 Application. The Appellant rejected the grant of the application by stating that petitioner obtained a copy of the Certificate of Registration under Section 12AA of the Act.

H.M. Bhatia, counsel for the appellant and also Mohit Maulekhi, learned counsel for the respondent appeared before this court. The counsel for Appellant contended that Society’s objects embraced running of the educational institution as only one of their objects, therefore, the benefit under Section 10 (23C)(vi) may not be available.

The court observed the reasons for rejecting exemptions are because of the multiple objects stated in memorandum of association: in order to qualify for grant of exemption, under the provision, the assessee institution should exist ‘solely’ for educational purpose, Assesses disproportionate fee structure is devised to earn maximum from fee simply to invest it for expansion of the institution and society is not registered under section 12AA of the Income Tax Act.

The court heard the contention of both the parties and perused the cases cited by them. The court stated that in order to qualify for the grant of exemption under Sub-Section (23C), the Institution should exist only for educational purpose, which is not the case of the writ petitioner-Society.

Also, the Court described the provision under Section 10 (23C)(vi) which may include income received by any person on behalf educational institution and that Institution should exist solely for educational purpose and not for the purpose of profit, other than those mentioned in Clauses (iiiab) & (iiiad).

Finally the bench in the light of the judgment of the Apex Court in the case of American Hotel & Lodging Association Educational Institute v. CBDT observed that “the Appeal must be partly allowed and the portion of the judgment directing exemption to be granted must be set aside, and instead a direction must be issued to the appellant to reconsider the matter”