Legal Battles: Rejection of Exemption Application under Section 10(23C)(vi) of the Income Tax Act

• In the world of legal intricacies surrounding tax exemptions, the case of rejection of application for approval under Section 10(23C)(vi) of the Income Tax Act has sparked a heated debate. The appeals filed against the orders dated 28-10-2020 and 06-03-2020 by the CIT(Exemption), Ahmedabad for the assessment year 2020-21 have brought to light crucial interpretations of the law.

Grounds of Appeal

The appeals, numbered as ITA No. 145/Rjt/2020 and ITA No. 164/Rjt/2022, present distinct yet intertwined arguments against the rejection of the applicant's registration:

1. Rejection of Application: The key contention revolves around the rejection of the application for registration without due consideration.

2. Violation of Natural Justice: The rejection without affording the appellant an opportunity to present their case is claimed to be against the rules of natural justice.

3. Non-consideration of Petition for Restoration: The failure to consider the petition for the restoration of the application is highlighted as an oversight.

4. Interpretation of Multiple Objects: The crux of the matter lies in the interpretation of whether an entity, engaging in multiple objectives besides education, is eligible for exemption under Section 10.

Background and Core Issue

• The applicant trust applied for approval under Section 10(23C)(vi)(via), seeking tax exemption for the assessment year 2020-21. However, the application was denied by the CIT(E) on the grounds that the institution engaged in various objectives apart from education. Subsequent attempts by the trust to restore the application faced rejection.
• The crux of the issue in both appeals remains the rejection of the application on the premise that the institution was involved in multiple objectives beyond education.

Arguments and Case References

During the hearing, the appellant's counsel highlighted the New Noble Society Education vs. CIT case, emphasizing the distinction between a person and an institution. The argument posited that the rejection was unwarranted as the institution did involve itself in educational activities as per Section 10(23C)(VI) of the Act.

The appellant's written submissions stressed:

• Section 10 Interpretation: Highlighting that Section 10 concerns the exclusion of specific incomes from the total income of an individual.

• Definition of "Solely for Education": Referencing case law to establish the interpretation of "solely for education" and its application to the appellant's case.

• Person-Institution Distinction: Asserting that the trust, as a 'person,' may differ from the institution carrying out educational activities.

However, the departmental representative relied on the precedent set by the New Noble Education Society case to support the rejection.

Adjudication and Conclusion

• Upon hearing both sides and examining relevant materials, the Tribunal noted the appellant's arguments but found them insufficient to sway the decision. The Tribunal cited the New Noble Education Society case to emphasize that the appellant's institution didn't exclusively engage in educational activities, as mandated by law for tax exemption.
• Ultimately, the Tribunal dismissed both appeals, affirming the CIT(Exemption)'s decision, stating that the appellant's institution didn’t meet the criteria solely focused on educational activities, as per the precedent set by the Supreme Court.

Final Verdict

• The legal battle underscores the nuanced interpretation of tax laws and the challenges in establishing an institution's sole focus on educational activities to qualify for tax exemption. The precedence set by the Supreme Court rulings guides the decisions, creating a benchmark for eligibility criteria under Section 10(23C)(vi).
• The case serves as a reminder of the complexities involved in navigating tax laws and the importance of adherence to defined criteria for seeking exemptions.

Topic-Sadhu Vaswani Centre (Saurashtra) Rajkot Versus Commissioner of Income Tax

Court-ITAT-RAJKOT

Date-20/12/2023

Team Taxonation