Civil Writ Petition No.20972 of 2011 -1- **** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Civil Writ Petition No.20972 of 2011 Date of decision: 14 .11.2011 St. Francis Convent School ...Petitioner Versus Central Board of Direct Taxes and others ...Respondents CORAM: HON'BLE MR.JUSTICE HEMANT GUPTA HON'BLE MR.JUSTICE G.S.SANDHAWALIA Present: Mr. Pankaj Jain, Advocate for the petitioner. **** G.S.SANDHAWALIA, J. The present writ petition has been filed against the order dated 26/27.9.2011 (Annexure P-9) whereby the Chief Commissioner of Income Tax, Ludhiana has rejected the application of the petitioner for grant of exemption under Section 10(23C)(vi) of the IncomeTax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2010-11 in Form No.56-D. The petitioner submitted the said application on 29.9.2010 and a report was called from the office of CIT-II, Jalandhar, who submitted his report on 16.9.2011 and accordingly, show cause notice dated 20.9.2011 was issued to the assessee wherein the following two issues were raised:- (a) That the objects of the trust are not exclusively related to education but are partly religious in nature. (b) That payments have been made to the Diocese of Jalandhar without much justifiable cause.” The said notice was replied to on 21.9.2011 wherein the assessee submitted the following reply regarding the above two issues:- “First and formost it is submitted that our society is imparting Civil Writ Petition No.20972 of 2011 -2- **** education to the public at large without distinction of any caste, creed and religion. The society is running school for imparting education to the public at large without distinction of any caste, creed, religion, and sex. The students are not from any particular community but are belonging to the various religions. As regards educational extension services Rs.75,00,000/- given to Diocese of Jalandhar for the year ending 31.3.2010, it is submitted that Diocese of Jalandhar is engaged in running schools which are located at different places in Punjab. Even our objects are to promote education among the children and hence forth for the purpose of our objects of society we have given educational extension services to Diocese of Jalandhar. We are enclosing herewith Memorandum of Association alongwith confirmation of Diocese of Jalandhar.” The Chief Commissioner of Income Tax after taking into consideration the objects of the institution came to the conclusion that firstly the aims and objects of the assessee institutution were partly religious in nature since it was imparting education to the Christians and was giving financial aid to the Diocese of Jalandhar. It was also noticed by the Chief Commissioner of Income Tax that for the last three years under the head of Education Extension Services sum of Rs.24,00,000/-, Rs.75,84,700/- and Rs.17,76,378/- had been paid and the Memorandum of Association of Diocese of Jalandhar was also taken into consideration which was to administer the Churches, Chapels, schools and hostels etc. and also to apply the moneys and properties for the support and maintenance of the Roman Catholic Bishop and Clergy of the Diocese of Jalandhar, apart from managing local or Parochial funds of Churches or Civil Writ Petition No.20972 of 2011 -3- **** parishes. Accordingly, it was held that under Section 10(23C)(vi) of the Act, the institution has to exist solely for educational purposes and exemption is not to be granted if the Trust does not exist solely for educational purposes. The judgment of this Court in case of Pinegrove International Charitable Trust Vs. Union of India (UOI) and others (2010) 327 ITR 73 (P&H) was also relied upon by holding that various principles have to be taken into consideration for deciding the case of the assessee for granting exemption under Section 10(23C) (vi) of the Act and accordingly, the claim of exemption was rejected. The petitioner before us has pleaded that since the petitioner's school was registered under the Societies Registration Act, 1860 on 13.3.1992 and since out of total 1640 students, Christian students were only 190 and out of the staff strength of 71, only 23 were Christian, therefore, it was imparting education to people for all religions and employing persons from all the walks of life and religion. The Memorandum of Association and Rules went to show that the aims and objects were to set up a Educational Charitable Society and to impart education to all without any discrimination of caste and creed. It is further pleaded that the Memorandum of Association of the Diocese of Jalandhar was also charitable in nature and, therefore, the order of respondent no.3 was not justifiable. That in our view, the findings of respondent no.3 cannot be faulted with and are liable to be upheld as there is no illegality or impropriety in the order of respondent no.3, which after examining the record and asking for explanation of the assessee has come to the conclusion that the funds are being used by the Institution for religious purpose and the Institution is further diverting funds to the Diocese of Jalandhar under the head of Education Extension Services, details thereof Civil Writ Petition No.20972 of 2011 -4- **** are reproduced below: “Year ending Amount paid under the head of ESS 31.3.2009 24,00,000/- 31.3.2008 75,84,700/- 31.3.2007 17,76,378/-.” The assessee in its reply has admitted that the funds have been given to the Diocese of Jalandhar but tried to justify that Diocese of Jalandhar is also engaged in running the schools which are located in different places of Punjab. Respondent No.3 has examined the Memorandum of Association of the Diocese of Jalandhar and come to the conclusion that the objects were not totally educational in nature and the objects were religious in nature. A perusal of the said objects would go on to show that the Diocese of Jalandhar had a wide range of objects which included dealing with and managing the movable and immovable properties of all description of the Association and to take over and acquire hold, stocks, shares, securities, debentures etc. Some of the objects are reproduced below:- “d) To maintain, deal with, and manage the said movable and immovable properties of all descriptions of the said Association. e) To alienate by way of sale, mortgage, lease, exchange, gift, hiring out or otherwise any or all the properties, movable or immovable of the Association or portions thereof unless otherwise stipulated in a particular case by the terms of a will, legacy, bequest grant etc. f) To invest or deal with money of the Association not immediately required upon securities or in such manner as from time to time may be determined by the Governing Body of Civil Writ Petition No.20972 of 2011 -5- **** Association, and to lend moeny with or without security. g) To invest or deal with the money of Association or Authority, whether Supreme, State, District, Municipal, Local or otherwise that may seem to be conductive to the object of the Association or to any of them and to obtain from any Government or Authority such rights, concessions and privileges as the Association may think desirable and to obtain carry on, exercise and comply with any such arrangements, rights, privileges and concessions. h) To take over, acquire, hold dispose of securities of Government of India or of any local Government or Public Body, and stocks, shares, securities, Debentures and other obligations of any company.” Section 10(23C)(vi) of the Act talks about an educational institution existing “solely” for educational purposes and the Sub Clause 15 of Section 2 defines charitable purposes which includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit in the nature of trade, commerce and business. The unnumbered second proviso of Section 10(23C) goes to show that the prescribed authority is under a statutory liability to satisfy itself for the genuineness of the activities of such institution after examining the audited annual accounts. This power of satisfaction of the prescribed authority for ascertaining the genuineness of the activities has been noted by this Court in Pinegrove International Charitable Trust's case (supra) and the following principles were laid down after noticing the provisions of Section 10(23C) of the Act. “i) Whether educational institution is applying its profit Civil Writ Petition No.20972 of 2011 -6- **** solely and exclusively to the objects for which it was established. ii) Whether income is being used for the benefit of institution. iii) Whether there is any violation of any of the provisions. The Division Bench in Pinegrove International Charitable Trust's case (supra) has also held as under:- “From the aforesaid view expressed by Hon'ble the Supreme Court it is evident that at the initial stage when the application for exemption is filed by an educational institution the scope of inquiry is restricted only to ascertain the genuineness of the activities of such an institution. Such an inquiry as per the provisio may even extend to the examination of accounts of the institution, application of its income to the object and purposes of education and other cognate aspects as has been indicated in the observation made by their Lordships'. Once on the basis of genuineness of the activities of an educational institution approval is granted for exemption then the monitoring provisions would come in play and the Assessing Officer has to examine whether the conditions on which the exemtion was given, have been fulfilled or not. The aforesaid opinion is also supported by the speech of the Finance Minister as reported in [1998] 232 ITR 13.(ST).” That from a perusal of the order, it transpires that the respondent No.3 has examined the record and rightly come to the conclusion that the income earned by the assessee is not being used solely for educational purposes and genuineness of the activities of the institution have been doubted. That the third proviso of the Section Civil Writ Petition No.20972 of 2011 -7- **** contains the expression “applies its income or accumulates it for application, wholly and exclusively to the objects for which it is established, therefore, in the facts and circumstance of the present case the assessee has itself admitted that the funds have been given the Diocese of Jalandhar, therefore, the income of the institution has not been applied execlusively to the objects of the institution. Thus, there is no ground made out to interfere with the well reasoned order of the respondent no.3 especially keeping in view the fact that there is no dispute that over the last three years a sum of more than Rs. One Crore was diverted to the Diocese of Jalandhar instead of being used by the assessee for further expansion of its school. It goes without saying that the authority which grants exemption is also empowered to withdraw the exemption if it feels that funds are not being utilised in a proper manner under the unnumbered 13th proviso of Section 10(23C) of the Act. In the present case, respondent no.3 after examining the record has come to a valid conclusion that there has been a diversion of funds and the institution is not existing solely for educational purposes. Therefore, in our opinion the benefit under Section 10(23C)(vi) of the Act has been rightly declined which cannot be interferred with in exercise of extraordinary writ jurisdiction under Article 226/227 of the Constitution of India as it is settled law that the writ Court is not to sit in appeal over the decisions of the authorities and it has only to be seen whether the authorities acted within the scope of their power and a proper procedure was followed and there was no violation of the principles of natural justice. In the present case there is no dispute regarding the fact of diversion of funds to the Diocese of Jalandhar, therefore, there is no illegality and irregularity in the order of the respondent no.3 declining to grant exemption. We may,however, clarify that the petitioner is free to apply Civil Writ Petition No.20972 of 2011 -8- **** afresh for the subsequent period and undertake that its income will be applied exclusively for its objects for which it was established and the authorities will decide afresh after being satisified about the genuineness of the activities as prescribed. Accordingly, the writ petition is dismissed in limine. (G.S.SANDHAWALIA) Judge November 14, 2011 (HEMANT GUPTA) Pka Judge