IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 11.11.2011 CWP No.6171 of 2010 O.P.Jindal Global University, Sonepat …Petitioner Versus Chief Commissioner of Income …Respondent Tax (Exemption), Panchkula CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE G.S.SANDHAWALIA 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present: Mr. Ajay Vohra, and Ms. Radhika Suri, Advocates, for the petitioner. Ms. Urvashi Dhugga, Advocate, for the respondent. HEMANT GUPTA, J. Challenge in the present writ petition is to an order passed by the respondent – Chief Commissioner Income Tax (Exemption), Panchkula on 18.01.2010 (Annexure P-1) declining application filed by the petitioner for approval under Section 10(23C) (vi) of the Income Tax Act, 1961 (for short ‘the Act’). The Haryana Private Universities Act, 2006 ( for short “the Haryana Act”) was enacted with a view to regulate the incorporation of private universities in the State. Section 6 of the Haryana Act provides for the establishment of a private University, as may be specified in the CWP No.6171 of 2010 schedule. The petitioner – University was included in the schedule on 27.01.2009 vide Ordinance No.4 of 2009. Thus the petitioner is a University constituted on 27.01.2009 with the objective to pursue educational activities. The petitioner sought registration in Form No.56D under Section 10(23C)(vi) of the Act on 29.01.2009 vide Annexure P-3. The Commissioner of Income Tax vide its report dated 20.10.2009 submitted that in terms of clause (iiiad) and clause (vi) of Section 10 (23C) of the Act, the income and expenditure, to prove the existence of the university or other educational institutions, must come from educational activities. The words ‘aggregate annual receipts’ appearing in clause (iiiad) implies that the annual receipts must be from educational activities and not out of other sources or donations. It was thus reported that though the petitioner has received a sum of Rs.3,11,48,350/- during the financial year 2008-09, but that will not make the University eligible for exemption either under clause (iiiad) or under clause (vi) of Section 10(23C) of the Act. In response to the said report, vide letter dated 10.12.2009 (Annexure P-4), the Petitioner inter alia asserted that any income received by the University or other educational institutions which is solely for educational purposes is the only requirement of the Statute. The expression ‘aggregate annual receipts’ used in Clause (iiid) and (vi) of Section 10(23C) of the Act is to divide Universities/educational institutions into two categories i.e. one requiring approval and the other not requiring such approval though both institutions are contemplated to exist solely for educational purposes and not for the purpose of profit. It was averred that the primary purpose for making such 2 CWP No.6171 of 2010 categorization is to regulate the grant of exemption to University/educational institution having receipts, which is presently prescribed as Rs.1 Crores in terms of clause (iiiad) of Section 10(23C) of the Act. In respect of such institutions, approval is not necessary whereas in respect of institution having more than the prescribed limit, the specific approval is required. It was also asserted that the petitioner has received corpus donation of Rs.3 crores during the financial year 2008-09, which is not part of aggregate annual receipts, but an income defined in Section 2(24) of the Act, which includes all voluntary contributions received by an institution established under clause (iiiad) and (vi) of Section 10(23C) of the Act. It was also asserted that the eligibility of an institution for exemption under Section 10(23C)(vi) of the Act, is determined by the objects of the institution and more specifically the dominant object of the institution. Once the petitioner satisfies such conditions, the petitioner is eligible for approval under the Act. It was also pointed out that the petitioner actually started educational activities such as Jindal Global Law School in September, 2009 with its first academic year. Such Law School has been granted recognition by Bar Council of India, Law School Admission Council of USA and International Society of law Schools, USA. The claim of the petitioner for approval was declined by the Chief Commissioner Income Tax, Panchkula when it was observed as under: “5. I have considered the above facts. The following are the conditions to be satisfied before an application can be given approval under Section 10(23C)(vi): 3 CWP No.6171 of 2010 (1) It must be an institution existing solely for the purpose of education. (2) If should not existing for the purpose of profit. (3) The receipts should exceed Rs.1 crore. 6. Whether a university is existing for the purpose of education will have to be determined not with reference to its intentions but with reference to the actual work done in the field of education. By its own admission educational activities have yet to commence. Unless these activities commence it cannot be held that the university is existing solely for the purposes of donation. 7. In view of the above, the primary condition laid down in the act having not been satisfied, the application of the applicant for approval under Section 10(23C)(vi) is not maintainable and is, therefore, rejected.” In the present writ petition, challenging the said order, the petitioner relies upon Public Notice dated 09.11.2009 published by the University Grants Commission informing the general public that the Petitioner-University is competent to award degrees as specified under Section 22 of the University Grants Commission Act, 1956. Learned counsel for the petitioner has vehemently argued that the fact whether the petitioner is an educational institution is required to be determined keeping in view the objective for which the petitioner has been established in terms of Section 3 of the Haryana Act. A University under the Haryana Act could be established only with an object of educational purposes alone. The fact, whether the petitioner is an educational institution and/or a University, is required to be examined, keeping in view the main objects of the petitioner. Reliance is placed upon Additional Commissioner of Income Tax, 4 CWP No.6171 of 2010 Gujarat Vs. Surat Art Silk cloth Manufacturers Association 121 ITR 1. It is argued that there is not even a whisper that the petitioner – University is not engaged in educational purposes. In fact, the approval has been declined for the reason that the existence of the University for the purpose has to be examined with reference to actual work done in the field of education. Since the educational activities have yet to commence, therefore, the primary condition is not satisfied. It is argued that such reasoning given by the authority is totally irrelevant and unwarranted either by the express words of the statute or the intent thereof. Reliance is placed upon Commissioner of Income Tax, West Bengal-VII, Calcutta Vs. Doon Foundation 154 ITR 208 and Commissioner of Income Tax Vs. Sree Narayana Chandrika Trust 212 ITR 456 to contend that in terms of analogous provisions of Section 10(22) of the Act, the income derived at the primary stage of the establishment of the educational institution was held entitled to exemption. It is also pointed out that the correctness of Division Bench judgment of Madras High Court in Commissioner of Income Tax Vs. Devi Educational Institution and others 153 ITR 571 has been doubted by the later Division Bench judgment in Mr. Ar. Educational Society Vs. Commissioner of Income Tax 253 ITR 589. Therefore, the approval under Section 10(23C) of the Act is not in respect of an educational institutional, which is active in imparting education, but also to an institution, which is in the process of establishment. The expression ‘existing solely for educational purposes’ has to be interpreted accordingly. The said interpretation is the only 5 CWP No.6171 of 2010 interpretation keeping in view the express language of the statute and also the intention thereof. On the other hand, learned counsel for the Revenue has vehemently argued that in terms of the judgment of Madras High Court in Devi Educational Institution case (supra), that taking steps for establishment of an educational institution but not actually engaged in imparting education does not satisfy the parameters for approval under Section 10(23C) of the Act. In Devi Educational Institution case (supra), the Division Bench of Madras High Court has held that taking of preliminary or necessary steps for the establishment of an educational institution cannot amount to actual bringing to existence of an educational institution. Learned counsel for the Revenue has also relied upon the judgment of Hon’ble Supreme Court reported as M/s Oxford University Press Vs. Commissioner of Income Tax AIR 2001 SC 886, wherein it has been held that an assessee has to establish that he is engaged in some educational activities in India and its existence in this country is not for profit only. We have heard learned counsel for the parties at some length, but found that the impugned order is not sustainable. But before we consider the respective contentions, certain statutory provisions need to be extracted. The same are as under: “2. In this Act, unless the context otherwise requires – xxx xxx xxx (24) “income” includes – xxx xxx xxx 6 CWP No.6171 of 2010 (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub- clause (iiiae) or sub clause (via) of clause (23C) of Section 10 or by an electoral trust. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included - xxx xxx xxx (23C) any income received by any person on behalf of – xxx xxx xxx (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or. xxx xxx xxx (vi) 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; or xxx xxx xxx Provided that the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub clause (iv) or sub clause (v) or sub clause (vi) or sub clause (via) shall make an application in the prescribed form and manner to the prescribed authority for the purpose of grant of the exemption, or continuance thereof, under sub clause (iv) or sub clause (v) or sub-clause (vi) or sub clause (via): 7 CWP No.6171 of 2010 Provided further that the prescribed authority, before approving any fund or trust or institution or any university or other educational institution or any hospital or other medical institution, under sub clause (iv) or sub clause (v) or sub clause (vi) or sub clause (via), may call for such documents including audited annual accounts or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institutions, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make such inquiries as it deems necessary in this behalf:” Rule 2CA incorporates the guidelines for approval as contemplated under sub-clauses (vi) and (via) of Section 10(23C). The relevant guidelines are as under: 2CA. (1) The prescribed authority under sub-clauses (vi) and (via) of clause (23C) of Section 10 shall be the Chief Commissioner or Director General, to whom the application shall be made as provided in sub-rule (2). xxx xxx xxx (3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, granted before the 1st day of December, 2006 shall at any one time have effect for a period not exceeding three assessment years. {Sub-Rule (3) Prior to its substitution by the Income Tax (Fourteenth Amendment) Rules, 2006 w.e.f. 24.11.2006, reads as under: (3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, shall at any one time have effect for a period not exceeding three assessment years.} In Surat Art Silk Cloth Manufacturers Association case (supra), it has been held to the following effect: 8 CWP No.6171 of 2010 “But even if such a contention were permissible, we do not think there is any substance in it. The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust or institution might be upheld as a valid charity; vide Mohd. Ibrahim v. CIT (1930) 57 IA 260 and East India Industries (Madras) P. Ltd. v. CIT (1967) 65 ITR 611 (SC). But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity; vide CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). The test which has, therefore, to be applied is whether the object which is said to be non-charitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable.” In view of the said judgment, the main and primary objects of a Trust or institution are relevant to determine the nature of such trust or institution. The petitioner is a University created under a statute, when the schedule in terms of Section 3 of the Haryana Act was amended so as to incorporate the petitioner - University as one of the University established under the Act. Such University has to satisfy the objective as delineated in Section 3 of the Haryana Act, which are undisputedly for the educational purposes. The said aspect has not been controverted by the authority in the order impugned or by the learned counsel for the Revenue during the course of arguments before this Court. Therefore, we have no hesitation to hold that the petitioner is a University established solely for educational purposes and not for the purposes of profit. 9 CWP No.6171 of 2010 But having found so, still the question; whether the petitioner has to actually work in the field of education before its request under Section 10(23C) (vi) considered, is required to be examined. The entire stress of the arguments of learned counsel for the Revenue is on the expression ‘existing’ appearing in Section 10 (23C) of the Act. The argument is that unless an institution is active in the field of education, mere fact that it is in the process of establishing itself would not make such institution as eligible for approval. In fact, it is argued that unless educational activities commence, it cannot be said that the University is existing solely for the purposes of education. The main stress of learned counsel for the Revenue was on the judgment of Devi Educational Institution case (supra), wherein, it has been observed as under: “…The Tribunal has merely proceeded on the basis that since the assessee-society has already taken steps to set up an educational institution, it should be taken to come within the scope of Section 10 (22). As already stated, we feel that the mere taking of the preliminary or necessary steps for the establishment of an educational institution cannot amount to actual bringing into existence of an educational institution. Since Section 10(22) uses the expression “existing solely for educational purposes”, the actual existence of the educational institution is a precondition for the application of Section 10(22) and the mere taking of steps for the establishment of the educational institution may not be sufficient to attract the exemption under Section 10(22)…..” The correctness of the said view has been doubted by the latter Division Bench in Mr. Ar. Educational Society’s case (supra). The Bench has allowed the petition under Section 256(2) of the Act by 10 CWP No.6171 of 2010 observing that the said judgment requires reconsideration. It was observed as under: “The judgment of this Court in the case of Devi Educational Institution case (supra) laid emphasis on the word “existing” in Section 10(22) of the Act, and concluded that the institution must have been functional in the relevant previous year. The word “existing” is not the same thing as being functional. There is no doubt at all that the educational institution exists in the sense that the society has been formed, the society is a legal entity, its objects are clearly intended to bring into existence educational institution, for which preliminary steps have been taken, and the object of the institution is not profit. We are of the prima facie view that the width of the provision is not required to be cut down by insisting that the educational activity must have been carried on in the relevant previous year, even though there is no doubt whatsoever that the society was engaged in taking the steps required to make the educational activity operative, the steps so taken being the construction of the buildings and other facilities in which the task of imparting the education was to be carried out. xxx xxx xxx Having regard to these facts, and in the light of our prima facie view that the earlier judgment of this court reuires reconsideration. We direct the Tribunal to refer the following question of law:” In M/s Oxford University Press case (supra), the assessee was a non-resident company. The assessee claimed its income as exempt from payment of income tax by virtue of provisions of Section 10(22) of the Act. The High Court answered the question against the assessee by holding that the assessee was Oxford University Press and not the University of Oxford nor it did carry on activities in India. The only activity carried on by the Oxford University Press in India was the activity of printing and publishing books and selling and supplying the same as well as books published by other publishers for the purpose of profit. The assessee did not carry on its activities as a University or 11 CWP No.6171 of 2010 educational institution in India. Therefore, it could not be regarded as University or educational institution existing solely for educational purposes and hence income derived by it from any other activity would not qualify for exemption under Section 10(22) of the Act. It is the said reasoning, which was accepted by the Hon’ble Supreme Court, when it was held to the following effect: “36. Giving a purposeful interpretation of the provision it will be reasonable to hold that in order to be eligible to claim exemption from tax under Section 10(22) of the Act, the assessee has to establish that it is engaged in some educational activity in India and its existence in this country is not for profit only. This interpretation of Section 10(22) neither causes violence to the language of the provision nor does it amount to re-writing the same. On the other hand, it only gives a harmonious construction of the provision which subserves the object and purpose for which the provision is intended to serve.” The Hon’ble Supreme Court considered the fact that M/s Oxford University Press is part of Oxford University in U.K. While considering the analogous provisions of Section 10(22) of the Act, the majority view (Hon’ble Mr. Justice D.P.Mohapatra) was expressed as follows: “25 ….On a closer examination of the provision it becomes clear that in using the expression ‘existing solely for educational purposes and not for purpose of profit’ the legislature has made it clear that it intends to exempt the income of institutions established solely for the educational purposes and not for commercial activities. Such a provision is meant to encourage institutions (including University) engaged in educational activities and it is not intended to benefit institutions engaged in commercial activities with the intention of earning profit. In my view this interpretation will not only serve the intent and purpose of the statutory provision, but will also help in avoiding the criticism of want of rationale in granting the exemption. 26. On examination of the different provisions in Section 10 dealing with exemption from the tax it would be clear that each one of the 12 CWP No.6171 of 2010 said provisions is intended to serve a definite public purpose and is meant to achieve a special object. xxx xxx xxx 32. I am of the view that the expression ‘existing solely for the educational purpose and not for the purpose of profit’ qualified a ‘University or other educational institution’. In a case where a dispute is raised whether the claim of exemption from the tax by the assessee is admissible or not it is necessary for the assessee to establish that it is a part of a University which is engaged solely or at least primarily for educational purposes and not for purposes of profit and the income in respect of which the exemption is claimed is a part of the Income of the University…..” In the judgment, it is further observed (Hon’ble Mr. Justice Y.K.Sabharwal), as under: “64. …..It is not the case of the assessee nor is there any such finding that the assessee is imparting any education or has any educational activity in India. In this view the assessee is not entitled to claim exemption. Any other interpretation would be absurd and manifestly unjust. The absence of word ‘India’ in this provision is inconsequential. It has to be read into Section 10(22). The literal construction would lead to manifestly unreasonable and absurd consequences as indicated above.” A Division Bench of Calcutta High Court in Doon Foundation case (supra), was examining the question of exemption of an income of the University or other educational institution existing solely for educational purposes and not for profit. In the aforesaid case, the assessee had just begun its activity and during the year under consideration had started preparation of regular classes for teaching of Hindi and purchase some books and periodicals for laboratory. It was held to the following effect: “….The condition precedent for claiming exemption under Section 10(22) is, whether the educational institution exists solely for educational purposes and not for purposes of profit. There is no 13 CWP No.6171 of 2010 dispute nor can it be disputed that the assessee-society exists solely for educational purposes. The assessee has commenced activities connected with the imparting of education. For the purpose of holding regular classes for teaching of Hindi, the assessee has taken all preliminary steps including purchase of boos and periodicals. Such activities are the steps towards running of a full-fledged teaching course. We are, therefore, unable to accept the contention of the Revenue that the assessee did