Failure to Prove University's Profit Motive: Chattisgarh HC quashes Denial of S.10(23C) Exemption Claim under Income Tax [Read Order]

Recently in a ruling, the Chhattisgarh High Court quashed the Revenue’s denial of a university's application for income tax exemption under Section 10(23C)(vi) of the Income Tax Act, 1961 ( ITA ), observing that the authorities failed to adequately prove the said university’s profit status to have denied such a request.

The case, which involved the petitioner/assessee M/s Shaheed Nand Kumar Patel Vishwavidyalaya, Raigarh, focused on whether the institution, as a non-profit entity, qualified for the tax exemption available to universities existing solely for educational purposes.

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The assessee-university’s application for exemption was initially submitted on September 30, 2022, under section 10(23C)(vi) of the tax statute. In response, the Commissioner of Income Tax (Exemption), Bhopal, issued multiple notices to the institution in December 2022 and January 2023, requesting various documents to assess the university's eligibility. A physical verification was also conducted by the Income Tax Officer (Exemption), Bilaspur, and further inquiries were made regarding the university’s financial accounts for the years 2020-2021 and 2021-2022.

Key questions raised during the inquiry included whether the university’s financial accounts had been audited, details on vehicle expenses, and tax deducted at source (TDS) on examination expenses. The Commissioner ultimately rejected the university’s application for tax exemption on March 15, 2023, citing unsatisfactory responses to these inquiries.

Aggrieved, the assessee university then appealed the decision to the Income Tax Appellate Tribunal (ITAT), Raipur, who also upheld the rejection on May 31, 2024, maintaining that the university had failed to provide adequate information.

Aggrieved again, the university took the case before the Chattisgarh HC.

Represented by Advocates Mr. Apurv Goyal and Mr. Nikhilesh Begani, the assessee-university argued that both the Commissioner and the ITAT had misinterpreted the law while rejecting it's exemption request.The counsel contended that the authorities had failed to establish that the university was operating for profit, as required under Section 10(23C)(vi) of the tax legislature. It was further argued that the authorities had not properly considered the university’s status as an educational institution, as mandated by the Supreme Court's decision in the New Noble Educational Society case. The assessee-university maintained that its sole purpose was education and that any surplus generated was incidental to its educational activities.

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In opposition, the respondent, represented by Advocates Mr. Amit Chaudhari and Ms. Ankita Gouraha, argued that both the Commissioner and the ITAT had made their decisions based on the evidence presented, and that the inquiry process had been properly conducted.

After hearing both parties, a division bench comprising Justice Sanjay K. Agrawal and Justice Amitendra Kishore Prasad ruled that both the Commissioner of Income Tax (Exemption) and the ITAT had failed to record specific findings on whether the university existed solely for educational purposes or for profit. The court highlighted that determining the university’s non-profit status was crucial for deciding its eligibility for tax exemption.

Referring to the Supreme Court's decision in New Noble Educational Society v. Chief Commissioner of Income Tax,  the High Court noted that the authorities had not made a clear finding that the university’s activities were profit-oriented, which is a prerequisite for rejecting the application. The court, therefore, set aside the decisions of both the Commissioner and the ITAT and remitted the matter back to the Commissioner of Income Tax (Exemption), Bhopal, for fresh consideration in light of the Supreme Court's ruling. The High Court instructed the Commissioner to complete the reassessment within two months, without expressing any opinion on the merits of the application itself.

In result, the petition was allowed.

To Read the full text of the Order CLICK HERE

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