Mere Generation of Surplus from Year to Year cannot be Reason for Rejection of Application u/s 10(23C) (vi) of Income Tax Act: Rajasthan HC orders to re-consider Application [Read Order]

The Rajasthan High Court ordered to re-consider application and observed that the mere generation of surplus from year to year cannot be reason for rejection of application under Section 10(23C) (vi) of the Income Tax Act, 1961.

The petitioner is a Charitable Trust, registered with the Sub Registrar, Hanumangarh on 28.11.2023 and with Devasthan Department, Bikaner on 22.12.2009. The petitioner is also registered as a Society under Section 12(A) of the Income Tax Act, 1961.

Thereafter the petitioner had filed an application on 28.09.2012 seeking exemption under Section 10 (23C) (vi) of the Income Tax Act in the prescribed Form No. 56D for the year 2011-12 before the Office of Commissioner of Income Tax, Bikaner, Range Bikaner, and the said application was forwarded to the officer of the respondent-Chief Commissioner. Thereafter, due to certain defects/discrepancies in the application, the petitioner filed a fresh application and the same was considered, while also keeping into consideration the aspect of limitation.

Later the respondents vide the impugned order rejected the petitioner’s application for granting the exemption under Section 10 (23C) (vi) of the Income Tax Act.

The counsel for the petitioner submitted that the petitioner is engaged solely in the educational purposes, and therefore, the petitioner falls under Section 10 (23C) (vi) of the Income Tax Act. It was further submitted that the respondents issued various query letters to the petitioner and the petitioner acted upon each and every such letter and provided the requisite information, to the satisfaction of the respondents, to the effect that the petitioner is engaged exclusively in imparting of education and no other purpose is being carried out by the petitioner, and therefore, the impugned order is not justified in law.

The counsel appearing on the behalf of the respondents, while opposing the aforesaid submissions made on behalf on the petitioner, submitted that the petitioner does not fall under Section 10 (23C) (vi) of the Income Tax Act for the purposes of exemption, because the surplus being generated is not incidental to educational purposes.

A Division Bench of Justices Pushpendra Singh Bhati and Munnuri Laxman observed that “This Court also observes that the Ministry of Finance, Department of Revenue, Central Board of Direct Tax issued a Circular bearing No. 14/2015 (F.No.197/38/2015-ITA-I) dated 17.08.2015, stating therein that representations have been received seeking clarification on certain issues relating to grant of approval and claim of exemption under Section 10 (23C) (vi) of the Income Tax Act, and vide the said circular, it was clarified that the mere generation of surplus from year to year cannot be a basis for rejection of application under Section 10(23C) (vi) of the Income Tax Act.”

“While quashing and setting aside the impugned order, the matter is remanded back to the respondents with a direction to re-consider and decide the application in question preferred by the petitioner under Section 10 (23C) (vi) of the Income Tax Act, strictly in accordance with law, including due adherence to the aforesaid precedent law as well as the aforementioned clarificatory circular” the Court noted.

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