ITAT Restores 10(23C)(vi) Exemption to Education Trust: Finds No Evidence of Personal Benefit or Misuse of Funds [Read Order]

The Assessee, Scholars Education Trust of India, running educational institutions in rural areas, had been granted approval under Section 10(23C)(vi) of the Income Tax Act, 1961 for earlier years.

During the relevant period, the CIT(E) issued a show cause notice proposing withdrawal of the approval on the allegation that the Trust had violated Sections 13(1)(c) and 13(1)(d) by allowing its managing trustee to use the school premises as residence, and for alleged non-compliance in utilisation of income.

The Trust explained that the managing trustee resided in a portion of the school building only to supervise hostel students, safeguard the property, and maintain discipline that is an arrangement made purely for administrative convenience and not for personal benefit. It was further submitted that no rent was charged because the premises were used for running the school and hostel, and that the trustee’s stay resulted in no financial gain to him.

Despite these explanations, the CIT(E) withdrew the 10(23C)(vi) approval, concluding that the trustee’s stay amounted to misuse of trust assets.

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Before the Tribunal, the Trust argued that the CIT(E) had misinterpreted the law, and that mere residence on campus did not amount to “benefit” under Section 13(1)(c). It relied on records showing that the building was utilised entirely for educational purposes, hostel facilities, and administrative supervision.

The Bench comprising Dr. S. Seethalakshmi (Judicial Member) and Gagan Goyal (Accountant Member) examined the material and observed that the CIT(E) had not brought any evidence to show personal benefit, siphoning of funds, diversion of income, or commercial exploitation of property.

The Tribunal noted that the Trust’s activities were entirely educational, and the stay of the managing trustee on the premises served functional and safety purposes, particularly for the students.

The Tribunal held that incidental residential use for administrative necessity does not constitute violation of Section 13(1)(c), especially when there is no finding that the trustee derived any undue benefit. It further held that the CIT(E) had ignored the Trust’s submissions and relied merely on assumptions.

Since there was no material on record to justify the cancellation of approval under Section 10(23C)(vi), the Tribunal set aside the CIT(E)’s order and restored the exemption.

The appeal was accordingly allowed.

The Assessee was represented by Mahesh Kumar along Meenal Goyal and Abhinav Jain, while Rajesh Ojha appeared for the Revenue.