St. Kabir Educational Society vs Central Board of Direct Taxes

Ajay Kumar Mittal, J.—Challenge in this petition filed under Articles 226/227 of the Constitution of India is to the order dated 26.9.2013, Annexure P. 7 passed by respondent No. 3-Director General of Income Tax (Inv.) declining exemption/approval to the petitioner society u/s 10(23C)(vi) of the Societies Registration Act, 1860 (in short, "the Act"). A few facts relevant for the decision of the controversy involved, as narrated in the petition, may be noticed. The petitioner is a society registered in Punjab. It is having one institution namely St. Kabir Convent School established for accomplishment of the intention and the object of imparting education to 1455 students of all religions, castes and creeds and employing about 92 persons consisting of teaching and non teaching staff. For six assessment years namely 2003-04 to 2007-08, 2010-11, the assessment has been completed treating the petitioner as to nil chargeable income. The petitioner filed an application in Form No. 56D, Annexure P. 2 for the assessment year 2012-13 onwards for exemption u/s 10(23CXvi) of the Act on 26.9.2012, Annexure P. 2. Thereafter, notices dated 10.5.2013 and 14.8.2013 were issued to the petitioner, Annexures P. 3 and P. 5 respectively. The petitioner submitted replies dated 10.5.2013 and 14.8.2013, Annexure P. 4 and P. 6 respectively to the notices. After examining the matter, the Director General of Income Tax (Inv.) passed the impugned order dated 26.9.2013, Annexure P. 7 rejecting the application u/s 10(23C)(vi) of the Act on the ground that the rules of the society did not provide for the method of application of funds in the case of dissolution of the society at the time of filing of the application. Hence the present petition.

We have heard learned counsel for the parties and perused the record.

Learned counsel for the petitioner submitted that the Director General of Income Tax (Inv.) had declined the request of the petitioner for exemption/approval u/s 10(23C)(vi) of the Act for the assessment year 2012-13 on the ground that in the trust deed, nothing had been provided regarding the utilization of the funds in the event of dissolution or winding up of the society. It was further urged that it was curable defect and after curing it, the petitioner was entitled to registration. The utilisation of funds in the event of dissolution or winding up of the society was an event which was yet to take place and cure done prior thereto, would not disentitle the petitioner.

On the other hand, prayer of the petitioner was opposed by learned counsel for the respondents on the ground that reliance by the petitioner on Section 14 of the Act was unfounded and it has not been provided in Section 14 of the Act that the funds shall be given to any other charitable society. Further, provisions of Section 10(23C) of the Act shall override the provisions of Section 14 of the Act. It was further argued that the petitioner could claim benefit only for the subsequent year after the insertion of the clause in the trust deed.

After hearing learned counsel for the parties, we find force in the submissions of learned counsel for the petitioner. The ground on which prayer of the petitioner for approval/exemption was declined was that there was no stipulation in the trust deed regarding utilization of the funds of the trust in the event of the dissolution/winding up of the society. The petitioner trust by resolution dated 17.8.2013 had incorporated the following condition:-

"In the event of dissolution or winding up of the society, the assets of the society after meeting all liabilities shall be transferred to another society, trust or institution whose objects are similar to those of this society."

It was not shown by the respondent that any money had ever been diverted to any other trust and it did not carry on any activity for which the society had been constituted. The defect, as pointed out by the Director General of Income Tax, was curable as the utilisation of the funds in the event of dissolution or winding up of the society was an event which was yet to take place and the defect pointed out by the Director General was cured prior thereto. Moreover, there was no allegation of utilization of funds in violation of the trust deed of the petitioner. In such a situation, declining approval/exemption to the petitioner u/s 10(23)(vi) of the Act was unjustified.

In view of the above, the writ petition is allowed. The impugned order dated 26.9.2013, Annexure P. 7 passed by respondent No. 3 is set aside. Consequently, the matter is sent back to respondent No. 3 to pass fresh order on the application of the petitioner seeking approval/exemption u/s 10(23)(vi) of the Act.