Xavier’s Institute of Management, A Society registered under the Societies v. State of Orissa & Ors.

assessment year 2009-10. Hence, the writ petition.

Mr. B.K. Mahanti, learned Senior Advocate appearing for the petitioner submitted that the object of establishing educational institution is not to make profit. Imparting education in the case of the petitioner is charitable in nature. The charitable nature of the occupation of establishing and running an educational institution has been recognized by the Hon’ble Supreme Court in the cases of T.M.A. Pai Foundation and other vs. State of Karnataka and others, AIR 2003 SC 355 and Unni Krishnan, J.P. and others vs. State of Andhra Pradesh and others, AIR 1993 SC 2178. However, the Authority having completely lost sight of the 8 aforesaid aspects, passed the impugned order without considering the main objects and the nature of the alleged other activities undertaken by the petitioner. Short duration management development programmes, feasibility study and research activities and training as conducted by the petitioner cannot by any means be construed to be taxable under the Act even though the petitioner earns some amounts out of such programmes after meeting all the expenditures. The surplus is spent for the purpose of student’s education without distributing among the members. The Opposite Party No.1 was in error in not following the judgment of the Hon’ble Supreme Court in the case of American Hotel & Lodging Association Educational Institute vs. CBDT, (2008) 301 ITR 86 (SC) and Additional Commissioner of Income Tax vs. Surat Art Silk Cloth Manufacturers’ Association, (1980) 121 ITR 1, wherein the principles of main and subsidiary objects are explained.

Mr. Mahanti, learned Senior Advocate further contended that the order under Annexure-1 is a nullity as the prescribed authority misunderstood the relevant provisions of law. Opposite Party No.1 misconstruing his powers under proviso (1) to Section 10(23C)(vi) of the I.T. Act, passed the impugned order. Further the prescribed authority has also misunderstood the English word “solely” for educational purposes. Ascribing a narrow meaning to the word “education” and relying on the principle decided in Sole Trustee, Lok Shikshan Trust vs. CIT, Mysore, AIR 1976 SC 10, which was beneficial to the Revenue, the prescribed authority treated the income from the petitioner’s activities from “consultancy and training” and “grants and donations” imparted as part 9 of its courses of study as non-educational activities. The interpretation given to the word ‘education’ by the prescribed authority is contrary to the principles of interpretation of fiscal statute. Thus, the order impugned in this writ petition is irrational. Taking judicial notice of many factors without confrontation, the prescribed authority rejected many papers without assigning any reason. For every project there were separate agreements and there were separate ledger accounts for training and consultancy and grants and donations. Opposite Party No.1 rejected most of the explanations offered by the petitioner high-handedly. The authorized officer misunderstanding the accountancy principles held that no separate account is maintained and no proper accounting system has been adopted by the petitioner. He has also disposed of the petition filed under Section 154 C of the I.T. Act without giving opportunity of hearing to the petitioner which is required under laws as declared by the Hon’ble Supreme Court in the case of Sahara India (Firm), Lucknow vs. Commissioner of Income Tax, Central-I and Another, (2008) 14 SCC 151.

The finding of fact is vitiated on many grounds, particularly by placing reliance on irrelevant materials, excluding relevant law as well as on complete ignorance of latest judgments. The prescribed authority committed grave error of law and procedure as his order was hit by per incuriam rule and by rule of res-judicata. He has also misunderstood his power under Section 10(23C)(vi) of the I.T. Act to grant continuance of the benefit to the institution, which is already registered under Section 12A of the said Act. On the point of per-incuriam rule, Mr. Mahanti, learned Senior Advocate relied on the judgment of the Hon’ble Supreme Court in 10 the case of Punjab Land Development and Reclamation Corporation Ltd., Chandigarh vs. Presiding Officer, Labour Court, Chandigarh and others (1990) 3 SCC 682; Government of Andhra Pradesh and Another vs. B.Satyanarayan Rao and others (2000) 4 SCC 262; and State of Orissa vs. Nalinikanta Muduli, (2004) 7 SCC 19. While canvassing the argument on the rule of res-judicata, Mr. Mahanti submitted that when the set of Memorandum of Association of the petitioner-institution in its entirety was registered under Section 12A of the I.T. Act holding that the petitioner institute is existing for charitable purpose of imparting education under Section 2(15) of the said Act and certificate under Section 80G was granted, the prescribed authority was precluded from reopening the same issue. In support of his contention, Mr. Mahanti, learned Senior Advocate relied upon the decisions of the Hon’ble Supreme Court in the cases of Bharat Sanchar Nigam Limited and Another vs. Union of India and others, (2006) 3 SCC 1; M/s. Radhasoami Satsang, Saomi Bag, Agra vs. Commissioner of Income Tax, (1992) 193 ITR 321, Director of I.T. vs. Escorts, (2008) 300 ITR 75 (Delhi) and Sardar Kehar Singh (1992) 195 ITR 769 (Raj) .In the impugned order, the prescribed authority has taken into consideration some irrelevant materials and has not followed the guidelines laid down in the case of American Hotel Case (supra), which on principle follows Surat Art Silk (1980) 2 SCC 31.

Placing reliance on the judgment of the Hon’ble Supreme Court in the case of Ujjambai, AIR 1962 SC 1621, Mr. Mahanti submitted that orders which are ex facie nullity are not protected as they are orders passed without jurisdiction. It was further argued placing reliance on 11 Animiscc, 1969 (1) ALLER 208 (HL) that such an order can be challenged in a court. The aggrieved party is entitled to protection of a court where the authority by reason of misconstruction or omission of the law or for any other reason uses his discretion to counter the policy. Reliance was also placed in the case of R (Electrocal Commissioner) vs. West Minister Mag Ct., (Lord Brown), (2011) 1 ALL ER 1, Padfield vs. Minister of Agriculture Fisheries and Food, (1968) 1 ALL ER 694 : (1968) AC 997 and the decision in Tower Hamlets London BC vs. Chetnik Developments Ltd., (1988) 1 ALLER 691 and the judgment of the Hon’ble Supreme Court in the case of Akhil Bharatiya Upbhokta Congress vs. State of Madhya Pradesh and others, (2011) 5 SCC 29.

In the petitioner’s case, policy behind the law is to encourage establishment of educational institutions by non-government organizations and entities and to keep them under control and discourage spurious ones. They must be understood by reading the history, so that such institutions are not only encouraged but also controlled. The institutes which are registered under Section 12-A of the I.T. Act are not to be treated as new ones.

In any event the words “Education” and “incidental” are not defined under the Statute. But the prescribed authority has chosen narrower interpretation as against the wider meaning of “education”. Learned authority created an ambiguity deliberately in the language employed where under the rules of statutory interpretation, the provisions must be construed in a manner that benefits the assessee. Placing reliance on the decision of the Hon’ble Supreme Court in Surat Art Silk 12 (supra), it was submitted that an adverse decision might have serious repercussion on large number of public trusts in the country. Further, placing reliance upon the judgment of the Hon’ble Supreme Court in T.M.A. Pai Foundation (supra), Mr. Mahanti submitted that the Hon’ble Supreme Court recognized the right to establish and maintain “educational institutions”. Education is a recognised head of charity. Therefore, those who are not within the special categories carved out in Articles 29(1)/30(1) have their right to establish and maintain inter alia educational institutions. The right was inter alia conceded to establish private educational institution, in contradiction to Government institutions. It was further submitted by Mr. Mahanti that in the aforesaid case, the Hon’ble Supreme Court further held that while other private educational institutions impart education their right cannot be taken away for their choice in the matter of (i) selection of students, (ii) fixation of fees and (iii) affiliation and recognition to be available to them. The Hon’ble Supreme Court following the decision in Unnikrishnan, AIR 1993 SC 2178 : (1993) 1 SCC 645 held that they are of necessity in the present day context as it is not possible to do without them because the Government is not in a position to meet the demand.

Mr. Mahanti submitted that to teach the students, the petitioner has to rely on model projects prepared by past practices or experiences of business corporate or create artificial models and spend its own money. But a management institute, having able faculties in many disciplines, may be approached for consultancies and training and entered into agreements, sanctioned budgets etc. The petitioner 13 maintains separate books of account for each project. In M/s. Dharmaposhanam Company, Kerala vs. Commissioner of Income Tax, Kerala, (1978) 3 SCC 414, the Hon’ble Supreme Court held that the limiting condition does not apply to educational institute. A citizen has a fundamental right for education for a medical, engineering or other professional degree.

The prescribed authority is not justified to apply the rule of interpretation for claim of exemption and also the principle of interpretation of fiscal laws to be construed strictly so long as the provision is free from ambiguity and strict interpretation rules are not applicable in machinery provision. In support of his contentions, Mr. Mahanti further relied upon the judgments of the Supreme Court in CIT V. Naga Rills Ltd., (1973) 89 ITR 236 (SC); CED v. R. Kanakasabai and others, (1973) 89 ITR 251 (SC); CIT v. Kulivalley, (1970) 77 ITR 578 and Radha Kishan Bhatia vs. Union of India and others, AIR 1965 SC 1072. The educational institutions are not defined either in 1922 or 1961 Act. Learned prescribed authority following Lokshikan construed the meaning of education in a narrow sense even though the Supreme Court did not agree with the view in Surat Art’s case, 1980 (2) SCC 31. The Supreme Court in State of Orissa v. Mamata Mohanty, (2011) 3 SCC 436, recognized education as the process of systematic instruction which a person has received.

The objects as delineated in Pr. 3E, 3F, 3G & 3H which are really common and solely for the purpose of education need not be clinically pure without contamination of anything else. It is submitted 14 that when the law considering other educational institution existing solely for education had consistently permitted businesses earlier even as a primary object permits educational institution to be exempted at different times, the learned prescribed authority is silent about the objective of the petitioner-institution stated in paragraphs A & B of its objects and silent about its courses of study which are covered under clause-3B(d) (e)(f) of the objects.

The petitioner institution maintains separate accounts such as CENDERET-FCR Books of Account, CENDERET-General Books of Account, Education Unit Books of Account. The day to day financial transactions are recorded in (a) Day Book Bank Book, Cash Book & Journal Book, (b) General Ledger, (c) Project’ activity wise Ledger, (d) Separate computerised (Customized) pay roll package & (e) Separate Computerized (Customized) fee collection package at the end of each financial year financial statements viz. Income & Expenditure Account and balance sheet are prepared for each set of books. The individual statements are consolidated to generate a complete set for the institute as a whole on which auditor signs after being approved by the Governing Body of the Institute. Prescribed authority is not justified to describe some of the activities of the petitioner-institute as business activities giving a restricted meaning to the word “Education” taking into consideration the magnitude of expenses and that the petitioner can meet its expenses from receipt from fees for admission and tuition as these reasons are irrelevant. Not the magnitude of expenses but gross receipt is the criteria for approval. The magnitude of expenses and the 15 meeting of the expenses for running the educational institution are not relevant nor provided under Section 10(23C) (vi), and proviso (i), (ii) and (iii) to said Section. The prescribed authority created a self created policy for a subjective satisfaction without objective standard. Opposite Party No.1 is silent if profits are earned from activities alleged are in the nature of business and application of those incomes, but avoided as they are not necessary.

Soon after the passing of the impugned order, assessment for the assessment year 2005-2006 was reopened u/s. 147 and the assessment for the assessment year 2007-2008 was completed. Assessment for the assessment years 2006-2007, 2009-2010 and 2010- 2011 are pending for assessment. In the order under Annexure-1 the CCIT relied on Lok Shikshan (supra) the ratio of which decision was disapproved by a larger bench and not being aware of the legal meaning of the word “incidental as decided by the Supreme Court in Thanti Trust 247 ITR 785, 795 has resulted in error apparent on the record as indicated in the Boards circular (Annexure-7 of the rejoinder), and the petitioner filed a petition u/s. 154 of the I.T. Act which was disposed of without hearing the petitioner.

The order under Section 154 of the I.T. Act was passed in violation of the principle of natural justice as no opportunity of hearing was given to the petitioner. In support of his contention Mr. Mahanti relied upon the judgments in Rupa Ashoka Hurra v. Ashok Hurra and