Madras HC orders issue of notice to IT department

Chennai: The Madras High Court today ordered issue of notice to Income Tax (Investigation) Director General on a PIL seeking to consider revoking the exemption granted under Income Tax to charitable institutions if serious violations of rules and regulations are committed by such organisations.

Madras High Court Chief Justice Sanjay Kishan Kaul
Madras High Court Chief Justice Sanjay Kishan Kaul

The first bench comprising Chief Justice Sanjay Kishan Kaul and Justice R Mahadevan gave the order on the PIL by Jawaharlal Shanmugam.

The only aspect of concern was whether the benefit available to charitable educational institutions should be continued for the institutions where “concealment of income is found or large amount of cash recovered during raids”, the judges said.

“In such situation, the question arises whether there should be also cancellation/revocation of the Essentiality Certificate/ No Objection Certificate” to these institutions, they said.

Shanmugham, in his petition, referred to the observations made by Supreme Court recently while dealing with the issue of black money, that private educational institutions was a big source of black money generation through illegal collection of capitation fee.

A majority of the so-called self-financial educational institutions, offering medical and engineering education, were classified as charitable organisations or managed by charitable trusts claiming exemption and other benefits, which is a gross misuse of Provisions of IT Act, Shanmugam said.

Noting that there should be serious audit of all assessments of these organisations under section 11 and other applicable sections of IT Act, he submitted that the Income Tax department has the powers to revoke the grant of exemption and cancel the registration if officials found that activities of charitable institutions or trusts were not genuine.

Big deemed universities operating as charitable entities admit only affluent students who could pay huge capitation fees and tuitions fees,” he submitted.

He sought for a direction from the court to all charitable educational institutions including deemed universities to furnish complete details of their financial statements in their official website.

The bench also asked the central and state governments to file a reply affidavit within four weeks and posted the matter for further hearing August 22.