Application of The CHURCH OF SCIENTOLOGY OF NEW YORK, Petitioner-Appellant-
                                   Respondent,
                              For a Judgment etc.,
                                       v.
  The TAX COMMISSION OF the CITY OF NEW YORK, Respondent-Respondent-Appellant.
                       Supreme Court, Appellate Division,
                                First Department.
                                  May 13, 1986.
  Article 78 proceeding was brought to vacate and annul determination of Tax
 Commission, which denied taxpayer's application for tax exemption as religious
 institution on three parcels of real estate.  The Supreme Court, Special Term,
 New York County, Price, J., 124 Misc.2d 720, 477 N.Y.S.2d 263, remanded
 matter to Tax Commission for rehearing in that record was inadequate to
 determine whether Commission acted arbitrarily or capriciously, and Commission
 appealed.  The Supreme Court, Appellate Division, held that trial court erred
 in not ordering evidentiary plenary hearing.
  Vacated and remanded.

 [1] TAXATION
 Trial court should have ordered evidentiary plenary hearing, rather than
 remanding case for full adversarial hearing before Tax Commission, in that
 judicial review, through Article 78 proceeding, was sufficient to determine
 whether Tax Commission acted arbitrarily or capriciously in denying tax exempt
 status to property of church of scientology.  McKinney's CPLR 7801 et seq.,
 7804(h).

 [2] TAXATION
 Full evidentiary hearing was necessary and should have been ordered by trial
 court in that issues of whether taxpayer was organized and conducted for bona
 fide religious purposes, whether taxpayer's income inured to benefit of its
 founder through royalty arrangements or otherwise, and whether premises were
 being used exclusively for taxpayer's religious purposes, were not adequately
 developed in record so as to permit determination as to whether Tax Commission
 acted arbitrarily or capriciously in denying applications for real estate tax
 exemptions.  McKinney's RPTL s 420-a, subd. 1;  McKinney's CPLR 7804(h).
  **864 B.R. St. Clair, New York City, for petitioner-appellant-respondent.
  R.G. Schneider, for respondent-respondent-appellant.

  Before KUPFERMAN, J.P., and SANDLER, CARRO, LYNCH and KASSAL, JJ.

  MEMORANDUM DECISION.
  Order and judgment (one paper), Supreme Court, New York County, entered June
 27, 1984, granting the petition to the extent of remanding the matter to the
 Tax Commission for a rehearing, in accordance with Special Term's decision
 (124 Misc.2d 720, 477 N.Y.S.2d 263), on the question of whether petitioner is a
 bona fide religious organization and to determine whether three specific
 parcels of real property owned by it are entitled to real property tax
 exemptions, unanimously modified, on the law, without costs, the judgment
 vacated and the matter remanded to the Supreme Court for a hearing, either
 before a justice of the Supreme Court or a special referee, pursuant to CPLR
 7804(h), on the factual issues consistent and in *377 accordance with this
 memorandum.  The appeal from the order (same court), entered February 1, 1985,
 denying respondent Tax Commission's motion for reargument is dismissed as
 nonappealable, without costs.
  This Article 78 proceeding was brought to vacate and annul a determination of
 the Tax Commission, which denied petitioner's application for tax exemption as
 a religious institution on three parcels of real estate.  Initially, petitioner
 had applied for an exemption with respect to its property at 28 West 74th
 Street, which it sold in 1980.  Thereafter, it purchased 349 West 48th
 Street and 227 West 46th Street and applied to exempt those properties.  The
 application sought exemption under Real Property Tax Law s 420-a(1), which
 provides:
   (a) Real property owned by a corporation or association organized or
 conducted exclusively for religious * * * purposes, and used exclusively for
 carrying out thereupon * * * such purposes * * * shall be exempt from taxation
 as provided in this section.
   (b) Real property such as specified in paragraph (a) of this subdivision
 shall not be exempt if any officer, member or employee of the owning
 corporation or association shall receive or may be lawfully entitled to receive
 any pecuniary profit from the operations thereof, except reasonable
 compensation for services in effecting one or more of such purposes, or as
 proper beneficiaries of its strictly charitable purposes;  or if the
 organization thereof for any such avowed purposes be a guise or pretense for
 directly or indirectly making any other pecuniary profit for such corporation
 or association or for any of its members or employees;  or if it be not in good
 faith **865 organized or conducted exclusively for one or more of such
 purposes.
  Petitioner is one of several New York branches of an international Scientology
 organization, which, it is alleged, licenses 33 churches and missions in the
 United States.  It was incorporated in New York in 1955 as a religious
 corporation under Article 8 of the Religious Corporations Law.  Its founder,
 the late L. Ron Hubbard, was a noted mystery and science fiction author.
  After a one day, actually a one hour, hearing held on June 14, 1978, at which
 one witness (petitioner's president) testified, the Tax Commission embarked
 upon an information-gathering project which lasted four years, including
 extensive correspondence and the submission of detailed exhibits.  In a written
 *378 decision, dated January 20, 1983--four and one half years after the
 "hearing"--respondent denied the application for tax exemptions on the three
 properties for the tax years 19 78/79 through 19 82/83 , concluding that "we do
 not recognize the applicant as having any real religious purpose nor do we find
 that its doctrines, and teachings constitute a religion.  We don't deny that
 applicant asserts that its purposes and activities are religious, however, we
 conclude that such assertion is merely tendentious and not in good faith."
  In challenging petitioner's good faith, the decision referred to the
 inconsistency between material submitted by petitioner and that obtained
 through the Commission's own investigation.  These consisted of (1)
 petitioner's claim that, since September 1, 1966, Hubbard did not "personally"
 direct the activities of the Scientology organizations, in contrast to
 statements in Scientology literature that Hubbard had copyrighted material
 relating to policy matters, such as recruitment, auditing and donations
 expected from members;  and (2) discrepancies in the proof as to the percentage
 of income, generated from weekly donations, used for salaries and benefits.
 Respondent found that petitioner was a self-help group, designed to enhance the
 mental well-being of its members through application of a philosophy known as
 Dianetics, but that this purpose, the search for the true meaning of life, was
 not a proper basis for entitlement to real estate tax exemption.  In
 questioning petitioner's status as a bona fide religion, the determination
 referred to a quotation by petitioner's founder, Hubbard:  "Writing for a penny
 a word is ridiculous.  If a man really wants to make a million dollars, the
 best way would be to start his own religion."
  Further, it was observed that an organization "which is a guise for directly
 or indirectly making pecuniary profit or which is not organized in good faith
 for an exempt purpose" is not entitled to a tax exemption.  Concluding that
 petitioner exhibited "a pattern of conduct by which beliefs were originally
 labelled non-religious and, subsequently, after challenges by regulatory
 agencies, were labelled religious," it was decided that petitioner had not
 satisfied its burden of demonstrating that it was conducted "exclusively" for
 religious purposes and the properties were used for petitioner's general
 purposes.  Accordingly, it was found petitioner was not entitled to an
 exemption.
  Special Term, critical of certain findings made and the procedure employed by
 the Commission in its "brief hearing", remanded the matter to the Commission
 for a rehearing to *379 examine, inter alia, the profit-making character of
 the church, the alleged use of coercion and other tactics against followers who
 wished to leave or outsiders who opposed its practices, and other factors which
 may be relevant on the tax exemption issue.  The court found respondent had
 improperly considered matter outside the record in concluding that petitioner
 was not a bona fide religion and directed the Commission, on remand, to set
 forth the objective tests used and to determine whether petitioner met the
 standard or, alternatively, set forth the manner by which it failed to meet the
 standard.
  While we agree with Special Term that the present record is inadequate to
 determine whether the Commission acted arbitrarily or capriciously, it erred in
 remanding **866 the matter to the Commission for a further hearing.  In this
 respect, we find our holding in Matter of Holy Spirit Assn. for the
 Unification of World Christianity v Tax Commission, 62 A.D.2d 188, 404 N.Y.S.2d
 93, dispositive on the issue. [FN1]  In that case, where an Article 78
 proceeding had been transferred to this Court, albeit improperly, we retained
 jurisdiction but, since the record was "not sufficient to permit an informed
 judgment as to whether the administrative body had acted arbitrarily or
 capriciously" in denying the tax exemption, we held the proceeding in abeyance
 and remanded the matter to the Supreme Court for a hearing.  In doing so, we
 cited "the inadequacy of the record as to the dominant purposes of petitioner
 and the actual use of the properties in question" (id. at 196) and, in terms
 of the nature of the hearing to be held, directed:

      FN1. For subsequent history, see, 55 N.Y.2d 512, 450 N.Y.S.2d 292, 435
     N.E.2d 662, revg. 81 A.D.2d 64, 438 N.Y.S.2d 521.

   The hearing will be plenary and, unlike the one conducted by the Tax
 Commission, adversarial as well.  Because of the obscurity of the
 administrative hearing record, we have concluded to direct a full examination
 of the facts and a broad inquiry into petitioner's predominant purpose
 especially since that was the sole basis on which the Tax Commissioners
 attempted to concentrate in deciding the exemption applications, and also into
 the actual uses to which the subject properties are being devoted.  (id. at
 198, 404 N.Y.S.2d 93) (footnote omitted).
  [1] Contrary to petitioner's argument, in order to satisfy requisite due
 process standards, it was not necessary that there be a full adversarial
 hearing before the Commission.  Generally, administrative proceedings need not
 conform to all of the requisites and evidentiary rules adhered to in judicial
 tribunals.  Judicial review, through an Article 78 proceeding, is sufficient
 for that purpose, particularly bearing in mind the power of the court to order
 a trial where there is a factual *380 issue relating to the ultimate
 question--whether the administrative tribunal acted in an arbitrary or
 capricious manner (CPLR 7804[h]).  This was directed in Holy Spirit
 Assn., supra, although, there, we retained jurisdiction and held the proceeding
 in abeyance pending remand for a hearing before a special referee, as required
 under CPLR 7804(h), since the proceeding had been transferred to us.  In
 doing so, we followed established authority permitting us to decide the
 proceeding on the merits in spite of the improper transfer.  (See, Holy
 Spirit Assn., supra at 193, 404 N.Y.S.2d 93 and cases cited).  Unlike the
 situation in Holy Spirit Assn., however, here, Special Term passed upon the
 merits of the petition but erred in not ordering an evidentiary plenary
 hearing.  It had the power to do so and, in the face of the inadequacy of the
 present record, should have so directed.
  [2] Essentially, there are three factual issues which are not adequately
 developed in the record so as to permit us to make a reasoned determination as
 to whether respondent acted arbitrarily or capriciously in denying the
 applications for a real estate tax exemption.  These pertain to the statutory
 standard for an exemption contained in RPTL s 420-a(1).
  First, it is contended that petitioner is not an organization which, within
 the terms of the statute, is "organized or conducted exclusively for
 religious * * * purposes".  Instead, it is claimed that petitioner's primary
 purpose is the conduct of a commercial enterprise to generate profit, as
 evidenced by the substantial profit which results from the sale of auditing
 services and products, its aggressive promotional activity, payment of
 commissions on the sale of services and accumulation of large cash reserves.
 Reference is made to Scientology's own policy order issued in 1972 to "make
 money" and, as an illustration, respondent points to the alleged profit-making
 motive underlying the sale of E-meters, the large sums realized, and the
 abusive tactics and coercion claimed to be employed **867 against members who
 seek to leave the church.  Petitioner, on the other hand, denies that there has
 been any coercion and, to the extent there were any tortious acts, claims that
 this was not by petitioner but by individuals acting in a private capacity and
 that there are available judicial remedies.  Clearly, a full exploration of the
 facts is needed to determine whether petitioner is organized or conducted for
 bona fide religious purposes.
  The second factual issue, which cannot be resolved on the insufficient record,
 is whether petitioner's income inured to the benefit of its founder through
 royalty arrangements or *381 otherwise.  It is charged that there was a
 long-standing arrangement of self-dealing, by which certain practices of
 petitioner were designed to generate an income for the benefit of Mr. Hubbard.
 Thus, it is urged that books and artifacts were purchased by petitioner, resold
 at higher prices to its own members and that Hubbard had a royalty arrangement
 which gave him 10% of the retail price.  Further, while it has been claimed
 that petitioner counselled members without charge, this is inconsistent with
 and counter to its practice of selling auditing services.  Petitioner, on the
 other hand, denies that there was any inurement of profit to the benefit of
 Hubbard and no royalty arrangement.  While the Tax Commission did not make an
 express finding on this issue, nevertheless, it does have a direct bearing upon
 the application for real estate tax exemption under RPTL s 420-a(1).
  This issue, as well as that pertaining to whether petitioner, in good faith,
 is organized or conducted "exclusively" for religious purposes and not as "a
 guise or pretense for directly or indirectly making any other pecuniary
 profit" (RPTL s 420-a[1][b]), cannot be resolved on the inadequate record
 before us.  A full evidentiary hearing is necessary and should have been
 ordered by Special Term.  This is the central purpose underlying CPLR
 7804(h).
  At such hearing, there should be an additional inquiry relating to the third
 factual issue, which, under the statute, must be decided on an application for
 real estate tax exemption, namely, whether the premises were being used
 exclusively for petitioner's religious purposes.  This issue is critical in
 that the statute expressly provides that, in order to qualify for an exemption,
 the property must be "used exclusively" for such religious purposes.
 (RPTL s 420-a[1][a];  see, Holy Spirit Assn., supra at 198, 404 N.Y.S.2d
 93).
  These and any other factual issues bearing upon the statutory standard for
 real estate tax exemption may be fully explored at the Supreme Court hearing,
 which, as we observed in Holy Spirit Assn., supra at 198, 404 N.Y.S.2d 93,
 shall be "a full examination of the facts and a broad inquiry into petitioner's
 predominant purpose * * * and also into the actual uses to which the subject
 properties are being devoted".  The findings will be critical in determining
 whether respondent acted arbitrarily or capriciously in denying the exemption.

  All concur.