TMI Blog2018 (2) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year - Decided in favour of assessee - Writ Petition (M/S) No.377 of 2013 - - - Dated:- 17-11-2017 - Mr. Rajiv Sharma, J. For The Petitioner : Mr. Mohit Maulekhi, Adv. For The Respondent-Income Tax : Mr. H.M. Bhatia, Standing Counsel ORDER Hon ble Rajiv Sharma, J. Petitioner is a society, registered under the Societies Registration Act 1860, vide registration Certificate No.514/2001 dated 28.12.2001. It was renewed vide renewal certificate dated 12.7.2007. The Society had applied for renewal of its registration on 25.12.2012. The main purpose, aim and object, as stated in the Memorandum of Association of the Society is to impart education along with ancillary objects. Petitioner has placed on record the copy of Memorandum of Association vide Annexure No.3. It is running educational institution in the name and style of Mallikarjun School . Petitioner society applied for exemption u/s 10(23C)(iv) of the Income Tax Act, 1961 (hereinafter to be referred as the Act ) on 20.9.2011. The assessee was asked vide show cause notice dated 3.9.2012 to furnish the information/documents. Petitioner supplied the information, as asked for. 2. The gist o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 1,30,30,288 has been remitted and that fact alone is conclusive circumstance to show that the appellant Institution is a commercial venture existing for profit and that it is not existing solely for educational purposes in India. The learned counsel urged that the third proviso brought in the concept of application of income vide the Finance Act, 1998 in order to bring about parity between universities and other educational institutions, on one hand, and public charitable trusts covered by Sections 11 and 12 under the 1961 Act. Therefore, according to the learned counsel, even at the stage of approval, the PA can take into account not only the nature, activities and genuineness of the Institute but also the manner in which the income derived in India is spent/utilised in India. The learned counsel submits that in view of the Finance Act, 1998, the provisions of Section 11(1)(a) have got to be read into the provisions of Section 10(23-C)(vi) and if so read the applicant Institute is required to state in its application as to how it has utilised its income in India in the year ending 31-3-1999. In this connection, learned counsel referred to Section 11(1)(a) which states that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. In other words, existence of surplus from the activity will not mean absence of educational purpose (see judgment of this Court in Aditanar Educational Institution v. CIT4). The test is-the nature of activity. If the activity like running a printing press takes place it is not educational. But whether the income/profit has been applied for non-educational purpose has to be decided only at the end of the financial year. 39. In Oxford University Press1 this Court found that the applicant was a branch of Oxford Press which was part of Oxford University but its activity in India was restricted to publishing books, journals, periodicals, etc. The Tribunal held that because Oxford Press is part of the university its income was exempt under Section 10(22) as it stood at the relevant time. It is in this context that the words existing solely for educational purposes and not for the purposes of profit in Section 10(22), which words also find place in Section 10(23-C)(vi), came for consideration. This Court held that location of the university is not relevant, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year concerned the object is to make profit as opposed to educating persons. 23. The Punjab and Haryana High Court, by the impugned judgment dated 29-1-20102 expressed its dissatisfaction with the view taken by the Uttarakhand High Court in Queen s Educational Society1 as follows: (SCC OnLine P H para 8.8) 8.8. We have not been able to persuade ourselves to accept the view expressed by the Division Bench of the Uttarakhand High Court in Queen s Educational Society1. There are variety of reasons to support our opinion. Firstly, the scope of the third proviso was not under consideration, inasmuch as, the case before the Uttarakhand High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he activity has to be applied by posing the question whether it exists solely for education and not to earn profit (see five-Judge Constitution Bench judgment in Surat Art Silk Cloth Manufacturers Assn.3). It has to be borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. A workable solution has been provided by the Hon ble Supreme Court in para 33 of its judgment in American Hotel Lodging Assn. case9. Thus, on an application made by an institution, the prescribed authority can grant approval subject to such terms and conditions as it may deem fit provided that they are not in conflict with the provisions of the Act. The parameters of earning profit beyond 15% and its investment wholly for educational purposes may be expressly stipulated as per the statutory requirement. Thereafter the assessing authority may ensure compliance with those conditions. The cases where exemption has been granted earlier and the assessments are complete with the finding that there is no contravention of the statutory provisions, need not be reopened. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew, following the judgments of this Court in Surat Art Silk Cloth Manufacturers Assn. case3 and Aditanar Educational Institution case8 as follows: (Tolani Education Society case15, SCC OnLine Bom para 13) 13. The fact that the petitioner has a surplus of income over expenditure for the three years in question, cannot by any stretch of logical reasoning lead to the conclusion that the petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that the petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In the present case, the sole and dominant nature of the activity is education and the petitioner exists solely for the purposes of imparting education. An incidental surplus which is generated, and which has resulted in additions to the fixed assets is utilised as the balance sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. The Income Tax Act, 1961 does not condition the gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be accumulated for a period in excess of five years. 13. For all these reasons, we are of the view that the rejection of the approval by the First Respondent was manifestly misconceived. Only two reasons have weighed with the First Respondent in rejecting the approval, both of which have been found to suffer from manifest error. In Aditanar Educational Institution (supra), the Supreme Court, while construing the provisions of Section 10(22), held that the availability of exemption should be evaluated each year to find out whether the institution has existed during the relevant year solely for educational purposes and not for the purposes of profit. If after meeting the expenditure, a surplus results incidentally from an activity lawfully carried on by the educational institution, the institution will not cease to be one existing solely for educational purposes since the object is not to make profit. The decisive or acid test, the Supreme Court observed, is whether on an overall view of the matter, the object is to make a profit. In evaluating or appraising the issue, the Supreme Court noted that one should bear in mind the distinction between the corpus, the objects and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he conduct of the assessee on the ground that though it was entitled to pursue other 'noble and pious' objects, the assessee had done nothing to achieve them and had only pursued the main object of providing education and earning profit. Now, it must be appreciated that in order to obtain the benefit of the exemption under Section 10(23C)(vi), the University or, as the case may be, educational institution must exist solely for educational purposes and not for the purposes of profit. The requirement that the institution must exist solely for educational purposes would militate against an institution pursuing other objects. Consequently, the High Court was, in our view and with due respect, not correct in holding as a principle of law that the benefit of the exemption should be denied on the ground that the assessee has only pursued its main object of providing education and had not pursued the other objects for which the Trust was constituted. Were the assessee to pursue other objects, it would clearly run afoul of subclause (vi). The assessee must exist solely for educational purposes. In this view of the matter, while we hold that the facts of the present case are distingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts but if it has been proved by material on record that the society is not perusing any other activity apart from education then in such case, the society will qualify for grant of approval under s. 10(23C)(vi) of the Act. It was observed as under: In the facts and circumstances, we are of the opinion that as of now the petitioner society running educational institution by the name of C.P. Vidya Niketan Inter College at Kaimganj, District Farrukhabad imparts education to students from Class VI to XII, in the absence of any allegation or material, the object clause providing for other charitable activities, would not disentitle the society from approval under s. 10(23C)(vi) of exemption. The proviso added to s. 10(23C)(vi), specially provisos 2, 3, 12 and 13, give sufficient powers to check the abuse of the exemption. The mere possibility, therefore, that the society may in future pursue activities, which are not charitable, or closely connected with education for making profit, would not constitute the grounds to reject the approval under s. 10(23C)(vi). 13. Perusal of the impugned order shows that the pleading in this regard has not been taken into consideration. Furth ..... 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