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2010 (1) TMI 1151 - HC - Income TaxExemption u/s 11 - whether the activities of the applicant came within the definition of “income of educational institution”? - Whether an educational institution would cease to exist ‘solely’ for educational purposes and not for purposes of profit merely because it has generated surplus income over a period of 4/5 years after meeting its expenditure? (B) Whether the amount spent on acquiring/ constructing capital assets wholly and exclusively becomes part of the total income or it becomes entitled to exemption u/s 10 (23C)(vi)? (C) Whether an institution registered as a Society under the Societies Registration Act, 1860, lose its character as an educational institution, eligible to apply for exemption under Section 10 (23C)(vi) - HELD THAT:- Our answer to the aforesaid questions would be the same as has been given in Pinegrove International Charitable Trust’s case[2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT] and the same reasoning is adopted. It is pertinent to notice that Question No. (A) has been answered in favour of the assessee and against the revenue. Questions Nos. (B) and (C) have been answered jointly in favour of the assessee and against the revenue. The omnibus principles of law have been culled out in para 8.13. All these principles would apply to the facts of each of the cases in this bunch of petitions as well because the guidance for grant of exemption u/s 10(23C)(vi) has been derived from proviso 13th (un-numbered) by their Lordships’ of Hon’ble the Supreme Court in American Hotel and Lodging Association’s case [2008 (5) TMI 17 - SUPREME COURT]. In the light of the discussion, the first thing which becomes evident is that capital assets acquired/constructed by the educational institutions have been treated as income in a blanket manner without recording any finding whether the capital assets have been applied and utilised to advance the purpose of education. It is obligatory on the part of the prescribed authority while considering the application for grant of exemption, whether expenditure incurred as capital investment is on the object of education or not. It is appropriate to mention that in all these cases, the impugned orders passed by the Chief CIT are similar in substance and appears to have been inspired by the view in the case of M/s Queens Educational Society [2007 (9) TMI 347 - UTTARAKHAND HIGH COURT], which we have not accepted in the main judgment rendered today in the case of Pinegrove International Charitable Trust’s case[2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT]. The competent authority is also required to consider the question of advancement of loanto the employees of the college, which was given to one Shri O.P. Joshi, Principal of the institution in its proper perspective. The advancement of loans to the employees of the institution cannot be regarded as mis-application of he fund because good service conditions for its employees would always attract talented persons to an educational institution. If facilities like housing, loan, car loan etc., which have prevalent in the Public Sector and Government institutions, are given then necessarily it would be regarded as expenditure spent on the object of education and not to any other purpose. Likewise, it would be a relevant factor if an institution has enjoyed exemption for the last 2½ decades - The competent authority should have recorded findings of facts insofar as the remunerations paid to Shri Suresh Chander, who is Director of the School and to his wife Smt. Usha Rani, who is teacher in the school, are concerned. If the remunerations have been paid in their capacity as an employee rendering the service to the school as Director or Teacher then it would be proper to interpret the same to be for education purpose. But if the remunerations have been paid farcically then the payment made to such persons must be reckoned to have been spent on a purpose other than education. In order to avoid any reference to all individual cases, it is suffice to mention that the competent authorities should not have read the judgment in the case of M/s Queens Educational Society like a statute. The Chief CIT should have followed the Full Bench judgment of this Court rendered in the case of Punjab Financial Corporation [2001 (12) TMI 50 - PUNJAB AND HARYANA HIGH COURT], holding that submission of Audit Report in Form 10BB is not mandatory and it could be filed even after the filing of return. The aforesaid difficulty has arisen - The respondents could have easily awaited the outcome of the appeals pending before Hon’ble the Supreme Court. It would have avoided unnecessary litigation, time and expenses. These petitions are allowed and the impugned order passed by the Chief CIT refusing to grant exemption u/s 10(23C)(vi) or renew the same are hereby quashed. However, we leave it open to the respondents to pass any fresh orders, if any such necessity is felt after considering every individual case in the light of various propositions of law culled out by us in the preceding paras. The writ petitions stands disposed of in the above terms.
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