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2013 (7) TMI 574 - HC - Income TaxExemption u/s 11 - whether the assessee is entitled to the exemption under section 11 of the Act - assessee sought exemption u/s 11- the AO denied it on the ground that the pre-condition for an educational institution is to impart education on non-profit motive - the profit arising from its activity is not to be distributed among the members and should be utilized for building up the infrastructure to impart education with non-profit motive – Held that:- Section 13 is an adjunct to section 11 and exemption of income from property held for charitable purposes under section 11 cannot be granted where the activity of a charitable institution comes within the purview of section 13 - It is a settled principle of interpretation of statutes that the court should avoid a construction which would render a part of the statute devoid of any meaning or application - it is not possible to ignore the provisions of sub-section (2) of section 13 while deciding the issue - It is true that the words "Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1)" occurring in sub-section (2) of section 13 suggest that the provisions of sub-section (2) should not be understood as cutting down the provisions of clause (c) and clause (d) of sub-section (1) of section 13 but this does not mean that in a situation like the present where sub-section (2) can apply, it should be ignored. Royalty u/s 13(2) - whether the act of the assessee in paying royalty amounts to diversion of the funds of the assessee attracting section 13(2) (g) - Held that:- merely because such facility was provided by SSSPL and royalty was being paid to it by the assessee in that behalf, the Revenue cannot contend that it is impermissible – Held that:-The observations of the Tribunal that income of the assessee is given to SSSPL, a company whose activity is commercial and not charitable - that payment of royalty by the assessee is not incurred for purpose of the assessee's business - that the students or staff of SSSPL were not bound to join the assessee once it was formed by SSSPL - and the payment was intended to benefit the members of assessee society - that it is a collusive transaction to transfer the profit of the assessee society to interested persons are wholly irrelevant and perverse- The Tribunal appears to have misdirected itself and considered totally irrelevant issues - In Polisetty Somasundaram Charities (1986 (11) TMI 4 - ANDHRA PRADESH High Court) - the court held that the income of a trust held wholly for charitable or religious purposes is exempt from tax subject to the conditions regarding application of income in section 13 - any other interpretation would set at naught the proviso and would defeat the very purpose for which the proviso was added in section 13 - merely because the assessee was registered by SSSPL to run the school after SSSPL's application for approval was rejected by the CBSE, it cannot be said that the assessee's payment by way of royalty to SSSPL is prohibited and consequently the assessee deprived of exemption under section 11 – appeal decided in the favour of assesse.
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