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2021 (6) TMI 873 - HC - Income TaxExemption u/s 10 (23C) (vi) - Denial of approval - HELD THAT:- Approval has to granted if an educational institution satisfies the fundamental requirement of existence for educational purpose and does not exist solely for the purposes of the profit. Merely because an educational institution generates surplus is not a ground for disqualifying it from granting approval to it. Once an approval is granted, it is to be in force for a period of three years. As open for the prescribed authority to stipulate the conditions for ensuring there is no misuse by such an educational institution of the approval. Clause 51 of the Articles of Association clearly states that shareholders are not entitled to share the surplus of each year i.e., the excess of the income over the expenditure by way of dividend, bonus share. Surplus generated is not available for being declared either dividend or as a bonus share to the shareholders. Thus, there is no scope for inferring profit motive. Similarly, clause 52 which has been extracted above also indicates that there is no profit motive. Clauses 55 and 56 of the Articles of Association of the petitioner do not allow an interference of profit motive. These two clauses clearly indicate that the surplus generated by the petitioner is to be ploughed back. The Memorandum of Association of the petitioner also does not indicate the profit motive. The main object of the petitioner indicates that it is in the field of education. There are also indication that the petitioner had not otherwise indulged in any other activity to make profit and it was engaged only in the field of education in all the years of its existence since 1992. Denial of approval to the petitioner u/s 10 (23C)(iv) is not justified. The respondents ought to have granted approval but at the same time and laid down on strict conditions for the petitioner to comply with the said requirements. Therefore, the present writ petition deserves to be allowed. Since the petitioner had applied for exemption as early as 15.09.2010, though approached the wrong forum, it was incumbent on the part of the office of the Chief Commissioner of Income Tax-I to have either returned the application to the petitioner for a proper presentation or transferred to the 1st respondent immediately. On the other hand, the Income Tax Department took about three years for the application to be jostled from the office of the Chief Commissioner of Income Tax-I to the office of the 1st respondent. Since this Court has come to conclusion that the petitioner is entitled to approval, we direct the 1st respondent to issue Approval Certificate to the petitioner for the past period within a period of ninety (90) days from the date of receipt of this order. The 1st respondent may stipulate such stringent conditions in the approval as are necessary for an educational institution to operate so that the legitimate benefit of exemption under the aforesaid provision are not abused by the petitioner keeping the views expressed in American Hotel and Lodging Association Educational Institute Vs CBDT [2008 (5) TMI 17 - SUPREME COURT] and the views expressed by the Hon'ble Supreme Court in Queens Educational Society Vs CIT [2015 (3) TMI 619 - SUPREME COURT]. As found that the petitioner had deviated in any of the assessment years of the conditions that may be prescribed in the approval, the Assessing Officer may pass appropriate orders in respect of those assessments and complete the same within a period of ninety (90) days thereafter. The petitioner has complied with the requirements of such approval, appropriate orders may be passed to revise the assessment order by extending such benefits.
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