2010 (5) TMI 102 - BOMBAY HIGH COURT

Exemption u/s 10(23C)(vi) – public charitable trust - CIT declined to grant approval to the Petitioner under Section 10(23C)(vi) - Until Assessment Year 2004-05, the Petitioner was allowed an exemption under Sections 10(22) and 10(23C)(vi) in addition to Section 11 - CIT rejected the applications submitted by the Petitioner by an order dated 28 March 2009. While rejecting the application, the First Respondent held that the objects of the Trust permitted the construction of Ashrams for Gujarati Hindu women and hence, the Trust existed for objects other than education. - The second ground on which the applications were rejected was that the Trust had a surplus in excess of twelve percent from its activities and that the balance sheet for three years showed that the surplus was invested in making additions to the assets and increasing Bank deposits.

Held 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 (2008 -TMI - 5552 - SUPREME Court), 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 19 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. – CIT directed to grant the approval