TMI Blog2010 (5) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - 366 OF 2010 WITH 367 OF 2010 - - - Dated:- 6-5-2010 - Mr. Percy J.Pardiwala, Sr.Advocate with Ms.Aasifa Khan and Mr.Satish R.Mody for the Petitioner. Mr. Yogesh Pathaki i/b. Mr.Suresh Kumar for the Respondents. CORAM: DR. D.Y. CHANDRACHUD J.P. DEVADHAR, JJ. ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J): The Petitions arise out of an order passed by the First Respondent, the Chief Commissioner of Income Tax, Mumbai, declining to grant approval to the Petitioner under Section 10(23C) (vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... girls (studying in the Institution)." 3. The other subclauses of clause (b) confer an ancillary power to acquire immovable property, to receive gift and donations and to invest the proceeds. Clause IV of the Memorandum states that the income and property of the Association shall be applied solely towards the promotion of the objects of the Association and that no portion thereof shall be paid directly or indirectly by way of dividend, bonus or otherwise to the members of the Association. Under clause VIII, upon the winding up or dissolution of the Association, the surplus, if any, is not to be paid to or distributed among the members of the Association, but is to be transferred to another institution or to other institutions having similar objects. 4. Until Assessment Year 2004-05, the Petitioner was allowed an exemption under Sections 10(22) and 10(23C)(vi) in addition to Section 11. The Petitioner submitted an application for approval for Assessment Years 2005-06 to 2007-08 on 10 October 2005 and 2008-09 to 2010-11 on 23 March 2008. Amongst the documents that were submitted with the applications were copies of the most recent orders passed under Section 10(23C) for Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. On these grounds, the First Respondent concluded that even if the Trust exists for educational purpose, it would generate profits/surplus which was utilized for purchasing assets as stated in Schedule 8 to the balance sheet. The Petitioner thereupon moved applications under Section 154. By an order dated 30 November 2009, the applications for rectification have been dismissed. The applications for approval have been rejected for Assessment Years 2005-06 to 2007-08 and Assessment Years 2008-09 to 2010-11. 7. Counsel appearing on behalf of the Petitioner submitted that both the grounds on which the First Respondent has dismissed the applications for approval are misconceived. The submission before the Court is that (i) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Section 10(23C) defines certain categories of income which shall not be included in computing the total income of any person for a previous year. Clause (vi) deals with income received by any person on behalf of any University or other educational institution existing solely for educational purposes and not for purposes of profit (other than those mentioned in subclause (iiiab) or (iiiad)) and which may be approved by the prescribed authority. Subclause (iiiab) speaks of a University or other educational institution existing solely for educational purposes and not for purposes of profit and which are wholly or substantially financed by the Government. Subclause (iiiad) speaks of a University or educational institution existing solely for educational purposes and not for profit if the aggregate annual receipts do not exceed an amount prescribed. Where the aggregate receipts exceed the amount prescribed, then the approval of the prescribed authority is mandated in order to enable the institution to obtain the benefit of the exemption contained in subclause (vi). The provisos which have been enacted by Parliament regulate the manner in which applications are to be made, the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laces and alleviation of their social status by educating to them in subjects tending to their material, moral and spiritual advancement, opening out for them proper and suitable fields of work, lawfulness and influence in Hindu society. From this object, it is abundantly clear that the amelioration of the condition of Gujarati speaking Hindu women was sought to be improved, when the Trust was founded in March 1928, by providing for the education of this class of women. The means by which this object is sought to be achieved is by conducting Ashrams or homes for women and girls, particularly for widows and orphaned girls either as free or as paying inmates and by conducting schools for imparting religious, secular and industrial education and training in fine arts. A number of ancillary objects have been adverted therein including provision of libraries and gymnasiums, publication of books and by means of pecuniary and other help to students of the institution. A holistic reading of the object clause would establish beyond doubt that the sole purpose for the establishment of the Petitioner was to further the cause of education amongst women belonging to a particular class, as state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cational purposes since the object is not to make profit. The Division Bench also observed that if the Trust exists solely for educational purposes and conducts an educational institution, the fact that it had other objects would not disentitle it to the exemption so long as the activity carried out by it in that assessment year was that of running an educational institution and not for profit. The Court observed that the assessee had existed only for educational purposes which consisted of running educational institution and not for earning profits. The observations of the Division Bench which have been made in the context of Section 10(22) would furnish a cogent answer to both the issues on which the applications for approval were rejected by the First Respondent. Firstly, though the Memorandum of Association contains varied objects, so long as the record demonstrates that the assessee only conducts educational institutions, it must be regarded as existing solely for the purpose of education. No other activity is carried on. Secondly, the fact that a surplus may incidentally arise from the activities of the Trust, after meeting the expenditure incurred for conducting educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corpus, the objects and the powers of the concerned entity. 14. The First Respondent while rejecting the applications of the Petitioner has adverted to the judgment of the Uttarakhand High Court in Commissioner of Income Tax vs. Queens' Educational Society.{(2009) 319 ITR 160} The statement of facts as recited in the judgment of the High Court is to the effect that the assessee had a profit of thirty per cent in Assessment Year 2000-01 and twenty seven per cent in Assessment Year 2001-02. The assessee was conducting an educational institution. The Tribunal held that the assessee was entitled to the benefit of the exemption under Section 10(23C). The High Court observed that "the law is well settled that if the profit is proved by an educational society then that will be the income to the Society as the surplus amount remains in the account books of the society after meeting all the expenses incurred towards imparting the education". A reference was made to the judgment of the Supreme Court in Aditanar (supra). The judgment of the Supreme Court was, however, distinguished on the ground that the objects clause of the assessee indicated that while there were other objects to be ach ..... X X X X Extracts X X X X X X X X Extracts X X X X
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