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TMI Blog2010 (3) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... nior Departmental Representative laid emphasis to differentiate section 10(23C)(iv) and 10(23C)(iiiad) of the Act and strongly relied upon the decision from Hon'ble Uttrakhand High Court in CIT v. Queens' Educational Society [2009] 177 Taxman 326. On the other hand, the learned counsel for the assessee strongly defended the impugned order by contending that firstly, the income was employed by the assessee as per the provisions of the Act in the construction of the building and secondly the aforesaid decision of Hon'ble Uttrakhand High Court is not applicable to the facts of the case. Reliance was placed on the decision from Hon'ble Punjab & Haryana High Court in the ease of Pinegrove International Charitable Trust v. Union of India [2010] 188 Taxman 402. The crux of the arguments is that the assessee school exists solely for educational purposes and not for profit. 3. We have considered the rival submissions of learned representatives of both sides and perused the material available on the file. Brief facts are that the assessee school, during the year, received fees from students amounting to Rs. 30,76,275 (below the limit of Rs. one crore as provided in rule 2BC). As per the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts of such hospital or institution do not exceed the amount of annual receipts as may be prescribed; or (iv)any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v)any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; (vi)any university or other educational Institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding fifteen per cent of its income shall in no case exceed five years; and (b)does not invest or deposit its funds, other than- (i)any assets held by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of the fund, trust or institution or any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1973; (ia)any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other educational institution or any hospital or other medical institution as on the 1st June, 1998; (ii)any assets (being debentures issued by. or on behalf of. any company or corporation), acquired by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution before the 1st day of March, 1983; (iii)any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) and sub-clause (ia). by way of bonus s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained by it in respect of such business : Provided also that any notification issued by the Central Government under sub-clause (iv) or sub-clause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification : Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under sub-clause (iv) or sub-clause (v) shall be issued or approval under sub-clause (iv) or sub-clause (v) or sub-clause ( vi) or sub-clause (via) shall be granted or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received : Provided also that where the total income of the fund or trust or institution or any university or other educational institution or any hospital or other medical in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) or trust or institution referred to in sub-clause (v) is notified by the Central Government or is approved by the prescribed authority, as the case maybe, or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by the prescribed authority and subsequently that Government or the prescribed authority is satisfied that- (i)such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not- (A)applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B)invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii)the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution- (A)are not genuine; or (B)are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may, at any time after giving a reasonable opportunity of showing cause against the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fession. It seems that the learned Assessing Officer has wrongly interpreted the words "not for the purposes of profit", because the institution/school is primarily engaged in educational activities and construction of building is the prime activity to achieve the object of education. The income generated from school must be utilised exclusively for educational activities and not for the personal gain and if this condition is fulfilled/complied with then the income of the assessee must be treated as exempted. Section 10(23C)(iiiad) is an independent section and has no direct or indirect link with the registration under section 12A because registration under section 12AA is only needed when exemption is claimed under section 11 of the Act. It is worth mentioning here that in its return, the assessee has claimed exemption under section 10(23C)(iiiad) of the Act. Regular classes are conducted by the school from class 1 to 12th and the whole income including surplus is applied solely for educational purposes. If the assessment order as well as the impugned order are kept in juxtaposition, even there is no whisper that either the funds were misused contrary to the objects of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letting out the building to other society to run educational institution does not constitute charitable purpose. The assessee preferred appeal before the learned CIT(A) who decided in favour of the assessee which was affirmed by the Tribunal. The Hon'ble Uttarakhand High Court considered various decisions and affirmed the stand of the Tribunal. However, the Hon'ble Uttarakhand High Court in the case Queens' Educational Society (supra) wherein the assessee invested surplus funds in fixed assets like furniture and building with a view to expand institution and to earn more income decided against the assessee by holding that the assessee is not entitled to-exemption under section 10(23C)(iiiad). The Hon'ble High Court observed, "...The law is well-settled that if the profit is proved by an educational society then that will be the income of the society as the surplus amount remains in the account books of the society after meeting all the expenses incurred towards imparting the education...." The Hon'ble High Court while making the aforesaid observation considered the decision from Hon'ble Apex Court in the case of Aditanar Educational Institution (supra) wherein it was observed as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when two views are possible (we mean that when two decisions from High Courts are available) then the decision view which favours the assessee may be followed. 7. Before adverting to various decisions, we are supposed to analyse the conditions precedent for availing exemption under section 10(22), which are as under : (a)The educational institution must actually exist, and mere taking of steps would not be sufficient. (b)The educational institution need not be affiliated to any university or board: in fact a society it need not itself be imparting education and it is enough if it runs some schools or colleges. (c)The educational institution must exist solely for educational purposes and not for purposes of profit. But merely because there is a surplus, it cannot be said that the educational institution exists for profit. (d)If an educational institute makes profit incidentally, for example, by publishing and selling text books, and such profits are to be applied only for the spread of education, it is entitled to exemption-CIT v. Delhi Kannada Education Society [2000] 246 ITR 731 (Delhi). The aforesaid decision from Hon'ble Delhi High Court clearly supports the case of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some deposits which are permissible as per the proviso to section 10(23C). From the audited accounts, one can easily see whether the funds were utilised for the expansion of educational institution/activity or for personal profits. The opposite parties have not brought any material on record to prove that the surplus earned by the assessee petitioner was utilised for personal profit/gain on anyone including the founder manager/director. Whatever fund was acquired, the same was utilised for the expansion of educational activities of institution. Initially there were five students and now the institution is imparting education to more than 34,000 students as pointed out during the course of arguments. Thus, the assessee is fully satisfying all the statutory requirements for getting exemption under section 10(23C)(vi). No adverse material was brought on record by the opposite parties to reject the application for seeking said exemption." If the aforesaid conclusion is analysed with the facts of the present appeal, admittedly, it is not the case that the assessee has accumulated huge profit or has misutilised the funds in any manner against the objects of the assessee and the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent appeal are analysed, it can be summed up that section 10(23C)(iiiad) speaks about "any university or any other educational institution existing solely for 'educational purposes' and not for the purpose of profit." Also prescribes that aggregate annual receipt of such institution should not exceed Rs. 1 crore (r. 2BC). Likewise sub-clause (vi) to section 10(23C) is also having same wordings subject to approval by the prescribed authority, therefore, it can be said that the issues involved in sub-clauses (iiiad) and (vi) are common, therefore, it has to be seen whether there is any activity of profit and also the application of income. An elaborate discussion/observation has been made by Hon'ble Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust (supra), wherein both the issues have been decided in favour of the assessee. It can be said that the institutes which have, more than Rs. 1 crore of aggregate receipt are having heavier financial dealings, therefore, as per third proviso, they are supposed to apply 85 per cent of such total receipt and only 15 per cent of such receipt can be retained, whereas, no such condition is imposed under sub-cla ..... 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