TMI Blog2013 (3) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... 98 under section 256(1) of the Income-tax Act, 1961 ("the Act"), the Income-tax Appellate Tribunal, Hyderabad Bench "A", Hyderabad, had referred the following six questions for the opinion of this court. "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding after an overall appraisal of the clauses of the trust deed that the trust was for charitable purposes within the meaning of section 2(15) of the Income-tax Act ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the original infirmity in clause III (aims and objects of the association) of the trust deed stood rectified after the amendment to the clauses of the trust deed in Octo-ber, 1989 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the amendment of a deed of a codicil has a retrospective effect and consequently the benefits of section 11 were available to the trust for the assessment years 1986-87 and 1987-88 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was not incorrect in law in not holding that the absolute di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee as charitable trust. In the Revenue's appeal, the Appellate Tribunal found that there was no violation of objects of the trust and even if there is one, the same got rectified subsequently ; the amounts invested in "Maabadi", "Patasala" and "Vijaya Vani Printers" were not hit by the provisions of section 11(5) of the Act and that the income of the assessee was exempt under section 10(22) of the Act because the only object of the assessee was running educational Institutions. Being aggrieved, the Revenue sought the reference under section 256(1). 4. The senior counsel for income-tax would submit that the assessee violated section 11(5) and section 13(1)(c) and, therefore, became disenti-tled for the benefit under section 10(22) of the Act. Nextly, he would submit that the Commissioner of Income-tax (Appeals) and the Appellate Tribunal ignored the violations and allowed the exemption under section 10(22), which is erroneous and contrary to the law laid down by the Supreme Court. He placed strong reliance on a decision of this court to which one of us (V. V. S. Rao J.) is a member in Aurora Educational Society v. Chief CIT [2011] 339 ITR 333 (AP). 5. The senior counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective effect and consequently the bene-fits of section 11 were available to the trust for the assessment year 1988-89 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was not incorrect in law in not holding that the absolute dis-cretion vested in the trustees by virtue of the trust deed would dis-entitle the trust for the benefits of section 11 of the Income-tax Act in the light of the decision of the Supreme Court in the case of Yogiraj Charity Trust v. CIT [1976] 103 ITR 777 (SC) ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the trust was entitled to the benefits of section 11 of the Income-tax Act in spite of the fact that there was violation of the provisions of section 11(5) of the Income-tax Act and section 13(1)(c) of the Income-tax Act ? 6. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the income of the trust is exempt under section 10(22) of the Income-tax Act in spite of the fact that the benefits of the trust enure to the members of the trust and consequently the trust was not existing solely for educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law. One instance specifically mentioned therein is that in contravention of section 11(5) of the Act, the assessee invested in Vijaya Vani Printers, Maabadi and Patasala in contravention of sections 11, 12 and 13. (iii) The institution exists for commerce : The Assessing Officer pro-bably emboldened by the letter of the Commissioner of Income-tax dated September 30, 1987, commented that the assessee's educational institution exists for the purpose of commerce. He meant that it does not exist solely for education purpose as required under section 10(22) of the Act and that it was making profit. It was also recorded that the contributions received by the assessee earmarked as corpus of the building donation fund as a revenue receipt. 10. As rightly contended by the assessee's counsel, the Assessing Officer does not give any clear finding regarding violation of section 11(5) except making such a comment. Details therefor are not forthcoming in the assessment order. In so far as the alleged violation of section 13(1)(c) and 13(2) are concerned, the Assessing Officer no doubt took into consideration the fact that the funds of the assessee were invested in Vijaya Vani Printers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in New Noble Educational Society v. Chief CIT [2011] 334 ITR 303 (AP) wherein, the scope and amplitude of the said provision was summarised, in as many as 55 points. Some of these principles (not in the order as quoted below), inter alia, are as under. (1) Except that approval is now required to be obtained from the prescribed authority, section 10(23C)(vi) is analogous to section 10(22), as it existed prior to its omission by the Finance Act, 1998, with effect from April 1, 1999. To that extent judicial pronouncements, made in the context of section 10(22), would equally apply to section 10(23C)(vi) of the Act (American Hotel and Lodging Associa-tion Educational Institute v. CBDT [2008] 301 ITR 86 (SC)). (2) To be eligible for exemption, under section 10(23C)(vi) of the Act, it is necessary that there must exist an educational institution. Secondly, such institution must exist solely for educational purposes and, thirdly, the institution should not exist for the purpose of profit (CIT v. Sorabji Nusserwanji Parekh [1993] 201 ITR 939 (Guj)). (3) The emphasis in section 10(23C)(vi) is on the word "solely". "Solely" means exclusively and not primarily (CIT v. Gurukul Ghatke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual activity of imparting education by normal schooling or normal conduct of classes, would not suffice for the purpose of qualifying the institution for the benefit of section 10(23C)(vi) (CIT v. Sorabji Nusserwanji Parekh [1993] 201 ITR 939 (Guj)). (6) Section 2(15) is wider in terms than section 10(23C)(vi) of the Act. If the assessee's case does not fall within section 2(15), it is diffi-cult to put it in section 10(23C)(vi) of the Act (CIT v. Maharaja Sawai Mansinghji Museum Trust [1988] 169 ITR 379 (Raj)). (7) If the dominant purpose of an institution is "educational", another object which is merely ancillary or incidental to the dominant purpose would not disentitle the institution from the benefit. (8) The test which has, therefore, to be applied is whether the object, which is said to be non-educational, is the main object of the institution or it is ancillary or incidental to the dominant object which is "educational" (Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC)). The test is the genuineness of the purpose tested by the obligation created to spend the money exclu-sively on "education". If that obligation is there, the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(1)(c) would be attracted in cases where any part of the income, or the property, of a charitable insti-tution is used, directly or indirectly, for the benefit of the person referred to in section 13(3) of the Act. Under section 13(2), the income or property of the institution shall, for the purposes of section 13(1)(a), be deemed to have been used or applied for the benefit of a person referred to in section 13(3) if any one of clauses (a) to (h) of section 13(2) are applicable. The person, referred to in section 13(3), would be benefited only if the amount paid to him constitutes a benefit to him or if clauses (a) to (h) of section 13(2) are attracted. (14) The threshold conditions are aimed at discovering the actual existence of an educational institution and approval of the prescribed authority for which an application in the standardised form, in terms of the first proviso, has to be given by every applicant. If the prerequisite condition, of actual existence of the educational institution, is fulfilled then the question of compliance with the requirements, contemplated by various provisos, would arise. Only if the educational institution actually exists for educational pu ..... 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