TMI Blog2010 (1) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... ND HARYANA AT] and the same reasoning is adopted. It is pertinent to notice that Question No. (A) has been answered in favour of the assessee and against the revenue. Questions Nos. (B) and (C) have been answered jointly in favour of the assessee and against the revenue. The omnibus principles of law have been culled out in para 8.13. All these principles would apply to the facts of each of the cases in this bunch of petitions as well because the guidance for grant of exemption u/s 10(23C)(vi) has been derived from proviso 13th (un-numbered) by their Lordships of Hon ble the Supreme Court in American Hotel and Lodging Association s case [ 2008 (5) TMI 17 - SUPREME COURT] . In the light of the discussion, the first thing which becomes evident is that capital assets acquired/constructed by the educational institutions have been treated as income in a blanket manner without recording any finding whether the capital assets have been applied and utilised to advance the purpose of education. It is obligatory on the part of the prescribed authority while considering the application for grant of exemption, whether expenditure incurred as capital investment is on the object of educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The respondents could have easily awaited the outcome of the appeals pending before Hon ble the Supreme Court. It would have avoided unnecessary litigation, time and expenses. These petitions are allowed and the impugned order passed by the Chief CIT refusing to grant exemption u/s 10(23C)(vi) or renew the same are hereby quashed. However, we leave it open to the respondents to pass any fresh orders, if any such necessity is felt after considering every individual case in the light of various propositions of law culled out by us in the preceding paras. The writ petitions stands disposed of in the above terms. - M.M. Kumar And Jaswant Singh JJ For the Appellant : Mr. K.L. Goyal, Senior Advocate, with Mr. Sandeep Goyal, Advocate, Mr. Ravi Shankar, Advocate, Mr. S.K. Mukhi, Advocate, Mr. Pankaj Jain, Advocate, Mr. Akshay Bhan, Advocate, and Mr. Rohit Sud, Advocate, Ms. Radhika Suri, Advocate, For the Respondent : Mr. S.K. Garg Narwana, Advocate, Ms. Urvashi Dhugga, Advocate, Mr. Rajesh Sethi, Advocate, and Mr. Vivek Sethi, Advocate, M.M. Kumar, J. 1. This order shall dispose of a bunch2 of petitions as the issues raised are common. The facts of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 2010-11 was taken up by the Chief Commissioner of Income Tax, Panchkula. The Chief Commissioner, vide the impugned order dated 30.9.2008, rejected the claim of the petitioner-Society. At the outset it has been observed by the Chief Commissioner of Income Tax that out of the 11 members of the petitioner-Society, 9 members belongs to one Girdhar family, who control and manage the affairs of the petitioner-Society. However, none of them is a outstanding educationist. All the key posts in the petitioner-Society are manned by the male members of the Girdhar family. 2.1.3 Some discrepancies regarding unsecured loans advanced to two members, namely, Sarvshri Amir Chand and Davinder Kumar have been noticed. It has been found that there was vast difference in the amounts of loan shown in the balance sheets as on 31.3.2007. The Chief Commissioner of Income Tax also considered the report of the Commissioner of Income Tax, Faridabad, dated 11.9.2008, who has pointed out that the discrepancies in the balances of the President and Vice-President of the petitioner-Society as on 31.3.2007 was not a clerical error but similar discrepancies were also noticed during the assessment year 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that educational institution of the petitioner-Society is guided by commercial considerations. 2.1.9 After considering all the aforementioned aspects, the Chief Commissioner of Income Tax finally reached the conclusion that the activities of the petitioner-Society cannot be regarded as genuine and the condition for grant of exemption under Section 10(23C)(vi) of the Act i.e. the educational institution should be existing solely for educational purposes and not for the purposes of profit is not satisfied in the instant case. Thus, he has rejected the claim of the petitioner-Society. 2.2 CWP No. 858 of 2009 2.2.1 Kshatriya Sabha, Kurukshetra-petitioner has challenged order dated 25.4.2008 (P-4) passed by the Chief Commissioner of Income Tax, Panchkula, rejecting the application for grant of approval for exemption under Section 10 (23C)(vi) of the Act in respect of assessment years 2007-08, 2008-09 and 2009- 10. The petitioner is a Society registered under the Societies Registration Act, 1860. It has been running two schools at Kurukshetra, which are affiliated to Central Board of School Education, New Delhi. It is claimed that the petitioner- Society s educational ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed an appeal before the Commissioner of Income Tax (Appeals), Karnal, against the additions made by the Assessing Officer for the assessment year 2004-05, who deleted the same vide order dated 3.3.2008. On being asked to do so, the Commissioner of Income-tax, Karnal, again forwarded another comprehensive report of the Assessing Officer, vide letter dated 15.4.2008, stating that detailed facts and reasons had been given by the Assessing officer for making the additions under Section 143(3) in respect of assessment year 2003-04 and 2004-05 and that the assessee has not furnished correct facts of its activities before the CIT(A). 2.2.4 On 17.4.2008, the assessee-petitioner was again asked to explain its position. Simultaneously, the Commissioner of Income-tax, Karnal, was asked to send his further report and specific comments as to whether the assesseepetitioner qualifies for grant of exemption under Section 10(23C)(vi) as also to intimate whether any appeal has been preferred against the order of the CIT (A). 2.2.5 On 21.4.2008, Commissioner of Income-tax, Karnal, again sent his report to the effect that the assessee-petitioner s case is of misapplication of funds for non-e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C)(vi) of the Act in respect of assessment years 2008-09, 2009-10 and 2010-11. The petitioner is an educational institution registered as Society under the Societies Registration Act, 1860. It has been running two schools. The main object of the petitioner-Society is to manage schools and to do such things as are incidental thereto. The petitioner-Society was granted exemption under Section 10(23C)(vi) of the Act in respect of assessment years 1999-2000 to 2001-02 and 2002-03 to 2004-05 vide orders dated 11.10.2006 and 5.5.2006 respectively. It is claimed that on 14.3.2005, the petitioner-Society applied for grant of exemption under Section 10(23C)(vi) of the Act in respect of assessment years 2005-06 to 2007-08 in the prescribed Form 56-D, however, no orders were passed on the aforementioned application. It has further been asserted that on 20.2.2008, the petitioner-Society filed application in Form 56D for grant of exemption under Section 10(23C)(vi) of the Act in respect of assessment year 2008-09 to 2010-11. On 16.10.2008, it filed information sought by the Chief Commissioner of Income Tax, Panchkula, while holding camp office held at Gurgaon on 14.10.2008. 2.3.2 The case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hkula, rejecting the application for grant of approval for exemption under Section 10(23C)(vi) of the Act in respect of assessment years 2008-09 onwards. The petitioner is a charitable Society established in 1981 and registered under the Societies Registration Act, 1860. It has been running a co-educational English Medium Public School upto +2 standard at Kurukshetra, which is affiliated to Central Board of School Education, New Delhi. The main object of the petitioner-Society is to educate the rural children with the latest and modern techniques of educational practices. The petitioner-Society was granted exemption under Section 10(23C)(vi) of the Act in respect of assessment years 2004-05 and 2005-06 to 2007-08 vide orders dated 4.9.2006 and 29.10.2007 respectively. It is claimed that the petitioner- Society s educational institution is existing solely for educational purposes and not for the purpose of profit. On 19.2.2008, the petitioner-Society applied for grant of exemption under Section 10(23C)(vi) of the Act in respect of assessment years 2008-09 onwards in the prescribed Form 56-D. 2.4.2 The case of the petitioner-Society was taken up by the Chief Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , reading rooms, or other centers of similar nature. The petitioner-Society s aim is to help, encourage and assist in spreading education for all classes of citizens of India and service to humanity. It has been running three schools for imparting education. The petitioner-Society was granted exemption under Section 10(23C)(vi) of the Act in respect of assessment years 2002-03 to 2004-05 and 2005-06 to 2007-08 vide orders dated 4.5.2006 and 30.5.2007 respectively. It is claimed that on 19.12.2007, the petitioner- Society applied for grant of exemption under Section 10(23C)(vi) of the Act in respect of assessment years 2008-09 to 2010-11 in the prescribed Form 56-D. A show cause notice dated 14.8.2008 was issued to the petitioner-Society. It was directed to furnish complete details of loan transactions and to clarify as to whether the funds of the institution have been invested in modes specified under Section 11(5) of the Act. The petitioner-Society was further required to explain the reasons for not filing the audit reports in Form 10BB in respect of assessment years 2006-07 to 2008-09 along with the return of income of these years. On 8.9.2008, the petitioner-Society furnished th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the funds of the Society for personal benefit, which is mis-application of the funds. 2.5.5 The Chief Commissioner then observed that during the financial year 2007-08, the petitioner-Society has sold its agricultural land measuring 2.75 acres to a builder for a sale consideration of ₹ 1.125 crores. The said piece of land was purchased for ₹ 22.54 lacs in November 2004 and development charges of approximately ₹ 15 lacs were incurred. Furthermore, during the financial year 2007-08, rent of ₹ 9,24,000/- was found to be debited. The explanation of the assessee in this regard is that a rent of ₹ 38,500/- per month each was being paid by the Society to Shri Ashok Sardana and Shri Ravi Kant, both trustees of the Society. 2.5.6 On the aforementioned two issues, it has been concluded that the petitioner-Society has alienated its property which was purchased earlier with the surplus funds of its educational institution. Though the land was purchased in the year 2004 for educational purposes, still no educational activity was done on the said land and sold for a huge profit of ₹ 87,51,681/- in the year 2008, on which amount also the petitioner-S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Form 56D in respect of assessment years 2008-09 onwards (P-4). However, when nothing was heard, the petitioner-Society again sent a letter dated 15.9.2008 and a request was made for processing of its application for exemption (P-5). On 16.10.2008, the office of the Commissioner of Income Tax, Hisar, intimated to the petitioner-Society that no application dated 15.3.2008 claiming exemption under Section 10(23C)(vi) was received by them. It was further mentioned in the said letter that it was not possible to submit the final accounts ending 31.3.2008 along with the application dated 15.3.2008 for exemption under Section 10(23C)(vi), claimed to have been sent under Postal Certificate on 19.3.2009. It was advised to send a fresh application for claiming exemption (P-6). 2.6.2 On 6.11.2008, the petitioner-Society again sent a communication to the Commissioner of Income Tax, Hisar, stating that they had sent the application under postal certificate. It was further submitted that in Form 56D, it is nowhere mentioned that final account ending 31.3.2008 was required to be sent. In fact, the petitioner-Society had only submitted audited accounts for the financial years 2004-05, 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree years. Even after reducing depreciation, the surplus/excess of income over expenditure in all these years is found to be quite high reaching upto 37.19% in the financial year 2007-08. The Chief Commissioner further noticed that the income and expenditure accounts of the petitioner Society for the aforementioned financial years shows that the surpluses/profits generated by the educational institutions cannot be regarded as merely incidental and the same are systematic and substantial. The Chief Commissioner after relying upon the judgment of the Uttrakhand High Court rendered in the case of M/s Queens Educational Society (supra) came to the conclusion that the petitioner-Society is consistently and systematically generating profits and surpluses year after year and merely because it is making some capital expenditure for the assets of the schools out of this income, is not enough to claim exemption. 2.6.5 The other ground for rejecting the claim of the petitioner-Society for grant of exemption is evident from perusal of para 15 of the impugned order. The Chief Commissioner has noticed that the petitioner-Society has advanced a loan of ₹ 1,08,680/- to Shri O.P. Joshi, P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income tax law prior to the consultation made by it with Shri S.K. Jain, Advocate in the month of March, 2008. The Commissioner of Income-tax, Hisar, submitted his report on the aforementioned application, vide letter dated 14.1.2009. Thereafter, the case of the petitioner-Society was fixed for hearing on 4.3.2009. On 26.2.2009, a notice was issued to the petitioner-Society to furnish its reply/explanation on the following issues:- (i) That it had made its application in Form No. 56 which is applicable for the grant of approval u/s 10(23C)(iv) and (v) and not for the grant of approval u/s 10(23C)(vi). Since it had not made the application in the prescribed form, it was asked to explain as to how it fulfilled the mandatory condition of making of application in the prescribed form as required by the 1st proviso of clause (23C) of section 10 of the Income Tax Act, 1961 and also to show cause as to why its applications may not be filed as invalid. (ii) That it had statedly filed its application in the office of the Commissioner of Income tax, Hisar on 31.3.2008 i.e. during the financial year 2007-08 relevant to the assessment year 2008-09 though in its letter dated 16.2.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2006-07. 2.7.4 On the issue of filing application under wrong form i.e. Form No. 56 instead of Form No. 56D, the Commissioner of Income Tax found the explanation of the petitioner-Society that the same was filed due to inadvertence, as insufficient and not acceptable. He then proceeded to consider the issue of filing of the application on 31.3.2008 i.e. during the financial year 2007-08 relevant to the assessment year 2008-09, whereas the exemption has been sought from the assessment years 2005-06 to 2008-09. After referring to the provisions of un-numbered 14th proviso to Section 10(23C) of the Act, it has been concluded that since the application has been filed after 31.5.2006 and during the financial year 2007-08, thus, it could be made only for the assessment year 2008-09 onwards and not for any earlier assessment years. According to the Chief Commissioner the aforementioned is a procedural and mandatory provision and applicable to all the applications filed on or after 1.6.2006. It has also been stated that there is no provision for condonation of delay. The submissions of the petitioner-Society regarding ignorance of the change of law did not find favour with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e funds of the assessee could be invested or deposited only in any one or more of the forms or modes specified in subsection (5) of Section 11 of the Act. However, in the present case, the advancement of loan of ₹ 2,50,000/- clearly violates the aforementioned provision. 2.7.7 Regarding non-furnishing of audit reports on Form No. 10BB for the assessment years 2006-07 and 2007-08, the petitioner-Society again took the plea of ignorance, which did not find favour with the Chief Commissioner of Income Tax. It has further been held that the Circular/instruction dated 9.2.1978 issued by the Central Board of Direct Taxes and judgments of High Court relied upon by the petitioner-Society are not applicable in the present case. 2.7.8 The Chief Commissioner also found that the educational institution being run by the petitioner-Society is generating substantial surplus year after year, which has ranged from 26.24% to 45.32% in the last three years. Even after reducing depreciation, the surplus/excess of income over expenditure in all these years is found to be quite high reaching upto 39.99% in the financial year 2007- 08. The Chief Commissioner noticed the income and expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as per requirements of the provisions of Section 10(23C)(vi) of the Act, it has applied for grant of exemption by filing an application in the prescribed Form 56-D along with its audited accounts for the years 2005, 2006 and 2007. 2.8.2 The case of the petitioner-Society was fixed for 20.1.2009 before the prescribed authority when judgment of the Uttarakhand High Court rendered in the cases of M/s Queens Educational Society (supra) was supplied and it was asked to explain how exemption could be granted to the petitioner-Society under Section 10(23C)(vi) of the Act. On 27.2.2009, the petitioner-Society furnished its detailed reply. 2.8.3 The Chief Commissioner of Income Tax, Amritsar, vide the impugned order dated 9.3.2009, rejected the claim of the petitioner-Society after taking into account its income and expenditure accounts for the assessment years 2006-07, 2007-08 and 2008-09. The Chief Commissioner found that during the financial years relevant to assessment years 2007-08 and 2008-09 the gross receipts of the petitioner-Society were more than ₹ 1 crore i.e. ₹ 1,09,86,530/- and ₹ 1,42,01,993/- respectively. It has also been noticed that the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been given recognition by the Central Board of Secondary Education, the Punjab School Education Board and the Panjab University. It has been asserted that the petitioner-Trust is not pursuing any specific religious course or classes in its institutions, which have been detailed in para 2 of the petition. On 31.5.2006, the petitioner-Trust applied for grant of exemption under Section 10(23C)(vi) of the Act in respect of assessment years 2000-01 and 2002- 03 by filing an application in the prescribed Form 56-D. 2.9.2 After perusal of the Deed of Trust, the prescribed authority found that the one of the objectives of the petitioner-Trust is Propagation of Sikh Tenets . Accordingly, a show cause notice dated 15.1.2009 was issued to explain as to why the claim of exemption under Section 10(23C)(vi) of the Act be not rejected as the petitioner-Trust is not existing solely for educational purposes but for propagation of Sikh tenets . The assessee-petitioner was also required to furnish the details of teachers and students in the category of Sikhs and Non- Sikhs in various school/colleges associated with it. On 25.2.2009, the petitioner-Trust filed its reply. 2.9.3 The Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a charitable educational trust engaged in educational activities since 23.8.1983. The petitioner-Trust has been constituted in pursuance of resolutions dated 16.3.1983 and 15.3.1983 passed by the Managing Committee of Guru Nanak Khalsa High School Gujarkhan, Ludhiana and Guru Nanak Education Society, Ludhiana, respectively. Before formation of the petitioner-Trust the institutions run by it were being managed by the Guru Nanak Education Society and management of Guru Nanak Khalsa High School. It is claimed that the petitioner-Trust is running five educational institutions at Ludhiana, which have been given recognition by the Central Board of Secondary Education, the Punjab School Education Board and the Panjab University. It has been asserted that the petitioner-Trust is not pursuing any specific religious course or classes in its institutions, which have been detailed in para 2 of the petition. On 31.3.2008, the petitioner-Trust applied for grant of exemption under Section 10(23C)(vi) of the Act in respect of assessment year 2008-09 by filing an application in the prescribed Form 56-D as its gross receipts exceeded the prescribed limit of ₹ 1 crore. 2.10.2 Since the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust Deed has been extracted, which reads thus: Any how, therefore, this trust has been constituted for the purpose essentially for provision of education, setting up for educational Institutions and also taking such steps as may be considered necessary by the Trust for Propagation of Sikh Tenets etc. and other charitable purpose as the trust may deem fit and necessary. 2.10.4 The Chief Commissioner has further observed that exemption under Section 10(23C)(vi) of the Act could not be granted to the petitioner-Trust because it is not running its institutions solely for educational purposes but also for religious purposes of propagation of Sikh tenets and accordingly rejected its claim. In that regard reliance has been placed on the judgments of Hon ble the Supreme Court rendered in the cases of Wood Papers Ltd. (supra) and Ashutosh Laahiri (supra); judgment of Rajasthan High Court in the case of Kota Co-operative Marketing Society Ltd. (supra); judgment of Calcutta High Court in the case of Sutna Stone Lime Co. Ltd. (supra); judgment of Kerala High Court in the case of USM Fernandez (supra); as also the Full Bench judgment of this Court rendered in the case of United Ricel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has been made on the land belonging to the Secretary and her husband without changing the ownership of the land. Accordingly, another show cause notice dated 16.3.2009 was issued as to why the exemption under Secton 10(23C)(vi) be not rejected on the ground of diversion of profits to the family members of the Secretary of the Society. On 23.3.2009, the petitioner-Society filed its written submissions. Upon consideration of the same, the Chief Commissioner in para 6 of the impugned order summed up that the lease deeds have been executed in such a manner so as to benefit the owners of the land and it is a case of diversion of profits. Thus, a finding has been returned that the petitioner-Society does not solely exist for purposes of education because profits are being diverted to others and ownership status of the buildings constructed by the petitioner-Society is not clear. The immovable property is being used for individual benefit of the office bearers of the petitioner-Society and their relatives. 2.11.5 While rejecting the claim of the petitioner-Society the Chief Commissioner also referred to the language of Section 10(23C)(vi) of the Act and placed reliance on the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Society for the last four years starting from the year ending on 31.3.2005 upto 31.3.2008 and found that the surpluses/profits generated by the educational institutions cannot be regarded as merely incidental and the same are systematic and substantial. The Chief Commissioner after relying upon the judgment of the Uttrakhand High Court rendered in the case of M/s Queens Educational Society (supra) came to the conclusion that the petitioner-Society is consistently and systematically generating profits and surpluses year after year and merely because it is making some capital expenditure for the assets of the schools out of this income, is not enough to claim exemption. Laying stress on the word solely , which appears in Section 10(23C)(vi) of the Act, the Chief Commissioner has given a finding that it cannot be said that the petitioner-Society and the educational institution run by it are existing solely for the purpose of education and not for the purpose of profit. 3. CONTENTIONS OF THE PETITIONERS 3.1 CWP No. 8135 of 2009 3.1.1 Mr. K.L. Goyal, learned Senior counsel for the petitioner has submitted that the impugned order passed by the Chief Commissioner suffers from fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of assessment years 1998-99 to 2000-01 and notification dated 13.12.2002 in respect of assessment year 2001-02 to 2003- 04. Learned counsel has further submitted that issuance of notification under Section 10(23C)(iv) of the Act would ipso facto be applicable to an university or educational institute because such an entity would be covered by the expression for 'charitable purpose/ institution' used in Section 2(15) and 2(16) of the Act. He has read out the definition of 'charitable purpose' given in Section 2(15) of the Act. 3.2.2 His second submission is that principles of consistency should be followed and for the last over 25 years the petitioner has been enjoying exemption accorded by Section 10(23C)(iv) of the Act. In that regard he has placed reliance on the observations made in para 8 by Hon'ble the Supreme Court in the case of Radhasoami Satsang v. CIT 1992(2) 193 ITR 321. The other submission made by Mr. Jain is that the petitioner is a society registered under the Societies Registration Act, 1860. It gives medical services to the residents of Jalandhar. So the minimum requirement to proceed against the petitionerinstitute would be the satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... looses exemption under Section 10(23C)(vi) of the Act then the donations received by it would remain uncovered by Section 80G(5) of the Act. According to the learned counsel donations would not be tax free in the hands of the donor. 3.3 CWP Nos. 9156 and 9517, 10738 of 2009 3.3.1 Mr. S.K.Mukhi, learned counsel has stated at the outset that he would adopt the arguments advanced by learned counsel in all the previous cases. Further, he has categorically advanced three arguments. His first submission is that accumulation of profit beyond 15 % have to be applied within the period of five years which would run from year to year. He has further submitted that the Chief Commissioner does not enjoy any power to delete exemption accorded to the salary of the teachers by the assessing authority. Attacking the impugned order dated 13.1.2009 passed by the Chief Commissioner (P-1) with CWP 10738 of 2009, learned counsel has submitted that the Chief Commissioner has unnecessarily delved into an area which is wholly within the domain of the Assessing Authority. He has drawn our attention to the observations made by the Chief Commissioner to the effect that the petitioner- assessee has paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty carried on by the educational institution, it will not cease to be one existing solely for educational purposes. In that regard reliance has been placed on para 29 of the judgment of Hon'ble the Supreme Court in American Hotel and Lodging Association's case (supra). The crucial test is the nature of the activity. She has also placed reliance on the judgment in the case of CIT (Addl.) v. Surat Art Silk Cloth Manufacturers Association, [1980] 121 ITR 1 (SC) where similar principles have been laid down. The requirement of the provision is that education must be pre-dominant subject of the object which would not loose its character merely because it has incidentally earned profits. She has again drawn our attention to concluding line of para 37 of the judgment to argue that excess/deficit of income over expenditure will not decide whether the applicant existed for profit or not. She has then made a reference to the speech of the Finance Minister published in [1998] 232 ITR 13 in support of her submission. 3.4.2 Placing reliance on the judgment of Hon'ble the Supreme Court in the case of S.R.M.M. CT.M.Tiruppani Trust v. CIT, [1998] 230 ITR 636, she has argued that even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 of the petition. 3.5.2 She has also made reference to para 10 of the order dated 3.11.2008 (P-5) showing that the petitioner society has earned capital gains from the sale of land and it cannot be considered to be accumulating profits for purposes other than the educational purposes. According to the learned counsel the amount has been kept in accordance with the provisions of Section 11(5) of the Act and therefore it could not be considered as mis-application of the income. 3.6 CWP No. 20574 of 2008 3.6.1 Ms. Suri has referred to paras 11,12 and 14 of the impugned order dated 30.9.2008 (P-8) and argued that the findings recorded by the Chief commission that the assets of the society can very easily be reverted back to the members of the society i.e. Shri Amrit Chand and his other family members is wholly mis-conceived. Referring to the memorandum of association of the society, learned counsel has submitted that the promoters of the society could invest and deal with its funds and money in securities or property could also lend or otherwise employment. According to the learned counsel the CLU charges are always borne by the society which is the lessee of Amrit Chand. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same are applied to the object of education. 3.8 CWP No. 4954 of 2009 3.8.1 In respect of this petition, Mr. Ravi Shankar has submitted that there has been excessive surplus as is evident from the document Annexure P-6 and the application for exemption could not have been rejected on that account alone. 3.9 CWP No. 8981 of 2009 3.9.1 Mr. Akshay Bhan, learned counsel for the petitioner has argued that the application of the petitioner for exemption was rejected on a misplaced belief that capital expenditure incurred by the petitioner has not been included in the application of funds to the object of education. According to the learned counsel the whole capital expenditure is on the items which are devoted to the advancement of education. 4. CONTENTIONS OF THE REVENUE 4.1 Mr. S.K. Garg Narwana, Ms. Urvashi Dhugga, Mr. Rajesh Sethi and Mr. Vivek Sethi, learned counsel for the revenue have vehemently argued and have supported the orders passed by the Chief Commissioners of Income Tax. All of them have advanced the same arguments which have been advanced in Pinegrove International Charitable Trust s case (supra). 5. After hearing learned counsel for the parties and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cter of the recipient of income, viz, whether it had the character of educational institution in India, its character outside India was irrelevant for deciding whether its income would be exempt under Section 10(22). 27. The moot question in Section 10(22) was - whether the activities of the applicant came within the definition of income of educational institution . Under Section 10(22) one had to closely analyse the activities of the Institute, the objects of the Institute and its source of income and its utilization. Even if one of the objects enabled the Institute to undertake commercial activity, the institute would not be entitled to approval under Section 10(22). The said section inter alia excludes the income of the educational institute from the Total Income. 6.4 A 5-Judge Constitution Bench in the case of CIT (Addl.) v. Surat Art Silk Cloth Manufacturers Association, [1980] 121 ITR 1 (SC), has held that the test of pre-dominant object of the activity is to be seen whether an institution exists solely for education and not to earn profit. Likewise, in Aditanar Educa- tional Institution s case (supra) the test laid down is to find out the nature of activity. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Association s case (supra). The aforesaid principles have been summed up as under:- 8.13 From the aforesaid discussion, the following principles of law can be summed up:- (1) It is obligatory on the part of the Chief Commissioner of Income Tax or the Director, which are the prescribed authorities, to comply with proviso thirteen (unnumbered). Accordingly, it has to be ascertained whether the educational institution has been applying its profit wholly and exclusively to the object for which the institution is established. Merely because an institution has earned profit would not be deciding factor to conclude that the educational institution exists for profit. (2) The provisions of Section 10(23C)(vi) of the Act are analogues to the erstwhile Section 10(22) of the Act, as has been laid down by Hon ble the Supreme Court in the case of American Hotel and Lodging Association (supra). To decide the entitlement of an institution for exemption under Section 10(23C)(vi) of the Act, the test of predominant object of the activity has to be applied by posing the question whether it exists solely for education and not to earn profit [See 5-Judges Constitution Bench judgment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re are various reasons, which have been discussed in para 8.8 of the judgment, and the judgment of Allahabad High Court rendered in the case of City Montessori School (supra) lays down the correct law. (emphasis added) 5.3 When the facts of the various cases are examined in the light of the above discussion, the first thing which becomes evident is that capital assets acquired/constructed by the educational institutions have been treated as income in a blanket manner without recording any finding whether the capital assets have been applied and utilised to advance the purpose of education. It is obligatory on the part of the prescribed authority while considering the application for grant of exemption, whether expenditure incurred as capital investment is on the object of education or not. It is appropriate to mention that in all these cases, the impugned orders passed by the Chief Commissioners of Income Tax are similar in substance and appears to have been inspired by the view taken by the Uttrakhand High Court in the case of M/s Queens Educational Society (supra), which we have not accepted in the main judgment rendered today in the case of Pinegrove International Charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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