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2015 (8) TMI 848 - PUNJAB & HARYANA HIGH COURT

2015 (8) TMI 848 - PUNJAB & HARYANA HIGH COURT - [2015] 376 ITR 110 (P&H) - Exemption under Section 10(23C)(vi) denied - Whether an educational institution would cease to exist 'solely' for educational purposes and not for purposes of profit merely because it has generated surplus income over a period of 4/5 years after meeting its expenditure? - Held that:- The impugned order cannot be justified solely on the ground that in view of a clause which provided that the Trust could run a business, it .....

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e (i). It is also a matter of fact, as noticed, now that the trust has already also deleted the objectionable clause and which has also been noticed in the subsequent assessment made in the assessment order dated 21.12.2012 for the year 2010-11. - Decided in favour of assessee. - CWP No. 24895 of 2014 - Dated:- 6-7-2015 - S J Vazifdar, ACJ And G S Sandhawalia, JJ. For the Appellant : Mr Sanjay Bansal, Sr. Adv., with Mr B M Monga, Adv. and and Mr Yash Paul Goyal, Adv. For the Respondent : Ms Savi .....

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tioner- Trust had an intention to carry out business activity which was not permissible for charitable organizations. The trustees were in place for the whole duration of their life and it gave the organization a look and character of a private body rather than a charitable organization and the objectives were not related to the promotion of education and the educational trust did not exist solely for educational purposes. The petitioner's case is that the Trust is registered under the Socie .....

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for and a detailed reply was filed clarifying each and every issue and an opportunity of hearing was afforded by respondent no. 1, who rejected the claim on untenable grounds. In the written statement filed on behalf of the respondents, plea taken was that the education institution is to exist "solely for educational purposes" and if the institution existed for other purposes, the exemption could not be granted and reliance was placed upon the provisions of Section 10(23C)(vi) of the A .....

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uot;and any other business as decided by the trustees" had been deleted. The said fact had also been noticed in a subsequent assessment made on 21.12.2012 (Annexure P-9). Counsel for the petitioner has thus submitted that merely because there was a clause in the trust deed which provided that the Trust could carry on other business would not mean that there was an absolute bar for consideration of the benefit under Section 10(23C)(vi) of the Act once the predominant purpose and objects of t .....

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objectives which were not related to the charitable purposes, no fault could be found in the decision of respondent no. 1. The objectionable clause which was part of the trust deed was clause (i) which provided that one of the objects of the trust was "to carry on other business as decided by the trustees". On the strength of the said clause, as noticed above, the impugned order has been passed against the petitionertrust on the strength of the provisions that the trust did not exist s .....

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use (iiiad) of Section 10(23C) of the Act. The relevant provisions read thus:- "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included xxx xxx xxx (23C) any income received by any person on behalf of xxx xxx xxx (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit , which is wholly or substantially financed by the Government; or .....

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ich may be approved by the prescribed authority;" The said provisions were discussed in a threadbare manner by the Division Bench of this Court in Pine Grove's case (supra) wherein, exemption granted had been withdrawn on the ground that the educational institutions being run were for generating profits and did not exist solely for educational purpose. While issuing show cause notice, the authorities had placed reliance upon the judgment of the Uttrakhand High Court in CIT vs. Queen' .....

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ntitled to exemption under Section 10(23C) (vi)of the Act? (C) Whether an institution registered as a Society under the Societies Registration Act,1860,loses its character as an educational institution, eligible to apply for exemption under Section 10(23C)(vi)of the Act?" Question no. (A) as to whether the education institution cease to exist solely for educational purposes was answered in favour of the institutions by holding that the predominant object of the activity is to be taken into .....

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ich are registered, the society would retain their character as such and they would be eligible to apply for exemption. The relevant observations read thus:- "(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 (un-numbered). Accordingly, it has to be ascertained whether the educational institution has been applying its profit wholly and exclusively to the object for which the institu .....

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minant 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 case of Surat Art Silk Cloth Manufacturers Association (supra)]. It has to be borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. A workable solution has been provide .....

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ter the Assessing Authority may ensure compliance of those conditions. The cases where exemption has been granted earlier and the assessments are complete with the finding that there is no contravention of the statutory provisions, need not be reopened. However, after grant of approval if it comes to the notice of the prescribed authority that the conditions on which approval was given, have been violated or the circumstances mentioned in 13th proviso exists, then by following the procedure envi .....

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(supra)]. Accordingly, the orders passed withdrawing the exemptions were quashed with liberty to pass fresh orders. The said view has been specifically approved by the Apex Court in Queen's Educational Society's case (supra) and the judgment of the Uttrakhand High Court has been reversed. The Apex Court has accordingly discussed the predominant objects of the educational institution and whether it exists solely for educational purposes and not for the purposes of profit. Accordingly, co .....

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ot lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activ .....

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Lodging Association (supra) and keeping in view the provisos of the sections in mind especially 13th proviso which provided that after giving a reasonable opportunity, the approval granted to the trust could be withdrawn if it is found that the activities are not genuine or in accordance with any of the conditions, there could be a conditional approval subject to the monitoring. The relevant observations read thus:- "25. We approve the judgments of the Punjab and Haryana, Delhi and Bombay H .....

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tests which have been culled out in the three Supreme Court judgments stated above, namely, Surat Art Silk Cloth, Aditanar, and American Hotel and Lodging, would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit. In addition, we hasten to add that the 13th proviso to Section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such instit .....

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orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C) read with Section 11 of the Income Tax Act." In the present case, under the second proviso, the authority was to call for documents including audited annual accounts from the trust and in order to satisfy itself about the genuineness of the activities of the trust, the inquiries had to be made. The objects of the petitioner-trust read thus:- "2. OBJECTS OF THE TRU .....

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ies for the benefit of the students community. (c) To institute and award scholarships in India for the study, research and apprenticeship for all or any of the aforesaid educational purpose. (d) To establish, maintain, run, develop, improve, extend, grant donations for and to aid and assist in the establishment maintenance, running, development, improvement and extension of hospitals, clinics, XRay plants, dispensaries, maternity houses, recreating centres and all similar institutions as will a .....

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ivities. (g) To provide food, shelter, clothing, medical care and education for the needy. (h) To provide assistant to best players and also to promote various sports by organizing tournaments in the interest of the Public. (i) To carry out other business as decided by the Trustees." It is not disputed that the school as such is also affiliated with the Central Board of Secondary Education, New Delhi and has also been granted registration under Section 12-A w.e.f. 15.07.1997. Merely because .....

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t was not that respondent no. 1 came to the conclusion that the Trust was doing some other business and the said business was generating substantial amounts which would over ride the main objects of the trust which have been reproduced above which pertain mainly to the cause of education. Keeping in view the principles which have been discussed regarding the words 'solely for educational purposes and of generating profit', we are of the opinion that in the absence of any such finding tha .....

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s read thus:- "33. Having analysed the provisos to Section 10 (23C)(vi) one finds that there is a difference between stipulation of conditions and compliance thereof. The threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standardized form in terms of the first proviso. It is only if the pre-requisite condition of actual existence of the educational institution is fulfil .....

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ns in the third proviso like application/utilization of income, pattern of investments to be made etc. could be stipulated as conditions by the PA subject to which approval could be granted. For example, in marginal cases like the present case, where appellant-Institute was given exemption up to financial year ending 31.3.1998 (assessment year 1998-99) and where an application is made on 7.4.1999, within seven days of the new dispensation coming into force, the PA can grant approval subject to s .....

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nt with Government of India/National Council. In this case, broadly the activities undertaken by the appellant are - conducting classical education by providing course materials, designing courses, conducting exams, granting diplomas, supervising exams, all under the terms of an Agreement entered into with Institutions of the Government of India. Similarly, the PA may grant approvals on such terms and conditions as it deems fit in case where the Institute applies for initial approval for the fir .....

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