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TMI Blog2010 (1) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... usly gone into the observation made by the Chief CIT, Lucknow in the proceedings under s. 10(23C) in the case of the 'appellant' without even considering the clarification and submission made before him during the course of proceedings under s. 12AA and also the submission made before the learned Chief CIT, Lucknow. 4. Because the observations made by the Chief CIT, Lucknow in his order dt. 31st Jan., 2008, refusing the approval under s. 10(23C) to the 'appellant', are wholly divorced from the facts and such an observation and finding cannot be held to be relevant for the purpose of granting registration under s. 12AA. 5. Because at the time of granting registration under s. 12AA 'CIT' is required to examine the objects of the appellant society and the genuineness of the activities carried on by it in pursuance to such objects, which he has failed to do so in the present case and has gone into extraneous consideration and irrelevant facts. 6. Because in any case, observation regarding expenditure of ₹ 48 lakhs debited under the head 'Infrastructure' that it is only a provision and not actual expenditure, relates to application of income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acilities. (ix) To run production-cum-training centres, consultancy units and similar activities for betterment of education. 3.3 Since its inception, the society has been running an institution by the name of Feroze Gandhi Polytechnic to conduct three years diploma course in technical education and other related spheres. The said institution was aided fully by the State Government. In order to expand its activities in the field of technical education through four years degree course in engineering, the appellant society had resolved to set up another educational institution under the name and style of Feroze Gandhi Institute of Engineering and Technology (FGIET) on self-finance basis (without any financial aid from the Governments, State or Central). 3.4 The said newly set up institution, hereinafter referred to as FGIET, after obtaining due approval from All India Council of Technical Education (AICTE), New Delhi and getting affiliated with UP Technical University (UPTU), Lucknow, started its first academic session in the year 2004-05. For the reason that, by that time, it could not set up its own infrastructure/building and class rooms etc., the infrastructural and other fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable to him. He, therefore, concluded that : "On the facts and circumstances, it has to be held that the surpluses worked out in the income and expenditure statements as on 31st March, 2005 and 31st March, 2006, as reflected in para 4 on p. 2 of this order, have been deliberately understated by false debit entries in the name of non-existent expenses to the extent of ₹ 12 lakhs and ₹ 48 lakhs respectively. The position of actual total surplus in the two financial years under consideration, therefore, comes to ₹ 80.98 lakhs (Rs. 22.98 lakhs + ₹ 60 lakhs), which is simply a huge amount with reference to gross receipt of ₹ 1.81 crores. It is, therefore, not possible to hold that the assessee association is running an educational institution which is existing solely for educational purposes and not for purposes of profit within the meaning of s. 10(23C)(vi) of the IT Act. The object appears to be clearly to make profits. The assessee fails on the decisive test laid down by the Hon'ble Supreme Court in the case of Aditanar Educational Institution Etc. vs. Addl. CIT (1997) 139 CTR (SC) 7: (1997) 224 ITR 310(SC), 318 as referred to in para 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospital or other medical institution referred to in sub-cl. (iv) or sub-cl. (v) or sub-cl. (vi) or sub-cl. (via)' (a) applies its income or accumulates it for application wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years; and 20. That merely because the petitioner could not make available the precise details of the expenditure on creating infrastructure, as was proposed to be created for which provision of sums aggregating ₹ 60 lakhs appeared in the balance sheet as at 31st March, 2005 and 31st March, 2006, the respondent could not have been held validly that the surplus revealed by the income and expenditure account had been under-stated to that extent. This was more so for the reason that the time-limit for passing the order on the petitioner's application in the prescribed form was due to expire on 31st Jan., 2008 and the enquiries were made by him by the letter dt. 25th Jan., 2008 and the dates fixed for complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not identified by society itself. Hence the entire working is nothing but an attempt to mask the surplus by jacking up the expenditure and accordingly for this very reason such wrong entries were reflected in the balance sheet in the respective year and therefore the contention of petitioner that said provision was referable to the accumulation of the income is not correct and the same is false. The entire exercise was made to reduce the surplus (excess of income over expenditure) and inflate the expenditure so that the same exceeds 85 per cent of income. That the contents of para 22 of the writ petition as stated are false and therefore denied. It is further submitted that the exemption under s. 10(23C)(vi) is granted separately for each and every assessment year. Hence it is not relevant that the provisions of earlier years were actually utilized in subsequent years. Therefore, there remains no doubt that in the assessment years under consideration the institution was not existing solely for educational purposes but for the purposes of profit." 3.9 The assessee has since filed a "rejoinder" (copy of which appears at pp. 75 to 85 of the paper book) and the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emently opposes the contents of latter part of para 10 of 'CA' which starts from '....the society has debited ₹ 12 lakhs and ₹ 48 lakhs respectively for future expenses, which were not identified by society itself. Hence the entire working is nothing but an attempt to make the surplus by jacking up the expenditure and accordingly for this very reason such wrong entries were reflected in the balance sheet in the respective year and therefore the contention of petitioner that said provision was referable to the accumulation of the income is not correct and same is false. The entire exercise was made to reduce the surplus (excess of income over expenditure) and inflate the expenditure so that the same exceeds 85 per cent of income.' As per specific provisions contained in third proviso appearing below cl. (via) of s. 10(23C) as has been reproduced in para 19 of the writ petition, accumulation exceeding 15 per cent of income is required to be utilized within a period of next five years, from the end of the year in which such accumulation has been made. From this it follows that accumulation of ₹ 12 lakhs was required to be utilized by the financial yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent in para 11 of the 'CA' reading as' 11...............Hence it is not relevant that the provisions of earlier were actually in subsequent years.' utilization has actually been made in the subsequent assessment year (falling within the period of five years from the end of the financial years in which the provisions had been made). Such a 'utilization' goes to support the substance behind the entries made in the financial records for the years ending on 31st March, 2005 and 31st March, 2006 respectively. By way of further reply, the contents of paras 16 and 17 of this rejoinder-affidavit, which is reply to para 10 of 'CA' are referred to and relied upon." 3.10 Therefore, in the said "rejoinder-affidavit" it has been explained that the provisions for sums aggregating ₹ 60,00,000 had been fully utilized in construction of its own building by FGIET, which has formally been dedicated for the purposes of education as early as on 16th Oct., 2007 and such a utilization is as per the specific provisions contained in the proviso appearing below cl. (via) of s. 10(23C) [which covers cl. (vi) also], is related to education institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009, reads as under : Prior to amendment "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. After the amendment "2(15) 'charitable purposes' includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object or general public utility : Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce, or business, for a cess or fee or any other consideration, irrespective of nature of use or application or retention, of the income from such activity." (Emphasis, italicizied in print, provided) 5.2 It was further submitted that since the Revenue has accepted that the society is carrying on the educational activities and definition given under s. 2(15) that impa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-s. (2) of s. 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (c) (***) (2) Where an application has been made on or after the 1st day of June, 2007, the provisions of ss. 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made. 12AA. Procedure for registration.'(1) The CIT, on receipt of an application for registration of a trust or institution made under cl. (a) or cl. (aa) of sub-s. (1) of s. 12A, shall' (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llege offering courses in different disciplines of engineering". This finding of the CIT proves beyond doubt that the appellant is an institution which is imparting education, which, as defined in s. 2(15) of the Act is of charitable nature. Drawing our attention to these findings recorded by the learned CIT, the learned Authorised Representative further submitted that in view of these facts the CIT was not justified in rejecting the assessee's claim. 5.6 In support of this contention, reliance was placed upon the decision of Hon'ble Allahabad High Court in the case of CIT vs. Red Rose School (2007) 212 CTR (All) 394, the decision of the Hon'ble apex Court in the case of CIT vs. Gujarat Maritime Board (2008) 214 CTR (SC) 81: (2008) 1 DTR (SC) 1: (2007) 295 ITR 561(SC). 5.7 The learned Authorised Representative further objected to the findings of the CIT, wherein he has stated that the institution run by the appellant society cannot be said to be run for "charitable purposes" but the same is being run on "commercial lines" and for the "purposes of profit", which disentitles it for registration under s. 12A of the Act. 5.8 It was cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1,11,87,490 as is clear from the audited statement of accounts for these years, which form part of the paper book as also the "returns" filed by the appellant for the asst. yrs. 2007-08 and 2008-09 (which are available on record, as per the information given by the counsel for the appellant and not rebutted by the learned Departmental Representative). 5.12 In support of the submissions that when "surplus" has been utilized solely for the purposes of educational activities, the concerned society/institution cannot be said to be existing "for the purposes of profit" but has to be held to be existing for the "purposes of education" only, the learned counsel for the appellant referred to and relied upon a synopsis of case law, namely : (i) Secondary Board of Education Orissa vs. ITO (1972) 86 ITR 408 (Ori); (ii) Aditanar Educational Institution Etc. vs. Addl. CIT (1997) 139 CTR (SC) 7: (1997) 224 ITR 310(SC); affirming the Madras High Court judgment reported in Addl. CIT vs. Aditanar Educational Institution (1979) 118 ITR 235 (Mad); (iii) Educational Institute of American Hotel & Motel Association, In re (1996) 132 CTR (AAR) 40 : (1996 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition of "charitable purposes", the fact remains, that the said educational institution is being run on "commercial lines" as a result of which huge surplus got generated. Therefore, the institution run by the appellant society is existing for the "purpose of profit" and not for the "purposes of education" and its claim for registration under s. 12A had rightly been rejected by the learned CIT. In support of this contention, he referred to and relied upon various case law as are cited hereinbelow : (i) CIT vs. National Institute of Aeronautical Engineering Educational Society (2009) 226 CTR (Uttarakhand) 582 : (2009) 26 DTR (Uttarakhand) 193 : (2009) 315 ITR 428 (Uttarakhand); (ii) Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC); (iii) Kirti Chand Tarawati Charitable Trust vs. Director of IT (Exemption) & Ors. (1999) 152 CTR (Del) 322 : (1998) 232 ITR 11 (Del); (iv) Sri Marudhar Kesari Sthanakwasi Jain Yadgar Samiti Trust vs. Union of India & Anr. (2003) 185 CTR (Raj) 674: (2005) 273 ITR 475(Raj). 6.1 The learned Departmental Representative extensively referred to the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oul of the expression. Mere trade or commerce in the name of education cannot be said to be charitable purpose. And the CIT has to satisfy himself as provided under s. 12AA of the Act before allowing the registration. The question of law stands answered. For the reasons as discussed above, the appeal is allowed. The impugned order dt. 12th Aug., 2005, passed by the Tribunal, Delhi Bench "D" New Delhi in ITA No. 4278/Del/2004 is hereby set aside. The order dt. 14th Sept., 2004 passed by the CIT, Dehradun, is restored." (pp. 432 and 435) 6.3 The learned Departmental Representative further submitted that after registration is granted by the CIT under s. 12A, such registration is conclusive and the assessee concerned gets a special treatment in relation to its income, as the same can be taxed only in accordance with the provisions contained in ss. 11 to 13 of the IT Act. As registration once granted has very far reaching effect, the CIT has to be necessarily very circumspect at the time of granting registration. 6.4 For definition of the term "charitable purposes" he also referred to the decision of the five Judge Bench of the Hon'ble apex Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construction of its own infrastructure/building as was required for the purposes of imparting education (through four-years degree courses in the sphere of technical education). It has been demonstrated here that requirement of having its own infrastructure has been fulfilled in the succeeding years and the "surplus" revealed in the financial years 2004-05 and 2005-06 has been utilized, rather overwhelmingly in the construction of building meant for educational purposes. Therefore presence of profit in the present case in financial years 2004-05 and 2005-06 cannot be treated as disqualification. Thus, the appellant's case was distinguishable on facts with the case of NIAEE Society (supra). 7.1 He further pointed out that in the case of NIAEE Society (supra), their Lordships have not expressed any dissent from the decision of Hon'ble Allahabad High Court in the case of Red Rose School (supra), even after referring to the same. From all this, it follows that the decision in the case of Red Rose School (supra) continues to be a good law even as per the decision of Hon'ble Uttarakhand High Court in the case of NIAEE Society (supra). In any case the test of &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all applicable to the facts of the present case. Further, the rule of "following a precedence" requires that observations made in a decision should be understood in the light of question (before the Court) and it is not divorced from the context. Reliance in this respect was placed on the decision of Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209: (1992) 198 ITR 297(SC) and with reference to the ratio of the case, he submitted that the matter be decided on the basis of facts of the present case and law applicable thereto, which are overwhelmingly in favour of the appellant. 7.4 Finally, he contended that the issues like presence of income and/or application thereof, are the assessment related matters and the same are not enquired into at the time of granting registration under s. 12A by the CIT. Reliance was again placed by him on the decision of Hon'ble Allahabad High Court in the case of Red Rose School (supra). 8. We have considered the rival submissions, perused the material on record information available on record that has been placed before us in the form of paper book as submitted on behalf of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2008, the appellant applied for registration under s. 12A, by filing an application before the CIT, Faizabad on 26th Dec., 2008, effective from the financial year 2004-05 (when FGIET commenced its degree courses); (j) during the course of proceedings for registration, and in response to the specific queries raised by the learned CIT, the appellant filed a detailed 'resume' of its activities duly supported by relevant documentary evidences, as per letter dt. 27th Jan., 2009 which is reproduced hereunder : "The Hon'ble CIT, Faizabad Sub : Request for registration under s. 12AA of the IT Act, 1961 in the case of Raebareily Polytechnic Association, Feroz Gandhi Polytechnic Campus, Raebareilly. Reference : FN 58-59/118/CIT/Faizabad/2008-09, dt. 26th Dec., 2008 Respected Sir, With reference to the aforesaid letter dt. 26th Dec., 2008, the desired informations and details are given here as under : (1) The Raebareily Polytechnic Association was formed in the year 1975-76 under Societies Registration Act, 1980 with the sole objective of establishing institutions at Raebareli to impart agricultural, technical, vocational and industrial technology and other all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the application as filed by the society. (8) That the society has not received any donation from any institution or from any individual as such its details are not 'desired to be furnished. (9) That the society is maintaining one current and one savings bank account with Bank of Baroda, Raebareli. The bank accounts are produced herewith for your examination. (10) That the cash book, ledger etc. for the last three years are produced herewith for your perusal and examination. (11) That the applicant society is also furnishing herewith the following informations/documents which may help your goodself in granting the registration under s. 12AA of the IT Act, 1961.' (a) The break-up of course-wise statement of students as on 31st March, 2008. (b) Complete details of teaching staff, their academic qualifications and details of remuneration as paid/payable to the employees. (c) The proofs regarding grant of recognition for running the course of computer engineering, electronic and communication and mechanical engineering by UPTU and AICTE. (d) Proof regarding diploma courses run by the same society from the year 1975. (12) That this society has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 31st Jan., 2008 whereby the assessee's request for approval under s. 10(23c)(vi) had been denied. The relevant part of the order of the CIT reads as under : "3. The society is engaged in running an educational institution at Raebareilly. This activity is centred on the running of an engineering college offering courses in different disciplines of engineering. 4.1 Registration under s. 12A once granted has the effect of according special treatment to the income of the institution registered in as much as taxation of such income can only be in accordance with ss. 11 to 13 of the IT Act. 4.2 To qualify for such special treatment the institution has to fulfil a dual test viz. it should have been established for a charitable object and it must be genuinely engaged in charitable activities. 4.2 First of all, therefore, the evidence brought on record by the applicant needs to be examined in light of the above. For the three years/or which accounts have been attached the number of students, tuition fee received and excess of income over expenditure is as under : Financial year Number of students Fees received (Rs. in lakhs) Excess of income over expenditure (Rs. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings also, the applicant society is required to conjunctively fulfil the statutorily prescribed conditions of its objects being charitable and its activities being genuinely charitable. As has been discussed above, the accounts of the applicant show quite clearly that the educational institution is being run not for a charitable purpose but for purposes of making profit. 8. The second peculiar aspect of the case is that the society had obtained approval under s. 80G(5) by order of 5th April, 2007 effective from 1st April, 2007 to 31st March, 2009. However, it did not obtain registration under s. 12AA of the Act. Such approval cannot be the deciding factor in the present proceedings. Neither can it be argued that the grant of such approval presumes registration under s. 12A. On the contrary, it can be considered whether grant of approval under s. 80G(5) in the absence of registration under s. 12A makes such approval faulty and liable for being withdrawn. In the present proceedings for registration which are based upon application of the institution this debate is purely academic. This question will be taken up while considering the application for renewal of approval under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given in s. 2(15) of the Act or not and secondly that the activities being carried on or are to be carried on are genuine i.e., are for achieving the objects, for which he can make enquiries, as are necessary. However, his discretion to make "such enquiries as he may deem necessary" is also limited to satisfy himself about the "genuineness of the activities of the trust or institution", as stands clarified by the phrase "in this behalf" appearing in the said clause itself. Presence of surplus as a result of such activities and whether exemption under s. 11 can become available to such surplus, are the subject-matter of assessment i.e., it is the AO who is required to examine at the time of making assessment such issues. The CIT at the time of granting registration under s. 12A, is not required to go into these aspects. 8.5(i) In view of the above analysis of the provisions of s. 12A/12AA, we are of the opinion that the assessee's case is squarely covered by the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Red Rose School (supra), as has rightly been pointed out by the learned counsel for the appellant. To make the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly would mean, they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution. This is more evident if we see the provision of s. 11, which while exempting the income given in its various sub-clauses from being included in the total income of the previous year of the person in receipt of the income, for example, in sub-cl. (1) says income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property. 22. The aforesaid provision thus, clarifies that all that income, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son of the previous year in which it is so applied or ceases to be accumulated or set apart or ceases to remain so invested or deposited or credited or paid or as the case may be, of the previous year immediately following the expiry of the period aforesaid." (pp. 404 and 405) (ii) So far as the decision of Hon'ble Uttarakhand High Court in the case of CIT vs. National Institute of Aeronautical Engineering Educational Society (supra), which has been very heavily relied upon by the learned Departmental Representative is concerned, we, after having gone through the said decision, are of the opinion that the Hon'ble Uttarakhand High Court has expressed full concurrence with the decision in the case of Red Rose School (supra) as may be seen from the following passage from p. 432 of the said Report : "Next case relied on behalf of the respondent is CIT vs. Red Rose School (2007) 212 CTR (All) 394: (2007) 163 Taxman 19(All), in which the Division Bench of the Allahabad High Court has observed as under (p. 432) : 'On being satisfied about the genuineness of the activities of the trust or the institution and also about its objects, the CIT would either grant the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accounts of the previous years after the society got registered with the Asstt. Registrar, Firms, Societies and Chits. The CIT, after considering the record before him, has observed that the society (present respondent) is charging substantial fees from the students and making huge profits. After considering the submissions of the learned counsel for the parties, we are of the view that mere imparting education for primary purpose of earning profits cannot be said to be a charitable activity. We are of the firm view that in the expression 'charitable purpose', 'charity' is the soul of the expression. Mere trade or commerce in the name of education cannot be said to be a charitable purpose. And the CIT has to satisfy himself as provided under s. 12AA of the Act before allowing the registration. The question of law stands answered." 8.6(i) In view of the said decision, the issue which is required to be decided by us is as to what is meant by the phrases "charitable purposes" and "for the purposes of profit" and what is the effect of the interpretation of the said phrases on the appellant's claim for registration under s. 12A of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. The definition is also relevant for the purposes of s. 80G which deals with one of the deductions permissible in the computation of one's assessable income. Charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. The last para of s. 4(3) of the 1922 Act defined this expression as follows : this clause, 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.' The ten restrictive words at the end 'not involving the carrying on of any activity for profit' were inserted when the 1961 Act was enacted. The scope and effect of these restrictive words is discussed post. However, the Finance Act, 1983, w.e.f. 1st April, 1984 has omitted the last ten words 'not involving the carrying of any activity for profit', thereby restoring the pre'1962 definition in the statute. But this has been done not with a view to include in the definition even purposes involving the carrying on of activity for profits and thus making the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility" and in the presence of ten words "not involving the carrying on of any activity for profit", as occurring at the end of s. 2(15) at the relevant time. Suffice it to say that the said ten words have been omitted and in the present case we are dealing with an educational institution which itself is governed by the meaning of term "charitable purposes" and we are not dealing with the interpretation of "any other objects of general public utility". It has also been held by us in earlier part of this order that proviso inserted below s. 2(15) by the Finance Act, 2008 effective from 1st April, 2009, also does not cover educational institution but covers the institution set up with "any other objects of general public utility" which is an altogether different sphere than education. 8.6 So far as the decisions relied upon by the learned senior Departmental Representative are concerned, he has relied upon the decision of Hon'ble Delhi High Court in the case of Kirti Chand Tarawati Charitable Trust vs. Director of IT (Exemption) & Ors. (supra) and the decision of Hon'ble Rajasthan High Court in the case of Sri Marudhar Kesari Sthan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contrary is liable to be rejected and therefore, rejection of assessee's claim of registration on this ground was illegal and bad in law. 8.10 The term "for the purposes of profit" also appeared in s. 10(22) of the Act, which prior to its omission by Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999 read as under : "any income of a university or other educational institution existing solely for educational purposes and not for purposes of profit." and the said phraseology has been incorporated in cl. (vi) of s. 10(23C) which has been brought on the statute book by the very same Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999. In the context of s. 10(22) the phrase "for the purposes of profit" came up for consideration in large number of case law, as have been referred to and relied upon by the learned Authorised Representative for the assessee also which have been listed by us in earlier part of this order. 8.11 From those case law, it is clear that there is a judicial consensus to the effect that an educational institution cannot be said to be existing "for the purposes of profit" if surplus earned by it from educational and othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to be existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity. The following decisions are relevant in this context : Governing Body of Rangaraya Medical College vs. ITO (1979) 117 ITR 284(AP) and Secondary Board of Education Orissa vs. ITO (1972) 86 ITR 408(Ori). We make this position clear in order to allay the apprehensions expressed by counsel." (p. 318) (iii) Educational Institute of American Hotel & Motel Associatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisted solely for that purpose during the relevant years despite the permissive amplitude of its objects clause since it had not embarked upon any other activity. It was an admitted fact that the surplus was used only for the purposes of the educational institution. The profits of the trust were not distributed. The Tribunal was correct in holding that the trust was entitled to exemption under s. 10(2). No question of law arose from its order" (see pp. 298, II. 299. A.D). (vii) Shanti Devi Progressive Education Society vs. Asstt. Director of IT (supra)'"Sec. 10(22) of the IT Act, 1961'Exemptions'University/ educational institutions'Asst. yr. 1993-94'Assessee society, running two schools was granted exemption under s. 10(22) till asst. yr. 1992-93'Exemption was denied for asst. yr. 1993-94 on ground that it was collecting admission fee, donation and loans and thus had been a society for profit and not solely for educational purposes. Whether since assessee had been doing these activities right from beginning and same was within powers given in memorandum, there was no reason to object to such collections'Held, yes'Whether since provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession being wider and broader than the latter." Presuming without conceding, that some income has been earned by the appellant institution where depreciation has been claimed as long as it is established that the income has been earned by the institution which exists solely for 'educational purposes and not for purposes of profit, any income of that educational institution will be exempt. After all, what are the ingredients of section of the IT Act, 1961. Firstly, there should be 'any income'. Secondly, that income should be of any university or other educational institution. Thirdly, educational institution should exist solely for educational purposes and fourthly, educational institution should not exist for purposes of profit. In view of the aforesaid discussion and in view of the voluminous material placed before us, we are of the opinion that we are concerned with the income of the appellant-educational institution, which does exist solely for educational purposes, and not for purposes of profit. There is another angle which is quite significant. The angle is that in section 'profit' has been used in a particular sense. If the surplus fund had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Red Rose School (supra), which is a binding precedent for us, has to be followed and therefore, following the same we are of the opinion that the CIT, while denying the appellant's claim for registration on the ground that the financial years 2004-05 and 2005-06 revealed huge surplus, exceeded his jurisdiction conferred under s. 12AA of the Act. We are, therefore of the opinion that the Tribunal, Lucknow Bench being situated within the territorial jurisdiction of Hon'ble Allahabad High Court, is bound to follow the decision of Hon'ble Allahabad High Court and since the issue involved in this case is squarely covered by the decision of Hon'ble Allahabad High Court in the case of Red Rose School (supra), we respectfully follow the same and consequently decide the issue in favour of the assessee and against the Revenue. The CIT is directed to issue a formal certificate granting registration under s. 12AA of the Act as requested for by the assessee subject however, to that as a result of amendment made in cl. (a) of sub-s. (1) of s. 112A by the Finance Act, 2007 w.e.f. 1st June, 2007, as a result of which the CIT's power to condone the delay beyond the first d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of charitable purpose as enumerated in sub-s. (15) of s. 2, it has to be accepted that the trust is having a charitable purpose as its object and may qualify for claiming exemptions in terms of ss. 11 and 12 subject to fulfilling conditions enumerated therein and if so, grant of registration so long as the procedural requirements are complied is inevitable. It is not the finding of the CIT that the applicant-assessee had not complied with any of the procedural requirements. The Tribunal is fully justified in observing that the manner of application of funds and as to whether the applicant-assessee can claim the benefit of exemption in terms of ss. 11 and 12 is a question which has to be examined by the AO at the stage when it is urged and not by the CIT when such question is not before the CIT. It is hereby clarified and emphasized that while registration in accordance with the provisions of s. 12A of the Act is a condition precedent for claiming the benefits under ss. 11 and 12 of the Act a registration as per s. 12A by itself will not automatically confer the benefits of ss. 11 and 12 on a trust, but the trust will get the benefit only on complying with the requirements of ss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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