TMI Blog2017 (11) TMI 1740X X X X Extracts X X X X X X X X Extracts X X X X ..... ts other than educational, but there is no application of mind to the assertion made by the society that it is only pursuing the educational activity and no other. In view of case of C.P. Vidya Niketan Inter College Shikshan Society (2013 (7) TMI 367 - ALLAHABAD HIGH COURT), in case, the society is pursuing only educational objects and no other activity then the application by such a society for grant of approval under s. 10(23C)(vi) cannot be rejected on the ground that its aims and objects contain several other objects apart from educational and application by such a society is perfectly maintainable. The respondent-Chief Commissioner of Income Tax is directed to grant exemption to the petitioner-Society for the relevant assessment year - Decided in favour of assessee. - Writ Petition (M/S) No.577 of 2014 - - - Dated:- 17-11-2017 - Rajiv Sharma , J. For the Petitioner : Mr. Mohit Maulekhi, Adv. For the Respondent : Mr. H.M. Bhatia, Standing Counsel ORDER Rajiv Sharma , J. Petitioner is a society, registered under the Societies Registration Act 1860, vide registration Certificate No.218/2004-2005 dated 15.07.2004. It was renewed vide renewal certificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sities and other educational institutions, on one hand, and public charitable trusts covered by Sections 11 and 12 under the 1961 Act. Therefore, according to the learned counsel, even at the stage of approval, the PA can take into account not only the nature, activities and genuineness of the Institute but also the manner in which the income derived in India is spent/utilised in India. The learned counsel submits that in view of the Finance Act, 1998, the provisions of Section 11(1)(a) have got to be read into the provisions of Section 10(23-C)(vi) and if so read the applicant Institute is required to state in its application as to how it has utilised its income in India in the year ending 31-3-1999. In this connection, learned counsel referred to Section 11(1)(a) which states that certain incomes shall not be included in the total income of the previous year of the person in receipt of such income if such income is derived from property held under trust, wholly for charitable or religious purposes, to the extent of which such income is applied to such purposes in India. The learned counsel submits that under Section 10(23-C)(vi) as well as the third proviso thereto, the words in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. But whether the income/profit has been applied for non-educational purpose has to be decided only at the end of the financial year. 39. In Oxford University Press1 this Court found that the applicant was a branch of Oxford Press which was part of Oxford University but its activity in India was restricted to publishing books, journals, periodicals, etc. The Tribunal held that because Oxford Press is part of the university its income was exempt under Section 10(22) as it stood at the relevant time. It is in this context that the words existing solely for educational purposes and not for the purposes of profit in Section 10(22), which words also find place in Section 10(23-C)(vi), came for consideration. This Court held that location of the university is not relevant, what is relevant is-whether there is imparting of education in India. Therefore, the test formulated by this Court to decide the character of the recipient of income under Section 10(22) is whether there is in fact existence of an activity which is in the nature of imparting of education in India . This is how the words in India have come into judgment and not by incorporation from Section 11(1)(a) of the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the assessment year concerned the object is to make profit as opposed to educating persons. 23. The Punjab and Haryana High Court, by the impugned judgment dated 29-1-20102 expressed its dissatisfaction with the view taken by the Uttarakhand High Court in Queen s Educational Society1 as follows: (SCC OnLine P H para 8.8) 8.8. We have not been able to persuade ourselves to accept the view expressed by the Division Bench of the Uttarakhand High Court in Queen s Educational Society1. There are variety of reasons to support our opinion. Firstly, the scope of the third proviso was not under consideration, inasmuch as, the case before the Uttarakhand High Court pertained to Section 10(23-C)(iii-ad) of the Act. The third proviso to Section 10(23-C)(vi) is not applicable to the cases falling within the purview of Section 10(23-C)(iii-ad). Secondly, the judgment rendered by the Uttarakhand High Court runs contrary to the provisions of Section 10(23-C)(vi) of the Act including the provisos thereunder. Section 10(23-C)(vi) of the Act is equivalent to the provisions of Section 10(22) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution has been provided by the Hon ble Supreme Court in para 33 of its judgment in American Hotel Lodging Assn. case9. Thus, on an application made by an institution, the prescribed authority can grant approval subject to such terms and conditions as it may deem fit provided that they are not in conflict with the provisions of the Act. The parameters of earning profit beyond 15% and its investment wholly for educational purposes may be expressly stipulated as per the statutory requirement. Thereafter the assessing authority may ensure compliance with 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 envisaged in 13th proviso, the prescribed authority can withdraw the approval. (3) The capital expenditure wholly and exclusively to the objects of education is entitled to exemption and woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, as that Chief Commissioner held that the petitioner exists for profit. The test to be applied is as to whether the predominant nature of the activity is educational. In the present case, the sole and dominant nature of the activity is education and the petitioner exists solely for the purposes of imparting education. An incidental surplus which is generated, and which has resulted in additions to the fixed assets is utilised as the balance sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. The Income Tax Act, 1961 does not condition the grant of an exemption under Section 10(23-C) on the requirement that a college must maintain the status quo, as it were, in regard to its knowledge-based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption under Section 10(23-C). Imposing such a condition which is not contained in the statute would lead to a perversio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the availability of exemption should be evaluated each year to find out whether the institution has existed during the relevant year solely for educational purposes and not for the purposes of profit. If after meeting the expenditure, a surplus results incidentally from an activity lawfully carried on by the educational institution, the institution will not cease to be one existing solely for educational purposes since the object is not to make profit. The decisive or acid test, the Supreme Court observed, is whether on an overall view of the matter, the object is to make a profit. In evaluating or appraising the issue, the Supreme Court noted that one should bear in mind the distinction between the corpus, the objects and the powers of the concerned entity. 14. The First Respondent while rejecting the applications of the Petitioner has adverted to the judgment of the Uttarakhand High Court in Commissioner of Income Tax v. Queens' Educational Society MANU/UC/0174/2007 : (2009) 319 ITR 160 The statement of facts as recited in the judgment of the High Court is to the effect that the assessee had a profit of thirty per cent in Assessment Year 200001 and twenty seven pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not for the purposes of profit. The requirement that the institution must exist solely for educational purposes would militate against an institution pursuing other objects. Consequently, the High Court was, in our view and with due respect, not correct in holding as a principle of law that the benefit of the exemption should be denied on the ground that the assessee has only pursued its main object of providing education and had not pursued the other objects for which the Trust was constituted. Were the assessee to pursue other objects, it would clearly run afoul of subclause (vi). The assessee must exist solely for educational purposes. In this view of the matter, while we hold that the facts of the present case are distinguishable, we have also recorded our reservations about the correctness of the statement of legal principle in the judgment of the Uttarakhand High Court. The attention of the Court has also been drawn to the fact that a Division Bench of the Punjab and Haryana High Court in Pinegrove International Charitable Trust v. Union of India CWP 6031 of 2009 decided on 29 January 2010 has also expressed reservation about the view of the Uttarakhand High Court in Queen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arts education to students from Class VI to XII, in the absence of any allegation or material, the object clause providing for other charitable activities, would not disentitle the society from approval under s. 10(23C)(vi) of exemption. The proviso added to s. 10(23C)(vi), specially provisos 2, 3, 12 and 13, give sufficient powers to check the abuse of the exemption. The mere possibility, therefore, that the society may in future pursue activities, which are not charitable, or closely connected with education for making profit, would not constitute the grounds to reject the approval under s. 10(23C)(vi). 13. Perusal of the impugned order shows that the pleading in this regard has not been taken into consideration. Further, in the impugned orders, although, there is a finding that the society is having many objects other than educational, but there is no application of mind to the assertion made by the society that it is only pursuing the educational activity and no other. In view of the Division Bench decision of this Court in case of C.P. Vidya Niketan Inter College Shikshan Society (supra), in case, the society is pursuing only educational objects and no other activity then ..... X X X X Extracts X X X X X X X X Extracts X X X X
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