TMI Blog2022 (10) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... with education, or education related activities. If, incidentally, while carrying on those objectives, the trust earns profits, it has to maintain separate books of account. It is only in those circumstances that business income can be permitted- provided, as stated earlier, that the activity is education, or relating to education. The judgment in American Hotel (supra) as well as Queens Education Society (supra) do not state the correct law, and are accordingly overruled. Whether the PA (Commissioner or any other designated authority) is in any manner enjoined to confine the nature of inquiry to discern the object of a society, trust or other institution at the stage when it approaches the authority for approval under Section 10 (23C)? - Having regard to the plain terms of the second proviso to Section 10(23C), which refers to the procedure for approval of applications including those made by trusts and institutions imparting education, one can discern no such restrictions. From the pointed reference to audited annual accounts as one of the heads of information which can be legitimately called or requisitioned for consideration at the stage of approval of an application, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the proper administration of such organizations, to ensure that they are managed efficiently without misfeasance. They also contain provisions to protect the interests of trusts, especially funds and properties. It is held that charitable institutions and societies, which may be regulated by other state laws, have to comply with them- just as in the case of laws regulating education (at all levels). Compliance with or registration under those laws, are also a relevant consideration which can legitimately weigh with the Commissioner or other concerned authority, while deciding applications for approval under Section 10 (23C). This reasoning equally applies especially in Section 11(4A) which speaks of profits incidental which specifies that exemption in relation to income or trust of an institution which are profits or means of business cannot be exempted unless the business is incidental, trust or as the case may be institution and separate books of accounts are maintained by such trusts or institution in respect of such business . Thus, the underlying objective of seventh proviso to Section 10(23C) and of Section 11(4A) are identical. These have to be read in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The observations made in American Hotel (supra) suggest that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts etc. the proviso under Section 10(23C) is not confined to newly set up trusts it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure. g. It is held that wherever registration of trust or charities is obligatory under state or local laws, the concerned trust, society, other institution etc. seeking approval under Section 10(23C) should also comply with provisions of such state laws. This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021. The interpretation of educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now, we recognize education's transcendental importance in the lives of individuals and in the very survival of our Constitution and Republic. 2. The subject matter of these appeals M/s St. Augustine Educational Society v The Chief Commissioner of Income Tax, C.A. No.3793/2014; M/s St. Patrick Educational Society v The Chief Commissioner of Income Tax, C.A. No. 3794/2014; M/s New Noble Educational Society v The Chief Commissioner of Income Tax, C.A. No. 3795/ 2014; M/s R.R.M Educational Society Hyderabad v The Chief Commissioner of Income Tax, C.A. No. 6418/2012 and M/s Sri Koundinya Educational Society v The Chief Commissioner of Income Tax, C.A. No. 9108/2012 is the rejection of the appellants claim for registration as a fund or trust or institution or any university or other educational institution (hereinafter collectively referred to as institution / trust ) set up for the charitable purpose of education, under the Income Tax Act, 1961 (hereinafter, IT Act ). The Andhra Pradesh High Court, by its detailed impugned judgment M/s New Noble Educational Society v The Chief Commissioner of Income Tax, (2011) 334 ITR 303. This batch of writ petitions was decided o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist for the purpose of profit. (CIT v. Sorabji Nusserwanji Parekh, [1993] 201 ITR 939 (Guj)). In deciding the character of the recipient of the income, it is necessary to consider the nature of the activities undertaken. If the activity has no co-relation to education, exemption has to be denied. The recipient of the income must have the character of an educational institution to be ascertained from its objects. (Aditanar Educational Institution, [1997] 224 ITR 310 (SC)). The emphasis in section 10(23C)(vi) is on the word solely . Solely means exclusively and not primarily. (CIT v. Gurukul Ghatkeswar Trust, (2011) 332 ITR 611 (AP); CIT v. Maharaja Sawai Mansinghji Museum Trust, [1988] 169 ITR 379 (Raj)). In using the said expression, the Legislature has made it clear that it intends to exempt the income of the institutions established solely for educational purposes and not for commercial activities. (Oxford University Press v. CIT, [2001] 247 ITR 658 (SC)). This requirement would militate against an institution pursuing the objects other than education. (Vanita Vishram Trust v. Chief CIT, [2010] 327 ITR 121 (Bom)). Even if one of the objects enables the institution to undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other person in charge of the management of a charitable institution fails to apply for registration of the institution, the Commissioner shall give notice to the trustee, or the other person, to make an application in that regard within a specified period and, if he fails to make such an application within the period specified, the Commissioner is empowered to have the charitable institution registered after following the prescribed procedure. 22. On a conjoint reading of the Explanation to section 1(3)(a), section 2(4) and 2(5) of A.P. Act 30 of 1987 it is evident that a society running an educational institution in the State of Andhra Pradesh is a public charitable institution. The submission that, in the absence of registration, the provisions of A.P. Act 30 of 1987 are not applicable is not tenable. The provisions of A.P. Act 30 of 1987 apply to all public charitable institutions whether registered or not in accordance with the provisions of the Act. A public charitable institution is required, in law, to conduct the management of its affairs strictly in accordance with the provisions of A.P. Act 30 of 1987. Registration under A.P. Act 30 of 1987 would also ensure that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Such an institution may, incidentally, take up other activities for the benefit of students or in furtherance of their education. It may invest its funds or it may provide scholarships or other financial assistance which may be helpful to the students in pursuing their studies. Such incidental activities alone, in the absence of the actual activity of imparting education by normal schooling or normal conduct of classes, would not suffice for the purpose of qualifying the institution for the benefit of section 10(23C)(vi). (Sorabji Nusserwanji Parekh, [1993] 201 ITR 939 (Guj)). Section 2(15) is wider in terms than section 10(23C)(vi) of the Act. If the assessee's case does not fall within section 2(15), it is difficult to put it in section 10(23C)(vi) of the Act. (Maharaja Sawai Mansinghji Museum Trust, [1988] 169 ITR 379 (Raj)). As education falls within the scope of charitable purpose both under section 2(5) of A.P. Act 30 of 1987 and section 2(15) of the Income-tax Act and, inasmuch as A.P. Act 30 of 1987 requires all charitable institutions in the State of A.P. to be registered, the Chief Commissioner was justified in holding that the petitioner-societies sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other words, existence of surplus from the activity will not mean absence of educational purpose (see judgment of this Court in Aditanar Educational Institution v. CIT [(1997) 3 SCC 346 : (1997) 224 ITR 310] ). The test is-the nature of activity. If the activity like running a printing press takes place it is not educational. But whether the income/profit has been applied for non-educational purpose has to be decided only at the end of the financial year. 8. It was further held that the third proviso was in effect operative after the registration or approval of the trust at the stage of assessment to determine the actual application of income of any given trust. The provisos, according to the court, were divided into the processing (or vetting) provisions (applicable at the stage of grant or refusal of an application) and the monitoring provisions, involving consideration of application of income of the trust: 40. We shall now consider the effect of insertion of provisos to Section 10(23-C)(vi) vide the Finance (No. 2) Act, 1998. Section 10(23-C)(vi) is analogous to Section 10(22). To that extent, the judgments of this Court as applicable to Section 10(22) would equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the conditions subject to which approval is granted then the PA is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein. 44. Having analysed the provisos to Section 10(23-C)(vi) one finds that there is a difference between stipulation of conditions and compliance therewith. 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 standardised form in terms of the first proviso. It is only if the prerequisite condition of actual existence of the educational institution is fulfilled that the question of compliance with requirements in the provisos would arise. We find merit in the contention advanced on behalf of the appellant that the third proviso contains monitoring conditions/requirements like application, accumulation, deployment of income in specified assets whose compliance depends on events that have not taken place on the date of the application for initial approval. 45. To make the section with the proviso workable we are of the view that the monitoring conditions in the third proviso like a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the activities of the applicant and consider if it applied its income wholly and exclusively to the objects for which it was constituted/established. Under the twelfth proviso, the PA had to examine cases where an applicant did not apply its income during the year of receipt and accumulated it but made payment therefrom to any trust or institution registered under Section 12AA or to any trust and to that extent the proviso stated that such payment shall not be treated as application of income to the objects for which such trust was established. This was to guide the PA to determine the meaning of the words application of income to the objects for which the institution is established . The thirteenth proviso listed the circumstances under which the PA was empowered to withdraw the approval granted earlier, if the authority was satisfied that the trust had not applied its income in accordance with the third proviso or if it found that the trust had not invested/deposited its funds in accordance with the third proviso or that the activities of such trust etc. were not genuine or that its activities were not being carried out in accordance with the conditions subject to which approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -for-profit was duly incorporated, no other requirement under provisos to Section 10(23C)(vi) of the IT Act compelled further registration or approval under any state law. It was reiterated that the IT Act was a complete code in itself, and other acts, including the A.P. Charities Act, could not be the basis for denying institutions the benefit of approval. It was submitted that the provisions of the IT Act ought not be linked to, or taken together with, provisions of other enactments. The objects and reasons and the various provisions of the A.P. Charities Act regulated and protected the property of charitable institutions. The activities of the appellant trusts and societies were not prohibited under any law including the A.P. Charities Act and non-registration under that Act could not result in discontinuance of their activities. 15. Ms. Daisy Hannah, learned advocate appearing on behalf of some of the appellants, supported the arguments of Ms. Prabha Swami. She submitted that the existence of more than one object could not hinder or bar a trust s claim to exemption, so long as it mainly carried on education, or education-related activities. The emphasis was not on the abse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the ambit of taxation by virtue of Section 10. Likewise, deduction for income from property held for charitable purposes was provided under Section 11. 19. It was alleged that since the inception of the IT Act in 1961 till 31 March 1975, income from education was excluded as a head under Section 10. By Section 10 (22), income of university or other educational institutions existing solely for educational purposes, and not for the purpose of profit, was excluded from tax liability. An identical provision was enacted by Section 10 (22A) for hospitals. It was pointed out that there were two key elements to the definition of what could be excluded from the ambit of taxation (i) that the institution should exist solely for the purpose of education; and (ii) it should not exist for the purpose of profit. 20. By the Taxation Laws (Amendment) Act, 1975, Section 10 (23C) was brought into force for the first time, and by virtue of sub-clauses (iv) and (v), other funds and institutions established for charitable purposes and trusts including any other legal obligation or institution being solely for public religious purposes and charitable purposes, could be notified by the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l provisions of the Constitution. As to what was the precise scope of the expression was examined by this court on several occasions. The ASG relied on the decision of the eleven-judge bench in T.M.A Pai Foundation v State of Karnataka 2002 (8) SCC 481 where it was held that education under the Constitution meant and included education at all levels, from primary school up to postgraduation, and also included professional education. The expression educational institution meant institutions which imparted education as understood in the formal sense of schooling. It was further elaborated that having regard to the demographics and the geographical spread of the nation, as well as the challenges faced by the country, it was beyond the economic capacity of the State to provide free or subsidised universal education at all levels. Therefore, per force private educational institutions had to function to fill the needs of students. Within that framework, the role of charitable institutions in imparting education was vital and prominent. Imparting education had always been regarded as head of charity. Tracing the history of the law relating to charities, the learned ASG submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax exemption which an institution would otherwise be entitled to claim legitimately as a charitable trust. The ASG also relied upon the subsequent seven-judge decision in PA Inamdar v State of Maharashtra (2005) 6 SCC 537 which had followed the reasoning in T.M.A Pai Foundation (supra). 25. It was submitted next, that this court held in Aditanar (supra) - in the context of Section 10 (22) of the IT Act - that the language of the provision was plain and that every year the tax authorities had to discern whether the institution existed solely for educational purposes and not for the purpose of profit after meeting the expenditure, and that if any surplus resulted incidentally from the lawful activities carried on by the educational institution, it would not cease to be one existing solely for educational purposes. It was held that the decisive test or litmus test was whether on an overall view of the matter, the object of the institution was to make profit or to impart education. 26. Turning next to the decision in Oxford University Press (supra) the learned ASG pointed out that the majority judgement had recognised that the term existing solely for educational purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant is established . American Hotel relying on Surat Art, para 37 28. The revenue also urged that the decision in American Hotel (supra) was wrong in holding that the stipulations in monitoring conditions set out in various provisos to Section 10 (23C) were different from compliance with those conditions, and that compliance or non-compliance was to be considered only at the assessment stage. 29. It was submitted that the decision in Queen s Education Society (supra), too could not be sustained, as it relied on the predominant object test enunciated and applied in Oxford University and American Hotel (supra). Learned ASG submitted that the court's reasoning in Queen s Education Society (supra), in which the predominant object test was applied, and a distinction was drawn between making a surplus and carrying on an activity for profit, with the former not debarring an institution from claiming tax exemption was incorrect. Relevant Provisions 30. An analysis of the relevant provisions is called for. Section 2 (15) of the IT Act defines charitable purpose as follows: (15) charitable purpose includes relief of the poor, education, yoga, medical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipt as may be prescribed or (iv) any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority, having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority; or The first, second, third, seventh, thirte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, trust or institution [or any university or other educational institution or any hospital or other medical institution] as on the 1st day of June, 1973; [(ia) any asset, being equity shares of a public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of the corpus of any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998;] (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution [or any university or other educational institutionor any hospital or other medical institution] before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) [and sub-clause (ia)], by way of bonus shares allotted to the fund, trust or institution [or any university or other educational institution or any hospital or other medical institution] ; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other educational institution or any hospital or other medical institution and to the Assessing Officer . Proviso 14: Provided also that in case the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in the first proviso makes an application on or after the 1st day of June, 2006 for the purposes of grant of exemption or continuance thereof, such application shall be 1[made on or before the 30th day of September of the relevant assessment year] from which the exemption is sought . Proviso 15: Provided also that any anonymous donation referred to in section 115BBC on which tax is payable in accordance with the provisions of the said section shall be included in the total income . Proviso 16: Provided also that all pending applications, on which no notification has been issued under sub-clause (iv) or sub-clause (v) before the 1st day of June, 2007, shall stand transferred on that day to the prescribed authority and the prescribed authority may proceed with such applications under those sub-clauses from the stage at which they were on that day . Analysis and Conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducation i.e., imparting formal scholastic learning, is what the IT Act provides for under the head of charitable purposes, under Section 2 (15). 34. The issues which require resolution in these cases are firstly, the correct meaning of the term solely in Section 10 (23C) (vi) which exempts income of university or other educational institution existing solely for educational purposes and not for purposes of profit . Secondly, the proper manner in considering any gains, surpluses or profits, when such receipts accrue to an educational institution, i.e., their treatment for the purposes of assessment, and thirdly, in addition to the claim of a given institution to exemption on the ground that it actually exists to impart education, in law, whether the concerned tax authorities require satisfaction of any other conditions, such as registration of charitable institutions, under local or state laws. I. Institutions existing solely for profit 35. The revenue contends that the expression solely has to be given its plain and grammatical meaning. It is emphasized that though there are several heads of charity and several kinds of organizations which are recognised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and export cloth manufactured by members, To buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the Members. This court was of the opinion that the principal object, or in the exact words of the decision, the predominant object or purpose of the assessee was to advance the interests of silk manufacturers. The other objects were only incidental. It was in that context that the court held that profit-making in the course of carrying on the predominant objective of a trust or other institution is not per se prohibited. Notably it was held that: 6. But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity: Vide Commissioner of Income Tax Madras v Andhra Chamber of Commerce ((1965) 1 SCR 565).The test which has, therefore, to be applied is whether the object which is said to be non-charitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or prim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l purposes and not for purposes of profit . Therefore, the application of the predominant object test was clearly inapt in the context of charities set up for advancing education. It is important to highlight this aspect at this stage itself, because the enunciation of predominant object test in Surat Art (supra) crept into the interpretation of existing solely for educational purposes , which occurred then in Section 10 (22) and now in Section 10 (23C). 40. The issue in Aditanar (supra) was whether the assessee society, whose objects were education, could be denied exemption, on the ground that it was not engaged in educational activities, but its schools were. The Income Tax Appellate Tribunal and the High Court granted relief on that score, holding that the assessee s objects were solely educational. This court endorsed that view: 7. It will be rather unreal and hyper-technical to hold that the assessee-society is only a financing body and will not come within the scope of 'other educational institution' as specified in section 10(22). The object of the society is to establish, run, manage or assist colleges or schools or other educational institutions sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... education and not at all to make profit. The word existing in the context means being . It has no locational sense. The clause does not say existing in India and the words in India cannot be read into it. The clause does not require that the university must impart education in India before it can qualify for exemption thereunder. The High Court was in error in interpreting the clause differently. 42. D. P. Mohapatra, J. expressed a different view, in which he was joined by Y.K. Sabharwal, J.: 32. I am of the view that the expression 'existing solely for the educational purpose and not for the purpose of profit' qualifies a university or other educational institution'. In a case where a dispute is raised whether the claim of exemption from the tax by the assessee is admissible or not, it is necessary for the assessee to establish that it is a part of a university which is engaged solely or at least primarily for educational purposes and not for purposes of profit and the income in respect of which the exemption is claimed is a part of the income of the university. This question assumes importance in a case like the one in hand where the assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent purposes, however, as already said, I will assume that sole purpose of University of Oxford is educational and not profit. ************* ************** A university or other educational institution which exists solely for educational purposes and not for purposes of profit though not established in India but having some educational activity in this country alone would be entitled to claim exemption. Such a university or educational institution having educational activity in India but being established or constituted in some other country would not be denied the benefit of exemption only on the ground that it has not been established or constituted in India. The imparting of education or existence of educational activity in India is the basic assumption of section 10(22) and the place of the establishment or constitution of a university or other educational institution is of no consequence. Similar phraseology has also been used in clause (22A) in relation to the income of a hospital or other institution for the reception and treatment of the ailments referred to in the said provision. The requirement there is about existence solely for philanthropic purposes and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10 (23C) after the repeal of Section 10 (22) was rejected as the authority held that the assessee had not applied its income for the purpose of education in India. 44. This court held that: 27. Actual existence of the educational institution was the pre-condition of the application for initial approval under section 10(22). On grant of approval, under section 10(22), sections 11 and 13 did not apply. Therefore, earlier prior to 1-4-1999 when exemption was given to the appellant, there was no assessment nor demand section 10(22) had an automatic effect. Once an applicant-institution came within the phrase 'exists solely for educational purposes and not for profit' no other conditions like application of income were required to be complied with. The Prescribed Authority was only required to examine the nature, activities and genuineness of the Institution. The above phrase was the only requirement for initial approval. The mere existence of profit/surplus did not disqualify the institution if the sole purpose of its existence was not profit-making but educational activities as section 10(22) by its very nature contemplated income of such institution to be exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational purposes. In other words, existence of surplus from the activity will not mean absence of educational purpose (see judgment of this Court in Aditanar Educational Institution v. Addl. CIT 1997 (224) ITR 310 . The test is the nature of activity. If the activity like running a printing press takes place it is not educational. But whether the income/profit has been applied for non-educational purpose has to be decided only at the end of the financial year . *********** *********** 32. We shall now consider the effect of insertion of provisos to section 10(23C)(vi) vide Finance Act, 1998. section 10(23C)(vi) is analogous to section 10(22). To that extent, the judgments of this Court as applicable to section 10(22) would equally apply to section 10(23C)(vi). The problem arises with the insertion of the provisos to section 10(23C)(vi). With the insertion of the provisos to section 10(23C)(vi) the applicant who seeks approval has not only to show that it is an institution existing solely for educational purposes [which was also the requirement under section 10(22)] but it has now to obtain initial approval from the prescribed authority, in terms of section 10(23C)(vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niversity or other educational institution etc. has not applied its income in accordance with the third proviso or if it finds that such institution, trust or fund etc. has not invested/deposited its funds in accordance with the third proviso or that the activities of such fund or institution or trust etc., are not genuine or that its activities are not being carried out in accordance with the conditions subject to which approval is granted then the prescribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein. 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 fulfilled that the question of compliance of requirements in the provisos would arise. We find merit in the contention advanced on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the prescribed authority that conditions on which approval was given are breached or that circumstances mentioned in the thirteenth proviso exists then the prescribed authority can withdraw the approval earlier given by following the procedure mentioned in that proviso. The view we have taken, namely, that the prescribed authority can stipulate conditions subject to which approval may be granted finds support from sub-clause (ii)(B) in the thirteenth proviso. 45. The next judgement is that of Queen's Education Society (supra). In that case, the society was engaged in imparting education through its schools. For two successive assessment years the society recorded some profits. It was denied exemption, on the ground that the society s objects included not only education, but others as well, and that its aim was to make profit. The Uttarakhand High Court affirmed the view of the revenue. On appeal, this court after considering the previous judgements (discussed above), held that the High Court was in error. After quoting extensively from the judgement in Surat Art Silk (supra), this court recorded its conclusions, entirely affirming the predominant object test: 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Society (supra) approved the judgement of the Punjab and Haryana High Court in Pinegrove International (supra). By the same judgement, it also approved other judgements of High Courts which had followed Pinegrove and disagreed with the Uttarakhand High Court s judgement. 48. From the above discussion, it is evident that this court has spelt out the following to be considered by the revenue, when trusts or societies apply for registration or approval on the ground that they are engaged in or involved in education: (i) The society or trust may not directly run the school imparting education. Instead, it may be instrumental in setting up schools or colleges imparting education. As long as the sole object of the society or trust is to impart education, the fact that it does not do so itself, but its colleges or schools do so, does not result in rejection of its claim. (Aditanar (supra)). (ii) To determine whether an institution is engaging in education or not, the court has to consider its objects (Aditanar (supra)). (iii) The applicant institution should be engaged in imparting education, if it claims to be part of an entity or university engaged in education. This con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vanced Law Lexicon P. RAMANATHA AIYAR, ADVANCED LAW LEXICON, (6th Edn.), Pg. 5249-5250 (2019) explains the term as, Solely means exclusively and not primarily . The Cambridge Dictionary defines solely to be, Only and not involving anyone or anything else . Solely, Cambridge Dictionary (4th Edn.) (2013) The synonyms for solely are alone, independently, single-handed, single-handedly, singly, unaided, unassisted and its antonyms are inclusively, collectively, cooperatively, conjointly etc. 51. It is, therefore, clear that term solely is not the same as predominant / mainly . The term solely means to the exclusion of all others. None of the previous decisions especially American Hotel (supra) or Queens Education Society (supra) explored the true meaning of the expression solely . Instead, what is clear from the previous discussion is that the applicable test enunciated in Surat Art (supra) i.e., the predominant object test was applied unquestioningly in cases relating to charitable institutions claiming to impart education. The obvious error in the opinion of this court which led the previous decisions in American Hotel (supra) and in Queens Educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, especially in taxation statutes. Indeed, it is well settled that in a taxation statute, there is no room for any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption. Furthermore, nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute . If the language is unambiguous and capable of one meaning, that alone should be applied and not any other, based under surmise that the Parliament or the legislature intended it to be so. In other words, it is only in cases of ambiguity that the court can use other aids to discern the true meaning. Where the statute is clear and the words plain, the legislation has to be given effect in its own terms. 53. In A.V. Fernandez v State of Kerala 1957 SCR 837 , a constitution bench discussed how tax l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng part, the proviso cannot prevail. Though in absolute terms of a later Act. Its placement has been considered, and purpose has been considered in the following decisions. It was observed in State of Rajasthan v. Leela Jain [State of Rajasthan v. Leela Jain, (1965) 1 SCR 276 : AIR 1965 SC 1296] : (AIR p. 1300, para 14) 14. So far as a general principle of construction of a proviso is concerned, it has been broadly stated that the function of a proviso is to limit the main part of the section and carve out something which but for the proviso would have been within the operative part. 57. The scope of a proviso was dealt with in great detail in S. Sundaram Pillai v. V.R. Pattabiraman. 1985 (1) SCC 591 This court observed that normally a proviso is meant to be an exception to something within the main enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. A proviso cannot be torn apart from the main enactment nor can it be used to nullify or set at naught the real object of the main enactment. After quoting previous decisions and authoritative texts, this court summarized the correct legal position, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of or; in connection with the dispute or associated with the dispute. The dispute is the fundamental thing while something incidental thereto is an adjunct to it. Something incidental, therefore, cannot cut at the root of the main thing to which it is an adjunct. The above decision has been followed in other cases. Incidental therefore, means, in the context of the present case, something connected with the activity of education. 60. In the light of the above discussion, this court is of the opinion that the interpretation adopted by the judgments in American Hotel (supra) as well as Queens Education Society (supra) as to the meaning of the expression solely are erroneous. The trust or educational institution, which seeks approval or exemption, should solely be concerned with education, or education related activities. If, incidentally, while carrying on those objectives, the trust earns profits, it has to maintain separate books of account. It is only in those circumstances that business income can be permitted- provided, as stated earlier, that the activity is education, or relating to education. The judgment in American Hotel (supra) as well as Queens E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re for approval of applications including those made by trusts and institutions imparting education, one can discern no such restrictions. From the pointed reference to audited annual accounts as one of the heads of information which can be legitimately called or requisitioned for consideration at the stage of approval of an application, the inference is clear: the Commissioner or the concerned authority s hands are not tied in any manner whatsoever. The observations to the contrary in American Hotel (supra) appear to have overlooked the discretion vested in the Commissioner or the relevant authority to look into past history of accounts, and to discern whether the applicant was engaged in fact, solely in education. American Hotel (supra) excluded altogether inquiry into the accounts by stating that such accounts may not be available. Those observations in the opinion of the court assume that only newly set up societies, trusts, or institutions may apply for exemption. Whilst the statute potentially applies to newly created organizations, institutions or trusts, it equally applies to existing institutions, societies or trust, which may seek exemption at a later point. At the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66. By Section 43(1), every charitable institution, existing as on the date of commencement of the A.P. Charities Act was obliged to apply for registration. New trusts or institutions are obliged, within ninety days of their formation, to apply for registration through persons in charge - the Registrar, by Section 43(2) to Section 43 (4) is obliged to inquire into the material provided with the application, and take into account other relevant material. Section 43 (5) reads as follows: 43(5) On receipt of the application, the Assistant Commissioner shall, after making such enquiry as he thinks fit and hearing any person having interest in the institution or endowment, pass an order directing its registration and grant to the trustee or other person a certificate of registration containing the particulars furnished in the application with the alterations, if any, made by him as a result of his enquiry. 67. In the event of failure to comply with Section 43(1), or failure to intimate changes in the trust, or for supplying false information, the trustee or other person in charge, can be penalized by Section 43 (11). Section 44 empowers the Commissioner to direct charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt consideration which can legitimately weigh with the Commissioner or other concerned authority, while deciding applications for approval under Section 10 (23C). 71. This reasoning equally applies especially in Section 11(4A) which speaks of profits incidental which specifies that exemption in relation to income or trust of an institution which are profits or means of business cannot be exempted unless the business is incidental, trust or as the case may be institution and separate books of accounts are maintained by such trusts or institution in respect of such business . Thus, the underlying objective of seventh proviso to Section 10(23C) and of Section 11(4A) are identical. These have to be read in the light of the main provision which spells out the conditions for exemption under Section 10(23C) - the same conditions would apply equally to the other sub-clauses of Section 10(23C) that deal with education, medical institution, hospitals etc. 72. What then is incidental business activity in relation to education? Imparting education through schools, colleges and other such institutions would be per se charity. Apart from that there could be activities incidental to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trusts, because the requirement of trust or societies applying for registration or approval under the provisos to Section 10(23)(C) spell out a specific time (before 30 September). As the High Court has observed, there is no provision to extend such a deadline. In the circumstances for the concerned year, the reasoning of the High Court in refusing to interfere with the concerned authorities decisions to approve or reject the registration of the institution, is hereby affirmed. 76. The conclusions of this court are summarized as follows: a. It is held that the requirement of the charitable institution, society or trust etc., to solely engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education. In other words, all objects of the society, trust etc., must relate to imparting education or be in relation to educational activities. b. Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the IT Act. At the same time, where surplus accrues in a given year or set of ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021. 77. In a knowledge based, information driven society, true wealth is education and access to it. Every social order accommodates, and even cherishes, charitable endeavour, since it is impelled by the desire to give back, what one has taken or benefitted from society. Our Constitution reflects a value which equates education with charity. That it is to be treated as neither business, trade, nor commerce, has been declared by one of the most authoritative pronouncements of this court in T.M.A Pai Foundation (supra). The interpretation of education being the sole object of every trust or organization which seeks to propagate it, through this decision, accords with the constitutional understanding and, what is more, maintains its pristine and unsullied nature. 78. In the light of the foregoing discussion, the assessees appeals fail. It is however clarified that their claim for approval or registration would have to be considered in the light of subsequent events ..... X X X X Extracts X X X X X X X X Extracts X X X X
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