Predominant object test confirms incidental surplus does not defeat educational exemption where the institution remains primarily charitable.

For exemption under Section 10(23C), an institution must exist solely for educational purposes and not for profit; the controlling test is whether it is carried on with a profit motive, not whether it has generated incidental surplus. Applying the predominant object test, receipts from fees and grants, occasional surpluses used to improve educational infrastructure, and additions to fixed assets did not show a profit-making purpose. Surplus in some years did not displace the institution's dominant educational character. The finding that it existed for profit was therefore erroneous, and the denial of exemption on that basis could not stand.

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Issues: Whether the institution existed solely for educational purposes and not for profit for the purposes of Section 10(23C) of the Income-tax Act, 1961, and whether the denial of approval on that ground was valid.

Analysis: The common requirement under Section 10(23C)(iiiab), Section 10(23C)(iiiad) and Section 10(23C)(vi) is that the institution must exist solely for educational purposes and not for profit. The governing test is the predominant object test: the question is whether the institution is carried on with the object of earning profit, not whether a surplus has incidentally arisen. Applying that principle, the institution's receipts from fees and grants, together with occasional surpluses used for upgrading educational infrastructure and facilities, did not establish a profit motive. The existence of a surplus in some years, or additions to fixed assets, did not displace the dominant educational character of the institution.

Conclusion: The finding that the institution did not exist solely for educational purposes and existed for profit was erroneous and was quashed. The institution was held to satisfy the statutory educational-purpose requirement, and the denial of exemption on that basis could not stand.

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