TaxTMI 
TaxTMI 
2013 (2) TMI 268
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....he Petitioner on 11 December 1980 under Section 12A of the Income Tax Act, 1961. On 10 May 2004, the Petitioner made an application for exemption under Section 10 (23C)(vi) for Assessment Year 2003-04. By a communication dated 26 September 2005, the Office of the Director of Income-tax (Exemption) informed the Petitioner that since from its accounts it appeared that the Petitioner had derived a substantial income by way of government grants for the years ending on 31 March 2001, 31 March 2002 and 31 March 2003, the file pertaining to the claim of exemption under Section 10(23C)(vi) was closed. The Petitioner was informed that "the cases which are wholly or substantially financed by the Government are covered by the provisions of Section 10(23C)(iiiab)." A certificate was issued to the Petitioner under Section 80(G)(5) on 4 September 2008. 3. Between 1985-86 and 2005-06, the Petitioner was allowed the benefit of the provisions of Section 11. For Assessment Year 2006-07 and 2007-08, the claim of exemption under Section 10(23C)(iiiab) was allowed. For Assessment Year 2006-07 that claim was allowed in pursuance of an order under Section 143(3) whereas, for Assessment Year 2007-08....
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.... been filed on behalf of the Revenue, it has been stated that the fact that the Petitioner is in receipt of government grants and has a deficit is not conclusive proof of its existence solely for educational purposes and not for the purposes of making profits. The affidavit-in-reply seeks to sustain the validity of both the order denying the benefit of an exemption under Section 10(23C)(iiiab) as well as of the order of the Chief Commissioner denying the benefit of the provisions of Clause (vi) of Section 10(23C). In sum and substance, the grievance of the Petitioner is that it is be entitled to the benefit of an exemption under Section 10(23C) and if the Assessing Officer comes to the conclusion as he has that the benefit of the exemption under Clause (iiiab) is to be denied, the Petitioner would in that case be entitled in law to the benefit of the exemption under Clause (vi). The grievance of the Petitioner is that the Revenue has not taken a firm position since while on the one hand the Chief Commissioner of Income-tax took the view that the benefit of Clause (vi) of Section 10(23C) could not be availed of on the ground that the Petitioner is in receipt of substantial grants....
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....ich may be approved by the prescribed authority. For an institution which is wholly or substantially financed by government and which falls within the purview of Sub-clause (iiiab), no requirement of an approval of the prescribed authority is mandated. Similarly, under Sub-clause (iiiad) no requirement of approval is stipulated in the case of those institutions whose aggregate annual receipts are below such amount as may be prescribed. On the other hand, sub-clause (vi) of Section 10(23C) which covers institutions other than those falling under sub-clauses (iiiab) or (iiiad) requires the approval of the prescribed authority before a claim to exemption can be allowed. An application under sub-clause (vi) for approval is required by the fourteenth proviso to Section 10(23C) to be filed on or before 30 September of the relevant Assessment Year. 7. Now in this background, it will be necessary to consider the legality of the order that has been passed by the Chief Commissioner, denying the benefit of the exemption under sub- Clause (vi) of Section 10(23C). The first part of the order of the Chief Commissioner makes a reference to the fact that the Petitioner is an aided institution, ....
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....s determination under sub-clause (vi) of Section 10(23C), the requirement that an institution must exist solely for educational purposes and not for the purposes of profit one which is common both to sub-clause (iiiab) as well as sub-clause (iiiad). Hence, the grievance of the Petitioner is that while on the one hand the Chief Commissioner has held that Sub-clause (vi) would not be applicable to an institution which is in receipt of substantial grants from the Government (such an institution being governed by Sub-clause (iiiab)), at the same time, the finding that the Petitioner does not exist solely for educational purposes and not for the purposes of profit would, in effect, not merely lead to the rejection of the exemption under Sub-clause (vi) but would also affect the claim of the Petitioner to the grant of an exemption under Sub-clause (iiiab) as well. 8. In view of the finding of the Chief Commissioner that the Petitioner does not exist solely for educational purposes and not for the purposes of profit, it becomes necessary for the Court to scrutinize the validity of that finding. The Chief Commissioner has held, in the course of his order, that the fees which were col....
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.... terms:- " The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit." 10. Sub-clauses (iiab), (iiiad) and (iv) require that the institution must exist solely for educational purposes and not for profit. Existence comprehends the purpose, goal, object and mission of the institution. Where the purpose of the institution and the defining character of its mission is education, and education alone, the test is fulfilled. The fact that incidentally, a surplus has resulted in a year will not render such an institution....
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..... The material which has been placed on the record by the Petitioner on affidavit consists of a tabulated statement of the details of the total receipts and the amount spent by the Petitioner towards its objects for the financial years from 1989-90 to 2010-11. The statement indicates that:- (i) cumulatively for all the years taken together from Assessment Years 1989-90 to 2010-11, the Petitioner has a deficit and its expenditure is in excess of its income; (ii) if the government grants as reflected in the income and expenditure account and the corpus and scholarship contribution as reflected in the balance-sheet are excluded, the Petitioner has sustained a loss for every year except financial years 1989-90, 1990-91 and 1992- 93; (iii) if government grants are included as part of the income and only corpus donation and scholarship contribution being balance-sheet items are excluded, there would be a deficit save and except for financial years 1989-90, 1990-91, 1992-93, 2008-09 and 2010- 11. Between 1989-90 and 2010-11, the figures placed on the record on affidavit indicate the following position:- (i) Government grants Rs.13,46,75,326/- (ii) Fees....
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....e Petitioner has a surplus of income over expenditure for the three years in question, cannot by any stretch of logical reasoning lead to the conclusion that the Petitioner does not exist solely for educational purposes or, 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 utilized 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(23C) 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 up....