TaxTMI 
TaxTMI 
2015 (8) TMI 848
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....and it gave the organization a look and character of a private body rather than a charitable organization and the objectives were not related to the promotion of education and the educational trust did not exist solely for educational purposes. The petitioner's case is that the Trust is registered under the Societies Registration Act, 1860 and is a public charitable trust and running a school in the name of Sohrab Public School, Nabha Raod, Malerkotla solely for educational purposes and is being regularly assessed to income tax. An application was submitted in Form 56D under Section 10(23C)(vi) of the Act read with Rule 2CA seeking exemption from payment of income tax as per requirements and it also filed the audited balance sheets for the last 3 years plus the trust deed. Certain information was asked for and a detailed reply was filed clarifying each and every issue and an opportunity of hearing was afforded by respondent no. 1, who rejected the claim on untenable grounds. In the written statement filed on behalf of the respondents, plea taken was that the education institution is to exist "solely for educational purposes" and if the institution existed for other purpos....
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....ot to be included which is received on behalf of any educational institution existing solely for educational purposes and not for purposes of profit than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) of Section 10(23C) of the Act. The relevant provisions read thus:- "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included xxx xxx xxx (23C) any income received by any person on behalf of xxx xxx xxx (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit , which is wholly or substantially financed by the Government; or xxx xxx xxx (iiiad) any university or other educational institution existing 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 receipts as may be prescribed; or xxx xxx xxx (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit,other than those mentioned in subclause(iiiab) of ....
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....ined whether the educational institution has been applying its profit wholly and exclusively to the object for which the institution is established. Merely because an institution has earned profit would not be deciding factor to conclude that the educational institution exists for profit. (2) The provisions of Section 10(23C)(vi) of the Act are analogues to the erstwhile Section 10(22) of the Act, as has been laid down by Hon'ble the Supreme Court in the case of American Hotel and Lodging Association (supra). To decide the entitlement of an institution for exemption under Section 10(23C)(vi) of the Act, the test of predominant object of the activity has to be applied by posing the question whether it exists solely for education and not to earn profit [See 5- Judges Constitution Bench judgment in the case of Surat Art Silk Cloth Manufacturers Association (supra)]. It has to be borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. A workable solution has been provided by Hon'ble the Supreme Court in para 33 of its judgment in American....
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....ersons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied - the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on "for profit". No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons." It is also pertinent to note that while relying upon the earlier judgments of the Apex Court namely American Hotel and Lodging Association (supra) and keeping in view the provisos of the sections in mind especially 13th proviso which provided that after giving a reasonabl....
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....ject to establish, maintain, run, develop and improve, extend, grant donations in cash and kind and assist in the establishment, running, development, improvement and extension of schools, colleges, workshop, industrial and technical schools, institutions for the promotion of agriculture, hostels for the benefit of needy students, maintain agriculture farms for the benefit of the poor. (b) To establish, maintain or acquire library or libraries for the benefit of the students community. (c) To institute and award scholarships in India for the study, research and apprenticeship for all or any of the aforesaid educational purpose. (d) To establish, maintain, run, develop, improve, extend, grant donations for and to aid and assist in the establishment maintenance, running, development, improvement and extension of hospitals, clinics, XRay plants, dispensaries, maternity houses, recreating centres and all similar institutions as will afford treatment to alleviate human sufferings. (e) To conduct feeding to poor generally give food and raiment to the poor, needy and disabled persons and to afford relief to people in distress due to natural calamities, accident, earthquake, fl....
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.... 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 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. 34. To make the section with the proviso workable we are of the view that the Monitoring Conditions in the third proviso like application/utilization of income, pattern of investments to be made etc. could be stipulated as conditions by the PA subject to which approval could be granted. For example, in marginal cases like the present case, where appellant-Institute was given exemption up to financial year ending 31.3.1998 (ass....