TaxTMI 
TaxTMI 
2010 (1) TMI 49
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..... Like all other petitions, CWP No. 6031 of 2009 has also been filed under Article 226 of the Constitution with the prayer for quashing order dated 30.3.2009 (P-1). The impugned order passed by the Chief Commissioner of Income Tax, Chandigarh-respondent No. 2, has withdrawn the exemption granted under Section 10(23C)(vi) of the Income-tax Act, 1961 (for brevity, 'the Act') read with Rule 2CA of the Income-tax Rules, 1961 (for brevity, 'the Rules), from the Assessment Year 2000-01 onwards. The exemption was granted to the petitioners, vide order dated 31.5.2007/4.6.2007 (P-2), which has now been withdrawn. 3. Brief facts of the case may first be noticed. The petitioner society is running a school solely for educational purposes. It has also claimed that its purpose is not to make profit and it is being regularly assessed by the Assessing Officer at 'Nil' income on account of exemption from payment of income tax had been granted, vide order dated 31.5.2007 (P-2) by respondent No. 2. The Income Tax Officer, vide letter dated 31.12.2008/6.1.2009 (P-3) informed the petitioner society that as per the provisions of the Act, approval in terms of Section 10(23C) of the Act could only be ....
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....pplied during the year for charitable purposes. In case there is constant deficit in the society, it is bound to close down for want of funds. In case of charitable organizations, it is the receipt and application of total funds, whether of revenue nature or of capital nature, which is to be considered and not the incidental surplus generated as excess of income over expenditure. It was further submitted that the activity of imparting education is a charitable activity as defined in Section 2(15) of the Act. A proviso was also added in Section 2(15) by an amendment vide Finance Act, 2008, which stipulates that the advancement of any other object of general public utility was not to be a charitable purpose if it involved carrying on any activity in the nature of trade, commerce or business and any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of income from such activity. The Central Board of Direct Taxes (for brevity, 'the CBDT') vide circular dated 19.12.2008, has clarified that the newly added proviso was not to apply in respect of first th....
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....r after year and, therefore, the decision of the Apex Court in the case of Aditanar Education Institution vs. Addl. Commissioner of Income Tax as well as the decision of the Hon'ble Uttrakhand High Court is applicable. 8. Exemption u/s 10(23C)(vi) is not available to the assessee under the law in view of the above facts and circumstances and, therefore, exemption already granted vide order dated 04.06.2007 is hereby withdrawn. 9. The assessee is at liberty to reduce the fees being charged and price of its services and apply afresh, in which case the application will be duly considered on merits." BRIEF FACTS OF CONNECTED CASES: CWP No. 7113 of 2009 7. Indo Global Education Foundation-petitioner Society is running four colleges for educational purposes. On 27.2.2007/ 5.3.2007, it was granted exemption from payment of income tax by the Chief Commissioner of Income Tax, under Section 10(23C)(vi) of the Act read with Rule 2CA of the Rules from Assessment Year 2003-04 onwards (P-2). Upon review of the aforementioned order and after considering the details of income/expenditure statements for the Financial Years 2005-06, 2006-07 and 2007-08, the Chief Commissioner of....
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....the details of income/expenditure statements for the Financial Years 2005-06, 2006-07 and 2007-08, the Chief Commissioner of Income Tax, Chandigarh, passed the impugned order dated 31.3.2009 withdrawing the exemption (P-6). CWP No. 9777 of 2009 11. Kandi Friends Educational Trust-petitioner has claimed that its main objects are to impart technical, management and job-oriented Pharmacy education so as to help the youth to seek job and self-employed occupation as also to raise infrastructure to impart such education as has been denied to the Backward Classes, Scheduled Castes, Scheduled Tribes and economically backward communities. Further to do all such other things as are incidental or conducive to the attainment of the aforementioned aims and objects. On 30.5.2007, it was granted exemption from payment of income tax by the Chief Commissioner of Income Tax, under Section 10(23C)(vi) of the Act from Assessment Year 2002-03 onwards (P-3). Upon review of the aforementioned order and after considering the details of income/expenditure statements for the Financial Years 2005-06, 2006-07 and 2007-08, the Chief Commissioner of Income Tax, Chandigarh, passed the impugned order ....
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....gned order dated 31.3.2009 withdrawing the exemption (P-6). CWP No. 7346 of 2009 15. Gian Jyoti Educational Society-petitioner has claimed that it is an educational institution existing solely for educational purposes and not for the purposes of earning profit. It has been running Gian Jyoti Public School and Gian Jyoti Institute of Management and Technology. On 20.2.2007, it was granted exemption from payment of income tax by the Chief Commissioner of Income Tax, under Section 10(23C)(vi) of the Act from Assessment Year 2004-05 onwards (P-5). Upon review of the aforementioned order and after considering the details of income/expenditure statements for the Financial Years 2005-06, 2006-07 and 2007-08, the Chief Commissioner of Income Tax, Chandigarh, passed the impugned order dated 31.3.2009 withdrawing the exemption (P-9). CWP No. 7082 of 2009 16. St. Joseph's Educational and Charitable Trust-petitioner has claimed that it has been engaged for the last more than twenty years in the activity of providing education through a school in the name of St. Joseph's School, Sector 37-B, Chandigarh, which is affiliated with the Central Board of Secondary Education, New Delhi. It....
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....-08, the Chief Commissioner of Income Tax, Chandigarh, passed the impugned order dated 31.3.2009 withdrawing the exemption (P-6). CWP No. 7031 of 2009 19. Sant Educational and Welfare Society-petitioner has claimed that it has been engaged for the last more than 15 years in the activity of providing education through a school in the name of Sahibzada Ajit Singh Academy, Simran Nagar, Roopnagar, Punjab, which is affiliated with the Central Board of Secondary Education, New Delhi. It has further been asserted that the petitioner is an educational institution existing solely for educational purposes and not for the purposes of earning profit. On 16.8.2007, it was granted exemption from payment of income tax by the Chief Commissioner of Income Tax, under Section 10 (23C)(vi) of the Act from Assessment Year 2007-08 onwards (P-3). Upon review of the aforementioned order and after considering the details of income/expenditure statements for the Financial Years 2005-06, 2006-07 and 2007-08, the Chief Commissioner of Income Tax, Chandigarh, passed the impugned order dated 31.3.2009 withdrawing the exemption (P-6). CWP No. 7030 of 2009 20. St. Peter's Educational Society-pe....
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.... in the Trust Deed as it is not existing solely for purpose of education/medical services and there is an element of profit involved. This is evident from the surplus on account of fees etc. charged for the services rendered. After referring to the show cause notice dated 13.1.2009, reply submitted by the petitioner and various judgments, the Chief Commissioner came to the conclusion that the total surplus of the petitioner is ranging from 18.59% to 28.66% in the last five years, which cannot be regarded as merely incidental to the main purposes. The surpluses/profits generated are systematic and substantial. The Chief Commissioner also negated the plea of the petitioner that the surplus has been accumulated for further creation of infrastructure. It has been held by the Chief Commissioner that the petitioner is generating continuously surplus income year after year. CWP No. 3727 of 2009 23. Khalsa College-petitioner has claimed that it has been running various educational institutions in Jalandhar in the State of Punjab. On 25.3.2008, it was granted exemption from payment of income tax by the Chief Commissioner of Income Tax, under Section 10 (23C)(vi) & (via) of the Act rea....
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....expenditure statements for the year ending on 31.3.2002, 31.3.2004, 31.3.2005 and 31.3.2006, the Chief Commissioner of Income Tax, Ludhiana, passed the impugned order dated 18.2.2009 withdrawing the exemption (P-8). In para 2 of the order it has been observed that during the course of assessment proceedings in respect of Assessment Year 2006-07 the Assessing Officer noticed that the petitioner-Trust is not functioning as per the objects mentioned in the Trust Deed as it is not existing solely for purpose of education/medical services and there is an element of profit involved. This is evident from the surplus on account of fees etc. charged for the services rendered. After referring to the show cause notice, reply submitted by the petitioner and various judgments, the Chief Commissioner came to the conclusion that the total surplus of the petitioner is ranging from 41.66% to 65.05% in the last four years. It has further been noticed that if the notional expenditure of depreciation is excluded then the profits/surpluses have ranged from 61.03% to 75.14%. Therefore, it has been concluded that the surpluses/profits generated by the petitioner cannot be regarded as merely incidental to....
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...., passed the impugned order dated 31.3.2009 withdrawing the exemption (P-8). 28.It is appropriate to notice that in all the above cases the primary reliance has been placed by the Chief Commissioner of Income Tax on the judgment of Hon'ble the Supreme Court rendered in the case of Aditanar Education Institution (supra) and judgment of Uttrakhand High Court in the case of M/s Queens Educational Society (supra). It has been held by the Chief Commissioner that the petitioner is generating continuously surplus income year after year. It has also been observed that it would be duty of the institution to lower its fees for the subsequent year so that such profits are not intentionally generated. Accordingly, liberty has been granted to the petitioner to reduce the fees being charged and price of its services and apply afresh. RIVAL CONTENTIONS 29. Learned counsel, namely, Mr. Sanjay Bansal, Mr. Ravi Shankar, Mr. Akshay Bhan, Mr. N.L. Sharda, Ms. Radhika Suri, Mr. Ravish Sood, Mr. Vishal Gupta and Mr. Sunish Bindlish, have advanced arguments on behalf of the petitioner(s). 30. Learned counsel for the petitioners have submitted that the impugned order(s) passed by the Chi....
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....r been found by the Assessing Officer or the Chief Commissioner of Income Tax, warranting the exercise of power in terms of un-numbered 13th proviso for withdrawing the exemption which stood granted to the petitionersociety. Thus, the impugned order vide which exemption has been withdrawn retrospectively is in contravention of the principles of law laid down by Hon'ble the Supreme Court in the case of American Hotel and Lodging Association (supra). It has been submitted that the conclusion arrived at on the material and evidence on record by the Chief Commissioner of Income Tax while withdrawing exemption when viewed in the light of the principles and tests laid down by Hon'ble the Supreme Court it becomes unsustainable. He has argued that there are two reasons for the aforesaid view. Firstly, it has not been disputed by the Chief Commissioner that the petitioner-society exists solely for educational purposes. Secondly, even if there is any substantial profit resulting in surplus with the etitioner-society the institution would not cease to be not existing solely for educational purposes, inasmuch as, surplus/deficit is not determinative of the question as to hether the petitioner-....
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....' refers to the motive, object or the purpose of expenditure. It has been urged that the petitioner-society, when admittedly having utilized more than 100% of the income for achieving its objects could by no stretch of imagination, be held to be an educational institution existing for the purposes of making profit so as not to be entitled to exemption in view of the provisions of Section 10(23C) (vi) of the Act. The Chief Commissioner has failed to keep in focus the third proviso while wrongly holding that since the substantial profits are being earned year after year it could not be said that the surplus is arising incidentally and therefore, the petitioner-society was not entitled to exemption. 34. It has been urged that the judgment of Hon'ble the Supreme Court rendered in the case of Aditanar Educational Institution (supra), as relied upon by the Chief Commissioner while withdrawing the exemption of the petitioner-society, when applied in view of unnumbered third proviso to Section 10(23C)(vi) of the Act, in fact, squarely covers the issue in favour of the petitioner-society. Learned counsel has emphasised that though the said decision was rendered by Hon'ble the Supre....
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....s were required to file their returns of income and make an application for exemption after adhering to certain conditions which are similar to those prescribed for persons deriving income from profit held for charitable or religious purposes. The background of the proposal was that large number of educational medical institutions exist as profitable commercial venture yet they continue to enjoy exemption without filing their returns of income. Keeping in view the interest of small educational and medical institutions, the Finance Minister had mooted the proposal that the institutions whose annual receipt did not exceed Rs. 1 crore were also continue to avail this exemption as in the past. However, in respect of educational medical institutions churning out annual receipt exceeding Rs. 1 crore would be required to follow the same conditions as are prescribed for institutions and Trusts established for charitable purposes or for public religious purposes. The proposal further was that all educational and medical institutions which are financed and managed by the Government should continue to enjoy the benefit of exemption. 38. Learned counsel have substantiated their argume....
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....ens Educational Society's case (supra). According to the learned counsel the Division Bench of the Uttrakhand High Court has rightly taken the view that accumulation of surpluses year after year would necessarily result in shedding of character of an educational institution existing solely for education and then it would become a trading activity. It has been submitted that in order to continue with the character of an educational institution within the meaning of Section 10(23C)(iv) of the Act, the petitioner was required to stop accumulation of excesses by reducing the fees. 41. Learned counsel have maintained that diverting the income derived from the society like the petitioner for building capital assets would not be solution to the accumulation of surpluses but it would attract the provisions of the Act providing for payment of tax. It is required to reduce its fees so as to shed its commercial character. It has also been submitted that the capital asset even if created for the school building, hostel and other such assets then it would not be considered to be expenditure incurred to advance the object of education as it would be simply creating capital asset which w....
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....VANT PROVISIONS 44. After hearing learned counsel for the parties and perusal of the pleadings with their able assistance we find that it would first be necessary to read Section 10(23C) along with its sub-clauses (iiiab), (iiiac), (iiiad), (iv) and (vi) of the Act, which are reproduced as under:- "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- (1) to (22) xxx xxx xxx (23) Omitted by the Finance Act, 2002, w.e.f. 1.4.2003 (23A) xxx xxx xxx (23B) xxx xxx xxx (23C) any income received by any person on behalf of - (i) to (iiia) xxx xxx xxx (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or (iiiac) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of p....
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....h a university or other educational institution and in that regard may call for such documents including audited annual accounts to satisfy itself about the genuineness of the activities of such university or other educational institution. According to un-numbered third proviso of sub-section (23C) of Section 10 of the Act if a university or other educational institution has applied its income or has accumulated the same for application wholly and exclusively to the object for which it is established then it is to qualify for grant of exemption. However, in case more than 15% of the income is accumulated on or after 1.4.2002 and the period of accumulation of the amount exceeding 15% of its income has not exceeded five years then also it would qualify. The exemption could be granted for a period not exceeding three assessment years. All the un-numbered provisos of Section 10(23C)(vi) of the Act are set out below for facility of reference: " Provided that the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via) shall make an....
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....ution 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 institution or 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 in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11: [un-numbered third proviso] Provided also that the exemption under sub-clause (iv) or sub-clause (v) shall not be denied in relation to any funds invested or deposited before the 1st day of April, 1989, otherwise than in any one or more of the ....
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....lso that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under sub-clause (iv) or sub-clause (v) shall be issued or approval under sub-clause (iv) or sub-clause (v) or] sub-clause (vi) or sub-clause (via) shall be granted or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received: [unnumbered ninth proviso] Provided also that where the total income, of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such trust or institution or any university or other educational institution or any hospital or other medical institution shall get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of se....
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....d authority is satisfied that - (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not - (A) applied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution - (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other e....
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....rase "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 exempted. Under Section 10(22) the test was restricted to the character of the recipient of income, viz, whether it had the character of educational institution in India, its character outside India was irrelevant for deciding whether its income would be exempt under Section 10(22). 27. The moot question in Section 10(22) was - whether the activities of the applicant came within the definition of "income of educational institution". Under Section 10(22) one had to closely analyse the activities of the Institute, the objects of the Institute and its source of income and its utilization. Even if one of the objects enabled the ....
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....an educational institution, eligible to apply for exemption under Section 10(23C)(vi) of the Act? RE: QUESTION (A): 50. In the preceding paras it has already been noticed by referring to the views of Hon'ble the Supreme Court in the cases of Aditanar Educational Institution's case (supra) and American Hotel and Lodging Association (supra) that the character of the recipient of income must be that of an educational institution which is to be ascertained from the nature of its activities. In the case of American Hotel and Lodging Association (supra), Hon'ble the Supreme Court has considered the scope of inquiry by the prescribed authority under Section 10(23C)(vi) read with un-numbered third proviso of the Act. In that case the Assessing Officer during the assessment proceedings had accepted that excess income over and above the expenditure shown in its accounts was not to be taken as assessee's income. When the matter traveled to the CBDT it was held that there is a surplus income, which has been repatriated outside India. Therefore, the assessee did not apply for its income for the purpose of education in India. The view of the CBDT was accepted by the Delhi High Court by dis....
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....ional institution and to that extent the proviso states that such payment shall not be treated as application of income to the objects for which such trust or fund or educational institution is established. The idea underlying the twelfth proviso is to provide guidance to the prescribed authority as to the meaning of the words "application of income to the objects for which the institution is established". Therefore, the twelfth proviso is the matter of detail. The most relevant proviso for deciding this appeal is the thirteenth proviso. Under that proviso, the circumstances are given under which the prescribed authority is empowered to withdraw the approval earlier granted. Under that proviso, if the prescribed authority is satisfied that the trust, fund, university 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....
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....permitted to operate subject to monitoring conditions. A workable solution has been provided by Hon'ble the Supreme Court in para 33 by observing as under:- "33. 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 prescribed authority 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 (assessment year 1998-99) and where an application is made on 7.4.1999, within seven days of the new dispensation coming into force, the prescribed authority can grant approval subject to such terms and conditions as it deems fit provided they are not in conflict with the provisions of the 1961 Act (including the abovementioned monitoring conditions). While imposing stipulations subject to which approval is granted, the prescribed authority may insist on certain percentage of accounting Income to be utilized/applied for imparting education in India. ............ Therefore, cases where ear....
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.... practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg, J. when he said in Sole Trustee, Lok Sikshana trust case [1975] 101 ITR 234, 256 (SC) that "If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity." The learned Judge also added that the restrictive condition "that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object" (emphasis supplied). We wholly endorse these observations." (emphasis added. Italics in original) 54. The Constitution Bench then proceeded to illustrate the application of the aforesaid test by citing the examples of monthly journal of Gandhi Peace Foundation and the counter example of sale of blood by a Blood Bank on payment of higher price. The aforesaid view has been cited with approval by Hon'ble the Supreme Court ....
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....sion of ducational institution/activity or for personal profits. In the present case, the opposite-parties have not brought any material on record to prove that the surplus earned by the assessee petitioner was utilised for personal profit/gain on anyone including the Founder-Manager/Director. Whatever fund was acquired, the same was utilised for the expansion of educational activities of institution. Initially there were five students and now the institution is imparting education to more than 34,000 students as pointed out during the course of arguments. Thus, the assessee is fully satisfying all the statutory requirements for getting exemption under Section 10(23C)(vi) of the Income Tax Act. Apart from it, it may be mentioned that the Hon'ble Supreme Court has observed in the case of CIT v. Surat Art Silk Cloth Manufacturers Association, 121 ITR SC, p.1 that the institution must be for general public utility and certainly not for profit, then it can be treated as charitable institution. In the instant case, no adverse material was brought on record by the opposite-parties to reject the application dated 4.2.1999 for seeking said exemption." 56. The aforesaid view has be....
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....penditure. [see Siddho Mal & Sons v. CIT, (1980) 3 Taxman 1 (Delhi); C.J. Patel and Co. v. CIT, [1986] 158 ITR 486 (Guj); and Mysore Kirloskar Ltd. v. CIT, (1987) 30 Taxmann 467 (Kar)]. 59. Even otherwise, unlike the provisions of Section 37 and 36 (1)(xii) of the Act, where the legislature has used the words 'not being in the nature of capital expenditure', which words do not find place in the third proviso preceding the words 'wholly and exclusively', clearly demonstrate that in case of an educational institution, capital expenditure is to be deducted, whenever the institution like the petitioner-society applies its income for the achievement of its object. The word 'applies its income' means 'to put to use' or 'to turn to use' or 'to make use' or 'to put to practical use' (see CIT v. Shri Plot Swetamber Murti Pujak Jain Mandal, 211 ITR 293 (Guj)]. The aforesaid view is further supported from a bare perusal of clause 11 of Form No. 56D of the Rules, which is required to be filed in terms of the provisions of Rule 2CA when viewed in the light of the judgment rendered by Hon'ble the Supreme Court and the High Court of Delhi in the cases of S.R.M.M. CT. M. Tiruppani Trust v....
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....Act. The Chief Commissioner failed to keep in view the third proviso while wrongly holding that since the substantial profits are being earned year after year it could not be said that the surplus is arising incidentally and, therefore, the petitioner-society was not entitled to be exemption. 60. We also find substance in the argument raised by the learned counsel for the petitioner that the judgment rendered in Children Book Trust's case (supra) has no application to the cases under Section 10 (23C)(iv) of the Act primarily for the reason that the provisions under which the aforesaid judgment was rendered by Hon'ble the Supreme Court are not pari materia to the provisions relating to exemption, namely, Section 10(23C) of the Act apart from the scheme of the Act being totally different. The order passed by the Chief Commissioner when tested in the light of the judgment rendered in the case of Children Book Trust(supra), the said order would be bad in law in view of the finding recorded in para 75 of the judgment that if education is imparted with profit motive the purpose is lost. In the case in hand the motive is not to make profit inasmuch as the requirement of the third....
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....ence of educational institution solely for educational purposes is required to be done on the basis of its objects including the utilization of its income in accordance with the conditions laid down in the third proviso to section 10(23C)(vi) of the Act. Merely because there are surpluses in the hands of the educational institution would not ipso facto lead to an inevitable conclusion that such an educational institution is existing for making profits and not solely for educational purposes. Therefore, the interpretation put forth by the Chief Commissioner that there has to be a reasonable profit only and then only an institution can be said to e not existing solely for the purposes of profit, is totally a misconception of law. There is a definite purpose behind the allowing of setting up educational institutions at the hands of private entrepreneurs including Trusts/Societies by the Government. Various other educational colleges like Engineering and Pharmacy etc. could not have been established for want of funds. The Government with a definite idea and object purportedly opened this area of education for the private sector. The Government, who is lacking funds appears to have thou....
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.... for sustaining the validity of the impugned Order on the ground that the petitioner(s) being societies registered under the 1860 Act do not fall within the ambit of the expression 'other educational institutions' and, therefore, exemption has been rightly withdrawn under Section 10(23C)(iv) of the Act, cannot be accepted because after the notice was issued for withdrawing the exemption on the said ground, reply was filed by the petitioner(s) asserting that in view of the law laid down by various High Courts and Hon'ble the Supreme Court such a ground was not tenable. The Chief Commissioner thereafter did not issue any notice to the assessee making the aforesaid ground as the basis for withdrawal of exemption nor there is any finding recorded in the impugned orders. Thus, the said ground on which there is no finding in the impugned Order is not sustainable in view of the law laid down by Hon'ble the Supreme Court in the case of Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851 (para 8). Secondly, such a plea in any case would not sustain the impugned order, inasmuch as, in the case of Aditanar Educational Institution (supra) it has been held that - "......We ar....
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.... the Supreme Court in the case of Aditanar Educational Institution (supra) and while applying the said judgment including the judgment which had been rendered by Hon'ble the Supreme Court in the case of Children Book Trust (supra), it lost sight of the amendment which had been carried out with effect from 1.4.1999 leading to the introduction of the provisions of Section 10(23C) of the Act. Lastly, that view is not consistent with the law laid down by Hon'ble the Supreme Court in American Hotel & Lodging Association Educational Institute (supra). 65. Likewise, the reliance of the revenue on the judgments of this Court rendered in the cases of Dr. Maharaj Krishana Kapur Educational Charitable Trust and Management Society (supra) and The Scientific Educational Advancement Society (supra) would also not be applicable for the reasons that in the case of Dr. Maharaj Krishna Kapur Educational Charitable Trust and Management Society (supra) the Chief Commissioner has held that the assessee was generating substantial surpluses and the percentage of income applied for educational purposes was less than the limit prescribed under the third proviso of Section 10(23C) (vi) of the Act and, th....
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.... opined by the Division Bench that proviso to Section 10(23C)(vi) permits the investment and deposit of surplus funds. Placing reliance on the judgments of Delhi High Court in the case of Director of Income-Tax (Exemption) v. Eternal Science of Man's Society, [2007] 290 ITR 535 (Delhi) and Director of Income-Tax (Exemption) v. Prakash Education Society, [2006] 286 ITR 288 (Delhi) the Division Bench of Allahabad High Court has concluded that such an institution could deposit the surplus for earning interest. It has then been opined that for seeking exemption under Section 10(23C) a society will have to follow the guidelines laid down in Form 56D(Rule 2CA). One of the conditions in Form 56D is that an assessee has to submit audited accounts and balance sheets for the last three years along with a note on the exemption for accounts and on the activity as reflected in the accounts. It is also required to submit the annual report with special reference to the appropriation of income towards objects of the university or other educational institution. From the audited accounts and other documents required to be submitted by the assessee it could be easily seen whether the funds were utili....
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....emption 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 would not constitute part of the total income. (4) The educational institutions, which are registered as a Society, would continue to retain their character as such and would be eligible to apply for exemption under Section 10 (23C)(vi) of the Act. [See para 8.7 of the judgment - Aditanar Educational Institution case (supra)] (5) Where more than 15% of income of an educational institution is accumulated on or after 01.04.2002, the period of accumulation of the amount exceeding 15% is not permissible beyond five years, provided the excess income has been applied or accumulated for applicatio....