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Wednesday, March 18, 2015

It is conceded position that the assessee-petitioner has filed the application on 23.9.2008 seeking exemption under Section 10(23C)(vi) in respect of assessment year 2008-09, which could have been filed during the financial year 2007-08 i.e. on or before 31.3.2008. It is, thus, evident that the application by the assessee petitioner has been filed after the prescribed period and the Chief Commissioner of Income Tax has rightly rejected the same being not maintainable. 9. As a sequel to the above discussion, we find no ground to interfere with the impugned order passed by the Chief Commissioner of Income Tax. There is no merit in the instant petition warranting its admission. Accordingly, the writ petition fails and the same is dismissed." 27. These being the facts, we see no reason to interfere. This appeal shall stand dismissed with no order as to costs.

                                                                  REPORTABLE



                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.5167 OF 2008


M/S. QUEEN'S EDUCATIONAL SOCIETY  ...APPELLANT

                                   VERSUS

COMMISSIONER OF INCOME TAX           ...RESPONDENT

                                    WITH

                            C.A. NO.5168 OF 2008

                            C.A. NO.8962 OF 2010

                             C.A. NO.909 OF 2011

                        CIVIL APPEAL NO. 2919 OF 2015
                [ARISING OUT OF SLP (CIVIL) NO.3804 OF 2011]

                        CIVIL APPEAL NO. 2920 OF 2015
                [ARISING OUT OF SLP (CIVIL) NO.5381 OF 2011]

                        CIVIL APPEAL NO. 2921 OF 2015
                [ARISING OUT OF SLP (CIVIL) NO.5383 OF 2011]

                        CIVIL APPEAL NO. 2922 OF 2015
                [ARISING OUT OF SLP (CIVIL) NO.5530 OF 2011]

                        CIVIL APPEAL NO. 2923 OF 2015
                [ARISING OUT OF SLP (CIVIL) NO.19945 OF 2012]

                        J U D G M E N T

R.F.Nariman, J.



1.    Leave granted in the special leave petitions.

2.    The present appeals relate to a common judgment dated 24th  September,
2007 passed by the High Court of Uttarakhand, Nainital  in  two  income  tax
appeals, and a judgment of the Punjab and  Haryana  High  Court  dated  29th
January, 2010 in Pine Grove  International  Charitable  Trust  v.  Union  of
India - (2010) 327 ITR 273 .  Various other appeals (excepting Civil  Appeal
No.8962 of 2010) are filed by the Union of India/ Central  Board  of  Direct
Taxes in  cases  where  the  aforesaid  judgment  in  Pine  Grove  has  been
followed.

3.    The facts necessary to understand the controversy in  the  two  income
tax appeals before the Uttarakhand High  Court,  Nainital,  may  be  gleaned
from the facts of one of  them,  namely,  the  Queen's  Educational  Society
case. The appellant filed its return  for  assessment  years  2000-2001  and
2001-2002  showing  a  net  surplus  of  Rs.6,58,862/-   and   Rs.7,82,632/-
respectively.  Since the appellant was established with the sole  object  of
imparting education, it claimed exemption under Section 10(23C)  (iiiad)  of
the Income Tax Act, 1961.  The Assessing Officer vide its order  dated  20th
February, 2003 rejected the exemption claimed by  the  appellant.   The  CIT
(Appeals) by its order  dated  28th  March,  2003  allowed  the  appellant's
appeal, and the ITAT, Delhi, by its judgment dated 7th July, 2006 passed  an
order dismissing the appeal preferred by the revenue.   In  a  reference  to
the High Court under Section 260A of the Income  Tax  Act,  the  High  Court
vide the impugned judgment set aside the judgment of the ITAT  and  affirmed
the order of the Assessing Officer.

4.    These appeals from  the  Uttarakhand  High  Court,  Nainital,  concern
themselves with the provision of Section 10(23C) (iiiad)  of the Act:

"Section 10- Incomes not included in total income.-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-

(23-C) any income received by any person on behalf of-

(iii-ad) 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"



5.    It will be noticed that the Section has three requirements -  (a)  the
educational institution must exist solely for educational  purposes  (b)  it
should not be for purposes of profit and (c) the aggregate  annual  receipts
of such institution should not exceed the amount or annual receipts  as  may
be prescribed.  Such prescription is to  be  found  in  Rule  2CA  being  an
amount of Rs.1 crore.

6.    The said Section was inserted by Finance Act No.2 of 1998 with  effect
from  1st  April,  1999.   Prior  thereto,  the  Income  Tax   Act   had   a
corresponding Section, namely, Section 10(22) which was as follows:-

"Section 10- Incomes not included in total income.-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-

(22) any income of a university or other educational  institution,  existing
solely for educational purposes and not for purposes of profit"



7.    We have heard learned counsel for the assessees  as  well  as  learned
counsel for the revenue. The assessees argue that the impugned  judgment  is
contrary to the law laid down by at least  three  Supreme  Court  judgments.
Further, the wrong test has been adopted and followed, which is a test  laid
down by the Assessing Officer and  not  by  any  Supreme  Court  judgment  -
namely,  that  whenever  a  profit/surplus  is  made   by   an   educational
institution, it ceases to exist solely for educational purposes and  becomes
a profit making enterprise. In support of the Punjab and Haryana High  Court
judgment under appeal, counsel for the assessees argued that since the  sole
basis for not  granting  them  exemption  for  the  assessment  years  under
question was the following of the Uttarakhand High Court  judgment,  if  the
said judgment is found to be incorrect, they  are  bound  to  succeed.   For
that reason, the revenue's appeal against the Punjab and Haryana High  Court
judgment should be dismissed. Counsel for the revenue, on  the  other  hand,
attempted to support the Uttarakhand High Court  judgment  by  stating  that
the Section does not  contemplate  the  making  of  large  profits.   If  an
educational institution in fact makes large profits then even though it  may
plough such profits back into the purchase  of  assets  for  education,  yet
such institution cannot be  said  to  be  existing  solely  for  educational
purposes.  It would then become an institution which  would  really  be  for
profit.

8.    In CIT v. Surat Art Silk Cloth Manufacturers' Assn.,  (1980)  121  ITR
1, this Court while construing the definition  of  "charitable  purpose"  in
Section 2(15) of the Income Tax Act held:

"17. The next question that arises is as to  what  is  the  meaning  of  the
expression "activity for profit". Every trust or  institution  must  have  a
purpose for  which  it  is  established  and  every  purpose  must  for  its
accomplishment involve the carrying on of an activity.  The  activity  must,
however, be for profit in order to attract the exclusionary clause  and  the
question therefore is when can an activity be  said  to  be  one for profit?
The answer to the question obviously depends on the correct  connotation  of
the preposition "for". This preposition has many shades of meaning but  when
used with the active participle of a verb it means "for the purpose of"  and
connotes the end with reference to  which  something  is  done.  It  is  not
therefore enough that as a matter of fact an activity results in profit  but
it must be carried on with the object of earning profit. Profit-making  must
be the end to which the activity must be directed or  in  other  words,  the
predominant object of the  activity  must  be  making  a  profit.  Where  an
activity is not pervaded by profit motive but is carried  on  primarily  for
serving the charitable purpose, it would not be correct to  describe  it  as
an activity for profit. But  where,  on  the  other  hand,  an  activity  is
carried on with the predominant object of earning profit,  it  would  be  an
activity for profit, though it may be  carried  on  in  advancement  of  the
charitable purpose of  the  trust  or  institution.  Where  an  activity  is
carried on as a matter of advancement of the charitable purpose or  for  the
purpose of carrying out the charitable purpose, it would  not  be  incorrect
to say as a matter of plain English  grammar  that  the  charitable  purpose
involves the carrying on of such activity, but  the  predominant  object  of
such activity must be to subserve the charitable purpose  and  not  to  earn
profit. The charitable purpose should not be submerged by the profit  making
motive; the latter should not masquerade under the guise of the former.  The
purpose  of  the  trust,  as  pointed  out  by  one  of  us  (Pathak,J.)  in
Dharmadeepti  v. CIT [(1978) 3 SCC  499  :  1978  SCC  (Tax)  193]  must  be
'"essentially charitable in nature" and it must not be a cover for  carrying
on an activity which has profit  making  as  its  predominant  object.  This
interpretation of the exclusionary clause in Section 2 clause  (15)  derives
considerable support from the speech made  by  the  Finance  Minister  while
introducing that provision. The Finance Minister explained  the  reason  for
introducing this exclusionary clause in the following words:

"The definition of 'charitable purpose' in that  clause  is  at  present  so
widely worded that it can be taken advantage of even by commercial  concerns
which, while ostensibly serving a public purpose, get  fully  paid  for  the
benefits provided  by  them  namely,  the  newspaper  industry  which  while
running its concern on  commercial  lines  can  claim  that  by  circulating
newspapers it was improving the general knowledge of the  public.  In  order
to prevent  the  misuse  of  this  definition  in  such  cases,  the  Select
Committee felt that  the  words  'not  involving  the  carrying  on  of  any
activity for profit' should be added to the definition."

It is obvious that  the  exclusionary  clause  was  added  with  a  view  to
overcoming the decision of the Privy Council in the Tribune  case [AIR  1939
PC 208 : In Re the Trustees of the Tribune, (1939) 7 ITR 415] where  it  was
held that the object of supplying the community with an  organ  of  educated
public opinion by publication of  a  newspaper  was  an  object  of  general
public utility and hence charitable in character, even though  the  activity
of publication of the newspaper was carried on  commercial  lines  with  the
object of earning profit. The publication of the newspaper was  an  activity
engaged in by the trust for the  purpose  of  carrying  out  its  charitable
purpose and on the facts it was clearly an activity which had profit  making
as its predominant  object,  but  even  so  it  was  held  by  the  Judicial
Committee that since the purpose served was  an  object  of  general  public
utility, it was a charitable purpose. It is clear from  the  speech  of  the
Finance Minister that it was with a view to setting at naught this  decision
that the exclusionary clause was added  in  the  definition  of  "charitable
purpose". 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. It would indeed be difficult for persons in charge  of  a  trust  or
institution to so carry on the activity that the  expenditure  balances  the
income and there is no resulting profit. That would not  only  be  difficult
of practical  realisation  but  would  also  reflect  unsound  principle  of
management. We,  therefore,  agree  with  Beg,  J.,  when  he  said  in Sole
Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax)  14  :
(1975) 101 ITR 234] 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  the  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.

 The application of  this  test  may  be  illustrated  by  taking  a  simple
example. Suppose the Gandhi Peace Foundation which has been established  for
propagation of Gandhian thought and philosophy, which  would  admittedly  be
an object of general public utility, undertakes  publication  of  a  monthly
journal for the purpose of carrying out this charitable object  and  charges
a small price which is more than the cost of the publication  and  leaves  a
little  profit,  would  it  deprive  the  Gandhi  Peace  Foundation  of  its
charitable character? The pricing of the monthly journal  would  undoubtedly
be made in such a manner that it leaves some profit  for  the  Gandhi  Peace
Foundation, as, indeed, would be done by any prudent  and  wise  management,
but that cannot have the effect of polluting  the  charitable  character  of
the purpose, because the predominant object of the activity  of  publication
of the monthly journal would be to  carry  out  the  charitable  purpose  by
propagating Gandhian thought and philosophy and not to  make  profit  or  in
other words, profit making would  not  be  the  driving  force  behind  this
activity. But it is possible that in a given case the degree  or  extent  of
profit making may be  of  such  a  nature  as  to  reasonably  lead  to  the
inference that the real object of the activity  is  profit  making  and  not
serving the charitable purpose. If, for example, in the  illustration  given
by us, it is found that the publication of the monthly  journal  is  carried
on wholly on commercial lines and the pricing  of  the  monthly  journal  is
made on  the  same  basis  on  which  it  would  be  made  by  a  commercial
organisation leaving a large margin of profit,  it  might  be  difficult  to
resist the inference that the activity of  publication  of  the  journal  is
carried on for profit and the purpose is non-charitable. We may take by  way
of illustration another example given by Krishna  Iyer,  J.,  in  the Indian
Chamber of Commerce case [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975)  101
ITR 796] where a blood bank collects blood on  payment  and  supplies  blood
for a higher price on commercial basis. Undoubtedly, in  such  a  case,  the
blood bank would be serving an object of general public  utility  but  since
it advances the charitable object by sale of blood as  an  activity  carried
on with the object of making profit, it  would  be  difficult  to  call  its
purpose charitable. Ordinarily there should be no difficulty in  determining
whether  the  predominant  object  of  an  activity  is  advancement  of   a
charitable purpose or profit  making.  But  cases  are  bound  to  arise  in
practice which may be on the borderline and in such cases  the  solution  of
the problem whether the purpose  is  charitable  or  not  may  involve  much
refinement and present real difficulty.

There is, however, one comment which is necessary to be made whilst  we  are
on this point and that arises out  of  certain  observations  made  by  this
Court in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC  254  :  1976
SCC (Tax) 14 : (1975) 101 ITR 234] as well  as Indian  Chamber  of  Commerce
case [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796]  .  It  was
said by Khanna, J. in Sole Trustee, Loka Shikshana Trust case [(1976) 1  SCC
254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] :

"[I]f the activity of a trust consists of carrying on a business  and  there
are no restrictions on its making profit, the court would be well  justified
in assuming in the absence of some  indication  to  the  contrary  that  the
object of the trust involves the carrying on of an activity for profit."

And to the same effect, observed Krishna Iyer, J. in the Indian  Chamber  of
Commerce case [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975)  101  ITR  796]
when he said:

"An undertaking by a business organisation is ordinarily assumed to  be  for
profit  unless  expressly  or  by  necessary  implication  or  by   eloquent
surrounding circumstances the making of profit stands loudly negatived  ....
A pragmatic condition, written or unwritten, proved  by  a  prescription  of
profits or by long years, of invariable practice or spelt from  some  strong
surrounding circumstances indicative of  anti-profit  motivation  -  such  a
condition will qualify for charitable purpose."

Now we entirely agree with the learned Judges who decided  these  two  cases
that activity involved in carrying out the charitable purpose  must  not  be
motivated by a profit objective but it must be undertaken  for  the  purpose
of advancement or carrying out of the charitable purpose.  But  we  find  it
difficult to accept their thesis that whenever an  activity  is  carried  on
which yields profit,  the  inference  must  necessarily  be  drawn,  in  the
absence of some indication to the contrary, that the activity is for  profit
and the charitable purpose involves the  carrying  on  of  an  activity  for
profit. We do not think the Court would be justified  in  drawing  any  such
inference merely because the activity  results  in  profit.  It  is  in  our
opinion not at  all  necessary  that  there  must  be  a  provision  in  the
constitution of the trust or institution that the activity shall be  carried
on no profit no loss basis or that  profit  shall  be  proscribed.  Even  if
there is no such express provision, the nature of  the  charitable  purpose,
the manner in which the activity for advancing  the  charitable  purpose  is
being carried on and the  surrounding  circumstances  may  clearly  indicate
that the activity is not propelled by a  dominant  profit  motive.  What  is
necessary to be considered is whether having regard to  all  the  facts  and
circumstances of the case, the dominant object of  the  activity  is  profit
making or carrying out a charitable  purpose.  If  it  is  the  former,  the
purpose would not be a charitable purpose, but, if it  is  the  latter,  the
charitable character of the purpose would not be lost.



9.    Coming  closer  to  the  section  at  hand,  in  Aditanar  Educational
Institution v. Additional Commissioner of Income Tax, (1997)  224  ITR  310,
this Court while construing the predecessor Section, namely, Section  10(22)
of the Income Tax act, held:

"The High Court has made an observation that any income which has  a  direct
relation or incidental to the running  of  the  institution  as  such  would
qualify for exemption. We may state that the language of Section  10(22)  of
the Act is plain and clear and the availability of the exemption  should  be
evaluated each year to find out whether the institution existed  during  the
relevant year solely for educational purposes and not for  the  purposes  of
profit. After meeting the expenditure, if any surplus  results  incidentally
from the activity lawfully carried on by  the  educational  institution,  it
will not cease to be one existing solely for educational purposes since  the
object is not one to make profit. The decisive or acid test  is  whether  on
an overall view of the matter, the object is to make profit.  In  evaluating
or  appraising   the   above,   one   should   also   bear   in   mind   the
distinction/difference between the corpus, the objects  and  the  powers  of
the concerned entity."



10.   In American Hotel &  Lodging  Assn.  Educational  Institute  v.  CBDT,
(2008) 301 ITR  86, this Court dealt with Section 10(23C)(vi) as follows:

"29. In CIT v. Surat Art Silk Cloth Manufacturers' Assn. [(1980) 2 SCC 31  :
1980 SCC (Tax) 170 : (1980) 121 ITR 1] it has been held by this  Court  that
test of predominant object of the activity is to be seen whether  it  exists
solely for education and not to earn profit. However, the purpose would  not
lose its character merely because some  profit  arises  from  the  activity.
That, it is not  possible  to  carry  on  educational  activity  in  such  a
way that the expenditure  exactly  balances  the  income  and  there  is  no
resultant profit, for, to achieve this,  would  not  only  be  difficult  of
practical realisation but would reflect unsound  principles  of  management.
In order to ascertain whether the institute is carried on  with  the  object
of making profit or not it is  the  duty  of  the  prescribed  authority  to
ascertain whether the balance of income is applied  wholly  and  exclusively
to the objects for which the applicant is established.

30. In deciding the character of the recipient, it is not necessary to  look
at the profits of each year, but to consider the nature  of  the  activities
undertaken in  India.  If  the  Indian  activity  has  no  correlation  with
education, exemption has to be denied (see judgment of this Court  in Oxford
University Press [(2001) 3 SCC 359 : (2001) 247 ITR 658] ).  Therefore,  the
character of the recipient of income  must  have  character  of  educational
institution in India to be ascertained from the nature  of  the  activities.
If  after  meeting  expenditure,   surplus   remains incidentally from   the
activity carried on by the educational institution, it will not cease to  be
one existing solely for educational 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  Institutionv. 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.

32. 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 apply  to  Section  10(23-C)(vi).
The problem arises with the insertion of  the  provisos  to  Section  10(23-
C)(vi). With the insertion of  the  provisos  to  Section  10(23-C)(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
PA, in terms of  Section  10(23-C)(vi)  by  making  an  application  in  the
standardised form as mentioned in the first proviso to  that  section.  That
condition of obtaining approval from the PA  came  to  be  inserted  because
Section 10(22) was abused  by  some  educational  institutions/universities.
This proviso was inserted along with other provisos  because  there  was  no
monitoring mechanism  to  check  abuse  of  exemption  provision.  With  the
insertion of the first proviso, the PA is required to vet  the  application.
This vetting process is stipulated by the second proviso. Under the  twelfth
proviso, the PA is required to examine cases where  an  applicant  does  not
apply its income during the year of receipt and  accumulates  it  but  makes
payment therefrom to any trust or institution registered under  Section  12-
AA  or  to  any  fund  or  trust  or  institution  or  university  or  other
educational 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 PA  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 PA is empowered to withdraw the approval  earlier  granted.  Under
that proviso, if the PA 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  is  granted
then the PA is empowered to withdraw  the  approval  earlier  granted  after
complying with the procedure mentioned therein.

33. 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.

34. To make the section with the proviso workable we are of  the  view  that
the monitoring conditions in the third proviso like  application/utilisation
of income, pattern of investments to be made, etc. could  be  stipulated  as
conditions by the PA subject to which approval could be granted."



11.   Thus, the law common to  Section  10(23C)  (iiiad)  and  (vi)  may  be
summed up as follows:

Where an educational  institution  carries  on  the  activity  of  education
primarily for educating persons, 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.

The predominant object test must be  applied  -  the  purpose  of  education
should not be submerged by a profit making motive.

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.

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.

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.

 12.  The Uttarakhand  High  Court  in  the  impugned  judgment  dated  24th
September, 2007 quoted the ITAT order in paragraph 7 as follows:

      "The ITAT while  granting  exemption  under  Section  10(23C)  (iiiad)
recorded the following reasons:

"During the years relevant for asstt. Year 2000-01 and 2001-02,  the  excess
of  income  over  expenditure  stood  at  Rs.6,58,862/-  and   Rs.7,82,632/-
respectively.  It was also noticed  that  the  appellant  society  had  made
investment in fixed assets including building at Rs.9,52,010/- in F.Y. 1999-
2000 and Rs.8,47,742/- in FY 2000-01 relevant for Asstt. Years  2000-01  and
2001-02 respectively.  Thus, if the amount of investment into  fixed  assets
such as building, furniture and fixture etc. were also kept in  view,  there
was hardly any  surplus  left.....   The  assessee  society  is  undoubtedly
engaged in imparting education and  has  to  maintain  a  teaching  and  non
teaching staff and has to  pay  for  their  salaries  and  other  incidental
expenses.  It, therefore, becomes necessary to charge certain fee  from  the
students for meeting all these expenses.  The charging of fee is  incidental
to the prominent objective of  the  trust  i.e.  imparting  education.   The
trust was initially  running  the  school  in  a  rented  building  and  the
surplus, i.e. the excess of the receipts over expenditure.

In the year under appeal (and  in  the  earlier  appeals)  has  enabled  the
appellant to acquire its own property,  acquire  computers,  library  books,
sports  equipments  etc.  for  the  benefit  of  the  students.   And   more
importantly the members of the society have not utilized  any  part  of  the
surplus for their own benefit.  The AO  wrongly  interpreted  the  resultant
surplus as the main objective of the assessee trust.  As held above,  profit
is only incidental to the main object of spreading education.  If  there  is
no surplus out of the difference between receipts and outgoings,  the  trust
will not be able to  achieve  the  objectives.   Any  education  institution
cannot be run in rented premises for all the  times  and  without  necessary
equipment and without paying to the staff engaged  in  imparting  education.
The  assessee  is  not  getting  any  financial  aid/assistance   from   the
Government or other philanthropic agency  and,  therefore,  to  achieve  the
objective, it has to raise its own funds.  But such surplus would  not  come
within the ambit of denying exemption u/s 10(23C) (iiiad) of the Act."



13.   Having set out the ITAT order, the Uttarakhand High Court held:

"Thus, in view of the established fact relating to earned profit, we do  not
agree with the reasoning given by the ITAT for granting exemption."



14.   Having said this, the impugned judgment  goes  on  to  quote  Aditanar
Educational Institution v. CIT. as follows:-

"After meeting the expenditure, if any surplus result incidentally from  the
activity lawfully carried on by the educational  institution,  it  will  not
cease to be one existing solely for educational purpose since the object  is
not one to make profit.  The decisive or acid test is whether on an  overall
view of the matter,  the  object  is  to  make  profit.   In  evaluating  or
appraising  the  above,  one  should  also  bear  in  mind  the  distinction
difference between the corpus, the  objects  and  powers  of  the  concerned
entity.

      If one looks at the object clause, there are  other  noble  and  pious
objects but assessee society has done nothing to achieve the  other  objects
except pursuing main object  of  providing  education  and  earning  profit.
Further, with profit earned the society has  strengthened  or  enhanced  its
capacity to earn more rather than to fulfill other  noble  objects  for  the
cause of poor and needy people or advancement of religious purpose.

      Therefore, the law laid down  by  the  Apex  Court  has  rightly  been
applied and exemption  has  also  rightly  been  refused  by  the  Assessing
Officer in the facts and circumstances of the case."



15.   It is clear that the High Court did not apply its mind  independently.
 What has been copied is one paragraph from the Supreme  Court  judgment  in
Aditanar followed by a  paragraph  of  faulty  reasoning  by  the  Assessing
Officer and the said faulty reasoning of  the  Assessing  Officer  has  been
wrongly said to be the law laid down by the Apex Court.

16.   Further, the Supreme Court Judgment in Municipal Corpn.  of  Delhi  v.
Children Book Trust and Safdarjung Enclave  Educational  Society,  (1992)  3
SCC 390 has then  been  followed.   The  aforesaid  judgment  dealt  with  a
property tax provision, namely, Section  115  (4)  of  the  Delhi  Municipal
Corporation Act, 1957.  Three questions were raised in the said judgment  as
follows:-

"56. In the present case, the questions which arise  for  our  determination
are:
(i) Whether the society or body is occupying and using the land and
building for a charitable purpose within the meaning of sub-section (4)?
(ii) What is the meaning of the expression "supported wholly or in part by
voluntary contribution"?
(iii) Whether any trade or business is carried on in the premises within
the meaning of sub-section (5)?"


17.   In answering question one, the Court held that School Education  would
only come within an exemption if it  involved  public  benefit.   Having  so
held, the Court stated:

"78. The rulings arising out of Income Tax Act may  not  be  of  great  help
because in the Income Tax Act "charitable purpose" includes  the  relief  of
the poor, education, medical relief and the advancement of any other  object
of general public utility. The advancement of any other  object  of  general
public utility is not found under the Delhi Municipal  Corporation  Act.  In
other words, the definition is narrower in scope.  This  is  our  answer  to
question No. 1."



18.   Secondly,  the  extracted  portion  from  the  said  judgment  in  the
judgment of the Uttarakhand High Court concerned itself with  question  two,
namely, whether the educational society is supported wholly or  in  part  by
voluntary contributions.  It is part of paragraph 80 of the  said  judgment.
If the sentences after the quoted portion  are  also  set  out,  it  becomes
clear that the passage relied upon by the High Court has absolutely  nothing
to do with the present case. The entirety of the  passage  is  now  set  out
hereinbelow:

"82. ...In other words, what we want to stress is, where a society  or  body
is making systematic profit, even though that profit is  utilised  only  for
charitable purposes, yet it cannot be said that it  could  claim  exemption.
If, merely qualitative test is applied to societies, even schools which  are
run on commercial basis making profits  would  go  out  of  the  purview  of
taxation and could demand exemption. Thus, the test, according to  us,  must
be  whether  the  society  could   survive   without   receiving   voluntary
contributions, even though it may have some income by the activities of  the
society.  The  word  "part"  mean  an  appreciable   amount   and   not   an
insignificant one. The "part" in other  words,  must  be  substantial  part.
What is substantial would depend upon the facts and  circumstances  of  each
case."



19.   It is clear, therefore, that the Uttarakhand High Court has  erred  by
quoting  a  non  existent  passage  from  an  applicable  judgment,  namely,
Aditanar and quoting a portion of a property tax  judgment  which  expressly
stated that rulings  arising  out  of  the  Income  Tax  Act  would  not  be
applicable.  Quite apart from this, it also went on to further quote from  a
portion of the said property tax judgment which was rendered in the  context
of whether an  educational  society  is  supported  wholly  or  in  part  by
voluntary contributions, something which is completely  foreign  to  Section
10(23C) (iiiad). The final conclusion that  if  a  surplus  is  made  by  an
educational society and ploughed back to construct its  own  premises  would
fall foul of Section 10(23C) is to ignore the language of  the  Section  and
to ignore the tests laid down in the Surat Art  Silk  Cloth  case,  Aditanar
case and the American Hotel and Lodging case.   It  is  clear  that  when  a
surplus  is  ploughed  back  for  educational  purposes,   the   educational
institution exists solely for educational purposes and not for  purposes  of
profit. In fact, in S.RM.M.CT.M. Tiruppani Trust v. Commissioner  of  Income
Tax, (1998) 2 SCC 584, this Court in the context of  benefit  claimed  under
Section 11 of the Act held:

"9. In the present case, the assessee is  not  claiming  any  benefit  under
Section 11(2) as it cannot; because in respect of this assessment year,  the
assessee has not complied with the conditions laid down  in  Section  11(2).
The  assessee,  however,  is  entitled  to  claim  the  benefit  of  Section
11(1)(a). In the present case, the assessee  has  applied  Rs  8  lakhs  for
charitable purposes in India  by  purchasing  a  building  which  is  to  be
utilised as a hospital. This income, therefore, is entitled to an  exemption
under Section 11(1). In addition, under Section 11(1)(a), the  assessee  can
accumulate 25% of its total income pertaining  to  the  relevant  assessment
year and claim exemption in  respect  thereof.  Section  11(1)(a)  does  not
require investment of this limited accumulation  in  government  securities.
The balance income of Rs  1,64,210.03  constitutes  less  than  25%  of  the
income for Assessment Year 1970-71. Therefore, the assessee is  entitled  to
accumulate this income and claim exemption from  income  tax  under  Section
11(1)(a)."


We set  aside  the  judgment  of  the  Uttarakhand  High  Court  dated  24th
September, 2007.  The reasoning of the ITAT (set aside by  the  High  Court)
is more in consonance with the law laid down by this Court, and  we  approve
its decision.

20.   Revenue's appeals from the  Punjab  and  Haryana  High  Court  concern
themselves with Sections 10(23C) (vi).  A large  number  of  writ  petitions
were heard in Civil Writ Petition No. 6031 of 2009 and disposed of  on  29th
January,  2010.   By  various  impugned  orders  passed,  the  Chief,   CIT,
Chandigarh withdrew exemptions granted under Section  10(23C)  (vi)  of  the
Income Tax Act read with Rule 2CA of Income Tax  Rules,  1961,  for  various
assessment years.  The operative part of the order passed by the Chief,  CIT
in these cases is the same and reads as follows:

"4. I have considered the submissions of the assessee. The decisions  quoted
in support of its contention are not relevant  and  are  distinguishable  on
facts as well as issues. It is clear that  the  ratio  of  the  decision  of
Hon'ble  Uttarakhand High Court is squarely applicable in this case.
5. The Hon'ble Supreme Court has held, in the case  of Aditanar  Educational
Institution etc. v. Addl. Commissioner of Income  Tax [224  ITR  310  (SC)],
that  in  the  case  of  an  educational  institution,  after  meeting   the
expenditure, if any surplus results incidentally, then the institution  will
not cease to be one existing solely for educational purposes.
6. The crucial condition is that surplus  should  result  only  incidentally
and should not be aimed for. If substantial profits are earned in  one  year
if (it)?would be  duty  of  the  institution  to  lower  its  fees  for  the
subsequent year so that such profits are not  intentionally  generated.  If,
however, profits continue year after year than it cannot be  said  that  the
surplus is arising incidentally.
7. In the present ease, the profits are substantial  and  are  arising  year
alter year and therefore, the  decision  of  the  Apex  Court  in  the  case
of Aditanar Education Institution v. 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 4th June, 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."


21.   It is these orders that were set aside by the judgment of  the  Punjab
and Haryana High Court impugned by the Revenue before us.

22.   Section 10(23C)(vi) read with the 3rd and 13th  provisos  thereto  and
Section 11(5) of the Income Tax Act are as follows:-

"Section 10- Incomes not included in total income.-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-

(23-C) any income received by any person on behalf of-

 (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 (iii-ab) or sub-clause (iii-ad)  and  which  may  be
approved by the prescribed authority

Provided also 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 sub-clause (v)[or sub-clause (vi) or  sub-
clause   (vi-a)]-[(a) applies   its   income, or    accumulates    it    for
application, wholly  and  exclusively  to  the  objects  for  which  it   is
established and in a case where more than fifteen per cent of its income  is
accumulated on or after the  1st  day  of  April, 2002, the  period  of  the
accumulation of the amount exceeding fifteen per cent of  its  income  shall
in no case exceed five years; and;].

      [(b) does not invest or deposit its funds, other than-

(i) any assets held by the fund, trust or institution [or any university  or
other educational institution or any hospital or other medical  institution]
where  such  assets  form  part  of  the  corpus  of  the  fund,  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;

 [(i-a) 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  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 (i-a)], 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:

    Provided also that where the fund or institution  referred  to  in  sub-
clause (iv) or  trust  or  institution  referred  to  in   sub-clause (v) is
notified by the Central Government or any university  or  other  educational
institution referred to in sub-clause (vi) or any hospital or other  medical
institution referred to in sub-clause (vi-a), is approved by the  prescribed
authority and subsequently that Government or the  prescribed  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 educational institution or any hospital  or
other medical institution and to the Assessing Officer;]

Section 11. Income from property held for charitable or religious purposes.-


 (5) The forms and modes of investing or depositing the  money  referred  to
in clause (b) of sub-section (2) shall be the following, namely:-

(i) investment in savings certificates as defined in clause (c)  of  Section
2 of the Government Savings Certificates Act, 1959 (46  of  1959),  and  any
other securities or certificates issued by the Central Government under  the
Small Savings Schemes of that Government;

(ii) deposit in any account with the Post Office Savings Bank;

(iii) deposit in any account with a scheduled bank or a cooperative  society
engaged in carrying on the business  of  banking  (including  a  cooperative
land mortgage bank or a cooperative land development bank).

Explanation.-In this clause, "scheduled bank" means the State Bank of  India
constituted under the State  Bank  of  India  Act,  1955  (23  of  1955),  a
subsidiary bank as defined in the State Bank  of  India  (Subsidiary  Banks)
Act, 1959 (38 of 1959), a corresponding new bank constituted  under  Section
3 of the Banking Companies (Acquisition and Transfer of  Undertakings)  Act,
1970 (5 of 1970), or under Section 3 of the Banking  Companies  (Acquisition
and Transfer of Undertakings) Act, 1980 (40 of  1980),  or  any  other  bank
being a bank included in the Second Schedule to the Reserve  Bank  of  India
Act, 1934 (2 of 1934);

(iv) investment in units of the Unit Trust of India  established  under  the
Unit Trust of India Act, 1963 (52 of 1963);

(v) investment in any security for money created and issued by  the  Central
Government or a State Government;

(vi) investment in debentures issued by, or on behalf  of,  any  company  or
corporation both the principal whereof and the interest  whereon  are  fully
and unconditionally guaranteed by the  Central  Government  or  by  a  State
Government;

(vii) investment or deposit in any public sector company:

[Provided that where an investment or deposit in any public  sector  company
has been made and such public sector company ceases to be  a  public  sector
company,-

(A) such investment made in the shares of such company shall  be  deemed  to
be an investment made under this clause for a period  of  three  years  from
the date on which such public sector company ceases to be  a  public  sector
company;

(B) such other investment or deposit shall be deemed to be an investment  or
deposit made under this clause for the period up to the date on  which  such
investment or deposit becomes repayable by such company;].

(viii) deposits with or investment  in  any  bonds  issued  by  a  financial
corporation which is engaged in providing long-term finance  for  industrial
development in India and [which  is  eligible  for  deduction  under  clause
(viii) of sub-section (1) of Section 36];

(ix) deposits with or investment in any bonds issued  by  a  public  company
formed and registered in India with the  main  object  of  carrying  on  the
business of providing long-term finance  for  construction  or  purchase  of
houses  in  India  for  residential  purposes  and[which  is  eligible   for
deduction under clause (viii) of sub-section (1) of Section 36];

[(ix-a) deposits with or investment in any bonds issued by a public  company
formed and registered in India with the  main  object  of  carrying  on  the
business of providing long-term finance for urban infrastructure in India.

Explanation.-For the purposes of this clause,-

(a) "long-term finance" means any loan or  advance  where  the  terms  under
which moneys are  loaned  or  advanced  provide  for  repayment  along  with
interest thereof during a period of not less than five years;

(b) "public company" shall have the meaning assigned to it in Section  3  of
the Companies Act, 1956;

(c) "urban infrastructure" means  a  project  for  providing  potable  water
supply, sanitation and sewerage, drainage, solid  waste  management,  roads,
bridges and flyovers or urban transport;].

(x) investment in immovable property.

Explanation.-"Immovable property" does not include any  machinery  or  plant
(other than machinery or plant installed in a building  for  the  convenient
occupation  of  the  building)  even  though  attached  to,  or  permanently
fastened to, anything attached to the earth;

(xi) deposits with the Industrial  Development  Bank  of  India  established
under the Industrial Development Bank of India Act, 1964 (18 of 1964);

(xii)  any  other  form  or  mode  of  investment  or  deposit  as  may   be
prescribed."



23.   The Punjab and Haryana High Court,  by  the  impugned  judgment  dated
29th January, 2010 expressed its dissatisfaction with the view taken by  the
Uttarakhand High Court  in  the  case  of  Queen's  Educational  Society  as
follows:

"8.8 We have not  been  able  to  persuade  ourselves  to  accept  the  view
expressed by the Division Bench of the Uttrakhand High  Court  in  the  case
of Queens Educational Society (supra).  There  are  variety  of  reasons  to
support our opinion. Firstly, the scope of the third proviso was  not  under
consideration, inasmuch as,  the  case  before  the  Uttrakhand  High  Court
pertained to Section  10(23C)(iiiad)  of  the  Act.  The  third  proviso  to
Section 10(23C)(vi) is not  applicable  to  the  cases  falling  within  the
purview of Section 10(23C)(iiiad). Secondly, the judgment  rendered  by  the
Uttarkhand  High  Court  runs  contrary  to  the   provisions   of   Section
10(23C)(vi)  of  the  Act  including  the   provisos   thereunder.   Section
10(23C)(vi) of the Act is equivalent to the  provisions  of  Section  10(22)
existing earlier, which were introduced with effect  from  1st  April,  1999
and  it  ignores  the  speech  of  the  Finance  Minister  made  before  the
introduction of the said provisions, namely.  Section  10(23C)  of  the  Act
[See observations in American  Hotel  and  Lodging  Association  Educational
Institute's case (supra)].  Thirdly,  the  Uttrakhand  High  Court  has  not
appreciated correctly the ratio of the  judgment  rendered  by  Hon'ble  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  1st  April,  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 and Lodging Association Educational Institute (surpa)."



It then summed up its conclusions as follows:

"8.13  From the aforesaid discussion, the following principles  of  law  can
be summed up:-

(1) It is obligatory on the part of the Chief Commissioner of Income Tax  or
the Director, which are the prescribed authorities, to comply  with  proviso
thirteen (un-numbered). Accordingly, it has to be  ascertained  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  analogous  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  Hotel  and
Lodging Association's case (supra). Thus,  on  an  application  made  by  an
institution, the prescribed authority can grant  approval  subject  to  such
terms and conditions as it may deems fit  provided  that  they  are  not  in
conflict with the provisions of the Act. The parameters  of  earning  profit
beyond 15% and  its  investment  wholly  for  educational  purposes  may  be
expressly stipulated  as  per  the  statutory  requirement.  Thereafter  the
Assessing Authority may ensure compliance of  those  conditions.  The  cases
where exemption 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, alter 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 1st April, 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  application  wholly  and
exclusively for the purpose of education.

(6) The judgment of Uttrakhand High Court rendered  in  the  case  of Queens
Educational Society (supra) and the connected matters, is not applicable  to
cases fall within the provision of Section 10(23C)(vi)  of  the  Act.  There
are various reasons, which have been discussed in para 8.8 of the  judgment,
and the judgment of Allahabad  High  Court  rendered  in  the  case  of City
Montessori School (supra) lays down the correct law."

And finally held:

"8.15   As a  sequel  to  the  aforesaid  discussion,  these  petitions  are
allowed and the impugned orders passed by the Chief Commissioner  of  Income
Tax withdrawing the exemption granted under Section 10(23C)(iv) of  the  Act
are hereby quashed. However, the revenue is at liberty  to  pass  any  fresh
orders, if such a necessity is felt  after  taking  into  consideration  the
various propositions of law culled out by us in para 8.13 and various  other
paras.

8.16   The writ petitions stand disposed of in the above terms."



24.   The view of the Punjab and Haryana High Court  has  been  followed  by
the Delhi  High  Court  in  St.  Lawrence  Educational  Society  (Regd.)  v.
Commissioner of Income Tax & Anr.,  (2011) 53 DTR (Del) 130. Also in  Tolani
Education Society v. Deputy Director  of  Income  Tax  (Exemption)  &  Ors.,
(2013) 351 ITR 184, the Bombay High Court has expressed a view in line  with
the Punjab and Haryana High Court view,  following  the  judgments  of  this
Court in the Surat Art Silk Manufacturers  Association   Case  and  Aditanar
Educational Institution case as follows:

".....The fact that the 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  upgrading  its
infrastructure on educational facilities save on  the  pain  of  losing  the
benefit of the exemption under Section 10(23C). Imposing  such  a  condition
which is not contained in the statute would lead  to  a  perversion  of  the
basic purpose for which such exemptions have  been  granted  to  educational
institutions.  Knowledge  in  contemporary  times  is   technology   driven.
Educational institutions have to  modernise,  upgrade  and  respond  to  the
changing ethos of education.

Education  has  to  be  responsive  to  a  rapidly  evolving  society.   The
provisions of Section 10(23C) cannot be  interpreted  regressively  to  deny
exemptions. So  long  as  the  institution  exists  solely  for  educational
purposes and not for profit, the test is met."



25.   We approve the judgments of the Punjab and Haryana, Delhi  and  Bombay
High Courts. Since we have set aside the judgment of  the  Uttarakhand  High
Court and since the Chief CIT's orders cancelling exemption which  were  set
aside by the Punjab and Haryana High Court were passed  almost  solely  upon
the law declared by the Uttarakhand High  Court,  it  is  clear  that  these
orders cannot stand.  Consequently, Revenue's appeals from  the  Punjab  and
Haryana High Court's judgment dated 29.1.2010 and  the  judgments  following
it are dismissed. We reiterate  that  the  correct  tests  which  have  been
culled out in the three Supreme Court judgments stated above, namely,  Surat
Art Silk Cloth, Aditanar, and American Hotel and Lodging,  would  all  apply
to  determine  whether  an  educational  institution   exists   solely   for
educational purposes and not  for  purposes  of  profit.   In  addition,  we
hasten to add  that  the  13th  proviso  to  Section  10(23C)  is  of  great
importance in that assessing  authorities  must  continuously  monitor  from
assessment year to assessment year whether  such  institutions  continue  to
apply their income and invest or deposit their funds in accordance with  the
law laid down.  Further, it is of great importance that  the  activities  of
such institutions be looked at carefully.  If they are not genuine,  or  are
not being carried out in accordance  with  all  or  any  of  the  conditions
subject to which approval has been given, such approval and  exemption  must
forthwith be withdrawn. All these cases are  disposed  of  making  it  clear
that revenue is at liberty to pass fresh orders if such  necessity  is  felt
after taking into consideration the various provisions of law  contained  in
Section 10(23C) read with Section 11 of the Income Tax Act.

26.   We now come to Civil Appeal No.8962 of 2010.  Vide  a  judgment  dated
29th January, 2010, the Punjab and Haryana High Court dismissed CWP  No.7268
of 2009 in the following terms:

"8.   It is conceded position that the  assessee-petitioner  has  filed  the
application on 23.9.2008 seeking  exemption  under  Section  10(23C)(vi)  in
respect of assessment year 2008-09, which could have been filed  during  the
financial year 2007-08 i.e. on or before 31.3.2008.  It  is,  thus,  evident
that the application by the assessee petitioner has  been  filed  after  the
prescribed period and the Chief  Commissioner  of  Income  Tax  has  rightly
rejected the same being not maintainable.

9.    As a sequel to the above discussion, we find no  ground  to  interfere
with the impugned order passed by the  Chief  Commissioner  of  Income  Tax.
There is  no  merit  in  the  instant  petition  warranting  its  admission.
Accordingly, the writ petition fails and the same is dismissed."



27.   These being the facts, we see no reason to interfere.  This appeal
shall stand dismissed with no order as to costs.





............................................J.
                                  (T.S. Thakur)



............................................J.
                                  (R.F. Nariman)
New Delhi,
March 16, 2015.








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