The Income-tax Officer, Jammu V. M/s. Vipan Langer, Educational Trust, Rajouri.

ITA 503/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8933 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 31-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K V K SINGH
• Keywords: Capital asset; Charitable institution; Capital expenditure
• Section: 143(3); 12AA; 37; 12; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH; AMRITSAR (CAMP : JAMMU) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.503(ASR)/2014 ASSESSMENT YEAR:2010-11 PAN:AAATV9344A INCOME TAX OFFICER, VS. M/S. VIPAN LANGER EDUCATIO NAL WARD-2(3), JAMMU. TRUST, WARD NO.12, RAJOURI (J&K ) (APPELLANT) (RESPONDENT) APPELLANT BY:SH. K.V.K. SINGH, DR RESPONDENT BY:SH.VINAMAR GUPTA, CA DATE OF HEARING: 03/12/2015 DATE OF PRONOUNCEMENT: 01/01/2016 ORDER PER A.D. JAIN, JM: THIS THE DEPARTMENTS APPEAL FOR THE ASSESSMENT YE AR 2010-11, AGAINST THE ORDER, DATED 23.05.2014, PASSED BY THE LD. CIT(A), JAMMU. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APP EAL: 1. WHETHER THE LD. CIT(A) WAS RIGHT IN ALLOWING TH E EXEMPTION CLAIMED BY THE ASSESSEE U/S 10(23C)(IIIAD) OF THE I .T. ACT, 1961, IN RESPECT OF EXCESS OF INCOME OVER EXPENDITU RE. 2. WHETHER THE LD. CIT(A) WAS RIGHT IN ALLOWING THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 10(23C)(IIIAD) OF THE I .T. ACT, 1961, WHERE THE ASSESSEE DOES NOT HAVE REGISTRATI ON U/S 12AA OF THE ACT. 3. WHETHER THE LD. CIT(A) WAS RIGHT IN NOT CONSIDER ING THE INCOME/EXPENDITURE STATEMENT OF THE ASSESSEE WHICH CLEARLY SHOWS THAT THE ASSESSEE HAS GENERATED SURPLUS PROF IT OUT OF TOTAL RECEIPTS AND IT HAS NOT SPENT ALL ITS RECEIPT S ON ITS MAIN AIMS AND OBJECTS. 4. WHETHER THE LD. CIT(A) WAS RIGHT IN NOT CONSIDER ING THE DECISION OF HONBLE UTTRAKHAND HIGH COURT IN THE CA SE OF CIT VS. QUEENS EDUCATIONAL SOCIETY, HALDWANI AND CIT V S. ST. PAULS SR. SECONDLY SCHOOL, KATHYGODAM DATED 24.09.2 007 WHERE IN THE HONBLE HIGH COURT HAS ANSWERED THE IS SUE IN ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 2 NEGATIVE HOLDING THAT THE ASSESSE WAS NOT ENTITLED TO CLAIM THE DEDUCTION. THE RATIO OF THE DECISION IS SQUAREL Y APPLICABLE IN THE SAID CASE OF THE ASSESSEE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E TRUST IS ENGAGED IN RUNNING A SCHOOL AT RAJOURI UNDER THE NAME AND STYL E OF INTERNATIONAL SCHOOL. THE ASSESSEE-TRUST FILED THE RETURN OF INC OME DECLARING NIL TAXABLE INCOME AFTER CLAIMING EXEMPTION U/S 10(23C) (IIIAD) OF THE I.T. ACT ON SURPLUS OF RS.33,26,105/-. WHILE DECIDING THE CA SE U/S 143(3) OF THE I.T. ACT, THE AO DISALLOWED THE EXEMPTION CLAIMED. 3. THE AO OBSERVED THAT THE OBJECTS OF THE TRUST IN CLUDED MANY OBJECTS WHICH WERE OTHER THAN EDUCATION. A PLAIN RE ADING OF SEC. 10(23C) (IIIAD) MAKES IT CLEAR THAT THE INSTITUTION SHOULD EXIST SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSE OF PROFIT. THE ASSESSEE TRUST EXISTED NOT ONLY FOR PURPOSES OTHER THAN EDUCATION , BUT FOR THE PURPOSE OF PROFIT YEAR ON YEAR. THE INCOME/EXPENDITURE STAT EMENT SHOWED THAT THE TRUST HAD GENERATED SURPLUS PROFIT OUT OF TOTAL RECEIPTS AND IT HAD NOT SPENT ALL ITS RECEIPTS ON THE MAIN AIMS AND OBJECT S OF THE TRUST. AS PER THE DECISION OF THE HONBLE UTTRAKHAND HIGH COURT I N THE CASES OF CIT VS. QUEENS EDUCATIONAL SOCIETY, HALDWANI AND CIT VS . ST. PAULS SR. SECONDARY SCHOOL, KATHGODAM, DATED 24.09.2007, THE ASSESSEE WAS AN EDUCATIONAL SOCIETY IMPARTING EDUCATION TO CHILDRE N. DURING THE RELEVANT ASSESSMENT YEAR, THERE WAS SURPLUS IN ITS ACCOUNT BOOKS AFTER MEETING ALL EXPENSES INCURRED TOWARDS IMPARTING EDUCATION. IT INVESTED THE SAID SURPLUS IN FIXED ASSETS LIKE FURNITURE AND BUILDING S WITH A VIEW TO EXPAND THE INSTITUTION AND TO EARN MORE INCOME. THE HIGH C OURT WAS REQUIRED TO CONSIDER AS TO WHETHER THE ASSESSEE WAS ENTITLED T O EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT. THE HONBLE HIGH COURT A NSWERED THE ISSUE IN THE NEGATIVE, HOLDING THAT THE ASSESSEE WAS NOT ENT ITLED TO CLAIM THE DEDUCTION. THE RATIO OF THE ABOVE DECISION IS SQUAR ELY APPLICABLE IN THE CASE OF THE ASSESSEE. IN THE ABOVE DECISION, THE HO NBLE HIGH COURT RELIED ON THE HONBLE SUPREME COURTS DECISION IN THE CASE OF ADITANAR ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 3 EDUCATION INSTITUTION VS. ADDL. CIT REPORTED IN 224 ITR 310 (SC). THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD CLAIMED THAT THE LD. CIT(A) HAD DECIDED THE ISSUE IN THE ASSESSEES OWN CASE FOR T HE AY 2009-10, VIDE APPEAL NO. 155/11-12, DATED 05.11.2012, IN THE FAVO UR OF THE ASSESSEE, BUT THE DEPARTMENT HAD NOT ACCEPTED THE DECISION OF THE CIT(A) AND HAD FILED APPEAL BEFORE THE ITAT, AMRITSAR. THE AO ALSO OBSERVED THAT AFTER GOING THROUGH THE ACCOUNTS OF THE TRUST, IT WAS SEE N THAT THE ASSESSEE TRUST HAD GENERATED SURPLUS (PROFIT) OUT OF THEIR T OTAL RECEIPTS AND THAT IT COULD NOT BE ACCEPTED THAT THE SURPLUS GENERATED WA S MERELY INCIDENTAL. THE SURPLUS GENERATED HAD BEEN UTILIZED BY THE TRUS T FOR MAKING INVESTMENT IN FIXED ASSETS/CAPITAL ASSETS, THE CONS TRUCTION OF BUILDING, ETC., IN ORDER TO GENERATE LARGER SURPLUS AND NOT F OR THE UTILIZATION OF ALL THE OBJECTS OF THE TRUST. THE AO OBSERVED THAT IN T HE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UNION OF INDIA, THE DEPARTMENT HAD NOT ACCEPTED THE DECISION OF THE HONBLE P & H HIG H COURT AND HAD FILED SLP (C) NO. 5381/2011 BEFORE THE HONBLE SUPR EME COURT; AND THAT ON A SIMILAR ISSUE, IN THE CASE OF CCIT, AMRITSAR V S. AJANTA EDUCATIONAL CENTRE, THE DEPARTMENT HAD FILED SPECIAL LEAVE PETI TION SLP CIVIL NO.4445/2011 BEFORE THE HONBLE SUPREME COURT AGAIN ST THE DECISION DATED 20.05.2010 OF THE HONBLE P & H HIGH COURT. 4. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWAN CE. NOW, THE DEPARTMENT IS IN APPEAL BEFORE US. 5. THE LD. DR CONTENDED THAT THE LD. CIT(A) HAS ER RED IN ALLOWING THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 10(23C)(IIIAD ) OF THE ACT, EVEN THOUGH THE ASSESSEE TRUST IS NOT REGISTERED U/S 12 AA OF THE ACT. HE FURTHER CONTENDED THAT THE LD. CIT(A) IS NOT RIGHT IN CONSIDERING THE INCOME/EXPENDITURE STATEMENT OF THE ASSESSEE WHICH CLEARLY SHOWED THAT THE ASSESSEE HAD GENERATED SURPLUS PROFIT OUT OF TO TAL RECEIPTS AND IT HAD NOT SPENT ALL ITS RECEIPTS ON ITS MAIN AIMS AND OBJ ECTS. HE ALSO PLACED RELIANCE ON THE DECISIONS OF THE HONBLE UTTARAKHAN D HIGH COURT, IN THE CASE OF CIT VS. QUEENS EDUCATIONAL SOCIETY, HALDWAN I AND CIT VS. ST. ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 4 PAULS. SR. SECONDARY SCHOOL, KATHGODAM DATED 24.09. 2007, WHEREIN, THE HONBLE HIGH COURT HAS ANSWERED THE ISSUE IN THE NE GATIVE, HOLDING THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM THE DEDUCTIO N. 6. THE LD. COUNSEL FOR THE ASSESSEE, PER CONTRA, PL ACED RELIANCE ON THE ORDER OF THE AMRITSAR BENCH OF THE TRIBUNAL, IN THE ASSESSEES OWN CASE, DATED 05.09.2014, PASSED IN ITA NO.26(ASR)/2013 FOR THE ASSESSMENT YEAR 2009-10, WHEREIN THE TRIBUNAL HAS UPHELD THE O RDER OF THE LD. CIT(A) ON SIMILAR FACTS AND CIRCUMSTANCES. THE LD. COUNSEL FURTHER STATED THAT THE LD. CIT(A) HAS RIGHTLY GRANTED EXEMPTION U/S 10 (23C)(IIIAD) OF THE ACT TO THE ASSESSEE. FURTHER, HE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT, DATED 16.03.2015, IN M/S. Q UEENS EDUCATIONAL SOCIETY VS. COMMISSIONER OF INCOME TAX AND OTHER C ONNECTED CASES. 7. THE FACTS OF THE PRESENT CASE ARE NOT IN DISPUTE . THE ASSESSEE TRUST IS RUNNING A SCHOOL IN A REMOTE AREA OF RAJOURI (J & K) AND AS PER RECORD, IT IS NOT CARRYING OUT ANY OTHER ACTIVITY. FOR THE YEAR UNDER CONSIDERATION, I.E., ASSESSMENT YEAR 2010-11, THE A SSESSEE HAD GROSS RECEIPTS FROM THIS ACTIVITY, OF LESS THAN ONE CRORE AND THUS, IT CLAIMED EXEMPTION U/S 10(23C)(IIIAD). THE ASSESSEE IS NOT G ETTING GOVERNMENT AID AND IS RUNNING THE INSTITUTION FROM ITS OWN FUNDS. THE ASSESSEE HAD A SURPLUS OF RS.33,26,105/- IN THE YEAR, WHICH WAS SP ENT FOR EDUCATIONAL PURPOSES, INCLUDING ON CONSTRUCTION OF SCHOOL BUILD ING. THE AO DISALLOWED THIS SURPLUS ON THE GROUND THAT THE ASSE SSEE HAD A FEW MORE OBJECTIVES OTHER THAN THE OBJECT OF EDUCATION. THE OBJECTS OF THE ASSESSEE TRUST ARE AS UNDER: 1. TO UNDERTAKE EDUCATIONAL ACTIVITIES AND FOR THIS PURPOSE TO CONSTRUCT, RUN AND MAINTAIN SCHOOL, COLLEGES AND EDUCATIONAL CENTRES. 2. TO GRANT SCHOLARSHIPS, STIPENDS, PRIZES, REWARDS , FINANCIAL ANOTHER ASSISTANCE TO STUDENTS. 3. TO ESTABLISH LIBRARIES AND BOOK BANKS FOR THE B ENEFIT OF THE STUDENTS. 4. TO PURCHASE AND MAINTAIN PLAY GROUND FOR THE PUR POSE OF STUDENTS. ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 5 5. TO CONSTRUCT, MAINTAIN AND RUN HOSTELS FOR THE B ENEFIT OF STUDENTS. 6. TO CONDUCT EDUCATIONAL TOURS AND DEBATES FOR TH E EXPANSION OF KNOWLEDGE AND BETTERMENT OF THE STUDENTS. 7. TO PUBLISH LITERATURE OF THE BETTERMENT OF THE S TUDENTS. 8. TO PROVIDE HEALTH SERVICES, MEDICAL AID OF ALL S ORTS TO THE PUBLIC AND FOR THIS PURPOSE ESTABLISH, PROMOTE, SU PPORT, MAINTAIN, HELP AND RUN NURSING HOME, MEDICAL CAMPS, HOSPITALS, MEDICAL INSTITUTES ETC. 9. TO TAKE OVER ANY OTHER TRUST OR SOCIETY OR ORGAN IZATION CARRYING ON THE ACTIVITIES OF IMPARTING EDUCATION O R MEDICAL RELIEF OF THE POOR AND WHOSE OBJECTS ARE SIMILAR TO THE OBJECT OF THIS TRUST. 10. TO HELP AND ASSIST POOR AND DESERVING PEOPLE IN MARRIAGE. 11. TO MAKE DONATION TO OTHER PUBLIC CHARITABLE TRUST/INSTITUTIONS HAVING OBJECTS SIMILAR TO THIS T RUST. 12. TO ASSIST HOSPITALS IN SETTING UP THE VARIOUS F ACILITIES SUCH AS BLOOD BANK, EYE BANK, BURN CENTRES, ETC., FOR THE P OOR PATIENTS. 13. TO PROMOTE AND ADVANCE MORAL EDUCATION CHARITY AND GENERAL WELFARE OF THE PEOPLE. 14. TO RENDER FINANCIAL ASSISTANCE TO THE POOR AND THE DISADVANTAGED. 15. TO DO ALL ACTS NECESSARY AND CONDUCIVE TO THE A CHIEVEMENT OF THE OBJECT OF OBJECTS MENTIONED HEREINABOVE. 8. IT IS SEEN THAT THE AO DOES NOT APPEAR TO HAVE ANY PROBLEM WITH OBJECT NOS. 1 TO 7 AND PARTLY, OBJECT NOS. 9, 11 AN D 15 OF THE ASSESSEE TRUST. THESE ARE THE OBJECTS WITH REGARD TO EDUCAT ION. THE AOS OBJECTION IS REGARDING OBJECT NOS. 8, 10 TO14 AND PARTS OF OBJECT NOS. 9, 11 AND 15. 9. TO REITERATE, OBJECT NO. 8 CONCERNS PUBLIC HEA LTH SERVICES AND MEDICAL AID; OBJECT NO. 10 IS ABOUT ASSISTANCE TO T HE POOR AND DESERVING IN MARRIAGE; OBJECT NO. 12 TALKS OF ASSISTANCE TO H OSPITALS IN SETTING UP HEALTH FACILITIES FOR POOR PATIENTS; OBJECT NO. 13 IS REGARDING PROMOTION AND ADVANCEMENT OF MORAL EDUCATION AND CHARITY AND THE GENERAL WELFARE OF THE PEOPLE; AND OBJECT NO. 14 SEEKS TO RENDER F INANCIAL ASSISTANCE TO THE POOR AND DISADVANTAGED. PART OF OBJECT NO. 9 RE LATES TO MEDICAL RELIEF TO THE POOR. OBJECT NO. 11 CONCERNS DONATION TO OTH ER TRUSTS/INSTITUTIONS ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 6 HAVING OBJECTS SIMILAR TO THOSE OF THE ASSESSEE, W HEREAS OBJECT NO.15 ADDRESSES DOING OF ALL ACTS NECESSARY AND CONDUCIVE FOR ACHIEVING ALL THE OTHER OBJECTS OF THE ASSESSEE. THUS, PARTS OF THESE TWO OBJECTS, IN SO FAR AS THEY DO NOT RELATE TO EDUCATION, ARE OBJECTED TO BY THE AO. 10. THE AO OBSERVES IN HIS ORDER (PARA 3.1) THAT THE OBJECTS OF THE ASSESSEE TRUST INCLUDE MANY OBJECTS WHICH ARE OTHE R THAN EDUCATIONAL. HOWEVER, THESE OTHER OBJECTS, AS ENUMERATED ABOVE , HAVE NOT BEEN SHOWN BY THE AO TO BE OBJECTS HAVING ANY PROFIT MOT IVE. NOW, THE REQUIREMENT OF SECTION 10(23C)(IIIAD) OF THE I.T. A CT IS THAT THE TRUST/INSTITUTION MUST NOT EXIST FOR PURPOSES OF PR OFIT. IN THE PRESENT CASE, NOTHING WAS BROUGHT ON THE RECORD BY THE AO, THAT THE ASSESSEE TRUST DID EXIST FOR ANY PROFIT MOTIVE WHATSOEVER. TO REITERA TE, THESE OTHER OBJECTS CONCERN MEDICAL RELIEF TO THE POOR, FINA NCIAL ASSISTANCE TO THE POOR AND ASSISTANCE IN MATRIMONY TO THE POOR AND DE SERVING. 11. MOREOVER, AS CORRECTLY TAKEN INTO CONSIDERATION BY THE LD. CIT(A), THE AO HAS NOT SHOWN, MUCH LESS PROVED, THE ASSESSE E TO HAVE CARRIED OUT ANY OF THESE OTHER OBJECTS, BESIDE EDUCATION. BEFORE US TOO, THE LD. CIT(A)S OBSERVATION IN THIS REGARD REMAINS UNCHALL ENGED. THE LD. CIT(A) HAS RECORDED, AND RIGHTLY SO, THAT THESE OTHER OBJ ECTS ARE MERELY OBJECTIVES ON PAPER. THE AO HAS NOT SHOWN THE ASS ESSEE TO HAVE CARRIED OUT ANY PROFIT EARNING ACTIVITY WHEREBY THE ASSESSEE CAN BE ALLEG ED TO BE EARNING PROFIT IN THE GARB OF SUCH OTHER OBJECTS. SO, FOR ALL INTENTS AND PURPOSES, THE ASSESSEE EXISTS SOLELY FOR EDUCATIONA L PURPOSES. MOREOVER, AS THE LD. CIT(A) HAS CORRECTLY NOTED, IN SECTION 1 0(23)(IIIAD), THE COMPARISON IS BETWEEN EDUCATIONAL AND PROFIT PURPOS ES, RATHER THAN BETWEEN EDUCATIONAL AND OTHER ONES. 12. IN CIT VS. GEETHA BHAVAN TRUST, 213 ITR 296 ( KER.) IT HAS BEEN HELD, DEALING WITH SECTION 10(22) OF THE ACT, WHICH PROVISION PRECEDED SECTION 10(23C)(IIIAD) ON THE STATUTE AND WHICH, FOR OUR PRESENT PURPOSES, IS IN PARI MATERIA WITH SECTION 10(23C)(I IIAD), THAT WHAT IS ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 7 RELEVANT IS THE SOURCE OF THE INCOME DERIVED FROM A N EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSE S. 13. IN THE PRESENT CASE, IT REMAINS UNDISPUTED THAT DURING THE YEAR, THE ASSESSEE TURST WAS RUNNING A SCHOOL IN A REMOTE AREA OF RAJOURI IN THE STATE OF JAMMU & KASHMIR. IT WAS CARRYING OUT N O OTHER ACTIVITY. IT WAS NOT GETTING ANY GOVERNMENT AID AND WAS RUNNING THE SCHOOL OUT OF ITS OWN FUNDS. THE GROSS RECEIPTS OF THE ASSESSEE F ROM THIS ACTIVITY OF RUNNING ITS SCHOOL WERE OF LESS THAN ONE CRORE RUPE ES. IT WAS, THEREFORE, THAT IT CLAIMED EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT. DURING THE YEAR, IT HAD A SURPLUS OF RS.33,26,105/-. THIS SURPLUS WA S FROM NO OTHER ACTIVITY, BUT OF RUNNING THE SCHOOL. THE ASSESSEE S PENT THIS SURPLUS FOR EDUCATIONAL PURPOSES, INCLUDING CONSTRUCTION OF SCH OOL BUILDING. THE LD. CIT(A) HAS RIGHTLY OBSERVED THAT SUCH A SURPLUS CAN NOT BE INTERPRETED AS EXISTING SOLELY FOR PROFIT. IN THIS REGARD, AS PER CIT VS. SURAT ART SILK MANFACTURERS ASSOCIATION, 121 ITR 1(SC), EVERY TR UST 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. NOW, 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. IN THE PRESENT CASE, UND ENIABLY, THE ONLY ACTIVITY OF THE ASSESSEE BEING IN ITS AVOWED FIELD OF EDUCAT ION, NO PROFIT MOTIVE CAN BE HELD TO BE EXISTING. 14. BESIDES, FOR THE IMMEDIATELY PRECEDING ASSESSME NT YEAR, I.E., AY 2009-10, A SIMILAR DISALLOWANCE WAS MADE BY THE AO IN THE ASSESSEES CASE. THE LD. CIT(A) DELETED THAT DISALLOWANCE. 15. BEFORE, THE AO, FOR THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE RELIED ON THE SAID ORDER OF THE LD. CIT(A). THE AO, HOWEVER, REJECTED SUCH RELIANCE, OBSERVING THAT THE DEPARTMENT WAS IN APPE AL BEFORE THE ITAT AGAINST THE CIT(A)S ORDER. THE LD. CIT(A), ON THE OTHER HAND, FOLLOWED HIS ORDER FOR AY 2009-10 IN FAVOUR OF THE ASSESSEE. ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 8 16. FOR ASSESSMENT YEAR 2009-10, THE ITAT, VIDE ORD ER DATED 05.09.2014, AUTHORED BY ONE OF US (THE J.M.), DECI DED THE DEPARTMENTS APPEAL AGAINST THE CIT(A)S ORDER. IT WAS HELD AS F OLLOWS: 6. HAVING HEARD THE RIVAL CONTENTIONS, WE FIND THA T THE AO DISALLOWED EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT , TO THE ASSESSEE- SOCIETY BY MERELY RELYING ON THE DECISION IN CIT V S. M/S. QUEENS EDUCATIONAL SOCIETY (SUPRA). M/S. QUEENS EDUCATIO NAL SOCIETY, HOWEVER, HAS BEEN DIFFERED WITH IN M/S. PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UNION OF INDIA AND OTHERS (SU PRA). IN PINEGROVE INTERNATIONAL CHARITABLE TRUST (SUPRA), IT WAS OBSERVED BY THE HONBLE PUNJAB & HARYANA HIGH COURT, THAT ME RELY BECAUSE THERE ARE SURPLUSES IN THE HANDS OF THE EDUCATIONAL INSTITUTION, WOULD NOT IPSO FACTO LEAD TO AN INEVITABLE CONCLUSI ON THAT SUCH AN EDUCATIONAL INSTITUTION IS EXISTING FOR MAKING PROF ITS AND NOT SOLELY FOR EDUCATIONAL PURPOSES., THAT, THEREFORE, THE INT ERPRETATION OF THE DEPARTMENT THAT THERE HAS TO BE A REASONABLE PROFIT AND THEN ONLY AN INSTITUTION CAN ONLY BE SAID TO BE NOT EXISTING SOL ELY FOR THE PURPOSES OF PROFIT, IS A MISCONCEPTION OF LAW., THAT THERE IS A DEFINITE PURPOSE BEHIND THE ALLOWING OF SETTING UP EDUCATIONAL INSTI TUTIONS AT THE HANDS OF PRIVATE ENTREPRENEURS INCLUDING TRUSTS/SO CIETIES BY THE GOVERNMENT., THAT VARIOUS OTHER EDUCATIONAL COLLEGE S, LIKE ENGINEERING COLLEGES AND PHARMACY COLLEGES, ETC. C OULD NOT HAVE BEEN ESTABLISHED FOR WANT OF FUNDS., THAT THE GOVER NMENT, WITH A DEFINITE IDEA AND OBJECT , OPENED THIS AREA OF EDUC ATION FOR THE PRIVATE SECTOR., THAT THE GOVERNMENT, LACKING FUNDS , APPEARS TO HAVE THOUGHT THAT THE PRIVATE SECTOR COULD DO THIS JOB V ERY WELL AND THAT ONCE THE VERY INTENTION OF THE GOVERNMENT IS TO PRO MOTE EDUCATION IN THE PRIVATE SECTOR, THE ACTION OF THE DEPARTMENT IN DISALLOWING EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT WOULD SERIO USLY DISCOURAGE THOSE ACTIVITIES AND THE AVOWED OBJECTED COULD NEVE R BE ACHIEVED. 6.1. IT WAS FURTHER OBSERVED THAT IN THE CASE OF T MA PAI FOUNDATION VS. STATE OF KARNATAKA, (2002) 8 SCC 48 1, THE CONSTITUTION BENCH COMPRISING OF 11 JUDGES OF THE H ONBLE SUPREME COURT, HAS HELD THAT PRIVATE EDUCATIONAL INSTITUTI ONS ARE BOUND TO GENERATE FUNDS FOR THE BETTERMENT AND GROWTH OF THE INSTITUTIONS AND FOR WHICH THERE MAY BE SURPLUSES FOR FURTHERANCE OF EDUCATION., THAT THEREFORE, IT IS NOT ONLY PERMISSIBLE, BUT AL SO AN IMPORTANT REQUIREMENT, TO RUN THE INSTITUTIONS OF SUCH A STRE NGTH. 6.2. IT WAS FURTHER OBSERVED THAT IN ADITANAR EDUC ATIONAL INSTITUTION ETC. VS. ADDL. CIT, (1997) 224 ITR 310 (SC), IT WAS HELD THAT WHEN SURPLUS IS UTILIZED FOR EDUCATIONAL PURPO SES, I.E., FOR ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 9 INFRASTRUCTURE DEVELOPMENT, IT CANNOT BE SAID THAT THE INSTITUTION WAS HAVING THE OBJECT TO MAKE PROFIT., THAT THE SURPLU S USED FOR MANAGEMENT AND BETTERMENT OF THE INSTITUTIONS COULD NOT BE TERMED AS PROFIT, THAT IF THE STAND OF THE DEPARTMENT IS ACCEPTED TO BE CORRECT, ESPECIALLY IN THE WAKE OF THE METHODOLOGY ADOPTED BY THE DEPARTMENT IN ASCERTAINING PROFITS, THEN NO EDUCAT IONAL INSTITUTION CAN BE SAID TO BE EXISTING SOLELY FOR EDUCATIONA L PURPOSES, AS IN EVERY CASE OF AN EDUCATIONAL INSTITUTION, THERE IS BOUND TO BE A PROFIT, THAT THE PROVISIONS OF SECTION 10(23C)(VI) WOULD BE RENDERED OTIOSE IF THE INTERPRETATION ADOPTED BY THE DEPARTMENT AND TH E MANNER IN WHICH THE EXEMPTION VALIDLY GRANTED WAS WITHDRAWN, WERE TO BE ACCEPTED, THAT THE APPROACH OF THE DEPARTMENT WAS W HOLLY ERRONEOUS, BEING CONTRARY TO THE EXPRESS PROVISIONS OF THE THIRD PROVISO TO SECTION 10(23C)(VI) OF THE ACT, SINCE UN LIKE THE PROVISIONS OF SECTION 37 AND 36(XII), THE INCURRING OF CAPITAL EX PENDITURE IS NOT EXPRESSLY EXCLUDED IN THE SAID THIRD PROVISO, AND IT HAD BEEN THE INTENTION OF THE LEGISLATURE TO EXCLUDE CAPITAL EXP ENDITURE WHILE APPLYING THE INCOME OF THE TRUST AS PER THE THIRD P ROVISO TO SECTION 10(23C)(VI), THE SAID PROVISO WOULD HAVE CONTAINED AN EXPRESS EMBARGO AGAINST SUCH EXCLUSION. 6.3. IT WAS ON THESE OBSERVATIONS THAT THE VIEW EXP RESSED IN M/S. QUEENS EDUCATIONAL SOCIETY (SUPRA) WAS NOT ACCEPTED . 6.4. THE ABOVE POSITION HAS BEEN DULY TAKEN INTO CO NSIDERATION BY THE LD. CIT(A) WHILE RIGHTLY GRANTING EXEMPTION U/S 10(23C)(IIIAD) OF THE ACT TO THE ASSESSEE. IT HAS ALSO CORRECTLY BEE N TAKEN INTO CONSIDERATION THAT THE ASSESSEE-TRUST WAS RUNNING A SCHOOL IN A REMOTE AREA OF RAJOURI IN J & K STATE AND WAS NOT C ARRYING OUT ANY OTHER ACTIVITY, THAT THE ASSESSEE HAD GROSS RECEIPT S FROM THIS ACTIVITY, OF LESS THAN RS. 1 CRORE AND HAD CLAIMED EXEMPTION U/S 10(23)(IIIAD), THAT THE ASSESSEE WAS NOT GETTING GOVERNMENT FUNDS AND WAS RUNNING THE INSTITUTION OUT OF ITS OWN SURPLUS, WHI CH WAS TO THE TUNE OF RS.28,34,859/- IN THE A.Y. 2009-10, I.E., THE YE AR UNDER CONSIDERATION, THAT THIS SURPLUS WAS SPENT BY THE A SSESSEE-SOCIETY FOR EDUCATIONAL PURPOSES AND IN CONSTRUCTION OF SCH OOL BUILDING, THAT THE AO HAD DISALLOWED THIS SURPLUS ON THE BASIS THA T THE ASSESSEE HAD A FEW MORE OBJECTIVES, WHICH WERE OTHER THAN T HE OBJECT OF EDUCATION, AND THAT HOWEVER, THESE OBJECTIVES WERE INCIDENTAL TO THE PURPOSES OF EDUCATION, OR PURELY FOR CHARITY IN THE FIELD OF HEALTH AND UPLIFTMENT OF THE POOR. 6.5. BEFORE US, THE DEPARTMENT HAS NOT BROUGHT AN YTHING ON RECORD TO PROVE THAT THE ASSESSEE-SOCIETY WAS ALSO CARRYING ON ANY OTHER ACTIVITY BESIDES EDUCATION, OR THAT THE FAC TUM OF THE ASSESSEE CARRYING ON EDUCATIONAL ACTIVITY WAS NEVER DISPUTED BY THE AO, OR THAT THE SOCIETY WAS NOT A SMALL INSTITUTION ONLY I MPARTING EDUCATION ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 10 TO THE CHILDREN IN A REMOITE AREA WHERE THERE IS HA RDLY ANY PRESENCE OF GOVERNMENT SCHOOLS. 6.6. BEFORE US, THOUGH IT WAS CONTENDED THAT THE LD . CIT(A) ERRED IN NOT FOLLOWING THE CASE OF M/S. QUEENS EDUCATION AL SOCIETY (SUPRA), THE DEPARTMENT HAS NOT BEEN ABLE TO PLACE ANYTHING ON RECORD TO COUNTER THE WELL REASONED, ELABORATE, FAC TUAL AS WELL AS LEGAL OBSERVATIONS ENTERED BY THE LD. CIT(A) AS DIS CUSSED HEREINABOVE. FURTHER, NO DECISION CONTRARY EITHER T O M/S. PINEGROVE INTERNATIONAL CHARITABLE TRUST (SUPRA), OR TO TMA PAI FOUNDATION VS. STATE OF KARNATAKA (SUPRA), OR TO ADITANAR EDUCAT IONAL INSTITUTION (SUPRA), HAS BEEN RELIED ON. 6.7. TO REITERATE, M/S. QUEENS EDUCATIONAL SOCIETY , HAS BEEN SPECIFICALLY DISAGREED WITH IN M/S. PINEGROVE INT ERNATIONAL CHARITABLE TRUST (SUPRA). 6.8. IN VIEW OF THE ABOVE DISCUSSION, FINDING NO ME RIT THEREIN, THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS HEREBY REJECTED. THUS, THE ORDER OF THE LD. CIT(A) STANDS CONFIRMED. 7. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED. 17. AS SEEN, THE ITAT HAS FOLLOWED PINE GROVE (SU PRA) OVER QUEENS EDUCATIONAL SOCIETY (SUPRA) TO UPHOLD THE CIT(A)S ACTION OF DELETING THE DISALLOWANCE FOR THE ASSESSMENT YEAR 2009-10. 18. FOR THE YEAR UNDER CONSIDERATION, THE AO HELD T HE DECISION OF THE HONBLE UTTARAKHAND HIGH COURT IN CIT VS. QUEENS EDUCATIONAL SOCIETY, 177 TAXMAN 326 (UTTARAKHAND) TO BE SQUARE LY APPLICABLE TO THE PRESENT CASE. THIS DECISION WAS DIFFERED WITH BY TH E HONBLE PUNJAB & HARYANA HIGH COURT IN PINE GROVE INTERNATIONAL CHA RITABLE TRUST VS. UNION OF INDIA, 327 ITR 273 (P&H). THE LD. CIT(A), PER CONTRA, APPLIED PINE GROVE INTERNATIONAL CHARITABLE TRUST (SUPRA) . AS PER ITS GROUND NO.4 TAKEN BEFORE US, THE DEPARTMENT CONTENDS THAT THE LD. CIT(A) ERRED IN NOT CONSIDERING QUEENS EDUCATIONAL SOCIETY (S UPRA) OVER PINE GROVE (SUPRA). ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 11 19. IN THIS REGARD, IN VIEW OF VEGETABLE PRODUCTS LTD., 88 ITR 192 (SC) WHERE THERE ARE TWO MUTUALLY DIVERGENT VIEWS TAKEN BY CO-ORDINATE BENCHES OF DIFFERENT HIGH COURTS, NEITHER HIGH COUR T BEING THE JURISDICTIONAL HIGH COURT QUA AN ASSESSEE, THE VIEW IN FAVOUR OF THE ASSESSEE HAS TO BE ADOPTED. THAT BEING SO, THERE I S NO FORCE IN GROUND NO.4 ON THIS SCORE ITSELF AND THE SAID GROUND IS LI ABLE TO BE REJECTED FOR THIS PRELIMINARY REASON. 20. HOWEVER, BOTH QUEENS EDUCATIONAL SOCIETY (SU PRA) AND PINE GROVE (SUPRA) HAVE SINCE BEEN CONSIDERED AND DECID ED BY THE HONBLE SUPREME COURT. THE LD. COUNSEL FOR THE ASSESSEE HA S PLACED ON RECORD A COPY OF THE SAID SUPREME COURT JUDGMENT DATED 16.3. 2015, PASSED IN CIVIL APPEAL NO.5167 OF 2008, IN THE CASE OF M/S. QUEENS EDUCATIONAL SOCIETY VS. COMMISSIONER OF INCOME TAX AND OTHER C ONNECTED CASES. 21. IN QUEENS EDUCATIONAL SOCIETY (SUPRA), THE HO NBLE SUPREME COURT HAS HELD AS FOLLOWS: 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 ACT IVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSONS, THE FACT THAT IT MAKES A SURPLUS DOES NOT LEAD TO THE CONCLUSION THA T IT CEASES TO EXIST SOLELY FOR EDUCATIONAL PURPOSES AND BECOME S AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT. THE PREDOMINANT OBJECT TEST MUST BE APPLIED - THE P URPOSE OF EDUCATION SHOULD NOT BE SUBMERGED BY A PROFIT MAKIN G MOTIVE. A DISTINCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS AND AN INSTITUTION BEING CARRIED ON 'FOR PROFIT'. N O INFERENCE ARISES THAT MERELY BECAUSE IMPARTING EDUCATION RESU LTS IN MAKING A PROFIT, IT BECOMES AN ACTIVITY FOR PROFIT . ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 12 IF AFTER MEETING EXPENDITURE, A SURPLUS ARISES INCI DENTALLY FROM THE ACTIVITY CARRIED ON BY THE EDUCATIONAL INSTITUT ION, 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 M AKE PROFIT AS OPPOSED TO EDUCATING PERSONS. 12. THE UTTARAKHAND HIGH COURT IN THE IMPUGNED JUDG MENT DATED 24TH SEPTEMBER, 2007 QUOTED THE ITAT ORDER I N 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 WA S ALSO NOTICED THAT THE APPELLANT SOCIETY HAD MADE INVESTM ENT 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 A SSTT. YEARS 2000-01 AND 2001-02 RESPECTIVELY. THUS, IF TH E AMOUNT OF INVESTMENT INTO FIXED ASSETS SUCH AS BUILDING, F URNITURE AND FIXTURE ETC. WERE ALSO KEPT IN VIEW, THERE WAS HARD LY ANY SURPLUS LEFT..... THE ASSESSEE SOCIETY IS UNDOUBTED LY ENGAGED IN IMPARTING EDUCATION AND HAS TO MAINTAIN A TEACHI NG AND NON TEACHING STAFF AND HAS TO PAY FOR THEIR SALARIE S AND OTHER INCIDENTAL EXPENSES. IT, THEREFORE, BECOMES NECESSA RY TO CHARGE CERTAIN FEE FROM THE STUDENTS FOR MEETING AL L THESE EXPENSES. THE CHARGING OF FEE IS INCIDENTAL TO THE PROMINENT OBJECTIVE OF THE TRUST I.E. IMPARTING EDUCATION. TH E TRUST WAS INITIALLY RUNNING THE SCHOOL IN A RENTED BUILDING A ND THE SURPLUS, I.E. THE EXCESS OF THE RECEIPTS OVER EXPEN DITURE. IN THE YEAR UNDER APPEAL (AND IN THE EARLIER APPEAL S) HAS ENABLED THE APPELLANT TO ACQUIRE ITS OWN PROPERTY, ACQUIRE COMPUTERS, LIBRARY BOOKS, SPORTS EQUIPMENTS ETC. FO R THE BENEFIT OF THE STUDENTS. AND MORE IMPORTANTLY THE M EMBERS OF THE SOCIETY HAVE NOT UTILIZED ANY PART OF THE SURPL US FOR THEIR OWN BENEFIT. THE AO WRONGLY INTERPRETED THE RESULTA NT SURPLUS AS THE MAIN OBJECTIVE OF THE ASSESSEE TRUST. AS HEL D ABOVE, PROFIT IS ONLY INCIDENTAL TO THE MAIN OBJECT OF SPR EADING EDUCATION. IF THERE IS NO SURPLUS OUT OF THE DIFFER ENCE BETWEEN ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 13 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 EQ UIPMENT AND WITHOUT PAYING TO THE STAFF ENGAGED IN IMPARTIN G EDUCATION. THE ASSESSEE IS NOT GETTING ANY FINANCIA L AID/ASSISTANCE FROM THE GOVERNMENT OR OTHER PHILANT HROPIC AGENCY AND, THEREFORE, TO ACHIEVE THE OBJECTIVE, IT HAS TO RAISE ITS OWN FUNDS. BUT SUCH SURPLUS WOULD NOT COME WITH IN THE AMBIT OF DENYING EXEMPTION U/S 10(23C)(IIIAD) OF TH E ACT. 13. HAVING SET OUT THE ITAT, ORDER, THE UTTARAKHAN HIGH COURT HELD : 'THUS, IN VIEW OF THE ESTABLISHED FACT RELATING TO EARNED PROFIT, WE DO NOT AGREE WITH THE REASONING GIVEN BY THE ITA T 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 RESU LT INCIDENTALLY FROM THE ACTIVITY LAWFULLY CARRIED ON BY THE EDUCAT IONAL INSTITUTION, IT WILL NOT CEASE TO BE ONE EXISTING SOLELY FOR EDUCAT IONAL 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 OBJEC T IS TO MAKE PROFIT. IN EVALUATING OR APPRAISING THE ABOVE, ONE SHOULD A LSO 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 AC HIEVE THE OTHER OBJECTS EXCEPT PURSUING MAIN OBJECT OF PROVIDING ED UCATION AND EARNING PROFIT. FURTHER, WITH PROFIT EARNED THE SOC IETY HAS STRENGTHENED OR ENHANCED ITS CAPACITY TO EARN MORE RATHER THAN TO FULFILL OTHER NOBLE OBJECTS FOR THE CAUSE OF POOR A ND 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 AO IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 15. IT IS CLEAR THAT THE HIGH COURT DID NOT APPLY I TS MIND INDEPENDENTLY. WHAT HAS BEEN COPIED IS ONE PARAGRAP H FROM THE SUPREME COURT JUDGMENT IN ADITANAR FOLLOWED BY A PA RAGRAPH OF ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 14 FAULTY REASONING BY THE ASSESSING OFFICER AND THE S AID 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 MUNICIPA L CORPN. OF DELHI V. CHILDREN BOOK TRUST AND SAFDARJUNG ENCLAVE EDUCATIONAL SOCIETY, (1992) 3 SCC 390 HAS THEN BEEN FOLLOWED. T HE AFORESAID JUDGMENT DEALT WITH A PROPERTY TAX PROVISION, NAMEL Y, SECTION 115 (4) OF THE DELHI MUNICIPAL ACT, 1957. THREE QUESTIO NS WERE RAISED IN THE SAID JUDGMENT AS FOLLOWS: (I) WHETHER THE SOCIETY OR BODY IS OCCUPYING AND US ING THE LAND AND BUILDING FOR A CHARITABLE PURPOSE WITHIN THE MEANIN G OF SUB-SECTION (4)? (II) WHAT IS THE MEANING OF THE EXPRESSION 'SUPPORT ED WHOLLY OR IN PART BY VOLUNTARY CONTRIBUTION'? (III) WHETHER ANY TRADE OR BUSINESS IS CARRIED ON I N 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 T HE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE ADV ANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IS NOT FOUND UNDER THE DELHI MUNICIPAL CORPORATION ACT. IN OTHER WORDS, THE DEFI NITION IS NARROWER IN SCOPE. THIS IS OUR ANSWER TO QUESTION NO. 1.' 18. SECONDLY, THE EXTRACTED PORTION FROM THE SAID J UDGMENT IN THE JUDGMENT OF THE UTTARAKHAND HIGH COURT CONCERNED IT SELF WITH QUESTION TWO, NAMELY, WHETHER THE EDUCATIONAL SOCIE TY 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 REL IED UPON BY THE HIGH COURT HAS ABSOLUTELY NOTHING TO DO WITH THE PR ESENT 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 T O SOCIETIES, EVEN ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 15 SCHOOLS WHICH ARE RUN ON COMMERCIAL BASIS MAKING PR OFITS WOULD GO OUT OF THE PURVIEW OF TAXATION AND COULD DEMAND EXE MPTION. THUS, THE TEST, ACCORDING TO US, MUST BE WHETHER THE SOCI ETY COULD SURVIVE WITHOUT RECEIVING VOLUNTARY CONTRIBUTIONS, EVEN THO UGH IT MAY HAVE SOME INCOME BY THE ACTIVITIES OF THE SOCIETY. THE W ORD 'PART' MEAN AN APPRECIABLE AMOUNT AND NOT AN INSIGNIFICANT ONE. THE 'PART' IN OTHER WORDS, MUST BE SUBSTANTIAL PART. WHAT IS SUBS TANTIAL WOULD DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH CAS E.' 19. IT IS CLEAR, THEREFORE, THAT THE UTTARAKHAND HI GH COURT HAS ERRED BY QUOTING A NON EXISTENT PASSAGE FROM AN APPLICABL E JUDGMENT, NAMELY, ADITANAR AND QUOTING A PORTION OF A PROPERT Y 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 T AX JUDGMENT WHICH WAS RENDERED IN THE CONTEXT OF WHETHER AN EDUCATION AL SOCIETY IS SUPPORTED WHOLLY OR IN PART BY VOLUNTARY CONTRIBUTI ONS, SOMETHING WHICH IS COMPLETELY FOREIGN TO SECTION 10(23C) (IIIAD). THE FINAL CONCLUSION THAT IF A SURPLUS IS MADE BY AN EDUCATIO NAL SOCIETY AND PLOUGHED BACK TO CONSTRUCT ITS OWN PREMISES WOULD F ALL 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 CL OTH 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 EDUCATION AL 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 CLAIMI NG 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 PURP OSES IN INDIA BY PURCHASING A BUILDING WHICH IS TO BE UTILISED AS A HOSPITAL. THIS INCOME, THEREFORE, IS ENTITLED TO AN EXEMPTION UNDE R SECTION 11(1) . IN ADDITION, UNDER SECTION 11(1)(A) , THE ASSESSEE CAN ACCUMULATE 25% OF ITS TOTAL INCOME PERTAINING TO THE RELEVANT ASSE SSMENT YEAR AND CLAIM EXEMPTION IN RESPECT THEREOF. SECTION 11(1)(A) DOES NOT REQUIRE INVESTMENT OF THIS LIMITED ACCUMULATION IN GOVERNME NT SECURITIES. THE BALANCE INCOME OF RS 1,64,210.03 CONSTITUTES LE SS THAN 25% OF THE INCOME FOR ASSESSMENT YEAR 1970-71. THEREFORE, THE ASSESSEE IS ENTITLED TO ACCUMULATE THIS INCOME AND CLAIM EXEMPT ION FROM INCOME TAX UNDER SECTION 11(1)(A) .' ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 16 WE SET ASIDE THE JUDGMENT OF THE UTTARAKHAND HIGH C OURT DATED 24TH SEPTEMBER, 2007. THE REASONING OF THE ITAT (SE T 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 H IGH 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 IMPUG NED ORDERS PASSED, THE CHIEF, CIT, CHANDIGARH WITHDREW EXEMPTI ONS GRANTED UNDER SECTION 10(23C) (VI) OF THE INCOME TAX ACT READ WITH RULE 2CA OF INCOME TAX RULES, 1961, FOR VARIOUS ASSESSMENT Y EARS. THE OPERATIVE PART OF THE ORDER PASSED BY THE CHIEF, CI T IN THESE CASES IS THE SAME AND READS AS FOLLOWS: '4. I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESS EE. THE DECISIONS QUOTED IN SUPPORT OF ITS CONTENTION ARE NOT RELEVAN T AND ARE DISTINGUISHABLE ON FACTS AS WELL AS ISSUES. IT IS C LEAR THAT THE RATIO OF THE DECISION OF HON'BLE UTTARAKHAND HIGH COURT IS S QUARELY 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 EDUCATIO NAL INSTITUTION, AFTER MEETING THE EXPENDITURE, IF ANY SURPLUS RESUL TS INCIDENTALLY, THEN THE INSTITUTION WILL NOT CEASE TO BE ONE EXIST ING SOLELY FOR EDUCATIONAL PURPOSES. 6. THE CRUCIAL CONDITION IS THAT SURPLUS SHOULD RES ULT ONLY INCIDENTALLY AND SHOULD NOT BE AIMED FOR. IF SUBSTA NTIAL PROFITS ARE EARNED IN ONE YEAR IF (IT)?WOULD BE DUTY OF THE INS TITUTION TO LOWER ITS FEES FOR THE SUBSEQUENT YEAR SO THAT SUCH PROFITS A RE NOT INTENTIONALLY GENERATED. IF, HOWEVER, PROFITS CONTI NUE 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. COM MISSIONER OF INCOME TAX AS WELL AS THE DECISION OF THE HON'BLE U TTRAKHAND HIGH COURT IS APPLICABLE. 8. EXEMPTION U/S 10(23C)(VI) IS NOT AVAILABLE TO TH E ASSESSEE UNDER THE LAW IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCE S AND THEREFORE, EXEMPTION ALREADY GRANTED VIDE ORDER DATED 4TH JUNE , 2007 IS HEREBY WITHDRAWN. ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 17 9. THE ASSESSEE IS AT LIBERTY TO REDUCE THE FEES BE ING CHARGED AND PRICE OF ITS SERVICES AND APPLY AFRESH, IN WHICH CA SE THE APPLICATION WILL BE DULY CONSIDERED ON MERITS.' 21. IT IS THESE ORDERS THAT WERE SET ASIDE BY THE J UDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IMPUGNED BY THE REVEN UE 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 IN CLUDED- (23-C) ANY INCOME RECEIVED BY ANY PERSON ON BEHALF OF- (VI) ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTIO N 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 AL SO THAT THE FUND OR TRUST OR INSTITUTION [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTIT UTION] 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 ESTA BLISHED 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 INC OME SHALL IN NO CASE EXCEED FIVE YEARS; AND;]. [(B) DOES NOT INVEST OR DEPOSIT ITS FUNDS, OTHER TH AN- (I) ANY ASSETS HELD BY THE FUND, TRUST OR INSTITUTI ON [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION] WHERE SUCH ASSETS FORM PART OF THE COR PUS OF THE FUND, TRUST OR INSTITUTION [OR ANY UNIVERSITY OR OTHER ED UCATIONAL 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 C OMPANY, HELD BY ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION WHERE SUCH ASSETS FORM PA RT 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;] ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 18 (II) ANY ASSETS (BEING DEBENTURES ISSUED BY, OR ON BEHALF OF, ANY COMPANY OR CORPORATION), ACQUIRED BY THE FUND, TRUS T OR INSTITUTION [OR ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION] BEFORE THE 1ST DAY OF MA RCH, 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 U NIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER ME DICAL INSTITUTION]; (IV) VOLUNTARY CONTRIBUTIONS RECEIVED AND MAINTAINE D IN THE FORM OF JEWELLERY, FURNITURE OR ANY OTHER ARTICLE AS THE BO ARD 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 RE FERRED TO IN SUB- CLAUSE (IV) OR TRUST OR INSTITUTION REFERRED TO IN SUB-CLAUSE (V) IS NOTIFIED BY THE CENTRAL GOVERNMENT OR ANY UNIVERSIT Y OR OTHER EDUCATIONAL INSTITUTION REFERRED TO IN SUB-CLAUSE ( VI) OR ANY HOSPITAL OR OTHER MEDICAL INSTITUTION REFERRED TO IN SUB-CLA USE (VI-A), IS APPROVED BY THE PRESCRIBED AUTHORITY AND SUBSEQUENT LY THAT GOVERNMENT OR THE PRESCRIBED AUTHORITY IS SATISFIED THAT- (I) SUCH FUND OR INSTITUTION OR TRUST OR ANY UNIVER SITY OR OTHER EDUCATIONAL INSTITUTION OR ANY HOSPITAL OR OTHER ME DICAL INSTITUTION HAS NOT,- (A) APPLIED ITS INCOME IN ACCORDANCE WITH THE PROVI SIONS CONTAINED IN CLAUSE (A) OF THE THIRD PROVISO; OR (B) INVESTED OR DEPOSITED ITS FUNDS IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN CLAU SE(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 O UT 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 REASON ABLE 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 INSTIT UTION, RESCIND THE NOTIFICATION OR, BY ORDER, WITHDRAW THE APPROVAL, A S THE CASE MAY BE, AND FORWARD A COPY OF THE ORDER RESCINDING THE NOTI FICATION OR WITHDRAWING THE APPROVAL TO SUCH FUND OR INSTITUTIO N OR TRUST OR ANY ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 19 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 PURP OSES.- (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 I N CLAUSE (C) OF SECTION 2 OF THE GOVERNMENT SAVINGS CERTIFICATES ACT, 1959 ( 46 OF 1959), AND ANY OTHER SECURITIES OR CERTIFICATES ISS UED BY THE CENTRAL GOVERNMENT UNDER THE SMALL SAVINGS SCHEMES OF THAT GOVERNMENT; (II) DEPOSIT IN ANY ACCOUNT WITH THE POST OFFICE SA VINGS BANK; (III) DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED BANK OR A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANK ING (INCLUDING A COOPERATIVE LAND MORTGAGE BANK OR A COOPERATIVE LAN D 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 AN D ISSUED BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT; (VI) INVESTMENT IN DEBENTURES ISSUED BY, OR ON BEHA LF OF, ANY COMPANY OR CORPORATION BOTH THE PRINCIPAL WHEREOF A ND 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 CO MPANY: ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 20 [PROVIDED THAT WHERE AN INVESTMENT OR DEPOSIT IN AN Y PUBLIC SECTOR COMPANY HAS BEEN MADE AND SUCH PUBLIC SECTOR COMPAN Y CEASES TO BE A PUBLIC SECTOR COMPANY,- (A) SUCH INVESTMENT MADE IN THE SHARES OF SUCH COMP ANY SHALL BE DEEMED TO BE AN INVESTMENT MADE UNDER THIS CLAUSE F OR A PERIOD OF THREE YEARS FROM THE DATE ON WHICH SUCH PUBLIC SECT OR COMPANY CEASES TO BE A PUBLIC SECTOR COMPANY; (B) SUCH OTHER INVESTMENT OR DEPOSIT SHALL BE DEEME D TO BE AN INVESTMENT OR DEPOSIT MADE UNDER THIS CLAUSE FOR TH E PERIOD UP TO THE DATE ON WHICH SUCH INVESTMENT OR DEPOSIT BECOMES RE PAYABLE BY SUCH COMPANY;]. (VIII) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISS UED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG-TERM FINANCE FOR INDUSTRIAL DEVELOPMENT IN INDIA AND [WHICH IS ELIGI BLE FOR DEDUCTION UNDER CLAUSE (VIII) OF SUB-SECTION (1) OF SECTION 36 ]; (IX) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUE D BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAI N OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG-TERM FIN ANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RES IDENTIAL PURPOSES AND[WHICH IS ELIGIBLE FOR DEDUCTION UNDER CLAUSE (V III) OF SUB-SECTION (1) OF SECTION 36 ]; [(IX-A) DEPOSITS WITH OR INVESTMENT IN ANY BONDS IS SUED BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAI N OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG-TERM FIN ANCE FOR URBAN INFRASTRUCTURE IN INDIA. EXPLANATION.-FOR THE PURPOSES OF THIS CLAUSE,- (A) 'LONG-TERM FINANCE' MEANS ANY LOAN OR ADVANCE W HERE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE F OR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN FIVE YEARS; (B) 'PUBLIC COMPANY' SHALL HAVE THE MEANING ASSIGNE D TO IT IN SECTION 3 OF THE COMPANIES ACT, 1956; (C) 'URBAN INFRASTRUCTURE' MEANS A PROJECT FOR PROV IDING POTABLE WATER SUPPLY, SANITATION AND SEWERAGE, DRAINAGE, SOLID WA STE MANAGEMENT, ROADS, BRIDGES AND FLYOVERS OR URBAN TR ANSPORT;]. ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 21 (X) INVESTMENT IN IMMOVABLE PROPERTY. EXPLANATION.-'IMMOVABLE PROPERTY' DOES NOT INCLUDE ANY MACHINERY OR PLANT (OTHER THAN MACHINERY OR PLANT INSTALLED I N A BUILDING FOR THE CONVENIENT OCCUPATION OF THE BUILDING) EVEN THOUGH ATTACHED TO, OR PERMANENTLY FASTENED TO, ANYTHING ATTACHED TO THE E ARTH; (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 DEPOS IT AS MAY BE PRESCRIBED.' 23. THE PUNJAB AND HARYANA HIGH COURT, BY THE IMPUG NED JUDGMENT DATED 29TH JANUARY, 2010 EXPRESSED ITS DISSATISFACT ION WITH THE VIEW TAKEN BY THE UTTARAKHAND HIGH COURT IN THE CAS E 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 H IGH COURT IN THE CASE OF QUEENS EDUCATIONAL SOCIETY (SUPRA). THERE A RE 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 TH E 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 APPRECIA TED CORRECTLY THE RATIO OF THE JUDGMENT RENDERED BY HON'BLE THE SUPRE ME 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 CHILDRE N BOOK TRUST (SUPRA), IT LOST SIGHT OF THE AMENDMENT WHICH HAD B EEN CARRIED OUT WITH EFFECT FROM 1ST APRIL, 1999 LEADING TO THE INT RODUCTION 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 SU PREME COURT IN AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE (SURPA).' ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 22 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 COMMI SSIONER OF INCOME TAX OR THE DIRECTOR, WHICH ARE THE PRESCRIBED AUTHO RITIES, TO COMPLY WITH PROVISO THIRTEEN (UN-NUMBERED). ACCORDINGLY, I T 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 E ARNED PROFIT WOULD NOT BE DECIDING FACTOR TO CONCLUDE THAT THE E DUCATIONAL 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 H OTEL AND LODGING ASSOCIATION (SUPRA). TO DECIDE THE ENTITLEM ENT OF AN INSTITUTION FOR EXEMPTION UNDER SECTION 10(23C)(VI) OF THE ACT, THE TEST OF PREDOMINANT OBJECT OF THE ACTIVITY HAS TO BE APP LIED BY POSING THE QUESTION WHETHER IT EXISTS SOLELY FOR EDUCATION AND NOT TO EARN PROFIT [SEE 5-JUDGES CONSTITUTION BENCH JUDGMENT IN THE CA SE OF SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION (SUPRA)]. IT H AS TO BE BORNE IN MIND THAT MERELY BECAUSE PROFITS HAVE RESULTED FROM THE ACTIVITY OF IMPARTING EDUCATION WOULD NOT RESULT IN CHANGE OF C HARACTER OF THE INSTITUTION THAT IT EXISTS SOLELY FOR EDUCATIONAL P URPOSE. A WORKABLE SOLUTION HAS BEEN PROVIDED BY HON'BLE THE SUPREME C OURT IN PARA 33 OF ITS JUDGMENT IN AMERICAN HOTEL AND LODGING ASSOC IATION'S CASE (SUPRA). THUS, ON AN APPLICATION MADE BY AN INSTITU TION, THE PRESCRIBED AUTHORITY CAN GRANT APPROVAL SUBJECT TO SUCH TERMS AND CONDITIONS AS IT MAY DEEMS FIT PROVIDED THAT THEY A RE NOT IN CONFLICT WITH THE PROVISIONS OF THE ACT. THE PARAMETERS OF E ARNING PROFIT BEYOND 15% AND ITS INVESTMENT WHOLLY FOR EDUCATIONA L PURPOSES MAY BE EXPRESSLY STIPULATED AS PER THE STATUTORY RE QUIREMENT. THEREAFTER THE ASSESSING AUTHORITY MAY ENSURE COMPL IANCE OF THOSE CONDITIONS. THE CASES WHERE EXEMPTION HAS BEEN GRAN TED 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 A PPROVAL WAS GIVEN, HAVE BEEN VIOLATED OR THE CIRCUMSTANCES MENT IONED IN 13TH PROVISO EXISTS, THEN BY FOLLOWING THE PROCEDURE ENV ISAGED IN 13TH PROVISO, THE PRESCRIBED AUTHORITY CAN WITHDRAW THE APPROVAL. ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 23 (3) THE CAPITAL EXPENDITURE WHOLLY AND EXCLUSIVELY TO THE OBJECTS OF EDUCATION IS ENTITLED TO EXEMPTION AND WOULD NOT CO NSTITUTE PART OF THE TOTAL INCOME. (4) THE EDUCATIONAL INSTITUTIONS, WHICH ARE REGISTE RED AS A SOCIETY, WOULD CONTINUE TO RETAIN THEIR CHARACTER AS SUCH AN D 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 ED UCATIONAL INSTITUTION IS ACCUMULATED ON OR AFTER 1ST APRIL, 2 002, THE PERIOD OF ACCUMULATION OF THE AMOUNT EXCEEDING 15% IS NOT PER MISSIBLE BEYOND FIVE YEARS, PROVIDED THE EXCESS INCOME HAS B EEN 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 CONNECTE D MATTERS, IS NOT APPLICABLE TO CASES FALL WITHIN THE PROVISION O F SECTION 10(23C)(VI) OF THE ACT. THERE ARE VARIOUS REASONS, WHICH HAVE BEEN DISCUSSED IN PARA 8.8 OF THE JUDGMENT, AND THE JUDG MENT OF ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CITY M ONTESSORI SCHOOL (SUPRA) LAYS DOWN THE CORRECT LAW.' AND FINALLY HELD: '8.15 AS A SEQUEL TO THE AFORESAID DISCUSSION, THES E PETITIONS ARE ALLOWED AND THE IMPUGNED ORDERS PASSED BY THE CHIEF COMMISSIONER OF INCOME TAX WITHDRAWING THE EXEMPTIO N 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 PAR AS. 8.16 THE WRIT PETITIONS STAND DISPOSED OF IN THE AB OVE TERMS.' 24. THE VIEW OF THE PUNJAB AND HARYANA HIGH COURT H AS 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 INCO ME TAX (EXEMPTION) & ORS ., (2013) 351 ITR 184, THE BOMBAY HIGH COURT HAS EXPRESSED A VIEW IN LINE WITH THE PUNJAB AND HA RYANA HIGH COURT VIEW, FOLLOWING THE JUDGMENTS OF THIS COURT I N THE SURAT ART SILK MANUFACTURERS ASSOCIATION CASE AND ADITANAR ED UCATIONAL INSTITUTION CASE AS FOLLOWS: ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 24 '.....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 P ETITIONER DOES NOT EXIST SOLELY FOR EDUCATIONAL PURPOSES OR, AS THAT C HIEF COMMISSIONER HELD THAT THE PETITIONER EXISTS FOR PROFIT. THE TES T TO BE APPLIED IS AS TO WHETHER THE PREDOMINANT NATURE OF THE ACTIVITY IS E DUCATIONAL. IN THE PRESENT CASE, THE SOLE AND DOMINANT NATURE OF THE A CTIVITY 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 STAG NANT. 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 EDU CATIONAL INSTITUTION PROHIBITED FROM UPGRADING ITS INFRASTRUCTURE ON EDU CATIONAL FACILITIES SAVE ON THE PAIN OF LOSING THE BENEFIT OF THE EXEMP TION UNDER SECTION 10(23C) . IMPOSING SUCH A CONDITION WHICH IS NOT CONTAINED IN THE STATUTE WOULD LEAD TO A PERVERSION OF THE BASIC PUR POSE FOR WHICH SUCH EXEMPTIONS HAVE BEEN GRANTED TO EDUCATIONAL IN STITUTIONS. KNOWLEDGE IN CONTEMPORARY TIMES IS TECHNOLOGY DRIVE N. EDUCATIONAL INSTITUTIONS HAVE TO MODERNISE, UPGRADE AND RESPOND TO THE CHANGING ETHOS OF EDUCATION. EDUCATION HAS TO BE RESPONSIVE TO A RAPIDLY EVOLVIN G 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 I S MET.' 25. WE APPROVE THE JUDGMENTS OF THE PUNJAB AND HARY ANA, 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 PU NJAB AND HARYANA HIGH COURT WERE PASSED ALMOST SOLELY UPON T HE 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 A ND THE JUDGMENTS FOLLOWING IT ARE DISMISSED. WE REITERATE THAT THE CORRECT TESTS WHICH HAVE BEEN CULLED OUT IN THE THREE SUPRE ME COURT JUDGMENTS STATED ABOVE, NAMELY, SURAT ART SILK CLOT H, ADITANAR, AND AMERICAN HOTEL AND LODGING, WOULD ALL APPLY TO DETE RMINE WHETHER AN EDUCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCAT IONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. IN ADDITION, WE HASTEN TO ADD THAT THE ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 25 13TH PROVISO TO SECTION 10(23C) IS OF GREAT IMPORTANCE IN THAT ASSESSING AUTHORITIES MUST CONTINUOUSLY MONITOR FRO M ASSESSMENT YEAR TO ASSESSMENT YEAR WHETHER SUCH INSTITUTIONS C ONTINUE TO APPLY THEIR INCOME AND INVEST OR DEPOSIT THEIR FUNDS IN A CCORDANCE WITH THE LAW LAID DOWN. FURTHER, IT IS OF GREAT IMPORTANCE T HAT THE ACTIVITIES OF SUCH INSTITUTIONS BE LOOKED AT CAREFULLY. IF THEY A RE 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 THES E CASES ARE DISPOSED OF MAKING IT CLEAR THAT REVENUE IS AT LIBE RTY 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. 22. THUS, THE HONBLE SUPREME COURT HAS SET ASIDE QUEENS EDUCATIONAL SOCIETY (SUPRA) RENDERED BY THE HONBL E UTTARAKHAND HIGH COURT, WHEREAS PINE GROVE (SUPRA) DECIDED BY THE HONBLE PUNJAB & HARYANA HIGH COURT STANDS APPROVED. 23. THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE HONBLE SUPREME COURT THE CASE OF M/S. QUEENS EDU CATIONAL SOCIETY, THE GRIEVANCE OF THE DEPARTMENT IN THIS REGARD IS R EJECTED. 24. FOR THE ABOVE DISCUSSION, FINDING NO LEGAL FORC E THEREIN, ALL THE GROUNDS OF APPEAL ARE REJECTED. 25. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01/01/201 6. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 01/01/2016 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE:SH. VIPAN LANGER EDUCATIONAL TRUST, RAJOURI 2. THE ITO, WARD 2(3), JAMMU. 3. THE CIT(A), JAMMU 4. THE CIT, JAMMU 5. THE SR. DR, ITAT, ASR. ITA NO.503(ASR)/2014 ASSESSMENT YEAR : 2010-11 26 TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: AMRITSAR.