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TMI Blog2010 (3) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed of and not distribution of profit to the author of the trust, has also to be examined. According to the petitioner, M/s. Ganesh Rice Mill is not an author of the trust or a contributor to the trust, but only is an unsecured creditor. As has been rightly pointed out by the learned standing counsel, these are the questions of fact which are to be gone into by the Commissioner since, according to the learned standing counsel, there appears to be a situation of manipulation of accounts, whereby the loan has been credited as the capital initially and, thereafter, on return has been shown as repayment of loan. Thus, on an overall view of the situation both on facts and law the matter requires reconsideration by the Chief Commissioner of Income-tax. Matter remitted back - - - - - Dated:- 16-3-2010 - KURIAN JOSEPH, MISRA R. B., JJ JUDGMENT The judgment of the court was delivered by Kurian Joseph C. J.-The guiding principles under section 10(23C)(vi) of the Income-tax Act, 1961, governing the approval of educational institution prescribed by the authority, namely, the Chief Commissioner of Income-tax, fall for consideration in this case. The petitioner is a registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble and/or educational purpose ; (iii) that the income or assets of the trust shall not be applied or used for the benefit of the authors of the trust, or any person who makes substantial contribution or donations to the trust or any trustee or manager of this trust. (iv) that in the event of dissolution of the trust the trust fund or surplus of the funds shall not be transferred to the trustees in any manner. However, the same shall be transferred to a like minded trust duly approved by not less than two-thirds of trustees present at the meeting." A perusal of the objects, as above, and it is not in dispute also that the same is established only for educational purposes. Under section 10(23C)(vi) of the Income-tax Act, any income of such educational institution satisfying the parameters of the provisions is liable to be exempted. The Department has declined to approve the petitioner under section 10(23C)(vi) of the Income-tax Act and, hence, the writ petition. A perusal of the impugned order would show that the Commissioner was not satisfied as to the explanation for accumulation of income by the petitioner/institution and also some of the financial transactions. It is st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mulates it for application, wholly and exclusively to the objects for which it is established and in a case where more than 15 per cent. of its income is accumulated on or after the 1st day of April, 2002, the period of accumulation of the amount exceeding fifteen per cent. of its income shall in no case exceed five years ;" The provision should indicate that the requirements are (1) the educational institution should exist solely for educational purpose and not for the purpose of profit ; (2) it should not be an educational institution wholly or substantially financed by the Government ; (3) it should be an educational institution genuinely existing for educational purpose and not for the purpose of profit ; (4) its aggregate annual income exceeds Rs. 1 crore ; and (5)it should be approved by the prescribed authority. The prescribed authority under rule 2(CA) of the Income-tax Rules, 1962, for the purpose of sub-clause (vi) is the Chief Commissioner of Income-tax. Under the second proviso, guidelines are prescribed as to the application of mind by the prescribed authority while considering the application for approval. The authority is entitled to call for the documents inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows (page 105) : "In Addl. CIT v. Surat Art Silk Cloth Manufacturers Association reported in [1980] 121 ITR 1 (SC), 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 realization 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 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." In T.M.A. Pai Foundation v. State of Karnataka reported in [2002] 8 SCC 481, the eleven-judge Constitution Bench has reiterated the position holding that private educational institutions have to generate funds for betterment and growth of the institutions since they ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han one reason. Section 10(23C)(vi) has nothing to do with charity. Though charity is a laudable object, that consideration is irrelevant under the said provision. What is relevant is purpose and administration of the institution only for education and nothing more or nothing less or else. It has to be noted that on the facts of the case before the Uttarakhand High Court, it was a case falling under section 10(23C)(iiiad) where annual receipt does not exceed Rs. 1 crore. Secondly, going by the accounts, prima facie, we are of the view that there is no question of generation of profit though there is accumulation of surplus, but in case the accumulation of surplus is within the parameters, the petitioner is entitled to succeed. In this context, the contention of the learned counsel for the petitioner that going by annexure P-6, there is no accumulation of income has also to be considered. Still further, the contention that the amount of Rs. 15,45,000 which is paid to Ganesh Rice Mill is only return of loan availed of and not distribution of profit to the author of the trust, has also to be examined. According to the petitioner, M/s. Ganesh Rice Mill is not an author of the trust o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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