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TMI Blog2015 (8) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... jectionable clause and which has also been noticed in the subsequent assessment made in the assessment order dated 21.12.2012 for the year 2010-11. - Decided in favour of assessee. - CWP No. 24895 of 2014 - - - Dated:- 6-7-2015 - S J Vazifdar, ACJ And G S Sandhawalia, JJ. For the Appellant : Mr Sanjay Bansal, Sr. Adv., with Mr B M Monga, Adv. and and Mr Yash Paul Goyal, Adv. For the Respondent : Ms Savita Saxena, Adv. ORDER G. S. Sandhawalia, J. Challenge in the present writ petition is to the order dated 17.09.2012 (Annexure P-5) passed by the Chief Commissioner of Income Tax-respondent no. 1 wherein, the application of the petitioner for grant of approval for exemption under Section 10(23C)(vi) of the Income Tax Act, 1961 (in short 'the Act') has been rejected. The predominant reason which weighed with respondent no. 1- The Chief Commissioner of Income Tax, Ludhiana was that the petitioner- Trust had an intention to carry out business activity which was not permissible for charitable organizations. The trustees were in place for the whole duration of their life and it gave the organization a look and character of a private body rather than a ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the Apex Court in Queen's Educational Society vs. CIT, (2015) 372 ITR 699 , the respondent no. 1 was not justified in rejecting the case. Counsel for the Department, on the other hand, contended that the order was justified and within the ambit of the provisions of the Act and once the Trust was having other objectives which were not related to the charitable purposes, no fault could be found in the decision of respondent no. 1. The objectionable clause which was part of the trust deed was clause (i) which provided that one of the objects of the trust was to carry on other business as decided by the trustees . On the strength of the said clause, as noticed above, the impugned order has been passed against the petitionertrust on the strength of the provisions that the trust did not exist solely for educational purposes. To appreciate the controversy in question, it would be necessary to examine the provisions of Section 10(23C)(vi) of the Act which provides that in computing the total income of the previous year of any person, income falling within any of the specified clauses is not to be included which is received on behalf of any educational institution existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i)of the Act? Question no. (A) as to whether the education institution cease to exist solely for educational purposes was answered in favour of the institutions by holding that the predominant object of the activity is to be taken into consideration. Reliance was placed upon the judgments of the Apex Court in Aditanar Educational Institution vs. Additional Commissioner of Income Tax, 1997 (224) ITR 310 ; American Hotel and Lodging Association Educational Institute v. CBDT, (2008) 301 ITR 86 ; CIT (Addl.) vs. Surat Art Silk Cloth Manufacturers Association, 1980 (121) ITR 1 (SC) and the view in Queen's Educational Society's case (supra) was specifically not accepted. It was held that where the educational institutions which are registered, the society would retain their character as such and they would be eligible to apply for exemption. The relevant observations read thus:- (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 exclusiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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)]. Accordingly, the orders passed withdrawing the exemptions were quashed with liberty to pass fresh orders. The said view has been specifically approved by the Apex Court in Queen's Educational Society's case (supra) and the judgment of the Uttrakhand High Court has been reversed. The Apex Court has accordingly discussed the predominant objects of the educational institution and whether it exists solely for educational purposes and not for the purposes of profit. Accordingly, conclusion was arrived at that merely because some profit arises from the activity which was the predominant object, it would not mean that the charitable character of the purpose of setting of the institution would be lost. The predominant object test was to applied which was the promotion of education and the principles were laid down as under:- (1) 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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. In the present case, under the second proviso, the authority was to call for documents including audited annual accounts from the trust and in order to satisfy itself about the genuineness of the activities of the trust, the inquiries had to be made. The objects of the petitioner-trust read thus:- 2. OBJECTS OF THE TRUST (a) To spread education and for achieving the said object to establish, maintain, run, develop and improve, extend, grant donations in cash an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt no. 1 came to the conclusion that the Trust was doing some other business and the said business was generating substantial amounts which would over ride the main objects of the trust which have been reproduced above which pertain mainly to the cause of education. Keeping in view the principles which have been discussed regarding the words 'solely for educational purposes and of generating profit', we are of the opinion that in the absence of any such finding that the trust was doing business, the application could not have been rejected only on this ground that one of the clauses in the objects provided such right to the trust. The prescribed authority could have made it conditional by holding that if any such business is carried out, the registration granted is liable to be cancelled. The principles laid down by the Apex Court in American Hotel and Lodging Association's case (supra) can thus be also applied in the circumstances. The said principles read thus:- 33. Having analysed the provisos to Section 10 (23C)(vi) one finds that there is a difference between stipulation of conditions and compliance thereof. The threshold conditions are actual existence of an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en stipulated for the first time by the third proviso. Therefore, cases where earlier the applicant has obtained exemption(s), as in this case, need not be reopened on the ground that the third proviso has not been complied with. However, after grant of approval, if it is brought to the notice of the PA that conditions on which approval was given are breached or that circumstances mentioned in the thirteenth proviso exists then the PA can withdraw the approval earlier given by following the procedure mentioned in that proviso. The view we have taken, namely, that the PA can stipulate conditions subject to which approval may be granted finds support from sub-clause (ii)(B) in the thirteenth proviso. Accordingly, we are of the view that the impugned order cannot be justified solely on the ground that in view of a clause which provided that the Trust could run a business, it would be debarred as such from registration on the ground that it was not existing solely for educational purposes. That merely a conferment of power to do business would not debar the right for consideration to the trust without any finding being recorded that the predominant object of the Trust was to do bus ..... 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