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TMI Blog2015 (11) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner has considered the profit before applying the depreciation, which is incorrect. The authority is required to consider the profit after allowing depreciation and is also further required to consider the investment made by the petitioner in the creation of fixed assets. These investments of capital nature are required to be considered while calculating the money spent by them in the educational activity. Further, the fact that the petitioner is generating profit or is carrying on commercial activity and is making a huge expenditure in advertisement is a fact, which is not required to be considered at the stage of considering the application for grant of registration. These factors would come into play under the 3rd and 13th proviso at the stage of considering the return and making the assessment. Further, expenditure on advertisement made does not necessarily means that the activity of the petitioner is commercial in nature or is being done with the intention to earn more profit. Such finding given by the authority is patently erroneous. - Decided in favour of assessee. - Civil Misc. Writ Petition No. 455 of 2014, Civil Misc. Writ Petition No. 609 of 2013 - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant society does not exist solely for educational purpose; (ii) The assessee society is generating profits over the years which establish the profit motive of the assessee society; (iii) The assessee has made huge expenditure on advertisement like a commercial activity to promote the business activities to earn more and more profits; (iv) The assessee has made huge loans/advances to the interested persons/concerns in violation of 3rd and 13th proviso to section 10(23C). 5. Similarly, for the assessment year 2010-11, the application of the petitioner was rejected by the authority by an order dated 21.9.2011, against which, writ petition No.18 of 2012 was filed. For the assessment year 2011-12, the petitioner's application was rejected by an order dated 21.9.2011, against which writ petition No.609 of 2013 was filed. Since the issue raised is common, all the writ petitions are decided together. 6. In this backdrop, we have heard Shri S.D.Singh, the learned Sr. Advocate along with Shri Rahul Agarwal for the petitioner and Shri Ashok Kumar along with Sri Ashish Agarwal for the Income Tax Department. 7. Registration is granted under Section 10 (23C)(vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority, as the case may be, 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 (via), 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 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 educa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould arise. The Supreme Court held:- We shall now consider the effect of insertion of provisos to Section 10(23C)(vi) vide Finance (No.2) Act, 1998. Section 10(23C)(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(23C)(vi). The problem arises with the insertion of the provisos to Section 10(23C)(vi). With the insertion of the provisos to Section 10(23C)(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 prescribed authority, in terms of Section 10(23C)(vi) by making an application in the standardized form as mentioned in the first proviso to that section. That condition of obtaining approval from the prescribed authority 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 prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein. In the instant case, it is not disputed that the petitioner society is running an educational institution. Merely because there are other objects of the society does not mean that the educational institution is not existing solely for educational purpose. The emphasis of the word solely is in relation to the educational institution, which is running not for the purpose of making profit and is not in relation to the objects of the society. 9. The Supreme Court categorically held that the authority was required to consider the nature and genuineness of the activities of the applicant institution. The conditions set out in the third proviso was not to be tested at the stage of approval since the required facts would take place in future. The requirement mentioned in the third proviso could only be tested when assessment proceedings were being made and, the authority, at that stage, would consider the requirement provided in the third proviso. At the stage of registration, the authority is only required to examine the nature, activity and genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducational purposes is based on no reasoning. No finding has been given on this aspect. In our opinion, this finding is perverse. 14. Further, the mere fact that the petitioner is making profit does not indicate that it is carrying on the activity solely for the purpose of making a profit and that it ceases to be for an educational purpose. In our opinion, the predominant test as given by the Supreme Court in American Hotel (Supra) and Queen's Educational Society (Supra) has to be considered. Further, we find that the Commissioner has considered the profit before applying the depreciation, which is incorrect. The authority is required to consider the profit after allowing depreciation and is also further required to consider the investment made by the petitioner in the creation of fixed assets. These investments of capital nature are required to be considered while calculating the money spent by them in the educational activity. Further, the fact that the petitioner is generating profit or is carrying on commercial activity and is making a huge expenditure in advertisement is a fact, which is not required to be considered at the stage of considering the application for grant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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