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TMI Blog2021 (8) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Commissioner of Income Tax pointing out the defects in the trust deed and also the systematic earning of substantial surplus of income out of the gross receipts?" 3.The respondent is a Trust (hereinafter referred to as "the assessee"), which came into being pursuant to a Deed of Trust dated 28.08.1995, registered as Document No.30 of 1995 on the file of the Sub Registrar, Mohanur. The Trust was founded by four Trustees with a corpus of Rs. 501/- established for educational purposes and known as 'Angles Educational Trust'. The principle object of the Trust was to run an educational or other institutions to provide, establish, maintain, run, develop and improve or assist in the establishment, maintenance, running, developing and improving education; to institute and award scholarships to poor and deserving students and to assist them in any manner of their study, research or apprenticeship. There were other objects of the Trust, which were incidental and ancillary to the main object, viz., education. The first and second Trustees or their successors in office of the Board of Trustees, were given full power and authority to administer the Trust, its properties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id order, the appellant stated that the Trust runs a Matriculation School with instructions both in English and Tamil Medium and also established a Teachers Training College from the financial year 2007-08. The appellant noted the income in excess of expenditure for the two educational institutions for four financial years, that is, from 2005-06 to 2008-09. The Trustees were called upon to explain and they stated that the excess of income over expenditure from the School fell down considerably during the financial years 2007-08 and 2008-09, on account of competition by other educational institutions, which were established in the neighbourhood and this prompted the assessee-Trust to provide free bus service to students, who opt for education in Tamil medium. Since the income over expenditure from the school considerably got reduced, the Trust established a Teacher Training College, which provided good returns and the profits of the Trust increased during the financial years 2007-08 and 2008-09. According to the appellant, this was done with a clear motive for earning profits, which subsumes the charitable activity of the assessee- Trust. The appellant stated that since the Trust is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee-Trust sought to sustain the order passed by the Tribunal and submitted that the Tribunal had elaborately considered the factual position, the various conditions contained in the Deed of Trust and the two Codicils and clearly held that the Trust was not established with an intention of making profits, but with a genuine intention of serving for the cause of education more particularly, the students from rural background, who opted to take the medium of instruction in Tamil. 10.Further, it is submitted that the decision in Queen's Educational Society (supra) rendered by the High Court of Uttaranchal was tested for its correctness before the Hon'ble Supreme Court by the Trust in Queen's Educational Society vs. CIT reported in (2015) 55 taxmann.com 255 (SC) and the said decision was reversed. Further, the said decision could not have been applied to the case of the assessee-Trust, as the case was whether the said Queen's Educational Society had fulfilled the three requirements as stipulated under Section 10(23C) of the Act whereas, in the instant case, the issue is whether the application filed by the assessee-Trust for registration under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the object of earning profit. It was further observed that 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. Further, 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, though it may be carried on in advancement of the charitable purpose of the Trust or institution. It was further pointed out that the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. 14.By referring to the decision in the case of Dharmadeepti vs. CIT reported in (1978) 3 SCC 499, it was pointed out that the activity 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. Further, it was pointed out that this interpretation of the exclusionary clause in Section 2(15) derives considerable support from the speech made by the Finance Minister while introducing that provision. It was further pointed out that the test to be applied is whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, it becomes an activity for profit. 4) 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. 5) 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." 16.The Court took into consideration the decision of the High Court of Punjab and Haryana, which has been followed by the Delhi High Court in St. Lawrence Educational Society (Regd.) vs. CIT reported in (2013) 353 ITR 320 and also in Tolani Education Society vs. Dy. DIT (Exemptions) reported in (2013) 35 ITR 184, where the High Court of Bombay held that the petitioner (therein) has a surplus of income over expenditure for the three years cannot by any stretch of logical reasoning, lead to the conclusion that the petitioner therein does not exist solely for educational purposes or that it exists only for profit. Further, it was held that the test to be applied is as to whether the predominant nature of the activity is educational. The fact that an incidental surplus, which is generated and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and whether such was the predominant object of the assessee-Trust, no such finding has been rendered by the appellant while rejecting the application. The explanation offered by the assessee-Trust was that on account of various other educational institutions come up in the neighbourhood, the income generated from the school had grossly fallen down and at that juncture, the Trust took a decision to establish a Teacher Training College, which proved to be successful. The specific case of the assessee-Trust was that they have provided free bus services to the students, who opted to study in Tamil medium. This was with a view to encourage students to attend the school and obviously would fulfil the object for which the Trust was established. Therefore, the Tribunal was right in holding that the appellant has not brought down any material on record to show that the assessee-Trust was motivated by earning profit. The Tribunal appreciated the assessee-Trust for establishing the school with medium of instruction in Tamil and that itself was held to be a charitable activity carried on by the assessee-Trust and by providing free bus service, it would motivate the students to attend the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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