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TMI Blog2023 (3) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 as being impossible and therefore, being led to believe that the conditions of clause (a) of the 3rd proviso to Section 10(23C)(vi) are not satisfied. As a matter of record, the department has granted ASB/the petitioners exemption under sections 10(22) and 10(23C)(vi) of the Act since AY 1999-2000 to 2002-03 and AY 2006-07 to AY 2026-27. It is therefore substantiated that the petitioner only exists for educational purposes and not for profit. The current matters under the writ petitions are covered by the petitioner s own case for A.Y. 1999-00, A.Y. 2000-01 and A.Y. 2001-02 by the decision of the Hob ble Delhi High Court [ 2015 (8) TMI 717 - DELHI HIGH COURT] Special Leave Petition of the Tax Authorities against the said order of the Delhi High Court has been dismissed by the Supreme Court [ 2008 (5) TMI 17 - SUPREME COURT] . The principles as laid down in the decision of the Supreme Court in the case of American Hotel (supra) apply to the current matters under the petition. The respondents can be concerned only with the application of income in the hands of ASB/the petitioners once received in India. This is because in the present case, ASB/the Petitioners are not tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for different assessment years. The Writ Petition No. 8518 of 2009 pertains to Assessment Year (AY) 2002 03 and AY 2003 04 and the Writ Petition No. 9265 of 2009 pertains to AY 2004 05 and AY 2005 06. Since the facts and the issue arising in both these petitions is common we shall dispose of the same with a common order by adverting to facts from the Writ Petition No. 8518 of 2009 for brevity. 2. The petitioners, the present trustees of the American School of Bombay Education Trust, ( ASB for short) have filed the present petition to set aside the impugned order dated 27th February 2009 passed by respondent no.4 and to direct the respondents to grant them the exemption to the income that was rejected by the impugned order under Section (u/s) 10(23C)(vi) of the Income Tax Act, 1961 (the Act) in relation to Assessment Year (A.Y.) 2002-03 to A.Y. 2005-06. 3. The ASB is constituted under the Indian Trusts Act, 1882, vide the trust deed, as amended in July-1995 and August-2008. The ASB was set up after the embassy of the United States of America was granted specific permission by the Ministry of External Affairs, New Delhi. The Trust is set-up solely for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitution. SAIESF was a non profit organization, subject to scrutiny by the US Government and exempted from tax payment by US Federal Government u/s. 501(c)(3) of the Internal Revenue Code. The accounts of SAIESF were subject to detailed scrutiny by the IRS. By an order based on the said scrutiny, the IRS continued to approve SAIESF as a non-for-profit foundation u/s. 501(c)(3) of the Internal Revenue Code. 6. SAIESF would incur various expenses in support of ASB, i.e. school material and freight, salaries of teachers and administrators, education grants, etc. The surplus if any, arising from time to time was entirely repatriated to the Petitioners in India and, thereafter, invested by the Petitioners in accordance with the provisions of section 11(5) of the Act. The fact SAIESF was formed for the sole purpose of assisting and supporting ASB and the entire expenses incurred by SAIESF were towards the educational purpose of ASB has been certified by the Consulate General of the United States, Mumbai, vide his letter dated April 3, 2007. Copy of the accounts of SAIESF and vouchers (along with bank statements) have been furnished to the Tax Authorities during the Assessment / App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 170 Taxman 306 (SC) was peculiar to its facts and did not apply to ASB; (d) The funds held by SAIESF have not been invested in the modes prescribed under Section 11(5) of the Act 9. It is submitted that the main condition for claiming exemption u/s. 10(22) and section 10(23C)(vi) of the Act is that the institution shall exist solely for the purpose of providing education and not for the purpose of profit. 10. Mr. Kaka, Learned Senior counsel for the petitioner submitted that the main condition for claiming exemption u/s. 10(23C)(vi) of the Act is that the institution shall exist solely for the purpose of providing education and not for the purpose of profit. Learned senior counsel submitted that the present matter is covered by the decision of the Delhi High Court in the petitioner s case for A.Y.1999-2000 to A.Y. 2001-02 in [Writ Petition No.2186 of 2014 and CM No.4561 of 2015] wherein the petitioner challenged the CBDT order dated 29th October 2013. This was pursuant to the directions of the Delhi High Court in Writ Petition No.10579 of 2009 dated 20th January 2011, to adjudicate the petitioner s application for exemption u/s 10(23C)(vi) of the Act, afresh based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting solely for educational purposes . In other words, existence of surplus from the activity will not mean absence of educational purpose (see judgment of this Court in Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310. The test is the nature of activity. If the activity like running a printing press takes place it is not educational. But whether the income/profit has been applied for non-educational purpose has to be decided only at the end of the financial year. 31. In Oxford University Press case (supra) this Court found that the applicant was a branch of Oxford Press which was part of the Oxford University but its activity in India was restricted to publishing books, journals, periodicals etc. The Tribunal held that because Oxford Press is part of the University its income was exempt under section 10(22) as it stood at the relevant time. It is in this context that the words existing solely for educational purposes and not for the purposes of profit in section 10(22), which words also find place in section 10(23C)(vi), came for consideration. This Court held that the location of the University is not relevant, what is relevant is whether there is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstituted / established. Under the 12th proviso, the prescribed authority is required to examine cases where an applicant does not apply its income during the year of receipt and accumulates it but makes payment therefrom to any trust or institution registered under section 12AA or to any fund or trusts or institution or university or other educational institution and to that extent the proviso states that such payment shall not be treated as application of income to the objects for which such trust or fund or educational institution is established. The idea underlying the 12th proviso is to provide guidance to the prescribed authority as to the meaning of the words application of income to the objects for which the institution is established . Therefore, the twelfth proviso is the matter of detail. The most relevant proviso for deciding this appeal is the thirteenth proviso. Under that proviso, the circumstances are given under which the prescribed authority is empowered to withdraw the approval earlier granted. Under that proviso, if the prescribed authority is satisfied that the trust, fund, university or other educational institution etc. has not applied its income in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed by the Hon ble Supreme Court. The learned counsel submitted that the reasons for rejection of the petitioner s application under Section 10(23C)(vi) of the Act, are the same in the present matter, as was, in the Writ Petition filed by the petitioner in the Delhi High Court for A.Y. 1999-2000 to A.Y. 2001-02. 15. The learned counsel submitted that the CBDT by its Circular No.14 of 2005 has clarified that the mere generation of surplus by educational institutions year on year cannot be a basis for rejection of an application u/s 10(23C)(vi) of the Act, if it is used for an educational purposes and the accumulation is not contrary to the manner prescribed in law. The learned counsel distinguished the judgment by the decision of the Supreme Court in the case of New Noble Education Society v/s. CCIT TS-809-SC-2022 and contended that the same is not applicable to the present case as the decision would be applied prospectively and not retrospectively. 16. The learned counsel for the petitioner submitted that at the time of granting exemption u/s 10(23C)(vi) of the Act, the scope of verification is confined to ascertaining the trust or institution s existence solely f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are have been stipulated in the third Proviso to section 10(23C) of the Act. 18. The learned counsel for the petitioner submitted that the respondents have not challenged the petitioner s existence solely for educational purposes and not for profit for the A.Y. 2006-07 onwards till date and have accepted the petitioners claim for exemption u/s 10(23C)(vi) of the Act. The learned counsel for the petitioners in support of his contentions relied upon the following decisions; 1) American Hotel Lodging Association, Educational Institute v/s. CBDT (2008) 170 Taxman 306 (SC) 2) Digamber Jain Society for Child Welfare v/s. DGIT (2009) 185 Taxman 255 (Delhi) 3) Pinegrove International Charitable Trust v/s. Union of India (2010) 188 Taxman 402 (P H) 4) Tolani Education Society v/s. DDIT (Exemptions) (2013) 30 Taxman.com 165 (Bombay) 5) St. Lawrence Educational Society (Regd.) v/s. CIT (2011) 197 Taxman 504 (Delhi) 6) DIT (Exemption) v/s. Delhi Public School Society (2018) 92 Taxmann.com 132 (Delhi) 19. The Petitioner was held to be an educational institution and existing solely for education purposes and not for profit was examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied for educational purposes and the funds are invested in the prescribed manner. According to him, in the present case, it is impossible to conduct verification since it involved examination of law and practice of another country and consequently it was not possible to check what amounts were received outside India and how they were spent. In this background, the respondents had rightly denied the exemption to the petitioners. He submitted that the petitioners had been granted exemption for the year 2006-07 since there were no transactions with SAIESF. In view of the aforesaid, the learned counsel for the respondents submitted that the petition deserves to be dismissed. Conclusion : 21. In light of what is argued, let s now examine the impugned order: 7. A part of the receipts of the institution was being received in the US by SAIESF. Some expenditure has been incurred out of those receipts and balance was being repatriated to India. It is pertinent to note that this arrangement continued till mid 2004. Thereafter, the entire receipts were received in India. . But before that date, the special arrangement whereby a part of the receipts were being received abro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and expenses made by SAIESF in the USA should not and not ought to concern the Income Tax Department in India. The Supreme Court in the case of American Hotel (supra) whilst rejecting the argument of the department that all expenses should be incurred in India had held that: The Hon ble Court held that the Department is not correct to introduce the word India into the third proviso to Section 10(23C) of the IT Act. The plain words of the said proviso do not require the application of the entire income to be in India. 23. In our view, the provisions of section 10(23C)(vi) therefore have excluded the receipts and expenses outside India. 24. We agree with the view of respondent no. 4 that: A plain reading of the section clearly shows that this provision is meant for institutions where it is possible to examine the accounts properly to ensure that the income are properly applied for educational purposes and the funds are invested in the prescribed manner. . Secondly, a situation like this where a part of the receipts are received outside India and a portion of that is also spent outside India has never been envisaged in the provisions of section 10(23C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt. Special Leave Petition of the Tax Authorities against the said order of the Delhi High Court has been dismissed by the Supreme Court. The principles as laid down in the decision of the Supreme Court in the case of American Hotel (supra) apply to the current matters under the petition. 28. We are unable to agree with the respondents that the law laid down by the Supreme Court in the case of New Noble Education Society (supra), would be applicable to the present case in as much as it is held in paragraph 78 of the said judgment as under: 78 it would be in the larger interests of the society that the present judgments operate hereafter. As a result, it is hereby declared that the law declared in the present judgment shall operate prospectively. Consequently, since the judgment itself held that it was prospective and not retrospective, it would not be applicable to the present case. 29. Besides, the Supreme Court in the said case has held that at the time of considering the application for approval under Section 10(23C)(vi) of the Act, the Commissioner should confine the enquiry ordinarily to the nature of income earned and whether it is for education or educat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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