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TMI Blog2015 (12) TMI 1901X X X X Extracts X X X X X X X X Extracts X X X X ..... ee Colleges, Technical Institutions, Management Institutions, Audit Education, Research Centres, Commerce Education, Computer Education, Industrial Training Centre, Job oriented courses and Para Medical Institutions." 3. The petitioner applied on 2nd May, 2005 for grant of exemption under Section 10(23C)(vi) of the Income Tax Act, 1961 (hereinafter referred to as the Act) for the assessment year 2004-05 onwards contending that they are running an institution solely for education purposes and not for the purposes of profit and, therefore, requested for exemption. This application was processed, inquiries were made and a survey was also conducted on 13th November, 2007, based on which, a show cause notice was issued to show cause as to why the application should not be rejected on the ground that the society was diverting its income to the members of the society and, therefore, the society was not acting as a non-profitable institution. The petitioner submitted its reply denying any diversion of income. The Commissioner of Income Tax after considering all aspects of the matter issued an order dated 28th February, 2008 rejecting the application of the petitioner for grant of exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the society in the garb of payment of interest on unsecured loans given by them and, therefore, found that the institution was not running as a non-profit organization and was running for the purpose of profit. The Commissioner while rejecting the application also held that he would only consider the earlier reply of the petitioner and would not consider the subsequent reply given by the petitioner, inasmuch as the High Court in its order only directed the Commissioner to consider the reply already submitted before the Commissioner. 9. The aforesaid findings were attacked by the learned Senior Counsel on the ground that the provision of Section 10(23c)(vi) of the Act only stipulates a limited inquiry to find out about the activities of the society, namely, as to whether it was running an educational institution solely for educational purposes and not for purposes of profit. Such activities can only be found out from an inquiry and cannot be decided on the basis of the objects indicated in the memorandum of association, which does not specify explicitly that the objects of the society is solely for educational purposes. The learned Senior Counsel contended that the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation Educational Institution v. CBDT, 301 ITR 86 wherein the Supreme Court held that if the institution fulfils the threshold conditions of an educational institute under Section 10(23c)(vi) of the Act, the authority in such an eventuality could not reject the application. The Supreme Court held:-- "In American Hotel & Lodging Association, Educational Institute v. CBDT 2008 (301) ITR 86 SC, the Supreme Court analysed the provision and found that the second proviso lays down the powers and duties of the prescribed authority for vetting an application for approval and that the prescribed authority was empowered to call for the documents including annual accounts or information to check the genuineness of the activities of the institution. Under the third proviso, the prescribed authority, while judging the genuineness of the activities of the applicant was required to ascertain whether the applicant applies its income wholly and exclusively for the objects for which it was constituted or established. The Supreme Court held that there was a difference between stipulation of the conditions and compliance therewith. The threshold conditions are the actual existence of an educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 trust 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 twelfth 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 accordance with the third proviso or if it finds that such institution, trust or fund etc. has not invested/deposited its funds in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 15. The Commissioner is required to process the application and after making due inquiries and after considering the balance sheets and such other evidence has to give a categorical finding as to whether the activities of the educational institution is existing solely for educational purposes and not for purposes of profit. Consequently, the Commissioner committed an error in holding that the petitioner's institution is not running solely for educational purposes on the basis of the memorandum of association. To that extent, the order of the Commissioner is incorrect. At this stage, the Court could have remitted the matter again to the Commissioner to re-decide the issue but we find that it is not necessary to do so in view of the following: 16. Assuming that the petitioner is running an educational institution solely for educational purposes, nonetheless, the petitioner is also required to show that its activities in running the educational institution is not for the purpose of profit. This is an essential ingredient, which is required to be considered at this stage under the second proviso. The contention that the question, whether the institution is running for profit o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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