Jhunjhunu Academy Sammittee v. Income Tax Officer Jhunjhunu

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 123 / 2006 Jhunjhunu Academy Sammittee ----Appellant Versus Income Tax Officer Jhunjhunu ----Respondent D.B. Income Tax Appeal No. 125 / 2006Jhunjhunu Academy Sammittee ----Appellant Versus Income Tax Officer ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sanjay JhanwarFor Respondent(s) : Mr. Sameer Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHURJudgment 08/02/2017 1.Both these appeals involve common question of law andfacts and therefore are decided by this common judgment. 2.By way of these appeals, the appellants have assailed thejudgment and order of the Tribunal whereby Tribunal hasdismissed the appeal preferred by the assessee and confirmed theorder of CIT(A) as well as AO. 3.The facts of the case are that a survey u/s 133A was carriedout at the institution on 29.10.2003. during the course of survey,it was noticed that during the previous year relevant toassessment year 2001-02, the society earned profit of Rs.10,07,650/- but it was not furnishing its return of income.Therefore notice u/s 148 was issued after recording reasons forissue of notice u/s 148. In response to this return of income wasfiled on 15.2.2005 declaring nil income and claiming its totalreceipts exempt u/s 10(23C)(iiiad) of I.T Act. Notice u/s 141(1)was issued alongwith a questionary in response to which Shri M.S.Dhankar, C.A. appeared and produced books of accountsconsisting of cash book, ledger, receipts books and expensesvouchers which were examined on test check basis and the casewas discussed with him. Assessee has claimed his status asEducational society. However, there is no such independent statusnamely Educational society defined in section 2(31) of I.T. Act.Therefore, status of the society is taken as AOP. The assessee AOPis registered with the Registrar (Societies), Jhunjhunu and runningan Educational institute namely M/s Jhunjhunu Academy,Jhunjhunu with a hostel. Perusal of Income & expenditureaccount for the year under consideration reveals that apart fromreceipt of regular fees, it has also shown receipts of donationamounting to Rs. 18,49,725/-. after claiming expenses undervarious heads, excess of Income of Rs. 10,07,650/- overexpenditure has been shown under the school and hostelaccounts. The excess amount has been claimed to be exempt u/s10(23C)(iiiad) of I.T. Act thereby showing the taxable income at NIL. 4.Counsel for the appellant-assessee has contended thatappellant is running an educational institute namely M/sJhunjhunu Academy and is established since many years. Hecontended that for the relevant year 2001-02 & 2002-03, theassessee has received income in terms of the donations from thestudents which has been considered by the Assessing Officer,CIT(A) & tribunal, as income and has not been considered eligiblefor exemption under Section 23C(iiiad) of the Income Tax Act. 5.Counsel for the appellant has taken us to the definition ofSection 10 (23C) (iiiad) of the Income Tax Act which reads asunder:- “Section 10:- In computing the total income of aprevious year of any person, any income falling withinany of the following clauses shall not be included- …………….(23C)- any income received by any person on behalfof- …………….(iiiad)- any university or other educational institutionexisting solely for educational purposes and not forpurposes of profit if the aggregate annual receipts ofsuch university or educational institution do not exceedthe amount of annual receipts as may be prescribed;or.” 6.He therefore contended that the income received by theappellant is eligible for exemption as income which has beenderived by way of donation. 5.Counsel for the appellant has taken us to the definition ofSection 10 (23C) (iiiad) of the Income Tax Act which reads asunder:- “Section 10:- In computing the total income of aprevious year of any person, any income falling withinany of the following clauses shall not be included- …………….(23C)- any income received by any person on behalfof- …………….(iiiad)- any university or other educational institutionexisting solely for educational purposes and not forpurposes of profit if the aggregate annual receipts ofsuch university or educational institution do not exceedthe amount of annual receipts as may be prescribed;or.” 6.He therefore contended that the income received by theappellant is eligible for exemption as income which has beenderived by way of donation. 7.He has relied upon the following decisions:- (i) In Queen’s Education Society vs. CIT reported in (2015) 372ITR 699 (SC), the Supreme Court held as under:- 19. It is clear, therefore, that the Uttarakhand HighCourt has erred by quoting a non existent passagefrom an applicable judgment, namely, Aditanar andquoting a portion of a property tax judgment which expressly stated that rulings arising out of the IncomeTax Act would not be applicable. Quite apart from this,it also went on to further quote from a portion of thesaid property tax judgment which was rendered in thecontext of whether an educational society is supportedwholly or in part by voluntary contributions, somethingwhich is completely foreign to Section10(23C) (iiiad).The final conclusion that if a surplus is made by aneducational society and ploughed back to construct itsown premises would fall foul of Section10(23C)is toignore the language of the Section and to ignore thetests laid down in the Surat Art Silk Cloth case,Aditanar case and the American Hotel and Lodgingcase. It is clear that when a surplus is ploughed backfor educational purposes, the educational institutionexists solely for educational purposes and not forpurposes of profit. In fact, in S.RM.M.CT.M. TiruppaniTrustv.CommissionerofIncomeTaxMANU/SC/0107/1998: (1998) 2 SCC 584, thisCourt in the context of benefit claimed UnderSection11of the Act held: 9. In the present case, the Assessee is not claiming anybenefit Under Section11(2)as it cannot; because inrespect of this assessment year, the Assessee has notcomplied with the conditions laid down in Section11(2).The Assessee, however, is entitled to claim the benefit ofSection11(1)(a). In the present case, the Assessee hasapplied Rs. 8 lakhs for charitable purposes in India bypurchasing a building which is to be utilised as ahospital. This income, therefore, is entitled to anexemption Under Section 11(1). In addition, UnderSection11(1)(a), the Assessee can accumulate 25% ofits total income pertaining to the relevant assessment year and claim exemption in respect thereof.Section11(1)(a)does not require investment of thislimited accumulation in government securities. Thebalance income of Rs. 1,64,210.03 constitutes less than25% of the income for Assessment Year 1970-71.Therefore, the Assessee is entitled to accumulate thisincome and claim exemption from income tax UnderSection11(1)(a). We set aside the judgment of the Uttarakhand HighCourt dated 24th September, 2007. The reasoning ofthe ITAT (set aside by the High Court) is more inconsonance with the law laid down by this Court, andwe approve its decision. (ii)In Chief Commissioner of Income Tax, Chandigarh vs. St. Peter’s Education Society (2016) 385 ITR 66 (SC), the SupremeCourt observed as under:- year and claim exemption in respect thereof.Section11(1)(a)does not require investment of thislimited accumulation in government securities. Thebalance income of Rs. 1,64,210.03 constitutes less than25% of the income for Assessment Year 1970-71.Therefore, the Assessee is entitled to accumulate thisincome and claim exemption from income tax UnderSection11(1)(a). We set aside the judgment of the Uttarakhand HighCourt dated 24th September, 2007. The reasoning ofthe ITAT (set aside by the High Court) is more inconsonance with the law laid down by this Court, andwe approve its decision. (ii)In Chief Commissioner of Income Tax, Chandigarh vs. St. Peter’s Education Society (2016) 385 ITR 66 (SC), the SupremeCourt observed as under:- We may record at this stage that there was adifference of opinion among various High Courts on theaforesaid issue. While summarizing the law, this Courtapproved the judgments of Punjab and Haryana HighCourt, Delhi and Bombay High Courts and reversed theview taken by the Uttarakhand High Court. In so far asthe judgment of the Punjab and Haryana High Court isconcerned, it was given in the case of PinegroveInternational Charitable Trust v. Union ofIndia MANU/PH/0146/2010: [2010] 327 ITR 73(P&H). The relevant para in this behalf which alsostates as to how such cases are to be dealt with readsas under: "25. We approve the judgments of the Punjab andHaryana, Delhi and Bombay High Courts. Since wehave set aside the judgment of the Uttarakhand HighCourt and since the Chief Commissioner of Income-tax's orders cancelling exemption which were set asideby the Punjab and Haryana High Court were passedalmost solely upon the law declared by the UttarakhandHigh Court, it is clear that these orders cannot stand.Consequently, the Revenue's appeals from the Punjaband Haryana High Court's judgment dated January 29,2010, and the judgments following it are dismissed. Wereiterate that the correct tests which have been culledout in the three Supreme Court judgments statedabove, namely, Surat Art Silk Cloth, Aditanar andAmerican Hotel and Lodging, would all apply todetermine whether an educational institution existssolely for educational purposes and not for purposes ofprofit. In addition, we hasten to add that the 13thproviso to Section10(23C)is of great importance inthat assessing authorities must continuously monitorfrom assessment year to assessment year whethersuch institutions continue to apply their income andinvest or deposit their funds in accordance with the lawlaid down. Further, it is of great importance that theactivities of such institutions be looked at carefully. Ifthey are not genuine, or are not being carried out inaccordance with all or any of the conditions subject towhich approval has been given, such approval andexemption must forthwith be withdrawn. All thesecases are disposed of making it clear that the Revenueis at liberty to pass fresh orders if such necessity is feltafter taking into consideration the various provisions oflawcontainedinSection 10(23C)readwithSection 11of the Income-tax Act." In all those appeals which have come from the HighCourt of Punjab and Haryana and filed by theDepartment of Income-tax except one from the GujaratHigh Court, the High Court has followed its aforesaidjudgment in Pinegrove International Charitable Trust.Since this view stands approved, all these appeals aredismissed. We, however, make it clear that observations made inpara. 25, reproduced above, shall apply in these cases. One appeal is from the Gujarat High Court which hasalso followed the view taken by the Punjab andHaryana High Court in Pinegrove InternationalCharitable Trust, which also stands dismissed. We also make it clear that the observations made inpara. 25 in Queen's Educational Society v.CITMANU/SC/0287/2015: [2015] 8 SCC 47 : [2015]372 ITR 699, 729 (SC) shall be followed. We, however, make it clear that observations made inpara. 25, reproduced above, shall apply in these cases. One appeal is from the Gujarat High Court which hasalso followed the view taken by the Punjab andHaryana High Court in Pinegrove InternationalCharitable Trust, which also stands dismissed. We also make it clear that the observations made inpara. 25 in Queen's Educational Society v.CITMANU/SC/0287/2015: [2015] 8 SCC 47 : [2015]372 ITR 699, 729 (SC) shall be followed. 7.1On the previous occasion, when the matter was listed, hehas relied upon the following decisions of different HighCourts:- 7.2. In Brahmin Education Society vs. Assistant Commissionerof Income Tax & anr. reported in (1997) 227 ITR 317 (Ker.) ithas been held as under:- The first point to be decided is whether it was justifiedon the part of the Commissioner to deny exemptionunder Section 80Gon the ground that the society isderiving income from running chits. There is nodispute that the income derived from the chits is beingmadeuseofforeducationalpurposes.Section 10(22)of the Income Tax Act states asfollows : "any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit." The position is well established on the strength ofdecisions that if a society exists solely for educationalpurposes and it runs an educational institution, itsincome will be the income of the educationalinstitution,and,therefore,exemptunderSection 10(22). The fact that the assessee had otherobjects, will not disentitle it to the exemption so longas the activity carried on by it is that of running aneducational institution and its activities are not forprofit. The question was considered by a DivisionBench of this court in CIT v. Sree Narayana Chandrika Trust MANU/KE/0114/1994: [1995] 212 ITR 456.TheirLordshipswereconsideringSection 10(22A)which is analogous to Section10(22).Section 10(22A)deals with income of a hospital whileSection 10(22)deals with income of an educationalinstitution. In that case the question was whether theincome derived from securities can be treated as theincome of the hospital. Their Lordships consideredvariousdecisionswhichweremostly onSection 10(22). It was held as follows (page 469) : " The emphasis, in our opinion, is not on whetherthe income was derived from the educationalinstitution or hospital itself, but on the purpose forwhich the institution, trust or society was existingand utilising the income." Their Lordships referred to the decisions in CITv. AcademyofGeneralEducationMANU/KA/0041/1983: [1984]150ITR135(KAR) -wherethe income sought to be exempted included incomefrom securities, properties and from other sources likedividends, interest, registration fee, donations, etc.,and also Governing Body of Rangaraya Medical Collegev. ITO MANU/AP/0168/1975: [1979]117ITR284(AP) ,where the income was by way of compulsorycontribution for seats in the college. " The emphasis, in our opinion, is not on whetherthe income was derived from the educationalinstitution or hospital itself, but on the purpose forwhich the institution, trust or society was existingand utilising the income." Their Lordships referred to the decisions in CITv. AcademyofGeneralEducationMANU/KA/0041/1983: [1984]150ITR135(KAR) -wherethe income sought to be exempted included incomefrom securities, properties and from other sources likedividends, interest, registration fee, donations, etc.,and also Governing Body of Rangaraya Medical Collegev. ITO MANU/AP/0168/1975: [1979]117ITR284(AP) ,where the income was by way of compulsorycontribution for seats in the college. Thus, going by the reasoning of the Division Bench inCITv.SreeNarayanaChandrikaTrust MANU/KE/0114/1994: [1995] 212 ITR 456 andother decisions, it is clear that if ah institution existssolely for the purpose of education and it derivesincome from any other source and if that income isused only for the purpose of education, then it willcome under Section10(22)of the Income Tax Act, It isclear from the memorandum of association of thesociety that chits are being conducted in order to makeuse of the commission for the purpose of education.There is no case for the Department that this amount isbeing used for any other purpose. In suchcircumstances, I hold that the Commissioner waswrong in holding that since chit is being conducted,which is a business activity, the petitioner is notentitled to exemption under Section10(22)of theIncome Tax Act. The refusal is based under theprovisions of Section 11(4A). According to me, this is amistake committed by the authorities. Exemptionsought for was under Section10(22). Section11(4)isapplicable only with regard to the income from variousproperties. It cannot override Section 10(22). Hence,this reasoning is also not correct. Educational Institution (1979) 118 ITR 235 (Mad.) it has beenheld as under:- Educational Institution (1979) 118 ITR 235 (Mad.) it has beenheld as under:- 9. The word " University " does not represent thegenus in the present case, so that the subsequentwords will have to be considered as taking their colourfrom this genus. As pointed out by the Supreme CourtinS.AzeezBashav. UnionofIndia,MANU/SC/0039/1967: [1968]1SCR833 , there was nolaw in India which prohibited any private individual orbody from establishing a University and it was,therefore, open to a private individual or body toestablish a University. There is a good deal in commonbetween educational institutions which are notuniversities and those which are universities. Bothteach students and both have teachers for thepurpose. But what distinguishes a University from anyother educational institution is that a University grantsdegrees of its own while other educational institutionscannot. It is this granting of degrees by a Universitywhich distinguishes it from the ordinary run ofeducational institutions. Thus, in law, in India therewas no prohibition against establishment ofUniversities by private individuals or bodies and in factthe famous Viswabharathi University was started byRabindranath Tagore as a private individual. It wasonly in 1956 by Sub-section (1) of Section 22of theUniversity Grants Commission Act (III of 1956) it waslaid down that the right of conferring or grantingdegrees should be exercised only by a Universityestablished or incorporated by or under a Central Actor a State legislature. The other " educationalinstitution " cannot come within the category "University ". The term " University " stands for ahigher degree of education than scholastic level. " Anyeducational institution " would fall within the scope ofSection 10(22)even though it may have or may nothave anything to do with the University. The categoriesare so different that the University cannot be thegenus, and the " other educational institution " thespecies thereof. Thus, the college here could comeunder the " other educational institution ". 10. The further contention was that the institution, inorder to qualify for the exemption underSection 10(22)should itself be the educational institutionand that it was not enough if it ran an educationalinstitution. It was pointed out that the assessee couldassist colleges and that in case it merely renderedassistance, it would be in the nature of a financial body,which did not itself impart education. It is difficult to accept the argument that, in the present case, theassessee is not the educational institution. The assesseehas come into existence for the purpose of establishing,running, managing or assisting colleges, schools and othereducational organisations. In pursuance of its objects, asseen earlier, the assessee has established a college. It isstated that the management of the college had to bevested in a registered body. It is not clear whether tworegistered bodies were contemplated, one being theassessee and the other the managing body. In para. 8 ofits order, the Tribunal has observed as follows. "Ultimately, affiliation for the P.U.C. course wasgranted to the college by the Madras University oncondition that the management of the college shouldbe by a registered body." 7.4In Commissioner of Income Tax vs. A.M.M. ArunachalamEducational Society (2000) 243 ITR 229 (Mad.) it has beenheld as under:- "Ultimately, affiliation for the P.U.C. course wasgranted to the college by the Madras University oncondition that the management of the college shouldbe by a registered body." 7.4In Commissioner of Income Tax vs. A.M.M. ArunachalamEducational Society (2000) 243 ITR 229 (Mad.) it has beenheld as under:- Counsel for the Revenue fairly stated that the firstquestion is required to be answered in favour of theassessee, having regard to the decision of theSupreme Court in the case of Aditanar EducationalInstitution v. Addl. CITMANU/SC/0338/1997: [1997]224 ITR 310(SC) . Having perused the decision of theapex court we must hold that the law laid downtherein applies to the facts of the case. The object ofthe assessee is to run the educational institution andthat is what it has been doing. It has been held by theapex court in the case of Aditanar EducationalInstitution v. Addl. CITMANU/SC/0338/1997: [1997]224 ITR 310(SC) , that the petitioner educationalsociety formed for the sole purposes of establishing,running and managing or assisting schools andcolleges is an educational institution and is entitled toexemption under Section10(22)of the Act. The first question referred to us is, therefore, answered infavour of the assessee and against the Revenue. There is no dispute about the fact that the assesseeexists only for educational purposes, namely, forrunning a school and not for purposes of profit. It is aneducational institution. Section10(22)of the Actexempts "any income" of such institution. That wouldclearly include dividend income as well. It is obvious that granting exemption to the income of the educational institutions is to enable suchinstitutions to utilise the monies available with themfor the purpose of running the educational institutions.The source from which the money is received is not ofany consequence, what is relevant is the application.So long as the institution is an educational institutionwhich is not engaged in earning profit, income of suchinstitution is exempt under Section10(22). 7.5In Commissioner of Income Tax vs. Doon Foundation (1985)154 ITR 208 (Cal.) it has been held as under:- It is obvious that granting exemption to the income of the educational institutions is to enable suchinstitutions to utilise the monies available with themfor the purpose of running the educational institutions.The source from which the money is received is not ofany consequence, what is relevant is the application.So long as the institution is an educational institutionwhich is not engaged in earning profit, income of suchinstitution is exempt under Section10(22). 7.5In Commissioner of Income Tax vs. Doon Foundation (1985)154 ITR 208 (Cal.) it has been held as under:- The memorandum of association clearly shows that theassessee had for its objects, inter alia, to establish,run, manage or assist colleges, schools, technical andvocational institutes. The objects indicate that thesociety is existing solely for educational purposes.Clause 7 provides that if any activity as enumerated inClause 3 is found to be outside the scope of theeducational purpose, it shall be deemed as non est andshall be deemed to be excluded from the objects of thefoundation. The contention of Mr. Maitra that theassessee-society is neither a university nor aneducational institution and, therefore, cannot get anyexemption under Section10(22)cannot be accepted.Section 10provides that in computing the total incomeof a previous year of any person, any income fallingwithin any of the clauses of Section 10shall not beincluded. Sub-section (22) of Section10provides thatany income of a university or other educationalinstitution existing solely foreducational purposes andnot for purposes of profit will not be included in thetotal income. The assessee runs an educationalinstitution. If the educational institution run by theassessee exists solely for educational purposes, in thatevent, income of such institution cannot be included inthe total income of the assessee-society. If theeducational institution exists solely for educationalpurposes and not for purposes of profit, in that eventthe fact that the recipient or owner of the income is aperson other than the educational institution oruniversity, would not affect the position. The word"institution" has not been defined in the Act. A societyregistered under the Societies Registration Act whoseprimary objects are to establish, support, manage orconduct schools, colleges, etc., would also come withinthe purview of an educational institution. If a societyprimarily engages itself in educational activities or runsa school or college, it is entitled to claim exemptionunder Section10(22). It is immaterial whether thesociety itself is an educational institution or it runs aneducational institution. We are also unable to accept the contention of Mr. Maitra that an educationalinstitution to be eligible for exemption underSection 10(22)should be affiliated to any university orany board. Section 10(22)does not impose such acondition. So long as the income is derived from aneducational institution existing solely for educationalpurposes and not for purposes of profit, such income isentitled to exemption under Section 10(22), whetheror not such educational institution is affiliated to anyuniversity or college or board. If the contention of theRevenue is accepted, then many of the societiesrunning institutions solely for imparting educationwould not get the benefit of Section10(22). Educationas envisaged in Section 10(22)may be imparted in aschool or college or institution which may or may notbe affiliated to, or recognised by, a university or board.In this case, the ITO has not rejected the claim of theassessee on the ground that the assessee has anyobject of profit or the society exists for the purposes ofprofit. The assessee-society has no motive for profit orpersonal gain. It is neither a tutorial home nor acoaching institution which runs solely for the purposeof profit or personal gain. The ground on which theclaim was rejected was that the assessee had objectsother than educational objects. From the objects asenumerated hereinabove, it would be clear that all theobjects of the assessee are educational objects or areconnected with education. It has not been shown to uswhich of the objects are unconnected with education.Even where a society or trust which owns aneducational institution has charitable objects otherthan educational objects, even then, taking all therelevant factors into consideration like the aims andobjects, the power enabling the society or the trust tofunction, its activities, etc., if it is found that thesource generating the income exists solely for thepurpose of education, such a society or trust is entitledto exemption underSection10(22)in respect of onlythe income derived from the educational institution. 14. The further contention of Mr. Maitra is that in this case,the assessee has not yet set up the educational institutionand cannot, therefore, get the exemption. According to Mr.Maitra, the assessee has only taken some steps for holdingregular classes for teaching Hindi and purchased somebooks and periodicals for a library and it cannot be saidthat during the relevant previous year, the assessee wasrunning any educational institution. The conditionprecedent for claiming exemption under Section10(22)is,whether the educational institution exists solely foreducational purposes and not for purposes of profit. Thereis no dispute nor can it be disputed that the assessee-society exists solely for educational purposes. Theassessee has commenced activities connected with theimparting of education. For the purpose of holding regular classes for teaching of Hindi, the assessee has taken allpreliminary steps including purchase of books andperiodicals. Such activities are the steps towards runningof a full-fledged teaching course. We are, therefore, unableto accept the contention of the Revenue that the assesseedid not start running any educational institution during theprevious year in question. The educational institution hasbeen established or set on foot during the relevantprevious year. In our opinion, the decision in the case ofSaraswath Poor Students Fund MANU/KA/0080/1984:[1984]150ITR142(KAR) , has no application to the facts ofthis case inasmuch as in that case the primary object ofthe assessee was to extend financial help to students andnot to establish any educational institution or to imparteducation to students. Here, the objects are to establishand run an educational institution and to impart educationto students and for that purpose, steps have been takenby the assessee-society. 7.6In Secondary Board of Education vs. Income Tax Officer (1972)86 ITR 408 (Ori.) it has been held as under:- 7.6In Secondary Board of Education vs. Income Tax Officer (1972)86 ITR 408 (Ori.) it has been held as under:- There are other classes of educational institutions whichexist solely for educational purposes. Those institutionscannot be run efficiently without substantial income madefrom different sources. The sources of income generallyare collection of fees from the students, grants given bythe Government and donations. Such income may howeverbe insufficient to cope with the growing needs whendynamic progress is intended to be made in educationalsphere. To supplement such income those institutions maytaken recourse to some profit earning business. The profitwould go to the general fund and would be appropriatedtowards expansion and development of educationalschemes taken up by those institutions. In such a case,though incidentally profit is earned to meet the growingneeds, all the same the institution exists solely foreducational purposes and not for purposes of profit. Thus adistinction is to be kept in mind by looking into thedominant object of the institution. It is on the basis ofthese tests that this case is to be examined. 7.7InEducational Institute of American Hotel and MotelAssociation vs. Commissioner of Income Tax (1996) 219 ITR 183(AAR) it has been held as under:- 9. On examination, the conditions precedent to theavailability of the exemption to an educational institutioncan be stated thus : (a) the educational institution must actually existfor the application of the said Section and themere taking of steps would not be sufficient toattract the exemption ; (b) the educational institution need not beaffiliated to any university or Board, in fact asociety need not itself be imparting education andit is enough if it runs some schools or colleges ; (c) the educational institution must exist solely foreducational purposes and not for purposes ofprofit but merely because there is a surplus that isto say, a surplus of receipts over expenditure, itcannot be said that the educational institutionexists for profit ; (d) an entity may be having income from differentsources but if a particular income is from aneducational institution which exists solely foreducational purposes and not for purposes ofprofit, then that income would be entitled toexemption and further the income should bedirectly relatable to the educational activity. 8.The Supreme Court judgment which sought to be relied uponby subsequent judgment in Additional Commissioner of Income Tax,Gujarat vs. Surat Art Silk Cloth Manufacturers Association (1980)121 ITR 1 wherein observation of the majority view of J. Khannaand J. Gupta referred in Sole Trustee, Lokashikshana Trust vs. CIT(1975) 101 ITR 234 (SC), has been disapproved and minority viewof Beg J. has been approved. 9.Counsel for the respondent Mr. Jain has taken us to the orderof AO as well as CIT(A) and Tribunal and contended that it is totallya family affair and income which has been derived is only for thepurpose of profit. Therefore, one of the condition of Section23C(iiiad) of the Act is not complied with on the basis of his profitmotive. 10.He has relied upon paragraph no.4,5,6, 11, 25 & 26 of theSupreme Court Judgment in Queen’s Educational Society (supra)which is sought to be relied upon by Mr. Jhanwar and contendedthat in view of Clause (4) & (5) of paragrpah 11 which isreproduced as under:- 11. Thus, the law common to Section10(23C) (iiiad)and(vi) may be summed up as follows: (1) Where an educational institution carries on theactivity of education primarily for educating persons,the fact that it makes a surplus does not lead to theconclusion that it ceases to exist solely for educationalpurposes and becomes an institution for the purposeof making profit. (2) The predominant object test must be applied-thepurpose of education should not be submerged by aprofit making motive. 10.He has relied upon paragraph no.4,5,6, 11, 25 & 26 of theSupreme Court Judgment in Queen’s Educational Society (supra)which is sought to be relied upon by Mr. Jhanwar and contendedthat in view of Clause (4) & (5) of paragrpah 11 which isreproduced as under:- 11. Thus, the law common to Section10(23C) (iiiad)and(vi) may be summed up as follows: (1) Where an educational institution carries on theactivity of education primarily for educating persons,the fact that it makes a surplus does not lead to theconclusion that it ceases to exist solely for educationalpurposes and becomes an institution for the purposeof making profit. (2) The predominant object test must be applied-thepurpose of education should not be submerged by aprofit making motive. (3) A distinction must be drawn between the making ofa surplus and an institution being carried on "forprofit". No inference arises that merely becauseimparting education results in making a profit, itbecomes an activity for profit. (4) If after meeting expenditure, a surplus arisesincidentally from the activity carried on by theeducational institution, it will not be cease to be oneexisting solely for educational purposes. (5) The ultimate test is whether on an overall view ofthe matter in the concerned assessment year theobject is to make profit as opposed to educatingpersons. 11.He contended that since the conditions are not fulfilled by theappellant-trust, therefore, the view taken by the tribunal and allauthorities in view of the concurrent finding is required to be upheldand no interference is called for. 12.He has relied upon the decision in Sole Trustee (supra) parano.21, 42 & 45 in answer to Mr. Jhanwar’s submissions thatassessement for subsequent year be accepted. He has submittedthat they were registered under Section 12A therefore, assesseehas accepted the order of earlier year. 13.While admitting the matter this court has framed followingsubstantial question of law vide order dated 26.7.2007:- “(i) whether once appellant society has been consideredto be eligible for exemption under section 110(23C)(iiiad) of the Act as an educational institution, and thewords used in the said section are “any income”,whether donations received by the socirty would alsonot qualify for such exemption?” (ii) Even when donation received by the appellant areconsidered to be ‘income from other sources’, whetherthe same would not qualify for exemption under section10 (23C) (iiiad) when the said section exempts all income of the qualifying educational institutions? 14.We have heard counsel for the parties. 15.Before coming to the basic contentions, it is not in disputethat the appellant is as by name itself suggests that it is anacademic Samiti carrying on activities of educational purpose forestablishing any educational institution. There is need ofinfrastructure and expansion of every activity whether it is aresidential accommodation or physical or competitive requirementor other requirement and also the maintenance of the institution isa mandatory for which one has to collect the funds. 16.From the record it seems that an endeavour is made thatduring the relevant year they have a surplus fund which isprescribed or described by the authority as a profit and comparedto the expenses or the other income which has been received as34,91,251/-. Thus, it has been stated that there is profit of 33 percent. 17.In our view, any educational institution which is required tobe run they have to have a surplus fund for educational activity tosustain the consistency in the efficiency and very purpose ofcollecting donation is to sustain activity of institution. Merely,because surplus fund it cannot be envisaged as profit, theinstitution has not crossed one crore limit and they are well withintheir prescribed limit.The income was received by the trust whichis reflected in the books of accounts. 17.In our view, any educational institution which is required tobe run they have to have a surplus fund for educational activity tosustain the consistency in the efficiency and very purpose ofcollecting donation is to sustain activity of institution. Merely,because surplus fund it cannot be envisaged as profit, theinstitution has not crossed one crore limit and they are well withintheir prescribed limit.The income was received by the trust whichis reflected in the books of accounts. 18.In our view, the view taken by the authority is required to bereversed and it is required to be looked into the foundation of theratio laid down by the Supreme Court in the case of Queen’sEducation Society (supra) where funds which has been surplus iswithin a corpus fund and it has been kept as reserve fund which isnot in dispute and they have not crossed the limit of one crore. 19.Taking into consideration the aforesaid, we are of the opinionthat the contention raised by Mr. Jhanwar is required to accepted. 20.Therefore, the first question, we answering in favour of theassessee that it is an income entitled for exemption under Section 23C(iiiad) of the Act. 21.In view of the answer to first issue, the second issue will notarise. 22.The appeal is allowed to the aforesaid extent. A copy of this judgment be placed in each file. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. Bm Gandhi 31 & 32.