Sri Sai Educational Trust, Rep. By Its Managing Trustee, R.pavadiappa, 137/2, Kusinipalayam H.c.f. Post, Mathigiri, Hosur v. The Commissioner Of Income Tax (Exemption)

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on 27.09.2018Delivered on 10.10.2018C O R A M THE HON'BLE Mr.JUSTICE K.RAVICHANDRABAABU W.P.No.11301 of 2018andWMP No.13199 of 2018 Sri Sai Educational Trust,Rep. by its Managing Trustee,R.Pavadiappa,137/2, Kusinipalayam H.C.F. Post,Mathigiri, Hosur....Petitioner vs1.The Commissioner of Income Tax (Exemption), No.121, (Annexe Bldg), 3rd Floor, Mahatma Gandhi Salai, Chennai-34. 2.Income Tax Officer (Exemptions) Ward, No.3, Gandhi Road, Salem. ...Respondents Prayer:Writ petition filed under Article 226 of the Constitutionof India for issuance of a writ of certiorarified mandamus tocall for the records of the first respondent in PAN: AALTS7244Pdated 28.03.2018 issued under Sect.264 of the Income Tax Act,1961 for the assessment year 2014-15 and quash the same andfurther direct the second respondent to grant exemption underSec.11 or Sec.10(23C) (iiiad) of the Income Tax Act. The petitioner is aggrieved against the order dated28.03.2018 passed by the first respondent in rejecting therevision filed under Section 264 of the Income Tax Act, 1961. https://hcservices.ecourts.gov.in/hcservices/ 2.The case of the petitioner is as follows: a) The petitioner is a Trust established predominantlywith an object of providing school education to all sections ofsociety. The only activity of the petitioner Trust is runningof an educational institution called Sri Sathya SaiBalagurukulam Matriculation School in Hosur. For the assessmentyear 2014-15, the petitioner filed its return of incomedeclaring income under other sources as Rs.18,80,804/-. Thiscomprised of Tuition fees - Rs.16,66,950 + Special fees -Rs.10,130 + Transport fee - Rs.1,14,569 + Uniform fee -Rs.61,455 and Contributions - Rs.27,700. Against these grossreceipts, the petitioner had debited total amount ofRs.15,85,422/- spent under various heads for running of theschool. Added to this, the amount of Rs.2,95,383/- spent inprior years was considered towards expenditure of current year.The entire amounts spent on running the school was considered asapplied for charitable objects and claimed as exempt underSection 11 of the Act. This return was processed under Section143(1) and by intimation dated 28.2.16, the CPC, Bangaloredetermined the taxable income at Rs.18,80,804/- and a taxliability of Rs.8,17,675/- was computed towards tax andinterest. Later, on 06.05.16, a revised return was filedrevising the income to Rs.20,22,000/-. This included the incomeoriginally returned and Rs.1,41,196/- received as donations inthe Trust account. The petitioner filed two letters before thesecond respondent on 27.06.16 and 05.07.16 stating that therewas mistake in the order of the CPC, Bangalore by taxing theamount that has been spent towards the charitable objects of theTrust and sought to rectify the same under Section 154 of theAct. Even otherwise, it was submitted that the petitioner wasgranted registration under Section 12AA with effect from01.04.2015 and hence the charitable nature of the petitioner'sactivity had been given approval by the authority. In anotherletter dated 19.07.2016, submitted to the second respondent, itwas stated that, alternatively the petitioner satisfied all theconditions for exemption under Section 10(23C)(iiiad) of theAct. The second respondent vide order dated 05.10.2016,rejected the petition for rectification filed by the assessee.Thereafter, the petitioner approached the first respondent byway of filing a petition under Section 264 of the Act, seekingto revise the order of the second respondent dated 05.10.16 andprovide the benefit of exemption under Section 11 of the Act orin the alternative to grant the benefit of exemption underSection 10(23C)(iiiad). b) The petitioner, thus referring to the amendedprovisions of the Act and also the intention of legislature asis evident from the Board Circular, submitted before the firstrespondent that the first proviso to Section 12A(2) was broughtin the statute with a view not to affect charitable trusts and societies carrying on genuine charitable objects in the earlieryears and also satisfy the conditions for exemption as perSection 11. Thus, it was submitted that the benefit ofregistration granted in subsequent year has to be madeapplicable in the earlier assessment years for which assessmentproceedings are pending and prayed for grant of the benefit ofexemption under Section 11 for the assessment year 2014-15. c) Before the first respondent, the petitioner also raisedan alternative submission stating that, being an educationalinstitution and wholly engaged in providing elementary educationthrough its school and also that the gross receipts of thepetitioner-trust, being less than the statutory threshold limitof Rs.1 crore, it is entitled to the benefit of Sec.10(23C)(iiiad) of the Act. It was submitted that the one-offexpenditure of Rs.54,300/- on women welfare project cannot beconsidered to be a non-charitable activity in order to deny thebenefit of exemption. The petitioner also stated that in theevent of the amount of Rs.54300 treated as not for educationalpurposes and in violation of the requirement of the provisionfor grant of exemption, it was prayed not to grant exemption onthe violated portion of the amount and thus grant exemption onrest of the amounts which had duly been spent towards theeducational objects of the petitioner. However, the firstrespondent passed the impugned order under Section 264 dated28.03.2018, wherein he rejected the petition filed by thepetitioner. 3.The respondents filed a counter affidavit, wherein it isstated as follows:For the assessment year 2014-15, the petitioner Trustfiled the original return belatedly on 11.01.2016. It wasprocessed by the CPC, Bangalore on 28.02.2016, raising taxliability of Rs.8,17,675/-. Subsequently, the assessee filedrevised return on 06.05.2016, revising the income ofRs.20,22,000/-. The assessee had stated that during the year,it had incurred revenue expenditure of Rs.16,57,221/- andcapital expenses of Rs.12,86,851/- resulting in a loss ofRs.9,22,072/- and thus, not taxable. The return itself isinvalid in law, as it was filed belatedly. Even otherwise, theexpenses shown as revenue expenditure of Rs.16,57,221/- andcapital expenses of Rs.12,86,851/- cannot be allowed. As theyare liable as application for charitable purposes only if theassessee in the first place is entitled for exemption underSection 11 of the Act. In this case, the CPC, Bangalore, whileprocessing the return under Section 143(1) as well as the secondrespondent, while rejecting the petition under Section 154, didnot allow the exemption under Section 11 of the Act, as thepetitioner was not registered under Section 12AA of the Act onthe date of processing return of income. Thus, the revisedreturn of income filed, was not entertained by the first respondent. The registration under Section 12AA was granted tothe petitioner on 30.05.2016 with effect from 01.04.2015. Thefirst proviso to sub section 2 of Section 12A clearly specifiesthat the registration granted under Section 12AA shall apply forearlier assessment years only if the assessment proceedings inthe said earlier years are pending before the Assessing Officeras on the date of such registration and the objects andactivities of such trust remain the same for such earlier years.In this case, the date of registration was on 30.05.2016 and noassessment proceedings for the assessment year 2014-15 or forany other assessment year, was pending before the AssessingOfficer as on that date. The return was processed on28.02.2016 prior to the date of registration granted on30.05.2016. Therefore, the retrospective effect referred tounder first proviso to Section 12A is not applicable to the caseof the petitioner. Reliance placed by the petitioner on CBDTCircular No.1/2015 dated 21.01.2015 is misplaced. The circularsays that after 01.06.2007, the registration under Section 12AAshall be effective only prospectively. The said circular doesnot say even if the proceedings are not pending the registrationgranted will have retrospective effect. The alternate claim ofexemption under Section 10(23C)(iiiad) of the Act is also notpermissible. The application of such exemption under Section 10(23C)(iiiad) would arise only in respect of the educationalinstitutions, which are existing solely for education purposes.The assessee in its own admission in the petition filed underSection 264 stated that it has few other clauses to aid publiccharity and had carried out such charitable acts like providingclothing and food to mothers and grandmothers of the schoolgoing children to encourage them to send the children to pursueeducation without dropping out. The phrase used in the Act"existing solely for education purposes" thus prevents thepetitioner from seeking exemption under Section 10(23C) (iiiad),as the above charitable activity of the petitioner does not fallwithin the purview of "solely for educational purposes". Evenif the education is predominant object, "solely" cannot mean toinclude both predominant as well the other objects. Therefore,the petitioner is not entitled to any relief. 4. Learned counsel appearing for the petitioner submittedas follows: The petitioner Trust, a Public Charitable Trust, havingbeen granted registration under Section 12AA of the said Actwith effect from 01.04.2015, is entitled to get the benefit ofsuch registration extended even for the subject matterAssessment Year 2016-17, by applying the first proviso toSection 12A(2). Even otherwise, if the benefit of registrationis not extended retrospectively, alternatively, the exemption isto be granted to the petitioner by extending the benefit underSection 10(23C)(iiiad) of the said Act. The petitioner Trust issolely existing for educational purposes and therefore, a meagre sum spent on distributing sarees to mothers and grandmothers tochildren, that too for the purpose of inducing them to sendtheir wards to the school regularly, cannot be termed as apurpose outside the purview of educational purpose. Atleast theAssessing Officer should have proportionately granted exemptionto the other sum spent on educational purposes by leaving thesum of Rs.54,300/- spent on distribution of sarees to tax. 5.Learned Senior Standing Counsel appearing for therespondents contended as follows: sum spent on distributing sarees to mothers and grandmothers tochildren, that too for the purpose of inducing them to sendtheir wards to the school regularly, cannot be termed as apurpose outside the purview of educational purpose. Atleast theAssessing Officer should have proportionately granted exemptionto the other sum spent on educational purposes by leaving thesum of Rs.54,300/- spent on distribution of sarees to tax. 5.Learned Senior Standing Counsel appearing for therespondents contended as follows: First proviso to Section 12A(2) will not apply to thepetitioner's case, since no proceeding was pending before theAssessing Officer on the date of grant of registration underSection 12A. In order to attract benefit under Section 10(23C)(iiiad), the petitioner should establish that all expenses weremade solely for educational purposes. In this case, admittedlya sum of Rs.54,300/- was spent on distribution of sarees tomothers and grandmothers of the children studying in the school.Therefore, such spending is not for educational purpose.Consequently, the Assessing Officer has rightly assessed theentire receipts to tax. 6.Heard both sides. 7.The petitioner is an educational trust. It is evidentfrom the Trust Deed registered as Document No.367 of 2009 on thefile of the Sub-Registrar, Kelamangalam that the predominantobject of the trust is to administer, establish and maintainschools and other educational institutions and to imparteducation without any restrictions as to caste, community orreligion. The petitioner was granted a registration underSection 12AA of the Income Tax Act, 1961 as a public charitabletrust, by an order dated 30.05.2016 issued by the Commissionerof Income Tax Act (Exemptions) with effect from 01.04.2015.Thus, there is no dispute to the fact that the petitioner trust,having been declared as a public charitable trust and grantedregistration under Section 12AA of the said Act, is entitled toall the benefit that will flow out of such registration fromthe date on which it takes effect. 8.The dispute between the parties is in respect of theassessment year 2014-2015. The petitioner filed their return ofincome for the said assessment year 2014-2015 on 11.01.2016admitting nil income. The return was processed under Section143(1) on 28.02.2016, computing an aggregated income ofRs.18,80,834/- and tax liability of Rs.8,17,675/- includinginterest. The petitioner filed revised return on 06.05.2016,revising the income of Rs.20,22,000/-. The petitioner had statedthat during the year it had incurred revenue expenditure ofRs.16,57,221/- and capital expenses of Rs.12,86,551/- resultinga loss of Rs.9,22,072/- and thus not taxable. The Assessing 8.The dispute between the parties is in respect of theassessment year 2014-2015. The petitioner filed their return ofincome for the said assessment year 2014-2015 on 11.01.2016admitting nil income. The return was processed under Section143(1) on 28.02.2016, computing an aggregated income ofRs.18,80,834/- and tax liability of Rs.8,17,675/- includinginterest. The petitioner filed revised return on 06.05.2016,revising the income of Rs.20,22,000/-. The petitioner had statedthat during the year it had incurred revenue expenditure ofRs.16,57,221/- and capital expenses of Rs.12,86,551/- resultinga loss of Rs.9,22,072/- and thus not taxable. The Assessing Officer did not agree. Thus, the petitioner aggrieved by theintimation issued under Section 143(1) dated 28.02.2016,determining a sum of Rs.18,80,804/- as taxable income andRs.8,17,675/- as the liability towards tax and interest, filedrectification petition under Section 154 of the Income Tax Act,1961 before the Income Tax Officer (Exemptions). The saidpetition was rejected on the reason that the petitioner trustwas established with several objects which include running ofthe educational institution providing medical relief to thepoor, conduct medical camps like eye camp, blood camp, diabeticcamp and such other medical camps and other charitableactivities in public utility and thus the exemption underSection 10(23C)(iiiad) of the Income Tax Act, 1961 is notavailable to the petitioner as it is not existing solely foreducational purposes. The other reasons stated for rejection isthat the registration under Section 12AA was not in existenceduring the period of the assessment year 2014-2015 and thereforethe registration granted subsequently on 30.05.2016, though witheffect from 01.04.2015, cannot have retrospective effect for theassessment year 2014-2015. Challenging the said order, thepetitioner filed revision petition under Section 264 before thefirst respondent, who in turn rejected the same by reiteratingthe findings/views expressed by the second respondent. 9. The first contention raised by the petitioner is thatin view of the registration granted under Section 12AA witheffect from 01.04.2015 and in view of the first proviso toSection 12A(2), effect of such registration has to be appliedretrospectively in respect of the subject matter assessment year2014-2015 also and consequently, the Assessing Officer ought notto have assessed the income to tax. 10.Let me first consider the sustainability of the abovecontention. There is no dispute to the fact that theregistration under Section 12AA dated 30.05.2016 was grantedwith effect from 01.04.2015 only. Therefore, admittedly suchregistration was not in force during the assessment year 2014-15. It is contended that the first proviso to Section 12A(2)entitles the petitioner to get the benefit of the exemption evenin respect of the previous assessment year namely the subjectmatter assessment year 2014-15. 11.The learned counsel for the petitioner relied on theCircular 1/15 dated 21.01.2015 in support of his contention thatthe registration granted to a trust is to be appliedretrospectively to earlier years also. I do not think that thereliance placed on the above said circular would serve anypurpose more particularly, when the position of law is veryclear that on the date of registration, assessment proceedingsfor previous assessment year/years should be pending before theAssessing Officer to extend the benefit of registration. https://hcservices.ecourts.gov.in/hcservices/ Section 12A(2) first proviso is very specific on that aspect.Hence, I do not think that the petitioner is entitled to relyupon the said circular. 11.The learned counsel for the petitioner relied on theCircular 1/15 dated 21.01.2015 in support of his contention thatthe registration granted to a trust is to be appliedretrospectively to earlier years also. I do not think that thereliance placed on the above said circular would serve anypurpose more particularly, when the position of law is veryclear that on the date of registration, assessment proceedingsfor previous assessment year/years should be pending before theAssessing Officer to extend the benefit of registration. https://hcservices.ecourts.gov.in/hcservices/ Section 12A(2) first proviso is very specific on that aspect.Hence, I do not think that the petitioner is entitled to relyupon the said circular. 12. Further, perusal of Section 12A(2) and its firstproviso would show that the effect of registration granted tothe trust under Section 12AA will have a bearing effect inrespect of any income derived from the property held under trustof any assessment year preceding the aforesaid assessment year,for which "the assessment proceedings are pending before theAssessing Officer" as on the date of the registration and thatthe object and activity of the trust should also remain the samefor such preceding assessment year. Thus it is very clear thatintent of legislation is that the any stage of pendency of theassessment proceedings before any authority would not attractbenefit of extension of registration and on the other hand, itshould be particularly pending before the Assessing Officer. Inother words, the assessment should not have been completed atthe relevant point of time. In this case, admittedly, theassessment order was already passed on 28.02.2016 and therefore,on the date of such registration under Section 12AA, admittedly,no assessment proceedings was pending before the AssessingOfficer. Therefore I do not think that the petitioner isentitled to seek shelter under first proviso to Section 12(A)2to get the benefit of registration retrospectively. 13. This leads me to consider the next alternative plearaised by the petitioner as follows. 14. According to the petitioner, if the exemption is notallowed with retrospective application of the registration ascontemplated under Section 12A(2), the petitioner should havebeen granted the benefit of exemption by applying Section 10(23C)(iiiad) of the said Act, which reads as follows:Incomes not included in total income: 10. In computing the total income of a previousyear of any person, any income falling within any ofthe following clauses shall not be included - ...(23C) any income received by any person on behalfof- ...(iiiad) any university or other educationalinstitution existing solely for educational purposesand not for purposes of profit if the aggregate annualreceipts of such university or educational aggregateannual receipts of such university or educationalinstitution do not exceed the amount of annual receiptsas may be prescribed, or" 15. Perusal of the above said provision would show thatany income received by any University or educational institutionexisting solely for educational purposes and not for purposes of https://hcservices.ecourts.gov.in/hcservices/ profit, shall not be included in total income. In other words,such income is not taxable and on the other hand, gets exemptedfrom levy of tax. It is the contention of the petitioner thatsince the petitioner trust is existing solely for educationalpurposes without having any purpose of profit, the respondent isnot entitled to bring the disputed income to tax. 16. On the other hand, it is submitted by the revenue thatthe petitioner has not satisfied the mandatory requirement thatit should exist solely for educational purposes, as otheractivities of the trust do not relate to educational purpose.Therefore, it is contended that the income brought to tax isjust and proper. https://hcservices.ecourts.gov.in/hcservices/ profit, shall not be included in total income. In other words,such income is not taxable and on the other hand, gets exemptedfrom levy of tax. It is the contention of the petitioner thatsince the petitioner trust is existing solely for educationalpurposes without having any purpose of profit, the respondent isnot entitled to bring the disputed income to tax. 16. On the other hand, it is submitted by the revenue thatthe petitioner has not satisfied the mandatory requirement thatit should exist solely for educational purposes, as otheractivities of the trust do not relate to educational purpose.Therefore, it is contended that the income brought to tax isjust and proper. 17. There is no dispute to the fact that the petitionertrust is running an educational institution by name "Sri SathyaSai Balagurukulam Matriculation School" in Hosur for providingelementary school education without distinction of caste andcreed, from 1997. Though the Trust Deed refers few othercharitable activities such as providing medical relief to thepoor, relief to orphans, etc., the pre dominant object of thetrust is evidently seen as administering, establishing andmaintaining schools and other educational institutions to imparteducation to poor students without any restriction as to caste,community or religion. This noble object of the petitioner trustcannot be looked into with magnifying glass to find out as towhether any meagre expenditure spent by them on any alliedcharitable purpose, so as to project, as though by doing suchactivity, the petitioner trust is not existing solely foreducational purposes. In this case, the objection of the revenuerelates to a sum of Rs.54,300/- spent by the petitioner forproviding sarees to mothers and grandmothers of the childrenstudying in the school. This free distribution of clothes to themothers and grandmothers of the children is considered by therevenue as the one not related to educational purposes. 18. On the other hand, it is contended by the petitionerthat such distribution was made only to encourage those mothersand grandmothers to send their ward to the school withoutdiscontinuation. This purpose is not doubted by the Revenue.Nor any contra material is available before the AssessingOfficer to draw adverse inference. Therefore, the main objectbehind the distribution of the sarees to those persons isevidently for ensuring the continuance of study at thepetitioner School and not solely for providing clothes to needypersons totally unconnected with the school. 19. At this juncture, it is better to understand the scopeof Section 10(23C) (iiiad). The term "any university oreducational institution existing solely for educational purpose"used under the above provision is heavily relied on by the Revenue to deny the benefit of exemption to the petitioner onthe sole ground that a portion of the income spent on othercharitable purpose, viz., distribution of sarees to the mothersand grandmothers of the children studying in the school was notfor educational purpose. There is no dispute to the fact thatthe sum spent on such purpose is very minimal, compared to thetotal income. 20. The question as to whether an educational institutionis existing solely for educational purposes or not, has to beconsidered and decided not merely by mechanically reading andreproducing the relevant provisions of law but by consideringthe nature of the activity and the hidden principles behind it,which in my considered view, is essential. Revenue to deny the benefit of exemption to the petitioner onthe sole ground that a portion of the income spent on othercharitable purpose, viz., distribution of sarees to the mothersand grandmothers of the children studying in the school was notfor educational purpose. There is no dispute to the fact thatthe sum spent on such purpose is very minimal, compared to thetotal income. 20. The question as to whether an educational institutionis existing solely for educational purposes or not, has to beconsidered and decided not merely by mechanically reading andreproducing the relevant provisions of law but by consideringthe nature of the activity and the hidden principles behind it,which in my considered view, is essential. 21.While the nature of existence of the institution is tobe derived only by considering the predominant activity of theinstitution, the nature of spending the money so received bysuch institution to its various activities, has to beascertained and adjudged going by the ultimate purpose for whichit was spent. If the event of spending and the purpose forwhich such event took place, have some nexus to achieve the mainobject viz., the predominant activity of the institution, thensuch spending on an allied activity cannot be looked inisolation from the main object. 22. An institution solely existing for educationalpurposes, if indulges in certain allied charitable activities,such as feeding and clothing poor, giving some medical aid tothose people, etc., certainly, such activities cannot alter thepredominant object of such institution. While 'the impartingeducation' is like the water flowing in the main channel,certain incidental other charitable activities done by suchinstitution, here and there, cannot be considered as majorbreach of the channel, but as the reach of the 'overflown' waterfrom the main channel to the adjacent lands. So long as thedesired destination of the channel (the institution) isevidently existing and being achieved to reach the predominantobject and not disputed, the nature or character of theinstitution run by the trust cannot be doubted, as it willalways fit into the above term "institution existing solely foreducational purposes" and consequently, is entitled toprotection under Section 10(23C)(iiiad). 23. Further, strictly speaking, Section 10(23C)contemplates and excludes any income "received by" and not "thespending" of such money received under Section 10(23C). At thesame time, if the spending is totally on a deviated object or anobject, which is totally opposite or opposed to the main objectfor which the trust is created, certainly such spending cannothave any protection under Section 10(23C)(iiiad). Thus, the sole purpose of existence is to be gathered, derived andconstrued based on overall predominant activity and not fromcertain isolated activity, especially when such activity alsohappens to be charitable in nature, more particularly, when ameagre sum is spent on such activity. At the same time,proportionality of the money spent on such activity, other thanthe predominant activity, also plays a major role in decidingthe nature of existence of the institution. If major portionsof the money received by the Trust is spent on certain objectsother than the predominant object, certainly the sole purpose ofthe Trust for which it was created, can be doubted. On theother hand, if such spending is meagre and does not shake theconscience of the Assessing Officer, being the quasi judicialauthority, is at liberty to bring such expenditure also underthe exemption clause. 24. The allied activities for which such spending wasmade, must be in such a way that it is not a one way travelwithout an intention to return back to the main fold or with anidea to abandon the predominant object. On the other hand, ifsuch spending was meant to retain the main object in tact andstrengthen the same further, I do not think that such minordeviation would in any way stand in the way of the AssessingOfficer to deny exemption. 25. In addition to the above legal aspects of the matter,I would like to point out one more aspect on the responsibilityof the Government and Court to encourage, philanthropy andcharity, more particularly, when such tendencies among thepeople, of late, unfortunately, have become very minimal. I donot think that this emphasis is either out of place orcontext. Therefore, if somebody come forward to do some charityto the needy poor, the Revenue, instead of applyinghypertechnical objections to deny exemption on such activities,which, in effect, would only discourage such noble object,should find a way out to sustain such spending and grantexemption, so as to encourage and allow the said noble object tocontinue and survive forever. 26. At this juncture, I am reminded of the 'Midday MealScheme' started by the Great Leader Sri K.Kamarajar in theschools of this State. The object behind such Scheme is knownto everyone. Only in order to attract and invite the studentsto attend the school, the great Leader thought that if thestarving stomach of the poor children is fed, there will not beany difficulty for them to attend the school regularly. Suchforethought, undoubtedly, was aimed only for educating the poorchildren. Therefore, no one can say that such feeding the poorstudent was not for educational purposes. Therefore, the objectbehind such kind of activity cannot be decided on the face of https://hcservices.ecourts.gov.in/hcservices/ such activity, but by considering overall aspect of suchactivity. 27. It is relevant to quote a division bench decision ofthe Bombay High Court at this juncture. The case before theBombay High Court arises out of an order passed by the ChiefCommissioner of Income Tax, Mumbai, declining the grant ofapproval under Section 10(23C)(vi) of the Income Tax Act, 1961.It is to be noted that Section 10(23C)(iiiad) and 10(23C)(vi)are having similar effect, while the former deals with theinstitution without approval by the prescribed authority,whereas the latter deals with the institution with approval bythe prescribed authority. The said application was rejected bythe Chief Commissioner on the reason that the objects from thetrust therein apart from running schools also permittedconstruction of Ashrams for Gujarati Hindu Women and hence, thetrust existed for the objects other than the education. TheBombay High Court considered the said objection in detail andrejected the same by observing at paragraph Nos.10 and 11 asfollows: "10. Now, it is not in dispute before the Courtthat the Petitioner has been conducting primary andsecondary schools and colleges for Arts, Science,Commerce and Technical courses in Mumbai since 1929 andin Surat since 1940. Nor is there any dispute beforethe Court that save and except for conducting theseeducational institutions, the Petitioner has notcarried on any other activities right since 1929. Inthis background, it would be necessary to advert to theobjects set out in the Memorandum of Association.Clause III(b) spells out as the object, amelioration ofthe condition of Gujarati Hindu women of the thenBombay Presidency and other places and alleviation oftheir social status by educating to them in subjectstending to their material, moral and spiritualadvancement, opening out for them proper and suitablefields of work, lawfulness and influence in Hindusociety. From this object, it is abundantly clear thatthe amelioration of the condition of Gujarati speakingHindu women was sought to be improved, when the Trustwas founded in March 1928, by providing for theeducation of this class of women. The means by whichthis object is sought to be achieved is by conductingAshrams or homes for women and girls, particularly forwidows and orphaned girls either as free or as payinginmates and by conducting schools for impartingreligious, secular and industrial education andtraining in fine arts. A number of ancillary objectshave been adverted therein including provision oflibraries and gymnasiums, publication of books and bymeans of pecuniary and other help to students of the institution. A holistic reading of the object clausewould establish beyond doubt that the sole purpose forthe establishment of the Petitioner was to further thecause of education amongst women belonging to aparticular class, as stated therein. Though the objectsclause contained varied objects including themanagement and development of movable and immovableproperties, the statement of fact before the Courtwhich is not disputed is that the only activity whichhas been carried out by the Trust ever since itsinception is the conduct of educational institutions.The Court, it must be emphasized, is not dealing withan institution which has sought approval for the firsttime or which has been set up in the proximate past.The Trust has a history of over eighty years during thecourse of which the only activity is of conductingeducational institutions. "11. The fact that the Trust exists solely foreducational purposes is evidenced from the assessmentorders for Assessment Years 2000-01 and 2006-07, copiesof which form a part of the record before the Court.Both these orders which have been made under Section143(3) of the Act, contain a statement to the effectthat the assessee is running schools with Gujarati andEnglish as media of instruction at the primary andsecondary stage and that the assessee also conducts acollege for girls with the sole intent of impartingeducation. The record of these proceedings alsocontains a judgment of a Division Bench of this Courtdated 29 June 2005 in a Reference under Section 256(1)to which the Petitioner was the applicant. The issuebefore the Court in the Reference was whether theassessee was entitled to exemption under Section 10(22)on interest earned on surplus funds of the school runby the Trust for Assessment Years 1979-80 and 1980-81.The Division Bench observed that merely because acertain surplus arose from the operations of the Trust,it could not be held that the institution was run forthe purpose of profit, so long as no person orindividual was entitled to any portion of the profitand the profit was utilized for the purpose ofpromoting the objects of the institution. The income ofthe Trust was, therefore, held to be exempt underSection 10(22). The Division Bench followed thedecision of the Supreme Court in Aditanar EducationalInstitution vs. Additional CIT,1 and noted as aprinciple of law that if after meeting the expenditure,a surplus results incidentally from an activitylawfully carried on by the educational institution, the institution would not cease to be one which is existingsolely for educational purposes since the object is notto make profit. The Division Bench also observed thatif the Trust exists solely for educational purposes andconducts an educational institution, the fact that ithad other objects would not disentitle it to theexemption so long as the activity carried out by it inthat assessment year was that of running an educationalinstitution and not for profit. The Court observed thatthe assessee had existed only for educational purposeswhich consisted of running educational institution andnot for earning profits. The observations of theDivision Bench which have been made in the context ofSection 10(22) would furnish a cogent answer to boththe issues on which the applications for approval wererejected by the First Respondent. Firstly, though theMemorandum of Association contains varied objects, solong as the record demonstrates that the assessee onlyconducts educational institutions, 1 (1997) 224 ITR 310it must be regarded as existing solely for the purposeof education. No other activity is carried on.Secondly, the fact that a surplus may incidentallyarise from the activities of the Trust, after meetingthe expenditure incurred for conducting educationalactivities would not disentitle the Trust of thebenefit of the provisions of Section 10(23-C)."(emphasis supplied) 28. The Karnataka High Court in 2015(5) TMI 260, TheCommissioner of Income Tax vs Karnataka, has observed thatproviding hostel to the students/staff working for the Societyis incidental to achieve the objection of providing education,namely, object of the Society. 29. In 2018(8) TMI 382, Navadisha Educational Trust vs TheChief Commissioner of Income Tax, the learned Judge of thisCourt, while disposing W.P.No.5560 of 2012 dated 20.07.2018, hasobserved at paragraphs 4 and 6 as follows: 28. The Karnataka High Court in 2015(5) TMI 260, TheCommissioner of Income Tax vs Karnataka, has observed thatproviding hostel to the students/staff working for the Societyis incidental to achieve the objection of providing education,namely, object of the Society. 29. In 2018(8) TMI 382, Navadisha Educational Trust vs TheChief Commissioner of Income Tax, the learned Judge of thisCourt, while disposing W.P.No.5560 of 2012 dated 20.07.2018, hasobserved at paragraphs 4 and 6 as follows: "4. The first respondent has passed the impugnedorder stating that Section 10(23C)(vi) of the Actstipulates that the institution/trust should existsolely for educational purpose and not for any otherpurpose including objects of general public utility.Further the first respondent stated that he has takena stand in several cases that for the purpose ofapproval under Section 10(23C)(vi), the objects of theTrust/Institution should include only educationalpurpose and not for any other purpose. Therefore, theapplication made by the petitioner Trust was found noteligible for granting approval under Section 10(23C)order stating that Section 10(23C)(vi) of the Actstipulates that the institution/trust should existsolely for educational purpose and not for any otherpurpose including objects of general public utility.Further the first respondent stated that he has takena stand in several cases that for the purpose ofapproval under Section 10(23C)(vi), the objects of theTrust/Institution should include only educationalpurpose and not for any other purpose. Therefore, theapplication made by the petitioner Trust was found noteligible for granting approval under Section 10(23C) (vi) of the IT Act and hence the application wasrejected. Challenging the same, this writ petition hasbeen filed. ...6. I am of the considered view that theimpugned order is an outcome of narrow and pedanticapproach on the part of the first respondent, namelythe Chief Commissioner of Income Tax. Though the firstrespondent in the impugned order has referred to theobjects Trust, it lost sight of the fact that objectsof Trust cannot be read in a truncated fashion. Thefirst respondent was carried away by one of theobjects of the Trust, namely to work for theintegrated development of children. Unfortunately, thefirst respondent did not take note of the documents,which were called for from the petitioner andfurnished by the petitioner along with a letter dated04.02.2011, after which there was personal hearingwhich was fixed and further documents were given andthe petitioner has submitted a representation styledas response to the notice dated 08.03.2011, whereinthey have given a detailed write up on as to how thechildren participate and learn. Without consideringall these aspects, the respondent, has mechanicallypassed the impugned order and also by stating that hehas taken a stand in several cases that for thepurpose of approval under Section 10(23c)(vi), theobjects of the Trust should include only educationalpurpose. There is no finding by the first respondentthat one of the objects of the Trust that to work forthe integrated development of children does notinclude educational activity, more particularly, basedon the materials furnished by the petitioner. There isnot even a whisper that the materials furnished by thepetitioner is either been found incorrect or is afalse statement. Therefore, these observations wouldbe sufficient to set aside the impugned order. 30. Perusal of the above decisions would show that thecontention raised by the Revenue against the petitioner withregard to their entitlement under Section 10(23C)(iiiad) isliable to be rejected. 30. Perusal of the above decisions would show that thecontention raised by the Revenue against the petitioner withregard to their entitlement under Section 10(23C)(iiiad) isliable to be rejected. 31. The learned counsel for the Revenue relied on 2012(20)taxmann 269 (AP.), R.R.M.Educational Society vs ChiefCommissioner of Income Tax, a Division Bench decision of theAndhra Pradesh High Court in support of her contention. Perusalof the facts and circumstances of the said case would show thatthe question raised before the Andhra Pradesh High Court was https://hcservices.ecourts.gov.in/hcservices/ whether the object of the 'eradicating unemployment' adopted bythe assessee was integrally connected with or as being ancillaryto provide education. The Andhra Pradesh High Court found thatthey are two different objects and that eradicatingunemployment, though may be charitable in nature, is not to beconstrued as solely for the educational purposes, as requiredunder Section 10(23C)(vi) of the Income Tax Act. I do not thinkthat the above decision, which is factually distinguishable, canbe applied to the facts and circumstances of the present case. 32. It is not established by the revenue that thepetitioner is carrying on any other activities for profit otherthan running the school. Therefore, when the only predominantactivity is being carried on by the petitioner trust, viz.,therunning of the school as stated supra, I do not think that merespending a meagre amount, out of the total income derived by thetrust, towards the distribution of sarees to mothers andgrandmothers of children studying in the school, can stand inthe way of the Assessing Officer to deny the benefit underSection 10(23C) (iiiad). Thus I find that the respondents arenot justified in rejecting the claim of the petitioner underSection 10(23C) (iiiad) of the said Act. 33. Accordingly, the writ petition is allowed and theimpugned order is set aside. Consequently, the respondents aredirected to consider the claim of the petitioner under Section10(23C) (iiiad) in respect of the assessment year 2014-15 andpass appropriate orders granting such exemption and other reliefif any, within a period of four weeks from the date of receiptof a copy of this order. No costs. The connected miscellaneouspetition is closed. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar vri To 1.The Commissioner of Income Tax (Exemption), No.121, (Annexe Bldg), 3rd Floor, Mahatma Gandhi Salai, Chennai-34. No.121, (Annexe Bldg), 3rd Floor, Mahatma Gandhi Salai, Chennai-34. https://hcservices.ecourts.gov.in/hcservices/ 2.Income Tax Officer (Exemptions) Ward, No.3, Gandhi Road, Salem. +1cc to Mrs.Hema Muralikrishnan, Advocate sr.no.70311 ORDER IN W.P.11301 of 2018 nm(co)nr 26/10/2018