Pinegrove International Charitable Trust v. UOI (P&H High Court)

Even if a charitable educational institution having surplus, it doesn’t mean that it is exist for making profits and not solely for educational purposes.

HIGH COURT OF PUNJAB AND HARYANA

Pine grove International Charitable Trust Vs Union of India,

APPEAL NO: CWP No. 6031 of 2009,

DECIDED ON: January 29, 2010

RELEVANT PARAGRAPH

6.5 We have prefaced the discussion on provisos with the object of putting the real controversy in its true perspective. The orders passed by the Chief Commissioner are identical in all these cases and after hearing the learned counsel for the parties we are of the view that the following substantive questions of law would arise for determination of this Court:

(A) Whether an educational institution would cease to exist `solely ‘ for educational purposes and not for purposes of profit merely because it has generated surplus income over a period of 4/5 years after meeting its expenditure?

(B) Whether the amount spent on acquiring/construct ing capital assets wholly and exclusively becomes part of the total income or it becomes entitled to exemption under Section 10(23C)(vi)of the Act?

(C) Whether an institution registered as a Society under the Societies Registration Act,1860,lose its character as an educational institution, eligible to apply for ex emption under Section 10(23C)(vi)of the Act?

RE:QUESTION (A):

7.1 In the preceding paras it has already been noticed by refer- ring to the views of Hon’ble the Supreme Court in the cases of Aditanars Educational Institutions case (supra)and American Hotel and Lodging Association (supra)that the character of the recipient of income must be that of an educational institution which is to be ascertained from the nature of its activities. In the case of American Hotel and Lodging Association (supra), Honourable the Supreme Court has considered the scope of inquiry by the prescribed authority under Section 10(23C)(vi) read with un-numbered third proviso of the Act. In that case the Assessing Officer during the assessment proceedings had accepted that excess income over and above the expenditure shown in its accounts was not to be taken as assessee ‘s income. When the matter travelled to the CBDT it was held that there is a surplus income, which has been repatriated outside India. Therefore, the assessee did not apply for its income for the purpose of education in India. The view of the CBDT was accepted by the Delhi High Court by dismissing the writ petition filed by the assessee, which is reported as American Hotel and Lodging Association Educational Institute v. CBDT,[2007 ]289 ITR 46 (Delhi).The Division Bench of Delhi High Court held that the gross receipt collected by the assessee’ s branch office in India is income chargeable to tax. It was further held that such income was required to be applied for educational purposes in India and on its repatriation outside India, the assessee lost the entitlement to seek exemption. It was in the aforesaid background that Honourable the Supreme Court analysed various provisos added w.e.f.1.4.1999 and proceeded to observe that `with the insertion of the provisos to Section 10 (23C)(vi)the applicant who seeks approval has not only to show that it is an institution existing solely for educational purposes [which was also the requirement under Section 10(22)] but it has now to obtain initial approval from the prescribed authority, in terms of Section 10(23C)(vi)by making an application in the standardised form as mentioned in the first proviso to that section ‘. Honourable the Supreme Court then proceeded to examine various provisos by observing as under:-

“……With the insertion of the first proviso, the A is required to vet the application. This vetting process is stipulated by the second proviso. It is important to note that the second proviso also indicates the powers and duties of the prescribed authority. While considering the approval application in the second proviso, the prescribed authority is empowered before giving approval to call for such documents including annual accounts or information from the applicant to check the genuineness of the activities of the applicant institution. Earlier that power was not there with the prescribed authority. Under the third proviso, the prescribed authority has to ascertain while judging the genuineness of the activities of the applicant institution as to whether the applicant applies its income wholly and exclusively to the objects for which it is constituted/ established. Under the twelfth 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 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 third proviso or that the activities of such fund or institution or trust etc. are not genuine or that its activities are not being carried out in accordance with the conditions subject to which approval is granted then the pre- scribed authority is empowered to withdraw the approval earlier granted after complying with the procedure mentioned therein.”

7.2 From the aforesaid view expressed by Hon ‘ble the Supreme Court it is evident that at the initial stage when the application for exemption is filed by an educational institution the scope of inquiry is restricted only to ascertain the genuineness of the activities of such an institution. Such an inquiry as per the proviso may even extend to the examination of accounts of the institution, application of its income to the object and purposes of education and other cognate aspects as has been indicated in the observation made by their Lordships ‘ .Once on the basis of genuineness of the activities of an educational institution approval is granted for exemption then the monitoring provisions would come in play and the Assessing Officer has to examine whether the conditions on which the exemption was given, have been fulfilled or not. The aforesaid opinion is also supported by the speech of the Finance Minister as reported in [1998 ] 232 ITR 13 (ST).

7.3 Hon’ble the Supreme Court in para 32 of the judgment rendered in American Hotel and Lodging Association (supra)has further held that there is difference between stipulation of conditions and compliance therein. It has been held that the threshold conditions are aimed at discovering the actual existence of an educational institution and approval of the prescribed authority for which an application in the standardized form in terms of the first proviso has to be given by every applicant. If the pre-requisite condition of actual existence of the educational institution is fulfilled then the question of compliance with the requirements contemplated by various provisos would arise. Hon’ble the Supreme Court has approved the contention that the un-numbered third proviso contains monitoring conditions/requirem ents like application, accumulation, deployment of income in specified assets whose compliance depends on events that have not taken place on the date of the application for initial approval. It follows that firstly the application is filed in the standardized form in accordance with the un-numbered first proviso and then approval is granted. If the educational institution actually exists for education purposes alone then the educational institution is permitted to operate subject to monitoring conditions. A workable solution has been provided by Hon ‘ble the Supreme Court in para 33 by observing as under:-

“33.To make the section with the proviso workable we are of the view that the monitoring conditions in the third proviso like application/ utilization of income, pattern of investments to be made etc. could be stipulated as conditions by the prescribed authority subject to which approval could be granted. For example, in marginal cases like the present case, where appellant-Institute was given exemption up to financial year ending 31.3.1998 (assessment year 1998-99)and where an application is made on 7.4.1999,within seven days of the new dispensation coming into force, the prescribed authority can grant approval subject to such terms and conditions as it deems fit provided they are not in conflict with the

provisions of the 1961 Act (including the abovementioned onitoring conditions). While imposing stipulations subject to which approval is granted, the prescribed authority may insist on certain percentage of accounting Income to be utilized/applied for imparting education in India.…………

Therefore, cases where earlier the applicant has obtained ex- emption(s),as in this case, need not be re-opened on the ground that the third proviso has not been complied with. However,after grant of approval, if it is brought to the notice of the prescribed authority that conditions on which approval was given are breached or that circumstances mentioned in the thirteenth proviso exists then the prescribed authority can withdraw the approval earlier given by following the procedure mentioned in that proviso. The view we have taken, namely, that the prescribed authority can stipulate conditions subject to which approval may be granted finds support from sub-clause (ii)(B)in the thirteenth proviso.” 7.4 The question then is whether accumulation of income year after year extending over 4/5 years would deprive an educational institution existing solely for education purpose, its character as an educational institution solely for education purpose and not for profit. In the 5-Judge Constitution Bench judgment rendered in the case of Surat Art Silk

Cloth Manufacturers Association (supra),the question of interpretation of clause 15 of Section 2 of the Act was involved. The words `not involving the carrying on any activity for profit ‘ occurring at the end of the definition of `charitable purpose ‘ in the aforesaid provision were interpreted. After analyzing various judgments and the speech of the Finance Minister, it has been held as under:-

“……The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit.

7.4 The question then is whether accumulation of income year after year extending over 4/5 years would deprive an educational institution existing solely for education purpose, its character as an educational institution solely for education purpose and not for profit. In the 5-Judge Constitution Bench judgment rendered in the case of Surat Art Silk Cloth Manufacturers Association (supra),the question of interpretation of clause 15 of Section 2 of the Act was involved.The words `not involving the carrying on any activity for profit ‘ occurring at the end of the definition of `charitable purpose ‘ in the aforesaid provision were interpreted. After analyzing various judgments and the speech of the Finance Minister,it has been held as under:-

“……The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit.

7.4 The question then is whether accumulation of income year after year extending over 4/5 years would deprive an educational institution existing solely for education purpose, its character as an educational institution solely for education purpose and not for profit. In the 5-Judge Constitution Bench judgment rendered in the case of Surat Art Silk Cloth Manufacturers Association (supra),the question of interpretation of clause 15 of Section 2 of the Act was involved. The words `not involving the carrying on any activity for profit ‘ occurring at the end of the definition of `charitable purpose ‘ in the aforesaid provision were interpreted. After analyzing various judgments and the speech of the Finance Minister, it has been held as under:-

“……The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. mit the audited accounts and balance sheets for the last three years along with a note on the examination of accounts and on the activities as reflected in the accounts and in the annual reports with special reference to the appropriation of income towards objects of the university or other educational institution. From the audited accounts, one can easily see whether the funds were utilised for the expansion of educational institution/ activity or for personal profits. In the present case, the opposite-parties have not brought any material on record to prove that the surplus earned by the assessee petitioner was utilised for personal profit/gain on anyone including the Founder-Manager/ Director. Whatever fund was acquired, the same was utilised for the expansion of educational activities of institution. Initially there were five students and now the institution is imparting education to more than 34,000 students as pointed out during the course of arguments. Thus, the assessee is fully satisfying all the statutory requirements for getting exemption under Section 10(23C)(vi)of the Income Tax Act. Apart from it, it may be mentioned that the Hon ‘ble Supreme Court has observed in the case of CIT v. Surat Art Silk Cloth Manufacturers Association, 121 ITR SC,p.1 that the institution must be for general public utility and certainly not for profit, then it can be treated as charitable institution. In the instant case, no adverse material was brought on record by the opposite-parties to reject the application dated 4.2.1999 for seeking said exemption.” 7.7 The aforesaid view has been adopted, applied and followed by a Division Bench of Allahabad High Court in the case of City Montessori School (supra),as has been rightly contended by the learned counsel for the petitioner(s) .Even Special Leave Petition against the aforesaid judgment has been dismissed. Accordingly, the question of law has to be answered in favour of the assessee and against the revenue. RE:QUESTIONS (B)&(C):

8.1 We are further of the view that capital expenditure has to be deducted from the gross income of the educational institution like the petitioner-society and the Chief Commissioner has committed grave error in law by refusing to do so. The view of the Chief Commissioner is contrary to the third proviso to Section 10(23C)of the Act.

8.2 The methodology adopted by the Chief Commissioner of Income Tax, while computing surplus by not deducting the capital expenditure incurred by the petitioner-society from the gross income is contrary to the un-numbered third proviso to section 10(23C)(vi)of the Act. The words `not for the purposes of profit ‘ accompanying the words `existng solely for educational purposes ‘ has to be read and interpreted in view of third proviso to Section 10(23C),which prescribes the methodology for the utilization and accumulation of income at the hands of the educational institutions by imposing two restriction, namely,(i) that accumulation of surplus upto 15%can be for any number of years by the educational institution for which purposes it is established; and (ii)if the accumulation is more than 15%of the income the same can be accumulated for a maximum period of 5 years to be utilized for achieving the objects of the society. The inevitable consequence is that 85%of the

7.7 The aforesaid view has been adopted, applied and followed by a Division Bench of Allahabad High Court in the case of City Mon- tessori School (supra),as has been rightly contended by the learned counsel for the petitioner(s) .Even Special Leave Petition against the aforesaid judgment has been dismissed. Accordingly, the question of law has to be answered in favour of the assessee and against the revenue. RE:QUESTIONS (B)&(C):

8.1 We are further of the view that capital expenditure has to be deducted from the gross income of the educational institution like the petitioner-society and the Chief Commissioner has committed grave error in law by refusing to do so.The view of the Chief Commissioner is

contrary to the third proviso to Section 10(23C)of the Act.

8.2 The methodology adopted by the Chief Commissioner of Income Tax,while computing surplus by not deducting the capital expenditure incurred by the petitioner-society from the gross income is contrary to the un-numbered third proviso to section 10(23C)(vi)of the Act. The words `not for the purposes of profit ‘ accompanying the words `existing solely for educational purposes ‘ has to be read and interpreted in view of third proviso to Section 10(23C),which prescribes the methodology for the utilization and accumulation of income at the hands of the educational institutions by imposing two restriction, namely,(i) that accumulation of surplus upto 15%can be for any number of years by the educational institution for which purposes it is established; and (ii)if the accumulation is more than 15%of the income the same can be accumulated for a maximum period of 5 years to be utilized for achieving the objects of the society. The inevitable consequence is that 85%of the Trust v.CIT,[1998 ]230 ITR 636 and CIT v. Divine Light Mission,

(2005)196 CTR 135 (Del)respectively .In clause 11 of Form 56D of the Rules it is mentioned that the amount of income of an university or other educational institution that has been or deemed to have been utilized wholly and exclusively for its objects shall have the meaning assigned to it in sub-sections (1)and (1A)of Section 11.Hon ‘ble the Supreme Court and the Delhi High Court in the aforementioned cases, arising under Section 11(1)of the Act, have held that the capital expenditure incurred by the trust would be application of income and the assessee would be entitled to exemption under Section 11(1)of the Act. Even the High Court of Uttrakhand in the case of CIT v. Jyoti Prabha Society,(2009) 177 Taxman 429 (Uttrakhand) has held that the educational society which had utilized rental income again for the purposes of imparting education by maintaining the buildings and constructing new building for the same purpose, would be entitled to the exemption claimed under Section 11 of the Act. Section 11(1)(a)is pari materia to the third proviso to Section 10(23C)(vi)of the Act and the only difference is with regard to the percentage of income and the period for which it can be carried forward. Yet again the judgment rendered by the High Court of Calcutta in the case of Birla Vidya Vihar Trust v.CIT,(1981) 7 Taxman 391,deserves to be taken note of wherein noticing the Circular dated 19.6.1968 it has been emphasized that capital expenditure has to be deducted from the total income of the Trust for the purposes of finding out how much has been accumulated by the assessee-Trust. Thus, both on principle and precedents the capital expenditure is to be deducted from the gross income of the educational institutions like the petitioner- society. Admittedly, in the present case of the petitioner-society the application of income is more than 100%for the attainment and achievement of its objects in the last three years,a fact not disputed by the Chief Commissioner of Income Tax. The petitioner-society, when admittedly having utilized more than 100%of the income for achieving its objects, could by no stretch of imagination be held to be an educational institution existing for the purposes of making profit so as to be not entitled to exemption in view of the provisions of Section 10(23C) (vi)of the Act. The Chief Commissioner failed to keep in view the third proviso while wrongly holding that since the substantial profits are being earned year after year it could not be said that the surplus is arising incidentally and, therefore, the petitioner-society was not entitled to be exemption.

8.4 We also find substance in the argument raised by the learned counsel for the petitioner that the judgment rendered in Children Book Trust ‘s case (supra)has no application to the cases under Section 10 (23C)(iv)of the Act primarily for the reason that the provisions under which the aforesaid judgment was rendered by Hon ‘ble the Supreme Court are not pari materia to the provisions relating to exemption, namely, Section 10(23C)of the Act apart from the scheme of the Act being totally different. The order passed by the Chief Commissioner when tested in the light of the judgment rendered in the case of Children Book Trust(supra) ,the said order would be bad in law in view of the finding recorded in para 75 of the judgment that if education is imparted with profit motive the purpose is lost. In the case in hand the motive is not to make profit inasmuch as the requirement of the third proviso to Section 10(23C)(vi)of the Act is met and/or fulfilled by the petitioner-society on account of the fact that more than 85%of its income is utilized for the attainment of the objects of the society either in form of capital or revenue expenditure. The judgment rendered by Hon’ble the Supreme Court in the case of Children Book Trust (supra)cannot be applied to the cases arising under the provisions of Section 10(23C)(vi)of the Act in view of the statutory obligation cast on the educational institutions to spend 85%of its total income earned during the financial year for pursing its objects and the express monitoring conditions provided for by the legislature upon the fulfillment of which even if there remains a surplus at the hands of the educational institutions, it would be entitled to exemption provided the educational institution solely exists for educational purposes.

8.5 The observations of Hon’ble the Supreme Court quoted from para 82 of the aforesaid judgment to the effect that – “what we want to stress is where a society or body is making systematic profits, even though that profit is utilized o ly for Charitable purposes, yet it can not be said that it could claim exemption ” deserves to be read in conjunction with the express provisions of the third proviso to Section 10(23C)(vi)of the Act which stipulate the retention of 15%of the profits of the total income after quantification therefore, of the educational institution earned in each year provided 85%of the total income is spent for the objects of the society .In fact, the judgment rendered by Hon ‘ble the Supreme Court in Children Book Trust Case (supra)on the facts and in the circumstances of the case of the petitioner-society herein, is not at all applicable by virtue of the applicability of the mechanism contained in the third proviso to Section 10(23C)(vi)of the Act. It may be clarified that Hon’ble the Supreme Court had decided the case of Children Book Trust (supra)under the Delhi Municipal Corporation Act,1957,and had not dealt with the provisions of Section 10(23C)(vi)of the Act, which are a complete code in itself, inter alia, providing a mechanism for the utilization of surpluses and prior to the utilization determination of the existence of the educational institution solely for educational purposes and not for making profit. The determination of the existence of educational institution solely for educational purposes is required to be done on the basis of its objects including the utilization of its income in accordance with the conditions laid down in the third proviso to section 10(23C)(vi)of the Act. Merely because there are surpluses in the hands of the educational institution would not ipso facto lead to an inevitable conclusion that such an educational institution is existing for making profits and not solely for educational purposes. Therefore, the interpretation put forth by the Chief Commissioner that there has to be a reasonable profit only and then only an institution can be said to be not existing solely for the purposes of profit, is totally a misconception of law. There is a definite purpose behind the allowing of setting up educational institutions at the hands of private entrepreneurs including Trusts/Societies by the Government. Various other educational colleges like Engineering and Pharmacy etc. could not have been established for want of funds. The Government with a definite idea and object purportedly opened this area of education for the private sector. The Government, who is lacking funds appears to have thought that private sector could do this job very well. Once the very intention of the Government, is to promote education in the private sector such an action like that of the Chief Commissioner would seriously discourage those activities and the avowed object could never be achieved.

8.6 It is further pertinent to notice the judgment of Hon’ble the Supreme Court in the case of TMA Pai Foundation v. State of Karnataka,(2002) 8 SCC 481 .The 11-Judge Constitution Bench has held that the private educational institutions are bound to generate funds for betterment and growth of the institutions and for which there may be a surpluses for furtherance of education. Therefore, it is not only permissible but an important requirement to run the institutions of such a strength. Further, in Aditanars Educational Institution (supra),Hon’ ble the Supreme Court has observed that when surplus is utilized for educational purposes i. e. for infrastructure development, it cannot be said that the institution was having the object to make profit. Hon’ble the Supreme Court has rightly observed time and again that surpluses used for management and betterment of the institutions could not be termed as profit. If the stand of the Department/Revenue is accepted to be correct, especially in the wake of the methodology adopted by the Chief Commissioner in ascertaining profits, then no educational institution like the petitioner-society could be said to be existing solely for educational purposes as in every case of an educational institution there is bound to be a profit. The provision of Section 10(23C)(vi)would be rendered otiose if the interpretation adopted by the Chief Commissioner is accepted and the manner in which exemption validly granted to the petitioner-society has been withdrawn. The approach of the Chief Commissioner is wholly erroneous being contrary to the express provisions of the third proviso to Section 10(23C)(vi)for the following reasons -(i)Unlike the provisions of Sections 37 and 36(xii),the incurring of capital expenditure is not expressly excluded in the third proviso;and (ii)Had it been the intention of the legislature to exclude capital expenditure while applying the income of the Trust as per the third proviso to Section 10(23C)(vi)then the said proviso would have contained an express embargo against such exclusion.

8.7 The contention of the revenue for sustaining the validity of the impugned Order on the ground that the petitioner(s) being societies registered under the 1860 Act do not fall within the ambit of the expression `other educational institutions ‘ and,therefore, exemption has been rightly withdrawn under Section 10(23C)(iv)of the Act,cannot be accepted because after the notice was issued for withdrawing the exemption on the said ground,reply was filed by the petitioner(s) asserting that in view of the law laid down by various High Courts and Hon ‘ble the Supreme Court such a ground was not tenable.The Chief Commissioner thereafter did not issue any notice to the assessee making the aforesaid ground as the basis for withdrawal of exemption nor there is any finding recorded in the impugned orders.Thus, the said ground on which there is no finding in the impugned Order is not sustainable in view of the law laid down by Hon ‘ble the Supreme Court in the case of Mohinder Singh Gill v.Chief Election Commissioner, AIR 1978 SC 851 (para 8).Secondly, such a plea in any case would not sustain the impugned order,inasmuch as,in the case of Aditanars Educational Institution (supra)it has been held that –

“……We are of the view that an educational society or a trust or other similar body running an education institution solely for educational purposes and not for the purpose of profit could be regarded as “other educational institution ” coming within Section 10(22)-See CIT Vs.Doon Foundation (1985)154 ITR 208 and Aggarwal Shiksha Samiti Trust (1987)168 ITR 751(Raj).It will be rather unreal and hyper technical to hold that the assessee society is only a financing body and will not come within the scope of “other educational institution ” as specified in Section 10(22). The object of the society is to establish,run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard to raise or collect funds,donations, gifts etc.Colleges and schools are media through which the assessee imparts education and effectuates its objects.In substance and reality,the sole purpose for which the assessee has come into existence is to impart education at the levels of colleges and schools and so,such an educational society should be regarded as an “educational institution ” coming within Section 10(22).We hold accordingly. ” (emphasis added)

8.8 We have not been able to persuade ourselves to accept the view expressed by the Division Bench of the Uttrakhand High Court in the case of M/s Queens Educational Society (supra).There are variety of reasons to support our opinion. Firstly, the scope of the third proviso was not under consideration, inasmuch as, the case before the Uttrakhand High Court pertained to Section 10(23C)(iiiad) of the Act. The third proviso to Section 10(23C)(vi)is not applicable to the cases falling within the purview of Section 10(23C)(iiiad) .Secondly, the judgment rendered by the Uttrakhand High Court runs contrary to the provisions of

Section 10(23C)(vi)of the Act including the provisos thereunder. Section 19(23C)(vi)of the Act is equivalent to the provisions of Section 10(22)existing earlier, which were introduced with effect from 1.4.1999 and it ignores the speech of the Finance Minister made before the introduction of the said provisions, namely, Section 10(23C)of the Act [See observations in American Hotel and Lodging Association Educational Institute ‘ s case (supra)] .Thirdly, the Uttrakhand High Court has not appreciated correctly the ratio of the judgment rendered by Hon’ble the Supreme Court in the case of Aditanars Educational Institution (supra)and while applying the said judgment including the judgment which had been rendered by Hon’ble the Supreme Court in the case of Children Book Trust (supra),it lost sight of the amendment which had been carried out with effect from 1.4.1999 leading to the introduction of the provisions of Section 10(23C)of the Act. Lastly, that view is not consistent with the law laid down by Hon’ble the Supreme Court in American Hotel &Lodging Association Educational Institute (supra).

8.9 Likewise, the reliance of the revenue on the judgments of this Court rendered in the cases of Dr. Maharaj Krishana Kapur Educational Charitable Trust and Management Society (supra)and The Scientific Educational Advancement Society (supra)would also not be applicable for the reasons that in the case of Dr. Maharaj Krishna Kapur Educational Charitable Trust and Management Society (supra)the Chief Commissioner has held that the assessee was generating substantial surpluses and the percentage of income applied for educational purposes was less than the limit prescribed under the third proviso of Section 10(23C)(vi)of the Act and, therefore, the assessee was not entitled to the exemption. This Court upheld the order of the Chief Commissioner by holding that since the assessee had not applied 75%of its income for the educational purposes upto assessment year 2001-02 and 85%from the assessment year 2002-03,and the excess accumulation of 15%of income has to be applied for the objects of the society within a period of 5 years, therefore, there was no legal infirmity in the order of the Chief Commissioner. However, in the case of the petitioner-society it has applied more than 85%of its income for educational purposes for the assessment years in question and, therefore, it is totally wrong on the part of the respondents to contend that the writ petition of the petitioner-society deserves to be dismissed in view of the aforesaid judgment rendered by this Court in the case of Dr. Maharaj Krishna Kapur Educational Charitable Trust and Management Society (supra).

8.10 Similarly, in the case of The Scientific Educational Advancement Society (supra)the petitioner, which was a school, had sold a piece of land to a private builder who had built flats on that area and had purchased two farmhouses constructed by M/s Ansal Group of Builders who had built the same as residential units. The Chairman of the petitioner in that case had been visiting the farm houses and no permission from any prescribed authority had been obtained for opening any educational institute on the property purchased. Nothing was brought on record to show that the petitioner had intended to carry out any educational activity on the said land. It was in this backdrop that this Court upheld the order of the Chief Commissioner, who had refused to grant exception under 10(23C)(vi)of the Act. The factual position is far different in the instant case. The petitioner-society admittedly is running a school solely for educational purposes and not for making profit and, therefore, the judgment relied upon by the respondents rendered by this Court in the case of The Scientific Educational Advancement Society (supra)is not remotely applicable to the case of the petitioner-society.

8.11 Reference may also be made to various provisions of unnumbered provisos 13,14,15,16 and 17.These provisions came up for consideration before a Division Bench of Allahabad High Court in the case of City Montessori School (supra).It has been opined by the Division Bench that proviso to Section 10(23C)(vi)permits the investment and deposit of surplus funds.Placing reliance on the judgments of Delhi High Court in the case of Director of Income-Tax (Exemption)v. Eternal Science of Man’s Society,[2007 ]290 ITR 535 (Delhi)and Director of Income-Tax (Exemption)v. Prakash Education Society,[2006 ]286 ITR 288 (Delhi)the Division Bench of Allahabad High Court has concluded that such an institution could deposit the surplus for earning interest.It has then been opined that for seeking exemption under Section 10(23C)a society will have to follow the guidelines laid down in Form 56D(Rule 2CA).One of the conditions in Form 56D is that an assessee has to submit audited accounts and balance sheets for the last three years along with a note on the exemption for accounts and on the activity as reflected in the accounts.It is also brought on record to show that the petitioner had intended to carry out any educational activity on the said land.It was in this backdrop that this Court upheld the order of the Chief Commissioner, who had refused to grant exception under 10(23C)(vi)of the Act.The factual position is far different in the instant case.The petitioner-society admittedly is running a school solely for educational purposes and not for making profit and, therefore,the judgment relied upon by the respondents rendered by this Court in the case of The Scientific Educational Advancement Society (supra)is not remotely applicable to the case of the petitioner-society.

8.11 Reference may also be made to various provisions of unnumbered provisos 13,14,15,16 and 17.These provisions came up for consideration before a Division Bench of Allahabad High Court in the case of City Montessori School (supra).It has been opined by the Division Bench that proviso to Section 10(23C)(vi)permits the investment and deposit of surplus funds. Placing reliance on the judgments of Delhi High Court in the case of Director of Income-Tax (Exemption)v. Eternal Science of Man’s Society,[2007 ]290 ITR 535 (Delhi)and Director of Income-Tax (Exemption)v. Prakash Education Society,[2006 ]286 ITR 288 (Delhi)the Division Bench of Allahabad High Court has concluded that such an institution could deposit the surplus for earning interest. It has then been opined that for seeking exemption under Section 10(23C)a society will have to follow the guidelines laid down in Form 56D(Rule 2CA).One of the conditions in Form 56D is that an assessee has to submit audited accounts and balance sheets for the last three years along with a note on the exemption for accounts and on the activity as reflected in the accounts. It is also required to submit the annual report with special reference to the appropriation of income towards objects of the university or other educational institution. From the audited accounts and other documents required to be submitted by the assessee it could be easily seen whether the funds were utilised for expansion of educational institution/ activity or for personal profits. If the funds are utilised for expansion of educational activities of the institution and not for personal profits then it has to be granted exemption.

8.12 In view of the above, both the questions of law have to be answered in favour of the assessee-petitioner (s)and against the revenue.