Exemption u/s 10(23C) cannot be denied for generation of incidental surplus by educational institution

CA Sandeep Kanoi

The assesse would be entitled to the approval under section 10(23C)(vi) of the Act, however if it was found that the funds of the assesse had not been utilized for its objects during the relevant year or had otherwise not complied with the provisos to the Section 10(23C) of the Act, the approval would be revoked at the end of the relevant year. Since, by virtue of its nature, the petitioner is entitled to an exemption, the same would also be available to the petitioner for the subsequent year(s). However the question whether the exemption is liable to be revoked would have to be considered at the end of the year after reviewing whether the petitioner had complied with the conditions imposed, inter alia, by the third proviso to Section 10(23C) of the Act. It is obvious from the aforesaid scheme that denial of exemption under section 10(23C)(vi) of the Act to an Institution which exists solely for educational purposes and not for profit, on account of non compliance with the third proviso would be limited to the relevant years during which the proviso has been violated.

In view of the above, even if it is assumed that payment to RJB-APL violated the third proviso for Section 10(23C) of the Act, the exemption under section 1 0(23C)(vi) of the Act can be denied only for the for the year(s) during which payments had been made by the petitioner to RJB­APL. Since the assessee by its nature of activity is otherwise entitled to exemption under Section 10(23C)(vi) of the Act, the same is liable to be granted by the respondent for future years subject to conditions as contained in the third proviso to Section 10(23C) of the Act.