Tolani Education Society v. Dy. DIT (Exemptions) (2013) 351 ITR 184/214 Taxman 58/85 DTR 1 (Bom.) (High Court)

S.10(23C): Exempt income-Educational institution-Incidental surplus-Upgrading facilities of college including

for purchase of library books and improvement of infrastructure cannotbea ground for denial of exemption.

The Chief Commissioner denied the benefit of the exemption under sub-clause (vi) of section 10(23C) on the ground that the assessee was in receipt of the Government grants which formed a substantial part of the total receipts and, consequently, the case of the assessee would not fall within the purview of section 10(23C) (vi) for the reason that an institution which is wholly or substantially financed by the Government falls within the ambit of sub-clause (iiiab). Subclause (vi) applies to those institutions which do not fall within the ambit of sub-clause (iiiab) or sub-clause (iiiad). He was of the view that an institution which was in receipt of substantial grants from the Government would consequently not fall within the ambit of sub-clause (vi). The Chief Commissioner held that the fees which were collected by the assessee for the year ending on March 31, 2011, would indicate that the assessee did not exist solely for educational purposes. The Chief Commissioner had also noted that the assessee had collected from student’s utility fees, project work fees, industrial visit fee and a magazine fee from which it was sought to be deduced that the assessee did not exist solely for educational purposes. Moreover, there was an increase in the asset base with a generation of surplus which indicated that the activities of the assessee were not devoted solely for educational purposes. The Chief Commissioner held on that basis that the assessee existed for the purposes of profit. On a writ petition, allowing the petition the court held that, though the Chief Commissioner inquired into the question for the purposes of his determination under subclause (vi) of section 10(23C), the requirement that an institution must exist solely for educational purposes and not for the purposes of profit is common both to sub-clause (iiiab) as well as sub-clause (iiiad). Hence, the grievance of the assessee was that while on the one hand the Chief Commissioner had held that sub-clause (vi) would not be applicable to an institution which was in receipt of substantial grants from the Government (such an institution being governed by sub-clause (iiiab), at the same time, the finding that the assessee did not exist solely for educational purposes and not for

the purposes of profit would, in effect, not merely lead to the rejection of the exemption under sub-clause (vi) but would also affect the claim of the assessee to the grant of an exemption under sub-clause (iiiab) as well. The sole and dominant nature of the activity was education and the assessee existed solely for the purposes of imparting education. An incidental surplus which was generated, and which had resulted in additions to the fixed assets was utilized as the balance-sheet would indicate towards upgrading the facilities of the college including for the purchase of library books and the improvement of infrastructure. With the advancement of technology, no college or institution can afford to remain stagnant. The assessee was entitled to exemption under section 10(23C(vi). (A.Y. 2011-2012 )