18. Educational institution
: Exemption u/s. 10(23C(vi) of Income-tax Act, 1961 : A.Ys. 2000-01 to 2007-08 :
Tests to be applied similar to S. 10(22) : Generation of surplus not a bar :
Surplus to be applied to the educational objects of assessee : No distinction
between revenue expenditure and capital expenditure.
[Pinegrove International
Charitable Trust v. UOI, 327 ITR 73 (P&H)]
The assessee was running a
school. For the relevant years, the assessee was granted exemption
u/s.10(23C)(vi) of the Income-tax Act, 1961. The exemption was then withdrawn by
the Chief Commissioner on the ground that the profits were substantial and arose
year after year and stating that if substantial profits were earned in one year,
it should be the duty of the institution to lower its fees for the subsequent
year so that such profits were not intentionally generated.
The Punjab and Haryana High
Court allowed the writ petition filed by the assessee and held as under :
“(i) Merely because
profits have resulted from the activity of imparting education that would not
change the character of the institution existing solely for educational
purposes.
(ii) The words ‘not for
the purposes of profit’ accompanying the words ‘existing solely for
educational purposes’ have to be read and interpreted in view of the third
proviso to S. 10(23C)(vi), which prescribes the methodology for the
utilisation and accumulation of income at the hands of the educational
institutions.
(iii) Both on principle
and precedent the capital expenditure is to be deducted from the gross income
of the educational institutions.
(iv) The interpretation of
the Chief Commissioner that there had to be a reasonable profit, only and only
then can an institution be said not to exist solely for the purposes of
profit, was totally a misconception of law.
(v) The Chief Commissioner
failed to keep in view the third proviso while wrongly holding that since
substantial profits were being earned year after year it could not be said
that the surplus was arising incidentally and, therefore, the assessee was not
entitled to exemption.
(vi) The methodology
adopted by the Chief Commissioner while computing surplus in not deducting the
capital expenditure incurred by the assessee from the gross income was
contrary to the third proviso to S. 10(23C)(vi) of the Act. Admittedly, in the
case of the assessee the application of income for the attainment and
achievement of the objects in the last three years, was more than 100%. The
assessee could not be held to be an institution existing for the purpose of
making profit so as not to be entitled to exemption in view of the provisions
of S. 10(23C)(vi) of the Act.”
