Educational Institution – Exemption u/s. 10(23C)(vi) – A. Y. 2009-10 – One of the object clauses providing trust could run business – No finding recorded that predominant object of trust was to do business – Trust is entitled to exemption

The
assessee trust was running educational institutions. The Chief
Commissioner rejected the assessee’s application for grant of approval
for exemption u/s. 10(23C)(vi) of the Income-tax Act, 1961, on the
ground that the assessee trust had an intention to carry out business
activity which was not permissible for a charitable organisation. The
trustees were in place for the whole duration of their life and it gave
the organisation a look and character of a private body rather than a
charitable organisation and the objectives were not related the
promotion of education and the educational trust did not exist solely
for educational purposes.

The Punjab and Haryana High Court allowed the assessee’s writ petition and held as under:

“i) The school run by the assessee as such was affiliated with the Central Board of Secondary Education and had also been granted registration u/s. 12A w.e.f. 15/07/1997. Merely because one of the clauses of the trust deed provided that the trust would carry on other business as decided by the trustees that would not per se disentitle it from being considered for registration u/s. 10(23C)(vi).
ii) The reasoning that the trust had intention to carry out the business and the institution was not existing solely for educational purposes would amount to giving a very narrow meaning to the section and the predominant object test was to be applied. It was not that the Chief Commissioner came to the conclusion that the trust was doing some other business and the business was generating substantial amounts which would override the main objects of the trust which pertain mainly to the cause of education. In the absence of any such finding that the trust was doing business, the application could not have been rejected only on this ground that one of the clauses in the objects provided such right to the trust. The prescribed authority could have made it conditional by holding that if any such business was carried out, the registration granted was liable to be cancelled.
iii) Therefore, the order refusing to grant approval of exemption u/s. 10(23C)(vi) could not be justified solely on the ground that in view of a clause which provided that the trust could run a business, it would be debarred as such for registration on the ground that it was not existing solely for educational purposes. That merely a conferment of power to do business would not debar the right of consideration of the trust without any finding being recorded that the predominant object of the trust was to do business.
iv) Thus, the Chief Commissioner misdirected himself in rejecting the application on this ground without coming to any conclusion that the trust was carrying on any other activity under clause (i). It was also a matter of fact now that the trust had already also deleted the objectionable clause for the year 2010-11. The Chief Commissioner was directed to decide the assessee’s application afresh.”