Educational institution: Exemption u/s. 10(23C) (vi): A. Y. 2008-09 onwards: Body conducting public examinations is educational institution u/s. 10(23C)(vi): Increase in the fees for generating surplus would not by itself exclude the petitioner from the ambit of section 10(23C) (vi): Generation of profit or surplus by an organisation cannot be construed to mean that the purpose of the organisation is generation of profit/surplus.

The Petitioner had applied for the approval u/s. 10(23C)(vi) of the Income-tax Act, 1961 for AY 1999-2000 to 2001-02 to CBDT. The CBDT, by order dated 31-10-2006, rejected the Petitioner’s application holding that the Petitioner was not an educational institution but was an examination body which conducts examinations for ICSC and ISC and therefore, could not be granted the exemption as an educational institution u/s. 10(23C)(vi) of the Act. The Petitioner’s applications for approval u/s. 10(23C)(vi) of the Act for A.Y. 2002-03 to 2004-05 and 2005-06 to 2007- 08 were not disposed of. The application for approval u/s. 10(23C)(vi) of the Act, for the AY 2008-09 to 2010-11, was dismissed by the DGIT on the ground that the Petitioner is not an educational institution but an examination body conducting examinations for ISCE and ISC.

The petitioner filed a writ petition being W.P.(C) No. 4716/2010 which was allowed by the Delhi High Court. The Court held that the petitioner is an educational institution as contemplated u/s. 10(23C)(vi) of the Act and the matter was remanded to the respondent to pass an order in accordance with law.

Subsequently, the DGIT passed order dated 07-06-2012, declining to grant the approval u/s. 10(23C)(vi) of the Act, inter alia, on the ground that the petitioner had failed to justify its claim that it did not exist for the purposes of profit. The respondent further held that the petitioner had conducted its affairs in a systematic manner to earn profits and the same were diverted in a clandestine manner. The Respondent further noticed that the Auditor had in its report, in respect of the Balance sheet of the petitioner relevant for the Financial Year 2008-09 (AY 2009-10), pointed out that there were lapses while awarding the contract to M/s. Ratan J. Batliboi – Architects Pvt. Ltd. (hereinafter referred to as “RJB-APL”) for installing IT enabled services and was thus unable to form an opinion on whether the accounts showed a true and fair view.

The Delhi High Court allowed the writ petition filed by the petitioner challenging the said order and held as under:

“i) The nature of the activity carried on by an entity would be the predominant factor to determine whether the purpose of the organisation is charitable.

ii) It is not necessary that a charitable activity entails giving or providing a service and receiving nothing in return. Collection of a charge for providing education would, nonetheless, be charitable provided, the funds collected are also utilised for the preservation of the charitable organisation or for furtherance of its objects.

iii) If the surpluses have been generated for the purposes of modernising the activities and building of the necessary infrastructure to serve the object of the organisation, it would be erroneous to construe that the generation of surpluses have in any manner negated or diluted the object of the organisation.

iv) In the instant case, the petitioner has been existing solely for educational purposes. Generation of profit and its distribution is not the object of the petitioner society. The fact, that surpluses have been generated in order to build the infrastructure for modernising the operation, is clearly in the nature of furthering the objects of the society rather than diluting them.

v) Generation of profit or surplus by an organisation cannot be construed to mean that the purpose of the organisation is generation of profit/surplus, as long as the surpluses generated are accumulated/utilised only for educational purposes. The same would not disable the petitioner from claiming exemption u/s. 10(23C) (vi) of the Act.

vi) Merely because the institution awarded the computerisation contract in a non-transparent manner doesn’t mean that funds have not been applied for objects of the society

vii) T he contract entered into for computerisation may not be the best decision from the standpoint of the Prescribed Authority and perhaps in the opinion of the Prescribed Authority, the petitioner society may have ended up paying more than the value of services received. But the same cannot be read to mean that the resources of the petitioner have been deployed for purposes other than for its objects.

viii) Since the assessee by its nature of activity is otherwise entitled to exemption u/s. 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.”