Tolani Education Society vs. DDIT(Exemption); 351 ITR 184 (Bom):
The assessee, an educational institution, made an application for approval for exemption u/s. 10(23C) (vi) of the Income-tax Act 1961. The Chief Commissioner rejected the application on the ground that the assessee was in receipt of the Government grant which formed a substantial part of the total receipt 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). Sub-clause (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 31-03-2011, would indicate that the assessee did not exist solely for educational purposes. He had also noted that the assessee had collected from students 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 the 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. The Bombay High Court allowed the writ petition challenging the order and held as under:
“i) The Income-tax Act, 1961, does not condition the grant of an exemption u/s. 10(23C) on the requirement that a college must maintain the status quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is an educational institution prohibited from upgrading its infrastructure on educational facilities save on the pain of losing the benefit of the exemption u/s. 10(23C).
ii) Imposing such a condition which is not contained in the statute would lead to a perversion of the basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to the changing ethos of education. Education has to be responsive to a rapidly evolving society. The provisions of section 10(23C) cannot be interpreted regressively to deny exemptions.
iii) Though the Chief Commissioner inquired into the question for the purposes of his determination under sub-clause (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 the 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.
iv) 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 utilised 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.
v) The assessee was entitled to exemption u/s. 10(23C)(vi).”
