Vanita Vishram Trust vs. CCIT (Bombay High Court)

S. 10(23C)(vi): Surplus does not mean trust ceases to be “solely for educational purposes and not for profit”

The assessee-trust was a public charitable trust engaged in education of women. In the earlier years, the assessee was granted exemption u/ss 11, 10(22) & 10(23C)(vi). The assessee’s application for renewal of exemption u/s 10(23C)(vi) was rejected on the ground that (i) the objects permitted the non-educational object of constructing an ashram and (ii) the assessee had earned a surplus of over 12% from its activities and so was not existing “solely for educational purposes and not for profit”. On a Writ Petition filed by the assessee, HELD allowing the Petition:

(i) The fact that the assessee has varied objects does not mean that it ceases to be solely engaged in educational purposes when the facts show that the assessee has not carried out any other object;

(ii) The fact that a surplus incidentally arises from the activities of the assessee does not disentitle an assessee of the benefit of s. 10(23C). The third proviso to s. 10(23C) which permits accumulation of surplus up to limits shows that the generation of surplus is per se not a disabling factor. The effect of Aditanar Educational Institution 224 ITR 310 (SC) is that the decisive or acid test is whether the object is to make a profit. In evaluating or appraising the issue, one should bear in mind the distinction between the corpus, the objects and the powers of the concerned entity;

(iii) The judgement in Queens’ Educational Society 319 ITR 160 (Utt) that “the law is well settled that if the profit is proved by an educational society then that will be the income to the Society as the surplus amount remains in the account books of the society” is distinguishable on facts. The Court is not correct in holding as a principle of law that the benefit of the exemption can be denied on the ground that the assessee has only pursued its main object of providing education and not pursued the other objects for which the Trust was constituted because were the assessee to pursue other objects, it would clearly run afoul of s. 10(23C)(vi) and cease to exist solely for educational purposes. Pinegrove International Charitable Trust followed.