St. Lawrence Educational Society vs. CIT (Delhi High Court)

DATE: (Date of pronouncement)
DATE: February 15, 2011 (Date of publication)

Click here to download the judgement (lawrence_10_23_C_vi_surplus.pdf)

S. 10(23C)(vi) exemption cannot be rejected merely because there is a surplus

The assessee, a society running a school, applied for exemption u/s 10(23C)(vi) on the ground that it was existing “solely for the purpose of education and not for the purpose of profit”. The CCIT followed CIT vs. Queens’ Educational Society 319 ITR 160 (Utt) and rejected the application on the ground that as the assessee had made a surplus from its activities, it did not exist “solely” for educational purposes. On a Writ Petition to challenge the rejection, HELD allowing the Petition:

(i) To decide whether the institution exists solely for education and not to earn profit the test of predominant object of the activity has to be seen to decide. The purpose does not lose its character merely because some profit arises from the activity. It is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realization but would reflect unsound principles of management. In order to ascertain whether the institute is carried on with the object of making profit or not it is duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established (Aditanars Educational Institution 224 ITR 310 (SC) & American Hotel and Lodging Association 301 ITR 86 (SC) followed);

(ii) Accordingly, the opinion expressed by the CCIT that the educational institution seeking exemption should not generate any quantitative surplus is legally untenable and incorrect. The assumption that for exemption there should not be any surplus and if it is otherwise the institution society exists for profit and not charity is not justified (Vanita Vishram Trust 327 ITR 121(Bom), Maa Saraswati Trust 194 TM 84 (HP) and Pinegrove International Charitable Trust 327 ITR 73 (P&H) followed).

Note: See also Himachal Pradesh Environment vs. CIT 125 TTJ 98 (Chd): Proviso to s. 2(15) does not apply to incidental services rendered without profit motive

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