THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITIN No.28303 OF 2010 ORDER: (Per Hon’ble Sri Justice Ramesh Ranganathan) The relief sought for in this Writ Petition is to declare the order of the 1st respondent dated 30.03.2010, rejecting the petitioner’s application for grant of approval under Section 10(23C) (vi) of the Income Tax Act (hereinafter called the “Act”), as illegal and arbitrary. A consequential direction is sought to the 1st respondent to grant them approval, for the assessment years 2009-10 onwards, under Section 10(23C)(vi) of the Act. The petitioner, a society registered with the Registrar of Societies, Hyderabad vide Certificate of Registration dated 10.03.1987, claims to be carrying on educational activities as its sole object, and to have been registered under Section 12AA of the Act. The objects of the petitioner society are as under: i. To establish, promote, support, maintain and run educational institutions and other establishments for education of all types of students. ii. To grant scholarships, stipends, free studentship, prizes, rewards and allowances, financial and other assistance to the students, lectures, teachers etc. iii. To establish and maintain libraries, reading rooms laboratories, workshops and auditoriums, book banks and to do such act or acts of diffusion, promotion and advancement of knowledge, education and learning for the benefit of the students. iv. To purchase and maintain play grounds for the purpose of the students. v. To conduct educational tours, debates, seminars, conferences, workshops, exhibitions, lecturers for the expansion of knowledge and betterment of the students. vi. To publish journals, reading material and books on science, technology, academics etc., and whatever the society desires for the moral, social, economic and educational upliftment of the students. vii. To establish, maintain and run a boarding house or a residential accommodation for the students and the staff. These objects are said to have been amended in the Special General Body Meeting of the society held on 25.02.2008, and to have been registered with the Registrar of Societies. The petitioner submitted an application to the 1st respondent on 23.03.2009 seeking his approval under Section 10(23C)(vi) of the Act for the assessment year 2009-10. The 1st respondent issued show cause notice dated 04.03.2010 calling upon the petitioner to show cause why the application filed by them should not be rejected on the ground that their objects were not solely educational, and they were not registered under the A.P. Charitable and Hindu Religious Institutions and Endowments Act. (A.P. Act 30 of 1987). The petitioner filed their reply to the show cause notice. Thereafter the 1st respondent passed the order dated 30.03.2010 rejecting the application seeking approval both on the ground that the objects of the petitioner society were not solely educational in nature, and they were not registered under A.P. Act 30 of 1987. The petitioner would question the order of rejection on the ground that their objects were solely educational; they were not required to be registered under A.P. Act 30 of 1987; the Chief Commissioner of Income Tax, Visakhapatnam had granted approval, despite the fact that societies were not registered under A.P. Act 30 of 1987; the educational activity carried on by them cannot be said to be charitable; they were not a commercial organization as they operated with no profit motive; since they were charging a reasonable fee for imparting education, and for running an organization, they could not be held to be a charitable institution; and their sole object was to carry on educational activity, and not for the purposes of profit. The petitioner would submit that they had initially filed an appeal to the Sales Tax Appellate Tribunal on 02.06.2009. They were adviced that an appeal did not lie to the Tribunal and, as such, they had filed a letter on 11.08.2010 withdrawing the appeal. The first respondent, in his order dated 30.03.2010, observed that the aims and objects in the memorandum of association of the petitioner society included such objects which were not solely for the purposes of education; the society, in its letter dated 10.03.2009, had submitted that the aims and objects were amended with effect from 01.04.2008; they had furnished a copy of the letter dated 25.06.2009 addressed to the Registrar of Societies containing the amended aims and objects, and had requested him to take the amendment on record; and these amendments were relevant to the assessment year 2009-10 for which approval was sought. The first respondent further held that, even after the amendment, the objects of the society were not solely for the purposes of education; since the petitioner was not registered under A.P. Act 30 of 1987 as a charitable institution and, as education was charitable in nature, they were not entitled for approval under Section 10(23C)(vi) of the Act. In this context it is necessary to note that the objects, which the petitioner claims to be those after amendment, read as under: “To establish and maintain libraries, reading rooms, laboratories, workshops and auditoriums, book banks and to do such act or acts of diffusion, promotion and advancement of knowledge, education and learning for the benefit of the students. To conduct educational tours, debates, seminars, conferences, workshops, exhibitions, lectures for the expansion of knowledge and betterment of the students. To publish journals, reading materials and books on science, technology, academics etc., and whatever the society desire for the moral, social, economic and educational upliftment of the students.” In order to be eligible for exemption, under Section 10(23C) (vi) of the Act, it is necessary that there must exist an educational institution. Secondly, such institution must exist solely for educational purposes and, thirdly, the institution should not exist for the purpose of profit. (Commissioner of Income Tax v. Sorabji Nusserwanji Parekh[1]). In deciding the character of the recipient of the income, it is necessary to consider the nature of the activities undertaken. If the activity has no co-relation to education, exemption has to be denied. The recipient of the income must have the character of an educational institution to be ascertained from its objects. (Aditanar Educational Society v. ACIT[2]). The emphasis in Section 10(23C)(vi) is on the word "solely". "Solely' means exclusively and not primarily. (Commissioner of Income-tax, Hyderabad v. Gurukul Ghatkeswar of Hyderabad[3]; Commissioner of Income Tax v. Maharaja Sawai Mansinghji Museum Trust[4]). In using the expression, “solely”, the legislature has made it clear that it intends to exempt the income of the institutions established solely for educational purposes and not for commercial activities. (Oxford University Press v. CIT[5]). This requirement would militate against an institution pursuing objects other than education. (Vanita Vishram Trust v. Commissioner of Income- tax[6]). Even if one of the objects enables the institution to undertake commercial activities, it would not be entitled for approval under Section 10(23-C)(vi) of the Act. (American Hotel & Lodging Association Educational Institute v. CBDT[7]). It is only if the objects reveal that the very being of the assessee- society, as an educational institution, is exclusively for educational purposes and not for profit, would the assessee be entitled for exemption under Section 10(23-C)(vi) of the Act. (Gurukul Ghatkeswar of Hyderabad3). In case of a dispute, whether the claim of the assessee to be exempted from tax is admissible or not, it is necessary for the assessee to establish that it is a part of an institution which is engaged solely for educational purposes and not for the purposes of profit, and the income in respect of which exemption is claimed is a part of the income of the institution. (Oxford University Press5). The activities of the institution, its objects, its source of income and its utilization, must be analysed by the prescribed authority to ascertain whether it exists solely for education and not for profit, and it is his duty to ascertain whether the income is applied wholly and exclusively for the educational objects for which purpose the applicant is established. (ACIT v. Surat Art Silk Manufacturers Association[8]; American Hotel7). The test of predominant object of the activity is to be seen, whether it exists solely for education and not to earn profit. (Addl. Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers Association[9]; American Hotel7; Pinegrove International Charitable Trust v. UOI[10]). The decisive test is whether, on an overall view of the matter, the object is to carry on educational activities or to make profit. (Aditanar Educational Institution2). If there are several objects of a society some of which relate to “education” and others which do not, and the trustees or the managers in their discretion are entitled to apply the income or property to any of those objects, the institution would not be liable to be regarded as one existing solely for educational purposes, and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and everyone of the objects must relate to “education” in order that the institution may be held entitled for the benefits under Section 10(23-C)(vi) of the Act. If the primary or dominant purpose of an institution is “educational”, another object which is merely ancillary or incidental to the primary or dominant purpose would not disentitle the institution from the benefit. The test which has, therefore, to be applied is whether the object, which is said to be non-educational, is the main or primary object of the institution or it is ancillary or incidental to the dominant or primary object which is “educational”. (Surat Art Silk Cloth Manufacturers Association9). The test is the genuineness of the purpose tested by the obligation created to spend the money exclusively on "education". If that obligation is there, the income becomes entitled to exemption. (Sole Trustee, Loka Shikshana Trust v. C.I.T[11]). Under the third proviso to Section 10(23-C)(vi) the prescribed authority has to ascertain, while examining the genuineness of the activities of the institution, whether the applicant applies its income wholly and exclusively to the objects for which it is established. The applicant has not only to impart, but must also apply its income exclusively for the purposes of, education. (American Hotel7). The words 'not for the purposes of profit' accompanying the words 'existing solely for educational purposes' has to be read and interpreted keeping in view the third proviso to Section 10(23C)(vi) which prescribes the methodology for utilization and accumulation of income at the hands of the educational institution. As a result 85% of the income has to be applied by the educational society for the purpose of education. The third proviso requires the applicant society to apply its income, or accumulate it for application, wholly and exclusively, to the objects for which it is established. The word 'wholly' refers to the quantum of expenditure and the word 'exclusively' refers to the motive, object or the purpose of expenditure. (Pinegrove International Charitable Trust10; Vanita Vishram Trust6). The threshold conditions are aimed at discovering the actual existence of an educational institution and approval of the prescribed authority for which an application in the standardized form, in terms of the first proviso, has to be given by every applicant. If the educational institution actually exists for educational purposes alone should the prescribed authority permit it to operate. (American Hotel7; Pinegrove International Charitable Trust10). The objects of the petitioner society as it originally stood included “whatever the society desires for the moral, social, economic upliftment of students”. This object does not relate to education. The sense in which the word "education" has been used, in Section 2(15) of the Income Tax Act, is the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word "education", in Section 2(15), has not been used in that wide and extended sense according to which every acquisition of further knowledge constitutes education. What education connotes, in that clause, is the process of training and developing the knowledge, skill, mind and character of students by formal schooling. (Sole Trustee, Loka Shikshana Trust11). This definition of ‘education’ is wide enough to cover the case of an "educational institution" as, under Section 10(23-C)(vi), the "educational institution" must exist "solely" for educational purposes. (Maharaja Sawai Mansinghji Museum Trust4). The element of imparting education to students, or the element of normal schooling where there are teachers and taught, must be present so as to fall within the sweep of Section 10(23-C)(vi) of the Act. Such an institution may, incidentally, take up other activities for the benefit of students or in furtherance of their education. It may invest its funds or it may provide scholarships or other financial assistance which may be helpful to the students in pursuing their studies. Such incidental activities alone, in the absence of the actual activity of imparting education by normal schooling or normal conduct of classes, would not be sufficient for the purpose of qualifying the institution for the benefit of Section 10(23-C)(vi). (Sorabji Nusserwanji Parekh1). Section 2(15) is wider in terms than Section 10(23-C) (vi) of the Act. If the assessee's case does not fall within Section 2(15), it is difficult to put it in Section 10(23-C) (vi) of the Act. (Maharaja Sawai Mansinghji Museum Trust4). While the petitioner would contend that the original objects were amended in the special general body meeting held on 25.2.2008, and were registered with the Registrar of Societies, Hyderabad, the affidavit filed in support of the writ petition is silent as to the date on which the objects were registered. The petitioner has chosen not to place the copy of the certificate issued by the Registrar of Societies, certifying the amendment, before this Court. The A.P. Societies Registration Act, 2001 (AP Act 35 of 2001) repealed the Societies Registration Act in its application to the Andhra Area of the State of Andhra Pradesh, and the A.P. (Telangana Area) Public Societies Registration Act, 1350 fasli. Section 8 of A.P. Act 35 of 2001 relates to amendment of the memorandum and bye-laws of a society. Under sub-section (1) thereof a society, by a special resolution, may alter the provisions of the memorandum with respect to a change of its objects. Under sub-section (3) any alteration of the memorandum of the society shall not be valid unless such alteration is registered under the Act. Under Section 8(4) if any alteration of the memorandum is filed, and if they are not contrary to the provisions of the Act, the Registrar shall register the same, and certify registration of such alteration within thirty days from the date of receipt of the resolution. This certificate is conclusive evidence that all the requirements of the Act, with respect to the alteration and the certification thereof, have been complied with and, henceforth, the memorandum, as so altered, shall be the memorandum of the society. On a conjoint reading of sub-sections (3) and (4) of Section 8, it is only when the amendment to the objects of the society is intimated to the Registrar and the Registrar, on being satisfied that the amendment is not contrary to the provisions of the Act, registers and certifies such an alteration would it be a valid alteration under the Act. It is only from the date the Registrar certifies the alteration that the amendment, to the objects of the society, comes into force. In view of the statutory requirement of Sections 8(3) and (4) of the A.P. Societies Registration Act, 2001, it is only when the Registrar certifies such an alteration would it be a valid alteration under the Act, and it is only from that date that the amended objects would come into force. In the absence of details being furnished regarding the date on which the objects were registered, the order of the 1st respondent cannot be faulted. Even otherwise, the amended objects of the petitioner society include “whatever the society desire for the moral, social and economic upliftment of the students”. As noted hereinabove this object is neither solely for the purpose of education nor is it ancillary to or integrally connected with the sole object of providing education. The order of the 1st respondent, rejecting the petitioner’s application on this score, cannot be faulted. In view of the Judgment of this Court in M/s. New Noble Educational Society v. The Chief Commissioner of Income- tax[12], while the petitioner’s contention that registration under A.P. Act 30 of 1987 is not a pre-condition for grant of approval cannot be said to be without merit, it cannot also be lost sight of that, even if this ground of rejection is held to be invalid, since the objects of the petitioner society are not solely for the purpose of education, no interference is called for. The writ petition fails and is, according, dismissed. However, in the circumstances, without costs. _____________ V.V.S.RAO, J ___________________________ RAMESH RANGANATHAN, J 22.11.2010 ASP [1] (1993) 201 ITR 939 [2] (1997) 224 ITR 310 [3] Judgment of APHC DB in R.C. No.35 of 1996 dated 29.09.2010 [4] (1988) 169 ITR 379 (RAJ) [5] (2001) 247 ITR 658 (SC) [6] (2010) 327 ITR 121 (Bombay) [7] (2008) 301 ITR 86 SC [8] (1980) 121 ITR 1 (SC) [9] (1980) 121 ITR 1(SC [10] (2010)327 ITR 73 (P &H [11] (1975) 101 ITR 234( SC [12] Judgment in W.P.No.21248 of 2010 and batch dated 11.11.2010