REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 3468  OF 2008 (arising out of SLP(C) No. 6290/2007)

American Hotel & Lodging Association Educational Institute      …  Appellant

             versus

Central Board of Direct Taxes & Ors.     …  Respondents

J U D G M E N T

S. H. KAPADIA, J.

Leave granted.

2. The short question which arises for consideration in this civil appeal

is  as  to  what  is  the  scope  of  enquiry by the  Prescribed  Authority  under

Section 10(23C)(vi) read with the third proviso thereto inserted by Finance

Act,  1998  w.e.f.  1.4.1999.  In  this  case,  Central  Board  of  Direct  Taxes

(“CBDT”) being the Prescribed Authority, at the relevant time, rejected the

application for approval dated 7.4.1999 vide its order dated 12.10.2004. The

said order  has been upheld by the impugned judgment  dated 24.11.2006

delivered by Delhi High Court in Writ Petition (C) No. 17978/04, hence,

this civil appeal.

3. Briefly, the facts are as follows.

4.  The claim of the appellant is that it is a non-profit organization set up

in USA and has been granted tax exemption as an educational institute in

that country. Appellant has a branch office in India, mainly to comply with

its  obligations  under  various  agreements  with  Government  of  India

(Ministry of Tourism). Its branch provides a central focal point in India for

Indian missions to avail of its educational courses. Its branch collects data

from educational institutions/persons wishing to take the courses offered in

the field of Hospitality and fees for the required course material which is

thereafter  remitted  to  USA.  After  collection  of  data  and  fees,  the  Head

Office (“HO”) sends course materials, examination papers etc. to the branch

in India  for  onward transmission to  the actual  user.  It  is  the  case of  the

appellant that, it’s Indian branch is the small office in which administrative

work is done. Few employees attend to this work. The costs of running the

branch office is met by deducting the same from the amounts remitted to the

H.O.

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5. Thus,  the  appellant  is  an  Institution  whose  objects  are  known  as

“Statement of Purposes” in US.  Under the Internal Revenue Code, 1954 in

the U.S. it enjoys tax exemption status as an educational institution.  It is

governed  by  an  elected  Board  of  Trustees  and  it  offers  high  quality

educational  and  training  resources  to  enhance  the professionalism of  the

hospitality industry worldwide.

6. In 1993, the National Council  of Hostel Management and Catering

Technology,  the  apex  Indian  body  overseeing  hostel  management  and

catering  education  under  the  Ministry of  Tourism, signed  MoU with  the

Educational Institute (“EI”, for short) under which approval was granted to

use courses, resources and expertise of the appellant in India with a view to

improve  the  quality  of  hospitality  education  and  training  in  India.

Consequently, the appellant opened a liaison office in Mumbai in July 1994

with  the  approval  of  Reserve  Bank  of  India  (“RBI”,  for  short).

Subsequently, in February 1995 the liaison office was upgraded to a branch

office with the approval of the Ministry of Finance, GoI, and the RBI.

7. According  to  the  MoU,  the  appellant  has  to  fulfill  the  following

obligations:

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“The Institute will :  

(a) provide a full  and complete, world-recognised curriculum for all hospitality education programs in India ;  

(b) make available for reproduction in India the texts, course materials,  and  software  programs  utilised  in  the  Institute's Hospitality Management Diploma ;  

(c) provide a comprehensive faculty development program to upgrade the professionalism and instructional  ability of those teaching hospitality management courses in India ;  

(d)  offer  a  comprehensive  certification  and  registration program for individuals currently employed in the hospitality industry in India ;  

(e)  develop  an  accreditation  system  to  permit  the  National Council to qualify and recognise proprietary schools ;  

(f) develop through grant support, an entrance test to identify individuals best qualified to enter the hospitality industry ;  

(g) establish an office in India to implement and co-ordinate the Institute's activities ;  

(h) offer the National Council the lowest possible prices for the products and services sold to or utilised by the schools under the umbrella of the Government of India ;  

(i) utilise Indian authors whenever possible in the development of customised programs.”  

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8. Thus, in accordance with the terms of the said MoU, the appellant is

responsible,  inter  alia,  for  providing  a  full  and  complete  curriculum,

recognized  throughout  the  worldwide,  for  all  hospitality  educational

programmes in India,   making available  text  books,  course materials  and

software  programmes utilized  in  the  appellant’s  Hospitality  Management

Diploma, offering a comprehensive certification and registration programme

for Indians desiring to avail  of education in the hospitality field in India.

Under Clause 1(h) of the MoU, appellant is required to offer to the National

Council  in  India,  which  is  the  apex  body for  hospitality  management  in

India,  lowest  possible  prices  for  its  products/services  to  be  utilized  for

Schools under the umbrella of GoI.  Under Clause 2(b) of the said MoU, the

National Council of Hospitality is obliged to utilize the appellant’s courses

in its current and future Hospitality Management Schools.

9. At this stage, it may be noted that the appellant got exemption under

Section 10(22) up to the year ending 31.3.1998.  The branch office accounts

during the said period showed the gross amounts collected on the income

side and the costs for running the branch were shown on the expenditure

side.  The difference between these figures represented what was receivable

by the HO from the branch for the provision of course materials and other

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services  provided  by  the  HO.   These  accounts  were  accepted  by  the

Department till 31.3.1998.  

10. One more fact  needs  to  be  mentioned.   Appellant  herein  had also

moved the AAR under Section 245Q(1) of the 1961 Act for a ruling from

the Authority on the following questions:   

“(i)  Whether  the  applicant  would  be  entitled  to  exemption under Section 10(22) of the Income-tax Act, 1961, in respect of its  various amounts of income from the following sources in India:  

(a) Conducting various courses and certification programmes in hospitality management and operations.  

(b) Providing educational and training materials.  

(c) Conducting seminars, workshops and other programmes.  

(d)  Providing  training,  course  materials  and  instructional resources to the in-house faculty of various institutions.  

(ii) Whether the applicant would be entitled to exemption under Section 11 of the Income-tax Act, 1961 ?”  

11. By its decision dated 14.2.96 the Authority held, after reviewing the

objects  and  Agreements  with  GoI,  that  the  appellant  was  entitled  to

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exemption from tax under Section 10(22) of the 1961 Act.  It was held that

the appellant was an educational institution in terms of Section 10(22) of the

1961 Act.  This decision of the Authority was accepted by the Department.

It  was  not  challenged  by  the  Department  before  this  Court.   Thus,  the

Department had accepted that the appellant’s income was exempt from tax

under  Section  10(22) of  the  1961 Act inasmuch as no  assessments  were

made and/or no demands for income-tax was raised for all years prior to the

assessment year 1999-2000 (corresponding to the accounting year ending

31.3.1999).

12. Section 10(22) stood omitted by Finance Act, 1998 w.e.f. 1.4.1999.

On 7.4.1999, i.e., within seven days, appellant herein made an application to

CBDT (the Prescribed Authority) for initial  approval in terms of the first

proviso to Section 10(23C)(vi) of the 1961 Act.  The appellant applied for

initial  approval  in the prescribed standarised form under rule 2CA of the

Income-tax Rules,  1962 i.e.  Form No.56D (See: page No.62 of the  civil

appeal paper book).

13. Over  the  next  5½  years  CBDT  did  not  pass  any  order  on  the

appellant’s application.  During this period certain queries were put to the

appellant  which were replied to by the appellant  by various letters.   The

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important point to be noted is that by the said letters appellant clarified its

position  regarding  the  type  of  accounts  required  and  maintained  by  its

branch  in  India  under  which  excess  of  receipts  over  payments  was  not

treated as income/profit/surplus as appropriate costs incurred by the HO had

not  been  taken  into  account  therein  because  the  purpose  for  which  the

accounts of the branch office were required to be made was only to establish

how much money was owned to the HO and not to ascertain its income or

surplus.   In the said correspondence it  was clarified that even the AO in

assessment proceedings had accepted that the excess income over and above

the  expenditure  shown  in  its  account,  could  not  be  taken  as  appellant’s

income.   In  fact,  the  AO had  called  for  information  regarding  the  HO

expenses for the year ending 31.3.1999 which had not been considered in

the branch office accounts.

14. During  the  hearing  before  CBDT,   appellant  also  furnished  a

certificate  attested  by  the  certified  public  accountant  that  Head  Office

expenses for the year ending 31.3.1999 amounted to US$.2,63,647.  The

appellant also pointed out to CBDT that even the assessing officer and CIT

(appeals)  have not  deducted the aforestated sum of alleged surplus while

computing the appellant’s income allegedly chargeable to tax.

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15. By its Order dated 12.10.2004, CBDT rejected appellant’s application

holding  that  “there  is  a  surplus  repatriated  outside  India  and,  therefore,

appellant has not applied its income for the purpose of education in India”.

16. The said Order dated 12.10.2004 was challenged by the appellant in

the Delhi High Court vide Writ Petition No. 17978/04.  By the impugned

judgment  dated  24.11.2006,  the  Delhi  High  Court  held  that  the  gross

receipts  collected  by  the  appellant’s  branch  office  in  India  is  “income”

chargeable to tax.  It further held that since the gross receipts constituted

“income” chargeable  to tax such “income” was required to be applied to

educational purposes in India and since the appellant  had failed to do so

CBDT  was  right  in  rejecting  the  application  dated  7.4.99.   In  this

connection, the Delhi  High Court  placed reliance on the third proviso to

Section  10(23C)(vi)  as  well  as  the decision  of  this  Court  in  the case  of

Oxford  University  Press  v.   Commissioner  of  Income-tax  reported  in

(2001) 247 ITR 658 SC.

17. Shri  Jehangir  D. Mistri,  learned  counsel  for  the appellant,  submits

that  the  object  of  introducing  Section  10(23C)(vi)  of  the  1961  Act  was

explained by CBDT in its Circular No.772 dated 23.12.98 [(1999)235ITR35

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(st.)].   According  to  learned  counsel,  the  said  Circular  holds  that  the

approval contemplated by Section 10(23C)(vi) is de hors  the adherence to

conditions set out in the proviso to the section.  In this connection, learned

counsel  placed reliance  on  the  second  proviso and submits  that  the  said

proviso clarifies that at the stage of approval what is required to be seen by

CBDT is  the nature and genuineness of the activities of the appellant-

Institution  under  consideration.   According  to  learned  counsel,  the

provisos of the said section sets out conditions which must be adhered

to by the Institution, and compliance therewith can never be tested at

the  stage  of  approval,  since  they  require  consideration  of  acts  and

events which will  take place in the future.  In this  connection, learned

counsel urged that application of income is the requirement mentioned in

the third proviso to Section 10(23C)(vi) and that requirement can only be

tested after the end of the previous year when “income” is ascertained and

thereafter applied.  Similarly, according to learned counsel, the requirement

of accumulation, if any, in that proviso can also only be examined at the end

of any previous  year after  “income”, if  any, is  determined and thereafter

accumulated.   One more  example  is  given by the  learned  counsel.   The

requirement of investment/deposit of funds, referred to in the third proviso,

can only be tested at the stage of investment which can only take place after

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profit/ surplus is established.  Under the 13th proviso CBDT is empowered

to withdraw the approval earlier granted.  That proviso, according to learned

counsel, also proceeds on the basis that the withdrawal will be for failure to

comply with the terms of application or investment of funds or genuineness

of activities and, therefore, implicit in that proviso is an alleged violation of

application of surplus and/or investment which may result in a subsequent

withdrawal.  In short, according to learned counsel, at the stage of grant of

approval  the  provisos  dealing  with  items  required  to  be  monitored,  as

mentioned in the third proviso, are not to be considered by CBDT and in

fact it would be impossible to ascertain compliance at the stage of approval.

For all the above reasons, learned counsel urges that the scope of enquiry

for  grant  of  approval  under  Section  10(23C)(vi)  is  to  consider  only  the

nature, existence for non-profit purposes and genuineness of the Institute,

the remaining monitoring mechanism is not required to be considered at the

stage of approval.   

18. On facts,  learned counsel  submits that  the appellant  fell  within the

main  part  of  Section  10(23C)(vi),  excluding  the  monitoring  conditions

mentioned  in  the  provisos  and,  therefore,  the  appellant  was  entitled  to

approval.  In this connection, learned counsel submits that even CBDT in its

impugned order dated 12.10.2004 has not denied the appellant’s claim that

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it is an educational institution, existing solely for educational purposes and

not for profit.  In this connection, learned counsel also places reliance on the

decision  dated  14.2.1996  given  by  AAR  (supra)  which  decision  was

accepted  by  the  Department  and  not  challenged  before  this  Court.

According to learned counsel the test to be applied, in this connection, is :

whether on an overall view the object is to make profit.  In this connection

reliance was placed on the judgment of this Court in the case of Additional

Commissioner  of  Income-tax,  Gujarat v.  Surat  Art  Silk  Cloth

Manufacturers Association  reported in (1980) 121 ITR 1 SC.  On facts,

learned counsel submits even if the branch office has incidental surplus, that

does not lead to the conclusion that the appellant-Institution exists for the

purposes  of  profit.   In  short,  learned  counsel  submits  that  there  is  no

material whatsoever on the basis of which it can be said that the appellant is

not an educational institution.  On the contrary, learned counsel states that

the appellant  conducts  classical  education  by providing  course materials,

designing courses, conducing examinations, granting diplomas, supervising

examinations  and  all  these  activities  are  done  under  the  terms  of  the

agreement  entered  with  the  Institutions  of  the Government  of  India  and,

therefore,  it  is  wholly  erroneous  to  contend  that  the  appellant  is  not  an

educational institution.  According to learned counsel, the amounts claimed

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to  be  surplus  by the  Department  are  actually  not  surplus  if  the  costs  of

materials and other services provided by the HO are taken into account and

deducted  from  the  fees  collected.   In  any  event,  according  to  learned

counsel, surplus/deficit  is not determinative of the question as to whether

the appellant exists for the profit purposes.

19. According to learned counsel, the words “in India” should not be read

into clause (a) of the third proviso to Section 10(23C)(vi) of the 1961 Act as

done by the High Court in its impugned judgment.  Learned counsel submits

that the question as to whether application of income is required to be made

in India or outside India, cannot be part of the decision-making process for

grant of approval.  The said requirement cannot be taken into account at the

approval  stage.   In  the  alternative,  it  is  urged that  in  any event  the said

requirement of application of income in India is not there in clause (a) of the

third proviso.  According to learned counsel, the plain words of the third

proviso  refer  to  the  application  of  income to  the  objects  for  which  the

institute is established and the said proviso does not require application of

income “in India”.  Therefore, it is urged that there is no valid reason given

by the Department as to why the words “in India” should be read in the third

proviso.  Ultimately, according to learned counsel, the only test required to

be  applied  must  focus  on  the  nature,  activities  and  genuineness  of  the

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institution  and  not  whether  such  institution  applies  its  income  in  India.

According to learned counsel, the Indian public obtains a benefit by having

internationally  recognized  education/qualifications  available  to  it  at  the

lowest possible costs.  That, the benefit to the Indian public is not obtained

by where the surplus is spent and therefore such criterion has no relevance

to the object sought to be achieved while granting the exemption.  Lastly, on

this aspect learned counsel urges that similar words “in India” are found in

Sections 10(20A), 10(22B)  and 11(1)(a) of the 1961 Act but not in Section

10(23C)(vi).   Therefore,  by  comparison,  learned  counsel  urges  that

wherever such requirement was considered necessary by the Parliament the

same has been incorporated and, therefore, the exclusion of the words “in

India” in the third proviso to Section 10(23C)(vi) is not an oversight.  For

the above reasons, learned counsel submits that the words “in India” should

not be read into clause (a) of the third proviso of Section 10(23C)(vi) of the

1961 Act.

20. Before  concluding  the  submissions,  advanced  on  behalf  of  the

appellant, one aspect needs to be mentioned.  Department has relied upon

the judgment of this Court in the case of Oxford University Press (supra).

According  to  learned  counsel,  the  judgment  of  this  Court  in  Oxford

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University Press has no application as in that case all the three Honourable

Judges  held  that  it  was  impermissible  to  read  the  words  “in  India”  into

Section 10(22) of the 1961 Act.  According to learned counsel, the question

of application of income did not arise in that case, particularly, when there

were no provisos to Section 10(22) at the relevant time and, therefore, the

judgment  of  this  Court  in  that  case  has  no  bearing  whatsoever  on  the

subject-matter of the present civil appeal.    

21. Shri  P.V.  Shetty,  learned  senior  counsel  appearing  for  the

Department, submits that the basic test which CBDT as prescribed authority

(“the  PA” for  short)  is  required  to  consider  at  the  stage  of  approval  is

whether the appellant’s institute is solely an educational institution without

profit  motive.  According to the  learned counsel,  if  surplus  is  remitted to

USA, appellant  would not  be entitled to approval  under Section 10(23C)

(vi).  According  to  the  learned  counsel,  in  the  present  case,  CBDT  has

examined the accounts of the appellant for three years and it detected that

the  entire  expenses  was  not  incurred  in  India.  According  to  the  learned

counsel, Section 10(22) was the predecessor section of the present Section

10(23C)(vi). Earlier, according to the learned counsel, when Section 10(22)

existed, the PA was only required to examine the objects of the Institute and

not the application of income which concept is now brought in vide Section

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10(23C)(vi)  read  with  the  second,  third  and  eleventh  provisos  w.e.f.

1.4.1999. Therefore, according to the learned counsel, the PA has not only

to examine at the stage of approval the nature of the Institution, its activities

and its genuineness but also its accounts to ascertain whether the expenses

incurred and the activities undertaken are in India. According to the learned

counsel, “application of income” is the concept which is introduced for the

first time by way of third proviso to Section 10(23C)(vi). It was not there

earlier.  The reason,  according to the learned counsel,  for insertion of the

proviso to  Section 10(23C)(vi)  was that  in the past  when Section 10(22)

stood  alone  several  cases  of  misuse  of  funds  by  the  funds  not  being

deployed in India came to be detected. According to the learned counsel, in

the past, prior to 1.4.1999, the PA used to examine only the purposes and

objects for which the Institute stood established but after 1.4.1999, the PA is

also required to examine application of income in India and to that extent

the  concept  of  genuineness  originally  mentioned  in  Section  10(22)  now

stands expanded to include even application of income to the objects for

which  the institute  is  formed. According to  the  learned counsel,  prior  to

1.4.1999,  the  Memorandum  of  Association  constituted  the  bases  for

deciding  the  genuineness.  That  prior  to  1.4.1999,  application  of  income

came  within  the  concept  of  “assessment”  in  Section  11.  However,  that

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dichotomy, according to the learned counsel,  now stands obliterated with

the insertion of the three provisos abovementioned in Section 10(23C)(vi).

Therefore, according to the learned counsel, after 1.4.1999, even the PA is

required  to  examine  whether  the  accrued  income  stood  applied  for

educational activity in India. According to the learned counsel, not only the

source of income but also its application has to be for education in India. In

this connection, reliance was placed by the learned counsel on the judgment

of this Court in the case of Oxford University Press (supra).

22. On  merits,  learned  counsel  submits  that  since  an  amount  of  Rs.

1,30,30,288.00  stood  remitted  by  the  appellant  within  the  financial  year

ending 31.3.1999,  the  PA was right  in  rejecting  the  approval  application

made  by  the  appellant.  Learned  counsel  submits  that  the  appellant  is  a

worldwide organization. Learned counsel urged that in the application for

approval,  no  details  have  been  furnished  by  the  appellant  regarding  its

worldwide income, regarding its  income in India and its  expenses for its

activities in India. According to the learned counsel, the burden of proof is

on the applicant which it has failed to discharge. According to the learned

counsel,  in  the  past,  in  several  cases,  funds  have  been  diverted  and,

therefore, Parliament inserted several provisos in Section 10(23C)(vi) which

are  conditions  to  be  complied  with  by  the  appellant.  Learned  counsel

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submits that the provisos have got to read with the main section. That, the

third  proviso  requires  application/utilization  of  income  accruing  to  the

appellant in India and by remitting the aforestated amount(s), the Institute

herein has failed to comply with the said proviso. Learned counsel submits

that  the  three  provisos,  referred  to  above,   are  further  conditions,  which

every applicant has to satisfy. One such condition is application of income.

Learned counsel submits that in order to get exemption under Section 10

(23C)(vi)  the  applicant  has  to  show  that  it  is  solely  and  exclusively  an

educational institution established solely for educational purposes and not

for profit and since, in the present case, the appellant has earned surplus of

Rs. 1,30,30,288.00/1.14 crores,  which has been remitted to USA, it is clear

that the appellant’s institution does not exist solely for educational purposes

and that it is profit earning institute like any other commercial institute and,

therefore, it is not entitled to the benefit of exemption under the said Section

10(23C)(vi). Learned counsel submits that the appellant has failed to place

before  the  PA  the  requisite  material  to  show  that  it  is  carrying  out

educational activity even in USA and that the entire income generated by it,

both in India and in USA, is spent solely on educational activity and not to

earn profits and, therefore, no interference is called for in the present case.

Learned counsel submits that the appellant is claiming exemption under the

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Income Tax Act, 1961. That, under the said Act, exemption under Section

10(23C)(vi) is in the nature of a concession to an institution which solely

carries on educational activity, which is not for profit and since Section 10

(23C)(vi) is an exemption provision, the burden is on the applicant to show

the compliance of the various conditions in Section 10(23C)(vi). According

to the learned counsel,  the said  provision must  be read strictly if  money

laundering and shifting of profits out of India is to be prevented. According

to  the  learned counsel,  the  burden is  on  the applicant  to  show from the

statement of accounts of the previous year ending 31.3.1999 as to how it has

derived the said surplus and how it has utilized that surplus for educational

activity.  In  the  present  case,  according  to  the  learned  counsel,  be  it

surplus/profit/excess  of  income over  expenditure,  once  an  amount  stood

remitted from India to USA, it is clear that the appellant’s institute is not

existing  solely  for  educational  purposes  in  India  and,  therefore,  is  not

entitled  to  approval  under  Section  10(23C)(vi).  Learned counsel  submits

that in every case the area of activity needs to be examined by the PA. That,

the  applicant  which  seeks  exemption  under  the  above  section  needs  to

know, that education is the duty of the State; that every Institution which

seeks exemption under Section 10(23C)(vi) should know that it is supposed

to carry out the functions of the State in the field of education and since it is

1

a socio-welfare function, the Legislature had stepped in by the Finance Act,

1998 so as to bring in CBDT which is the highest body of experts in the

matter of granting approval. According to the learned counsel, this Court

should  not  interfere  unless  reasons  given  by  CBDT  are  extraneous.

According to the learned counsel, the appellant’s institute ought to have at

the very outset, at the time of making an application, should have declared

its world income, world expenditure, Indian income and Indian expenditure.

That, it  ought to have declared at the very outset whether the appellant’s

institution is an educational institution in USA. That, at the very outset, the

appellant ought to have stated and given particulars regarding its activities

abroad. Since it has failed to disclose the relevant aspects mentioned above,

the applicant/appellant was not entitled to approval. In conclusion, learned

counsel  submits  that  there is  no dispute  that  certain  huge amount  of  Rs.

1,30,30,288.00  has  been  remitted  and  that  fact  alone  is  conclusive

circumstance to show that the appellant-institution is a commercial venture

existing for profit and that it is not existing solely for educational purposes

in India. Learned counsel urged that the third proviso brought in the concept

of application of income vide the Finance Act, 1998 in order to bring about

parity between universities and other educational institutions on one hand

and public charitable trusts covered by Sections 11 and 12 under the 1961

2

Act.  Therefore,  according  to  the  learned  counsel,  even  at  the  stage  of

approval, the PA can take into account not only the nature, activities and

genuineness  of  the  Institute  but  also  the  manner  in  which  the  income

derived in India is spent/utilized in India. Learned counsel submits that, in

view of the Finance Act, 1998, the provisions of Section 11(1)(a) have got

to  be  read  into the provisions  of  Section  10(23C)(vi)  and if  so  read  the

applicant-Institute  is  required  to  state  in  its  application  as  to  how it  has

utilized its Income in India in the year ending 31.3.1999. In this connection,

learned  counsel  referred  to  Section  11(1)(a)  which  states  that  certain

incomes shall not be included in the total income of the previous year of the

person in receipt of such income if such income is derived from property

held under trust, wholly for charitable or religious purposes, to the extent of

which such income is applied to such purposes  in India. Learned counsel

submits that under Section 10(23C)(vi) as well as the third proviso thereto,

the words “in India” are not there but to give purposive interpretation to the

said section the court should read those words into section 10(23C)(vi) to

stop  shifting  of  the  “Income”/Profits  accruing  in  India  from  being

transferred  to  US.  According  to  the  learned counsel,  when the  appellant

herein expatriated a sum of Rs. 1,30,30,288.00 or Rs. 1.14 crores (approx.)

after taking into account expenses incurred by the HO to USA, it is clear

2

that the appellant’s institution has failed to comply with the requirements of

Section 10(23C)(vi)  and,  therefore,  it  is  not  entitled to approval.  For the

aforestated  reasons,  according  to  the  learned  counsel,  no  interference  is

called for in the present case.  

23. For  the  sake  of  convenience,  we quote  hereinbelow the  following

provisions of Section 10(23C) of the 1961 Act, as amended w.e.f. 1.4.1999

vide Finance Act, 1998:   

 “10.  Incomes not included in total income.-   In computing

the total income of a previous year of any person, any income falling within any of the following clauses shall not be included --   

           (23C) any income received by any person on behalf of-

(vi) any  university  or  other  educational  institution existing  solely  for  educational  purposes  and  not for purposes of profit, other than those mentioned in  sub-clause  (iiiab)  or  sub-clause  (iiiad)  and which  may  be  approved  by  the  prescribed authority; or

Provided  that  the  fund or  trust  or  institution  or any  university  or  other  educational  institution  or  any hospital  or other medical institution referred to in sub- clause (iv) or sub-clause (v) or  sub-clause (vi)  or sub- clause (via)  shall make an application in the prescribed form and  manner  to  the  prescribed  authority  for  the purpose  of  grant  of  the  exemption,  or  continuance thereof, under sub-clause (iv) or sub-clause (v) or sub- clause (vi) or sub-clause (via):

Provided  further that  the  Central  Government, before notifying the fund or  trust  or  institution,  or  the

2

prescribed authority, before approving any university or other  educational  institution  or  any  hospital  or  other medical  institution, under sub-clause (iv) or sub-clause (v) or sub-clause  (vi)  or  sub-clause (via),  may call  for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or  other  medical  institution,  as  the  case  may be,  as  it thinks  necessary  in  order  to  satisfy  itself  about  the genuineness  of  the  activities of  the  fund  or  trust  or institution or  any  university  or  other  educational institution or any hospital or other medical institution, as the  case  may  be,  and  the  Central  Government  or  the prescribed authority, as the case may be, may also make such inquiries as it  deems necessary in this behalf:

Provided also that the fund or trust or institution or any university or other educational institution or any hospital  or other medical institution referred to in sub- clause (iv) or sub-clause (v) or  sub-clause (vi)  or sub- clause (via)-

1[(a) applies  its  income,  or  accumulates  it  for application,  wholly  and  exclusively  to  the  objects for which  it  is  established and in  a case  where more than twenty-five per cent of its income is accumulated on or after  the  1st  day  of  April,  2001,  the  period  of  the accumulation  of  the amount  exceeding twenty-five  per cent of its income shall in no case exceed five years; and]

(b)    does not invest  or deposit  its  funds,  other than-

(i) any  assets  held  by  the  fund,  trust  or institution  or  any university or  other  educational institution  or  any  hospital  or  other  medical institution  where  such  assets  form  part  of  the corpus  of  the  fund,  trust  or  institution  or  any university or  other  educational  institution or  any

1  Inserted by Finance Act 2001, w.e.f. 1.4.2002

2

hospital or other medical institution as on the 1st day of June, 1973;

2[(ia)   any asset, being equity shares of a public company,  held  by  any  university  or  other educational  institution  or  any  hospital  or  other medical institution where such assets form part of the corpus of any university or other educational institution  or  any  hospital  or  other  medical institution as on the 1st day of June, 1998;]

(ii) any assets  (being debentures  issued by,  or on  behalf  of,  any  company  or  corporation), acquired  by the  fund,  trust  or  institution  or  any university or  other  educational  institution or  any hospital or other medical institution before the 1st day of March, 1983;

(iii) any accretion to the shares, forming part of the  corpus  mentioned  in  sub-clause  (i)  and  sub- clause (ia), by way of bonus shares allotted to the fund, trust or institution or any university or other educational  institution  or  any  hospital  or  other medical institution;

(iv) voluntary  contributions  received  and maintained in  the  form of jewellery,  furniture  or any other article as the Board may, by notification in the Official Gazette, specify,

for any period during the previous year otherwise than in  any one or  more of  the forms or  modes specified in sub-section (5) of section 11:

…

Provided  also that  the  exemption  under  sub- clause  (vi)  or  sub-clause  (via)  shall  not  be  denied  in relation to any funds invested or deposited before the 1st

2  Inserted by Finance Act, 2001, w.e.f. 1.4.2001

2

day of June, 1998, otherwise than in any one or more of the  forms  or  modes  specified  in  sub-section  (5)  of section 11 if  such funds  do not  continue to  remain  so invested or deposited after the 30th day of March, 2001 :

Provided  also that  the  exemption  under  sub- clause (iv) or sub-clause (v) or  sub-clause (vi)  or sub- clause (via) shall not  be denied in relation to voluntary contribution, other than voluntary contribution in cash or voluntary contribution of the nature referred to in clause (b) of the third proviso to this sub-clause, subject to the condition that such voluntary contribution is not held by the  trust  or  institution  or  any  university  or  other educational institution or any hospital  or other medical institution,  otherwise  than  in  any  one  or  more  of  the forms or  modes  specified  in  sub-section  (5)  of  section 11,  after  the  expiry  of  one  year  from  the  end  of  the previous year in which such asset is acquired or the 31st day of March, 1992, whichever is later:

…

3[Provided  also that  where  the  fund  or  trust  or institution  or  any  university  or  other  educational institution  or  any  hospital  or  other  medical  institution referred to  in  sub-clause (iv)  or sub-clause (v)  or  sub- clause (vi) or sub-clause (via)  does not apply its income during  the  year  of  receipt and  accumulates  it,  any payment or credit out of such accumulation to any trust or  institution  registered  under  section  12AA or  to  any fund  or  trust  or  institution  or  any  university  or  other educational institution or any hospital  or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall not be treated as application of income to the objects for which such fund or trust  or  institution or university or educational institution or hospital or other medical institution, as the case may be, is established:

3  Inserted by the Finance Act, 2002, w.e.f. 1.4.2003

2

Provided also that  where the fund or institution referred  to  in  sub-clause  (iv)  or  trust  or  institution referred  to  in  sub-clause (v)  is  notified  by the  Central Government 4[or is approved by the prescribed authority, as  the  case  may  be,]  or  any  university  or  other educational  institution  referred to  in  sub-clause  (vi)  or any hospital  or  other  medical  institution  referred  to  in sub-clause (via), is approved by the prescribed authority and  subsequently  that  Government  or  the  prescribed authority is satisfied that-

(i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not-

(A) applied  its  income in  accordance  with  the provisions  contained  in  clause  (a)  of  the  third proviso; or

(B) invested or deposited its funds in accordance with  the provisions  contained in  clause  (b)  of  the third proviso; or

(ii) the activities of such fund or institution or trust or any  university  or  other  educational  institution  or  any hospital or other medical institution-

(A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved :

it may, at any time after giving a reasonable opportunity of  showing  cause  against  the  proposed  action  to  the concerned fund or institution or trust or any university or other  educational  institution  or  any  hospital  or  other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy  of  the  order  rescinding  the  notification  or

4  Inserted by the Finance Act, 2007, w.e.f. 1.6.2007

2

withdrawing the approval to such fund or institution or trust or any university or other educational institution or any  hospital  or  other  medical  institution  and  to  the Assessing Officer;]”                          (emphasis supplied)

24. We may quote Section 10(22) of the 1961 Act, as it stood prior to

1.4.1999, which reads as follows:

“10. Income  not  included  in  total  income-  In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-

(22) any  income  of  a  university  or  other educational  institution,  existing  solely  for educational  purposes  and not  for  purposes of profit.”

25. We also quote hereinbelow Section 11(1)(a) of the 1961 Act, which

reads as follows:

“11.  Income  from  property  held  for  charitable  or religious purposes.

(1)    Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income  of  the  previous  year  of  the  person  in receipt of the income-

(a)   income derived from property held under trust wholly for charitable or religious purposes

2

to  the  extent  to  which  such  income  is applied  to  such  purposes  in  India;  and, where  any such income is  accumulated  or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen  per  cent  of  the  income  from  such property”

26. At the outset, we need to examine the scope of Section 10(22), which

is the predecessor of Section 10(23C)(vi), without the provisos.  

27. Actual existence of the educational institution was the pre-condition

of  the  application  for  initial  approval  under  Section  10(22).  On grant  of

approval under Section 10(22), Sections 11 and 13 did not apply. Therefore,

earlier prior to 1.4.1999 when exemption was given to the appellant, there

was  no  assessment  nor  demand.  Section  10(22)  had  an  automatic  effect.

Once  an  applicant-institution  came  within  the  phrase  “exists  solely  for

educational purposes and not for profit” no other conditions like application

of  income were  required  to  be  complied  with.  The  Prescribed  Authority

was only required to examine the nature, activities and genuineness of the

Institution. The above phrase was the only requirement for initial approval.

The mere existence of profit/surplus did not disqualify the institution if the

sole  purpose  of  its  existence  was  not  profit-making  but  educational

2

activities as Section 10(22) by its very nature contemplated income of such

institution to be exempted. Under Section 10(22) the test was restricted to

the character of the recipient of income, viz, whether it had the character of

educational institution in India, its character outside India was irrelevant for

deciding whether its income would be exempt under Section 10(22).

28. The moot question in Section 10(22) was – whether the activities of

the  applicant  came  within  the  definition  of  “income  of  educational

institution”. Under Section 10(22) one had to closely analyse the activities

of the Institute, the objects of the Institute and its source of income and its

utilization.  Even  if  one  of  the  objects  enabled  the  Institute  to  undertake

commercial activity, the institute would not be entitled to approval under

Section  10(22).  The  said  section  inter  alia excludes  the  income  of  the

educational institute from the Total Income.

29. In  ACIT  v.   Surat  Art  Silk  Cloth  Manufacturers  Association

reported in (1980)  121 ITR 1 it  has been held by this  Court  that  test  of

predominant object of the activity is to be seen whether it exists solely for

education and not to earn profit.  However, the purpose would not lose its

character merely because some profit arises from the activity.  That, it is not

possible to carry on educational activity in such a way that the expenditure

2

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.

30. In deciding the character of the recipient, it is not necessary to look at

the  profits  of  each  year,  but  to  consider  the  nature  of  the  activities

undertaken in India.  If the Indian activity has no co-relation to education,

exemption  has  to  be  denied.  (see  judgment  of  this  Court  in  Oxford

University  Press [supra]).   Therefore,  the  character  of  the  recipient  of

income  must  have  character  of  educational  institution  in  India  to  be

ascertained from the nature of the activities. If after meeting expenditure,

surplus remains incidentally from the activity carried on by the educational

institution,  it  will  not  cease  to  be  one  existing  solely for  educational

purposes.   In other words,  existence of surplus from the activity will  not

mean  absence  of  educational  purpose (see  judgment  of  this  Court  in

Aditanar Educational Institution  v.  ACIT, (1997) 224 ITR 310).  The

test is –  the nature of activity.  If the activity like running a printing press

takes place it  is not educational.  But whether the income/profit has been

3

applied for non-educational purpose has to be decided only at the end of the

financial year.

31. In  Oxford  University  Press (supra)  this  Court  found  that  the

applicant  was  a  branch  of  Oxford  Press  which  was  part  of  the  Oxford

University  but  its  activity  in  India  was  restricted  to  publishing  books,

journals,  periodicals etc.   The Tribunal held that because Oxford Press is

part  of  the  University its  income was exempt  under  Section 10(22)  as  it

stood at  the  relevant  time.  It  is  in  this  context  that  the  words  “existing

solely  for  educational  purposes  and  not  for  the  purposes  of  profit”  in

Section 10(22), which words also find place in Section 10(23C)(vi), came

for consideration.   This  Court  held that  location of  the University is  not

relevant,  what  is  relevant  is  –  whether there is  imparting of education in

India.  Therefore, the test formulated by this Court to decide the character of

the  recipient  of  income under  Section  10(22)  is  whether  there  is  in  fact

existence of an activity which is in the nature of “imparting of education in

India”.  This is how the words “in India” have come into judgment and not

by incorporation from Section 11(1)(a) of 1961 Act, as contended on behalf

of the Department.

3

32. We shall now consider the effect of insertion of provisos to Section

10(23C)(vi)  vide Finance Act,  1998.  Section 10(23C)(vi)  is  analogous  to

Section 10(22). To that extent, the judgments of this Court as applicable to

Section 10(22) would equally apply to Section 10(23C)(vi).  The problem

arises with the insertion of the provisos to Section 10(23C)(vi). With the

insertion  of  the provisos  to  Section 10(23C)(vi)  the applicant  who seeks

approval  has not  only to show that  it  is  an institution existing solely for

educational  purposes  [which  was  also  the  requirement  under  Section  10

(22)]  but  it  has  now to  obtain initial  approval  from the  PA, in  terms of

Section 10(23C)(vi) by making an application in the standardized form as

mentioned in the first proviso to that section. That condition of obtaining

approval  from the  PA came to  be  inserted  because  Section  10(22)  was

abused  by  some  educational  institutions/universities.  This  proviso  was

inserted  along  with  other  provisos  because  there  was  no  monitoring

mechanism to check abuse of exemption provision. With the insertion of the

first proviso, the PA is required to vet the application. This vetting process

is stipulated by the second proviso. It is important to note that the second

proviso also indicates the powers and duties of the PA. While considering

the approval application in the second proviso, the PA is empowered before

giving approval  to  call  for  such documents  including annual  accounts  or

3

information from the applicant to check the genuineness of the activities of

the  applicant  institution.  Earlier  that  power  was  not  there  with  the  PA.

Under  the  third  proviso,  the  PA  has  to  ascertain  while  judging  the

genuineness of the activities of the applicant institution as to whether the

applicant applies its income wholly and exclusively to the objects for which

it is constituted/established. Under the twelfth proviso, the PA is required to

examine cases where an applicant does not apply its income during the year

of receipt and accumulates it but makes payment therefrom to any trust or

institution  registered  under  section  12AA  or  to  any  fund  or  trust  or

institution or university or other educational institution and to that extent

the proviso states that such payment shall not be treated as application of

income to the objects for which such trust or fund or educational institution

is  established.  The  idea  underlying  the  twelfth  proviso  is  to  provide

guidance to the PA as to the meaning of the words “application of income to

the objects for which the institution is established”. Therefore, the twelfth

proviso is the matter of detail. The most relevant proviso for deciding this

appeal is the thirteenth proviso. Under that proviso, the circumstances are

given under which the PA is empowered to withdraw the approval earlier

granted.  Under  that  proviso,  if  the  PA  is  satisfied  that  the  trust,  fund,

university or other educational institution etc. has not applied its income in

3

accordance with the third proviso or if it finds that such institution, trust or

fund etc. has not invested/deposited its funds in accordance with the third

proviso or that the activities of such fund or institution or trust etc. are not

genuine or that its activities are not being carried out in accordance with the

conditions subject to which approval is granted then the PA is empowered

to withdraw the approval earlier granted after complying with the procedure

mentioned therein.  

33. Having analysed the provisos to Section 10(23C)(vi)  one finds that

there  is  a  difference  between  stipulation  of  conditions  and  compliance

thereof.  The  threshold  conditions  are  actual  existence  of  an  educational

institution  and  approval  of  the  prescribed  authority  for  which  every

applicant has to move an application in the standardized form in terms of

the first proviso. It is only if the pre-requisite condition of actual existence

of the educational institution is fulfilled that the question of compliance of

requirements in the provisos would arise. We find merit in the contention

advanced  on  behalf  of  the  appellant  that  the  third  proviso  contains

monitoring  conditions/requirements  like  application,  accumulation,

deployment  of  income in  specified  assets  whose  compliance  depends  on

events that have not taken place on the date of the application for initial

approval.

3

34. To make the section with the proviso workable we are of the view

that  the  Monitoring  Conditions  in  the  third  proviso  like

application/utilization  of  income,  pattern  of  investments  to  be  made  etc.

could be stipulated as conditions by the PA subject to which approval could

be  granted.  For  example,  in  marginal  cases  like  the  present  case,  where

appellant-Institute  was  given  exemption  up  to  financial  year  ending

31.3.1998 (assessment year 1998-99) and where an application is made on

7.4.1999, within seven days of the new dispensation coming into force, the

PA can grant approval subject to such terms and conditions as it deems fit

provided  they  are  not  in  conflict  with  the  provisions  of  the  1961  Act

(including  the  abovementioned  monitoring  conditions).  While  imposing

stipulations  subject  to  which  approval  is  granted,  the  PA may insist  on

certain percentage of accounting Income to be utilized/applied for imparting

education in India. While making such stipulations, the PA has to examine

the activities in India which the applicant has undertaken in its Constitution,

MoUs. and Agreement with Government of India/National Council. In this

case,  broadly the activities  undertaken by the  appellant  are  –  conducting

classical  education  by  providing  course  materials,  designing  courses,

conducting  exams,  granting  diplomas,  supervising  exams,  all  under  the

terms of an Agreement entered into with Institutions of the Government of

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India. Similarly, the PA may grant approvals on such terms and conditions

as it deems fit in case where the Institute applies for initial approval for the

first  time.  The PA must  give an  opportunity  to  the  applicant-institute  to

comply with the monitoring conditions which have been stipulated for the

first time by the third proviso. Therefore, cases where earlier the applicant

has obtained exemption(s),  as in this  case,  need not  be re-opened on the

ground that the third proviso has not been complied with. However, after

grant of approval, if it is brought to the notice of the PA that conditions on

which approval was given are breached or that circumstances mentioned in

the thirteenth proviso exists then the PA can withdraw the approval earlier

given by following the procedure mentioned in that proviso. The view we

have taken, namely, that the PA can stipulate conditions subject to which

approval  may  be  granted  finds  support  from  sub-clause  (ii)(B)  in  the

thirteenth proviso.

35. The  next  question  which  arises  for  consideration  is:  whether  the

words “in India” should be read into Section 10(23C)(vi) and/or in the third

proviso thereto?

36. Section  10(23C)(vi)  seeks  to  exempt  income  of  institutions  with

laudable objects and activities such as universities, hospitals etc.. As stated

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above, stipulation of monitoring conditions is different from compliance of

those conditions. Compliance or non-compliance can only be gauged at the

assessment stage.  

37. In the case of  Oxford University Press (supra), Oxford University

had a branch in India. The only activity of that branch was to carry on the

business of a commercial printing press which published and printed books

and  materials  and  sold  the  same  commercially  and  made  a  profit.  The

Department contended that one should read the words “in India” along with

the word “University”. Accordingly, the Department contended that Section

10(22)  exemption  should  be  denied  to  the  profits  arising  from  the

commercial  printing activity of  the  University since Section  10(22)  gave

exemption  only  to  profits/income of  an  Indian  University.  All  the  three

Judges held that it was impermissible to read in the words “in India” into

Section 10(22) of  the  1961 Act.  As stated above,  Section  10(23C)(vi)  is

analogous to Section 10(22) of the 1961 Act. The majority view, however,

was that the University must carry on educational activities in India in order

to satisfy Section 10(22). According to the majority view, some educational

activity had to  be  carried  on in  India  and since Oxford University Press

carried on no educational activity in India, the exemption did not apply to

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the University. In other words, the majority judges held that “non-profit”

qualification has to be tested against Indian activities and it is in this context

that remarks regarding “in India” are made in the judgment of the majority

at page nos. 672 and 684.

38. Moreover,  it  is  important  to  note that,  even after  the  Finance Act,

1998 w.e.f. 1.4.1999, the third proviso to Section 10(23C)(vi), which refers

to monitoring conditions, confines the words “application of income” to the

objects for which the Institution is established. The third proviso does not

use the  words “in India” in the matter  of application or accumulation of

income though in several other sections like Sections 10(20A), 10(22B) and

11(1)(a) etc., Parliament has used the words “in India”. Therefore, for this

one  more  reason,  we cannot  read  in  the  words  “in  India”  into  the  third

proviso. As stated, Parliament in its wisdom has stated in the third proviso

that  the  educational  institution  has  to  apply  its  income  wholly  and

exclusively  to the objects for which it  is established. Therefore, the plain

words of  the third proviso do not  require application of income to be in

India. Our judgment should not be understood to mean that the applicant has

not  to  impart  educational  activities  in  India.  If  the  applicant  wants

exemption under Section 10(23C)(vi) it has to impart education in India and

only then it would be entitled to claim initial approval under that section.

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That is the reason for our saying that the “non-profit” qualification has to be

tested  against  Indian  activities.  Our  conclusion  is  that  impartation  of

education must be in India if applicant desires exemption under Section 10

(23C)(vi) and that excess/deficit of income over expenditure will not decide

whether the applicant exists for profit or not.

39. For the sake of clarity, we may reiterate that items such as application

of  income  or  accumulation  of  income  or  investment  in  specified  assets

indicated  in  clauses  (a)  and  (b)  in  the  third  proviso  are  a  part  of

compliance/monitoring conditions.  As stated, however, there is a difference

between application/utilization of income and outward remittance of income

out  of  India.   As  discussed  above,  with  the  insertion  of  the  provisos  in

Section 10(23C)(vi) of the 1961 Act, it is open to the PA to stipulate, while

granting  approval,  that  the  approval  is  being  given  subject  to

utilization/application  of  certain  percentage  of  income, in  the  accounting

sense, towards impartation of education in India. Such exercise would be

based on estimation.   There is  a difference between ‘accounting income’

and ‘taxable income’.  At the stage of Section 10, we are concerned with the

accounting  income.   Therefore,  it  is  open  to  the  PA,  if  it  deems  fit,  to

stipulate that certain percentage of accounting income would be utilized for

impartation of education in India.  Therefore, in our view, it is always open

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to  the  PA  to  impose  such  terms  and  conditions  as  it  deems  fit.   The

interpretation  we have given is  based on harmonious  construction  of  the

provisos inserted in Section 10(23C)(vi) by the Finance Act, 1998.  Lastly,

we may reiterate that there is a difference between stipulation by the PA of

such  terms  and  conditions,  as  it  deems  fit  under  the  provisos,  and  the

compliance of those conditions by the appellant.   The compliance of the

terms and conditions stipulated by the PA would be a matter of decision at

the  time of  assessment  as  availability  of  exemption  has  to  be  evaluated

every year in order to find out  whether the institution existed during the

relevant year solely for educational purposes and not for profit.

40. In  the  light  of  what  is  stated  above,  we  set  aside  order  dated

12.10.2004  passed  by  CBDT,  we  remit  the  matter  to  CBDT  for  fresh

consideration  in  accordance  with  law.  We may clarify  that,  in  this  case,

appellant has fulfilled the threshold pre-condition of actual existence of an

educational  institution  under  section  10(23C)(vi)  and,  therefore,  on  that

count CBDT will not reject the approval application dated 7.4.1999.

41. Before concluding, we may state that in this case the appellant had

applied for exemption in Form 56D on 7.4.1999 seeking initial approval of

exemption  under  Section  10(23C)(vi)  for  the  accounting  year  ending

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31.3.1999 (assessment year 1999-2000). That application was made under

Rule 2CA of the Income-tax Rules, 1962. Under Rule 2CA, it is open to the

PA  to  grant  exemption  up  to  3  years.  We  are  not  concerned  with  the

controversy  as  to  whether  the  PA  should  grant  initial  approval  for  the

accounting year ending 31.3.1999 or for three years. Suffice it to state that,

one of the points which arises for determination in this case is whether the

matter should be remitted to the Chief Commissioner/Director General or

whether it should be remitted to CBDT because we are informed that today

the PA is the Chief Commissioner/Director General and not the CBDT.

42. We quote  hereinbelow  Rule  2CA of  the  Income-tax  Rules,  1962,

which reads as follows:

“2CA. (1) The  prescribed  authority  under  sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director  General,  to whom the application shall be made as provided in sub-rule (2).

(1A)   The prescribed authority under sub-clauses  (vi) and  (via)  of  clause  (23C)  of  section  10  shall  be  the Central  Board  of  Direct  Taxes  constituted  under  the Central Boards of Revenue Act, 1963 (54 of 1963) for applications received prior to 3rd day of April, 2001:

Provided  that  in  case  of  applications  received prior to 3rd day of April, 2001 where no order has been passed granting approval or rejecting the applications as on 31st day of May, 2007, the prescribed authority under

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sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the Chief Commissioner or Director General.

(2)  An  application  for  approval  shall  be  made  in Form No.  56D by any university  or  other  educational institution  or  any  hospital  or  other  medical  institution referred to in sub-clause (vi) or sub-clause (via) of clause (23C) of section 10.

(3)    The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be,  granted  before  the 1st day of  December,  2006 shall  at  any  one  time  have  effect  for  a  period  not exceeding three assessment years. Explanation.- For  the  purposes  of  this  rule,  "Chief Commissioner  or  Director  General"  means  the  Chief Commissioner  or  Director  General  whom  the  Central Board  of  Direct  Taxes  may,  authorize  to  act  as prescribed authority, for the purposes of sub-clause (vi) or  sub-clause  (via)  of  clause  (23C)  of  section  10,  in relation to any university or other educational institution or any hospital or other medical institution.

43. In this case, the initial approval application in Form 56D was dated

7.4.1999.  It  was  dismissed  by  CBDT  on  12.10.2004  (after  5½  years),

therefore, in terms of Rule 2CA(1A) we are required to remit this matter to

CBDT for fresh consideration in the light of the law discussed hereinabove.

44. Accordingly, the impugned judgment dated 24.11.2006 of the Delhi

High  Court  in  Writ  Petition  (C)   No.  17978/04  as  well  the  decision  of

CBDT F.No.197/78/99-ITA.I dated 12.10.2004 are set aside and the matter

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is  remitted  to  CBDT for  fresh  consideration  in  accordance  with  law  as

discussed hereinabove.

45. Accordingly, this civil appeal is allowed with no order as to costs.

………………………….J.                                                                ( S. H. Kapadia)   

………………………….J.                                                                        ( B. Sudershan Reddy)   

New Delhi; May 9, 2008.

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