M/S. QUEEN'S EDUCATIONAL SOCIETYversusCOMMISSIONER OF INCOME TAX

                       [2015] 3 S.C.R. 838.


A          M/S. QUEEN'S EDUCATIONAL SOCIETY

                                v.
              COMMISSIONER OF INCOME TAX
B                (Civil Appeal No. 5167 of 2008)

                       MARCH 16, 2015.

            [T.S. THAKUR AND R.F. NARIMAN, JJ.]
c      Income Tax Act, 1961: ss.10 (23c) (iii-ad), 10(23c) (vi)
  - Exemption under - Held: Where an educational institution
  carries on the activity of education primarily for educating
  persons, the fact that it makes a surplus does not lead to
  the conclusion that it ceases to exist solely for educational
0
  purposes and becomes an institution for the purpose of
  making profit - There is difference between the making of
  a surplus and an institution being carried on "for profit" -
  No inference arises that merely because imparting
E education results in making a surplus, it becomes an activity
  for profit - Such surplus would not come within the ambit
  of denying exemption.

        Disposing of the appeals, the Court

F     HELD: 1. Section 10(23c)(iiiad) has three
  requirements - (a) the educational institution must exist
  solely for educational purposes (b) it should not be for
  purposes of profit and (c) the aggregate annual receipts
  of such institution should not exceed the amount or
G annual receipts as may be prescribed. Where an
  educational institution carries on the activity of
  education primarily for educating persons, the fact that


H                              838
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 839
              OF INCOME TAX
it makes a surplus does not lead to the conclusion that         A
it ceases to exist solely for educational purposes and
becomes an institution for the purpose of making profit.
The predominant object test must be applied - the
purpose of education should not be submerged by a
profit making motive. A distinction must be drawn               B
between the making of a surplus and an institution
being carried on "for profit". No inference arises that
merely because imparting educ.-ition results in making
a profit, it becomes an activity for profit. If after meeting
expenditure, a surplus arises incidentally from the             C
activity carried on by the educational institution, it will
not be cease to be one existing solely for educational
purposes. The ultimate test is whether on an overall
view of the matter in the concerned assessment year
                                                                0
the object is to make profit as opposed to educating
persons. [Paras 5 and 11] [842-D; 854-G-H; 855-A-D]

    CIT v. Surat Art Silk Cloth Manufacturers' Assn. (1980)
121 ITR 1; Aditanar Educational Institution v. Additional
Commissioner of Income Tax (1997) 224 ITR 310; American E
Hotel & Lodging Assn. Educational Institute v. CBDT (2008)
301 ITR 86; Municipal Corpn. of Delhi v. Children Book Trust
and Safdarjung Enclave Educational Society (1992) 3 SCC
390: 1992 (2) SCR 535; S.RM.M.CT.M. Tiruppani Trust v. F
Commissioner of Income Tax (1998) 2 SCC 584: 1998 (1)
SCR 653 - relied on.

    St. Lawrence Educational Society (Regd.) v.
Commissioner of Income Tax & Anr.(2011) 53 DTR (Del) G
130; Tolani Education Society v. Deputy Director of Income
Tax (Exemption) & Ors, (2013) 351 ITR 184 - referred to.

                  Case Law Reference

                                                                H
840        SUPREME COURT REPORTS                 [2015] 3 S.C.R.


A       (1980) 121 ITR 1            Relied on.       Para 8

        (1997) 224 ITR 310          Relied on.       Para 9

        (2008) 301 ITR 86           Relied on.       Para 10
B       1992 (2) SCR 535            Relied on.       Para 19

        1998 (1) SCR 653            Relied on.       Para 24

        (2011) 53 DTR (Del) 130     Relied on.       Para 24
c       (2013) 351 ITR 184          Relied on.       Para 24

         CIVIL APPELLATE JURISDICTION: Civil Appeal No.
      5167 of 2008.

D         From the Judgment and Order dated 24.09.2007 of the
      High Court of Uttarkhand at Nainital in Income Tax Appeal
      No. 103/2007.

                                WITH
E         Civil Appeal Nos. 5168 of 2008, 8962 of 2010, 909 of
      2011, 2919, 2920, 2921, 2922 and 2923 of 2015.

      Ajay Vohra, Dhruv Mehta, V. Giri, Dr. Rakesh Gupta,
  Ashwani Taneja, Poonam Ahuja, Ambhoj Kumar Sinha,
F Mukul Mathur, S. K. Verma, Arijit Prasad, Gargi Khanna, B.
  V. Balaram Das, Kavita Jha, Anil Katiyar, Namita Choudhary,
  Vipin Gogia, Ashish Agarwal, Jaspreet Gogia, Ashok K.
  Mahajan, John Mathew, Pawanshree Agrawal for the
  Appearing Parties.
G
      The Judgment of the Court was delivered by

           R.F.NARIMAN, J. 1. Leave granted in the special leave
      petitions.
H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 841
        OF INCOME TAX [R.F.NARIMAN, J.]

     2. The present appeals relate to a common judgment A
dated 241h September, 2007 passed by the High Court of
Uttarakhand, Nainital in two income tax appeals, and a
judgment of the Punjab and Haryana High Court dated 29'h
January, 2010 in Pine Grove International Charitable Trust
v. Union of India - (2010) 327 ITR 273 . Various other B
appeals (excepting Civil Appeal No.8962 of 2010) are filed
by the Union of India/ Central Board of Direct Taxes in cases
where the aforesaid judgment in Pine Grove has been
followed.
                                                              .c
     3. The facts necessary to understand the controversy
in the two income tax appeals before the Uttarakhand High
Court, Nainital, may be gleaned from the facts of one of
them, namely, the Queen's Educational Society case. The
appellant filed its return for assessment years 2000-2001      D
and 2001-2002 showing a net surplus of Rs.6,58,862/- and
R~.7,82,632/- respectively. Since the appellant was
established with the sole object of imparting education, it
claimed exemption under Section 10(23C) (iiiad) of the
Income Tax Act, 1961. The Assessing Officer vide its order     E
dated 201h February, 2003 rejected the exemption claimed
by the appellant. The CIT (Appeals} by its order dated 28'h
March, 2003 allowed the appellant's appeal, and the ITAT,
Delhi, by its judgment dated 7th July, 2006 passed an order   F
dismissing the appeal preferred by the revenue. In a
reference to the High Court under Section 260A of the
Income Tax Act, the High Court vide the impugned judgment
set aside the judgment of the ITAT and affirmed the order
of the Assessing Officer.                                     G

    4. These appeals from the Uttarakhand High Court,
Nainital, concern themselves with the provision of Section
10(23C) (iiiad) of the Act:

    "Section 10- Incomes not included in total income.- H
842        SUPREME COURT REPORTS                  [2015] 3 S.C.R.


A         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-

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

          (iii-acf) any university or other educational institution
          existing solely for educational purposes and not for
          purposes of profit if the aggregate annual receipts of
c·        such university or educational institution do not exceed
          the amount of annual receipts as may be prescribed"

          5. It will be noticed that the Section has three
      requirements - (a) the educational institution must exist
      solely for educational purposes (b) it should not be for
0
      purposes of profit and (c) the aggregate annual receipts of
      such institution should not exceed the amount or annual
      receipts as may be prescribed. Such prescription is to be
      found in Rule 2CA being an amount of Rs.1 crore.
E         6. The said Section was inserted by Finance Act No.2
      of 1998 with effect from 1'1 April, 1999. Prior thereto, the
      Income Tax Act had a corresponding Section, namely,
      Section 10(22) which was as follows:-
 F        "Section 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-

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

      7. We have heard learned counsel for the assessees
H as well as learned counsel for the revenue. The assessees
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 843
        OF INCOME TAX [R.F.NARIMAN, J.]

 argue that the impugned judgment is contrary to the law A
 laid down by at least three Supreme Court judgments.
 Further, the wrong test has been adopted and followed,
which is a test laid down by the Assessing Officer and not
 by any Supreme Court judgment - namely, that whenever
 a profiUsurplus is made by an educational institution, it B
 ceases to exist solely for educational p.urposes and
 becomes a profit making enterprise. In support of the
Punjab and Haryana High Court judgment under appeal,
counsel for the assessees argued that since the sole basis
for not granting them exemption for the assessment years · C
 under question was the following of the Uttarakhand High
Court judgment, if the said judgment is found to be incorrect,
they are bound to succeed. For that reason, the revenue's
appeal against the Punjab and Haryana High Court
judgment should be dismissed. Counsel for the revenue, .D
on the other hand, attempted to support the Uttarakhand
High Court judgment by stating that the Section doe~ not
contemplate the making of large profits. If an educational
 institution in fact makes large profits then even though it E
may plough such profits back into the purchase of assets
for education, yet such institution cannot be said to be
existing solely for educational purposes. It would then
become an institution which would really be for profit.
                                                               F
      8. In CIT v. Surat Art Silk Cloth Manufacturers'
Assn., (1980) 121 ITR 1, this Court while construing the
definition of "charitable purpose" in Section 2(15) of the
Income Tax Act held:

    "17. The next question that arises is as to what is the G
    meaning of the expression "activity for profit". Every
    trust or institution must have a purpose for which it is
    established and every purpose must for its
    accomplishment involve the carrying on of an activity. H
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A     The activity must, however, be for profit in order to
      attract the exclusionary clause and the question
      therefore is when can an activity be said to be one for
      profit? The answer to the question obviously depends
      on the correct connotation of the preposition "for". This
B     preposition has many shades of meaning but when
      used with the active participle of a verb it means "for
      the purpose of' and connotes the end with reference
      to which something is done. It is not therefore enough
      that as a matter of fact an activity results in profit but it
c     must be carried on with the object of earning profit.
      Profit-making must be the end to which the activity must
      be directed or in other words. the predominant object
      of the activity must be making a profit. Where an activity
      is not pervaded by profit motive but is carried on
D
      primarily for serving the charitable purpose. it would not
      be correct to describe it as an activity for profit. But
      where, on the other hand, an activity is carried on with
      the predominant object of earning profit, it would be an
E     activity for profit, though it may be carried on in
      advancement of the charitable purpose of the trust or
      institution. Where an activity is carried on as a matter
      of advancement of the charitable purpose or for the
      purpose of carrying out the charitable purpose, it would
F     not be incorrect to say as a matter of plain English
      grammar that the charitable purpose involves the
      carrying on of such activity, but the predominant object
      of such activity must be to subserve the charitable
      purpose and not to earn profit. The charitable purpose
G     should not be submerged by the profit making motive:
      the latter should not masquerade under the guise of
      the former. The purpose of the trust, as pointed out by
      one of us (Pathak,J.) in Dharmadeepti v. CIT [(1978) 3
      SCC 499: 1978 SCC (Tax) 193] must be "'essentially
H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 845
        OF INCOME TAX [R.F.NARIMAN, J.]

   charitable in nature" and it must not be a cover for A
   carrying on an activity which has profit making as its
   predominant object. This interpretation of the
   exclusionary clause in Section 2 clause (15) derives
   considerable support from the speech made by the
   Finance Minister while introducing that provision. The B
   Finance Minister explained the reason for introducing
   this exclusionary clause in the following words:

   "The definition of 'charitable purpose' in that clause is
   at present so widely worded that it can be taken C
   advantage of even by commercial concerns which,
   while ostensibly serving a public purpose, get fully paid
   for the benefits provided by them namely, the
   newspaper industry which while running its concern on
   commercial lines can claim that by circulating D
   newspapers it was improving the general knowledge of
   the public. In order to prevent the misuse of this
   definition in such cases, the Select Committee felt that
   the words 'not involving the carrying on of any activity
   for profit' should be added to the definition."           E

   It is obvious that the exclusionary clause was added
  with a view to overcoming the decision of the Privy
  Council in the Tribune case [AIR 1939 PC 208: In Re
  the Trustees of the Tribune, (1939) 7 ITR 415] where F
  it was held that the object of supplying the community
  with an organ of educated public opinion by publication
  of a newspaper was an object of general public utility
  and hence charitable in character, even though the
  activity of publication of the newspaper was carried on G
  commercial lines with the object of earning profit. The
  publication of the newspaper was an activity engaged
  in by the trust for the purpose of carrying out its
  charitable purpose and on the facts it was clearly an H
846    SUPREME COURT REPORTS                   (2015] 3 S.C.R.


A     activity which had profit making as its predominant
      object, but even so it was held by the Judicial
      Committee that since the purpose served was an object
      of general public utility, it was a charitable purpose. It
      is clear from the speech of the Finance Minister that it
B     was with a view to setting at naught this decision that
      the exclusionary clause was added in the definition of
      "charitable purpose''. The test which has, therefore, now.
      to be appli~d is whether the predominant object of the
      activity involved in carrying out the object of general
c     public utility is to subserve the charitable purpose or to
      earn profit. Where profit making is the predominant
      object of the activity, the purpose, though an object of
      general public utility, would cease to be a charitable
      purpose. But where the predominant object of the
D
      activity is to carry out the charitable purpose and not
      to earn profit, it would not lose its character of a
                         '                         .
      charitable purpose merely because some profit arises
      from the activity. The exclusionary clause does not
E     require that the activity must be carried on in such a
      manner that it does not result in any profit. It would
      indeed be difficult for persons in charge of a trust or
      institution to so carrv on the activity that the expenditure
      balances the income and there is no resulting profit.
F     That would not only be difficult of practical realisation
      but would also reflect unsound principle of
      management. We, therefore, agree with Beg, J., when
      he said in Sole Trustee, Loka Shikshana Trust case
      [(1976) 1 sec 254: 1976 sec (Tax) 14: (1975) 101
G     ITR 234] that "if the profits must necessarily feed a
      charitable purpose under the terms of the trust, the
      mere fact that the activities of the trust yield profit will
      not alter the charitable character of the trust. The test
      now is, more clearly than in the past, the genuineness
H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 847
       OF INCOME TAX [R.F.NARIMAN, J.]

   of the purpose tested by the obligation created to spend A
   the money exclusively or essentially on charity". The
   learned Judge also added that the restrictive condition
   "that the purpose should not involve the carrying on of
   any activity for profit would be satisfied if profit making
   is not the real object" (emphasis supplied). We wholly B
   endorse these observations.

   The application of this test may be illustrated by taking
  a simple example. Suppose the Gandhi Peace
  Foundation which has been established for propagation           C
  of Gandhian thought and philosophy, which would
  admittedly be an object of general public utility,
  undertakes publication of a monthly journal for the
  purpose of carrying out this charitable object and
  charges a small price wtiich is more than the cost of           D
  the publication and leaves a little profit, would it deprive
  the Gandhi Peace Foundation of its charitable
   character? The pricing of the monthly journal would
  undoubtedly be made in such a manner that it leaves
  sor:!le profit for the Gandhi Peace Foundation, as,             E
  indeed, would be done by any prudent and wise
  management, but that cannot have the effect of
  polluting the charitable character of the purpose,
  because the predominant object of the activity of               F
  publication of the monthly journal would be to carry out
  the charitable purpose by propagating Gandhian
  thought and philosophy and not to make profit or in
  other words, profit making would not be the driving force
  behind this activity. But it is possible that in a given case   G
  the degree or extent of profit making may be of such a
  nature as to reasonably lead to the inference that the
  real object of the activity is profit making and not serving
  the charitable purpose. If, for example, in the illustration
  given by us, it is found that the publication of the            H
848    SUPREME COURT REPORTS                     (2015] 3 S.C.R.


A     monthly journal is carried on wholly on commercial lines
      and the pricing of the monthly journal is made on the
      same basis on which it would be made by a commercial
      organisation leaving a large margin of profit, it might
      be difficult to resist the inference that the activity of
 B    publication of the journal is carried on for profit and the
      purpose is non-charitable. We may take by way of
      illustration another example given by Krishna Iyer, J.,
      in the Indian Chamber of Commerce case [(1976) 1
      sec 324 : 1976 sec (Tax) 41 : (1975) 101 ITR 796]
c     where a blood bank collects blood on payment and
      supplies blood for a higher price on commercial basis.
      Undoubtedly, in such a case, the blood bank would be
      serving an object of general public utility but since it
      advances the charitable object by sale of blood as an
D
      activity carried on with the object of making profit, it
      would be difficult to call its purpose charitable. Ordinarily
      there should be no difficulty in determining whether the
      predominant object of an activity is advancement of a
E     charitable purpose or profit making. But cases are
      bound to arise in practice which may be on the
      borderline and in such cases the solution of the problem
      whether the purpose is charitable or not may involve
      much refinement and present real difficulty.
F
      There is, however, one comment which is necessary
      to be made whilst we are on this point and that arises
      out of certain observations made by this Court in Sole
      Trustee, Loka Shikshana Trust case ((1976) 1 SCC 254
G     : 1976 SCC (Tax) 14: (1975) 101 ITR 234] as well as
      Indian Chamber of Commerce case ((1976) 1SCC324
      : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] . It was said
      by Khanna, J. in Sole Trustee, Loka Shikshana Trust
      case ((1976) 1SCC254: 1976 SCC (Tax) 14: (1975)
H     101 ITR 234] :
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 849
        OF INCOME TAX [R.F.NARIMAN, J.]

   "[l]f the activity of a trust consists of carrying on a A
   business and there are no restrictions on its making
   profit, the court would be well justified in assuming in
   the absence of some indication to the contrary that the
   object of the trust involves the carrying on of an activity
   for profit."                                                B

   And to the same effect, observed Krishna Iyer, J. in the
   Indian Chamber of Commerce case [(1976) 1 SCC 324
   : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] when he
   said:                                                    C

   "An undertaking by a business organisation is ordinarily
   assumed to be for profit unless expressly or by
   necessary implication or by eloquent surrounding
   circumstances the making of profit stands loudly o
   negatived .... A pragmatic condition, written or unwritten,
   proved by a prescription of profits or by long years, of
   invariable practice or spelt from some strong
   surrounding circumstances indicative of anti-profit
   motivation - such a condition will qualify for charitable E
   purpose."

   Now we entirely agree with the learned Judges who
  decided these two cases that activity involved in
  carrying out the charitable purpose must not be F
  motivated by a profit objective but it must be undertaken
  for the purpose of advancement or carrying out of the
  charitable purpose. But we find it difficult to accept their
  thesis that whenever an activity is carried on which
  yields profit, the inference must necessarily be drawn, G
  in the absence <;>f some indication to the contrary, that
  the activity is for profit and the charitable purpose
  involves the carrying on of an activity for profit. We do
  not think the Court would be justified in drawing any
  such inference merely because the activity results in H
'



    850     SUPREME COURT REPORTS                     [2015] 3 S.C.R.

                                                                            '
    A      ;:irofit. It is in our opinion not at all necessary that there
           must be a provision in the constitution of the trust or
           institution that the activity shall be carried on no profit
           no loss basis or that profit shall be proscribed. Even if
           there is no such express provision, the nature of the
    B      charitable purpose, the manner in which the activity for
           advancing the charitable purpose is being carried on
           and the surrounding circumstances may clearly indicate
           that the activity is not propelled by a .dominant profit
           motive. What is necessary to be considered is whether
    c      having regard to all the facts and circumstances of the
           case, the dominant object of the activity is profit making
           .or carrying out a charitable purpose. If it is the former,
           the purpose would not be a charitable purpose, but, if
           it is the latter, the charitable character of the purpose
    D
           would not be lost.

           9. Coming closer to the section at hand, in Aditanar
      Educational Institution v. Additional Commissioner of
      Income Tax, (1997) 224 ITR 310, this Court while
    E construing the predecessor Section, namely, Section 10(22)
      of the Income Tax act, held:

           "The High Court has made an observation that any
           income which has a direct relation or incidental to the
     F     running of the institution as such would qualify for
           exemption. We may state that the language of Section
           10(22) of the Act is plain and clear and the availability
           of the exemption should be evaluated each year to find
           out whether the institution existed during the relevant
    G      year solely for educational purposes and not for the
           purposes of profit. After meeting the expenditure. if any
           surplus results incidentally from the activity lawfully
           carried on by the educational institution. it will not cease
           to be one existing solely for educational purposes since
    H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 851
        OF INCOME TAX [R.F.NARIMAN, J.]

    the object is not one to make profit. The decisive or A
    acid test is whether on an overall view of the matter,
    the object is to make profit. In evaluating or appraising
    the above, one should also bear in mind the distinction/
    difference between the corpus, the objects and the
    powers of the concerned entity."                          B

     10. In American Hotel & Lodging Assn. Educational
Institute v. CBDT, (2008) 301 ITR 86, this Court dealt with
Section 10(23C)(vi) as follows:
                                                              c
    "29. In CIT v. Surat Art Silk Cloth Manufacturers' Assn.
    [(1980) 2 sec 31 : 1980 sec (Tax) 110: (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. D
    However, the purpose would not lose its character
    merely because some profit arises from the activity.
    That, it is not possiole 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 E
    this, would not only be difficult of practical realisation
    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 the duty of
    the prescribed authority to ascertain whether the F
    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 G
    consider the nature of the activities undertaken in India.
    If the Indian activity has no correlation with education,
    exemption has to be denied (see judgment of this Court
    in Oxford University Press [(2001) 3 SCC 359: (2001)
    247 ITR 658] ). Therefore, the character of the recipient H
. 852    SUPREME COURT REPORTS                   [2015] 3 S.C.R.


  A     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
  B     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 lnstitutionv. CIT [(1997)
        3 SCC 346: (1997) 224 ITR 310] ). The test is-the
  c     nature of activity. If the activity like running a printing
        press takes place it is not educational. But whether the
        income/profit has been applied for non-educational
        purpose has to be decided only at the end of the
        financial year.
  D
        32. We shall now consider the effect of insertion of
        provisos to Section 10(23-C)(vi) vide the Finance (No.
        2) Act, 1998. Section 10(23-C)(vi) is analogous to
        Section 10(22). To that extent, the judgments of this
  E     Court as applicable to Section 10(22) would equally
        apply to Section 10(23-C)(vi). The problem arises with
        the insertion of the provisos to Section 10(23-C)(vi).
        With the insertion of the provisos to Section 10(23-
        C)(vt) the applicant who seeks approval has not only
  F
        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(23-C)(vt)
        by making an application in the standardised form as
  G
        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
  H     inserted along with other provisos because there was
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 853
        OF INCOME TAX [R.F.NARIMAN, J.]

  no monitoring mechanism to check abuse of exemption             A
  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. Under the twelfth
  proviso, the PA is required to examine cases where an
  applicant does not apply its income during the year of          B
  receipt and accumulates it but makes payment
  therefrom to any trust or institution registered under
  Section 12-AA 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           C
  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
                                                                  0
  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 wi1ich          E
  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 accordance with the
  third proviso or if it finds that such institution, trust or    F
  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                 G
  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(23- H
854        SUPREME COURT REPORTS                   (2015] 3 S.C.R.


A         C)(v1) one finds that there is a difference between
          stipulation of conditions and compliance therewith. 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 standardised form in terms of the first
          proviso. It is only if the prerequisite condition of actual
          existence of the educational institution is fulfilled that
          the question of compliance with requirements in the
          provisos would arise. We find merit in the contention
c         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
D
          for initial approval.

          34. To make the section with the proviso workable we
          are of the view that the monitoring conditions in the third
          proviso like application/utilisation of income, pattern of
E         investments to be made, etc. could be stipulated as
          conditions by the PA subject to which approval could
          be granted."

          11. Thus, the law common to Section 10(23C) (iiiad)
F     and (vi) rnay be summed up as follows:

        (1) Where an educational institution carries on the ac-
            tivity of education primarily for educating persons, the
            fact that it makes a surplus does not lead to the
G           conclusion that it ceases to exist solely for educa-
            tional purposes and becomes an institution for the
            purpose of making profit.

        (2) The predominant object test must be applied - the
H           purpose of education should not be submerged by a
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 855
        OF INCOME TAX tR.F.NARIMAN, J.)

     profit making motive.                                         A
 (3) A distinction must be drawn between the making of
     a surplus and an institution being carried on "for
     profit". No inference arises that merely because im-
     parting education results in making a profit, it be- B
     comes an activity for profit.

 (4) If after meeting expenditure, a surplus arises inciden-
     tally from the activity carried on by the educational
     institution, it will not be cease to be one existing solely   c
     for educational purposes.

 (5) The ultimate test is whether on an overall view of the
     matter in the concerned assessment year the object
     is to make profit as opposed to educating persons.
                                                                   D
  12. The Uttarakhand High Court in the impugned
     judgment dated 241" September, 2007 quoted the
      ITAT order in paragraph 7 as follows:

     "The ITAT while granting exemption under Section              E
    10(23C) (iiiad) recorded the following reasons:

    "During the years relevant for asstt. Year 2000-01 and
    2001-02, the excess of income over expenditure stood
    at Rs.6,58,862/- and Rs.7,82,632/- respect:vely. It was F
    also noticed that the appellant society had made
    investment in fixed assets including building at
    Rs.9,52,010/- in F.Y. 1999-2000 and Rs.8,47,742/- in
    FY 2000-01 relevant for Asstt. Years 2000-01 and
    2001-02 respectively. Thus, if the amount of G
    investment into fixed assets such as building, furniture
    and fixture etc. were also kept in view, there was
    hardly any surplus left ..... The assessee society is
    undoubtedly engaged in imparting education and has
    to maintain a teaching and non teaching staff and has H
856        SUPREME COURT REPORTS                  [2015] 3 S.C ..R.


A          to pay for their salaries and other incidental expenses.
           It, therefore, becomes necessary to charge certain fee
           from the students for meeting all these expenses. The
           charging of fee is incidental to the prominent objective
           of the trust i.e. imparting education. The trust was
B        • initially running the school in a rented building and the
           surplus, i.e. the excess of the receipts over
           expenditure.

           In the year under appeal (and in the earlier appeals)
c          has enabled the appellant to acquire its own property,
           acquire computers, library books, sports equipments
           etc. for the benefit of the students. And more
           importantly the members of the society have not
           utilized any part of the surplus for their own benefit.
D          The AO wrongly interpreted the resultant surplus as
           the main objective of the assessee trust. As held
           above, profit is only incidental to the main object of
           spreading education. If there is no surplus out of the
           difference between receipts and outgoings, the trust
E          will not be able to achieve the objectives. Any
           education institution cannot be run in rented premises
           for all the times and without necessary equipment and
           without paying to the staff engaged in imparting
                                               •
           education. The assessee is not getting any financial
F
           aid/assistance from the Government or other
           philanthropic agency and, therefore, to achieve the
           objective, it has to raise its own funds. But such
           surplus would not come within the ambit of denying
G          exemption u/s 10(23C) (iiiad) of the Act."

         13. Having set out the ITAT order, the Uttarakhand High
      Court held:

          "Thus, in view of the established fact relating to earned
H         profit, we do not agree with the reasoning given by the
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 857
        OF INCOME TAX [R.F.NARIMAN, J.]

    ITAT for granting exemption."                               A

     14. Having said this, the impugned judgment goes on
to quote Aditanar Educational Institution v. CIT. as
follows:-
                                                                B
    "After meeting the expenditure, if any surplus result
    incidentally from the activity lawfully carried on by the
    educational institution, it will not cease to be one
    existing solely for educational purpose since the object
    is not one to make profit. The decisive or acid test is     c
    whether on an overall view of the matter, the object is
    to make profit. In evaluating or appraising the above,
    one should also bear in mind the distinction difference
    between the corpus, the objects and powers of the
    concerned entity.                                           D

        If one looks at the object clause, there are other
    noble and pious objects but assessee society has done
    nothing to achieve the other objects except pursuing
    main object of providing education and earning profit. E
    Further, with profit earned the society has strengthened
    or enhanced its capacity to earn more rather than to
    fulfill other noble objects for the cause of poor and
    needy people or advancement of religious purpose.
                                                                F
       Therefore, the law laid down by the Apex. Court has
    rightly been applied and exemption has also rightly
    been refused by the Assessing Officer in the facts and
    circumstances of the case."

    15. It is clear that the High Court did not apply its mind G
independently. What has been copied is one paragraph
from the Supreme Court judgment in Aditanarfollowed by
a paragraph of faulty reasoning by the Assessing Officer
and the said faulty reasoning of the Assessing Officer has H



                                                                    /·
858         SUPREME COURT REPORTS                 (2015] 3 S.C.R.


A     been wrongly said to be the law laid down by the Apex
      Court.

       16. Further, the Supreme Court Judgment in Municipal
  Corpn. of Delhi v. Children Book Trust and Safdarjung
B Enclave Educational Society, (1992) 3 SCC 390 has then
  been followed. The aforesaid judgment dealt with a property
  tax provision, namely, Section 115 (4) of the Delhi Municipal
  Corporation Act, 1957. Three questions were raised in the
  said judgment as follows:-
c
          "56. In the present case, the questions which arise for
          our determination are:

          (1) Whether the society or body is occupying and using
          the land and building for a charitable purpose within the
D
          meaning of sub-section (4)?

          (it) What is the meaning of the expression "supported
          wholly or in part by voluntary contribution"?

E         (iit) Whether any trade or business is carried on in the
          premises within the meaning of sub-section (5)?"

            17. In answering question one, the Court held that
      School Education would only come within an exemption if
F     it involved public benefit. Having so held, the Court stated:

          "78. The rulings arising out of Income Tax Act may not
          be of great help because in the Income Tax Act
          "charitable purpose" includes the relief of the poor,
          education, medical relief and the advancement of any
G
          other object of general public utility. The advancement
          of any other object of general public utility is not found
          under the Delhi Municipal Corporation Act. In other
          words, the definition is narrower in scope. This is our
H         answer to question No. 1."
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 859
        OF INCOME TAX [R.F.NARIMAN, J.]

    18. Secondly, the extracted portion from the said A
judgment in the judgment of the Uttarakhand High Court
concerned itself with question two, namely, whether the
educational society is supported wholly or in part by
voluntary contributions. It is part of paragraph 80 of the said
judgment. If the sentences after the quoted portion are also B
set out, it becomes clear that the passage relied upon by
the High Court has absolutely nothing to do with the present
case. The entirety of the passage is now set out
herein below:
                                                                   c
    "82 .... In other words, what we want to stress is, where
    a society or body is making systematic profit, even
    though that profit is utilised only for charitable purposes,
    yet it cannot be said that it could claim exemption. If,
    merely qualitative test is applied to societies, even          D
    schools which are run on commercial basis making
    profits would go out of the purview of taxation and could
    demand exemption. Thus, the test, according to us,
    must be whether the society could survive without
    receiving voluntary contributions, even though it may          E
    have some income by the activities of the society. The
    word "part" mean an appreciable amount and not an
     insignificant one. The "part" in other words, must be
    substantial part. What is substantial would depend upon        F
    the facts and circumstances of each case."

     19. It is clear, therefore, that the Uttarakhand High Court
has erred by quoting a non existent passage from an
applicable judgment, namely, Aditanar and quoting a portion
of a property tax judgment which expressly stated that G
rulings arising out of the Income Tax Act would not be
applicable. Quite apart from this, it also went on to further
quote from a portion of the said property tax judgment which
was rendered in the context of whether an educational H
860      SUPREME COURT REPORTS                  [2015) 3 S.C.R.


A society is supported wholly or in part by voluntary
  contributions, something which is completely foreign to
  Section 10(23C) (iiiad). The final conclusion that if a surplus
  is made by an educational society and ploughed back to
  construct its own premises would fall foul of Section 10(23C)
B is to ignore the language of the Section and to ignore the
  tests laid down in the Surat Art Silk Cloth case, Aditanar
  case and the American Hotel and Lodging case. It is clear
  that when a surplus is ploughed back for educational
  purposes, the educational institution exists solely for
C educational purposes and not for purposes of profit. In fact,
  in S.RM,M.CT.M. Tiruppani Trust v. Commissioner of
  Income Tax, (1998) 2 SCC 584, this Court in the context
  of benefit claimed under Section 11 of the Act held:
D       "9. In the present case, the assessee is not claiming
        any benefit under Section 11 (2) as it cannot; because
        in respect of this assessment year, the assessee has
        not complied with the conditions laid down in Section
         11 (2). The assessee, however, is entitled to claim the
E       benefit of Section 11 (1 )(a). I~ the present case, the
        assessee has applied Rs 8 lakhs for charitable
        purposes in India by purchasing a building which is to
        be utilised as a hospital. This income, therefore, is
        entitled to an exemption under Section 11 (1 ). In
F
        addition, under Section 1.1 (1 )(a), the assessee can
        accumulate 25% of its total income pertaining to the
        relevant assessment year and claim exemption in
        respect thereof. Section 11 (1 )(a) does not require
G       investment of this limited accumulation in government
        securities. The balance income of Rs 1,64,210.03
        constitutes less than 25% of the income for Assessment
        Year 1970-71. Therefore, the assessee is entitled to
        accumulate this income and claim exemption from
H       income tax under Section 11(1)(a)." •
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 861
        OF INCOME TAX [R.F.NARIMAN, J.)

    We set aside the judgment of the Uttarakhand High            A
Court dated 24'h September, 2007. The reasoning of the
ITAT (set aside by the High Court) is more in consonance
with the law laid down by this Court, and we approve its
decision.
                                                              B
     20. Revenue's appeals from the Punjab and Haryana
High Court concern themselves with Sections 10(23C) (vi).
A large number of writ petitions were heard in Civil Writ
Petition No. 6031 of 2009 and disposed of on 29'h January,
2010. By various impugned orders passed, the Chief, CIT, C
Chandigarh withdrew exemptions granted unde.r Section
10(23C) (vi) of the Income Tax Act read with Rule 2CA of
Income Tax Rules, 1961, for various assessment years. The
operative part of the order passed by the Chief, CIT in these
cases is the same and reads as follows:                       D

    "4. I have considered the submissions of the assessee.
    The decisions quoted in support of its contention are
    not relevant and are distinguishable on facts as well as
    issues. It is clear that the ratio of the decision of Hon'ble E
    Uttarakhand High Court is squarely applicable in this
    case.

    5. The Hon'ble Supreme Court has held, in the case
    of Aditanar Educational Institution etc. v. Addi. F
    Commissioner of Income Tax [224 ITR 310 (SC)], that
    in the case of an educational institution, after meeting
    the expenditure, if any surplus results incidentally, then
    the institution will not cease to be one existing solely
    for educational purposes.                                  G

    6. The crucial condition is that surplus should result only
    incidentally and should not be aimed for. If substantial
    profits are earned in one year if (it)?would be duty of
    the institution to lower its fees for the subsequent year H
862    SUPREME COURT REPORTS                  [2015] 3 S.C.R.


A     so that such profits are not intentionally generated. If,
      however, profits continue year after year than it cannot
      be said that the surplus is arising incidentally.

      7. In the present ease, the profits are substantial and
B     are arising year alter year and therefore, the decision
      of the Apex Court in the case of Aditanar Education
      Institution v. Addi. Commissioner of Income Tax as well
      as the decision of the Hon'ble Uttrakhand High Court
      is applicable.
c     8. Exemption u/s 10(23C)(vi) is not available to the
      assessee under the law in view of the above facts and
      circumstances and therefore, exemption already
      granted vide order dated 4th June, 2007 is hereby
D     withdrawn.

      9. The assessee is at liberty to reduce the fees being
      charged and price of its services and apply afresh, in
      which case the application will be duly considered on
      merits."
E
      21. It is these orders that were set aside by the
      judgment of the Punjab and Haryana High Court
      impugned by the Revenue before us.

F     22. Section 10(23C)(vi) read with the 3rd and 131"
      provisos thereto and Section 11 (5) of the Income Tax
      Act are as follows:-

      "Section 10- Incomes not included in total income.-
G     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-

      (23-C) any income received by any person on behalf
      of~
H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 863
        OF INCOME TAX [R.F.NARIMAN, J.)

    (vi) any university or other educational institution A
  existing solely for educational purposes and not for
  purposes of profit, other than those mentioned in sub-
  clause (iii-ab) or sub-clause (iii-ad) and which may be
  approved by the prescribed authority
                                                             B
  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 (vi-a))-[(a) applies its income, or accumulates C
  it for application, wholly and exclusively to the objects
  for which it is established and in a case where more
  than fifteen per cent of its income is accumulated on
  or after the 1st day of April, 2002, the period of the
  accumulation of the amount exceeding fifteen per cent D
  of its income shall in no case exceed five years; and;].

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

   (1) any assets held by the fund, trust or institution [or E
   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
   hospital or other medical institution) as on the 1st day F
   of June, 1973;

    [(i-a) any asset, being equity shares of a public
   comp;:iny, held by any university or other educational
   institution or any hospital or other medical institution G
   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;]
                                                               H
864    SUPREME COURT REPORTS                    [2015] 3 S.C.R.


A     (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;
B
      (iii) any accretion to the shares, forming part of the
      corpus mentioned in sub-clause (i)[and sub-clause (i-
      a)], by way of bonus shares allotted to the fund, trust
      or institution[or any university or other educational
C     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,
D     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:
E      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 or any university or other educational
      institution referred to in sub-clause (v1) or any hospital
F
      or other medical institution referred to in sub-clause (vi-
      a), is approved by the prescribed authority and
      subsequently that Government or the prescribed
      authority is satisfied that-
G     (1) 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
H     contained in clause (a) of the third proviso; or
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 865
        OF INCOME TAX [R.F.NARIMAN, J.)

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

   (it) the activities of such fund or institution or trust or
   any university or other educational institution or any B
   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 C
   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 D
   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
   withdrawing the approval to such fund or institution or E
   trust or any university or other educational institution
   or any hospital or other medical institution and to the
   Assessing Officer;]

   Section 11. Income from property held for charitable     F
   or religious purposes.-

    (5) The forms and modes of investing or depositing
   the money referred to in clause (b) of sub-section (2)
   shall be the following, namely:-                         G

   (1) investment in savings certificates as defined in
   clause (c) of Section 2 of the Government Savings
   Certificates Act, 1959 (46 of 1959), and any other
   securities or certificates issued by the Central         H
866     SUPREME COURT REPORTS                 (2015) 3 S.C.R.


A      Government under the Small Savings Schemes of that
       Government;

       (i1) deposit in any account with the Post Office Savings
       Bank;
B
       (iii) deposit in any account with a scheduled bank or a
       cooperative society engaged in carrying on the
       business of banking (including a cooperative land
       mortgage bank or a cooperative land development
c      bank).

       Explanation.-ln this clause, "scheduled bank" means
       the State Bank of India constituted under the State
       Bank of India Act, 1955 (23 of 1955), a subsidiary bank
       as defined in the State Bank of India (Subsidiary Banks)
D
       Act, 1959 (38 of 1959), a corresponding new bank
       constituted under Section 3 of the Banking Companies
       (Acquisition and Transfer of Undertakings) Act, 1970 (5
       of 1970), or under Section 3 of the Banking Companies
E      (Acquisition and Transfer of Undertakings) Act, 1980
       (40 of 1980), or any other bank being a bank included
       in the Second Schedule to the Reserve Bank of India
       Act, 1934 (2 of 1934);

       (iv) investment in units of the Unit Trust of India
F
       established under the Unit Trust of India Act, 1963 (52
       of 1963);

        (v) investment in any security for money created and
      'issued by the Central Government or a State
G       Government;

       (v1) investment in debentures issued by, or on behalf
       of, any company or corporation both the principal
       whereof and the interest whereon are fully and
H      unconditionally guaranteed by the Central Government
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 867
        OF INCOME TAX [R.F.NARIMAN, J.]

   or by a State Government;                                   A

   (vii) investment or deposit in any public sector company:

   (Provided that where an investment or deposit in any
   public sector company has been made and such public
                                                        8
   sector company ceases to be a public sector
   company,-

   (A) such investment made in the shares of such
   company shall be deemed to be an investment made
   under this clause for a period of three years from the C
   date on which such public sector company ceases to
   be a public sector company;

   (8) such other investment or deposit shall be deemed
   to be an investment or deposit made under this clause       D
   for the period up to the date on which such investment
   or deposit becomes repayable by such company;].

   (viii) deposits with or investment in any bonds issued
   by a financial corporation which is engaged in providing    E
   long-term finance for industrial development in India
   and (which is eligible for deduction under clause (viii)
   of sub-section (1) of Section 36);

   (ix) deposits with or investment in any bonds issued by F
   a public company formed and registered in India with
   the main object of carrying on the business of providing
   long-term finance for construction or purchase of
   houses in India for residential purposes and[which is
   eligible for deduction under clause (viii) of sub-section G
   (1) of Section 36];

   ((ix-a) deposits with or investment in any bonds issued
   by a public company formed and registered in India with
   the main object of carrying on the business of providing    H
868         SUPREME COURT REPORTS                  [2015) 3 S.C.R.


A         long-term finance for urban infrastructure in India.

          Explanation.-For the purposes of this clause,-

          (a) "long-term finance" means any loan or advance
          where the terms under which moneys are loaned or
B
          advanced provide for repayment along with interest
          thereof during a period of not less than five years;

          (b) "public company" shall have the meaning assigned
          to it in Section 3 of the Companies Act, 1956;
c
          (c) "urban infrastructure" means a project for providing
          potable water supply, sanitation and sewerage,
          drainage, solid waste management, roads, bridges and
          flyovers or urban transport;).
D
          (x) investment in ·immovable property.

          Explanation.-"lmmovable property" does not include
          any machinery or plant (other than machinery or plant
E         installed in a building for the convenient occupation of
          the building) even though attached to, or permanen.tly
          fastened to, anything attached to the earth;

          (x1) deposits with the Industrial Development Bank of
          India established under the Industrial Development
F         Bank of India Act, 1964 (18 of 1964);

          (xit) any other form or mode of investment or deposit
          as may be prescribed."

G         23. The Punjab and Haryana High Court, by the
      impugned judgment dated 29th January, 2010 expressed its
      dissatisfaction with the view taken by the Uttarakhand High
      Court in the case of Queen's Educational Society as follows:
          "8.8 We have not been able to persuade ourselves to
H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 869
        OF INCOME TAX [R.F.NARIMAN, J.]

   accept the view expressed by the Division Bench of the       A
   Uttrakhand High Court in the case of Queens
   Educational Society (supra). There are variety of
   reasons to support our opinion. Firstly, the scope of the
   third proviso was not under consideration, inasmuch as,
   the case before the Uttrakhand High Court pertained          B
   to Section 10(23C)(iiiad) of the Act. The third proviso
   to Section 10(23C)(vi) is not applicable to the cases
   falling within the purview of Section 10(23C)(iiiad).
   Secondly, the judgment rendered by the Uttarkhand
   High Court runs contrary to the provisions of Section        C
   10(23C)(vi) of the Act including the provisos thereunder.
   Section 10(23C)(vi) of the Act is equivalent to the
   provisions of Section 10(22) existing earlier, which were
   introduced with effect from 1st April, 1999 and it ignores
                                                                0
   the speech of the Finance Minister made before the
   introduction of the said provisions, namely. Section
   10(23C) of the Act [See observations in American Hotel
   and Lodging Association Educational lnstitute's case
   (supra)]. Thirdly, the Uttrakhand High Court has not         E
   appreciated correctly the ratio of the judgment rendered
   by Hon'ble the Supreme Court in the case of Aditanar
   Educational lnstitution(supra) and while applying the
   said judgment including the judgmerit which had been
   rendered by Hon'ble the Supreme Court in the case of         F
   Children Book Trust (supra), it lost sight of the
   amendment which had been carried out with effect from
   1st April, 1999 leading to the introduction of the
   provisions of Section 10(23C) of the Act. Lastly, that
   view is not consistent with the law laid down by Hon'ble     G
   the Supreme Court in American Hotel and Lodging
   Association Educational Institute (surpa)."
   It then summed up its conclusions as follows:
   "8.13 From the aforesaid discussion, the following           H
870    SUPREME COURT REPORTS                  [2015] 3 S.C.R.


A     principles of law can be summed up:-

      (1) It is obligatory on the part of the Chief Commissioner
      of Income Tax or the Director, which are the prescribed
      authorities, to comply with proviso thirteen (un-
B     numbered). Accordingly, it has to be ascertained
      whether the educational institution has been applying
      its profit wholly and exclusively to the object for which
      the institution is established. Merely because an
      institution has earned profit would not be deciding factor
c     to conclude that the educational institution exists for
      profit.

      (2) The provisions of Section 10(23C)(vi) of the Act are
      analogous to the erstwhile Section 10(22) of the Act,
D     as has been laid down by Hon'ble the Supreme Court
      in the case of American Hotel and Lodging Association
      (supra). To decide the entitlement of an institution for
      exemption under Section 10(23C)(vi) of the Act, the test
      of predominant object of the activity has to be applied
E     by posing the question whether it exists solely for
      education and not to earn profit [See 5-Judges
      Constitution Bench judgment in the case of Surat Art
      Silk Cloth Manufacturers Association (supra)]. It has to
      be borne in mind that merely because profits have
F     resulted from the activity of imparting education would
      not result in change of character of the institution that
      it exists solely for educational purpose. A workable
      solution has been provided by Hon'ble the Supreme
      Court in para 33 of its judgment in American Hotel and
G     Lodging Association's case (supra). Thus, on an
      application made by an institution, the prescribed
      authority can grant approval subject to such terms and
      conditions as it may deems fit provided that they are
      not in conflict with the provisions of the Act. The
H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 871
        OF INCOME TAX [R.F.NARIMAN, J.]

   parameters of earning profit beyond 15% and its A
   investment wholly for educational purposes may be
   expressly stipulated as per the statutory requirement.
   Thereafter the Assessing Authority may ensure
   compliance of those conditions. The cases where
   exemption has been granted earlier and the B
   assessments are complete with the finding that there
   is no contravention of the statutory provisions, need not
   be reopened. However, alter grant of approval if it
   comes to the notice of the prescribed authority that the
   conditions on which approval was given, have been C
   violated or the circumstances mentioned in 13th proviso
   exists, then by following the procedure envisaged in
   13th proviso, the prescribed authority can withdraw the
   approval.
                                                             D
   (3) The capital expenditure wholly and exclusively to the
   objects of education is entitled to exemption and would
   not constitute part of the total income.

   (4) The educational institutions, which are registered as E
   a Society, would continue to retain their character as
   such and would be eligible to apply for exemption under
   Section 10(23C)(vi) of the Act. [See para 8. 7 of the
   judgment-Aditanar Educational Institution case (supra)]
                                                             F
   (5) Where more than 15% of income of an educational
   institution is accumulated on or after 1st April, 2002,
   the period of accumulation of the amount exceeding
   15% is not permissible beyond five years, provided the
   excess income has been applied or accumulated for G
   application wholly and exclusively for the purpose of
   education.

   (6) The judgment of Uttrakhand High Court rendered
   in the case of Queens Educational Society (supra) and       H
872      SUPREME COURT REPORTS                   [2015] 3 S.C.R.


A      the connected matters, is not applicable to cases fall
       within the provision of Section 10(23C)(vi) of the Act.
       There are various reasons, which have been discussed
       in para 8.8 of the judgment, and the judgment of
       Allahabad High Court rendered in the case of City
B      Montessori School (supra) lays down the correct law."

       And finally held:

       "8.15 As a sequel to the aforesaid discussion, these
c      petitions are allowed and the impugned orders passed
       by the Chief Commissioner of Income Tax withdrawing
       the exemption granted under Section 10(23C)(iv) of the
       Act are hereby quashed. However, the revenue is at
       liberty to pass any fresh orders, if such a necessity is
D      felt after taking into consideration the various
       propositions of law culled out by us in para 8.13 and
       various other paras.

       8.16 The writ petitions stand disposed of in the above
E      terms."

       24. The view of the Punjab and Haryana High Court
  has been followed by the Delhi High Court in St. Lawrence
  Educational Society (Regd.) v. Commissioner of Income
F Tax & Anr., (2011) 53 DTR (Del) 130. Also in Tolani
  Education Society v. Deputy Director of Income Tax
  (Exemption) & Ors., (2013) 351 ITR 184, the Bombay High
  Court has expressed a view in line with the Punjab and
  Haryana High Court view, following the judgments of this
G Court in the Surat Art Silk Manufacturers Association
  Case and Aditanar Educational Institution case as
  follows:

       " ..... The fact that the Petitioner has a surplus of income
       over expenditure for the three years in question, cannot
H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 873
        OF INCOME TAX [R.F.NARIMAN, J.)

    by any stretch of logical reasoning lead to the A
    conclusion that the Petitioner does not exist solely for
    educational purposes or, as that Chief Commissioner
    held that the Petitioner exists for profit. The test to be
    applied is as to whether the predominant nature of the
    activity is educational. In the present case, the sole and B
  . dominant nature of the activity is education and the
    Petitioner exists solely for the purposes of imparting
    education. An incidental surplus which is generated,
    and which has resulted in additions to the fixed assets
    is utilized as the balance-sheet would indicate towards C
    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. The
                                                                0
    Income-tax Act 1961 does not condition the grant of an
    exemption under Section 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 E
    upgrading its infrastructure on educational facilities save
    on the pain of losing the benefit of the exemption under
    Section 10(23C). 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 F
    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.
                                                                G
    Education has to be responsive to a rapidly evolving
    society. The provisions of Section 10(23C) cannot be
    interpreted regressively to deny exemptions. So long
    as the institution exists solely for educational purposes
    and not for profit, the te"t is met."                       H
874        SUPREME COURT REPORTS                 [2015] 3 S.C.R.


A       25.         We approve the judgments of the Punjab and
    Haryana, Delhi and Bombay High Courts. Since we have
   set aside the judgment of the Uttarakhand High Court and
   since the Chief CIT's orders cancelling exemption which
   were set aside by the Punjab and Haryana High Court were
B passed almost solely upon the law declared by the
    Uttarakhand High Court, it is clear that these orders cannot
   stand. Consequently, Revenue's appeals from the Punjab
   and Haryana High Court's judgment dated 29.1.2010 and
   the judgments following it are dismissed. We reiterate that
C ·the correct tests which have been culled out in the three
   Supreme Court judgments stated above, namely, Surat Art
   Silk Cloth, Aditanar, and American Hotel and Lodging, would
   all apply to determine whether an educational institution
   exists solely for educational purposes and not for purposes
0
   of profit. In addition, we hasten to add that the 13'h proviso
   to Section 10(23C) is of great importance in that assessing
   authorities must continuously monitor from assessment year
   to assessment year whether such institutions continue to
E apply their income and invest or deposit their funds in
   accordance with the law laid down. Further, it is of great
   importance that the activities of such institutions be looked
   at carefully. If they are not genuine, or are not being carried
   out in accordance with all or any of the conditions subject
F to which approval has been given, such approval and
   exemption must forthwith be withdrawn. All these cases are
   disposed of making it clear that revenue is at liberty to pass
   fresh orders if such necessity is felt after taking into
   consideration the various provisions of law contained in
G Section 10(23C) read with Section 11 of the Income Tax
   Act.

          26. We now come to Civil Appeal No.8962 of 2010.
      Vide a judgment dated 29'h January, 2010, the Punjab and
H
QUEEN'S EDUCATIONAL SOCIETY v. COMMISSIONER 875
        OF INCOME TAX [R.F.NARIMAN, J.]

Haryana High Court dismissed CWP No. 7268 of 2009 in A
the following terms:

    "8. It is conceded position that the assessee-petitioner
    has filed the application on 23.9.2008 seeking
    exemption under Section 10(23C)(vi) in respect of B
    assessment year 2008-09, which could have been filed
    during the financial year 2007-08 i.e. on or before
    31.3.2008. It is, thus, evident that the application by the
    assessee petitioner has been filed after the prescribed
    period and the Chief Commissioner of Income Tax has C
    rightly rejected the same being not maintainable.

    9. As a sequel to the above discussion, we find no
    ground to interfere with the impugned order passed by
    the Chief Commissioner of Income Tax. There is no           o
    merit in the instant petition warranting its admission.
    Accordingly, the writ petition fails and the same is
    dismissed."

     27. These being the facts, we see no reason to E
interfere. This appeal shall stand dismissed with no order
as to costs.
Devika Gujral                            Appeals disposed of.