IMPORTANT POINT
Grant means direct funding from government and fees authorised by statute cannot be considered grant.

JUDGMENT :

Ranjan Gogoi, J.

1. Leave granted.

2. The appellant – University, namely, Visvesvraya Technological University (VTU) has been constituted under the Visveswaraiah Technological University Act, 1994 (for short “VTU Act”). It discharges functions earlier performed by the Department of Technical Education, Government of Karnataka. The University exercises control over all Government and Private Engineering Colleges within Karnataka.

3. For the Assessment Years 2004-2005 to 2009-2010 notices under Section 148 of the Income Tax Act, 1961 (for short “the Act”) were issued to the appellant – University – Assessee. Eventually returns were filed for the Assessment Years in question declaring 'Nil' income and claiming exemption under Section 10(23C)(iiiab) of the Act. The aforesaid claim of exemption was negatived by the Assessing Officer who proceeded to make the assessments. The same view has been taken by all the Authorities under the Act and also by the High Court in the order under challenge in the present proceedings.

4. The question, therefore, that arises in the present appeals is the entitlement of the appellant – University – Assessee to exemption from payment of tax under the provisions of Section 10(23C)(iiiab) of the Act which is in the following terms:

“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-

(iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government”

5. The entitlement for exemption under Section 10(23C)(iiiab) is subject to two conditions. Firstly the educational institution or the university must be solely for the purpose of education and without any profit motive. Secondly, it must be wholly or substantially financed by the government. Both conditions will have to be satisfied before exemption can be granted under the aforesaid provision of the Act.

6. The relevant principles of law which will govern the first issue i.e. whether an educational institution or a university, as may be, exists only for educational purpose and not for profit are no longer res integra, having been dealt with by a long line of decisions of this Court which have been elaborately noticed and extracted in a recent pronouncement i.e. Queen's Educational Society vs. Commissioner of Income Tax, (2015) 8 SCC 47. The principles that emanate from the views expressed by this Court are set out in paragraph 11 in Queen's Educational Society (supra), which are extracted below:

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

(1) 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 purposes and becomes an institution for the purpose of making profit.

(2) The predominant object test must be applied – the purpose of education should not be submerged by a profit making motive.

(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 imparting education results in making a profit, it becomes an activity for profit.

(4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely 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.”

7. To the above principles, one further test as laid down in CIT vs. Surat Art Silk Cloth Manufacturers' Assn., (1980) 2 SCC 31 and culled out in American Hotel and Lodging Associat