AMERICAN HOTEL & LODGING ASSN. EDU. INS. versus CENTRAL BOARD OF DIRECT TAXES & ORS.

Citation: [2008] 8 S.C.R. 117 · Decided: 09-05-2008 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed
Cited by 2 judgment(s) · see the full citation network in Lexace
Open in Lexace · Ask the AI about this case
Judgment (excerpt)

(2008] 8 S.C.R. 117 
AMERICAN HOTEL & LODGING ASSN. EDU. INS. 
A 
v. 
CENTRAL BOARD OF DIRECT TAXES & ORS. 
(Civil Appeal No. 3468 of 2008) 
MAY 9, 2008 
B 
' 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
Income Tax Act, 1961- s. 10 (23 C) (vi) and its third pro-
visa (as inserted by Finance Act, 1998) - Tax exemption - To 
assessee as an educational institution - Granted prior to Fi- c 
nance Act, 1998 - Thereafter application for seeking initial 
approval in terms of s. 10 (23 C) (vi) rejected by Prescribed 
Authority- Propriety of- Held: By introduction of third proviso 
to the Section, Prescribed Authority could stipulate monitor-
t 
ing conditions before grant of initial approval for the first time D 
- But in the cases where the applicant had earlier obtained 
exemption, tha approval cannot be denied on the ground of 
non-compliance of third proviso - However, if after grant of 
approval, there is breach of conditions of approval, the ap-
proval can be withdrawn - For the sake of seeking exemption 
E 
under s. 10 (23 C) (vi) determining factor is imparting of edu-
cation in India and not excess/deficit of income over expendi-
ture - In the present case since the assessee had fulfilled the 
1-
threshold pre-condition of actual existence of an educational 
institution, approval application not liable to be rejected -
Matter remitted to the Prescribed Authority- Income Tax Rules, 
F 
1962 -· r. 2 CA. 
Appellant is a non-profit organization set up in USA, 
where it is exempted from tax as an educational institu-
tion. It opened its branch in India under a Memorandum G 
of Understanding (MOU), whereby it was responsible for 
~ providing its educational courses. Upto the year ending 
31.3.1998 it got exemption under Section 10 (22) of Income 
Tax Act, 1961. The difference between the gross amount 
117 
H 
118 
SUPREME COURT REPORTS 
[2008] 8 S.C.R. 
A collected and the expenditure in running the branch, used 
to be sent from the Branch to its Head Office, and such 
accounting was acceptable by the Revenue. On reference, 
Authority of Advance Ruling (AAR) had also held that the 
appellant was an educational institution. 
B 
Section 10 (22) was omitted by Finance Act, 1998 
w.e.f. 1.4.1999. Within seven days of its omission, appel- ' 
lant filed an application u/r. 2 CA of Income Tax Rules, 1962 
for seeking initial approval in terms of s. 10 (23 C) (vi) of 
the Act, before Centre.I Board of Direct Taxes (CBDT) the 
C Prescribed Authority. After about 5 % years, CBDT dis-
missed the application holding that there was a surplus 
repatriated outside India and therefore appellant had not 
applied its income for the purpose of education in India. 
Appellant filed writ petition, which was dismissed by High 
D Court holding that gross receipts collected by the + 
appellant's Branch Office in India is 'income' chargeable 
to tax; and that since the gross receipts constituted 'in-
come' chargeable to tax, such 'income' was required to 
be applied to educational purposes in India, and since 
E the appellant had failed to do so, CBDT was right in re-
jecting the application of the appellant. 
The question for consideration in appeal to this court 
was as to what was the scope of enquiry by the Prescribed ..., 
Authority u/s. 10 (23 C) (vi) r/w third proviso thereto in-
F serted by Finance Act, 1998 w.e.f. 1.4.1999. 
Allowing the appeal and remitting the matter to CBDT, 
the Court 
HELD: 1. In deciding the character of the recipient, it 
G 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, ex-
emption has to be denied. Existence of surplus from the 
activity will not mean absence of educational purpose. The 
H test is - the nature of activity. [Para 30] [143-A,B,C] 
AMERICAN HOTEL & LODGING ASSN. v. CENTRAL 119 
* 
BOARD OF DIRECT TAXES & ORS. 
Oxford University Press v. Commissioner of Income-tax A 
2001 (247) ITR 658 SC - relied on.-
Aditanar Education Institution v ACIT 1997 (224) ITR 310 
- relied on. 
2. Section 10(23 C) (vi) of Income Tax Act, 1961 is B 
' 
analogous to Section 10 (22) thereof. With the insertion 
of the provisos to Section 10 (23 C) (vi) the applicant who 
seeks approval has not only to show that it is an institu-
tion existing solely for educational purposes [which was 
also the requirement under Section 10(22)] but it has now c 
to obtain initial approval from the Prescribed Aut
Excerpt shown. Read the full judgment & AI analysis in Lexace.