D.C. AGRAWAL, A.M.: ORDER These are two appeals filed by Revenue against order of learned CIT(A) for asst. yrs. 2003-04 and 2004-05 raising similar grounds as under : "(i) learned CIT(A), Bareilly has not appreciated facts for asst. yr. 2003-04 that as per case of Asstt. CIT vs. Bal Bharti Nursery School (2002) 76 TTJ (All) 602 : (2002) 82 ITD 71 (All), use of fees charged against expenses is commensurate with quality of education rather surplus/ profit is diverted as expenses claimed excessively in shape of construction of building for benefit of person engaged with society. (ii) DVO has rightly disallowed claim of assessee when confronted accordingly for excessive value of construction. (iii) Mere vouching of expenses without concrete evidences of expenses or suppressing of expenses in shape of routed investment of undisclosed income is not considered by learned CIT(A), Bareilly. (iv) Order of CIT(A) is erroneous of law as well as facts of case, hence, may cancelled and order of AO may be restored." 2. assessee is held to be charitable trust as per assessment order. However, AO invoked provisions of s. 13(2) of Act and denied exemption otherwise available to society under s. 11 of Act. It had filed return of income declaring nil income in status of society . case was picked up for scrutiny. During course of assessment proceedings, AO noted that assessee has constructed single storey school building at Karanpur Chaudhary Nainital Road, Bareilly. Believing that investment in construction is more than what is declared, AO referred matter to DVO, who estimated cost of construction as under against declared investment by assessee : Declared Estimated Financial Assessment investment by cost of year year assessee construction (Rs.) (Rs.) 2001-02 2002-03 3,03,500 3,77,100 2002-03 2003-04 2,55,850 3,17,100 57, 18 2003-04 2004-05 46,02,909 ,900 2004-05 2005-06 7,97, 18 2 9,90,400 Total 59,59,441 74,04,300 3. AO further noted that assessee has not kept any vouchers or any account for purchase of raw material, day-to-day employment of labour, etc. Thus, cost of construction is not open to verification. AO proposed to make addition of difference arising on account of estimation of cost of construction by DVO, in response to which assessee submitted that construction is not complete and therefore, proposed addition should not be made. Report of approved valuer was also filed which was not accepted by AO. Since AO did not find explanation satisfactory, he proposed to make addition of differential amount. 4 . AO further found that expenditures claimed in P&L a/c are exaggerated and are siphoned off for personal use of founder member. As all expenses are incurred in cash, they are not open to verification, their genuineness cannot be established, therefore, expenses to some extent could not be allowed as supportive evidences were not produced by assessee. Out of expenditure incurred on cultural programmes, AO considered that sum of Rs. 69,450 is not allowable as there is no evidence and that cultural programmes are part of educational activities. Out of expenditure of Rs. 26,665 on staff welfare, AO disallowed sum of Rs. 16,665 as assessee could not explain authenticity of expenses. Out of expenditure on food and nutrition amounting to Rs. 68,615, AO disallowed sum of Rs. 47,350 on ground that claim is excessive and there is no supportive evidence. Out of claim of Rs. 2,51,735 incurred on repair/alteration of school building, AO disallowed sum of Rs. 2,13,500 on ground that details of repairs/alterations were not p r o v i d e d , supportive evidences were not furnished, requirement of repairs/alterations was not explained, local inspection also did not confirm that repair/alteration on such large scale was carried out. 5. Further, out of claim of Rs. 75,215 in bus expenses, AO disallowed sum of Rs. 29,970 on ground that supportive evidences for salary payment, diesel expenses and bus maintenance expenses were not provided. Out of claim of Rs. 48,035 on printing and stationery, AO disallowed sum of Rs. 15,700 on ground that no supportive evidences were furnished to prove genuineness of expenses. Thereafter, AO, referring to decision of Hon ble Supreme Court in case of Director of IT vs. Bharat Diamond Bourse (2003) 179 CTR (SC) 225 : (2003) 259 ITR 280 (SC), held that benefit of exemption under s. 11 could not be given as income of trust has been utilized for benefit of founder of trust within meaning of s. 13(2) of Act read with s. 13(1)(c). According to AO, incomes/funds of trust have been misutilized in form of excessive claim of various expenses debited in income and expenditure account for purposes of use by person having interest in institution. AO also referred to decision in Asstt. CIT vs. Bal Bharti Nursery School (2002) 76 TTJ (All) 602 : (2002) 82 ITD 71 (All) for proposition that where surplus/profit is used for personal benefit of any person or relative having interest in institution then benefit of s. 11 could not be given. AO also highlighted that in Government s school normal fees for Class KG to Class VII is Rs. 10 to 20 whereas assessee is charging Rs. 250 to Rs. 450 and meager salary is paid to teachers. He referred to decision of Tribunal in case of Asstt. CIT vs. Bal Bharti Nursery School (supra) wherein it was observed that if quantum of fees charged is not commensurate with quality of education and expenditure incurred is not for running institution then it could not be said that institution is existing for purposes of education. 6. AO, accordingly, denied benefit of exemption under s. 11 as well as under s. 10(22) and computed income of assessee trust at Rs. 5,63,970. 7 . learned CIT(A), on other hand, considered that reference to Valuation Cell is irrelevant if proper books of account are kept. He referred to decisions of Hon ble Rajasthan High Court in cases of CIT vs. Hotel Joshi (1999) 157 CTR (Raj) 369 : (2000) 242 ITR 478 (Raj) and ITO vs. Smt. Santosh Khanna (1985) 20 Taxman 15 (Jp)(Mag). He also considered following submissions of assessee : "(a) founder of society is widow who is running school in loving memory of her husband to make him immortal is sacred purpose of lady. (b) promoters have denoted their precious land for purpose of society. (c) purpose of AO could not be ascertained on contradictory facts of cases. (d) That additions as unexplained investment under s. 69 of IT Act in building account on excessive, ground and to tax society as AOP. purpose is ambiguous. (e) society is running their work exactly same as per their objects so concluding remarks of AO that undisclosed sources cannot be categorized as proved head of receipt in contemplation of basic object of society. That surplus cannot be used for personal benefit of any person or his relatives are ambiguous and have no sense in given situations." 8. On above basis, learned CIT(A) held that gross receipts of assessee are less than Rs. 1 crore, therefore, as per s. 10(23C)(iiiad) its income is not liable to be taxed. He, accordingly, annulled assessment by observing as under : "I have carefully considered issue and perused assessment order, s well as written submissions of Authorised Representative for appellant. It is noticed that appellant is duly registered under s. 12A and its gross receipts are below Rs. one crore and as per s. 10(23C)(iiiad) its income is not liable to be taxed. Further submissions of Authorised Representative in respect of estimating of cost of contract support view that estimate of cost of construction if any, is to be done on basis of rates of UP PWD rates. However, in case of Madhya Pradesh Madhyam vs. CIT (2002) 175 CTR (MP) 92 : (2002) 125 Taxman 382 (MP) : (2002) 256 ITR 277 (MP), Hon ble Madhya Pradesh High Court on issue of registration (held that registration) once granted cannot be reviewed in assessment proceedings. Scope of proceedings of registration and its cancellation are different from assessment proceedings. IT authorities are bound by registration. Once they have registered institution as charitable one, they cannot go behind registration in assessment proceedings. They are prima facie bound by such registration. However, right to conduct proceedings of cancellation in accordance with law cannot be denied to Department. Thus, keeping in view entirety of circumstances, in my considered view appellant is trust duly registered under s. 12A, and its gross receipts are below Rs. one crore and as per s. 10(23C)(iiiad) its income is exempt, therefore AO was not justified to change status of appellant, hence assessment orders for years under appeal, as framed by AO are annulled. Since income of appellant is exempt, it is not considered necessary to deal with other disallowance as made by AO." 9. Before us, learned Departmental Representative submitted that assessee has claimed expenses in income and expenditure account which he is not able to explain and certainly there is diversion of funds and founder being in control of entire affairs of society, such inflated expenses are going to benefit of founder. This will hit provisions of s. 13(2) of Act as benefit is given to founder of society who is in control of all expenses. He also submitted that if benefit goes to founder of society or to his personal interest then it could not be said that institution is existing solely for purposes of education as it is existing for purposes of benefit of founder. In view of this, assessee also loses benefit under s. 10(23C)(iiiad) [old s. 10(22)]. 1 0 . In any case, learned CIT(A) should not have annulled assessment because in case assessment has to be framed income has to be either computed under ss. 11 to 13 or under ss. 28 to 43C of Act i.e., under head Income from business or profession . 11. Against this, learned Authorised Representative submitted that there is no material or evidence before AO to come to conclusion that inflated expenditure, if any, has been transferred to interested members. Firstly, there is no inflation in expenditure. Even if there is any, it could not be said that it has benefited only founder of society as alleged by AO. There is no evidence or material in support of allegation made by AO. According to learned Authorised Representative, AO has simply disallowed certain expenses by estimate without pointing out any specific expenditure which has not been incurred towards object of society in spite of fact that all expenses are properly vouched. He submitted that allegation of AO that expenses have also been diverted to other activities is not supported by any material or evidence. AO has not pointed out as to how alleged inflated expenditure was not relatable to activity of education or how it has resulted in benefit to interested members or founder member. He submitted that reliance of AO on decision of Hon ble Supreme Court in case of Director of IT vs. Bharat Diamond Bourse (supra) is misplaced because in that case nexus of money lent to interested members was established and hence, s. 13 was invoked. In present case, AO has not been able to establish nexus between disallowance made and alleged benefit transferred to interested persons. He submitted that reliance of AO on decision in Bal Bharti Nursery School s case (supra) is also misplaced because there was finding of fact in that case that surplus/fund generated was utilized on repairs of building owned by secretary and his mother. Huge amounts taken by secretary and his mother were not repaid. Further, personal expenses of secretary s mother had been met by institution. Thus, in light of above facts, it was held in that case that surplus generated was transferred to interested persons and his family. On other hand, present institution has been registered under s. 12A. It has been carrying on activities of imparting education to students of Class KG to VIII; they do not have any receipt other than from education, its receipt is less than Rs. 1 crore in both years. No other activity other than education has been carried out by assessee. Under facts and circumstances, provisions of s. 13(2) are not applicable. For same reasons, two judgments referred to by AO are also not applicable to facts of present case. 12. On other hand, he submitted that Hon ble Supreme Court has held in case of Aditanar Educational Institution vs. Addl. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC), that after meeting expenditure, if any surplus results incidentally from activity lawfully carried on by educational institution then it will not lose to be one existing solely for educational purposes as object is not one to make profit. He then referred to decision of Hon ble Supreme Court in case of American Hotel & Lodging Association Educational Institute vs. CBDT (2008) 216 CTR (SC) 377 : (2008) 301 ITR 86 (SC), for proposition that once facts of case on record cover case within provisions of s. 10(23C)(iiiad) then no other condition regarding application of income was required to be complied with. 13. learned Authorised Representative finally referred to decision of Hon ble Supreme Court in case of P.R. Prabhakar vs. CIT (2006) 204 CTR (SC) 27 : (2006) 284 ITR 548 (SC), for proposition that exemption provision should be construed strictly but when they are found applicable then they are required to be interpreted liberally. He also submitted that once assessee s case is found covered under s. 10(22)/10(23C)(iiiad) then AO need not deny benefit on pretext that such exemption is not available under s. 13 of Act. 14. learned Authorised Representative made final reference to estimation of cost of construction and stated that even if addition is proposed to be made on basis of DVO s report then same would be considered as application of funds and therefore, would not be taxable separately. 15. We have considered rival submissions and perused material on record. In our considered view, judgment of learned CIT(A) in annulling assessment is basically incorrect. assessment order is annulled only when AO passes order without jurisdiction. Once AO has acquired valid jurisdiction on basis of return filed by assessee then assessment cannot be annulled. It can only be modified. Thus, order of learned CIT(A) is set aside and assessment order is not treated as annulled. 16. Now, it is undisputed fact that various expenses claimed by society are not verifiable and therefore, could be inflated. But AO has not pointed out any instance out of various expenses as to whether it was not at all incurred or it was incurred excessively or funds or money relating to such expenses was diverted to other persons and in particular, to founder member of society. Thus, rest of inferences other than expenditure being not verifiable/proved are hypothetical and therefore, not acceptable. There is no material evidence collected by AO to prove that expenditure, if inflated, has resulted in benefit to founder member of society. inflation of expenses though it is not proved, may only create suspicion that somebody might be benefited but to say that it is only founder member who is benefited is only far-fetched. In fact, organization is run with help of several employees though there may be only one or two controllers/supervisors/managers. It is not case of AO that all expenses are personally incurred by founder member, and that he is at liberty to pocket portion of expenses debited in P&L a/c. In organization which employs several persons who for duty incur expenses, it cannot be alleged that it is only founder member who is responsible for expenses and hence pilferage. Though it is not proved that expenses are actually inflated in present case, but even if it is so then inference that alleged extra expenditure has benefited founder member is not substantiated and proved. Therefore, provisions of s. 13(2) could not be invoked. There has to be direct nexus of outflow of money with interested members as it was in case of Bal Bharti Nursery School (supra) or in Bharat Diamond Bourse s case (supra). 17. In this regard, we refer to s. 13 as under "13. (1) Nothing contained in s. 11 or s. 12 shall operate so as to exclude from total income of previous year of person in receipt thereof .............. (c) in case of trust for charitable or religious purposes or charitable or religious institution, any income thereof (i) if such trust or institution has been created or established after commencement of this Act and under terms of trust or rules governing institution, any part of such income enures, or (ii) if any part of such income or any property of trust or institution (whenever created or established) is during previous year used or applied, directly or indirectly for benefit of any person referred to in sub-s. (3) : (2) Without prejudice to generality of provisions of cl. (c) and cl. (d) of sub-s. (1), income or property of trust or institution or any part of such income or property shall, for purposes of that clause, be deemed to have been used or applied for benefit of person referred to in sub-s. (3), .............. (c) if any amount is paid by way of salary, allowance or otherwise during previous year to any person referred to in sub-s. (3) out of resources of trust or institution for services rendered by that person to such trust or institution and amount so paid is in excess of what may be reasonably paid for such services; .............. (g) if any income or property of trust or institution is diverted during previous year in favour of any person referred to in sub-s. (3) :........... (3) persons referred to in cl. (c) of sub-s. (1) and sub-s. (2) are following, namely : (a) author of trust or founder of institution; (b) any person who has made substantial contribution to trust or institution, that is to say, any person whose total contribution upto end of relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is HUF, member of family; (cc) any trustee of trust or manager (by whatever name called) of institution; (d) any relative of any such author, founder, person, (member, trustee or manager) as aforesaid; (e) any concern in which any of persons referred to in cls. (a), (b), (c), (cc) and (d) has substantial interest." 18 . Let us examine whether case of Revenue falls under cl. (2) of s. 13(1)(c) or under s. 13(2). It is not disputed that person referred to in sub-s. (3) is founder member of trust. condition mentioned in s. 13(1)(c)(ii) is that income of trust should be used or applied directly or indirectly for benefit of any person falling in prohibited category. Benefit here would mean some ex gratia expenditure without any contribution by such person to society. term benefit exclude from its ambit two way process. If person in prohibited category renders services and in lieu thereof benefit is provided then case does not fall in cl. (ii) of s. 13(1)(c). expenditure incurred on those interested persons would be compensation for such services. benefit would be said to have been given to persons of prohibited category, if they in return do nothing but only enjoy fruits of trust/society and take away funds/income of society for their personal benefit or discharging personal obligation, but where persons of prohibited category render services to society and in turn, get some remuneration, salary and allowances etc. as member then provisions of sub-s. (2) would be applicable and not of sub-s. (1) and for applying provisions of sub-s. (2) of s. 13, it has to be shown by Revenue that amount paid to persons of prohibited category was in excess of what may be reasonably paid for such services. In other words, AO has to collect material to show that payment to persons of prohibited category was unreasonable as compared to market rates for services rendered. In present case, there is no material on record firstly to show that alleged inflated expenditure has gone to persons of prohibited category, therefore, case of Revenue made out on basis of s. 13(1) cannot be upheld. question of invoking s. 13(2) in present case also does not arise because s. 13(2) could be invoked only when there is claim of expenses in form of salary/allowances or perquisites to persons of prohibited category for some services rendered. AO has not made out case on these premises. Thus, neither s. 13(1) nor s. 13(2) is applicable on facts of present case. 1 9 . Now coming to question as to whether difference in cost of construction arising on account of valuation done by DVO could be added as income we are of considered view that firstly, there is no case made out for referring under construction of school building to DVO by rejecting books and pointing out defects therein. Even otherwise, if addition is proposed to be made under s. 69 as unexplained investment in school building then same would be treated as application of funds for charitable purposes. This investment would, therefore, come within ambit of 85 per cent of total income applied for charitable purposes within meaning of s. 11(1), if case of assessee is to be considered for exemption under that section. 20. learned Departmental Representative has argued that excess cost of construction could not be held to be covered within limit of 85 per cent of income being applied for charitable purposes because such excess investment is not coming out of or derived from property held under trust which is basic condition for giving exemption under s. 11(1). In our considered view, AO has not made out any case that excess investment in property to be added under s. 69 is not coming out of property held under trust or is not income from such property. For taxing excess investment under s. 69, he has to prove that property held under trust is not capable of yielding income to extent excess investment is made out. Since case of assessee is also covered under ss. 11 to 13 as held by AO, by virtue of it being registered under s. 12A/12AA, its income is to be computed as per income and expenditure account under ss. 11 to 13 and not under ss. 28 to 43D under head Income from business and profession . Sec. 11(1) starts with "subject to provisions of ss. 60 to 63..........". It means that ss. 60 to 63 would have overriding effect if there is conflict between ss. 11 to 13 and ss. 60 to 63. However, application of s. 11 is not made subject to s. 68 to s. 69C. In other words, provisions of ss. 68 to 69C could not be applied overriding ss. 11 to 13. It means that in event of conflict between ss. 11 to 13 and ss. 68 to 69C, provisions of ss. 11 to 13 will prevail. Thus, where it is claimed that unexplained investment is income out of property held under trust, then onus would shift to AO to prove otherwise. Thus, it is for AO to show with material on record that property held under trust is not capable of generating excess income which is alleged to be invested in construction of property and therefore, beyond scope of ss. 11 to 13 and provisions of ss. 68 to 69C would be applicable in addition to computation of income under these sections. We, therefore, reject argument of learned Departmental Representative that addition under s. 69 for excess investment has to be independently carried out notwithstanding exemption of income under ss. 11 to 13. 2 1 . Now, we come to main argument of learned Authorised Representative that in case where provisions of s. 10(23C)(iiiad) are applicable, provisions of ss. 11 to 13 would not be applicable. 22. In this regard, we refer to decision of Hon ble Supreme Court in case of American Hotel & Lodging Association Educational Institute vs. CBDT (supra) wherein it is held that if trust is educational institution then its income is excluded from total income. In this regard, we refer to following part of headnotes of that decision : "Actual existence of educational institution was precondition for application for initial approval under s. 10(22) of IT Act, 1961 (which was omitted w.e.f. 1st April, 1999). On grant of approval, ss. 11 and 13 did not apply. Once applicant institution came within phrase exists solely for educational purposes and not for profit no other condition like application of income was required to be complied with. prescribed authority was only required to examine nature, activities and genuineness of institution. mere existence of profit/surplus did not disqualify institution. Therefore, when exemption was given to institution there was no assessment or demand. Sec. 10(22) had automatic effect. Under s. 10(22), test was restricted to character of receipt of income, viz., whether it had character of educational institution of India. Its character outside India was irrelevant for deciding whether its income would be exempt under s. 10(22). In deciding character of recipient, it was not necessary to look at profits of each year, but to consider nature of activities undertaken in India. If Indian activity had no co-relation to education, exemption had to be denied." 23. From above, it is clear that for granting exemption to educational institution under s. 10(22) it is not necessary to look at profit of each year but to consider activities of trust and once approval under s. 10(22) is granted, provisions of ss. 11 to 13 did not apply. It is undisputed fact that assessee is educational institution imparting education from Class KG to Class VIII. No other activities have been alleged. argument of learned Departmental Representative that some benefit is imparted to founder of trust resulting from inflated expenditure would also disable trust from getting exemption under s. 10(22) is outrightly rejected because firstly, there is no evidence that such benefit has been imparted to founder member of trust and secondly, even if it is so then such instances would only hit case of assessee within meaning of ss. 11 to 13 and cannot be imported to deny exemption under s. 10(22)/10(23C)(iiiad) provided clear finding on basis of material on record is given that assessee trust is not existing solely for educational purposes. Here purpose is what described in memorandum of objects of trust. Some items of disallowances out of expenses claimed cannot be held to be separate object for which trust is existing thereby holding that trust is not existing solely for educational purposes. We agree with learned Authorised Representative that exemption provisions must be strictly construed but if case of assessee falls within ambit of exemption then they should be applied liberally. 24. In case of CIT vs. Seethakathi Trust (2007) 295 ITR 520 (Mad), AO had alleged that trust followed provisions of s. 11(5) and s. 13(1)(d) and therefore, it is neither eligible for exemption under ss. 11 to 13 nor under s. 10(22). In this regard, Hon ble Madras High Court held that once educational institution is entitled to benefit under s. 10(22) then it is not necessary to consider claim of assessee under s. 11. Hon ble Madras High Court referred to CBDT Circular No. 712, dt. 25th July, 1995 [(1995) 127 CTR (St) 2] wherein it is also explained that if educational institution is entitled to exemption under s. 10(22) then benefit conferred under this section cannot be denied on ground of violation of s. 11(5). In this regard, we refer to following portion from that judgment as under : "Aggrieved by said orders of AO dt. 31st March, 2003, assessee preferred appeals before CIT(A), who, by order dt. 12th Feb., 2004, held that assessee is entitled to exemption under s. 10(22) of Act since educational institutions are entitled to benefit under s. 10(22), 10(22A) and 10(23C) of Act and for said purpose, it is not necessary to consider assessee s claim for deduction under s. 11 of Act. Against said order of CIT(A), Revenue went in appeal and Tribunal, by order dt. 8th March, 2006, confirmed order of CIT(A) taking note of its earlier order dt. 5th Jan., 2004, in assessee s own case for asst. yr. 1998-99, wherein it was held that since assessee trust had been maintaining separate statement of accounts for educational and charitable activities and were not mingled with both activities and as such, assessee trust being carrying on activity of educational purposes, it is entitled to exemption under s. 10(22), 10(22A) and 10(23C) of Act and in which case, it is not necessary to pass order in respect of alternative plea of assessee trust in regard to deduction under s. 11 of Act. That apart, CBDT themselves, issued circular bearing No. 712, dt. 25th July, 1995, [see (1995) 127 CTR (St) 2 : (1995) 215 ITR (St) 3], to effect that educational institutions are entitled to exemption under s. 10(22) of Act and consequently, benefit conferred under s. 10(22) cannot be denied on ground of violation of s. 11(5) of Act. said circular reads as follows : Circular No. 712, dt. 25th July, 1995 Subject : Investment of funds by educational institutions covered under s. 10(22) of IT Act Clarification regarding. Under s. 10(22) of IT Act, any income of university or other educational institution, existing solely for educational purposes and not for purposes of profit, is exempt from tax. 2. Board have received representations from various institutions which fulfil conditions laid down under s. 10(22) of Act, but are denied exemption because their funds are not invested in accordance with provisions of s. 11(5) of Act. It is hereby clarified that since s. 10(22) does n o t impose any restriction regarding mode of investment of funds, such institutions are not required to invest their funds in modes specified under s. 11(5) of IT Act. This clarification will not apply to institutions seeking exemption under s. 11 of Act. (Sd) Under Secretary to Government of India Since substantial questions of law raised in these appeals are centrifuged on point whether assessee is entitled to benefit of s. 10(22) of Act in view of alleged violation of s. 11(5) r/w s. 13(1)(d) of Act, in view of above circular of CBDT dt. 25th July, 1995 [see (1995) 127 CTR (St) 2 : (1995) 215 ITR (St) 3], we do not see any substantial question of law that arises for our consideration." 25. Hon ble Delhi High Court in case of CIT vs. Lagan Kala Upvan (2003) 179 CTR (Del) 243 : (2003) 259 ITR 489 (Del), has held that conditions laid down in ss. 11 and 13 are not relevant for purposes of applying provisions of s. 10(22). In that case it was found by AO that interest-free loan was given to interested persons. interested person was given portion of house of trust and loan was given to another society for construction. trust was running educational institution and was covered under s. 10(22). AO invoked provisions of ss. 11 to 13 and denied benefit to assessee under s. 10(22). Hon ble Court, referring to decision of apex Court in case of Aditanar Educational Institution vs. Addl. CIT (supra) held that exemption under s. 10(22) has to be determined with reference to objects of society and exemption cannot be denied merely because during course of working of society, there was some surplus. In this context, conditions contained in s. 11 or 13 were considered irrelevant. We refer to relevant portion of judgment from above case as under : "We are of view that contentions urged on behalf of Revenue are without any substance. In fact, main ground, viz., violation of s. 13 of Act, on which exemption was denied by AO, has no bearing on question whether assessee exists solely for educational purposes and not for purposes of profits, so as to fall within ambit of s. 10(22) of Act. test to determine when institution would qualify for exemption under s. 10(22) of Act has been laid down by apex Court in Aditanar Educational Institution vs. Addl. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC), as follows (p. 3 18 ) : We may state that language of s. 10(22) of Act is plain and clear and availability of exemption should be evaluated each year to find out whether institution existed during relevant year solely for educational purposes and not for purposes of profit. After meeting expenditure, if any surplus results incidentally from activity lawfully carried on by educational institution, it will not cease to be one existing solely for educational purposes since object is not one to make profit. decisive or acid test is whether on overall view of matter, object is to make profit. In evaluating or appraising above, one should also bear in mind distinction/difference between corpus, objects and powers of concerned entity. Thus, question of eligibility of exemption under said section has to be determined with reference to objects of assessee (society) and exemption cannot be denied merely because while working of society some surplus results. Similarly, in context of exemption under s. 10(22), conditions as stipulated in either s. 11 or 13 of Act are irrelevant." 2 6 . Hon ble Gujarat High Court in case of Gujarat State Co- operative Union vs. CIT (1992) 103 CTR (Guj) 206 : (1992) 195 ITR 279 (Guj), held that exemption under s. 11 is only in respect of income derived from property and to extent provided under s. 11. However, no such limit is provided under s. 10(22) which only lay emphasis that sole purpose of existence of institution should be educational. Therefore, mere existence of profit will not disqualify institution if its sole purpose is education and not making profit. In this regard, we refer to following portion of judgment : "Under s. 10(22) of IT Act, 1961, it is provided that, in computing total income of previous year of any person, any income falling within said clause, i.e., any income of university or other educational institution existing solely for educational purposes and not for purposes of profit shall not be included. Though in context of provisions of s. 10(22), concept of education need not be given any wide or extended meaning, it surely would encompass systematic dissemination of knowledge and training in specialised subjects. question whether educational institution is existing solely for educational purposes can be decided with reference to activities actually carried on by it. Advancement of knowledge brings within its fold suitable methods of its dissemination and though primary method of sitting in classroom may remain ideal for most of initial education it may become necessary to have different outlook for further education. It is not necessary to nail down concept of education to particular formula. Its progress lies in acceptance of new ideas and development of appropriate means to reach them to recipients. Sec. 11(a) applies to income derived from property held under trust wholly for charitable or religious purpose while s. 10(22) covers any income of university or other educational institution existing solely for educational purposes and not for purposes of profit. exemption incorporated in s. 11(a) is only in respect of extent to which income derived from property is applied for charitable purpose which includes educational charity. If income is only accumulated or set apart for such purpose, exemption is limited to extent of 25 per cent of income from property held under such trust. exemption under s. 10(22), on other hand, is without any such limitation. language of s. 10(22) emphasizes that sole purpose of existence of institution should be educational. very provision of exemption under s. 10(22) indicates that income of such institutions is contemplated. Therefore, mere existence of profit will not disqualify institution if sole purpose of its existence is not profit making but is educational activities. Incidental activities connected with educational purposes for which institution exists which result in income will not disqualify institution, for s. 10(22), by its very nature, contemplates income of such institutions which is to be exempted under that provision." 27. In present case, mere disallowance of certain expenses can add to surplus but cannot become basis for denying exemption under s. 10(22)/10(23C)(iiiad). Therefore, we hold that learned CIT(A) was justified in granting exemption to assessee under s. 10(23C)(iiiad) on basis that gross receipt of society is less than rupees one crore and that there is no material to suggest that assessee is not existing solely for educational purposes. To this extent order of learned CIT(A) is confirmed. 2 8 . Regarding separate addition under s. 68/69 on account of excess investment in construction of property, we refer to decision of Hon ble Delhi High Court in case of Director of IT vs. Raunaq Education Foundation (2007) 213 CTR (Del) 541 : (2007) 294 ITR 76 (Del), on which learned Authorised Representative has placed reliance. In this decision it is held that provisions of s. 10(22) cannot be given restricted meaning and exemption available under s. 10(22) could cover income chargeable under s. 68 also. In this regard, we refer to relevant portion of headnotes from above judgment as under : "The words derived from (or some other similar words) do not occur in s. 10(22) of IT Act, 1961, and, therefore, word income as occurring in s. 10(22) cannot be given restrictive meaning and must be given its natural meaning or meaning ascribed to it in s. 2(24). Hence, assessee who is entitled to exemption under s. 10(22) can claim benefit thereof for purpose of income deemed to be chargeable to tax under s. 68." 29. As result, appeals filed by Revenue are partly allowed and matter is restored to file 7of AO to compute income/allow exemption in light of observation made above for both years. *** INCOME TAX OFFICER v. VIRENDRA SINGH MEMORIAL SHIKSHA SAMITI