JUDGMENT judgment of court was delivered by R. F. Nariman J.-Leave granted in special leave petitions. present appeals relate to common judgment dated September 24, 2007, passed by High Court of Uttarakhand, Nainital, in two incometax appeals and judgment of Punjab and Haryana High Court dated January 29, 2010, in Pinegrove International Charitable Trust v. Union of India [2010] 327 ITR 73 (P&H). Various other appeals (excepting Civil Appeal No. 8962 of 2010) are filed by Union of India/Central Board of Direct Taxes in cases where aforesaid judgment in Pine Grove has been followed. facts necessary to understand controversy in two income-tax appeals before Uttarakhand High Court, Nainital, may be gleaned from facts of one of them, namely, Queens' Educational Society's case. appellant filed its return for assessment years 2000-01 and 2001-02 showing net surplus of Rs. 6,58,862 and Rs. 7,82,632, respectively. Since appellant was established with sole object of imparting education, it claimed exemption under section 10(23C)(iiiad) of Income-tax Act, 1961. Assessing Officer, vide his order dated February 20, 2003, rejected exemption claimed by appellant. Commissioner of Income-tax (Appeals) by his order dated March 28, 2003, allowed appellant's appeal, and Income-tax Appellate Tribunal, Delhi, by its judgment dated July 7, 2006, passed order dismissing appeal preferred by Revenue. In reference to High Court under section 260A of Income-tax Act, High Court, vide impugned judgment set aside judgment of Income-tax Appellate Tribunal and affirmed order of Assessing Officer. These appeals from Uttarakhand High Court, Nainital, concern themselves with provision of section 10(23C)(iiiad) of Act: "10. Incomes not included in total income.-In computing total income of previous year of any person, any income falling within any of following clauses shall not be included-... (23C) any income received by any person on behalf of-... CIT v. Queens Educational Society [2009] 319 ITR 160 (Uttarakhand). (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if aggregate annual receipts of such university or educational institution do not exceed amount of annual receipts as may be prescribed;" It will be noticed that section has three requirements-(a) educational institution must exist solely for educational purposes, (b) it should not be for purposes of profit, and (c) aggregate annual receipts of such institution should not exceed amount or annual receipts as may be prescribed. Such prescription is to be found in rule 2CA being amount of Rs. 1 crore. said section was inserted by Finance (No. 2) Act of 1998 with effect from April 1, 1999. Prior thereto, Income-tax Act had corresponding section, namely, section 10(22) which was as follows: "10. Incomes not included in total income.-In computing total income of previous year of any person, any income falling within any of following clauses shall not be included-... (22) any income of university or other educational institution, existing solely for educational purposes and not for purposes of profit." We have heard learned counsel for assessees as well as learned counsel for Revenue. assessees argue that impugned judgment is contrary to law laid down by at least three Supreme Court judgments. Further, wrong test has been adopted and followed, which is test laid down by Assessing Officer and not by any Supreme Court judgment-namely, that whenever profit/surplus is made by educational institution, it ceases to exist solely for educational purposes and becomes profit-making enterprise. In support of Punjab and Haryana High Court judgment under appeal, counsel for assessees argued that since sole basis for not granting them exemption for assessment years under question was following of Uttarakhand High Court judgment, if said judgment is found to be incorrect, they are bound to succeed. For that reason, Revenue's appeal against Punjab and Haryana High Court judgment should be dismissed. Counsel for Revenue, on other hand, attempted to support Uttarakhand High Court judgment by stating that section does not contemplate making of large profits. If educational institution in fact makes large profits then even though it may plough such profits back into purchase of assets for education, yet such institution cannot be said to be existing solely for educational purposes. It would then become institution which would really be for profit. In Addl. CIT v. Surat Art Silk Cloth Manufacturers Assn. [1980] 121 ITR 1 (SC), this court while construing definition of "charitable purpose" in section 2(15) of Income- tax Act held: "The next question that arises is as to what is meaning of expression'activity for profit' Every trust or institution must have purpose for which it is established and every purpose must for its accomplishment involve carrying on of activity. activity must, however, be for profit in order to attract exclusionary clause and question therefore is when can activity be said to be one for profit? answer to question obviously depends on correct connotation of preposition'for'. This preposition has many shades of meaning but when used with active participle of verb it means'for purpose of' and connotes end with reference to which something is done. It is not therefore enough that as matter of fact activity results in profit but it must be carried on with object of earning profit. Profit-making must be end to which activity must be directed or in other words, predominant object of activity must be making profit. Where activity is not pervaded by profit motive but is carried on primarily for serving charitable purpose, it would not be correct to describe it as activity for profit. But where, on other hand, activity is carried on with predominant object of earning profit, it would be activity for profit, though it may be carried on in advancement of charitable purpose of trust or institution. Where activity is carried on as matter of advancement of charitable purpose or for purpose of carrying out charitable purpose, it would not be incorrect to say as matter of plain English grammar that charitable purpose involves carrying on of such activity, but predominant object of such activity must be to subserve charitable purpose and not to earn profit. charitable purpose should not be submerged by profit making motive; latter should not masquerade under guise of former. purpose of 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 charitable in nature' and it must not be cover for carrying on activity which has profit making as its predominant object. This interpretation of exclusionary clause in section 2 clause (15) derives considerable support from speech made by Finance Minister while introducing that provision. Finance Page 24 of 121 ITR. [1978] 114 ITR 454 (SC). Minister explained reason for introducing this exclusionary clause in following words: 'The definition of "charitable purpose" in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving public purpose, get fully paid for benefits provided by them namely, newspaper industry which while running its concern on commercial lines can claim that by circulating newspapers it was improving general knowledge of public. In order to prevent misuse of this definition in such cases, Select Committee felt that words "not involving carrying on of any activity for profit" should be added to definition.' It is obvious that exclusionary clause was added with view to overcoming decision of Privy Council in Tribune's case, AIR 1939 PC 208: In re Trustees of the'Tribune' [1939] 7 ITR 415 (PC) where it was held that object of supplying community with organ of educated public opinion by publication of newspaper was object of general public utility and, hence, charitable in character, even though activity of publication of newspaper was carried on commercial lines with object of earning profit. publication of newspaper was activity engaged in by trust for purpose of carrying out its charitable purpose and on facts it was clearly activity which had profit making as its predominant object, but even so it was held by Judicial Committee that since purpose served was object of general public utility, it was charitable purpose. It is clear from speech of Finance Minister that it was with view to setting at naught this decision that exclusionary clause was added in definition of'charitable purpose'. test which has, therefore, now to be applied is whether predominant object of activity involved in carrying out object of general public utility is to subserve charitable purpose or to earn profit. Where profit making is predominant object of activity, purpose, though object of general public utility, would cease to be charitable purpose. But where predominant object of activity is to carry out charitable purpose and not to earn profit, it would not lose its character of charitable purpose merely because some profit arises from activity. exclusionary clause does not require that activity must be carried on in such manner that it does not result in any profit. It would indeed be difficult for persons in charge of trust or institution to so carry on activity that expenditure balances income and there is no resulting profit. 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 SCC 254; [1976] SCC (Tax) 14; [1975] 101 ITR 234 that 'if profits must necessarily feed charitable purpose under terms of trust, mere fact that activities of trust yield profit will not alter charitable character of trust. test now is, more clearly than in past, genuineness of purpose tested by obligation created to spend money exclusively or essentially on charity'. learned judge also added that restrictive condition'that purpose should not involve carrying on of any activity for profit would be satisfied if profit making is not real object' (emphasis supplied). We wholly endorse these observations. application of this test may be illustrated by taking simple example. Suppose Gandhi Peace Foundation which has been established for propagation of Gandhian thought and philosophy, which would admittedly be object of general public utility, undertakes publication of monthly journal for purpose of carrying out this charitable object and charges small price which is more than cost of publication and leaves little profit, would it deprive Gandhi Peace Foundation of its charitable character? pricing of monthly journal would undoubtedly be made in such manner that it leaves some profit for Gandhi Peace Foundation, as, indeed, would be done by any prudent and wise management, but that cannot have effect of polluting charitable character of purpose, because predominant object of activity of publication of monthly journal would be to carry out charitable purpose by propagating Gandhian thought and philosophy and not to make profit or, in other words, profit making would not be driving force behind this activity. But it is possible that in given case degree or extent of profit making may be of such nature as to reasonably lead to inference that real object of activity is profit making and not serving charitable purpose. If, for example, in illustration given by us, it is found that publication of monthly journal is carried on wholly on commercial lines and pricing of monthly journal is made on same basis on which it would be made by commercial organisation leaving large margin of profit, it might be difficult to resist inference that activity of publication of journal is carried on for profit and purpose is non-charitable. We may take by way of illustration another example given by Krishna Iyer J. in Indian Chamber of Commerce's case [1976] 1 SCC 324; [1976] SCC (Tax) 41; [1975] 101 ITR 796 where blood bank collects blood on payment and supplies blood for higher price on commercial basis. Undoubtedly, in such case, blood bank would be serving object of general public utility but since it advances charitable object by sale of blood as activity carried on with object of making profit, it would be difficult to call its purpose charitable. Ordinarily there should be no difficulty in determining whether predominant object of activity is advancement of charitable purpose or profit making. But cases are bound to arise in practice which may be on borderline and in such cases solution of problem whether purpose is charitable or not may involve much refinement and present real difficulty. 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's case [1976] 1 SCC 254; [1976] SCC (Tax) 14; [1975] 101 ITR 234 as well as Indian Chamber of Commerce case [1976] 1 SCC 324; [1976] SCC (Tax) 41; [1975] 101 ITR 796. It was said by Khanna J. in Sole Trustee, Loka Shikshana Trust's case [1976] 1 SCC 254; [1976] SCC (Tax) 14; [1975] 101 ITR 234: 'If activity of trust consists of carrying on business and there are no restrictions on its making profit, court would be well justified in assuming in absence of some indication to contrary that object of trust involves carrying on of activity for profit.' And to same effect, observed Krishna Iyer J. in Indian Chamber of Commerce's case [1976] 1 SCC 324; [1976] SCC (Tax) 41 ; [1975] 101 ITR 796 when he said: 'An undertaking by business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances making of profit stands loudly negatived... pragmatic condition, written or unwritten, proved by prescription of profits or by long years of invariable practice or spelt from some strong surrounding circumstances indicative of anti-profit motivation - such condition will qualify for charitable purpose.' Now, we entirely agree with learned judges who decided these two cases that activity involved in carrying out charitable purpose must not be motivated by profit objective but it must be undertaken for purpose of advancement or carrying out of charitable purpose. But we find it difficult to accept their thesis that whenever activity is carried on which yields profit, inference must necessarily be drawn, in absence of some indication to contrary, that activity is for profit and charitable purpose involves carrying on of activity for profit. We do not think court would be justified in drawing any such inference merely because activity results in profit. It is in our opinion not at all necessary that there must be provision in constitution of trust or institution that activity shall be carried on no profit no loss basis or that profit shall be proscribed. Even if there is no such express provision, nature of charitable purpose, manner in which activity for advancing charitable purpose is being carried on and surrounding circumstances may clearly indicate that activity is not propelled by dominant profit motive. What is necessary to be considered is whether having regard to all facts and circumstances of case, dominant object of activity is profit making or carrying out charitable purpose. If it is former, purpose would not be charitable purpose but if it is latter, charitable character of purpose would not be lost." Coming closer to section at hand, in Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 (SC), this court while construing predecessor section, namely, section 10(22) of Income-tax Act, held: "The High Court has made observation that any income which has direct relation or incidental to running of institution as such would qualify for exemption. We may state that language of section 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." Page 318 of 224 ITR. In American Hotel and Lodging Assn. Educational Institute v. CBDT [2008] 301 ITR 86 (SC) this court dealt with section 10(23C)(vi) as follows: "In Addl. CIT v. Surat Art Silk Cloth Manufacturers Assn. [1980] 2 SCC 31; [1980] SCC (Tax) 170; [1980] 121 ITR 1 it has been held by this court that test of predominant object of activity is to be seen whether it exists solely for education and not to earn profit. However, purpose would not lose its character merely because some profit arises from activity. That, it is not possible to carry on educational activity in such way that expenditure exactly balances income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realisation but would reflect unsound principles of management. In order to ascertain whether institute is carried on with object of making profit or not it is duty of prescribed authority to ascertain whether balance of income is applied wholly and exclusively to objects for which applicant is established. In deciding character of recipient, it is not necessary to look at profits of each year, but to consider nature of activities undertaken in India. If 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, character of recipient of income must have character of educational institution in India to be ascertained from nature of activities. If after meeting expenditure, surplus remains incidentally from activity carried on by educational institution, it will not cease to be one existing solely for educational purposes. In other words, existence of surplus from activity will not mean absence of educational purpose (see judgment of this court in Aditanar Educational Institution v. Addl. CIT [1997] 3 SCC 346; [1997] 224 ITR 310). test is-the nature of activity. If activity like running printing press takes place it is not educational. But whether income/profit has been applied for non-educational purpose has to be decided only at end of financial year... We shall now consider effect of insertion of provisos to section 10(23C)(vi), vide Finance (No. 2) Act, 1998. Section 10(23C)(vi) is analogous to section 10(22). To that extent, judgments of this court as applicable to section 10(22) would equally apply to section 10(23C)(vi). problem arises with insertion of provisos to section 10(23C)(vi). With insertion of provisos to section Page 105 of 301 ITR. 10(23C)(vi) applicant who seeks approval has not only to show that it is institution existing solely for educational purposes which was also requirement under section 10(22) but it has now to obtain initial approval from prescribed authority, in terms of section 10(23C)(vi) by making application in standardised form as mentioned in first proviso to that section. That condition of obtaining approval from prescribed authority came to be inserted because section 10(22) was abused by some educational institutions/ universities. This proviso was inserted along with other provisos because there was no monitoring mechanism to check abuse of exemption provision. With insertion of first proviso, prescribed authority is required to vet application. This vetting process is stipulated by second proviso... Under twelfth proviso, prescribed authority is required to examine cases where applicant does not apply its income during year of receipt and accumulates it but makes payment therefrom to any trust or institution registered under section 12AA or to any fund or trust or institution or university or other educational institution and to that extent proviso states that such payment shall not be treated as application of income to objects for which such trust or fund or educational institution is established. idea underlying twelfth proviso is to provide guidance to prescribed authority as to meaning of words'application of income to objects for which institution is established'. Therefore, twelfth proviso is matter of detail. most relevant proviso for deciding this appeal is thirteenth proviso. Under that proviso, circumstances are given under which prescribed authority is empowered to withdraw approval earlier granted. Under that proviso, if prescribed authority is satisfied that trust, fund, university or other educational institution, etc. has not applied its income in accordance with third proviso or if it finds that such institution, trust or fund, etc., has not invested/deposited its funds in accordance with third proviso or that activities of such fund or institution or trust, etc. are not genuine or that its activities are not being carried out in accordance with conditions subject to which approval is granted then prescribed authority is empowered to withdraw approval earlier granted after complying with procedure mentioned therein. Having analysed provisos to section 10(23C)(vi) one finds that there is difference between stipulation of conditions and compliance therewith. threshold conditions are actual existence of educational institution and approval of prescribed authority for which every applicant has to move application in standardised form in terms of first proviso. It is only if pre-requisite condition of actual existence of educational institution is fulfilled that question of compliance with requirements in provisos would arise. We find merit in contention advanced on behalf of appellant that 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 date of application for initial approval. To make section with proviso workable we are of view that monitoring conditions in third proviso like application/ utilisation of income, pattern of investments to be made, etc., could be stipulated as conditions by prescribed authority subject to which approval could be granted." Thus, law common to section 10(23C)(iiiad) and (vi) may be summed up as follows: (1) Where educational institution carries on activity of education primarily for educating persons, fact that it makes surplus does not lead to conclusion that it ceases to exist solely for educational purposes and becomes institution for purpose of making profit. (2) predominant object test must be applied-the purpose of education should not be submerged by profit-making motive. (3) distinction must be drawn between making of surplus and institution being carried on "for profit". No inference arises that merely because imparting education results in making profit, it becomes activity for profit. (4) If after meeting expenditure, surplus arises incidentally from activity carried on by educational institution, it will not be cease to be one existing solely for educational purposes. (5) ultimate test is whether on overall view of matter in concerned assessment year object is to make profit as opposed to educating persons. Uttarakhand High Court in impugned judgment dated September 24, 2007, quoted Income-tax Appellate Tribunal order in paragraph 7 as follows: "The Income-tax Appellate Tribunal while granting exemption under section 10(23C)(iiiad) recorded following reasons: Page 162 of 319 ITR. 'During years relevant for assessment year 2000-01 and 2001-02, excess of income over expenditure stood at Rs. 6,58,862 and Rs. 7,82,632, respectively. It was also noticed that appellant society had made investment in fixed assets including building at Rs. 9,52,010 in financial year 1999-2000 and Rs. 8,47,742 in financial year 2000-01 relevant for assessment years 2000-01 and 2001-02, respectively. Thus, if amount of investment into fixed assets such as building, furniture and fixture, etc., were also kept in view, there was hardly any surplus left... assessee- society is undoubtedly engaged in imparting education and has to maintain teaching and non-teaching staff and has to pay for their salaries and other incidental expenses. It, therefore, becomes necessary to charge certain fee from students for meeting all these expenses. charging of fee is incidental to prominent objective of trust, i.e., imparting education. trust was initially running school in rented building and surplus, i.e., excess of receipts over expenditure in year under appeal (and in earlier years) has enabled appellant to acquire its own property, acquire computers, library books, sports equipment, etc., for benefit of students. And more importantly members of society have not utilised any part of surplus for their own benefit. Assessing Officer wrongly interpreted resultant surplus as main objective of assessee trust. As held above, profit is only incidental to main object of spreading education. If there is no surplus out of difference between receipts and outgoings, trust will not be able to achieve objectives. Any education institution cannot be run in rented premises for all times and without necessary equipment and without paying to staff engaged in imparting education. assessee is not getting any financial aid/assistance from Government or other philanthropic agency and, therefore, to achieve objective, it has to raise its own funds. But such surplus would not come within ambit of denying exemption under section 10(23C)(iiiad) of Act.' " Having set out Income-tax Appellate Tribunal order, Uttarakhand High Court held: "Thus, in view of established fact relating to earned profit, we do not agree with reasoning given by Income-tax Appellate Tribunal for granting exemption." Page 163 of 319 ITR. Having said this, impugned judgment goes on to quote Aditanar Educational Institution v. Addl. CIT as follows: "'After meeting expenditure, if any surplus result incidentally from activity lawfully carried on by educational institution, it will not cease to be one existing solely for educational purpose 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.' If one looks at objects clause, there are other noble and pious objects but assessee society has done nothing to achieve other objects except pursuing main object of providing education and earning profit. Further, with profit earned society has strengthened or enhanced its capacity to earn more rather than to undertake any other activities fulfil other noble objects for cause of poor and needy people or advancement of religious purpose. Therefore, law laid down by apex court has rightly been applied and exemption has also rightly been refused by Assessing Officer in facts and circumstances of case." It is clear that High Court did not apply its mind independently. What has been copied is one paragraph from Supreme Court judgment in Aditanar followed by paragraph of faulty reasoning by Assessing Officer and said faulty reasoning of Assessing Officer has been wrongly said to be law laid down by apex court. Further, Supreme Court judgment in Municipal Corporation of Delhi v. Children Book Trust and Safdarjung Enclave Educational Society v. Municipal Corporation of Delhi [1992] 3 SCC 390 has then been followed. aforesaid Corporation of Delhi [1992] 3 SCC 390 has then been followed. aforesaid judgment dealt with property tax provision, namely, section 115(4) of Delhi Municipal Corporation Act, 1957. Three questions were raised in said judgment as follows: "56... In present case, questions which arise for our determination are: (i) Whether society or body is occupying and using land and building for charitable purpose within meaning of sub-section (4)? (ii) What is meaning of expression'supported wholly or in part by voluntary contribution'? Page 163 of 319 ITR. (iii) Whether any trade or business is carried on in premises within meaning of sub-section (5)?" In answering question one, court held that school education would only come within exemption if it involved public benefit. Having so held, court stated: "78. rulings arising out of Income-tax Act may not be of great help because in Income-tax Act'charitable purpose' includes relief of poor, education, medical relief and advancement of any other object of general public utility. advancement of any other object of general public utility is not found under Delhi Municipal Corporation Act. In other words, definition is narrower in scope. This is our answer to question No. 1." Secondly, extracted portion from said judgment in judgment of Uttarakhand High Court concerned itself with question two, namely, whether educational society is supported wholly or in part by voluntary contributions. It is part of paragraph 80 of said judgment. If sentences after quoted portion are also set out, it becomes clear that passage relied upon by High Court has absolutely nothing to do with present case. entirety of passage is now set out hereinbelow: "82... In other words, what we want to stress is, where 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 schools which are run on commercial basis making profits would go out of purview of taxation and could demand exemption. Thus, test, according to us, must be whether society could survive without receiving voluntary contributions, even though it may have some income by activities of society. word'part' mean appreciable amount and not insignificant one. The'part' in other words, must be substantial part. What is substantial would depend upon facts and circumstances of each case." It is clear, therefore, that Uttarakhand High Court has erred by quoting non-existent passage from applicable judgment, namely, Aditanar and quoting portion of property tax judgment which expressly stated that rulings arising out of Income-tax Act would not be applicable. Quite apart from this, it also went on to further quote from portion of said property tax judgment which was rendered in context of whether educational society is supported wholly or in part by voluntary contributions, something which is completely foreign to section 10(23C)(iiiad). final conclusion that if surplus is made by educational society and ploughed back to construct its own premises would fall foul of section 10(23C) is to ignore language of section and to ignore tests laid down in Surat Art Silk Cloth's case, Aditanar's case and American Hotel and Lodging's case. It is clear that when surplus is ploughed back for educational purposes, educational institution exists solely for educational purposes and not for purposes of profit. In fact, in S. RM. M. CT. M. Tiruppani Trust v. CIT [1998] 2 SCC 584, this court in context of benefit claimed under section 11 of Act held: "9. In present case, assessee is not claiming any benefit under section 11(2) as it cannot; because in respect of this assessment year, assessee has not complied with conditions laid down in section 11(2). assessee, however, is entitled to claim benefit of section 11(1)(a). In present case, assessee has applied Rs. 8 lakhs for charitable purposes in India by purchasing building which is to be utilised as hospital. This income, therefore, is entitled to exemption under section 11(1). In addition, under section 11(1)(a), assessee can accumulate 25 per cent. of its total income section 11(1)(a), assessee can accumulate 25 per cent. of its total income pertaining to relevant assessment year and claim exemption in respect thereof. Section 11(1)(a) does not require investment of this limited accumulation in Government securities. balance income of Rs 1,64,210.03 constitutes less than 25 per cent. of income for assessment year 1970-71. Therefore, assessee is entitled to accumulate this income and claim exemption from income-tax under section 11(1)(a)." We set aside judgment of Uttarakhand High Court dated September 24, 2007. reasoning of Income-tax Appellate Tribunal (set aside by High Court) is more in consonance with law laid down by this court, and we approve its decision. Revenue's appeals from Punjab and Haryana High Court concern themselves with sections 10(23C)(vi). large number of writ petitions were heard in Civil Writ Petition No. 6031 of 2009 and disposed of on January 29, 2010. By various impugned orders passed, Chief Commissioner of Income- tax, Chandigarh, withdrew exemptions granted under section 10(23C)(vi) of Income-tax Act read with rule 2CA of Income-tax Rules, 1962, for various assessment years. operative part of order passed by Chief Commissioner of Income-tax in these cases is same and reads as follows: [1998] 230 ITR 636, 642 (SC). Page 81 of 327 ITR. "4. I have considered submissions of assessee. decisions quoted in support of its contention are not relevant and are distinguishable on facts as well as issues. It is clear that ratio of decision of hon'ble Uttarakhand High Court is squarely applicable in this case. 5. hon'ble Supreme Court has held in case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 (SC), that in case of educational institution, after meeting expenditure, if any surplus results incidentally, then institution will not cease to be one existing solely for educational purposes. 6. 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 institution to lower its fees for subsequent year so that such profits are not intentionally generated. If, however, profits continue year after year than it cannot be said that surplus is arising incidentally. 7. In present ease, profits are substantial and are arising year alter year and therefore, decision of apex court in case of Aditanar Education Institution v. Addl. CIT as well as decision of hon'ble Uttarakhand High Court is applicable. 8. Exemption under section 10(23C)(vi) is not available to assessee under law in view of above facts and circumstances and, therefore, exemption already granted, vide order dated June 4, 2007, is hereby withdrawn. 9. assessee is at liberty to reduce fees being charged and price of its services and apply afresh, in which case application will be duly considered on merits." It is these orders that were set aside by judgment of Punjab and Haryana High Court impugned by Revenue before us. Section 10(23C)(vi) read with third and thirteenth provisos thereto and section 11(5) of Income-tax Act are as follows: "10. Incomes not included in total income.-In computing total income of previous year of any person, any income falling within any of following clauses shall not be included-... (23C) any income received by any person on behalf of-... (vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by prescribed authority:... Provided also that fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via)- (a) applies its income, or accumulates it for application, wholly and exclusively to objects for which it is established and in case where more than fifteen per cent. of its income is accumulated on or after 1st day of April, 2002, period of accumulation of amount exceeding fifteen per cent. of its income shall in no case exceed five years; and (b) does not invest or deposit its funds, other than- (i) any assets held by fund, trust or institution or any university or other educational institution or any hospital or other medical institution where such assets form part of corpus of fund, trust or institution or any university or other educational institution or any hospital or other medical institution as on 1st day of June, 1973; (ia) any asset, being equity shares of public company, held by any university or other educational institution or any hospital or other medical institution where such assets form part of corpus of any university or other educational institution or any hospital or other medical institution as on 1st day of June, 1998; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by fund, trust or institution or any university or other educational institution or any hospital or other medical institution before 1st day of March, 1983; (iii) any accretion to shares, forming part of corpus mentioned in sub-clause (i) and sub-clause (ia), by way of bonus shares allotted to fund, trust or institution or any university or other educational institution or any hospital or other medical institution; (iv) voluntary contributions received and maintained in form of jewellery, furniture or any other article as Board may, by notification in Official Gazette, specify, for any period during previous year otherwise than in any one or more of forms or modes specified in sub-section (5) of section 11:... Provided also that where fund or institution referred to in subclause (iv) or trust or institution referred to in sub-clause (v) is notified by Central or trust or institution referred to in sub-clause (v) is notified by Central Government or any university or other educational institution referred to in sub- clause (vi) or any hospital or other medical institution referred to in sub-clause (via), is approved by prescribed authority and subsequently that Government or prescribed authority is satisfied that- (i) such fund or institution or trust or any university or other educational institution or any hospital or other medical institution has not,- (A) applied its income in accordance with provisions contained in clause (a) of third proviso; or (B) invested or deposited its funds in accordance with provisions contained in clause (b) of third proviso; or (ii) activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution,- (A) are not genuine; or (B) are not being carried out in accordance with all or any of conditions subject to which it was notified or approved, it may, at any time after giving reasonable opportunity of showing cause against proposed action to concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind notification or, by order, withdraw approval, as case may be, and forward copy of order rescinding notification or withdrawing approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to Assessing Officer. 11. Income from property held for charitable or religious purposes.-... (5) forms and modes of investing or depositing money referred to in clause (b) of sub-section (2) shall be following, namely:- (i) investment in savings certificates as defined in clause (c) of section 2 of Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by Central Government under small savings schemes of that Government; (ii) deposit in any account with Post Office Savings Bank; (iii) deposit in any account with scheduled bank or co-operative society engaged in carrying on business of banking (including co-operative land mortgage bank or co-operative land development bank). Explanation.-In this clause,'scheduled bank' means State Bank of India constituted under State Bank of India Act, 1955 (23 of 1955), subsidiary bank as defined in State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), corresponding new bank constituted under section 3 of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being bank included in Second Schedule to Reserve Bank of India Act, 1934 (2 of 1934); (iv) investment in units of Unit Trust of India established under Unit Trust of India Act, 1963 (52 of 1963); (v) investment in any security for money created and issued by Central Government or State Government; (vi) investment in debentures issued by, or on behalf of, any company or corporation both principal whereof and interest whereon are fully and unconditionally guaranteed by Central Government or by State Government; (vii) investment or deposit in any public sector company: Provided that where investment or deposit in any public sector company has been made and such public sector company ceases to be public sector company,- (A) such investment made in shares of such company shall be deemed to be investment made under this clause for period of three years from date on which such public sector company ceases to be public sector company; (B) such other investment or deposit shall be deemed to be investment or deposit made under this clause for period up to date on which such investment or deposit becomes repayable by such company; (viii) deposits with or investment in any bonds issued by financial corporation which is engaged in providing 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 public company formed and registered in India with main object of carrying on 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 (1) of section 36; (ixa) deposits with or investment in any bonds issued by public company formed and registered in India with main object of carrying on business of providing long-term finance for urban infrastructure in India. Explanation.-For purposes of this clause,- (a)'long-term finance' means any loan or advance where terms under which moneys are loaned or advanced provide for repayment along with interest thereof during period of not less than five years; (b)'public company' shall have meaning assigned to it in section 3 of Companies Act, 1956 (1 of 1956); (c)'urban infrastructure' means project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport; (x) investment in immovable property. Explanation.-'Immovable property' does not include any machinery or plant (other than machinery or plant installed in building for convenient occupation of building) even though attached to, or permanently fastened to, anything attached to earth; (xi) deposits with Industrial Development Bank of India established under Industrial Development Bank of India Act, 1964 (18 of 1964); (xii) any other form or mode of investment or deposit as may be prescribed." Punjab and Haryana High Court, by impugned judgment dated January 29, 2010, expressed its dissatisfaction with view taken by Uttarakhand High Court in case of Queens' Educational Society as follows: "8.8 We have not been able to persuade ourselves to accept view expressed by Division Bench of Uttarakhand High Court in case of Queens' Educational Society (supra). There are variety of reasons to support our opinion. Firstly, scope of third proviso was not under consideration, inasmuch as, case before Uttarakhand High Court pertained to section 10(23C)(iiiad) of Act. third proviso to section 10(23C)(vi) is not applicable to cases falling within purview of section 10(23C)(iiiad). Secondly, judgment rendered by Uttarakhand High Court runs contrary Page 116 of 327 ITR. [2009] 319 ITR 160 (Uttarakhand). to provisions of section 10(23C)(vi) of Act including provisos thereunder. Section 10(23C)(vi) of Act is equivalent to provisions of section 10(22) existing earlier, which were introduced with effect from April 1, 1999, and it ignores speech of Finance Minister made before introduction of said provisions, namely, section 10(23C) of Act (see observations in American Hotel and Lodging Association Educational Institute's case (supra)). Thirdly, Uttarakhand High Court has not appreciated correctly ratio of judgment rendered by hon'ble Supreme Court in case of Aditanar Educational Institution (supra) and while applying said judgment including judgment which had been rendered by hon'ble Supreme Court in case of Children Book Trust (supra), it lost sight of amendment which had been carried out with effect from April 1, 1999, leading to introduction of provisions of section 10(23C) of Act. Lastly, that view is not consistent with law laid down by hon'ble Supreme Court in American Hotel and Lodging Association Educational Institute (surpa)." It then summed up its conclusions as follows: "8.13 From aforesaid discussion, following principles of law can be summed up: (1) It is obligatory on part of Chief Commissioner of Income-tax or Director, which are prescribed authorities, to comply with proviso thirteen (un-numbered). Accordingly, it has to be ascertained whether educational institution has been applying its profit wholly and exclusively to object for which institution is established. Merely because institution has earned profit would not be deciding factor to conclude that educational institution exists for profit. (2) provisions of section 10(23C)(vi) of Act are analogous to erstwhile section 10(22) of Act, as has been laid down by hon'ble Supreme Court in case of American Hotel and Lodging Association (supra). To decide entitlement of institution for exemption under section 10(23C)(vi) of Act, test of predominant object of activity has to be applied by posing question whether it exists solely for education and not to earn profit (see five-judges Constitution Bench judgment in case of Surat Art Silk Cloth Manufacturers Association (supra)). It has to be borne in mind that merely because profits have resulted from activity of imparting education would not result in change of character of institution that it exists solely for educational purpose. workable solution has been provided by hon'ble Supreme Court in paragraph 33 of its judgment in American Hotel and Lodging Association's case (supra). Thus, on application made by institution, prescribed authority can grant approval subject to such terms and conditions as it may deems fit provided that they are not in conflict with provisions of Act. parameters of earning profit beyond 15 per cent. and its investment wholly for educational purposes may be expressly stipulated as per statutory requirement. Thereafter, assessing authority may ensure compliance of those conditions. cases where exemption has been granted earlier and assessments are complete with finding that there is no contravention of statutory provisions, need not be reopened. However, alter grant of approval if it comes to notice of prescribed authority that conditions on which approval was given, have been violated or circumstances mentioned in thirteenth proviso exists, then by following procedure envisaged in thirteenth proviso, prescribed authority can withdraw approval. (3) capital expenditure wholly and exclusively to objects of education is entitled to exemption and would not constitute part of total income. (4) educational institutions, which are registered as society, would continue to retain their character as such and would be eligible to apply for exemption under section 10(23C)(vi) of Act (see paragraph 8.7 of judgment-Aditanar Educational Institution's case (supra) (5) Where more than 15 per cent. of income of educational institution is accumulated on or after April 1, 2002, period of accumulation of amount exceeding 15 per cent. is not permissible beyond five years, provided excess income has been applied or accumulated for application wholly and exclusively for purpose of education. (6) judgment of Uttarakhand High Court rendered in case of Queens Educational Society (supra) and connected matters, is not applicable to cases falling within provision of section 10(23C)(vi) of Act. There are various reasons, which have been discussed in paragraph 8.8 of judgment, and judgment of Allahabad High Court rendered in case of City Montessori School (supra) lays down correct law." [2009] 315 ITR 48 (All). And finally held: "8.15 As sequel to aforesaid discussion, these petitions are allowed and impugned orders passed by Chief Commissioner of Income-tax withdrawing exemption granted under section 10(23C)(vi) of Act are hereby quashed. However, revenue is at liberty to pass any fresh orders, if such necessity is felt after taking into consideration various propositions of law culled out by us in para 8.13 and various other paragraphs. 8.16 writ petitions stand disposed of in above terms." view of Punjab and Haryana High Court has been followed by Delhi High Court in St. Lawrence Educational Society (Regd.) v. CIT [2011] 53 DTR (Delhi) 130. Also in Tolani Education Society v. Deputy Director of Income- tax (Exemptions) [2013] 351 ITR 184, Bombay High Court has expressed view in line with Punjab and Haryana High Court view, following judgments of this court in Surat Art Silk Manufacturers Association's case and Aditanar Educational Institution case as follows (page 194): "... fact that petitioner has surplus of income over expenditure for three years in question, cannot by any stretch of logical reasoning lead to conclusion that petitioner does not exist solely for educational purposes or, as that Chief Commissioner held that petitioner exists for profit. test to be applied is as to whether predominant nature of activity is educational. In present case, sole and dominant nature of activity is education and petitioner exists solely for purposes of imparting education. incidental surplus which is generated, and which has resulted in additions to fixed assets is utilised as balancesheet would indicate towards upgrading facilities of college including for purchase of library books and improvement of infrastructure. With advancement of technology, no college or institution can afford to remain stagnant. Income- tax Act, 1961, does not condition grant of exemption under section 10(23C) on requirement that college must maintain status quo, as it were, in regard to its knowledge based infrastructure. Nor for that matter is educational institution prohibited from upgrading its infrastructure on educational facilities save on pain of losing benefit of exemption under section 10(23C). Imposing such condition which is not contained in statute would lead to perversion of basic purpose for which such exemptions have been granted to educational institutions. Knowledge in contemporary times is technology driven. Educational institutions have to modernise, upgrade and respond to changing ethos of education. Education has to be responsive to rapidly evolving society. provisions of section 10(23C) cannot be interpreted regressively to deny exemptions. So long as institution exists solely for educational purposes and not for profit, test is met." We approve judgments of Punjab and Haryana, Delhi and Bombay We approve judgments of Punjab and Haryana, Delhi and Bombay High Courts. Since we have set aside judgment of Uttarakhand High Court and since Chief Commissioner of Income-tax's orders cancelling exemption which were set aside by Punjab and Haryana High Court were passed almost solely upon law declared by Uttarakhand High Court, it is clear that these orders cannot stand. Consequently, Revenue's appeals from Punjab and Haryana High Court's judgment dated January 29, 2010, and judgments following it are dismissed. We reiterate that correct tests which have been culled out in three Supreme Court judgments stated above, namely, Surat Art Silk Cloth, Aditanar and American Hotel and Lodging, would all apply to determine whether educational institution exists solely for educational purposes and not for purposes of profit. In addition, we hasten to add that 13th 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 apply their income and invest or deposit their funds in accordance with law laid down. Further, it is of great importance that 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 conditions subject 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 various provisions of law contained in section 10(23C) read with section 11 of Income-tax Act. We now come to Civil Appeal No. 8962 of 2010. Vide judgment dated January 29, 2010, Punjab and Haryana High Court dismissed CWP No. 7268 of 2009 in following terms: "8. It is conceded position that assessee-petitioner has filed application on September 23, 2008, seeking exemption under section 10(23C)(vi) in respect of assessment year 2008-09, which could have been filed during financial year 2007-08, i.e., on or before March 31, 2008. It is, thus, evident that application by assessee petitioner has been filed after prescribed period and Chief Commissioner of Income-tax has rightly rejected same being not maintainable. 9. As sequel to above discussion, we find no ground to interfere with impugned order passed by Chief Commissioner of Income-tax. There is no merit in instant petition warranting its admission. Accordingly, writ petition fails and same is dismissed." These being facts, we see no reason to interfere. This appeal shall stand dismissed with no order as to costs. *** Queen's Educational Society v. Commissioner of Income-tax