Clause (vi) of section 10(23) provide for an exemption to an educational institution existing solely for educational purposes. The Madras High Court in CIT v. Devi Educational Institution (153ITR571) took a view that since s. 10(22)(corresponding to new section 10(23C) (vi)) uses the expression “existing solely for educational purposes”, the actual existence of the educational institution is a precondition for the application of s. 10(22) and the mere taking of steps for the establishment of the educational institution may not be sufficient to attract the exemption under s. 10(22). In a recent decision in Mr. AR. Educational Society v. CIT (253ITR589) the Madras High Court felt that the earlier judgment in Devi case (supra) require reconsideration and hence referred the matter to the division bench for reconsideration. The High Court held that the word “ existing” is not the same thing as being functional. The Court further held that the width of the provision is not required to be cut down by insisting that the educational activity must have been carried on in the relevant previous year, even though there is no doubt whatsoever that the society/institution is engaged in taking steps required to make the educational activity operative.
Even the Delhi High Court in Commissioner of Income-tax Vs. Delhi Kannada Education Society (246ITR731) explained that the primary condition precedent for availing of exemption to an educational institution under section 10(22) of the Income-tax Act, 1961, is that the educational institution must actually exist for application of the said provision and mere taking of steps would not be sufficient to attract the exemption.
Also the Kerala High Court in Commissioner of Income-tax Vs. Geetha Bhavan Trust (213ITR296) in defining the application of the section observed that the word “Exist” means “to be in present force, activity or effect at a given time”. If during the relevant year, the trust in question existed solely for educational purposes, we should think that section 10(22) is attracted to the facts of this case, when the income derived is solely from the educational institutions run by it, and the activities of the trust are not for profit.
It is therefore desired that any such institution that is established not for the purposes of profit must undertake some activities apart from mere floating to benefit exemption.