1996 (12) TMI 93 - AT - Income Tax

Assessing Officer Assessment Year Fixed Deposit Interest Income Society For Educational Purposes

Issues Involved:
1. Exemption under Section 10(22) of the Income Tax Act.
2. Profit motive and utilization of surplus.
3. Applicability of Section 11 read with Sections 12 and 13 of the Income Tax Act.
4. Income from interest and other non-educational activities.
5. Allegation of siphoning funds.

Detailed Analysis:

1. Exemption under Section 10(22) of the Income Tax Act:

The primary issue was whether the assessee-society qualified for exemption under Section 10(22) of the Act. The assessee claimed it was an educational institution existing solely for educational purposes, showing nil income. The Assessing Officer (AO) denied the exemption, stating the society existed to propagate the teachings of Maharishi Mahesh Yogi, a religious guru, and not solely for educational purposes. The AO referenced several cases, including Rao Bahadur A.K.D. Dharmaraja Education Charity Trust v. CIT, CIT v. Radhaswami Satsangh, and Addl. CIT v. Aditanar Educational Institution, to support his view.

The CIT(A) later concluded that the society qualified for exemption under Section 10(22) for the following reasons:
- The society had educational objects.
- It existed solely for educational purposes and not for profit during the year in question.
- The surplus generated was used for expanding educational facilities.

For assessment year 1993-94, the CIT(A) confirmed the AO's order, stating the society was not explicitly authorized to run schools and did not exist solely for educational purposes. However, the Tribunal found that the school run by the society was solely for educational purposes and followed the decision of the Calcutta High Court in Birla Vidya Vihar Trust's case, which allowed exemption under Section 10(22) even if the trust had other charitable purposes.

2. Profit Motive and Utilization of Surplus:

The AO argued that the society had a profit motive due to the surplus in the Income and Expenditure Account. The CIT(A) for assessment year 1991-92 found that the surplus was used for expanding educational facilities and not for profit. The Tribunal noted that the surplus was used for increasing fixed assets for the school and starting building construction, and no loans or advances were given. The Tribunal concluded that the educational institution did not exist for profit purposes.

3. Applicability of Section 11 read with Sections 12 and 13 of the Income Tax Act:

The AO suggested the alternative application of Section 11 read with Sections 12 and 13, arguing that the society's objectives were not wholly charitable. The CIT(A) did not provide a finding on this alternative contention. The Tribunal, given its decision on Section 10(22), did not find it necessary to address this issue in detail.

4. Income from Interest and Other Non-Educational Activities:

The AO noted that the society earned interest income and other non-educational income, which he argued should disqualify it from exemption under Section 10(22). The Tribunal found that the interest income was incidental to the educational activities and was used for expanding school facilities. The Tribunal also clarified that the income from running buses was for school children and part of school activities, thus qualifying for exemption under Section 10(22).

5. Allegation of Siphoning Funds:

The AO alleged that the society was siphoning funds to its parent society by paying excessive lease rent. The CIT(A) rejected this allegation, and the Tribunal agreed, noting that the lease rent was paid to a separate society for hiring the school building and there was no evidence of excessive payment.

Conclusion:

The Tribunal held that the assessee's income was entitled to exemption under Section 10(22) for assessment years 1991-92 and 1993-94. The departmental appeal for assessment year 1991-92 was dismissed, and the assessee's appeal for assessment year 1993-94 was allowed to the extent of granting exemption under Section 10(22). The remaining grounds regarding exemption under Sections 11 and 12 were not addressed, as they became infructuous due to the decision on Section 10(22).

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