TMI Blog2010 (10) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... ly or indirectly for the benefit of any person referred to in sub-section (3) - The amount advanced by way of loan on interest to M/s. B. K. Industries, Nizamabad (a firm in which the president of the trust was interested), and Rs. 1 lakh was given by way of loan to the founder's widow Smt. Janaki Devi, who was also one of the trustees of the assessee-trust, does not fall within any of the forms or modes of investment or deposit of money as referred to in section 11(5) of the Act - Decided against the assessee - 35 of 1996 - - - Dated:- 8-10-2010 - RAO V. V. S., RAMESH RANGANATHAN, JJ. JUDGMENT Ramesh Ranganathan J.- The questions, referred for our opinion under section 256(1) of the Income-tax Act, 1961, are : "1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee-trust is entitled for exemption under section 10(22) of the Income-tax Act ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee-trust had not violated the provisions of sections 11 and 13 of the Income-tax Act in investing a portion of its funds in M/s. B. K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng authority assessed the said interest as income from other sources rejecting the assessee's claim for exemption under section 10(22) of the Act on the ground that the assessee, instead of utilizing the sale proceeds for school buildings etc., and, without keeping the said proceeds in the investments specified under section 11(5) of the Act, had lent a major portion of the sale proceeds to M/s. B. K. Industries, and had advanced money to another trustee Smt. Janaki Devi in violation of sections 11 and 13 of the Act ; the assessing authority held that the assessee could not be said to be existing solely for educational purposes and they were, therefore, not entitled to claim exemption under section 10(22) of the Act ; likewise, for the assessment years 1984-85 and 1985-86, the Income-tax Officer had denied exemption under section 10(22), and had completed the assessment ; on appeal, the Commissioner held that the assessee was an educational institution existing solely for educational purposes and not for profit ; it need not be a school or college ; it was sufficient if it ran an educational institution and existed solely for educational purposes ; and the assessee-trust was entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to ascertain whether the institution existed, during the relevant year, "solely for educational purposes and not for the purposes of profit." After meeting the expenditure, if any surplus results incidentally from the activity, lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether, on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity. (Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 (SC) ; AIR 1997 SC 1436). 7. The requirement of investing the proceeds only in the modes specified in section 11(5) would apply only to the properties of a charitable institution under section 11, and not to an educational institution under section 10(22) of the Act. The test is not whether the assessee is a charitable institution (for, if it is, it may fall within the ambit of section 11 of the Act), but whether its very existence is solely for educational pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls suffering from any calamity ; 5. The main object of the Gurukul is to produce citizens of high caliber with fundamental knowledge based on Vedic religion as interpreted by Swami Dayanand Saraswati and Arya Samaj. Such knowledge of Vedic religion and western science will be imparted to the children on Gurukul system i.e., by keeping them in the Gurukul as full time boarders and giving them training and education under the guidance and supervision of learned and spiritual teachers who will mould their character and personality on Vedic lines so as to be top-ranking citizens of the world by dint of their services to the Indian Nation and to the humanity at large ; 6. To prepare and coach students and persons so that they may become true and independent citizens after learning arts, crafts, industries and other kinds of vocations and studies ; 7. To prepare and coach students and persons so that they may become preachers of Vedic religion, culture and civilization as interpreted by Swamy Dayanand Saraswati ; 8. To train and educate people for spiritual, social, cultural and allied purposes. 9. The objects, afore-extracted, include establishing small scale indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is applied to such purposes outside India : Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income ; (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution." 12. Section 11(2) provides that, where "eighty-five per cent." of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the conditions prescribed therein are complied with. Section 11(2)(b) stipulates that the money so accumulated or set apart should be invested or deposited in the forms or modes specified in sub-section (5). Section 11(5) provides that the forms and modes of investing or depositing the money, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment in any bonds issued by a 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 a public company formed and registered in India with the main object of carrying on the 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 a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India. Explanation.-For the purposes of this clause,- (a) `long-term finance' means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years ; (b) `public company' shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956) ; (c) `urban infrastr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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