TMI Blog2011 (2) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... ty continues to run the schools which is the object with which the Society was set up - The exemption under Section 10(22) of the IT Act has been available to the respondent/assessee for a number of years prior to the assessment years in question and even for the subsequent years as stated by learned counsel for the assessee - It is in these circumstances that the legal position set out on the principle of consistency would come into play as observed in Commissioner of Income Tax v. Lagan Kala Upvan [2002 -TMI - 12203 - DELHI High Court] - Decided in favour of assessee. - ITA No. 93 / 1999 - - - Dated:- 10-2-2011 - MR. JUSTICE SANJAY KISHAN KAUL, MR. JUSTICE RAJIV SHAKDHER, JJ. For Appellant : Mr.Sanjeev Sabharwal, Advocate For Respondent : Mr.Anoop Sharma and Mr.Manu K.Giri, Advocates. SANJAY KISHAN KAUL, J. 1. The denial of exemption to the respondent/assessee under Section 10(22) of the Income Tax Act, 1961 ( IT Act‟ for short) for the Assessment Year 1993-94 has given rise to the present proceedings where the order of the Assessing Authority and Commissioner of Income Tax (Appeals) { CIT(A)‟ for short} went against the respondent/assessee whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, preferred an appeal to the CIT(A). This appeal has been dismissed vide order dated 30.09.1996 qua the finding that the respondent/assessee was not entitled to exemption under Section 10(22) of the said Act. The CIT(A) took note of the funds having been collected at the time of fresh admissions during the period 04.03.1993 to 16.03.1993 and the loans were taken during the period December, 1992 to 31.03.1993. It was found that both the Corpus Fund and the Loan Amount were received from parents when admitting their children and were thus forced on the parents in the name of education. This was stated to be despite the fact that there were funds available with the respondent/assessee as it had fixed deposits with the banks amounting to Rs.17,38,048/- as on 31.03.1993 apart from the bank balance of Rs.3,05,520/-, loan and advances of Rs.38,802/- and cash balance of Rs.15,483/- totaling to Rs.20,50,000/-. A further fact taken note of by the CIT(A) is the analysis of the plea of the assessee that loans and donations were taken to make an additional structure. 6. In para (9), CIT(A) has somehow given a number of findings, which in our considered view are not based on evidence, relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity opinion and the question of law, as noticed above, was framed to be answered by this Court vide order dated 11.05.2000. 11. It would be appropriate to first reproduce the relevant provision under Section 10(22) of the IT Act as it stood for the relevant Assessment Year in question: SECTION 10 INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME .. .. .. .. .. (22) Any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit; OPINION OF JUDICIAL MEMBER ITAT/DEPT. STAND 12. Learned counsel for the appellant/Department sought to adopt the opinion of the Judicial Member as his submissions. Learned counsel for the appellant could not dispute that exemption was granted under Section 10(22) of the IT Act to the respondent/assessee for the preceding years and learned counsel for the respondent/assessee submitted that it was so even for the subsequent years, but sought to contend that neither the principle of res judicata nor the rule of estoppel is applicable to the assessment proceedings in view of the observations in Dhansiram Agarwalla v. Commissioner of Income-Tax; 217 ITR 4 (Gauhati). It was, however, held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducation Act, 1973 { DSC Act‟ for short) which prohibit charging or collection of any admission fee or compulsory donations. It is not in dispute that these provisions apply to an aided institution and the respondent/assessee is an unaided institution. However, learned counsel emphasized that the Judicial Member took a cue from the provisions relating to aided institutions for applying to the respondent/assessee. Another distinction which is sought to be made by the minority view is between carrying on an education activity and carrying on the said activity with a charitable object. Thus, every educational activity is not with a charitable object as observed in Safdarjung Enclave Education Society v. Municipal Corporation of Delhi‟s case (supra). Thus, if there is apprehension that but for the contribution some adverse consequence would follow, it ceases to be a voluntary act. 13. The minority view thereafter proceeds on the premise that non distribution of profits or applying the profits to education is not enough to claim exemption and a charitable purpose is necessary with absence of quid pro quo. The surplus was stated not to be arising incidentally, but on a calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hard facts and evidence. Observations have been made about comments on the persons constituting the Managing Committee which were expunged as there was no material. There was no material placed to show that Ahluwalia Construction Co.(Pvt.) Ltd had carried out construction at rates above the market rates or there had been any diversion of funds to the said Company. Undisputedly, the school building was under construction since earlier years. Similarly, observations on deposits being made with a non-nationalized bank resulting in possibility of diversion of funds were based on whims and fancies of the tax authorities. The loans and deposits taken from the parents were mainly for liquidating liabilities of the bank loans, creditors and refurbishing funds of the school as at the beginning of the year, the Society had over Rs.21.41 lakhs as bank loans resulting in interest burden. The loans were thus availed of from the parents on interest at the rate of 8 per cent per annum for three years or earlier if the student leaves the school before the date of maturity. 18. The opinion of the Accounting Member takes note of the nominees of the Education Directorate of the Delhi Government be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction between the aided and unaided institutions (the respondent/assessee being an unaided institution) 21. It was found that the respondent/assessee had incurred expenses for infrastructure, for establishing and maintaining schools and was intending to open new branches over and above the existing two schools applying these funds for the said purpose and thus it was found that the assesssee could not be stated to have collected funds beyond its legitimate needs. Merely because there was accumulation of funds, no part of the profit/income had been diverted for the purposes other than the educational purpose. The provisions of Section 10(22) of the IT Act require that there should be no profit motive which is a narrower distinction than saying that there should be a charitable purpose. ADDITOINAL CASE LAW REFERRED TO ON BEHALF OF THE ASSESSEE 22. Learned counsel for the respondent/assessee strongly emphasized on the principle of consistency which was said to be breached by the Assessing Authority for the relevant assessment year and referred to certain judgments in respect of the educational institutions. The Division Bench of this Court in Commissioner of Income Tax v. Lagan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied only for spread of education, it was entitled to exemption under Section 10(22) of the IT Act. In Director of Income Tax v. Sir Shri Ram Education Foundation;262 ITR 164 (Delhi), it was held that the exemption under Section 10(22) of the said Act could not be denied only on the ground that it was merely providing financial assistance to the educational institutions, but was not running those institutions by itself. CONCLUSION 26. We have considered all these opinions as well as the submissions made by learned counsel for the parties. We must at the inception itself note that the three components scrutinized by the Assessing Officer are the Admission Fee, Corpus Fund and the Loans taken from parents. Thus it really can‟t be disputed that even the source of funds is relatable to the activity of education. It may be noticed that there are factual findings on the loans having been availed of by the assessee from a nationalized bank for the purpose of creating additional infrastructure/schools and the three sets of amounts have been addressed only towards the object of creating additional infrastructure and easing the liability of the assessee towards the interest burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legation of any inflated cost of construction or unreasonable profits being derived from the same by third parties as a mode of divergence of funds. 28. The reliance on the provisions of DSC Act is clearly misplaced. A bare reading of the Sections relied upon show that Sections 146 and 155 of the DSC Act are applicable only to aided institutions. Thus prohibition against taking donations etc. is clearly applicable to these aided institutions where Government is giving finances for running of the institutions. They have no application to the unaided institutions. The majority view consisting of the Accounting Member of the ITAT and the Senior Vice President, in our considered view, correctly appreciates the legal position and applies it to the facts of the present case. The institution/Society is existing only for educational purpose and not for the purpose of profit making. 29. The legal position in this behalf has been succinctly culled out in a number of judgments both of this Court and the Supreme Court. In this behalf, guidance can be taken from the expression of opinion by the Supreme Court in Aditnar Educational Institution v. Additional CIT‟s case (supra). It is cl ..... 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