TMI Blog2005 (6) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... By this reference under section 256(1) of the Income-tax Act, 1961 ("the Act" for short), the Income-tax Appellate Tribunal has referred the following question of law, at the instance of the assessee, for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the assessee was entitled to exemption under section 10(22) on interest earned on surplus funds of the school (run by the assessee-trust) for the assessment years 1979-80 and 1980-81?" The facts: The trustees of Vanita Vishram having their office at Sardar Vallabhai Patel Road, Mumbai are representing the association formed in the month of January, 1928 with the object of running and maintaining schools for imparting religious, secular and industrial education and training in fine arts and libraries including circulating libraries and reading rooms, with allied objects of providing gymnasiums, playgrounds, etc., incidental to the educational activities. The trust filed return for the assessment year 1978-79 showing interest income earned from the investment of surplus income (funds) of the schools run by it and claimed exemption under section 10(22) of the Act. The said exemption was den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and not for the purposes of profit. According to him, the source from which the money is received is of no consequence. What is relevant is its application. So long as the institution is an educational institution which is not engaged in earning profit, the income earned by such institution may be, from any other source, is exempt under section 10(22) of the Act. Mr. Patil went a step ahead and submitted that income from all the sources received by the assessee is exempt provided the assessee is an educational institution existing solely for educational purposes. He placed reliance on the judgment of various High Courts, viz., CIT v. A.M. M. Arunachalam Educational Society [2000] 243 ITR 229 (Mad); CIT v. Sree Narayana Chandrika Trust [1995] 212 ITR 456 (Ker); CIT v. Kshatriya Girls Schools Managing Board [2000] 245 ITR 170 (Mad); CIT v. Economic and Entrepreneurship Development Foundation [1991] 188 ITR 540 (Cal) and Director of Income-tax (Exemptions) v. A.M.M. Hospitals and Medical Benefit Society [2003] 262 ITR 241 (Mad) in support of his contention. Per contra, Mr. Vyas, learned counsel appearing for the respondent-Revenue, urged that the income directly received from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. The Tribunal held that the assessee-society which was being regarded as an educational institution within the scope of section 10(22), existed solely for running the institution and that it had no other activity and no other income which required computation. On a reference, it was held that the object of the assessee-society was to run the educational institution, therefore, the Tribunal was right in holding that the assessee should be regarded as an educational institution well within the sweep of section 10(22) as such its income exempt under that section. That the source from which the income was derived was of no consequence. What was relevant was the application of the income. It was thus ruled that so long as the institution is an educational institution, not engaged in earning profit, the income of such institution earned by way of dividend was exempt under section 10(22) as attributable to the educational activities of the assessee-society. In the case of Addl. CIT v. Aditanar Educational Institution [1979] 118 ITR 235 (Mad), the assessee was a society registered under the Societies Registration Act constituted to establish, run, manage or assist colleges, schools an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome was exempt under section 10(22). The Division Bench of the Karnataka High Court, speaking through Jagannatha Shetty, J. (as he then was), upheld the assessee's plea and exempted the income from tax. In the case of Katra Education Society v. ITO [1978] 111 ITR 420, the Allahabad High Court held that there was no reason why an educational society cannot be regarded as an educational institution if that society was running educational institutions. Agarwal Shiksha Samiti Trust v. CIT [1987] 168 ITR 751 is an analogous decision of the Rajasthan High Court. The assessee collected donations with the sole purpose of disbursing the same for educational institutions run under the auspices of one Agarwal Shiksha Samiti. The court held that merely because these educational institutions were not run and managed directly by the assessee-trust, it could not be stated that the assessee did not fulfil the requirements under section 10(22). Admittedly, the assessee collected money for the purposes of education; it had no profit motive at all. Therefore, it was entitled to exemption under section 10(22). The decision of the Andhra Pradesh High Court in the case of Governing Body of Rangara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of section 10(22) of the Act in Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 wherein the apex court was pleased to hold that the language of section 10(22) of the Act being plain and clear, it required that the exemption should be evaluated every year to find out whether the institution existed during that relevant year solely for educational purposes and not for the purposes of profit. It has also been ruled that 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 an institution not existing solely for educational purposes, since the object is not one to make profit. The decisive or acid test laid down in the above judgment is to find out whether, on an overall view of the matter, the object is to make profit. In the very same judgment, the apex court has also held that one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity. The apex court recorded this finding while dismissing the assessee's appeals against the observations of the Madras High Court; wherein the High Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of profit. This court, in the case of CIT v. Vidya Vikas Vihar (I.T.A. Nos. 27 to 29 of 2001 and I.T.A. Nos. 6, 7 and 10 of 2002 decided by the Nagpur Bench on February 13, 2003) (unreported)-since reported in [2004] 265 ITR 489 to which one of us (Daga, J.) is a party had an occasion to deal with more or less similar issue and decide it following the judgment of the apex court in the case of Aditanar Educational Institution [1997] 224 ITR 310. While deciding the question as to whether donation received by the trust running an educational institution would qualify for exemption under section 10(22), this court held as under: "In the instant case, it is not in dispute that the assessee-institution solely existed for educational purposes. The incidental object of constructing houses for weaker sections was never implemented, or acted upon by the assessee in the relevant assessment year. Under these circumstances no fault can be found with the findings recorded by the Tribunal. The view taken by the Tribunal is absolutely in accordance with law and in consonance with the view taken by the apex court in Aditanar Educational Institution's case [1997] 224 ITR 310. It wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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