TMI Blog1996 (1) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the findings given by the learned CIT(A) and the order passed by him amounted to: (a) finding out new source of income which was beyond the scope of his appellate jurisdiction, and (b) enhancement in the income of the appellant, without complying with the mandatory requirements in this regard, and the impugned order is, therefore, wholly vitiated illegal and without jurisdiction. Without prejudice to the aforesaid: 4. Because the learned CIT(A) has erred in law and on facts in holding that the appellant society did not exist solely for 'educational purpose' and in holding that the benefit of exemption as contained in s. 10(22) was not available to it. 5. Because various 'aims and objects' with which the appellant society came into existence/fall squarely within the category of 'educational purpose' and finding to the contrary is wholly inconsistent with the material and evidence as were on record. 6. Because the case law referred to and relied upon by the learned CIT(A) for coming to the conclusion that the appellant society did not exist solely for 'education purposes' and was, therefore, not entitled to relief under s. 10(22) of the IT Act, 1961 had been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to the assessee. Before adjudicating upon the controversy not debated in this appeal, it will be necessary to narrate in some detail the sequence of events that took place in this case. 2. The institution City Montessori School is in existence since 1963 onwards. There are 16 branches and there are 18,000 students in all getting education in various branches of this institution, City Montessori School, Lucknow. Notice under s. 142(1) asking the assessee to furnish the return for the asst. yr. 1991-92 was issued. Return of income was filed on 25th Feb., 1992, in compliance with the above-mentioned notice. The assessee filed the return of income showing nil income claiming exemption under s. 10(22) of the IT Act, 1961. The observation and finding of the AO in the order dt. 31st March 1993/28th April, 1993, is as under: "The assessee is an educational institution which has sought exemption under s. 10(22) of the IT Act, 1961. From the details and accounts filed during the hearing and placed on record, it is seen that surplus during the year is shown at Rs. 36,15,633. The source of income is shown to be fees and fines, sales of forms. miscellaneous income and profit on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the assessee institution to Rs. 36,15,633 in the status of AOP. 4. The assessee is in appeal before us with the grounds which have been reproduced above. It will be relevant to point out here that the appellant filed an application under r. 29 r/w r. 10 of IT (Appellate Tribunal) Rules, 1963 requesting the Tribunal to admit certain additional evidence in the special circumstances of this case. Rival submissions were heard on this petition and an order was passed by this Bench on 31st March, 1995. The Tribunal in the special circumstances of the case, allowed the additional pieces of evidence to be filed in this case for consideration and for adjudication on the controversy which is the crux of appeal here. It will be futile to reproduce the reasons for allowing additional evidence in this order, but it will be relevant and just to observe that the aforesaid order allowing the assessee's petition under r. 29 r/w r. 10 of IT (Appellate Tribunal) Rules, 1963 should be taken to be a part of this order as well. It will be sufficient if briefly the gist of the order is incorporated at this place. In this petition, an affidavit dt. 7th Jan., 1995, along with annexures and 22 doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of final hearing of the case. The Tribunal found it necessary to admit those pieces of evidence and allowed the petition under r. 29 r/w r. 10 in the interest of substantial justice to the assessee. Reasons were incorporated in that order of the Tribunal. The learned first appellate authority enhanced the assessment and attacked the very existence of the institution by holding that provisions of s. 10(22) of the Act were not applicable to the assessee even though the AO had found otherwise and the AO had assessed only interest income. Thus, as a matter of fact before the Tribunal, it was for the first time that the assessee was given opportunity to have its say against the finding of the first appellate authority. The principles of natural justice and fair play, therefore, dictated that even those additional pieces, which were not before the AO were entertained, of course subject to the condition that the Department was given proper opportunity to file counter-affidavit, which was no doubt filed and which was considered by the Tribunal. The Tribunal allowed the additional pieces of evidence also for the reasons that the rules of natural justice that have been held dear to hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed date and an order dt. 19th Jan., 1995, factually incorporating various classes, classrooms, library and reading room, play ground, open air space and various other activities was made. We hereby observe that the order passed with regard to the on-the-spot inspection dt. 19th Dec., 1995, should also be taken to be a part of this order. This has been done to avoid unnecessary bulk of this order. The Tribunal considered it necessary to do so because a very crucial controversy namely, whether the institution existed for educational purposes or not was involved? This controversy was generated because of the enhancement in the assessment and because of the finding of the learned first appellate authority in this case. For this very reason after ferreting the sequence of events and after charting out the background in which the controversy has to be adjudicated upon by us, we proceed to adjudicate upon the main controversy involved in this appeal. For this purpose, the voluminous material placed before us by the rival parties will be referred to briefly. 6. The main thrust of the arguments has been given in the synopsis filed by the learned counsel for the appellant which constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the 'Aims and Objects' did fall within the category of educational purposes, but other clauses in the 'Aims and Objects, of the assessee's institution did not fall within the term "educational purposes". It was held that cls. 1 and 2 of 'Aims and Objects' reading as under were outside the domain of activities for educational purposes: "1. To promote material, moral, physical, cultural and domestic welfare of the people. 2. To help the people develop the spirit of natural help, love of labour, and spirit of service to the nation and to the humanity in general." The assessee's reply in this regard was that "Document on Social Moral and Spiritual Values in Education" is an authoritative publication of National Council of Educational Research and Training (NCERT) and this is official authoritative organ of educational policy, copy of which appears at pp. 104 to 159 of the paper book and in the foreword of this document, the following deserves to be incorporated in this order. This is reproduction of p. 16 of the III paper book filed by the assessee: "A school curriculum has to respond to the needs and aspiration of a changing society and so it undergoes transformati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Chairmanship of Justice V.M. Tarkunde. The following passage as extracted at p. 17 of the III paper book deserves to be incorporated in this order as well: "The existing education system lays greater emphasis on individualist, competition, verbal fluency or linguistic ability, and more acquisition of information. What is even worse, the ethos of the existing system in highly authoritarian where values such as equality, love or truth or spirit of enquiry cannot be fostered. In the new concepts of education, we should recognise the significance of social objectives co-operations and team work, and commentary of intellectual and manual work, and promotion of skills and building up of character, similarly, great emphasis will have to be placed on promoting a scientific outlook on life and the basic values of pursuit of truth, equality, freedom, justice and dignity of the individual." This is relevant in the context of the present appeal. Later on Ministry of Education. Government of India brought out in 1985 a document styled as "Challenge Of Education A Policy Perspective". The entire document is devoted to the development of society as a whole through media of education. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice in Schools". Besides, CMS has also started L.T. classes from 1989-90 in terms of the permission letter dt. 8th Feb., 1989, issued by the office of the Director of Education, U.P. In the L.T. classes, development of educational theory and practices is a part of their curriculum. In the additional paper book which contains an affidavit under r. 10, reference was made to the compilation running to 250 pages and annexures thereto running into pp. 1 to 75 showing as to how the various objects, for which CMS has been formed, have been implemented, achieved and the same remain uncontroverted even in the counter-affidavit filed by the Asstt. CIT on behalf of the respondent. 8. On behalf of the Department, the learned Departmental Representative filed a letter dt. 8th Dec., 1995, in which certain facts were brought to our knowledge which according to the learned Departmental Representative militated against the grant of exemption under s. 10(22) of the IT Act. These facts are that the school has started coaching classes for the preparation of MBA, Banks, Insurance Co. for which they are charging Rs. 2,500 and this is open to all persons interested in the coaching; that CMS held a wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any educational institution. The concept of surplus is embedded in the expression "Income". Unless there is surplus or income, there was no question of granting exemption. The clinching factors will be whether the institution is existing solely for educational purposes or for purposes of profit. On this test, all the papers filed before us convince us that CMS, the assessee exists solely for educational purposes and not for purposes of profit. The first objection and probably the most important objection taken by the learned Departmental Representative has no legs to stand. The basic reason as to why additional evidence was allowed by us to be admitted in this appeal and the aim of on-the-spot inspection was to examine the entire infrastructure of the appellant institution because it would not have been fair to see and evaluate the material for one year in isolation. Once the taxing authority gives a finding that the institution exists for profit, the appellant's existence has been attacked. Having examined the entire material produced before us and having made an on the spot inspection of the institution, we are of categorical finding that, notwithstanding surplus in any year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing and we fail to understand as to how holding this prayer ceremony militated against the grant of exemption under s. 10(22) of the IT Act. What profit motive was there in holding this prayer ceremony, is not borne out from records and the same has also not been alleged by the respondent. Similarly holding of function of Lucknow Sports Journalists Association itself means nothing and it cannot be interpreted against the assessee's claim of exemption. On the contrary sponsoring of Sports Journalists Meet supports the assessee's case if it is considered in depth and in its proper perspective (sic). Lastly, organisation of Summer village camps under the aegis of CISV (Children International Summer Village) is a point which goes in favour of the aims and objects of the appellant-institution, which aims achieving world brotherhood through education (Vasudhaiv Kutombkam). Achievement of this objective does not militate against the appellant's claim of exemption under s. 10(22) of the IT Act. In fact, this was cited as a concrete step taken by the institution towards achievement of the highest ideals preached in the aims and objects of the deed governing the constitution of appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, then the story would have been different. But that is not the case here. The balance sheet figures indicate that the sources of income are from fees and fines, sales of forms, and saleable material, interest on fixed deposits, miscellaneous income and profit on sale of assets. There are the figures from P L a/c appearing at p. 31 of the first paper book. In the balance sheet, we notice that under the head "building, furniture and other assets" there are additions of Rs. 25,21,684, Rs. 8,37,588 and Rs. 17,79,893 totalling Rs. 51,39,167 and all these buildings, furniture and other assets belong to the educational institution City Montessori School and they do not stand in the name of any member or relative of the members or any person interested in the management of the institution. These figures go to show that this is an educational institution which solely exists for the purposes of education and not for purposes of profit. Education cannot be confined within the narrow limits of three Rs reading, writing and arithmetic. Much water has flown down the river Ganges since Macaulay introduced in India the education system, where only three Rs reigned supreme. Without astray and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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