TMI Blog2000 (5) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... upta and Mrs. Shanti Gupta have received direct advances from the profit of the assessee-company and further, three of its directors are getting handsome salaries. It is quite natural that such advances result in profit to the directors personally. These facts demolish the assessee's contention of its existing solely for educational purposes by several notches. The obligation under section 10(22) of the Institution's existing solely for educational purposes is unalloyed and even slightest variation from that would render the Institution disentitled to the claim of exemption under section 10(22). Here, the explanation of the Institution's profits/ funds by the Directors of the Company is an eloquent proof of the assessee-company's existing not solely for educational purposes. 3. The ld. CIT(A) has further erred in holding that the Assessing Officer had not established any nexus between the purposes of the Institute and non profit-making objectives on the one hand and the loans having advanced to the directors of the company. The Id. CIT(A) has not been able to appreciate that the situation does not warrant the establishment of any nexus. The advancing of loans to the directors i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel and emerging from the assessment order, I feel that it is necessary that the issue of taxability of the appellant under the Income-tax Law should first be dealt with and the remaining grounds of appeal should be taken up only, if necessary. I have carefully considered the submissions of the learned counsel and gone through the relevant record and also the case laws. After considering the same, I hold that the appellant's contention regarding the exemption of income as per the provisions of section 10(22) deserves to be accepted. My reasons for supporting the stand taken by the appellant are discussed in the following paragraphs. 7. The appellant must succeed in view of the past history of the case. It is an established fact that the appellant is an educational Institution in the form of a company incorporated under the Companies Act. The said incorporation under section 25 of the Companies Act clearly shows that the Central Government had satisfied itself that the company was formed for promoting its main object i.e., spread of education. Such a company is prohibited from making any payment by dividends to its members, and cannot alter any provision of the Mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol and Mahadevi Birla Shishu Vihar. The question was whether the trust was an educational institution in so far as the income from the above schools was concerned. It was held that the recipient of the income may be a Trust for an individual person and if the source generating income exists solely for the purpose of education and not for private profit, not in the sense of surplus of receipt over expenditure, but the source of income not to be diverted to persons other than the educational institution, then section 10(22) would be attracted." In view of the discussion above, it is evident that the predominant object of activity in the case of the appellant was promotion of education and the surplus arising from the activities did not come in the way of the claim of exemption under-section 10(22) of the Act. The observation of an authority of tax laws as made by the Hon'ble Bench in their decision, referred to supra as under is also relevant in this regard : 'Funds are necessary, to run an Organisation. As such, earning of income by itself will not be the basis for judging whether it is or it not, for profit. One has to ascertain whether the primary object is to earn by means of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based MIER and has three wings namely : 1. Experimental School (Model Academy) 2. MIER College of Education 3. Child and Social Welfare Wing (CSWW). The ld. Counsel has drawn attention of the Bench to various documents showing the activities of the School in the field of Education. The ld. Counsel pleaded that only one transaction regarding purchase of Computer was mentioned by the Assessing Officer which according to him was made base for treating and denying this Institute the benefit of exemption under section 10(22). The ld. Counsel pleaded that the amount paid to M/s. Compumates Pvt. Ltd., Jammu was against the purchase of Computer, Computer software and accessories. The ld. Counsel pleaded that the said company was paid advance and in lieu thereof, it was agreed to between the parties that they should give discount of 596 on hardware items and 10% on accessories and the amount was paid from time to time against the purchases. The ld. Counsel pleaded that the transaction was normal business transaction and the account with the party is nothing but a current and running account and no undue benefit whatsoever was passed on to the M/s. Computers Pvt. Ltd. by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union v. CIT[1992] 195 ITR 279 as activities for education. The concept of education also requires a wider meaning and should not be explained in a very narrow conception. 8. The Institution may have profit which is in the shape of excess of income over expenditure. If such excess called profit is distributed to the persons without any consideration then under those circumstances, it will be held that the Institution is for the purpose of profit. if the excess over expenditure of income is subsequently spent within the institution directly and indirectly for the development of various fields and branches closely linked with the system of imparting education then under such circumstances, it cannot be held that the institution is run for the purpose of profit. The basic test for determining the institution for profit is the application of profit. In this case, the application of profit by and large is for the purpose of education. The ld. Counsel has amply cleared the factual position that the transaction with M/s. Compumates Pvt. Ltd., Jammu is normal business transaction and in fact they have discounted the sales to the assessee. This will not under any circumstances be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act. The Hon'ble Karnataka High Court in the case of CIT v. Saraswath Poor Students Fund [1984] 150 ITR 142, has discussed the issue. The Hon'ble High Court has given the opinion that section 11 and section 10(22) are separate sections in operation. The section 11 may be applicable in one set-up of the situation. But that will not become basis for allowing exemption under section 10(22). Similarly, once exemption under section 10(22) is granted section 11 and its applicability becomes irrelevant and remains only of academic nature, The Hon'ble Madras High Court in the case of CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485, has discussed this issue in a very detailed manner. The Hon'ble High Court has held that accumulations of profits envisaged in section 11 of the Income-tax Act are not relevant for determining whether or not Educational Institution is entitled for exemption under section 10(22) of the Income-tax Act. The Hon'ble High Court has given following finding : "We may take up question Nos. 2 and 3. These two questions deal with the surplus derived from running the two schools, one at Trivellor and the other at Perambur. These two schools ..... X X X X Extracts X X X X X X X X Extracts X X X X
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