TMI Blog2002 (2) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The brief facts of the case are that the assessee is a society came into being on 5-11-1973 and registered with West Bengal Societies Registration Act, 1961 on 12-11-1973. The society was treated as an educational institution exempt under section 10(22) of the I.T. Act, 1961 since the assessment year 1976-77 till the assessment year 1997-98, except the assessment year 1995-96 which is under appeal presently. The assessee society was running two Sanskrit colleges. The object of the society as contained in Article 3 of its Memorandum of Association, are educational in nature. 3. In the course of the assessment the Assessing Officer observed that the assessee is a registered trust under section 12A, and that it is claiming exemption under section 10(22) and not under section 11. The Assessing Officer further observed that as per the Trust Deed, the objects of the society are educational. The Assessing Officer further observed that a perusal of the income expenditure account shows that the society received income from interest on debentures, rent on property at Bombay and profit on sale of investments. The total receipt as per income p expenditure account is Rs. 39,01,870 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it was unnecessary to go into the question whether the society would be entitled to exemption under section 11. CIT v. Academy of General Education [1984] 150 ITR 135 (Kar.) was referred to point out that an educational institution may invest its funds in any manner and it would be entitled to exemption under section 10(22) if the income generated therefrom is utilized for educational activities. 4. The Assessing Officer further stated in his order that the assessee referred many other judicial pronouncements all of which are to the effect that income of any institution existing only for the educational purposes is exempt. The assessee has also stated that its income has been exempted under section 10(22) all along over the earlier years. 5. Considering the facts of the case and various judicial pronouncement discussed hereunder the Assessing Officer further stated in his order that I do not agree with the assessee that it is eligible for claim of exemption under section 10(22). The Assessing Officer therefore concluded that even though the assessee claims that its only activity is making investments in shares and debentures in which 92 per cent of its funds have been fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... government companies which is not specified under section 11(5). 6. Against the above order of the Assessing Officer, the assessee approached to the CIT(A), who confirmed the order of the Assessing Officer by observing that the major part of the society's income arose from rent i.e., to say Rs. 27,00,000 out of Rs. 39,00,000, out of this surplus Rs. 7,07,845 has only been spent on educational activities which is less than 25 per cent of the income. Aggrieved by the above order of the CIT(A), the assessee further approached to us for adjudication. 7. The learned senior Authorised Representative started his arguments p and drawn our attention to the object clauses 3, 4 5 of Memorandum of Association of the assessee 'Shree Education Society', having sole object of organizing, running and managing pathshalas, schools and colleges. Our attention was drawn to the earlier assessment orders of the assessee society for the assessment year ranging from 1976-77 to 1997-98 in which the assessee society was granted exemption under section 10(22), except the assessment year 1995-96, being the assessment year under consideration in which the assessee's claim under section 10(22) was denie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construct buildings and to lease them out. It was held that these powers cannot be regarded as objects of the trust and that the assessee is entitled to exemption. 10. It was emphasised that the assessee is not covered by section 11. Mr. Bajoria further stressed that the revenue was misled by relying on the judgment of the Madras High Court in the case of Rao Bahadur A.K.D. Dharmaraja Education Charity Trust, as the facts of the case is not applicable to the instant case because there is no other object of the assessee society except the imparting of education whereas in the above case there were other charitable objects of the trust in addition to sole object of education and that huge surplus was left for their charitable purpose and a small amount was spent for educational purposes. Under such circumstances the Hon'ble Madras High Court held that the assessee trust is not entitled to exemption under section 10(22) but is entitled to benefit of sections 11 to 13 of the Income-tax Act. 11. On the other hand the learned Departmental Representative argued that only a small fund was used for education and huge fund amounting to 92 per cent was invested in shares and debentures, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution' entitled to exemption under section 10(22). It was further observed that the availability of exemption should be evaluated each year and if any surplus results incidentally assessee will not cease to be one existing solely for educational purposes and that one should bear in mind the distinction between the corpus, the objects and the powers of the concerned entity. 14. In the instant case an abrupt increase in the income during the year under consideration, which is alleged by the revenue as not being invested and kept as surplus, was only due to receipt of arrears rent pertaining to the period 2-12-1991 to 31-3-1994 amounting to Rs. 16,80,805. Applying the ratio of Supreme Court as discussed above, if any surplus result incidentally, the assessee will not be ceased to be one existing solely for educational purposes. In substance and reality, the sole purpose for which the assessee has come into existence is to impart education at the levels of colleges and schools and so, such an educational society should be regarded as an 'educational institution' coming within section 10(22). 15. The language of section 10(22) is plain and clear and the availability of the exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , imparting education to members of co-operative societies and training on various subjects by conducting regular courses in an organised manner. Assessee also engaged in publishing periodicals, books etc. and running a printing press. Incidental activities connected with educational purposes. It was held that there was no limitation for exemption under section 10(22) unlike section 11 (a) which imposes condition for utilisation of at least 25 per cent of the income and that the income derived by assessee is fully exempt under section 10(22). 20. It was observed in this case that the assessee-co-operative union is given financial assistance by the Government. The resolutions of the Government clearly indicate that the grants sanctioned by the Government are for educational purposes. It is fully satisfied from the nature of the activities of the assessee-co-operative union and its objects that the assessee is existing exclusively for educational purposes and not for the purposes of profit. Section 11(a) applies to income derived from property held under trust wholly for charitable or religious purpose while section 10(22) covers any income of a university or other educational ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of exemption under section 10(22) is that the income is the income of university or an educational institution existing solely for educational purposes and not for purposes of profit. The expression "existing solely for educational purposes and not for purpose of profit' appearing in section 10(22) is thus a condition precedent for exemption under section 10(22). In the context and setting of this clause, the expression 'existing' obviously means and refers to the existence of such university or institution solely for educational purposes in India. If a university or an educational institution, though existing outside India as a university or an educational institution for educational purposes, does not so exist in India, it would not be entitled to claim exemption of its income from other activity carried on by it in India by virtue of section 10(22). In other words, a university or an educational institution, whether established in India or abroad, must retain its character of a university or an educational institution in India and the income in respect of which exemption is claimed under section 10(22) must be the income derived by it in its capacity as a university ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(22), the university or the educational institution must exist as a university or an educational institution solely for educational purposes in India. In other words, the recipient of the income must have the character of a university or an educational institution in India. Its character outside India or it being a part of a university existing outside India, is not relevant for deciding whether its income would be exempt under section 10(22). Clause (22) has to be construed in the light of the scheme of the IT Act and the object of section 10, in particular clause (22) thereof, and on such a construction, even if the assessee-Press is a part of the Oxford University and is being run as such in India in the absence of the existence of the Oxford University in India, the assessee-Press cannot be held to be a university existing for educational purposes within the meaning of section 10(22) and its income cannot be regarded as the income of a university. The fact that the assessee in the instant case had given an undertaking before the ITO that 60 per cent of its income would be applied for educational purposes in India and the balance only will be remitted to United Kingdom does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gral unity between trust and the hospital for purposes of section 10(2A), the amount invested belongs to the hospital and the income derived on such investment is also that of the hospital. A hospital is not merely the buildings in which it is housed, or the equipments that are contained in it, but something more. It is an institution, and that institution belongs to the trust. In dealing with the question whether the income is that of the hospital, the significance of the expression "any income of a hospital" in section 10(22A), has to be noted. Both the words "any" and of carry a meaning. It is not income from a hospital that is exempt but "any income of hospital". If the word had been "from", the position would have been that the income should have been derived from the actual running of the hospital itself. What appears to be relevant is that the income should reach the hospital to be utilised by it for philanthropic purposes and not for purposes of profit. The stress appears to be on the recipient of the income. If that is the hospital, that is the trust running it, section 10(22A) must apply. The emphasis is not on whether the income was derived from the educational instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls under the clause specified in clause (22) of section 10, then it would be exempt and would not be liable to be included in the total income of that person while framing his assessment for the relevant assessment year. 29. It was therefore held that the income derived by assessee from educational institution existing solely for educational purposes but not for profit is exempt under section 10(22) irrespective of the fact that the assessee has income from other sources not falling under clause (22) of section 10. 30. In Birla Vidhya Vihar Trust's case observed that the assessee-trust recognised under section 11 which exists for charitable and religious purposes claiming exemption under section 10(22) in respect of income from schools run by trust, section 10(22) applies also to trusts owning educational institution. A trust may have income from several sources but so long as the object is educational and the income is not diverted for personal profit the trust is entitled for benefit under section 10(22). Facts of a particular year, though relevant, cumulative factors relating to several years should be taken into account while deciding the issue. Facts relating to relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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. Though the facts of the relevant year would be a very material factor, whether an institution exists or is existing solely for any particular purpose or not cannot be judged only by the facts of one year. AR cumulative factors will have to be taken into consideration, namely, the clause or the power enabling the institution to function, its activities in general, etc. Neither the fortuitous factor of having large surplus in any particular year, nor the solitary fact of diverting some income of the source concerned to objects charitable but not educational by itself would be decisive of the matter and in that context the fact relevant to the relevant year would be very material though not conclusive. But in this case except that there was one solitary instance in one of the prior years when there was the application of some in come to non-educational purposes, there was no other fact. That by itself, would not be very material. If, however, an educational institution as a source of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its activities are not for profit. If an institution exists solely for the purpose of educational and it derives income from any other source and if that income is used only for the purpose of education, then it will come under section 10(22). It is clear from the memorandum of association of the Society that chits are being conducted in order to make use of the commission for the purpose of education. There is no case for the Department that this amount is being used for any other purposes. In such circumstances, the CIT was wrong in holding that since chit is being conducted, which is business activity, petitioner is not entitled to exemption under section 10(22). Refusal is based under the provisions of section 11(4A). This is a mistake committed by the authorities. Exemption sought for was under section 10(22). Section 11(4) is applicable only with regard to the income from various properties. It cannot override section 10(22). Hence this reasoning is also not correct. The Revenue is directed to grant certificates under section 80G. 37. In view of detailed discussion, we are of the considered opinion that for claiming exemption under section 10(22), it is not necessary that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptly increased its income in this particular year, resulting in huge surplus. We also gone through the expenditure incurred in the last ten ears by the assessee society and found that the same are gradually increasing as per the requirement of the institutions run by it. Simultaneously the income is also increasing. The income generated by the assessee society has been spent or educational purposes only and the revenue has not brought on record any material which proves otherwise. The contention of the revenue that for claiming exemption under section 10(22), the income should generate only from the school or college, does not carry any force. If the purpose of the assessee society consist of merely running of school and college i.e., educational institution, the source of earning will not detract it from claiming exemption, in so far as the same is intended for educational purpose and not for private profit. The department has also grossly failed to bring any material on record to prove that surplus/income was diverted for the personal profit of the members of the society. Furthermore because there is a surplus, i.e., excess of income over expenditure, it cannot be said that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
