ACIT, Gwalior v. Ramnarayan EducationalSociety, Gwalior

ITA 79/AGR/2009 | 2002-2003
Pronouncement Date: 27-08-2010 | Result: Dismissed

Appeal Details

RSA Number 7920314 RSA 2009
Assessee PAN AAFTS9435E
Bench Agra
Appeal Number ITA 79/AGR/2009
Duration Of Justice 1 year(s) 5 month(s) 24 day(s)
Appellant ACIT, Gwalior
Respondent Ramnarayan EducationalSociety, Gwalior
Appeal Type Income Tax Appeal
Pronouncement Date 27-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 27-08-2010
Date Of Final Hearing 20-07-2010
Next Hearing Date 20-07-2010
Assessment Year 2002-2003
Appeal Filed On 05-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH AGRA BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI P.K. BANSAL ACCOUNTANT MEMBER ITA NOS.79 82 & 83/AGR/2009 ASST. YEARS: 2002-03 2004-05 &2003-04 A.C.I.T. CIRCLE-2 GWALIOR VS. RAMNARAYAN EDUCAT IONAL SOCIETY (KIDDYS CORNER SCHOOL) NAYA BAZAR GWALIOR. (PAN : AAFTS 9435 E). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI OM PRAKASH JR. D.R. RESPONDENT BY : SHRI NAVIN GARGH ADVOCATE ORDER PER P.K. BANSAL A.M.: ALL THESE THREE APPEALS HAVE BEEN FILED BY THE REVE NUE AGAINST THE COMMON ORDER OF THE CIT(A) DATED 18.11.2008 FOR ALL THE THREE A.YS. BY TAKING THE FOLLOWING COMMON GROUNDS OF APPEAL:- (1) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE TRIAL BALANCE AND INC OME AND EXPENDITURE ACCOUNT FOUND DURING THE COURSE OF SURVEY WERE NOT ACTUAL A CCOUNTS OF THE ASSESSEE SOCIETY BUT WERE PRINT OUTS OF EXERCISES DONE BY THE STUDEN TS OF THE SCHOOL. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE SOCIETY IS EXISTING SO LELY FOR EDUCATION PURPOSES WHEREAS PART OF THE FEES RECEIVED FROM THE STUDENTS IS BEING UTILISED FOR THE PERSONAL BENEFITS OF THE OFFICE BEARERS OR THE TRUS TEES OF THE SOCIETY AND NOT FOR THE PURPOSES OF EDUCATION. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THERE HAD B EEN SURVEY IN THE CASE OF THE ASSESSEE. THE ASSESSEE IS AN EDUCATIONAL INSTITUTION REGISTERED U NDER THE SOCIETIES REGISTRATION ACT SINCE 21.03.1958. IT RUNS CERTAIN SCHOOLS. THE ASSESSEE CLAIMED THAT THE INCOME AS PER ASSESSMENT ORDERS IN ALL THE ASSESSMENT YEARS SINCE THE FEES RECEIVED BY THE ASSESSEE IN EACH OF THE A.Y. DO NOT EXCEED RS.1 CRORE WERE EXEMPT UNDER SECTION 10(23C)(IIIAD). THERE HAD BEEN SURVEY IN THE CASE OF THE ASSESSEE ON 27.04.2006 WHICH ACCORDING TO THE ASSESSEE WAS NOT PERMISSIBLE IN LAW AS THE ASSESSEE WAS NOT ENGAGED IN BUSINESS OR PROFESS ION. AFTER SURVEY THE A.O. ISSUED NOTICE UNDER SECTION 148 DATED 18.05.2006 AFTER RECORDING THE REASONS ON THE BASIS OF THE INFORMATION GATHERED FROM THE IMPOUNDED MATERIAL DURING THE SUR VEY AND ASKED THE ASSESSEE TO SUBMIT THE RETURN WITHIN 30 DAYS OF THE RECEIPT OF THE NOTICE. 3. THE RETURNS WERE FILED BY THE ASSESSEE IN EACH O F THE A.YS. VIDE RECEIPT DATED 24.12.2007 SHOWING NIL INCOME AND STATING THEREIN THAT THE INC OME IS EXEMPT UNDER SECTION 10(23C)(IIIAD). COPY OF THE AUDITED BALANCE SHEET INCOME EXPENDITU RE AND AUDITORS REPORT WERE ALSO FILED ALONG WITH THE RETURN.. THE A.O. MADE THE ENQUIRY BY WAY OF QUESTIONNAIRE EVEN PRIOR TO THE FILING OF THE RETURN AS ARE REPRODUCED AT PAGE NOS. 2 & 3 OF THE ASSESSMENT ORDER. THE ASSESSEE CLAIMED AS AGGREGATE RECEIPTS OF THE SOCIETY INCLUDING EDUC ATIONAL INSTITUTION RECEIPT SINCE DO NOT EXCEED RS.1 CRORE PRESCRIBED UNDER RULE 2CB OF THE INCOME- TAX RULES THE INCOME OF THE SOCIETY IS EXEMPT AND THE ASSESSEE IS NOT REQUIRED TO FILE THE RETURN. THE A.O. COMPLETED THE ASSESSMENT IN EACH OF THE A.YS. DETERMINING THE FOLLOWING INCOME :- A.Y. 2002-03 RS.30 32 200/- A.Y. 2003-04 RS.25 09 348/- A.Y. 2004-05 RS.17 72 900/- 3 4. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) REJECTED THE GROUNDS OF THE ASSESSEE REQUESTING FOR THE QUASHING OF THE ASSESSM ENT IN RESPECT OF THE ADDITION MADE DUE TO THE DIFFERENCE IN RECEIPTS SHOWN IN THE TRIAL BALANCE F OUND IN THE COMPUTER DURING SURVEY AND AUDITED INCOME & EXPENDITURE ACCOUNT. THE SAID ADD ITIONS WERE DELETED. THE CIT(A) ALSO DELETED THE OTHER ADDITION AND HELD THAT THE ASSESS EE IS ENTITLED FOR EXEMPTION UNDER SECTION 10(23C)(IIIAD) OF THE ACT. IN RESPECT OF GROUND NO .1 TAKEN BY THE REVENUE THE CIT(A) HELD THAT THE TRIAL BALANCE AND THE INCOME & EXPENDITURE ACCO UNT FOUND DURING THE COURSE OF SURVEY WERE NOT THE ACTUAL ACCOUNT OF THE SOCIETY BUT WERE PRINT OUT OF THE EXERCISE DONE BY THE SCHOOL STUDENTS. 5. BEFORE US THE LD. D.R. RELIED ON THE ORDER OF T HE A.O. BUT COULD NOT CONVINCE THAT THE TRIAL BALANCE WHICH WAS FOUND IN THE HARD DISK AT T HE TIME OF SURVEY WAS ACTUALLY A TRIAL BALANCE AND DOES NOT PERTAIN TO THE EXERCISE GIVEN TO THE S TUDENTS BY THE COMMERCE FACULTY. 6. LD. A.R. ON THE OTHER HAND RELIED ON THE ORDER OF THE CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR OPINION NO INTERFERENCE IS CALLED FOR IN THE FINDI NG GIVEN BY THE CIT(A). THIS IS A FACT THAT BOTH THE SIDES OF THE PURPORTED TRIAL BALANCE DID NOT TA LLY AND TOTAL OF THE DEBIT SIDE AND CREDIT SIDE WERE MISMATCHING. AS PER THE ACCOUNTING PRINCIPLE THE TRIAL BALANCE IS THE FINAL SUMMARY OF THE ACCOUNTS WHICH GAVE THE BALANCES OF ALL THE ACC OUNTS AT THE END OF THE ACCOUNTING PERIOD. SOME OF THE BALANCES ARE DEBIT AND THE OTHERS ARE C REDIT AND THE TOTAL OF ALL THE DEBIT BALANCES 4 TALLIED WITH THE TOTAL OF THE CREDIT BALANCES APPEA RING IN VARIOUS ACCOUNTS. IF THERE ARE DIFFERENCES IN THE TOTAL OF DEBITS AND CREDITS IT DEPICTS THAT THE ACCOUNTS ARE NOT CORRECT. THE ASSESSEE HAS GIVEN THE AFFIDAVIT OF SHRI PARIMAL D. NAIK BEFORE THE A.O. THAT THIS REPRESENT THE EXERCISE GIVEN TO THE STUDENTS BY THE COMMERCE FACULTY AND THE SAM E IS NOT THE TRIAL BALANCE OF THE ASSESSEE. IT IS MERELY A MUTE AND DUMP DOCUMENT. COPY OF THE PU RPORTED TRIAL BALANCE PRINT OUT WAS NOT PRODUCED BEFORE US BY THE DEPARTMENT EVEN THOUGH T HE APPEAL HAS BEEN FILED BY THE DEPARTMENT. THIS IS A FACT THAT THE ASSESSEE WAS MAINTAINING RE GULAR BOOKS WHICH WERE DULY AUDITED. THE ASSESSEE FILED AUDITED BALANCE SHEET AND PROFIT & L OSS ACCOUNT FOR EACH OF THE A.YS. BEFORE THE A.O.. THE AFFIDAVIT FILED BY THE ASSESSEE FROM THE MEMBER OF THE COMMERCE FACULTY REMAINS UNCONTROVERTED BY THE A.O. THE A.O. HAS NOT CROSS EXAMINED THE DEPONENT. THIS IS SETTLED LAW THAT AN AFFIDAVIT CANNOT BE REJECTED UNTIL AND UNLE SS THE DEPONENT IS CROSS EXAMINED. IT HAS TO BE ACCEPTED. IN VIEW OF THIS FACT WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE FINDING OF THE CIT(A) THAT THE TRIAL BALANCE FOUND DURING T HE COURSE OF SURVEY WAS NOT THE ACTUAL TRIAL BALANCE BELONGING TO THE ASSESSEE. THUS GROUND NO .1 TAKEN BY THE REVENUE STANDS DISMISSED IN ALL THE ASSESSMENT YEARS. 8. GROUND NO.2 RELATES TO THE FINDING OF THE CIT(A) THAT THE SOCIETY EXISTS SOLELY FOR THE EDUCATION PURPOSES. 9. LD. D.R. VEHEMENTLY CONTENDED THAT THE SOCIETY D OES NOT SOLELY EXISTS FOR EDUCATION PURPOSES. IT HAS CARRIED OUT OTHER ACTIVITIES SUCH AS PROVIDING STATIONERY UNIFORM HOSTEL AND CONVEYANCE FACILITY TO THE STUDENTS. THE FEES RECE IVED FROM THE STUDENTS IS UTILISED FOR THE 5 PERSONAL BENEFIT OF THE OFFICE BEARERS OR TRUSTEES AND NOT FOR THE PURPOSE OF EDUCATION. THEREFORE THE PROVISIONS OF SECTION 10(23C)(IIIAD) WILL NOT A PPLY. 10. THE LD. A.R. ON THE OTHER HAND CONTENDED THAT THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE SOCIETIES ACT RUNNING THE EDUCATIONAL INSTITUTI ON. THE SOCIETY EXISTS SOLELY FOR EDUCATION PURPOSES. THE ANNUAL RECEIPTS IN EACH OF THE A.YS. IS LESS THAN RS.1 CRORE. THE SOCIETY IS RUNNING EDUCATIONAL SCHOOLS DULY RECOGNIZED AND AFF ILIATED TO M.P. AND C.B.S.E. BOARD. THE SOCIETY IS NOT CARRYING ON ANY BUSINESS AND PROFESS ION. EXEMPTION WAS DENIED BY THE A.O. WITHOUT GIVING ANY SPECIFIC REASON. THE A.O. MADE ALLEGATION OF PERSONAL BENEFIT OF THE OFFICE BEARERS AND TRUSTEES WITHOUT BRINGING ANY MATERIAL OR WITHOUT INDICATING WHAT BENEFIT WAS DERIVED BY THE OFFICE BEARERS AND THE TRUSTEES. RELIANCE W AS PLACED ON THE ORDER OF CIT(A) AND IT WAS CONTENDED THAT THE CIT(A) HAS RIGHTLY ALLOWED EXEMP TION TO THE ASSESSEE UNDER SECTION 10(23C)(IIIAD). 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ALONGWITH THE MATERIAL BEFORE US AND THE ORDER PASSED BY THE INCOME TAX AUTHORITIES. SEC TION 10(22) WHICH STOOD OMITTED BY FINANCE ACT 1998 W.E.F.1 ST APRIL 1999 READS AS UNDER :- 10(22) ANY INCOME OF A UNIVERSITY OR OTHER EDUCAT IONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSE S OF PROFIT. AFTER THE OMISSION OF SECTION 10(22) SECTION 10(2 3C) WAS INSERTED. 12. THE DISPUTE IN THE CASE OF THE ASSESSEE RELATES TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 10(23C)(IIIAD). THIS SECTION READS AS UNDE R :- 6 ANY INCOME RECEIVED BY ANY PERSON ON BEHALF OF ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATI ONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT IF THE AGGREGATE ANNUAL RECEIPTS OF SUCH UNIVERSITY OR EDUCATIONAL INSTITUTION DO NOT EXCEED THE AMOUNT OF ANNUAL RECEIPTS AS MAY BE PRESCRIBED. 13. FROM THE READING OF SECTION 10(22) AND 10(23C)( IIIAD) IT IS APPARENT THAT THE LANGUAGE USED IN BOTH THE SECTIONS ARE SIMILAR. UNDER SECTI ON 10(22) INCOME OF ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATI ONAL PURPOSES AND NOT FOR THE PURPOSE OF PROFIT WAS TOTALLY EXEMPT BUT NOW UNDER SECTION 10(23C)(II IAD) THE INCOME OF ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTIONAL EXISTING SOLELY FOR EDUCA TIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROFIT IS TOTALLY EXEMPT IF THE AGGREGATE ANNUAL RECEIPTS OF SUCH UNIVERSITY OR EDUCATIONAL INSTITUTION DO NOT EXCEED THE AMOUNT OF ANNUAL RECEIPT AS MAY BE P RESCRIBED. UNDER RULE 2BC OF THE INCOME- TAX RULES 1961 AMOUNT OF ANNUL RECEIPT HAS BEEN P RESCRIBED RS.1 CRORE FOR THE PURPOSE OF SECTION 10(23C)(IIIAD). THEREFORE WHERE THE ANNUA L RECEIPT OF ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATI ON PURPOSES AND NOT FOR THE PURPOSE OF PROFIT DO NOT EXCEED RS.1 CRORE THE INCOME DERIVED BY THEM W OULD BE FULLY EXEMPT. THIS IS A FACT ON RECORD THAT AS PER THE AUDITED BALANCE SHEET AND PR OFIT & LOSS ACCOUNT IN EACH OF THE A.Y. IN THE CASE OF THE ASSESSEE THE TOTAL RECEIPT OF THE ASSES SEES SOCIETY DO NOT EXCEED RS.1 CRORE. THE ASSESSEE IS RUNNING THE SCHOOLS WHICH ARE DULY RECO GNIZED BY THE M.P. AND C.B.S.E. BOARDS. THE ASSESSEE HAS ALSO PROVIDED THE FACILITIES IN THE CA MPUS TO THE STUDENTS IN THE FORM OF PROVIDING STATIONERY UNIFORM HOSTEL AND CONVEYANCE FACILITY . THE A.O. HAS DENIED EXEMPTION HOLDING THAT THE ASSESSEE IS ENGAGED NOT SOLELY FOR EDUCATIONAL PURPOSES. THE QUESTION ARISES WHETHER PROVIDING OF THESE FACILITIES WILL DEBAR THE ASSESS EE FROM CLAIMING THE EXEMPTION UNDER SECTION 10(23C)(IIIAD). IN OUR OPINION FOR AN INSTITUTION OR A TRUST OR THE SOCIETY TO BE ELIGIBLE FOR EXEMPTION UNDER SECTION 10(23C)(IIIAD) IN CASE THE ANNUAL RECEIPTS DO NOT EXCEED RS.1 CRORE. 7 BOTH THE CONDITIONS THAT THE EDUCATIONAL INSTITUTIO N EXISTS SOLELY FOR EDUCATIONAL PURPOSE AND THAT THE EDUCATIONAL INSTITUTION IS NOT ESTABLISHED FOR THE PURPOSE OF PROFIT MUST BE SATISFIED. THEREFORE THE TEST APPLIED IS WHETHER THE PREDOMIN ANT OBJECT OF THE ACTIVITY INVOLVED IN CARRYING OUT THE OBJECT OF THE INSTITUTION IS FOR EDUCATIONA L PURPOSE OR NOT. WHETHER SUCH INSTITUTION IS ESTABLISHED FOR CHARITABLE PURPOSES OR FOR EARNING THE PROFIT. IN CASE THE INSTITUTION IS ESTABLISHED TO CARRY OUT THE CHARITABLE PURPOSE AND NOT FOR THE PURPOSE OF PROFIT IN OUR OPINION IT WOULD NOT LOOSE ITS CHARACTER AS ESTABLISHED FOR CHARITABLE P URPOSE MERELY BECAUSE SOME PROFIT ARISE DURING THE CARRYING OUT OF THE ACTIVITY FOR WHICH IT IS ES TABLISHED. THE HONBLE SUPREME COURT HAD AN OCCASION TO CONSIDER THE SCOPE OF SECTION 10(22) (S IMILAR TO SECTION 10(23C)(IIIAD)) IN THE CASE OF ADITANAR EDUCATIONAL INSTITUTION VS. ADDL. CIT 224 ITR 310 WHERE THE APEX COURT HAS HELD THAT SECTION 10(22) OF THE ACT BEING PLAIN AND CLEAR IT REQUIRES THAT THE EXEMPTION SHOULD BE EVALUATED EVERY YEAR TO FIND OUT WHETHER THE INSTITUTION EXIS TED DURING THE RELEVANT YEAR SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT . IN THIS CASE IT HAS ALSO BEEN RULED THAT AFTER MEETING THE EXPENDITURE IF ANY SURPLUS RESULTS INC IDENTALLY FROM THE ACTIVITY LAWFULLY CARRIED ON BY THE EDUCATIONAL INSTITUTION IT WILL NOT CEASE T O BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES SINCE THE OBJECT IS NOT ONE TO MAKE THE PROFIT. TH E DECISIVE ORDER LAID DOWN IN THE ABOVE JUDGEMENT IS TO FIND OUT WHETHER ON AN OVERALL VIE W OF THE MATTER THE OBJECT IS TO MAKE PROFIT. IN THE VERY SAME JUDGEMENT THE APEX COURT ALSO HEL D THAT ONE SHOULD ALSO BEAR IN MIND THE DISTINCTION/DIFFERENCE BETWEEN THE CORPUS THE OBJE CTS AND THE POWERS OF THE CONCERNED ENTITY. THE APEX COURT GAVE THIS FINDING WHILE DISMISSING T HE ASSESSEES APPEAL AGAINST OBSERVATION OF THE MADRAS HIGH COURT WHEREIN THE HIGH COURT HAS HE LD THAT THE APPLICABILITY OF SECTION 10(22) SHOULD BE EVALUATED EVERY YEAR AND ONLY IF IT WAS F OUND THAT THE INSTITUTION EXISTED FOR EDUCATIONAL PURPOSES IN THE RELEVANT YEAR AND EVEN IF ANY PROFIT RESULTED WHICH WAS ONLY 8 INCIDENTAL TO THE PURPOSE OF EDUCATION THE INCOME WOULD BE EXEMPT. IN VIEW OF THE SAID JUDGEMENT WE ARE OF THE VIEW THAT IF A TRUST OR SO CIETY EXISTS SOLELY FOR EDUCATION PURPOSES AND IT RUNS EDUCATIONAL INSTITUTION ITS INCOME WILL BE TH E INCOME OF THE EDUCATIONAL INSTITUTION. THE FACT THAT THE ASSESSEE HAD OTHER OBJECT WILL NOT DISENTI TLE TO THE EXEMPTION SO LONG THE ACTIVITY CARRIED ON BY IT IN THAT A.Y. WAS THAT OF RUNNING AN EDUCAT IONAL INSTITUTION AND NOT FOR PROFIT. IN THE CASE OF THE ASSESSEE THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE EXISTED SOLELY FOR EDUCATIONAL PURPOSE I.E. FOR RUNNING SCHOOL AND NOT FOR MAKING PROFITS. IN FACT IN EACH OF THE A.YS. THERE IS NO SURPLUS IN THE CASE OF THE ASSESSEE. NOW THE QU ESTION ARISES WHETHER THE INCOME DERIVED BY THE ASSESSEE FROM PROVIDING STATIONERY UNIFORM HO STEL AND CONVEYANCE FACILITY TO THE STUDENTS WILL DISENTITLE THE ASSESSEE FROM CLAIMING EXEMPTIO N UNDER SECTION 10(23C)(IIIAD) OR NOT. IT IS NOT DENIED THAT THE ASSESSEE WAS RUNNING EDUCATIONAL IN STITUTION AND DERIVED INCOME FROM RUNNING OF EDUCATIONAL INSTITUTION. DURING THE COURSE OF RUNN ING EDUCATIONAL INSTITUTION THE ASSESSEE HAS PROVIDED STATIONERY UNIFORM HOSTEL AND CONVEYANCE FACILITY TO THE STUDENTS WITHIN THE CAMPUS OF THE EDUCATIONAL INSTITUTION. THE FACILITIES SO PRO VIDED ARE MERELY INCIDENTAL TO THE EDUCATIONAL INSTITUTION. IN THE CASE OF DIRECTOR OF INCOME-TAX (EXEMPTION) VS. INSTITUTE OF THE FRANCISCAN CLARIST 148 TAXMAN 78 (DEL) IT WAS HELD THAT WHER E BESIDES THE MAJOR ACTIVITY OF RUNNING SCHOOL THE ASSESSEE HAD ALSO A SMALL DISPENSARY AN D AN ORPHANAGE. THOUGH THE PRIMARY ACTIVITY WAS EDUCATION THE OTHER ACTIVITIES IT WAS HELD M AY BE TREATED AS PERMITTED AS INCIDENTAL TO AN EDUCATIONAL INSTITUTION. THEREFORE THE ASSESSEE W AS ENTITLED FOR THE EXEMPTION. SIMILAR VIEW HAS BEEN TAKEN BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VIDYA VIKAS VIHAR 265 ITR 489 (BOM.) IN WHICH IT WAS HELD AS UNDER :- SECTION 10(22) OF THE INCOME-TAX ACT 1961 PROVID ES THAT IN COMPUTING THE INCOME OF A PREVIOUS YEAR OF ANY PERSON ANY IN COME OF A UNIVERSITY OR 9 EDUCATIONAL INSTITUTION IS EXEMPTED PROVIDED IT EXI STS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. FOR THE P URPOSE OF EXEMPTION UNDER THIS PROVISION IT IS NOT NECESSARY THAT THE ASSESSEE SH OULD BE A UNIVERSITY OR THE EDUCATIONAL INSTITUTION. THE CHARACTER OF THE ASSE SSEE IS NOT MATERIAL. HE MAY BE ANY PERSON INCLUDING A PERSON ENGAGED IN BUSINESS OR PROFESSION AND EVEN THEN HE WOULD BE ENTITLED TO EXEMPTION UNDER SECTION 10( 22) OF THE ACT IN RESPECT OF ANY INCOME FALLING WITHIN THE SCOPE OF CLAUSE (22) OF SECTION 10 OF THE ACT. THE AVAILABILITY OF EXEMPTION SHOULD BE EVALUATED EVERY YEAR TO FIND OUT WHETHER THE INSTITUTION EXISTED DURING THE RELEVANT YEAR SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. THE RESPONDENT WAS A REGISTERED SOCIETY REGISTERED UNDER THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT AND IT WAS ENGAGED IN IM PARTING TECHNICAL EDUCATION TO STUDENTS. THE DOMINANT OBJECT OF THE RESPONDENT EDUCATIONAL INSTITUTION WAS TO OPEN AND RUN COLLEGE OF POLYTECHNIC TO IMPART TECHN ICAL EDUCATION. ONE OF THE OBJECTS SHOWN IN THE CONSTITUTION OF THE SOCIETY WA S TO CONSTRUCT HOUSES FOR WEAKER SECTIONS OF THE SOCIETY IF ANYTHING SURPLUS REMAIN ED AFTER INCURRING EXPENSES ON THE ACTIVITIES OF IMPARTING EDUCATION. THE CONSTIT UTION OF THE SOCIETY FURTHER STATED THAT IN CASE OF WINDING UP THE ASSETS OF THE SOCIE TY THE SURPLUS FUNDS AND/OR PROPERTY WERE TO BE DONATED TO ANOTHER EDUCATIONAL INSTITUTION. THE RESPONDENT CLAIMED EXEMPTION UNDER SECTION 10(22). THE ASSESS ING OFFICER REJECTED THE CLAIM BUT THE TRIBUNAL ALLOWED IT. ON APPEAL TO THE HIGH COURT : HELD DISMISSING THE APPEAL THAT IT WAS NOT IN DIS PUTE THAT THE ASSESSEE- INSTITUTION SOLELY EXISTED FOR EDUCATIONAL PURPOSES . THE INCIDENTAL OBJECT OF CONSTRUCTING HOUSES FOR WEAKER SECTIONS WAS NEVER I MPLEMENTED OR ACTED UPON BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR. HENC E THE ASSESSEE WAS ENTITLED TO EXEMPTION UNDER SECTION 10(22). 14. THE QUESTION ARISES THAT WHAT SHOULD BE THE MEA NING OF THE WORD NOT FOR THE PURPOSE OF EARNING PROFIT. IN OUR OPINION THIS WILL MEAN TH AT THE INSTITUTION IS NOT PRIMARILY ESTABLISHED FOR THE PURPOSE OF EARNING THE INCOME. IT DOES NOT MEA N THAT IN CASE THE INSTITUTION DERIVES ANY INCOME DURING THE COURSE OF CARRYING OUT ITS OBJECT S IT WILL BE REGARDED TO BE AN INSTITUTION ESTABLISHED FOR THE PURPOSE OF PROFIT. IT IS IMPOS SIBLE TO ATTAIN A SITUATION WHERE THERE MAY NOT BE ANY EXCESS OF THE INCOME OVER THE EXPENDITURE OR EX CESS OF THE EXPENDITURE OVER THE INCOME. IF AN ACTIVITY IS CARRIED OUT THERE IS BOUND TO BE AN EXCESS OF THE INCOME OVER THE EXPENDITURE OR EXCESS OF THE EXPENDITURE OVER THE INCOME. WE HAVE TO SEE WHAT IS THE PRIME OBJECT OF THE 10 INSTITUTION. WHETHER THE INSTITUTION IS ESTABLISHE D FOR THE PURPOSE OF EARNING THE INCOME. IF THE INSTITUTION IS NOT ESTABLISHED FOR EARNING OF INCOM E AND DURING THE CARRYING ON OF ITS ACTIVITIES IF SOME INCOME IS DERIVED BY THE INSTITUTION IT CANNO T BE SAID THAT THE INSTITUTION IS ESTABLISHED FOR THE PURPOSE OF EARNING INCOME. HONBLE SUPREME COU RT IN THE CASE OF ADDL. CIT VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION 121 ITR 1 (SC ) HAD AN OCCASION TO INTERPRET THE WORD NOT INVOLVING ANY ACTIVITY FOR PROFIT. IN THIS CASE THE HONBLE APEX COURT HAS HELD THAT THE TEST IS WHETHER THE PREDOMINANT OBJECT OF THE ACTIVITY IS T O MAKE PROFIT OR NOT. PROFIT MAKING IS NOT EXCLUDED. IT IS NOT NECESSARY THAT THE PROFIT MAKI NG ACTIVITY MUST SPECIFICALLY EXIST IN THE CONSTITUTION OF THE TRUST OR INSTITUTION. THEREFOR E SO LONG AS THE PURPOSE OF THE INSTITUTION DOES NOT INVOLVE CARRYING ON OF EDUCATIONAL ACTIVITY FOR PROFIT THE REQUIREMENT OF CONDITION GIVEN UNDER SECTION 10(23C)(IIIAD) COULD BE MET IF THE AC TIVITY OF THE EDUCATIONAL INSTITUTION IS CARRIED OUT NOT FOR THE PURPOSE OF PROFIT. BUT IN CASE THE CONSTITUTION OF THE TRUST OR THE INSTITUTION EXPRESSLY PROVIDE THAT THE PURPOSE OF RUNNING THE I NSTITUTION IS TO MAKE PROFIT THE ASSESSEE WILL NOT BE ENTITLED FOR THE EXEMPTION UNDER SECTION 10( 23C)(IIIAD). THUS WE HAVE TO SEE THE PREDOMINANT OBJECT OF THE ACTIVITY OF THE ASSESSEE. THE SPECIAL BENCH OF DELHI OF THIS TRIBUNAL IN THE CASE OF SAMAJ KALYAN PARISHAD VS. ITO 105 I TD 29 HAS ALSO TAKEN THE SIMILAR VIEW ALTHOUGH IN RELATION TO THE EXEMPTION CLAIMED UNDER SECTION 11. IN THIS CASE THE SPECIAL BENCH HAS HELD AS UNDER :- IF THE PROFITS OF THE BUSINESS CARRIED ON BY THE T RUST FEED THE CHARITABLE OBJECTS THEN IT CAN BE SAID THAT THE ACTIVITY EARNE D ON BY THE TRUST IS NOT GUIDED SOLELY BY A PROFIT MOTIVE. IN THE INSTANT CASE TH OUGH IT WAS NOT THE ASSESSEES CASE THAT THE BUSINESS OF MAHILA SHILP KALA KENDRA ITSEL F WAS HELD UNDER TRUST THAT WOULD NOT MAKE ANY DIFFERENCE TO THE ULTIMATE RESUL T BECAUSE THE SURPLUS FROM THE MAHILA SHILP KALA KENDRA HAD BEEN CONSISTENTLY APPL IED FOR THE CHARITABLE ACTIVITIES CARRIED ON BY THE ASSESSEE. 11 15. IN THE CASE OF TRUSTEES OF VANITA VISHRAM 280 ITR 345 (BOM) WHERE THE ASSESSEE TRUST WAS RUNNING EDUCATIONAL INSTITUTION DERIVED INCOME BY WAY OF INTEREST ON SURPLUS FUND AND THE QUESTION WHETHER THE ASSESSEE EXISTED FOR EDUCATION AL PURPOSES AND NOT FOR THE PURPOSES OF MAKING PROFIT. THE HONBLE HIGH COURT HAS HELD AS UNDER :- IF A TRUST OR SOCIETY EXISTS SOLELY FOR EDUCATIONA L PURPOSES AND IT RUNS AN EDUCATIONAL INSTITUTION ITS INCOME WILL BE THE INC OME OF THE EDUCATIONAL INSTITUTION AND THEREFORE EXEMPTED UNDER SECTION 10(22) OF TH E INCOME-TAX ACT 1961. THE FACT THAT THE ASSESSEE HAD OTHER OBJECTS WILL NOT D ISENTITLE IT TO THE EXEMPTION SO LONG AS THE ACTIVITY CARRIED ON BY IT IN THAT ASSES SMENT YEAR WAS THAT OF RUNNING AN EDUCATIONAL INSTITUTION AND NOT FOR PROFIT. THE SI GNIFICANCE OF THE EXPRESSION ANY INCOME OF A UNIVERSITY OR OTHER EDUCATIONAL INSTITU TION IN SECTION 10(22) HAS TO BE NOTICED. BOTH WORDS ANY AND OF CARRY A DEFI NITE MEANING. IT IS NOT INCOME FROM THE EDUCATIONAL INSTITUTION THAT IS EXE MPT BUT ANY INCOME OF THE EDUCATIONAL INSTITUTION. IF THE WORD HAD BEEN FRO M THE POSITION WOULD HAVE BEEN THAT THE INCOME SHOULD HAVE BEEN DERIVED FROM THE ACTUAL RUNNING OF THE SCHOOL ITSELF. WHAT IS RELEVANT IS THAT THE INCOME SHOULD REACH THE SCHOOL TO BE UTILISED BY IT FOR EDUCATIONAL PURPOSES AND NOT FOR THE PURPOSES OF PROFIT. GRANTING EXEMPTION TO THE INCOME OF THE EDUCATIONAL INSTITUTION IS TO ENABLE SUCH INSTITUTION TO UTILISE THE MONEYS AVAILABLE WITH IT FOR THE PURPOSE OF RUNNING EDUCATIONAL INSTITUTIONS. THE SOURCE FROM WHICH TH E MONEYS ARE RECEIVED IS OF NO CONSEQUENCE WHAT IS RELEVANT IS THE APPLICATION OF INCOME. SO LONG AS THE INCOME OF THE INSTITUTION WHICH SOLELY EXISTS FOR EDUCATI ONAL PURPOSE AND NOT FOR EARNING PROFIT IS APPLIED FOR EDUCATIONAL PURPOSE SUCH IN COME OF THE INSTITUTION IS EXEMPTED UNDER SECTION 10(22). THE ASSESSEE WAS TRUST FORMED WITH THE OBJECT OF RU NNING AND MAINTAINING SCHOOLS FOR IMPARTING RELIGIOUS SECULAR AND INDUST RIAL EDUCATION AND TRAINING IN FINE ARTS AND LIBRARIES INCLUDING CIRCULATING LIBRA RIES AND READING ROOMS WITH ALLIED OBJECTS OF PROVIDING GYMNASIUMS PLAYGROUNDS ETC. INCIDENTAL TO THE EDUCATIONAL ACTIVITIES. THE TRUST FILED A RETURN S HOWING THE INTEREST INCOME EARNED FROM THE INVESTMENT OF SURPLUS INCOME (FUNDS) OF TH E SCHOOLS RUN BY IT AND CLAIMED EXEMPTION UNDER SECTION 10(22). THE EXEMPTION WAS DENIED BY THE INCOME-TAX OFFICER. THIS WAS UPHELD BY THE COMMISSIONER (APPE ALS) AND THE TRIBUNAL. ON A REFERENCE A: HELD THAT THERE WAS NO DISPUTE ABOUT THE FACT THAT THE ASSESSEE EXISTED ONLY FOR EDUCATIONAL PURPOSES VIZ. FOR RUNNING SC HOOLS AND NOT FOR THE PURPOSES OF MAKING PROFIT. THE ASSESSEE WAS ENTITLED TO EXE MPTION UNDER SECTION 10(22) ON INTEREST EARNED ON SURPLUS FUNDS OF THE SCHOOLS RUN BY THE ASSESSEE-TRUST FOR THE ASSESSMENT YEARS 1979-80 AND 1980-81. 12 16. IN THE CASE OF CIT VS. DELHI KANNADA EDUCATION SOCIETY 246 ITR 731 (DELHI) PAGE NO.734 IT WAS HELD THAT IF AN EDUCATIONAL INST ITUTION MAKES PROFIT INCIDENTALLY BY PUBLISHING AND SELLING THE TEXT BOOK IT WILL NOT D EBAR FROM CLAIMING EXEMPTION UNDER SECTION 10(22). IN THIS CASE THERE WAS A CLEAR CU T FINDING GIVEN THAT THE INCOME FROM THE PRIMARY SCHOOL WAS USED FOR EDUCATIONAL PURPOSE AND NOT FOR PROFIT. IT WAS ALSO HELD IN THIS CASE THAT EVEN IF AN EDUCATIONAL INSTITUTION M AKES PROFITS AND SUCH PROFITS WERE APPLIED ONLY FOR THE SPREAD OF EDUCATION IT WAS EN TITLED TO EXEMPTION UNDER SECTION 10(22). 17. WHETHER THE INSTITUTION IS ESTABLISHED FOR THE PURPOSE OF PROFIT OR NOT IN OUR OPINION APPLICABILITY OF THE INCOME OF THE INSTITUTION WILL ALSO HAVE A BEARING. THERE IS NO ALLEGATION IN THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAS NOT UTILISED THE FUND GENERATED FROM THE RUNNING OF EDUCATIONAL INSTITUTION FOR THE PURPOSE OTHER THAN THE EDUCATIONAL PURPOSES. UNDER SECTION 2(15) EDUCATION IS ALSO A CHARITABLE PURPOSE. THEREFORE IF THE INCOME IS APPLIED FOR CHARITABLE PURPOSE IT CANNOT BE SAID THAT IT IS ESTABLISHED FOR THE PU RPOSE OF PROFIT. 18. IN VIEW OF THE SAID POSITION OF LAW WE ARE OF THE VIEW THAT THE ASSESSEE WILL BE ENTITLED FOR EXEMPTION UNDER SECTION 10(23C)(IIIAD) AS THE A SSESSEE COMPLIED WITH THE CONDITIONS AS LAID DOWN UNDER THAT SECTION READ WITH RULE 2BC. IN EAC H OF THE A.YS. THE TOTAL ANNUAL RECEIPT DOES NOT EXCEED RS.1 CRORE. THE ASSESSEES INSTITUTION EXISTED IN EACH OF THE A.Y. SOLELY FOR EDUCATIONAL PURPOSE AND THE OBJECT OF THE INSTITUTI ON IS NOT FOR THE PURPOSE OF PROFIT. OUR AFORESAID VIEW IS SUPPORTED BY THE FOLLOWING DECISI ONS :- 13 1) CIT VS. A.M.M. ARUNACHALAM EDUCATIONAL SOCIETY 243 ITR 229 (MAD.) 2) CIT VS. SHRI LAL BAHADUR SHASTRI EDUCATIONAL SO CIETY 252 ITR 837 (RAJ.) 3) CIT VS. GEETHA BHAVAN TRUST 213 ITR 296 (KER.) 4) CIT VS. RAJASTHAN STATE TEXT BOOK BOARD 244 IT R 667 (RAJ.) 5) CIT VS. LAGAN KALA UPVAN 259 ITR 489 (DELHI) 19. WE THEREFORE DO NOT FIND ANY INFIRMITY OR ILL EGALITY IN THE ORDER OF THE CIT(A) AND ACCORDINGLY CONFIRM THE SAME. 20. IN THE RESULT THE APPEALS FILED IN EACH OF THE ASSESSMENT YEAR BY THE REVENUE STAND DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 27.08.2010). SD/- SD/- (R.K. GUPTA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 27 TH AUGUST 2010. PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR ITAT AGRA BENCH AGRA 6. GUARD FILE ASSIST ANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL AGRA TRUE COPY