The Commissioner Of Income-Tax vs Delhi Kannada Education Society
2000 Latest Caselaw 811 Del

ORDER

Arijit Pasayat, C.J.

1. At the instance of revenue following question has been referred under Section 256(1) of the Incometax Act, 1961(in short the 'Act') for opinion of this Court, by the Incometax Appellate Tribunal, Delhi Bench `D' (in short the Tribunal):

"Whether on the facts and in the circumstances of the case, the assessee is entitled to exemption of the income from its primary school under section 10(22) of the Incometax Act, 1961?"

2. Factual position in nut shell is as follows. Assessee is a society registered under the Societies Registration Act, 1860 (in short the Registration Act). It runs a primary school, a middle school and a higher secondary school. It claimed its income to be exempt under Section 10(22) of the Act. Assessing Officer accepted assessee's claim of exemption in relation to its middle and higher secondary schools. But as regards the primary school he noted that it was unaided and had substantial income and, therefore, it had to be taken that it was run for profit. That being the position, assessee's claim for exemption under Section 10(22) of the Act was rejected. Matter was carried in appeal before the Appellate Assistant Commissioner (in short the A.A.C.). After having examined the objects of the society, A.A.C. came to hold that the society is an educational institution and the said institution was not run for profit. Accordingly it was held that provisions of section 10(22) of the Act were applicable to the income derived by the society. Matter was carried in further appeal before the Tribunal by the revenue. It concurred with the findings of the A.A.C.

3. At the instance of revenue reference has been made as aforesaid.

4. According to learned counsel for the revenue the objects of the Society prima facie give an indication about the profit making intentions and, therefore, Section 10(22) of the Act was rightly not held applicable by the Assessing Officer.

We have heard learned counsel for the revenue. None appears for the assessee in spite of notice.

5. The objects of the society as noted by the Appellate Assistant Commissioner from Memorandum of Association of the Society are as follows :

"3. The objects for which the Society is established are:

(i) to construct and to carry on the Administration and Manage ment of the Delhi Kannada School hereinafter called the School;

   (ii) to prescribe and conduct courses of instruction and training    in general education up to the Higher Secondary Examination held    by the Delhi State; 
 

   (iii) to admit candidates for the education and training courses,    to prescribe rules and regulations for and to hold examination    and declare the results and to award diplomas or certificates; 
 

   (iv) to supervise the residences, progress, health and discipline    of the students; 
 

   (v) to cooperate with any other organisation with similar objectives in the matter of general education and training; and
 

   (vi) to do all such other acts and things which the society may    consider necessary, conducive or incidental to the attainment or    enlargement of the aforesaid objects or any one of them."   
 

6. In terms of clause 5 of the Memorandum no portion of the income and property of the Society could be transferred directly or indirectly in any manner to the members of the Society, past or present or anyone claiming through them. Said clause read as follows:

"5. The Income and property of the society, however, derived shall be applied towards the promotion of the objects thereof as set forth on the memorandum of Association. No portion of the Income and property of the society shall be paid or transferred directly or indirectly by way of dividends, bonus or otherwise however by way of profits, to the person who at any time are or have been members of the society or to any of them or to any person claiming through them or any of them provided that nothing herein contained shall prevent the payment in good faith or remuneration to any member thereof or other person in return for any service rendered to the society or for travelling allowance, halting and other similar charges."

It was also noted that though primary school was unaided, society's primary and middle departments had been given provisional recognition by the Delhi Administration upto 30th April, 1974 and income and expenditure in respect of the primary school was also being directly transferred to the income and expenditure statement of the society and the surplus from the primary school was being used for aiding the middle and secondary schools. A.A.C gave categorical finding that the income of the primary school was utilised for educational purposes and not for the purpose of profit. Such conclusion was affirmed by the Tribunal.

7. Conditions precedent for availing exemption to an educational institution under Section 10(22) of the Act are as follows:

   (a) The educational institution must actually exist for applica-   tion of the said provision and mere taking of steps would not be    sufficient to attract the exemption. 
 

   (b) The educational institution need not be affiliated to any    University or Board; in fact a society need not itself be imparting education and it is enough if it runs some schools or colleges; 
 

   (c) The educational institution must exist solely for educational    purposes and not for purposes of profit. But merely because there    is a surplus, that is to say a surplus of receipts over expenditure it cannot be said that the educational institution exists    for profit; 
 

   (d) An entity may be having income from different sources, but if    a particular income is from an educational institution which    exists solely for educational purposes and not for purposes of    profit, then that income would be entitled to exemption and    further the income should be directly relatable to educational    activity. This position operated from Assessment Year 1962-63 to    1998-99.   
 

8. Both A.A.C. and Tribunal analysed the factual position and recorded conclusions as referred to above. It is to be noted that if educational institution makes profit, incidentally, for example by publishing and selling text books, and such profits are to be applied only for the spread of education, it is entitled to exemption under Section 10(22) of the Act. We, therefore, are of the view that in the background facts as noted by the Tribunal its conclusions are irreversible. Accordingly we answer the question referred in the affirmative, in favour of assessee and against the revenue.

9. The reference stands disposed of.