2006 (7) TMI 356 - AT - Income Tax

Education Society Granted Tax Exemption for Surplus Use

Deputy Commissioner of Income-tax, Haldwani, Distt. Nainital Versus St. Pauls Sr. Secondary School

Deputy Commissioner of Income-tax, Haldwani, Distt. Nainital Versus St. Pauls Sr. Secondary School - [2006] 9 SOT 702 (DELHI) Issues Involved:1. Entitlement to exemption under section 10(23C)(iiiad) of the Income-tax Act, 1961.Detailed Analysis:1. Entitlement to Exemption Under Section 10(23C)(iiiad):The primary issue in this appeal is whether the assessee society is entitled to exemption under section 10(23C)(iiiad) of the Income-tax Act, 1961. The appellant society, registered under the Societies Registration Act, has been imparting education and claimed exemption under the aforementioned section. The Assessing Officer (AO) contested this claim, arguing that the exemption is available to educational institutions akin to a university in terms of stature, management, regulatory mechanisms, and standard of education. The AO doubted the eligibility of the appellant society's school under this section, asserting that the main objective of the society was profit-making rather than solely educational purposes. The AO further noted that the society utilized the surplus for religious and charitable purposes instead of educational activities, thereby disqualifying it from the exemption.The learned CIT(A) disagreed with the AO, stating that all objects of the society pertained to education, with no mention of charitable or religious purposes. Citing decisions from the Hon'ble Supreme Court and various High Courts, the CIT(A) concluded that the assessee is entitled to the exemption under section 10(23C)(iiiad). The revenue appealed against this decision.The learned DR argued that the society was operating on commercial lines, as evidenced by the significant surplus generated from fees compared to the expenses claimed. This surplus indicated that the institution existed for profit rather than solely for educational purposes.Upon reviewing the facts and arguments, it was noted that the appellant society had a long history of educational activities, starting with five students in 1959 and growing to about 2000 students with substantial investments in infrastructure. The society's surplus over the years was primarily used for educational purposes, such as expanding and improving facilities, rather than for private profit or non-educational activities. The AO failed to provide evidence that the surplus was diverted for non-educational purposes.Section 10(23C)(iiiad) exempts income received by any educational institution existing solely for educational purposes and not for profit. The mere presence of a surplus does not disqualify an institution from this exemption if the surplus is incidental to the educational purpose. The AO misinterpreted the Supreme Court's judgment in the case of Aditanar Educational Institution, which clarified that incidental profit does not negate the educational purpose. The AO also incorrectly applied the judgment in Safdarjung Enclave Educational Society's case, which pertained to property tax under the Delhi Municipal Corporation Act and was irrelevant to the Income-tax Act.In conclusion, the assessee society was found to be engaged in imparting education, with the surplus used for enhancing educational facilities. The society did not utilize any part of the surplus for personal gain. Consequently, the appeal was dismissed, and the assessee trust was held entitled to the exemption under section 10(23C)(iiiad) of the Act.