Educational institution exemption turns on school-wise purpose, trustee benefit, and proof; unsupported trading additions cannot survive.

Exemption for educational institutions under section 10(22) must be tested school-wise, and incidental surplus does not by itself defeat the exemption if the dominant object remains education. On the facts noted, unaccounted collections, unrecorded payments and trustee benefit disentitled the assessee for the earlier years, while no adverse material was found for the later year. Exemption under section 11 likewise depended on compliance with trust conditions and absence of personal benefit under section 13(1)(c); misuse of trust funds for trustees led to denial for the earlier years, but the later year was not affected. An estimated profit addition on sale of uniforms and allied materials was unsustainable without supporting material, while the other disputed additions were upheld and donations, absent proof of corpus character, were treated as income.

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Issues: (i) Whether the assessee-society and the schools run by it were entitled to exemption under section 10(22) of the Income-tax Act, 1961 for the relevant assessment years; (ii) whether the assessee was entitled to exemption under section 11 of the Income-tax Act, 1961 in view of the alleged personal benefit to trustees and violations of section 13(1)(c); (iii) whether the additions made on account of profit on sale of uniforms and other materials, donations, and unaccounted payments were sustainable.

Issue (i): Whether the assessee-society and the schools run by it were entitled to exemption under section 10(22) of the Income-tax Act, 1961 for the relevant assessment years.

Analysis: The entitlement to exemption had to be examined school-wise, and not by treating the society as a single composite activity without analysing each educational institution. Surplus by itself was not decisive if the dominant object remained education. For assessment years 1989-90 and 1990-91, the record showed unaccounted collections, unrecorded payments and personal benefit to trustees, so the schools could not be treated as existing solely for educational purposes for those years. For assessment year 1991-92, there was no adverse material, the alleged remuneration to trustees was found incorrect, and no violation affecting the educational character was established.

Conclusion: Exemption under section 10(22) was not available for assessment years 1989-90 and 1990-91, but was available for assessment year 1991-92.

Issue (ii): Whether the assessee was entitled to exemption under section 11 of the Income-tax Act, 1961 in view of the alleged personal benefit to trustees and violations of section 13(1)(c).

Analysis: Exemption under section 11 depended on the income being applied in accordance with the statutory trust conditions and on there being no personal benefit to trustees. For assessment years 1989-90 and 1990-91, the unaccounted donations and payments showed misuse of trust money for personal benefit, attracting section 13(1)(c). For assessment year 1991-92, the finding of remuneration to trustees was held factually incorrect and no contravention was established.

Conclusion: Exemption under section 11 was denied for assessment years 1989-90 and 1990-91, but was available for assessment year 1991-92.

Issue (iii): Whether the additions made on account of profit on sale of uniforms and other materials, donations, and unaccounted payments were sustainable.

Analysis: The addition for alleged profit on sale of uniforms and allied materials for assessment year 1990-91 was based on surmise and conjecture and lacked supporting material, so it could not stand. The addition relating to unaccounted payment to one party was upheld in the absence of any effective challenge. The remaining additions relating to payments to other parties were also sustained. Donations, in the absence of proof that they were corpus donations, formed part of income.

Conclusion: The addition for alleged profit on sale of uniforms and allied materials was deleted, while the other challenged additions were sustained.

Final Conclusion: The assessee succeeded on the school-wise exemption issue for the later year and on the deletion of one estimated trading addition, but failed on the principal exemption controversy for the earlier years and on the remaining disputed additions.

Ratio Decidendi: Exemption for an educational institution depends on whether each institution, on an overall view, exists solely for education and not for profit, and incidental surplus does not by itself defeat the exemption unless trust funds are shown to be used for personal benefit or non-educational purposes.

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