High Court grants exemption under Section 10(22) of Income Tax Act to educational institution.

DEPUTY DIRECTOR OF INCOME TAX Versus SHANTI DEVI PROGRESSIVE EDUCATION SOCIETY

DEPUTY DIRECTOR OF INCOME TAX Versus SHANTI DEVI PROGRESSIVE EDUCATION SOCIETY - [2012] 340 ITR 320 Issues Involved:
1. Denial of exemption under Section 10(22) of the Income Tax Act, 1961.
2. Examination of whether the institution existed solely for educational purposes and not for profit.
3. Evaluation of the rule of consistency in granting exemptions.
4. Analysis of the legality of funds collected under different heads (Admission Fee, Corpus Fund, and Loans from parents).

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 10(22) of the Income Tax Act, 1961
The primary issue was whether the respondent/assessee was entitled to exemption under Section 10(22) of the IT Act for the Assessment Year 1993-94. The Assessing Authority and CIT(A) denied the exemption, but the ITAT's majority opinion favored the respondent/assessee. The High Court framed the question of law as: "Whether the claim of the respondent for exemption under Section 10(22) of the Income Tax Act, 1961 was allowableRs."

2. Examination of Whether the Institution Existed Solely for Educational Purposes and Not for Profit
The Assessing Officer scrutinized three components: Admission Fee, Corpus Fund, and Loan from parents. The assessment order highlighted that the Society carried on educational activities but raised funds in a manner suggesting it was a "money-making machinery rather than a charitable institution." The CIT(A) upheld this view, noting that funds were collected from parents under the guise of education, despite the respondent/assessee having substantial fixed deposits and bank balances. The ITAT's Judicial Member agreed with this view, but the Accounting Member and the President of ITAT found that the institution existed solely for educational purposes, as evident from its objects and the application of funds towards educational infrastructure.

3. Evaluation of the Rule of Consistency in Granting Exemptions
The respondent/assessee had been granted exemption under Section 10(22) for preceding and subsequent years. The Department argued that the principle of res judicata does not apply to assessment proceedings, but the rule of consistency does. The High Court noted that the rule of consistency should be maintained, especially when there was no change in the facts or the Memorandum of Association of the Society. The Court referred to several judgments emphasizing that an educational institution should not be denied exemption merely because it generated surplus, as long as the surplus was used for educational purposes.

4. Analysis of the Legality of Funds Collected Under Different Heads
The Assessing Officer questioned the treatment of Admission Fee, Corpus Fund, and Loans from parents. The CIT(A) and the Judicial Member of ITAT viewed these collections as indicative of profit motives. However, the Accounting Member and the President of ITAT found these collections to be within the powers given under the Memorandum of Association and used solely for educational purposes. The High Court noted that there was no evidence of funds being diverted for non-educational purposes or personal gains. The Court also found that the provisions of the Delhi School Education Act, 1973, cited by the Department, were not applicable to unaided institutions like the respondent/assessee.

Conclusion:
The High Court concluded that the respondent/assessee was entitled to exemption under Section 10(22) of the IT Act. The Court emphasized that the institution existed solely for educational purposes and not for profit-making. The rule of consistency was upheld, and the funds collected were found to be used for legitimate educational purposes. The appeal of the appellant/Department was dismissed, affirming the majority opinion of the ITAT.