1992 (2) TMI 74 - HC - Income Tax

Assessee qualifies as educational institution under section 10(22) despite incidental property income; primary educational objects decisive

Gujarat State Co-operative Union Versus Commissioner Of Income-Tax

HC held that the assessee qualifies as an educational institution 'existing solely for educational purposes' under section 10(22) despite having ... Entitlement to exemption from tax under section 10(22) - educational institution - Nature of the activities - whether the assessee is an educational institution existing, solely for educational purposes and not for purposes of profit within the meaning of section 10(22) of the Act - HELD THAT:- Mere existence of profit will not disqualify the institution if the sole purpose of its existence is not profit-making but is educational activity. Incidental activities connected with the educational purposes for which the institution exists which result in income will not disqualify the institution, for section 10(22), by its very nature, contemplates income of such institutions which is to be exempted under that provision. It is, therefore, difficult to accept the contention canvassed on behalf of the Revenue by the learned advocate, Mr. Shelat, that because the assessee was having income from its properties, it was not qualified to get exemption under section 10(22) of the Act. Since, in the Present case, we have found that the assessee, having regard to its objects and nature of its activities, is clearly an educational institution existing solely for educational purposes, the decision of the Madras High Court in Rao Bahadur A K. D. Dharmaraja Education Charity Trust v. CIT [1989 (10) TMI 38 - MADRAS HIGH COURT], also cannot help the Revenue because it was found in that case that only a very small amount was spent for educational purposes by the assessee which was a public charitable trust leaving huge surplus for other charitable purposes and, therefore, it was held that it could not be said that the institution was existing solely for educational purposes in order to attract section 10(22) of the Act. It was found that the said trust was carrying on the business of leasing a cinema theatre out of the income for which a small portion was spent for maintaining an educational institution while a larger portion was spent for other charitable purposes. Thus, we hold that the Tribunal was not right in law in holding that the assessee was not entitled to exemption from tax under section 10(22) of the Act for the assessment years 1972-73 to 1977-78 and answer the question in the negative and against the Revenue. Issues Involved:1. Entitlement to carry forward and set off past losses u/s 154 of the Income-tax Act, 1961.2. Entitlement to exemption from tax u/s 10(22) of the Income-tax Act, 1961.Summary:Issue 1: Entitlement to Carry Forward and Set Off Past Losses u/s 154The assessee, Gujarat State Co-operative Union, claimed that the surplus realized should be set off against past losses determined and ascertained. The Income-tax Officer rejected this claim, but the appellate authorities allowed it. The Tribunal, however, held that the assessee was not entitled to carry forward and set off past losses in rectification proceedings as it was debatable whether the assessee had any business income. The Tribunal stated that such questions could not be addressed in rectification proceedings.Issue 2: Entitlement to Exemption from Tax u/s 10(22)The assessee also claimed exemption u/s 10(22) of the Act, asserting it was an educational institution existing solely for educational purposes. The Income-tax Officer rejected this claim, but the appellate authorities allowed it. The Tribunal, however, denied the exemption, interpreting the Supreme Court's decision in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 to mean that the assessee's objects were not solely educational.The High Court examined the objects and activities of the assessee, which included imparting education to members of co-operative societies, conducting training classes, and publishing educational literature. The Court concluded that the assessee existed solely for educational purposes and not for profit. The Court clarified that the Supreme Court's observations in Loka Shikshana Trust's case did not restrict the meaning of 'education' to traditional schooling but included systematic dissemination of knowledge and training in specialized subjects.The Court held that the Tribunal misread the Supreme Court's observations and that the assessee's activities qualified it as an educational institution under section 10(22). The Court emphasized that incidental income from educational activities does not disqualify an institution from exemption if its primary purpose is educational.Conclusion:The High Court concluded that the Tribunal was not right in law in holding that the assessee was not entitled to exemption from tax u/s 10(22) for the assessment years 1972-73 to 1977-78. The question was answered in the negative and against the Revenue, with no order as to costs.