1985 (1) TMI 36 - HC - Income Tax

Society qualifies for tax exemption as educational institution.

The Tribunal determined that the assessee, a society registered under the West Bengal Societies Registration Act, qualified as an educational institution ... Exemption under section 10(22) - Educational institution existing solely for educational purposes - Affiliation to a university or board not a condition for exemption - Commencement of educational activity and preparatory acts - Existence of other charitable objects and territorial limitation of exemptionExemption under section 10(22) - Educational institution existing solely for educational purposes - Affiliation to a university or board not a condition for exemption - Commencement of educational activity and preparatory acts - Existence of other charitable objects and territorial limitation of exemption - Whether Doon Foundation is an educational institution entitled to exemption under section 10(22) of the Income-tax Act, 1961. - HELD THAT: - The Court examined the objects in the memorandum of association and the activities carried out by the society and held that the Foundation was established as an educational institution existing solely for educational purposes and not for profit. The memorandum expressly authorised the establishment, management and conduct of schools, colleges, technical and vocational institutes and contained a clause excluding any activity found to be outside the scope of solely educational purpose. The Court rejected the Revenue's contention that affiliation to a university or board is a precondition for exemption under s.10(22), observing that the provision requires only that the income be of an educational institution existing solely for educational purposes and not for profit. The Court further held that preliminary steps towards running courses (such as beginning regular classes in Hindi and purchasing books and periodicals) constituted commencement of educational activity and were sufficient to show that the institution had been set on foot in the relevant year. Finally, the Court explained that the mere fact that a society or trust has other charitable objects does not disentitle it to exemption in respect of income derived from an educational institution; exemption applies to the income that is derived from the source which exists solely for educational purposes. Applying these principles to the facts, the Court concluded that the Tribunal was right in holding the assessee entitled to exemption under s.10(22).The Tribunal was justified in holding that Doon Foundation is an educational institution entitled to exemption under section 10(22).Final Conclusion: Reference answered in the affirmative: Doon Foundation is an educational institution existing solely for educational purposes and entitled to exemption under section 10(22) of the Income-tax Act, 1961; affiliation to a university is not a prerequisite and preparatory acts showing commencement of educational activity suffice. Issues Involved:1. Whether the assessee is an educational institution entitled to exemption u/s 10(22) of the I.T. Act, 1961.2. Whether the educational institution must be affiliated to a university to qualify for exemption u/s 10(22).3. Whether the assessee's activities during the relevant previous year qualify it as an educational institution.Summary:Issue 1: Educational Institution and Exemption u/s 10(22)The assessee, a society registered under the West Bengal Societies Registration Act, 1961, claimed exemption u/s 10(22) of the I.T. Act, 1961, as an educational institution. The ITO denied the exemption, citing the assessee's other charitable objects and the benefits already granted u/s 80G and u/s 11. The AAC, upon examining the trust deed, found that the assessee was entitled to the exemption, noting that the society was formed as an educational institution existing solely for educational purposes. The Tribunal upheld the AAC's decision, emphasizing that the objects of the trust were purely educational and that any non-educational activity would be deemed non est.Issue 2: Affiliation Requirement for Exemption u/s 10(22)The Revenue argued that the assessee was not a recognized educational institution like a university and thus not entitled to exemption u/s 10(22). The Tribunal, however, found that the educational institution need not be affiliated to any university to qualify for the exemption. The court cited several precedents, including Addl. CIT v. Aditanar Educational Institution and CIT v. Sindhu Vidya Mandal Trust, which established that an educational institution need not be affiliated to a university to be eligible for exemption u/s 10(22).Issue 3: Activities During the Relevant Previous YearThe Revenue contended that the assessee had not started functioning as an educational institution and was in the preparatory stage, thus not qualifying for the exemption. The court, however, found that the assessee had commenced activities connected with imparting education, such as preparing for regular classes and purchasing books and periodicals. These activities were deemed steps towards running a full-fledged educational institution. The court concluded that the educational institution had been established during the relevant previous year.Conclusion:The Tribunal was justified in holding that the assessee was an educational institution entitled to exemption u/s 10(22) of the I.T. Act, 1961. The question was answered in the affirmative, in favor of the assessee and against the Revenue. There was no order as to costs.