1997 (2) TMI 3 - SC - Income Tax

Educational societies solely for educational purposes qualify for exemption under section 10(22); incidental surpluses don't deny status

SC held that an educational society or trust established to run, manage or assist colleges, schools or other educational institutions solely for ... Scope of section 10(22) - exemption - Incomes not included in total income - donations received from a trust called 'Thanthi Trust' during the previous year - incurred loss for all the three years - Registered society - run manage, assist college, schools & other educational organisations existing solely for educational purposes - HELD THAT:- We are of the view that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit could be regarded as 'other educational institution' coming within section 10(22) of the Act. (See CIT v. Doon Foundation [1985 (1) TMI 36 - CALCUTTA HIGH COURT] and Agarwal Shiksha Samiti Trust v. CIT [1987 (8) TMI 80 - RAJASTHAN HIGH COURT]. It will be rather unreal and hyper technical to hold that the assessee-society is only a financing body and will not come within the scope of 'other educational institution' as specified in section 10(22) of the Act. The object of the society is to establish, run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard to raise or collect funds, donations, gifts, etc. Colleges and schools are the media through which the assessee imparts education and effectuates its objects. In substance and reality, the sole purpose for which the assessee has come into existence is to impart education at the levels of colleges and schools and so, such an educational society should be regarded as an 'educational institution' coming within section 10(22) of the Act. We hold accordingly. In our view, the judgment of the High Court does not merit interference. The plea of the Revenue to the contrary is untenable and we repel the same. All the appeals filed by the Revenue shall stand dismissed, but there shall be no order as to costs. We may state that the language of section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity. Appeals filed by the assessee also fail and they are dismissed. Issues Involved:1. Interpretation of Section 10(22) of the Income-tax Act, 1961.2. Whether the income of the assessee is entitled to exemption under Section 10(22).Detailed Analysis:1. Interpretation of Section 10(22) of the Income-tax Act, 1961:The central issue in this batch of 18 cases is the interpretation of Section 10(22) of the Income-tax Act, 1961. This section exempts 'any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit' from being included in the total income for tax purposes. The main case, Addl. CIT v. Aditanar Educational Institution, reported in [1979] 118 ITR 235, is pivotal as it sets the precedent for the interpretation of this section.The High Court's interpretation, which was upheld by the Supreme Court, clarified that 'any educational institution' under Section 10(22) includes institutions like colleges and schools, even if they are not directly affiliated with a university. The High Court stated, ''Any educational institution' would fall within the scope of section 10(22) even though it may have or may not have anything to do with the University. The categories are so different that the University cannot be the genus, and the 'other educational institution' the species thereof.'2. Whether the income of the assessee is entitled to exemption under Section 10(22):The assessee, Aditanar Educational Institution, a society registered under the Societies Registration Act, 1960, established for educational purposes, received donations from Thanthi Trust. The Income-tax Officer initially assessed the income as 'nil,' considering the assessee's claim that it existed solely for educational purposes and incurred losses.However, the Commissioner of Income-tax initiated proceedings under Section 263, arguing that the Income-tax Officer's assessment was erroneous and prejudicial to the Revenue. The Commissioner contended that the assessee was not entitled to exemption as it was not directly running an educational institution but merely financing one.The Appellate Tribunal and the High Court both held that the assessee was an institution existing solely for educational purposes and not for profit. They concluded that the assessee itself could be termed an 'educational institution' within the meaning of Section 10(22). The High Court further noted that the medium through which the assessee effectuates its educational purposes is the college it established, and thus, it cannot be regarded merely as a financing body.The Supreme Court upheld these findings, stating, 'We are of the view that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit could be regarded as 'other educational institution' coming within section 10(22) of the Act.'The Court dismissed the Revenue's argument, emphasizing that the object of the society was to establish, run, manage, or assist educational institutions solely for educational purposes. The Court concluded that such a society should be regarded as an 'educational institution' under Section 10(22).Conclusion:The Supreme Court dismissed all appeals filed by the Revenue, affirming that the assessee's income is entitled to exemption under Section 10(22) of the Income-tax Act, 1961. The Court clarified that the availability of the exemption should be evaluated each year to determine if the institution existed solely for educational purposes and not for profit. The appeals filed by the assessee were also dismissed, with the Court noting that the High Court's judgment was in favor of the assessee, and any apprehensions about future implications were unfounded.