2002 (2) TMI 308 - AT - Income Tax

Appeal granted for educational society, remanded for re-examination

Shree Education Society. Versus Assistant Director Of Income-Tax.

Shree Education Society. Versus Assistant Director Of Income-Tax. - ITD 085, 288, TTJ 080, 365, Issues Involved:1. Validity of the CIT(A) order.2. Denial of exemption under section 10(22) of the Income Tax Act.3. Examination of the nature of the society's income and its application.4. Applicability of section 11 and section 11(5) of the Income Tax Act.5. Interpretation of judicial precedents related to section 10(22).Detailed Analysis:1. Validity of the CIT(A) Order:The appellant argued that the order by CIT(A) was erroneous both in law and on facts. The CIT(A) had upheld the action of the ADIT (Exemption) in denying the exemption under section 10(22) and taxing the surplus figure of Rs. 31,17,008.2. Denial of Exemption under Section 10(22):The society, registered under the West Bengal Societies Registration Act, 1961, had been granted exemption under section 10(22) from the assessment year 1976-77 to 1997-98, except for the year 1995-96. The Assessing Officer observed that the society's main activities involved investments in shares and debentures and earning rental income, with only a small portion of funds applied to educational purposes. The officer concluded that the society did not qualify for exemption as its primary activities were not solely educational.3. Examination of the Nature of the Society's Income and its Application:The society argued that its sole activity was running two educational institutions and that income from properties and investments did not disqualify it from exemption under section 10(22). The Assessing Officer noted that a significant portion of the society's funds was invested in non-educational activities, and only a small amount was spent on education. The CIT(A) confirmed this view, noting that less than 25% of the income was spent on educational activities.4. Applicability of Section 11 and Section 11(5) of the Income Tax Act:The society was registered under section 12A, but the Assessing Officer examined its eligibility under section 11, which requires at least 75% of income to be spent during the year and investments to be in specified modes under section 11(5). The society did not meet these criteria, as its application of income was below 75%, and investments were in non-government companies.5. Interpretation of Judicial Precedents Related to Section 10(22):The appellant cited several judicial precedents to support its claim for exemption under section 10(22):- Aditanar Educational Institution v. Addl. CIT: The Supreme Court held that an educational institution solely for educational purposes and not for profit is entitled to exemption under section 10(22), even if there is an incidental surplus.- CIT v. Kshatriya Girls Schools Managing Board: The Madras High Court held that exemption under section 10(22) is available to a trust running schools, even if income is derived from properties, provided it is spent on education.- CIT v. Sarsaswath Poor Students Fund: The Karnataka High Court held that an educational institution solely for educational purposes is entitled to exemption under section 10(22) without needing to consider section 11.- Birla Vidhya Vihar Trust v. CIT: The Calcutta High Court observed that if the income sources exist solely for educational purposes, exemption under section 10(22) applies, even if there is a surplus.- CIT v. Oxford University Press: The Bombay High Court held that for exemption under section 10(22), the income must be of an educational institution existing solely for educational purposes in India.- CIT v. St. Xaviers: The Patna High Court held that exemption under section 10(22) is available to an educational institution, even if it has other objects, as long as the income from the educational institution is not for profit.Conclusion:The Tribunal concluded that the society's sole purpose was educational, and the surplus resulted incidentally. The society had been granted exemption under section 10(22) in previous years, and the receipt of arrears rent in the year under appeal led to an abrupt increase in income. The Tribunal restored the matter to the Assessing Officer to re-examine the nature of investments and decide the issue de novo, considering the judicial precedents and the society's activities.Final Decision:The appeal was allowed for statistical purposes, and the case was remanded to the Assessing Officer for re-examination.