2007 (12) TMI 249 - AT - Income Tax

Tribunal upholds school's tax exemption on surplus income & expenses for educational activities

The Tribunal upheld the CIT (A)'s decision in an appeal against the order of the Commissioner of Income Tax (Appeals) regarding the addition of surplus ... Education Institution Issues involved: Appeal against order of CIT (A) regarding addition of surplus income and disallowance of expenses u/s 10(23C)(iiiad) for asst. yr. 2003-04.Issue 1 - Addition of Surplus Income and Disallowance of Expenses:The AO disallowed exemption under s. 10(23C)(iiiad) to the assessee society running a school, citing non-essential activities like transportation and mess services. The AO contended that the society's profit accumulation indicated a profit motive, contrary to the educational institution's purpose. However, the CIT (A) found the ancillary activities essential to education and not profit-oriented. The institution's surplus, unutilized for personal gain, did not negate its educational purpose. Citing legal precedents, the Tribunal upheld the CIT (A)'s decision, emphasizing the institution's non-profit motive and educational focus.Issue 2 - Interpretation of Educational Institution's Purpose:The Tribunal noted that providing transportation and meals to students were integral to the educational activities of the society. The institution's aim to enhance educational quality justified these ancillary services. The re-enacted s. 10(23C)(iiiad) exempted non-profit educational institutions from income tax, emphasizing the absence of profit motive. Legal rulings supported this stance, emphasizing the institution's educational objectives over surplus income declarations. The Tribunal dismissed the Revenue's appeal, aligning with established legal principles and the educational institution's non-profit nature.