TaxTMI 
TaxTMI 
2011 (2) TMI 725
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.... 2. It appears that when the assessment proceedings were going on in respect of the Assessment Year 1993-94, a question came to be raised in the Parliament regarding taking money from parents of wards of the school on one pretext or the other which in turn led to an investigation in the case relating to the assessment year. This is apparent from the assessment order for the relevant year dated 29.03.1996. 3. There were three components which were closely scrutinized by the Assessing Officer: i) Admission Fee of Rs.7,12,000/-. ii) Corpus Fund of Rs.17,24,085/-. iii) Loan from parents amounting to Rs.10,85,000/-. 4. The assessment order dated 29.03.1996 records that the Society had shown school fees, bus fees, magazine income and other income in the Income & Expenditure Account, but the admission fee of Rs.7,12,000/- was taken to the balance sheet and it had not been explained as to why this amount was being treated differently from other amounts. The Corpus Fund had come from students and there was no confirmation from the assessee as to who were the donors regarding this fund and thus a conclusion was reached that this could also not be taken to the balance sheet.....
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.... stated to be a family concern of Ahluwalia who was the President and a Member in the Society. No tenders had been called for construction of the building. The third aspect considered was that while the loans had been taken from nationalized banks, deposits were maintained with Nainital Bank, which is not a nationalized bank and thus there was a possibility of members of the Executive Body getting direct or indirect benefit from investment in the private bank (the possibility of this „cannot be ruled out‟). The educational institute was thus stated to be running for profit motive and thus not entitled to exemption under Section 10(22) of the IT Act. 7. The result was that Admission Fee of Rs.7,12,000/-, Corpus Fund of Rs.17,24,005/- and loan raised of Rs.9,95,000/- were treated as income of the respondent/assessee. ITAT PROCEEDINGS 8. The respondent/assessee thereafter filed an appeal before the ITAT under Section 253 of the IT Act. This gave rise to divergence of views between the Judicial Member and the Accounting Member of the ITAT. The opinion of the Judicial Member is dated 29.08.1997 holding that the Society existed for profit and thus the case of the ass....
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....assessee are not voluntary, the dominant intent is to earn profit and merely non distribution of profits to members or applying the profits to the educational activity would not be sufficient to claim exemption by relying upon the observations in Safdarjung Enclave Education Society v. Municipal Corporation of Delhi; AIR 1992 SC 1456. It was not disputed by learned counsel that if certain surplus results on the working of the Society, it cannot be said that the institution run by it is for the purpose of profit so long as no person or individual was entitled to any portion of the said profit and the said profit was utilized for the promotion of the objects of the institution. However, the test which was stated to apply was whether the predominant object of the activity involved is to subserve the charitable purpose or to earn profit by referring to the judgment in the case of Additional Commissioner of Income Tax, Gujarat v. Surat Art Silk Cloth Manufacturers Association; (1980) 121 ITR 1 (SC). As contra to this, where the profit making is the predominant object of the activity, the purpose though an object of general public utility, would cease to be a charitable purpose. Th....
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....Accounting Member and the opinion of the President both of which went in its favour. The Society was stated to be existing solely for educational purpose, as was apparent from its objects, and not for profit making. Reliance was also placed on the Circular F.No.194/16-17-IT (AI) issued in respect of the educational institutions which show some surplus. If the educational institutions are owned by the trusts of societies and such surplus is used for educational purposes only, it could be held that the institution is existing for educational purpose and not for the purpose as observed in the circular. The profit motive would come into the picture if the surplus can be used for non educational purpose. 16. The Accounting Member referred to the view of the Supreme Court in Aditnar Educational Institution v. Additional Commissioner of Income Tax‟s case (supra) to come to the conclusion that the Supreme Court had not disapproved the proactive approach of collecting funds through donations, gifts, etc. so long as they were ploughed back into the system itself i.e. for imparting education. Thus, if the overall object is not to make profit, the benefit under Section 10(22) of the I....
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....ed to reduce the standards of education by preventing funds being raised for such upgradation of infrastructure and facilities. OPINION OF THE SR. VICE PRESIDENT, ITAT/STAND OF ASSESSEE 20. Now coming to the opinion of the Senior Vice President of the ITAT to whom the reference was made by the President in view of divergence of views between the members, the same proceeds on the premise that exemption under Section 10(22) of the IT Act has to be calculated each year to find out whether the institution existed during the relevant assessment year solely for educational purpose and not for the purpose of profit making. The acid test laid down and adopted is stated to be whether in an overall view of the matter, the object of the institution is to make profit and for the said purpose, the distinction between the corpus, the object and powers of the concerned entity has to be maintained. The Memorandum of Association of the respondent/assessee set out the objects, scope and powers of the Society; it is in view of these objects, which are charitable in character, that the respondent/assessee claimed and was permitted registration under Section 12A of the IT Act and was allowed exem....
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....ted exemption in prior years, the assessee was entitled to exemption for the relevant year. 23. Explaining the principles of res judicata, which were not strictly applicable, it was observed that where a fundamental aspect continuing during the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in the subsequent years. A similar view has been taken in Director of Income Tax v. Lovely Bal Shiksha Parishad; 266 ITR 349 (Delhi), Director of Income Tax (Exemption) v. Moti Bagh Mutual Aid Education; 298 ITR 190 (Delhi) and Director of Income Tax (Exemption) v. Manav Bharti Institute of Child Education; 163 Taxman 50 (Delhi). 24. Learned counsel for the respondent/assessee also strongly relied upon the judgment of the Division Bench of this Court in Director of Income Tax (Exemption) v. Raunaq Education Foundation; 294 ITR 76 (Delhi) wherein It was held that the word „income‟ occurring in Section 10(22) of the IT Act cannot be given a restrictive meaning as the words „derived from̶....
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.... away of profits for some other activity. It does appear to us that the Assessing Authority appears to have been weighed down by the factum of some questions being raised in the Parliament about the manner of collection of funds by the institutions. That alone, would not suffice to deny the exemption under Section 10(22) of the IT Act. There is in fact no material to show or a complaint that there has even been any coercive process to recover these amounts. 27. It cannot be lost sight of that if an institution has to expand, additional infrastructure has to be created, quality education has to be imparted, all these activities require funds. There may be an original corpus of the Society but thereafter the corpus for such activity can be created only through voluntary donations either from any philanthropist or through collection of funds in the process of admission. We are not concerned with the morality of the issue while deciding whether exemption has to be granted under Section 10(22) of the IT Act as all that is required is the absence of profit motive. There is nothing brought on record to show such a profit motive. The opinion of the CIT(A) seems to have traversed a compl....
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....rofits are utilized for promotion of objects of the institution, the benefit of exemption would be available. It certainly can‟t be said that the object has turned into profit motive in the present case. A number of judgments referred to in support of this line of reasoning have been discussed aforesaid as cited by the assessee including Safdarjung Enclave Education Society v. Municipal Corporation of Delhi‟s case (supra), Additional Commissioner of Income Tax, Gujarat v. Surat Art Silk Cloth Manufacturers Association‟s case (supra), Commissioner of Income Tax v. Delhi Kannada Education Society‟s case (supra) & Director of Income Tax v. Sir Shri Ram Education Foundation‟s case (supra). All that is necessary to state is that a common thread runs through them and consequently, in our opinion, Section 10(22) of the IT Act should not be given a restrictive meaning and so long as the income is used for fulfilling educational purpose, the exemption should be available. The educational institutions should exist solely for educational purpose and not for making profit. 30. There is also a second aspect to the present case arising from the principles of cons....