TaxTMI 
TaxTMI 
2004 (11) TMI 277
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....herefore, the sole purpose of the trust is not education but for earning income. The assessee had incurred similar expenditure for non-education purpose from the assessment years 1990-91 to 1998-99. Therefore, according to the Assessing Officer, the decision of the Supreme Court in the case of McDowell & Co. Ltd. v. Commercial Tax Officer [1985] 154 ITR 148 is applicable in this case. Hence, the exemption under section 10(22) was denied to the assessee. The finding was confirmed by the CIT (Appeals). 3. The learned counsel appearing on behalf of the assessee has submitted that during the earlier years and subsequent years, the assessee was allowed exemption in similar circumstances. Therefore, there is no reason to withhold the exemption under section 10(22) in this year. It was submitted that in the case of the assessee, the Tribunal for the assessment years 1995-96 to 1997-98 and 1980-81 decided similar issues in favour of the assessee after allowing exemption under section 10(22) of the Act. Copies of the orders have been filed before us along with the Paper Book. The learned A.R. of the assessee in this connection placed reliance on different decisions as follows:- 1. Bir....
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....nditions laid down under section 10(22) of the Act, but are denied exemption because their funds are not invested in accordance with the provisions of section 11(5) of the Act. It is hereby clarified that since section 10(22) does not impose any restriction regarding mode of investment of funds, such institutions are not required to invest their funds in the modes specified under section 11(5) of the Income-tax Act. This clarification will not apply to the institution seeking exemption under section 11 of the Act." From the said Circular it appears that if the assessee-trust fails to invest funds as provided under section 11(5) of the Act, exemption under section 10(22) cannot be denied. It has been clearly explained that investment of funds under section 11(5) is required in the case of exemption under section 11 of the Act which is not the case here. The Supreme Court in the case of Aditanar Educational Institution held that 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 purpose, since the object is not one to make profit and the....
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....ent view from the order already passed by the Tribunal. Accordingly, we direct the Assessing Officer to allow exemption under section 10(22) of the Act. 5. In the result, the appeal is allowed. Per M.K. Sarkar, A.M. - The assessee is in appeal with the following grounds: "1. That the ld. CIT(A) was wrong in enhancing the assessment and determining the total income of the appellant for the assessment year 1998-99 at Rs. 84,05,370 as against the returned loss of Rs. 90,82,933 and the total income assessed by the Assessing Officer at Rs. 83,62,580. 2. That the ld. CIT(A) was wrong in holding that the income of the school, Shree Daulatram Nopany Vidhyalaya, which is a part of the appellant trust, is not exempt from taxation under section 10(22) of the Income-tax Act, 1961 for the assessment year 1998-99. 2.01 That the ld. CIT(A) was wrong in holding that the ratio of the decision of the ITAT 'E' Bench, Kolkata dated 9-11-2001 in the case of the appellant for the assessment years 1995-96 to 1997-98 is not applicable in so far as it relates to the income of Shree Daulatram Nopany Vidhyalaya. 2.02 That the ld. CIT(A) failed to appreciating that on the facts and in the ci....
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....ion 11(5)/13(1)(d) of the Income-tax Act, 1961 and failed to appreciate that the alleged investments were made by the school whose income is exempt under section 10(22) of the Income-tax Act, 1961 and the issue is already covered in favour of the appellant by the order of the Hon'ble ITAT, 'E' Bench, Kolkata dated 9-11-2001 in the case of the appellant for the assessment years 1995-96 to 1997-98. 3.02 That the ld. CIT(A) failed to appreciate that the net result of the computation of the income of the trust other than the school is a net loss and as such the question of violation of section 11(1)/11(2) of the Income-tax Act, 1961 does not arise on the facts and circumstances of the case. 4. That the ld. CIT(A) was unjustified in confirming the charging of interest under sections 234A and 234B of the Income-tax Act, 1961 for the assessment year 1998-99. 5. The order passed by the ld. CIT(A) is against law and the facts of the case." 2. The first and the only substantive ground relates to the CIT(A) enhancing the assessment of the assessee determining the total income of the assessee for assessment year 1998-99 at Rs. 84,05,370 as against the returned loss of Rs. 90,82,933....
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....y-to-day administrative expenses. 5. The Assessing Officer went through the details of aids and donations during the year. The Assessing Officer found that 83.96% of its total expenses were incurred on aids and donations. He found that mostly the donations were made for non-education purpose and likewise many other expenses have nothing to do with educational activities. The Assessing Officer went through the profitability ratio of net profit to turnover of the school and found that average of 34.6% net profit was earned by the assessee going by the accounts for assessment years 1990-91 to 1998-99. From this the Assessing Officer inferred that the school was run with the purpose to earn profit. He went on to show that the trust was earning steady profit as well from which it could be easily said that the nature of the educational institution was not public charitable institution alone. Moreover, he also found that the assessee-trust or the school made investments in the companies which are with the assessee's group companies, viz. Shree Annapurna Finance Co. Pvt. Ltd.; Hanuman Industries (India) Pvt. Ltd.; Continental Electronics Pvt. Ltd., Shree Hanuman Sugar & Industries Ltd. ....
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....ust amounting to Rs. 86,78,201 consisted of rental, interest and income that the trust was receiving from the school. Out of the receipts, the assessee had applied towards its charitable and religious activities an amount of Rs. 41,08,577 which included aids and donations made by the trust amounting to Rs. 38,36,733. According to the CIT(A), there could not be dispute that the amount received from the school is also part of its income. Since this transfer from the school is also part of its receipts, the trust has to apply the total receipts to charitable and religious purposes as per law. The law under section 11(1) provides that a minimum of 75% of the receipt of the trust should be applied to charitable and religious purposes and the remaining amount, if any, should be accumulated as provided under law under section 11(1) and (2) of the Act. For the purposes of accumulation, the law also provides that the assessee has to file Form No. 10 along with the return. He referred to the decision of the Hon'ble Supreme Court in the case of CIT v. Nagpur Hotel Owners Association as reported in 247 ITR 201 wherein it was held that Form No. 10 is mandatory and if no such form was filed, exe....
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.... therefore, the income derived from such educational institution could not be brought to tax nor exemption under section 10(22) be denied. 9. The main issue to be decided is to go to the finding of fact whether (i) the school had applied its income for purposes other than for education, particularly with a profit motive; (ii) if the school has invested the amount either in the past or in the current year for purpose other than education, whether the school can be exempt under section 10(22); and (iii) in the case of the trust whether the trust can be exempted in spite of the fact that the trust received surplus income of the school and made investment in violation of section 11(5). 10. We find from the analysis of facts of the case projected by the Assessing Officer that the excess income of the school which was not required for the purpose of the school for the current year amounting to Rs. 45,69,524 was merged with the funds of the trust and the trust, in its turn, made certain donations to certain persons, organizations, institutions, which cannot be said to be exclusively for the purpose of education or charity. However, we also observe that neither the Assessing Officer ....
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....not any income however remotely connected with the educational institution. A society by merely running a college cannot utilize this provision as an instrument for exemption in respect of all its sources of income which had no connection with its educational activity. There must be some correlation between the income earned and the educational institution. The Hon'ble High Court was of the view that the expression 'existing' must be judged with the correlation of facts of the relevant year only. However, the facts of the relevant year would be very material factor whether the institution exists or is existed solely for any particular purpose or not cannot be judged by the facts of one year. 13. We have had the occasion to go through the order of the Hon'ble Supreme Court adjudicating the matter of Aditanar Educational Institution v. Addl CIT [1997] 224 ITR 310 in which the view taken by the Madras High Court was upheld as against the view taken by the Hon'ble Calcutta High Court. In this decision, the Hon'ble Supreme Court held that the sole purpose for which the assessee has come into existence is to impart education at the level of college and school and such educational soci....
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....chool/trust from the investments so made. 16. In view of the fact that neither the fact nor the law was presented properly before the Hon'ble Tribunal deciding the assessee's case in earlier years, the same did not have any binding effect on us. It is very clear that the decision in the case of Birla Vidhya Vihar Trust, on which the assessee largely relied on does not remain good law after the contents of the same were overruled by the Hon'ble Supreme Court. In the decision in Aditanar Educational Institution, in which it has been clearly held that the question of applicability of section 10(22) in the case of educational institution has to be seen in year to year basis. If we take the decision of the Hon'ble Supreme Court as the basis of our terms of adjudication, we will find that the school or the trust managing the school had consciously invested huge amount of Rs. 76.89 lakhs with various companies run by the associates of the trustees of the trust. This has resulted in the school applying the funds for non-educational purpose. It cannot be said by any stretch of imagination that if the school invested substantial surplus money in some companies run commercial operations, t....
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.... 255(4) of the Income-tax Act on account of difference between the learned members of Kolkata 'C' Bench. The question referred for consideration is as under:- "Whether in the facts and in the circumstances of the case, the assessee Trust is entitled for exemption under section 10(22) or section 11 of the I.T. Act or not." 2. The facts of the case briefly stated are that the assessee-trust in the relevant period was running school Shree Daulatram Nopany Vidyalaya and had also income from other sources. The trust was allowed exemption under the Income-tax Act upto assessment year 1979-80. In the assessment year 1980-81 exemption claimed under section 10(22) as also under section 11 of the Income-tax Act was refused. The assessee went in appeal and the Tribunal vide its order dated 3-6-1989 allowed exemption to the trust under section 11 and under section 10(22) of the Income-tax Act in respect of the income of Vidyalaya. In the subsequent years exemption upto assessment year 1994-95 was allowed under sections 11 and 10(22) of the Act. Again exemption in the assessment years 1995-96 to 1997-98 was refused and finally Tribunal in appeal, allowed exemption under section 10(22) of ....
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....al institution existing solely for educational purposes and not for purpose of profit, was exempt. The Assessing Officer referred to decision of Hon'ble Supreme Court in the case of Aditanar Educational Institution v. Addl CIT [1997] 224 ITR 310 and purporting to apply the "acid test" laid down in the above decision worked out the ratio of quick assets over current liabilities as follows:- "Acid Test Ratio = Quick Assets = 15,64,032 = 0.17" -------------- ---------- Current liabilities = 90,64,116 The ratio worked out was found to be as low as 0.1. The Assessing Officer observed that the assessee is using its own secret or whatever funds were with the assessee for the last many years for carrying on activities for profit and not for factors like education. The assessee had relied upon the decisions of the ITAT in his favour, but those were held to be not applica....
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....me-tax Act. Further as far as income of the trust was concerned, the assessee claimed that there was no need to apply provision of section 11(1)(a) or 11 (5) of the Act as there was loss only when income of school was considered separately. 9. The learned CIT(A) after considering income and expenditure account of the school particularly aids and donations given by the school and its investment in equity shares, held that the assessee was not entitled to exemption under section 10(22) of the Act. Investment was made by the school in companies in which the trustees were holding substantial interest. The school was held to be engaged in commercial activities and did not exist solely for purposes of education. He held that investments made were in violation of provisions of section 11(5) and section 13(1)(d) of the Act. Therefore, exemption of claim under section 11 of the Act was also not valid. He held that income of the trust was to be seen and not that of the school and in the account of the trust, there were excess of Rs. 45,69,624 over expenditure. The learned CIT(A) further observed that income from school was also income of the trust and, therefore, under section 11(1) the a....
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....the Hon'ble jurisdictional High Court in the case of Birla Vidhya Vihar Trust. The relevant portion of the aforesaid decisions has been reproduced in the proposed order of the learned JM. 11. The learned JM further observed that from detail of expenses he was satisfied that all the aids and donations except for small amount of Rs. 36,546 was given for educational purposes. The learned JM following earlier order of the Tribunal, held that facts and circumstances before the Bench and before the Tribunal deciding the case in earlier assessment years of the assessee were identical and, therefore, there was no reason to take a different view in the matter. The learned JM accordingly directed the Assessing Officer to exempt income of the assessee under section 10(22) of the Income-tax Act. 12. The learned Accountant Member did not agree with the order proposed by the learned JM. He reproduced grounds raised by the assessee before the Tribunal and observed that substantive ground in appeal related to enhancement of assessment by the CIT(A). The learned AM then referred to proceedings before the Assessing Officer and CIT(A). A detailed reference to these orders of the revenue authori....
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.... is whether on an overall view in the matter, the object is to make profit. The learned AM then referred to the decision of the Assessing Officer and also to the decision of ITAT in the case of the assessee for assessment years 1995-96 to 1997-98. On analysis of above decisions, the learned AM held that neither facts nor law were presented properly before the Hon'ble Tribunal in assessee's cases in those years and therefore, above decision did not have binding effect on the Tribunal. The decision in the case of Birla Vidhya Vihar Trust applied in earlier years was no more a good law. Taking decision of the Hon'ble Supreme Court as basis, the learned AM held that the school or the trust managing the school had consciously invested the huge amount of Rs. 76.89 lakhs with various companies run by the associates of the trustees of the trust. This way school had applied its funds for non-educational purposes and motive was to make profit. This was in violation of provisions of section 10(22) of the Income-tax Act. As regards the trust, the learned AM held that trust also violated provisions of section 11(5) of the Act and was not entitled to exemption under section 11 of the Income-tax ....
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....in respect of the income of the trust other than Vidhyalaya. In fact the Tribunal in the above decision dated 3rd June, 1989, referred to the fact that the Assessing Officer and the other revenue authorities consistently allowed exemption to the assessee under sections 10(22) and 11 of the Income-tax Act. Shri Singh further pointed out that income and accounts of school are being separately maintained. He referred to the balance-sheet and Profit & Loss account of school for the period ending on 31st March, 1998 at pages 24 & 25 of the Paper Book. Likewise trust maintained it's separate accounts and the balance-sheet for the relevant period was available at page 33 of the Paper Book. No investments in shares were made by the trust or school in the year under consideration. In this connection, he drew my attention to page 35 of the Paper Book which showed that investment in snares was brought forward balance. It was made by school in earlier assessment years in which exemption under section 10(22) was duly granted. With reference to balance-sheet of school, he pointed out that investment in shares was made out of Development Deposit lying with the school (Rs. 1,47,32,800). These depo....
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....ness purposes. Large investment in shares of limited companies in which trustees were interested clearly showed that purpose of the assessee was to earn profit and not to carry on educational activities. Therefore, there was no question of allowing exemption to the assessee under section 10(22) of the Income-tax Act. The assessee further failed to prove that 75% of its income was utilized for educational purposes and balance 25% was accumulated as per provisions of section 11 (1) of the Income-tax Act. No application on Form No. 10 was filed by the assessee for accumulation of income not spent in the year under consideration. In the above circumstances, the assessee was not entitled to exemption under section 10(22) or section 11 of the Income-tax Act. The learned DR placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Nagpur Hotel Owners Association [2001] 247 ITR 201. This way proposed order of the learned AM was supported by the learned DR for the revenue. 19. I have given careful thought to the rival submissions of the parties and also examined material available on record. Nopany Education Trust (hereinafter referred to as trust) came into exis....
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....d properly before the Tribunal in earlier assessment years. Further the Tribunal had relied upon the decision in the case of Birla Vidhya Vihar Trust which was no more a good law. The school had applied its funds for non-educational purposes and motive was to make profit. The learned AM held that provisions of section 10(22) and of section 11(5) of the Income-tax Act stood violated by the assessee-trust and therefore, the trust was not entitled to exemption under section 11 of the Income-tax Act. As he was taking a view different from one taken by the earlier Bench of the Tribunal, he thought it fit to refer the matter to a larger Bench. 23. On facts and circumstances of the case, I am unable to agree with the views expressed by the learned AM as far as income of Vidyalaya is concerned. Since 1945 it has all along been accepted to be existing for educational purposes and not for purposes of earning income. This position has all along been accepted by the revenue. Similar fees was charged by the school and if any surplus was left, the same was transferred to the trust funds and again ploughed back to the school. Even in the period under consideration as per accounts of the school....
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....the case of Aditanar Educational Institution as also the decision of the Hon'ble Calcutta High Court in the case of Birla Vidhya Vihar Trust and was of the view that the decision of the Hon'ble Calcutta High Court now stands overruled by the Supreme Court. However, on close scrutiny of the decision of the Hon'ble Supreme Court, I do not find any reference to the decision of Birla Vidhya Vihar Trust and therefore, question of overruling that decision did not arise. The Hon'ble Calcutta High Court of course had dissented from certain observations of Hon'ble Madras High Court in the case of Addl. CIT v. Aditanar Educational Institution [1979] 118 ITR 235 where it was stated that the question of determination whether trust was existing solely for educational purposes and not for purposes of profit was required to be judged with reference to the facts of the relevant year only. Their Lordships of Hon'ble Calcutta High Court have observed that facts of relevant year are very material but all cumulative factors will have to be taken into consideration namely the clause or the power enabling the institution to function, its activities in general etc. Effect of all the cumulative factors wa....
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....vestment made by the trusts and other related questions. 27. The learned Accountant Member in his order has also suggested that a larger Bench should examine the question of exemption under section 10(22) as also the question, whether trust has made investments in violation of section 11(5) and can be allowed exemption under section 11 of the Act. However, in the body of the proposed order he has stated that the revenue authorities did not come to a finding of fact whether these investments were made with companies by the school or by the Trust. He has emphasized that the revenue authorities further did not examine the year in which investments in the Companies were made. I find some contradiction in the order of the learned Accountant Member. As far as question of exemption of the income of school under section 10(22) is concerned, I have already discussed the issue and see no scope to refer the question to a larger Bench. On the other question of exemption to trust under section 11 of I.T. Act, I find that the Trust has all along been allowed exemption and, therefore, it is reasonable to presume that even in the year or years in which investment(s) were made, exemption was all....