Aditanar
Educational Institution Vs. Additional Commissioner of Income-Tax [1997] INSC
125 (5 February 1997)
B.P.
JEEVAN REDDY, K.S. PARIPOORNAN Paripoornan,
J.
ACT:
HEAD NOTE:
WITH
CIVIL APPEAL NOS. 356, 356A & 356B OF 1980, 3881-82 OF 1984, 379-80 OF
1985, 41-42 OF 1988, 8789 OF 1995 AND CIVIL APPEAL NOS. 642-646 OF 1997
(Arising out of S.L.P. (c) Nos. 2357-59 of 1988, 3122 of 1987 and 6281 of 1986)
Leave
granted in Special Leave Petition Nos. 2357-59 of 1988, 3122 of 1987 and 6281
of 1986.
2. In
this batch of 18 cases, a common question of law -- the scope of Section 10(22)
of the Income-tax Act, 1961 -- arises for consideration. The main case is the
decision rendered by the Madras High Court in Tax Case No. 114 of 1975
(Additional Commissioner of Income-tax, Madras vs. Aditanar
Educational Institution, Madras). The said decision is reported in
118 ITR 235. The assessee as well as the Revenue have filed appeals from the
said decision, which covered a period of three years, 1965-66, 1966-67 and
1967- 68. The appeals filed by the assessee are Civil Appeal Nos.2578-80
of 1979 and the appeals filed by the Revenue are Civil Appeal Nos. 356, 356A
and 356B of 1980. Civil Appeal Nos. 41 and 42 of 1988 as also the appeals
relating to Special Leave Petition Nos. 2357-59 of 1988 and 3122 of 1987 relate
to the same assessee. The assessees in the other cases are different. In Civil
Appeal Nos. 3881-82 of 1984 and 379-80 of 1985, the assessee is Sri Paramakalyani
Education Society, Madras. In Civil Appeal Nos. 8789 of 1995,
the assessee is one Sattur Hindu Nadar's Edward School Committee. In the appeal
relating to Special Leave Petition No. 6281 of 1986, the assessee is one Rajagopal
Educational Trust. As stated, the common question involved in this batch of 18
cases is the interpretation to be placed on Section 10(22) of the Income-tax
Act, 1961 (hereinafter referred to as "the Act"). The decision of the
Madras High Court rendered in T.C. No. 114 of 1975 (Additional Commissioner of
Income-tax, Madras vs. Aditanar Educational
Institution, Madras) (118 ITR 235) was followed in all
the other cases.
The
following table would show the parties and the relevant appeals and the
assessment years:
------------------------------------------------------------
Case No. Parties Year concerned
------------------------------------------------------------ 1 2 3
------------------------------------------------------------ CA 2578-80/79 Aditanar
Educational Institution 1965-66 vs. 1966-67 Additional Commissioner 1967-68 of
Income Tax CA 356, 356A, Additional Commissioner & 356B/80 of Income Tax,
Madras 1965-66 vs. 1966-67 Aditanar Educational 1967-68 Institution, Madras CA
3881-82/84 CIT, Madras vs.
Sri Paramakalyani
Education 1972-72 Society, Madras 1972-73 CA 379-80/85 CIT, Madras vs. Sri Paramakalyani
Education 1973-74 Society, Madras 1974-75 CA 41-42/88 CIT, Madras vs. Aditanar
Educational 1963-64 Institution, Madras 1964-65 CA 8789/95 CIT, Madurai vs. Sattur
Hindu Nadar's Edward 1980-81 School Committee, Sattur SLP 2357-59/88 CIT,
Madras vs. 1977-78 Aditanar Educational 1978-79 Institution, Madras 1979-80
------------------------------------------------------------ 1 2 3
------------------------------------------------------------ SLP 3122/87 CIT,
Madras vs. Aditanar Educational 1980-81 Institution, Madras SLP 6281/86 CIT,
Madras vs. 1979-80 Rajagopal Educational Trust
------------------------------------------------------------ It should be
mentioned that in the appeal relating to Special Leave petition No. 6281 of
1986 (CIT vs. Rajagopal Educational Trust), the Madras High Court dismissed the
application filed by the Revenue under Section 256(2) of the Act. By this
judgment, we withdraw the said application to the file of this Court and
finally dispose of the same on merits along with the other appeals.
3. We
heard counsel. It is agreed before us that the decision rendered in the main
appeals will govern the entire batch of cases.
4. The
question of law that arises for consideration in this batch of cases is to the
following effect:
"Whether,
on the facts and in the circumstances of the case, the Tribunal was right in
holding that the income of the assessee is entitled for exemption under Section
10(22) of the Income-tax Act, 1961?"
5. It
is sufficient to state the minimal facts in the main case, T.C. No. 114 of 1975
(Civil Appeal Nos. 2578-80 of 1979 and 356, 356A and 356B of 1980; the decision
reported in 118 ITR 235). The assessee is a society registered under the
Societies Registration Act, 1960. Its objects are to establish, run, manage or
assist colleges, schools and other educational organisations existing solely
for educational purposes. The assessee received donations from a Trust called `Thanthi
Trust' a sum of Rs. 15,71,370/- during the previous year relevant for the
assessment year 1956-66, a sum of Rs.5,62,432.25 during the previous year
relevant for the assessment year 1966-67 and a sum of Rs.4,78,899.67 during the
previous year relevant for the assessment year 1967-68. The assessees filed
`nil' returns for all these years. According to the assessee, its taxable
income was `nil' as it was an educational institution existing solely for
educational purposes. The Income Tax Officer closed the assessments stating
that there is no taxable income. There was no question of granting exemption
under Section 10(22) of the Act since, according to the assessee, it incurred
loss for all the three years. The Commissioner of Income-tax initiated suo motu
proceedings under Section 263 of the Act as, in his opinion, the assessments
made by the Income-tax officer were erroneous and prejudical to the Revenue. He
opined that the income-tax officer failed to consider the question whether the assessee
was entitled to exemption in respect of the receipts of voluntary
contributions.
According
to him, the assessee was not entitled to any exemption. An order was passed on
30.3.1972 directing the Income-tax officer to make fresh assessments taking
into consideration the voluntary contributions received from Thanthi Trust. The
order so passed for the assessment year 1965-66 is dated 30.3.1972. For the
other two years, the orders were passed on 2.3.1973. It was stated in the order
dated 2.3.1973 that Section 10(22) of the Act will apply only to exempt the
income for a college, academy or school.
In
other words, the exemption under Section 10(22) would apply to educational
institutions as such and not to anyone who might be financing the running of
such an institution.
In the
appeals filed by the assessee for all the three years, by a common order dated
22.4.1974, the Appellate Tribunal held that the assessee was an institution
existing for educational purposes and not for purposes of earning any profit
and the assessee itself could be termed as an educational institution within
the ambit of Section 10(22) of the Act. It is thereafter, at the instance of
the Revenue, the question of law mentioned hereinabove was referred to the
Madras High Court for its decision.
6.
Section 10(22) of the Act runs as follows:
"10.
Incomes not included in total income. -- In computing the total income of a
previous year of any person, any income falling within any of the following
clauses shall not be included -- XXX XXX XXX (22) any income of a University or
other educational institution existing solely for educational purposes and not
for purposes of profit.
XXX XXX
XXX (Emphasis supplied) The sole question that arises for consideration is
whether the assessee will be taken in by the words `other educational
institution'. On this aspect, the High Court held thus :
"....
`Any educational institution' would fall within the scope of Section 10(22)
even though it may have or may n to have anything to do with the University.
The categories are so different, that the University cannot be the genus, and
the `other educational institutions' the Species thereof.
Thus,
the college here could come under the `other educational institutions'."
Proceeding further, the High Court held that the assessee came into existence
for the purpose of establishing, running, managing or assisting colleges,
schools and other educational organisations and in pursuance to its objects,
the assessee has established a college. It was further held that the medium
through which the assessee could effectuate its objects is the college and by
employing this medium, the assessee imparts education. The High Court opined
that it is not possible to accept the contention of the Revenue that the assessee
is only a financing body and does not, on the facts, come within the scope of
`other educational institution' occurring in Section 10(22). It was found that
the sole purpose for which the assessee has come into existence is education at
the levels of college and school and that an educational society could be
regarded as an educational institution if the society was running an educational
institution not for the purpose of profit, but its existence was solely for the
purpose of education. On the basis of the above findings, the High Court
answered the question referred to it in the affirmative and in favour of the assessee.
It is this judgment which is objected to by the assessee as also by the Revenue
in the main appeals -- Civil Appeal Nos. 2578-80 of 1979 and 356, 356A and 356B
of 1980.
7.
Counsel for the Revenue mainly stressed the plea that the exemption under
Section 10( 2) of the Act would apply only to educational institutions as such.
According to him, in this case, the assessee might be financing for running an
educational institution, but it is not itself an educational institution. As
noted earlier, the Tribunal held that the assessee was an institution existing
for educational purposes and not for the purposes of earning any profit and the
assessee itself could be termed as an `educational institution' coming within
Section 10(22) of the Act. The High Court has concurred with this view. The
High Court has further held that the medium through which the assessee could
effectuate its objects is the college and by employing this medium, the assessee
imparts education and it cannot be stated that the assessee is only a financing
body and does not, on facts, come within the scope of `other educational
institution' occurring in Section 10(22) of the Act.
Reliance
was placed on the decision of the Allahabad High court in Katra Education
Society vs. Income Tax Officer (111 ITR 420), to hold that an educational
society could be regarded as an educational institution if the society was
running an educational institution. 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 vs. Do on Foundation - 154 ITR 208-Cal. - and Agarwal Shiksha Samiti Trust
vs. CIT - 168 ITR 751-Raj.) 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' of the judgment, which may
prejudicially affect the assessee in future. We are of the view that this
apprehension has no basis. All that the High Court has stated in the
penultimate paragraph of the judgment is that counsel for the assessee gave a
right answer to a hypothetical question put forward by the Court to the effect
that the applicability of Section 10(22) should be evaluated or investigated
ever year and only if it is found that the `institution' exists for educational
purposes in the relevant year and even if any profit results, which is only
incidental to the purpose of education, the income would be exempt. The High
Court has made an observation that any income which has a direct relation or
incidental to the running of the institution as such would qualify for
exemption. 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 the 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.
The following
decisions are relevant in this context :
Governing
Body of Rangaraya Medical College vs. ITO (117 ITR 284-AP) and
Secondary Board of Education vs. ITO (86 ITR 408 - Orissa). We make this
position clear in order to allay the apprehensions expressed by counsel.
9.
Subject to these observations, the appeals filed by the assessee also fail and
they are dismissed, but with no order as to costs.
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