2004 (2) TMI 11 - HC - Income Tax

Exemption u/s 10(22) although the activities of the assessee are connected with formal education being given by other institutions running schools and colleges, the assessee itself does not have or exercise any control over the students who get the benefit of the activities being carried on by the assessee - Tribunal was right in holding that the assessee was not an educational institution established solely for educational purposes and was, therefore, not entitled to exemption as contemplated under section 10(22) this opionion may not be treated as binding for any subsequent year when the assessee may commence other activities which may qualify the assessee for exemption under section 10(22)/10(23C) - Having regard to the emerging trends and the modern means of teaching and the growing importance of the institutions other than those engaged in formal teaching, this is a fit case for appeal to the hon ble Supreme Court

Issues Involved:
1. Entitlement to exemption under section 10(22) of the Income-tax Act, 1961.
2. Definition and scope of "educational institution" under section 10(22).
3. Comparison between exemptions under sections 10(22) and 11(1)(a).
4. Interpretation of "education" in section 2(15) of the Act.
5. Relevance of prior judgments and their applicability to the present case.

Detailed Analysis:

1. Entitlement to Exemption under Section 10(22):
The primary issue was whether the assessee, a trust registered as a public charitable trust, was entitled to exemption under section 10(22) of the Income-tax Act, 1961 for the assessment year 1981-82. The assessee claimed exemption on the grounds that it was an educational institution existing solely for educational purposes.

2. Definition and Scope of "Educational Institution" under Section 10(22):
The court examined whether the activities conducted by the assessee qualified it as an "educational institution" under section 10(22). The Income-tax Officer denied the exemption, stating that section 10(22) referred only to formal education given in schools and colleges, not to other forms of educational activities. The Appellate Assistant Commissioner, however, held that education need not mean only formal education and included various activities aimed at improving education standards. The Tribunal reverted to the Income-tax Officer's view, leading to the present reference.

3. Comparison Between Exemptions under Sections 10(22) and 11(1)(a):
The court noted that while section 11 provides exemption for income of a trust holding property for charitable purposes, including education, section 10(22) provided total exemption to income of a university or other educational institution existing solely for educational purposes. The court emphasized that "educational institution" under section 10(22) implied formal education, aligning with the term "university."

4. Interpretation of "Education" in Section 2(15) of the Act:
The court referred to the Supreme Court's interpretation in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234, which defined "education" as systematic instruction, schooling, or training given to the young in preparation for life's work. The court concluded that the term "educational institution" under section 10(22) implied formal education, accountability to an authority, and control over students.

5. Relevance of Prior Judgments and Their Applicability to the Present Case:
The court examined prior judgments, including Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 and CIT v. Sorabji Nusserwanji Parekh [1993] 201 ITR 939. It noted that these cases involved institutions imparting formal education or training, which the assessee in the present case did not. The court also referred to the Patna High Court's decision in Bihar Institute of Mining and Mine Surveying v. CIT [1994] 208 ITR 608, which held that coaching and preparing students for exams did not qualify as formal education under section 10(22).

Conclusion:
The court concluded that the assessee did not qualify as an educational institution under section 10(22) as it did not impart formal education, was not affiliated with any authority, and did not exercise control over its students. Consequently, the assessee was not entitled to exemption under section 10(22) for the assessment year 1981-82. The court clarified that this opinion was specific to the assessment year in question and did not preclude the assessee from qualifying for exemption in subsequent years if its activities changed. The court also certified the case for appeal to the Supreme Court, recognizing the evolving nature of educational methods and institutions.

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