2006 (7) TMI 523 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to exemption under section 10(22) of the Income-tax Act, 1961.
2. Entitlement to exemption under section 11 of the Income-tax Act, 1961.
3. Justification of additions made by the Assessing Officer.

Detailed Analysis:

1. Entitlement to Exemption under Section 10(22):
The primary issue was whether the assessee, a society running several schools, was entitled to exemption under section 10(22) of the Income-tax Act, 1961. The Assessing Officer denied the exemption, citing that the society existed for profit, evidenced by unaccounted donations and payments, and personal benefits taken by trustees. The CIT(A) initially restored the matter to the Assessing Officer to ascertain whether each school run by the society existed solely for educational purposes. The Tribunal noted that similar facts were present in the case of St. Xavier Educational Trust, where it was held that the trust existed for profit, thus not qualifying for exemption under section 10(22). The Tribunal concluded that the assessee-society did not exist solely for educational purposes but for profit for the assessment years 1989-90 and 1990-91. However, the Tribunal upheld the CIT(A)'s direction to examine each school individually for exemption under section 10(22), as mere surplus does not disqualify the exemption if the primary purpose is education.

2. Entitlement to Exemption under Section 11:
The CIT(A) directed the Assessing Officer to re-examine the availability of exemption under section 11, considering that the income from activities like the sale of uniforms was not properly accounted for. The Tribunal found that the office bearers/members of the society obtained personal benefits from unaccounted donations, violating section 13(1)(c) of the Act. Consequently, the exemption under section 11 was denied for the assessment years 1989-90 and 1990-91.

3. Justification of Additions by the Assessing Officer:
The Assessing Officer made several additions, including unexplained payments and unaccounted donations. The CIT(A) and Tribunal upheld some of these additions while directing re-examination of others. Specifically:
- Additions related to unaccounted payments to Mr. Champaklal Dave, Mr. Balan, and M/s. Poonam Investment Pvt. Ltd. were upheld due to substantial evidence of unaccounted transactions.
- The addition of Rs. 15 lakhs for the sale of uniforms, notebooks, etc., was deleted by the CIT(A) and upheld by the Tribunal as it was based on mere surmises without concrete evidence.
- Donations, whether recorded or unrecorded, were treated as income of the assessee.

Separate Judgments:
For the assessment year 1991-92, the Tribunal found no adverse material against the assessee and upheld the CIT(A)'s decision granting exemption under sections 10(22) and 11, noting that the trustees did not receive any personal benefit in that year.

Conclusion:
The Tribunal concluded that the assessee-society was not entitled to exemption under section 10(22) for the assessment years 1989-90 and 1990-91 but upheld the exemption for each school individually. The exemption under section 11 was denied for these years due to violations of section 13(1)(c). For the assessment year 1991-92, the society was granted exemption under both sections 10(22) and 11, as there was no evidence of personal benefit or profit motive.