2001 (2) TMI 1027 - AT - Income Tax

Summary

Issues Involved:
1. Exemption u/s 10(22) of the Income-tax Act for an educational institution.
2. Taxability of income by way of dividend and interest.
3. Profit motive and surplus generation.
4. Additional grounds regarding exemption u/s 11 and levy of interest u/s 234B.

Summary:

1. Exemption u/s 10(22) of the Income-tax Act for an educational institution:
The Department challenged the CIT(A)'s decision accepting the assessee's claim of being an educational institution exempt u/s 10(22). The assessee, incorporated in 1928, argued that its activities, including conducting examinations, coaching classes, and supplying study material, constituted educational activities. The Tribunal upheld the CIT(A)'s decision, stating that the assessee's activities qualified as educational, and conducting examinations was a logical culmination of education. The Tribunal noted that there is no requirement in section 10(22) for the institution to run a formal school or college.

2. Taxability of income by way of dividend and interest:
The CIT(A) had denied exemption for income from dividends and interest, arguing they were not derived from educational activities. The Tribunal, however, directed the Assessing Officer to grant exemption for the entire income, including dividends and interest, citing the Supreme Court's judgment in Orissa State Warehousing Corporation v. CIT, which emphasized that "any income" of an educational institution is exempt without the need for it to be derived from educational activities.

3. Profit motive and surplus generation:
The Department contended that the assessee's consistent surplus indicated a profit motive. The Tribunal rejected this argument, stating that surplus generation does not imply a profit motive if the surplus is ploughed back into the institution's activities. The Tribunal emphasized that the prohibition on profit distribution in the assessee's memorandum and the ploughing back of surplus into educational activities negated any profit motive.

4. Additional grounds regarding exemption u/s 11 and levy of interest u/s 234B:
The assessee raised additional grounds for exemption u/s 11 if not granted u/s 10(22) and against the levy of interest u/s 234B. The Tribunal found no need to address the exemption u/s 11 due to the acceptance of exemption u/s 10(22). Regarding interest u/s 234B, the Tribunal ruled that since the assessee is exempt from tax, there is no question of charging interest.

Conclusion:
The Department's appeal was dismissed, and the assessee's appeal was allowed. The assessee was entitled to costs assessed at Rs. 5,000.