2012 (12) TMI 497 - HC - Income Tax

Exemption under section 10(23C)(iiiad) - educational purpsoe - AO expressed only a doubt as to whether the assessee constituted initially to run a school with nursery and kindergarten class will qualify as such educational institution. - held that - The Assessing Officer held that the assessee is not existing solely for educational purposes, but, at the same time, it clearly and in no uncertain terms recorded a finding that the assessee is running a school with Nursery and Kindergarten classes. No other existence of the assessee was noticed. Therefore, the conclusion would be that the assessee was existing for the purpose of running the said school with Nursery with Kindergarten classes and, accordingly, was existing solely for educational purposes and not for purposes of profit. If the existence of the assessee was not for the purposes of profit, but solely for educational purpose, then the receipts of the assessee, if the same did not exceed Rs. 1 crore per annum, will be outside the purview of total income as is the mandate contained in Section 10(23C)(iiiad) of the Act.

Summary

Issues: Interpretation of Section 10(23C)(iiiad) of the Income Tax Act, 1961 in the context of an educational institution's income eligibility for exemption.

Analysis:
1. The judgment delves into the interpretation of Section 10(23C)(iiiad) of the Income Tax Act, 1961, which exempts income received by educational institutions not operating for profit if annual receipts do not exceed a prescribed amount. The case involved an educational institution claiming exemption as it received less than the prescribed amount of Rs. 1 crore.

2. The Assessing Officer applied the principle of ejusdem generis to determine if the institution qualified as an "other educational institution" under the Act. However, the officer incorrectly questioned the institution's eligibility based on its founding objectives, suspecting a profit motive due to the objectives listed in the memorandum of association.

3. The court analyzed the 12 aims and objects of the institution, emphasizing that the primary focus was on educational activities and not profit-making. The court highlighted that the institution's objectives did not indicate a profit motive but were geared towards educational advancement and societal welfare, thus meeting the criteria for exemption under Section 10(23C)(iiiad).

4. The Assessing Officer's conclusion that the institution was not solely for educational purposes was overturned by the Commissioner of Appeals and affirmed by the Tribunal. The court upheld this decision, emphasizing that as the institution's existence was primarily for educational purposes and not profit, its income fell outside the total income purview, aligning with the Act's mandate for exemption.

5. Ultimately, the court dismissed the appeal, affirming the institution's eligibility for exemption under Section 10(23C)(iiiad) as its income did not exceed the prescribed limit and its existence was established as solely for educational purposes, not profit-driven.