2013 (9) TMI 875 - HC - Income Tax

Exemption u/s 10(22) - Income of a university or other educational institution, existing solely for educational purpose and not for purpose of profit. - Whether Memorandum of Understanding as a evidence is an eye-wash - During the assessment year 1996-97, a payment of Rs. 10 lacs was made by the appellant assessee to Smt. Chandra Raj Laxmi. It was contended that such payment was made to siphon away the funds of the appellant assessee and the said state of affairs clearly indicates that the appellant assessee is not existing solely for educational purpose but also for purpose of profit. It has been the contention of the appellant assessee that the appellant assessee entered into a Memorandum of Understanding with Smt. Chandra Raj Laxmi - The Assessing Officer has not accepted the Memorandum of Understanding and has felt that the same had been created subsequently as an eyewash. Held that - Smt. Chandra Raj Laxmi represented to be the Managing Director of M/s Bhanu & Sons Pvt. Ltd - Memorandum of Understanding stated that M/s Bhanu & Sons Pvt. Ltd. owns properties, as mentioned in the said Memorandum of Understanding - It is the contention of the appellant assessee that in connection with the said Memorandum of Understanding, the payment of Rs. 10 lacs was made - The Memorandum of Understanding suggests that the payments, to be made thereunder, are to be made to Smt. Chandra Raj Laxmi - Assessing Officer did not call upon the appellant assessee to produce Smt. Chandra Raj Laxmi before the Assessing Officer. The Assessing Officer did not take note of, how the sum of Rs.10 lacs paid by the appellant assessee to Smt. Chandra Raj Laxmi during the assessment year 1996-97 was adjusted by her in her returns. It does not appear, therefore, that the finding that the Memorandum of Understanding was an eyewash is founded on legal basis - Remit back the matter for reconsideration by the Assessing Officer.

Summary

Issues:
Applicability of Section 10(22) of the Income Tax Act for the appellant assessee during the assessment year 1996-97.

Analysis:
During the assessment year 1996-97, the appellant assessee sought the benefit of Section 10(22) of the Income Tax Act, which exempts certain income from being included in the total income. The provision applies to income of a university or educational institution existing solely for educational purposes and not for profit. However, a payment of Rs. 10 lacs made by the appellant assessee to an individual raised concerns that the institution may not be operating solely for educational purposes, but also for profit. The appellant claimed the payment was part of a Memorandum of Understanding with the individual, who represented herself as the Managing Director of a company owning properties to be acquired by the appellant assessee. The appellant contended that the payment was related to this agreement and subsequent property acquisitions, which were accepted in later assessment years but not considered during the relevant assessment. The Assessing Officer, without calling the individual or examining how the payment was adjusted in her returns, concluded that the Memorandum of Understanding was a sham.

The High Court intervened in the matter and remitted it back to the Assessing Officer for reconsideration. The orders of the Assessing Authority, Appellate Authority, and Tribunal were set aside. The court allowed the appellant assessee to present additional arguments before the Assessing Officer, except on the issue of using powers under Section 148 of the Income Tax Act, as that matter was considered resolved. The appeal was disposed of, providing the appellant with an opportunity to address the concerns raised by the Assessing Officer and present relevant materials for reconsideration of the case.