1981 (5) TMI 12 - HC - Income Tax

Issues Involved:
1. Applicability of Section 10(22) of the Income-tax Act, 1961.
2. Eligibility of the assessee trust for exemption under Section 10(22) in respect of income from educational institutions.
3. Interpretation of "existing solely for educational purposes and not for purposes of profit."
4. Relevance of the trust's other charitable purposes to the eligibility for exemption.
5. Impact of surplus income and its utilization on the eligibility for exemption.

Issue-wise Detailed Analysis:

1. Applicability of Section 10(22) of the Income-tax Act, 1961:
The primary issue was whether the assessee was entitled to exemption under Section 10(22) of the Income-tax Act, 1961. The section exempts "any income of a University or other educational institution, existing solely for educational purposes and not for purposes of profit." The Income Tax Officer (ITO) rejected the claim on the grounds that the assessee, being a trust and not an educational institution, could not avail of the exemption. The ITO emphasized that the income must be "of" an educational institution, not "from" an educational institution.

2. Eligibility of the Assessee Trust for Exemption under Section 10(22):
The Tribunal upheld the ITO's decision, stating that the trust, which owned the educational institutions, had other charitable purposes and was not solely for educational purposes. The Tribunal referenced the Supreme Court decisions in Indian Chamber of Commerce v. CIT and Sole Trustee, Loka Shikshana Trust v. CIT, indicating that the trust's activities were mixed and lacked restrictions on profit-making.

3. Interpretation of "Existing Solely for Educational Purposes and Not for Purposes of Profit":
The Tribunal emphasized the absence of restrictions on profit-making and the mixed nature of the trust's objects. The Tribunal concluded that the educational institutions did not exist solely for educational purposes and were run for profit. The Tribunal also noted that the trust deed allowed for the application of income to non-educational charitable purposes.

4. Relevance of the Trust's Other Charitable Purposes to the Eligibility for Exemption:
The Tribunal's decision was influenced by the fact that the trust had objects beyond education, which were charitable but not solely educational. The Tribunal held that the mixed objects of the trust disqualified it from exemption under Section 10(22).

5. Impact of Surplus Income and Its Utilization on the Eligibility for Exemption:
The Tribunal noted that the educational institutions generated surplus income, which was not restricted from being used for non-educational purposes. This surplus income, if not solely used for educational purposes, indicated that the institutions were run for profit, further disqualifying them from exemption under Section 10(22).

Conclusion:
The High Court concluded that the Tribunal erred in denying the exemption under Section 10(22). The Court held that the income of the educational institutions, even if owned by a trust with other charitable objects, could still qualify for exemption if the educational institutions existed solely for educational purposes and not for profit. The Court emphasized that the surplus income, if intended for educational purposes and not for personal gain, did not disqualify the institutions from exemption. The Court answered the question in the negative, in favor of the assessee, and held that the trust was entitled to the exemption under Section 10(22).

Judgment:
With these observations, the question is answered in the negative and in favor of the assessee. The trust which owned the educational institution may have other charitable though not educational purposes but if taking all the relevant factors, the educational institution generating the income was existing for only educational purposes then the assessee was entitled to exemption under s. 10(22) of the Act.

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