1997 (12) TMI 669 - AT - Income Tax

Summary

Issues Involved:

1. Whether the appellant is a charitable organization under section 2(15) of the Income-tax Act.
2. Whether the appellant is entitled to exemption of income under section 11 of the Income-tax Act.
3. Whether the appellant is entitled to exemption of income under section 10(22) of the Income-tax Act for the assessment year 1994-95.
4. Whether the appellant's activities are commercial in nature and if the income derived from such activities is taxable under section 28(iii) of the Income-tax Act.
5. Whether the conditions specified in sections 11 to 13 of the Income-tax Act are satisfied for the exemption under section 11.

Issue-wise Detailed Analysis:

1. Charitable Organization under Section 2(15):

The appellant, a society registered under the Societies Registration Act, 1860, was held by the CIT(Appeals) not to be a charitable organization within the meaning of section 2(15) of the Income-tax Act. The CIT(Appeals) observed that the appellant carried on a commercial activity, and the expenses incurred were similar to those of a business undertaking. The Assessing Officer also concluded that the appellant was not a charitable organization because it made substantial income in some years, likening it to a commercial organization. However, the Tribunal held that the objects of the appellant society advance objects of general public utility within the meaning of section 2(15) of the Income-tax Act, promoting the performance and efficiency of the banking sector and other public sector undertakings. The Tribunal emphasized that the existence of a surplus in a few years does not prove that the organization is a profit-seeking commercial entity.

2. Exemption under Section 11:

The CIT(Appeals) and the Assessing Officer denied exemption under section 11, arguing that the appellant's activities were commercial. The Tribunal, however, held that the appellant is entitled to exemption under section 11 as its objects are charitable within the meaning of section 2(15). The Tribunal noted that the appellant charged fees at pre-determined rates, and the surplus or deficit in any year was due to the large number of candidates involved. The Tribunal clarified that the appellant's activities were incidental to its main charitable objects and not primarily profit-making. The Tribunal set aside the orders of the Revenue authorities, directing the Assessing Officer to examine whether the conditions specified in sections 11 to 13 are satisfied.

3. Exemption under Section 10(22):

For the assessment year 1994-95, the appellant claimed exemption under section 10(22), arguing that it was an educational institution. The Tribunal rejected this claim, stating that the appellant cannot be equated to a university or an educational institution solely because it conducts tests. The Tribunal noted that the appellant's main activity was not teaching or training but conducting tests for recruitment and promotion in banks and public sector organizations. The Tribunal distinguished the appellant's case from the Gujarat State Co-operative Union case, where the institute was predominantly occupied with spreading education in the cooperative sector.

4. Commercial Nature of Activities and Taxability under Section 28(iii):

The Assessing Officer and CIT(Appeals) held that the appellant's activities were commercial, and the income derived from rendering specific services to members was taxable under section 28(iii). The Tribunal disagreed, stating that the appellant's activities were incidental to its charitable objects and not primarily profit-making. The Tribunal noted that the provisions of section 28(iii) do not override section 11, and the appellant's income from specific services to members does not disqualify it from exemption under section 11.

5. Conditions under Sections 11 to 13:

The Tribunal directed the Assessing Officer to examine whether the conditions specified in sections 11 to 13 are satisfied for the exemption under section 11. The Tribunal noted that the Revenue authorities did not examine these aspects because they held that the appellant was a commercial organization. The Tribunal set aside the orders of the Revenue authorities and restored the matter to the file of the Assessing Officer to proceed on the basis that the appellant society is a charitable organization entitled to exemption under section 11, subject to satisfying the conditions specified in sections 11 to 13.

Conclusion:

The Tribunal allowed the appeals for statistical purposes, holding that the appellant is a charitable organization entitled to exemption under section 11, but not under section 10(22). The Tribunal directed the Assessing Officer to examine the conditions specified in sections 11 to 13 for the exemption under section 11.