2016 (5) TMI 881 - HC - Income Tax

Application of Section 10(22) rejected - Held that - We do not think that the assessee can take advantage of the etymological meaning of the word education to gain the benefit of Section 10(22). In the philosophical sense, every acquisition of knowledge can be termed as education . One learns even by experience. Every form of entertainment can also be termed as education . That is what is contemplated by Section 10(22). The expression educational institution is ejusdem generis with the word university appearing in Section 10(22). Therefore, the first question of law is to be answered against the assessee. As a consequence, the second question of law as to whether the interpretation given by the Tribunal to the objects clause of the assessee, was correct or not, should also be answered against the assessee. The bylaws of every society or the deed of trust of every trust contains innumerable clauses relating to the objects of the society of the trust. These objects do not make the institution an educational institution existing solely for educational purposes. Therefore, the second question of law is also answered against the assessee. Computation of capital gains on the transfer of the school - This question is raised on the basis that the transfer took place on 17.5.1996 and that therefore, it could be adjudicated for assessment only during the previous year relevant to the assessment year 1997-98 - Held that - All that the assessee claimed even in their miscellaneous petitions under Section 254(2) was that the assessee was compelled to sell the school to the SBOA Trust, since they were unable to meet their obligations to the Canara Bank. In the miscellaneous petitions, the assessee further claimed that they handed over the school with all the students and teachers to SBOA school with a condition to clear the dues of the Canara Bank and the dues of Shri Ram Capital Trust Private Limited. Since SBOA School insisted for a registered sale deed to enable them to get a loan from the State Bank of India, the assessee executed a sale deed. Such a plea was taken for the first time by the assessee, in the miscellaneous petitions under Section 254 for recalling the earlier order. Therefore, we hold on the third substantial question of law that the assessee cannot be allowed to change its stand now. - Decided against the assessee Rejection of exemption contemplated in terms of Section 11 - Held that - To qualify for the exemption under Section 11, the income should have been derived from property held under trust wholly for charitable or religious purposes and only to the extent to which, such income is applied to such purposes in India. Once it is found that the assessee had sold away the school and what was carried on by them later do not qualify, they cannot claim exemption under Section 11 - Decide against assessee

Issues Involved:
1. Entitlement to relief from taxation under Section 10(22) of the Income Tax Act.
2. Interpretation of the appellant society's purpose for educational activities.
3. Computation of capital gains on the transfer of the school.
4. Rejection of exemption under Section 11 of the Income Tax Act.
5. Consideration of evidence for incurring liabilities in the computation of capital gains.
6. Competence of the Assessing Officer in the second round of proceedings.

Detailed Analysis:

1. Entitlement to Relief from Taxation under Section 10(22):
The Tribunal concluded that the appellant is not entitled to claim relief under Section 10(22) of the Income Tax Act. Section 10(22) exempts the income of a university or other educational institution existing solely for educational purposes and not for profit. The assessee argued that despite selling the school, they continued to impart various forms of education. However, the court held that the term 'education' in Section 10(22) is to be interpreted narrowly and is ejusdem generis with 'university.' Thus, the assessee did not qualify for the exemption under Section 10(22).

2. Interpretation of the Appellant Society's Purpose:
The Tribunal's interpretation of the objects clause of the appellant society was upheld. The court found that merely having clauses related to educational purposes in the bylaws does not make the society an educational institution existing solely for educational purposes. Thus, the second question of law was answered against the assessee.

3. Computation of Capital Gains:
The assessee contested the computation of capital gains on the transfer of the school, arguing that the transfer took place on 17.05.1996 and should be adjudicated for the assessment year 1997-98. However, the court noted that the assessee had already shown the sale and claimed a capital loss in the return for the financial year relevant to the assessment year 1996-97. The court held that the assessee could not change its stand now and thus, the third question of law was answered against the assessee.

4. Rejection of Exemption under Section 11:
The court upheld the rejection of exemption under Section 11, which lists the income from property held for charitable or religious purposes that are exempt. The court found that after selling the school, the activities carried on by the assessee did not qualify for exemption under Section 11. Therefore, the fourth question of law was answered against the assessee.

5. Consideration of Evidence for Incurring Liabilities:
The court found that the arguments regarding the computation of capital gains and the consideration of evidence for incurring liabilities were based on facts rather than on law. Since the appreciation of evidence by the Assessing Officer was not perverse, the fifth question did not qualify as a substantial question of law.

6. Competence of the Assessing Officer in Second Round:
The court noted that neither the First Appellate Authority nor the Tribunal found any failure by the Assessing Officer in the second round of proceedings to comply with the directions issued in the first round. Therefore, the sixth question of law did not arise for consideration.

Conclusion:
The appeals and writ petitions filed by the Department were allowed, and the common order dated 09.07.2004 by the Tribunal was set aside. Consequently, the appeals filed by the assessee (T.C.A.Nos.504 and 505 of 2005) were dismissed, and the Tribunal's earlier order dated 13.10.2003 was upheld. No costs were imposed.

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