2007 (7) TMI 298 - HC - Income Tax

Assessee computer centre manned by the Government officers - providing consultancy taking of projects and imparting training programme with the object of promoting computer/science - Claim of exemption u/s 11 as charitable institution and 10(22) as educational institute assessee is earning income mainly thorough consultancy services and business is not carried by beneficiaries - Simply because the users of the services rendered were colleges universities Government departments and organizations etc. would not necessarily lead to the conclusion that the assessee was an educational institution existing solely for educational purposes exemption not granted u/s 10(22) and u/s 11

Issues Involved:

1. Whether the Regional Computer Centre (RCC) qualifies as a charitable institute of general public utility entitled to exemption under section 11 after the assessment year 1983-84.
2. Whether the RCC qualifies for exemption under section 10(22) as an 'educational institute'.

Issue-wise Analysis:

1. Charitable Institute of General Public Utility (Section 11):

The Tribunal examined whether the RCC qualifies as a charitable institute under section 11 of the Income-tax Act, 1961, post the amendments to sections 11 and 2(15). The RCC, a society registered under the Societies Registration Act, 1860, filed its return for the assessment year 1984-85, claiming exemption under sections 11 and 10(22). The Assessing Officer rejected this claim, assessing the RCC's net taxable income at Rs. 19,64,024.

The Commissioner of Income-tax (Appeals) upheld this decision, noting that the RCC was engaged in consultancy, projects, and training programs, charging fees for these services, thus not qualifying for section 11 benefits. The Tribunal concurred, emphasizing that the RCC's activities included business undertakings, which, under section 11(4A), rendered it taxable unless specific exceptions applied.

The Tribunal noted that the RCC did not meet the exceptions outlined in section 11(4A), such as being a public religious trust engaged in printing/publication or having business activities mainly carried out by its beneficiaries. Consequently, the RCC's income was deemed non-exempt under section 11.

2. Educational Institute (Section 10(22)):

Regarding exemption under section 10(22), the Tribunal found that while one of the RCC's objects was to impart training, this was not its sole purpose. The RCC's major income source was consultancy work, not educational activities. The Tribunal noted that the RCC's services to colleges, universities, and government departments did not qualify it as an institution existing solely for educational purposes. The RCC's aim, as per its report, was to become self-sufficient and profitable, further disqualifying it from section 10(22) exemption.

Additional Grounds:

The RCC also raised various other grounds before the Tribunal, including non-taxability under section 60, non-allowance of depreciation, treatment of interest on grant-in-aid, disallowance of guest house expenses, and others. However, the reference focused solely on the two substantial questions of law regarding sections 11 and 10(22).

Arguments and Findings:

Counsel for the RCC argued that the RCC, manned by government officers and aimed at promoting electronic data processing, qualified for section 11(4A)(b) benefits. However, the Tribunal found that the RCC's business activities were not carried out mainly by its beneficiaries and did not meet the charitable purpose requirement.

Counsel for the Revenue emphasized that the RCC's activities were not solely educational and that the RCC admitted to carrying on a business, thus disqualifying it from section 10(22) benefits. The Revenue also pointed out that the RCC's major income was from consultancy, not education.

Conclusion:

The High Court upheld the Tribunal's findings, concluding that the RCC did not qualify for exemptions under sections 11 and 10(22) due to its business activities and profit motives. The questions of law were decided against the RCC and in favor of the Revenue.

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