2009 (10) TMI 60 - SC - Income Tax

Educational Institution section 10(22) of the 1961 Act - According to the AO, since the assessee, during the relevant years, had income exclusively from publication and selling of text books to the students, exemption under Section 10(22) as it stood at the material time, was not admissible. According to the AO, the assessee did not exist solely for educational purposes, particularly in view of Clause 21 of the Memorandum of Association which provides for distribution of dividends, hence, its income was not exempt held that - the High Court, failed to consider (i) the historical background (ii) the source of funding, the share-holding pattern and aspects, such as Return on Investment; (iii) the letters issued by C.B.D.T. and (iv) the judgments matter remanded back to AO instead of HC

Summary

Issues:
1. Whether the Corporation qualifies as an 'Educational Institution' under Section 10(22) of the Income Tax Act, 1961 for the relevant Assessment Years.

Analysis:

The case involved the appeal of a Corporation, initially constituted as the 'Central Text Book Committee' and later transformed into the 'Assam State Text Book Production and Publication Corporation Limited'. The Corporation was primarily engaged in research, printing, and publishing of textbooks for school students in Assam. The main issue was whether the Corporation could be considered an 'Educational Institution' under Section 10(22) of the Income Tax Act, 1961 for the relevant Assessment Years spanning from 1981-1982 to 1996-1997.

The Assessing Officer contended that since the Corporation's income was derived solely from the publication and sale of textbooks, it did not qualify for exemption under Section 10(22) as it did not exist solely for educational purposes. This decision was upheld by the Commissioner of Income Tax (Appeals). However, the Tribunal, by majority decision, ruled in favor of the Corporation, considering it an Educational Institution eligible for exemption.

The High Court, on appeal by the Department, disagreed with the Tribunal's decision, emphasizing that the Corporation's income was not exempt as it did not exclusively impart education and engaged in profit-earning activities through the publication and sale of textbooks. The Supreme Court noted the historical background of the Corporation's formation, its government ownership, and control by the State of Assam. It highlighted the Corporation's aim to implement the state's education policy and the provision for Return on Investment to the state.

The Supreme Court referred to circulars issued by the Central Board of Direct Taxes granting exemption under Section 10(22) to similar educational bodies in other states. Citing the judgments of the Rajasthan High Court and the Orissa High Court, the Supreme Court concluded that the Corporation should be treated as an Educational Institution entitled to exemption under Section 10(22). The matter was remitted back to the Assessing Officer for reconsideration in light of the precedents and circulars mentioned. The appeals were allowed with no order as to costs.