2007 (1) TMI 92 - HC - Income Tax

Educational institution, school merely for minor contradictions in accounts, assessee can t be held that it existed for profit motive or didn t exist for educational purpose moreover, details of constructions of school building has been filed exemption u/s 10(22) of A.Y. 96-97 is allowable

Summary

Issues:
1. Discrepancies in the accounts maintained by the Assessee.
2. Receipt of donations and utilization for educational purposes.
3. Allegations of profit motive and diversion of funds.
4. Exemption under Section 10(22) of the Income Tax Act, 1961.

Analysis:

1. The judgment concerns discrepancies in the accounts maintained by the Assessee. The Assessing Officer identified three discrepancies leading to the conclusion that the Assessee was not existing solely for educational purposes but also for a profit motive. The first discrepancy involved a donation received in cash, which the Assessee claimed to be a "Gupt Daan" mistakenly recorded as an unsecured loan. The court analyzed whether the donation was received with a profit motive, emphasizing the lack of evidence indicating diversion from educational purposes.

2. The second discrepancy related to donations received without producing the donors before the Assessing Officer. The court referenced a previous decision highlighting that the utilization of donations for constructing the school building served an educational purpose, irrespective of the nature of the donations. It was noted that the Assessee's exemption under Section 10(22) since 1960 supported the argument against a profit motive.

3. The third discrepancy involved payments made to a construction company linked to a member of the Assessee-Society. The Assessing Officer doubted the transaction's genuineness due to the lack of proper documentation. However, the court found that details of the construction, agreements, and payments were provided, indicating the funds were utilized for constructing the school building, aligning with educational purposes. The court dismissed the notion of diversion of funds based on the evidence presented.

4. The judgment emphasized that minor contradictions in the Assessee's accounts did not automatically imply a shift from educational to profit motives. Previous grants of exemption under Section 10(22) and the consistent utilization of funds for educational purposes were crucial factors in determining the Assessee's primary objective. The court cited precedents to support the view that discrepancies in accounts did not inherently alter the Assessee's core purpose, ultimately dismissing the appeal and finding no substantial question of law to consider.