2018 (12) TMI 280 - AT - Income Tax

Exemption u/s. 10(22) - assessee is to be treated educational institute existed purely for education or not - different status in India and Outside India - Held that - We are of the view that unlike the present Section 10(23C)(vi) of the Act, there are no conditions in relation to obtaining approval, audit of accounts, application of income etc. The provisions of Section 10(22) for claiming exemption, the requirement is that the university or the educational institute must exist solely for educational purposes in India. The recipient of the income must have the character of an educational institute in India and its character outside India or it being a part of university existing outside India is not relevant for deciding whether its income would be exempt u/s. 10(22) of the Act or not. In the present case, there is no charge by AO or now by CIT-DR that the assessee does not exist solely for the purpose of education, hence we find no infirmity in the order of CIT(A), allowing the claim of exemption to assessee-institution u/s. 10(22). Accordingly, we dismiss the appeal of Revenue.

Summary

Issues Involved:
1. Whether the CIT(A) was justified in granting exemption under section 10(22) of the Income Tax Act, 1961, by treating the assessee as an educational institution.
2. Whether the assessee trust's status as a beneficiary trust with foreign beneficiaries affects its eligibility for exemption under section 10(22).
3. The impact of the assessee receiving part fees in India and part fees in foreign exchange on its exemption claim.
4. Compliance with CBDT directions regarding the use of surplus funds for non-educational purposes and its impact on exemption eligibility.

Detailed Analysis:

Issue 1: Exemption under Section 10(22)
The core issue was whether the assessee qualified for exemption under section 10(22) as an educational institution. The CIT(A) concluded that the assessee existed solely for educational purposes and not for profit, thus fulfilling the conditions for exemption under section 10(22). The Tribunal noted that the AO had not addressed the Tribunal's specific direction to reconsider the exemption under section 10(22) and had merely repeated the earlier assessment order. The CIT(A) found that the income sources, including tuition fees, donations, and interest income, did not indicate any business activity for profit. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's activities were solely educational, and any surplus was incidental and not indicative of a profit motive.

Issue 2: Beneficiary Trust with Foreign Beneficiaries
The Revenue argued that the assessee trust's foreign beneficiaries disqualified it from exemption. However, the Tribunal noted that the legal requirement under section 10(22) was that the institution must exist solely for educational purposes and not for profit. The Tribunal found no evidence that the foreign beneficiaries affected the educational purpose of the trust. Therefore, the trust's status as a beneficiary trust with foreign beneficiaries did not impact its eligibility for exemption under section 10(22).

Issue 3: Fees Received in Foreign Exchange
The AO contended that part of the fees collected in foreign exchange and managed by SAIESF (South Asia International Education Service Foundation) in the USA raised concerns about the audit and utilization of funds. However, the Tribunal noted that the assessee had provided explanations and documentation, including recognition and affiliation details of the courses taught. The Tribunal found no material evidence of business activity for profit. The Tribunal also considered the RBI's condonation of irregularities in tuition fee collection and concluded that the foreign exchange aspect did not affect the assessee's eligibility for exemption under section 10(22).

Issue 4: Compliance with CBDT Directions
The Revenue cited CBDT directions stating that if surplus funds could be used for non-educational purposes, the institution would not qualify for exemption. The Tribunal referred to judicial precedents, including the Supreme Court's decision in Aditanar Educational Institution v. Addl. CIT, which held that incidental surplus does not negate the educational purpose. The Tribunal found that the assessee's activities and income sources were aligned with educational purposes, and there was no evidence of diversion of funds for non-educational purposes. Therefore, the Tribunal upheld the CIT(A)'s decision granting exemption under section 10(22).

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order granting exemption under section 10(22) to the assessee. The Tribunal found that the assessee existed solely for educational purposes and not for profit, and the issues raised by the Revenue did not affect the exemption eligibility. The Tribunal also dismissed the assessee's cross-objection as not pressed.