2019 (2) TMI 1588 - HC - Income Tax

Refusal of exemption u/s 10(22) - Charitable activities - assessee, a charitable institution registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 and running an educational institution - denial of claim as school has not got CBSE recognition and that the property purchased in 1997 is in the name of the Secretary and the Manager of the Trust Satheesh Kumar and his wife, Pushpavally, a teacher in that school respectively - HELD THAT - Even though it is true that the assessee is running an educational institution, it cannot be said that the society exists solely for educational purposes and not for profit. The Tribunal rightly concluded that the acquisition of property in the name of individuals is indicative of the fact that the profits of the institution was being used for self aggrandizement; which is the explicit motive. The explanation that the property was inadvertently purchased in the name of individuals by an innocuous mistake, can only be taken with a pinch of salt. Also the assessee is a society, formed with many objectives, one of which is imparting education. Hence, the assessee cannot be found to be an institution established and existing solely for educational purposes. The assessee also has declared income from cultural activities, which again reinforces the finding that the object is not solely education. - Decided against the assessee.

Summary

Issues:
1. Exemption under Section 10(22) of the Income Tax Act.
2. Ownership of land in relation to eligibility for exemption under Section 10(22).

Issue 1: Exemption under Section 10(22) of the Income Tax Act:
The case involved an assessee, a charitable institution registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, running an educational institution affiliated with CBSE. The main issue was the denial of exemption under Section 10(22) of the Income Tax Act by the Assessing Officer (A.O.) due to lack of CBSE recognition for the school and the property being in the name of individuals. The assessee contended that the institution was not profit-oriented and derived income exclusively for educational purposes. The Tribunal upheld the A.O.'s decision based on the property being purchased in the name of the Secretary and Principal of the school, indicating a profit motive. The Tribunal's decision was challenged by the assessee, citing precedents like Oxford University Press v. C.I.T. and American Hotel and Lodging Association Educational Institute v. Central Board of Direct Taxes to support their claim for exemption.

Issue 2: Ownership of land in relation to eligibility for exemption under Section 10(22):
The Tribunal's decision was based on the finding that the property where the school operated was purchased in the name of individuals managing the society, rather than in the name of the society or the school itself. This raised doubts about the institution existing solely for educational purposes and not for profit, a requirement for exemption under Section 10(22). The Tribunal referred to precedents like CIT v. Surat Art Silk Cloth Manufacturers' Assn. and Queen's Educational Society to emphasize that the motive of profit-making should not overshadow the primary objective of imparting education. The Tribunal concluded that the acquisition of property in individuals' names indicated a profit motive rather than a sole focus on education, leading to the dismissal of the appeal.

In conclusion, the High Court upheld the Tribunal's decision, stating that the society did not exist solely for educational purposes and not for profit, as required under Section 10(22) of the Income Tax Act. The Court found that the purchase of property in individuals' names demonstrated a profit motive rather than a dedication to educational objectives. The appeal was dismissed, affirming the Tribunal's findings.