1987 (11) TMI 107 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for exemption under section 10(22) of the Income-tax Act, 1961.
2. Nature of the activities of the assessee-trust.
3. Impact of surplus income and loans advanced by the trust.
4. Interpretation of relevant case law and its applicability.

Detailed Analysis:

1. Eligibility for Exemption under Section 10(22):
The primary issue revolves around whether the assessee-trust qualifies for exemption under section 10(22) of the Income-tax Act, 1961. The assessee-trust, registered under section 12, runs a school and claimed exemption under section 10(22) for the assessment year 1980-81. The Income-tax Officer denied this exemption, asserting that the trust's activities were not confined solely to running the school, thus disqualifying it from being termed an educational institution or university.

2. Nature of the Activities of the Assessee-Trust:
The Commissioner of Income-tax (Appeals) acknowledged that the trust's school was not recognized by the Board of Secondary Education but still accepted that this did not disqualify it from exemption under section 10(22). However, the Commissioner pointed out that the trust engaged in other activities, including granting scholarships and stipends to students, which was seen as detrimental to its claim for exemption. The Commissioner cited the Karnataka High Court's decision in CIT v. Saraswath Poor Students Fund, emphasizing that the trust's activities were not solely educational.

3. Impact of Surplus Income and Loans Advanced by the Trust:
The Commissioner of Income-tax (Appeals) noted that the trust had a surplus income of Rs. 58,929 for the year in question and had been consistently generating surplus income. Additionally, the trust advanced loans totaling Rs. 15,21,360 to three other schools, which were not shown to be covered under section 10(22). This surplus and the advancement of loans were interpreted as indications that the trust did not exist solely for educational purposes but also for profit.

4. Interpretation of Relevant Case Law and Its Applicability:
The Tribunal examined various case laws to interpret the provisions of section 10(22). In Birla Vidhya Vihar Trust v. CIT, the Calcutta High Court held that the existence of non-educational objects did not disqualify a trust from exemption if the income was solely from educational activities. Similarly, in CIT v. Doon Foundation, it was held that the income of an institution existing solely for educational purposes was exempt, regardless of the owner's other charitable objects. The Andhra Pradesh High Court in Governing Body of Rangaraya Medical College v. ITO ruled that surplus income did not imply a profit motive if it was used for the institution's objectives.

The Tribunal concluded that the primary object of the assessee-trust was educational, as outlined in its trust deed. The advancement of loans to other educational institutions was seen as connected to the trust's objectives. The Tribunal found that the trust's activities, including the generation of surplus income, did not disqualify it from exemption under section 10(22), as the surplus was utilized for educational purposes and no individual derived profit from it.

Conclusion:
The Tribunal allowed the appeal, ruling that the assessee-trust running Apeejay School at Calcutta existed solely for educational purposes and not for profit, thus qualifying for exemption under section 10(22) of the Income-tax Act, 1961. The Tribunal's decision was influenced by the interpretation of relevant case laws and the nature of the trust's activities, including the utilization of surplus income and the advancement of loans for educational purposes.