1998 (9) TMI 122 - AT - Income Tax

Summary

Issues Involved:
1. Exemption under section 10(22) of the Income-tax Act, 1961.
2. Applicability of section 11 of the Income-tax Act, 1961.

Summary:

Exemption under section 10(22):
The assessee, a Society running two schools, claimed exemption u/s 10(22) of the Income-tax Act, 1961, which was denied by the Assessing Officer on the grounds of profit-making activities. The Assessing Officer's decision was upheld by the CIT (Appeals), who noted that the Society collected substantial admission fees, donations, and loans, which were considered beyond its legitimate needs and against the provisions of the Delhi School Education Act, 1973 (DSE Act). The CIT (Appeals) also noted potential benefits to members of the Society through construction contracts awarded to a family concern.

The assessee argued that the Society existed solely for educational purposes and that the funds collected were used for educational activities. The assessee cited several precedents, including the Supreme Court's decision in Aditanar Educational Institution, which held that incidental surpluses do not negate the educational purpose if the primary objective is not profit-making.

The Judicial Member upheld the revenue's view, emphasizing that the surplus was not incidental and the Society's activities indicated a profit motive. The Vice President (Accountant Member) disagreed, noting the absence of evidence showing diversion of funds for non-educational purposes and emphasizing the Society's consistent exemption status in previous years. The Vice President also highlighted that the DSE Act provisions cited by the revenue applied to aided schools, not unaided ones like the assessee.

The Third Member, agreeing with the Vice President, concluded that the Society's primary objective remained educational and the funds collected were within the scope of its Memorandum of Association. The Third Member also distinguished the case from the Supreme Court's decision in Safdarjung Enclave Education Society, noting that section 10(22) does not require charitableness but solely an educational purpose.

Applicability of section 11:
The Judicial Member suggested remanding the issue of exemption u/s 11 to the CIT (Appeals) for fresh consideration, which was not concurred by the Vice President. The Third Member did not address this issue separately, focusing on the primary issue of exemption u/s 10(22).

Conclusion:
The majority opinion favored the assessee, allowing the appeal and granting exemption u/s 10(22) of the Income-tax Act, 1961. The issue of applicability of section 11 was not conclusively addressed due to the primary focus on section 10(22).