2007 (9) TMI 347 - HC - Income Tax

Exemption under section 10(23C)(iiiad) - assessee are educational societies registered under the Societies Registration Act and have been imparting education to children. - It was also noticed that the appellant-society had made investment in fixed assets including building and a net surplus after the investment Held that the investment in the fixed assets like furniture and buildings are the properties of the society and may be connected with the imparting of education but the same has been constructed and purchased out of income from imparting the education with a view to expand the institution and to earn more income. - Exemption under section 10(23C) (iiiad) not available

Summary

Issues:
- Appeal by Revenue under section 260A of the Income-tax Act, 1961
- Exemption under section 10(23C)(iiiad) for educational societies
- Assessing Officer's rejection of exemption claimed by assessees
- Appeal before Income-tax Appellate Tribunal by Revenue
- Reasons for granting exemption by the Income-tax Appellate Tribunal
- Disagreement with the reasoning of the Income-tax Appellate Tribunal
- Application of legal principles regarding profit earned by educational societies
- Investment in fixed assets and its impact on exemption claim
- Judgment setting aside the Income-tax Appellate Tribunal's order and affirming the Assessing Officer's decision

Comprehensive Analysis:

The judgment involves two appeals by the Revenue under section 260A of the Income-tax Act, 1961, concerning the exemption under section 10(23C)(iiiad) for educational societies. The assessees, educational societies registered under the Societies Registration Act, claimed exemption based on their educational activities not for profit. The Income-tax Appellate Tribunal granted exemption, citing the surplus being reinvested in educational assets. However, the Revenue disagreed, emphasizing the profit earned by the societies.

The Income-tax Appellate Tribunal's reasoning was challenged as hypothetical by the Revenue, highlighting the profit percentages earned by the societies. The judgment referred to legal precedents stating that if profit is proven, it constitutes income to the society. The court noted that surplus remaining after expenses is considered income, as per legal interpretations. The court emphasized that profit should not be the main objective of educational institutions, as their primary goal is educational, not profit-making.

Regarding investments in fixed assets, the court discussed the significance of such investments in relation to exemption claims. It cited a judgment emphasizing that systematic profit-making, even for charitable purposes, does not automatically qualify for exemption. The court concluded that investments in fixed assets, though related to education, were made to expand the institution and increase income, not solely for educational purposes.

Ultimately, the court set aside the Income-tax Appellate Tribunal's order, affirming the Assessing Officer's decision to reject the exemption claimed by the assessees. The judgment favored the Revenue, emphasizing the legal principles that profit should not be the primary objective of educational societies to qualify for exemption under section 10(23C)(iiiad).