1972 (1) TMI 16 - HC - Income Tax

Under the Act the Board has a fund. There are various sources of income constituting the fund. One of the sources of income is earning profits by compilation, publication, printing and sale of text books. The profits so earned enter into the Board fund. The income and expenditure of the Board is controlled and the entire expenditure is to be directed towards development and expansion of educational purposes. Even if there is some surplus it is not appropriated by others but remains as a part of the sinking fund to be devoted to the cause of education as and when necessary. This being the objective and there being various ways of control of the income and expenditure, the Board of Secondary Education cannot be said to be existing for purposes of profits. It exists solely for purposes of education. The income of the Board cannot, therefore, be computed in the total income of the previous year under section 10(22) of the Income-tax Act, 1961.

Summary

Issues Involved: Exemption from income-tax under section 10(22) of the Income-tax Act, 1961; Jurisdiction of the High Court to quash notices issued by the Income-tax Officer.

Issue-wise Detailed Analysis:

1. Exemption from Income-Tax under Section 10(22) of the Income-tax Act, 1961:

The petitioner, the Board of Secondary Education, Orissa, claimed exemption from income-tax under section 10(22) of the Income-tax Act, 1961. The relevant provision states: "any income of a University or other educational institution, existing solely for educational purposes and not for purposes of profit." The Board is acknowledged as an educational institution but not a University. The court needed to determine if the Board exists solely for educational purposes and not for profit.

The court examined the Orissa Secondary Education Act, 1953, which established the Board to regulate, control, and develop secondary education in Orissa. The Act's preamble and Section 11 enumerate the Board's powers and functions, all of which are educational in nature. The Board's activities include prescribing courses, conducting examinations, and granting diplomas, among others. The Board fund, as per Sections 12 and 13, comprises income from fees, donations, and other sources, and is strictly utilized for educational purposes.

The court distinguished between educational institutions that incidentally earn profits and those primarily established for profit. The Board, despite earning profits from activities like the sale of textbooks, uses these profits solely for educational purposes. The court referenced the case of All India Spinners' Association v. Commissioner of Income-tax, where the association's profits were deemed incidental to its charitable purpose, reinforcing the Board's claim.

2. Jurisdiction of the High Court to Quash Notices Issued by the Income-tax Officer:

The Income-tax Officer issued notices under sections 139(2) and 143(2) of the Income-tax Act, asking the Board to file a return of income and subsequently scrutinizing it. The Board filed a writ application under articles 226 and 227 of the Constitution to quash these notices, arguing that its income is exempt under section 10(22).

The court addressed the preliminary objection regarding the High Court's interference at this stage. It acknowledged that while the High Court typically does not interfere in assessment proceedings due to the availability of alternative remedies, it can exercise discretion when the law is clear, and the assessing authorities lack jurisdiction. Given the clear exemption under section 10(22), the court found it appropriate to quash the notices.

Conclusion:

The court concluded that the Board of Secondary Education, Orissa, exists solely for educational purposes and not for profit. Therefore, its income is exempt from income-tax under section 10(22) of the Income-tax Act, 1961. The notices issued by the Income-tax Officer were quashed, and the writ application was allowed. There was no order as to costs.