2019 (2) TMI 815 - HC - Income Tax

Charitable activity - exemption claimed under Section 10(22) denied - whether the assessee can exclude the income that is derived from the educational institutions claiming the benefit under Section 10(22) and show the income derived otherwise than from the educational institutions alone for the purpose of taxation? - Held that - The majority view was that the non-profit motive has to be tested against Indian activities and since the assessee therein was carrying on only commercial activity of selling printed books and materials, within India, it cannot claim the exemption under section 10(22). This aspect has application in the instant case because here too the profit motive was discernible from the purchase of land in favour of the personnel in management. In Queen s Educational Society 2015 (3) TMI 619 - SUPREME COURT it was reiterated that if the activities are primarily for educating persons, the fact that institutions make surplus profit incidentally from such activities does not make the institution a profit making institution. What is relevant is that the purpose of education should not get submerged under the profit making motive. The ultimate test is whether on an overall view of the issue in the assessment year concerned, the object is to make profit as opposed to imparting education. Applying the ratio to the case in hand, 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. We also find that 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. Whether the Appellate Tribunal was correct in denying exemption under Section 10(22) of the Income Tax Act?
2. Whether the ownership of land on which the educational institution was situated affects the eligibility for the benefit of Section 10(22) of the Income Tax Act?

Analysis:

Issue 1:
The appellant, a charitable institution running an educational institution, sought exemption under Section 10(22) of the Income Tax Act. The Assessing Officer denied the claim citing lack of CBSE recognition and ownership of the property in the name of individuals. The Commissioner of Income Tax (Appeals) allowed the appeal, emphasizing the absence of a profit motive in the institution's activities. However, the Tribunal reversed this decision, stating that the land was purchased in the name of individuals managing the school, indicating a profit motive. The appellant argued that the institution was not profit-oriented, relying on legal precedents. The Court analyzed Section 10(22) which grants exemption to institutions existing solely for educational purposes and not for profit. It found that the land was purchased in the name of individuals, diverting society's funds for personal gain, indicating a profit motive. Referring to legal cases, the Court emphasized the need to assess the institution's primary objective and profit motive, concluding that the institution did not exist solely for educational purposes and upheld the Tribunal's decision.

Issue 2:
The Court examined whether the appellant could exclude income from educational institutions for tax purposes under Section 10(22) while showing income from other sources. It highlighted that the exemption is for institutions existing solely for educational purposes. The Court noted that the society had multiple objectives, not solely education, as evidenced by income from cultural activities. The Tribunal's finding that the institution's profits were used for self-aggrandizement due to property acquisition in individuals' names was upheld. The Court rejected the appellant's explanation of inadvertent land purchase, emphasizing the profit motive. Considering the overall objective of the institution, the Court affirmed that it did not exist solely for educational purposes. Consequently, the Court dismissed the appeal, upholding the Tribunal's decision against the appellant.

In conclusion, the Court upheld the Tribunal's decision, emphasizing the profit motive behind the institution's activities and the lack of sole existence for educational purposes, leading to the denial of exemption under Section 10(22) of the Income Tax Act.