The judgment of the court was delivered by
K. S. PARIPOORNAN J.--Leave granted in Special Leave
Petitions Nos. 2357-2359 of 1988, 3122 of 1987 and 6281 of 1986.
In this batch of 18 cases, a common question of law--the
scope of section 10(22) of the Income-tax Act, 1961--arises for consideration.
The main case is the decision rendered by the Madras High Court in Tax Case No.
114 of 1975 (Addl. CIT v. Aditanar Educational Institution). The said decision
is reported in [1979] 118 ITR 235. The assessee as well as the Revenue have
filed appeals from the said decision, which covered a period of three years
1965-66, 1966-67 and 1967-68. The appeals filed by the assessee are Civil
Appeals Nos. 2578-2580 of 1979 and the appeals filed by the Revenue are Civil
Appeals Nos. 356, 356A and 356B of 1980. Civil Appeals Nos. 41 and 42 of 1988 as
also the appeals relating to Special Leave Petitions Nos. 2357-2359 of 1988 and
3122 of 1987 relate to the same assessee. The assessees in the other cases are
different. In Civil Appeals Nos. 3881-3882 of 1984 and 379-380 of 1985, the
assessee is Sri Paramakalyani Education Society, Madras. In Civil Appeals Nos.
8789 of 1995, the assessee is one Sattur Hindu Nadar's Edward School Committee.
In the appeal relating to Special Leave Petition No. 6281 of 1986, the assessee
is one Rajagopal Educational Trust. As stated, the common question involved in
this batch of 18 cases is the interpretation to be placed on section 10(22) of
the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The
decision of the Madras High Court rendered in Tax Case No. 114 of 1975 (Addl.
CIT v. Aditanar Educational Institution [1979] 118 ITR 235) was followed in all
the other cases. The following table would show the parties and the relevant
appeals and the assessment years :
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Case No. Parties Year concerned
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(1) (2) (3)
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C. A. Nos. 2578-80/ Aditanar Educational Institution v.
1965-66, 1966-67
1979 Addl. CIT and 1967-68
C. A. Nos. 356, 356A Addl. CIT v. Aditanar Educational
1965-66, 1966-67
and 356B/1980 Institution, Madras and 1967-68
C. A. Nos. 3881-82/ CIT, Madras v. Sri Paramakalyani
1971-72 and
1984 Education Society, Madras 1972-73
C. A. Nos. 379-80/ CIT, Madras v. Sri Paramakalyani
1973-74 and
1985 Education Society, Madras 1974-75
C. A. No. 41-42/1988 CIT, Madras v. Aditanar Educational
1963-64 and
Institution, Madras 1964-65
C. A. No. 8789/1995 CIT, Madurai v. Sattur Hindu Nadars'
1980-81
Edward School Committee, Sattur
S. L. P. No. 2357-59/ CIT, Madras v. Aditanar Educational
1977-78, 1978-79
1988 Institution, Madras and 1979-80
S. L. P. No. 3122/ CIT, Madras v. Aditanar Educational
1980-81
1987 Institution, Madras
S. L. P. No. 6281/ CIT, Madras v. Rajagopal Educational
1979-80
1986 Trust
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It should be mentioned that in the appeal relating to
Special Leave Petition No. 6281 of 1986 (CIT v. Rajagopal Educational Trust),
the Madras High Court dismissed the application filed by the Revenue under
section 256(2) of the Act. By this judgment, we withdraw the said application to
the file of this court and finally dispose of the same on the merits along with
the other appeals.
We heard counsel. It is agreed before us that the decision
rendered in the main appeals will govern the entire batch of cases.
The question of law that arises for consideration in this
batch of cases is to the following effect (see [1979] 118 ITR 235, 236) :
" Whether, on the facts and in the circumstances of
the case, the Tribunal was right in holding that the income of the assessee is
entitled for exemption under section 10(22) of the Income-tax Act, 1961 ? "
It is sufficient to state the minimal facts in the main
case, T. C. No. 114 of 1975 (Civil Appeals Nos. 2578-2580 of 1979 and 356, 356A
and 356B of 1980 ; the decision reported in [1979] 118 ITR 235). The assessee is
a society registered under the Societies Registration Act, 1960. Its objects are
to establish, run, manage or assist colleges, schools and other educational
organisations existing solely for educational purposes. The assessee received
donations from a trust called "Thanthi Trust" a sum of Rs. 15,71,370
during the previous year relevant to the assessment year 1965-66, a sum of Rs.
5,62,432.25 during the previous year relevant to the assessment year 1966-67 and
a sum of Rs. 4,78,899.67 during the previous year relevant to the assessment
year 1967-68. The assessee filed "nil" returns, for all these years.
According to the assessee, its taxable income was "nil" as it was an
educational institution existing solely for educational purposes. The Income-tax
Officer closed the assessments stating that there is no taxable income. There
was no question of granting exemption under section 10(22) of the Act since,
according to the assessee, it incurred loss for all the three years. The
Commissioner of Income-tax initiated suo motu proceedings under section 263 of
the Act as, in his opinion, the assessments made by the Income-tax Officer were
erroneous and prejudicial to the Revenue. He opined that the Income-tax Officer
failed to consider the question whether the assessee was entitled to exemption
in respect of the receipts of voluntary contributions. According to him, the
assessee was not entitled to any exemption. An order was passed on March 30,
1972, directing the Income-tax Officer to make fresh assessments taking into
consideration the voluntary contributions received from Thanthi Trust. The order
so passed for the assessment year 1965-66 is dated March 30, 1972. For the other
two years, the orders were passed on March 2, 1973. It was stated in the order
dated March 2, 1973, that section 10(22) of the Act will apply only to exempt
the income for a college, academy or school. In other words, the exemption under
section 10(22) would apply to the educational institutions as such and not to
anyone who might be financing the running of such an institution. In the appeals
filed by the assessee for all the three years, by a common order dated April 22,
1974, the Appellate Tribunal held that the assessee was an institution existing
for educational purposes and not for purposes of earning any profit and the
assessee itself could be termed as an educational institution within the ambit
of section 10(22) of the Act. It is thereafter, at the instance of the Revenue,
the question of law mentioned hereinabove was referred to the Madras High Court
for its decision.
Section 10(22) of the Act runs as follows :
" 10. Incomes not included in total income.--In
computing the total income of a previous year of any person, any income falling
within any of the following clauses shall not be included---.....
(22) any income of a university or other educational
institution, existing solely for educational purposes and not for purposes of
profit. " (emphasis supplied).
The sole question that arises for consideration is whether
the assessee will be taken in by the words "other educational
institution". On this aspect, the High Court held thus :
" 'Any educational institution' would fall within the
scope of section 10(22) even though it may have or may not have anything to do
with the University. The categories are so different that the University cannot
be the genus, and the 'other educational institution' the species thereof. Thus,
the college here could come under the 'other educational institution'. "
Proceeding further, the High Court held that the assessee
came into existence for the purpose of establishing, running, managing or
assisting colleges, schools and other educational organisations and in pursuance
of its objects, the assessee has established a college. It was further held that
the medium through which the assessee could effectuate its objects is the
college and by employing this medium, the assessee imparts education. The High
Court opined that it is not possible to accept the contention of the Revenue
that the assessee is only a financing body and does not, on the facts, come
within the scope of "other educational institution" occurring in
section 10(22). It was found that the sole purpose for which the assessee has
come into existence is education at the levels of college and school and that an
educational society could be regarded as an educational institution, if the
society was running an educational institution not for the purpose of profit,
but its existence was solely for the purpose of education. On the basis of the
above findings, the High Court answered the question referred to it in the
affirmative and in favour of the assessee. It is this judgment which is objected
to by the assessee as also by the Revenue in the main appeals--Civil Appeals
Nos. 2578-2580 of 1979 and 356, 356A and 356B of 1980.
Counsel for the Revenue mainly stressed the plea that the
exemption under section 10(22) of the Act would apply only to educational
institutions as such. According to him, in this case, the assessee might be
financing for running an educational institution, but it is not itself an
educational institution. As noted earlier, the Tribunal held that the assessee
was an institution existing for educational purposes and not for the purposes of
earning any profit and the assessee itself could be termed as an
"educational institution" coming within section 10(22) of the Act. The
High Court has concurred with this view. The High Court has further held that
the medium through which the assessee could effectuate its objects is the
college and by employing this medium, the assessee imparts education and it
cannot be stated that the assessee is only a financing body and does not, on the
facts, come within the scope of "other educational institution"
occurring in section 10(22) of the Act. Reliance was placed on the decision of
the Allahabad High Court in Katra Education Society v. ITO [1978] 111 ITR 420,
to hold that an educational society could be regarded as an educational
institution if the society was running an educational institution. We are of the
view that an educational society or a trust or other similar body running an
educational institution solely for educational purposes and not for the purpose
of profit could be regarded as "other educational institution" coming
within section 10(22) of the Act. (See CIT v. Doon Foundation [1985] 154 ITR 208
(Cal) and Agarwal Shiksha Samiti Trust v. CIT [1987] 168 ITR 751 (Raj). It will
be rather unreal and hypertechnical to hold that the assessee-society is only a
financing body and will not come within the scope of "other educational
institution" as specified in section 10(22) of the Act. The object of the
society is to establish, run, manage or assist colleges or schools or other
educational institutions solely for educational purposes and in that regard to
raise or collect funds, donations, gifts, etc. Colleges and schools are the
media through which the assessee imparts education and effectuates its objects.
In substance and reality, the sole purpose for which the assessee has come into
existence is to impart education at the levels of colleges and schools and so,
such an educational society should be regarded as an "educational
institution" coming within section 10(22) of the Act. We hold accordingly.
In our view, the judgment of the High Court does not merit interference. The
plea of the Revenue to the contrary is untenable and we repel the same. All the
appeals filed by the Revenue shall stand dismissed, but there shall be no order
as to costs.
We will now take up the appeals filed by the assessee in
the main case--Civil Appeals Nos. 2578-2580 of 1979. It passes our comprehension
as to why the assessee filed the appeals at all from the judgment of the High
Court dated February 23, 1979, which is in its favour, When questioned, senior
counsel appearing for the assessee, Mr. G. C. Sharma, stated that there are some
observations of the High Court in the concluding portion of the judgment, which
may prejudicially affect the assessee in future. We are, of the view that this
apprehension has no basis. All that the High Court has stated in the penultimate
paragraph of the judgment is that counsel for the assessee gave a right answer
to a hypothetical question put forward by the court to the effect that the
applicability of section 10(22) should be evaluated or investigated every year,
and only if it is found that the "institution" exists for educational
purposes in the relevant year and even if any profit results, which is only
incidental to the purpose of education, the income would be exempt. The High
Court has made an observation that any income which has a direct relation or is
incidental to the running of the institution as such would qualify for
exemption. We may state that the language of section 10(22) of the Act is plain
and clear and the availability of the exemption should be evaluated each year to
find out whether the institution existed during the relevant year solely for
educational purposes and not for purposes of profit. After meeting the
expenditure, if any surplus results incidentally from the activity lawfully
carried on by the educational institution, it will not cease to be one existing
solely for educational purposes since the object is not one to make profit. The
decisive or acid test is whether on an overall view of the matter, the object is
to make profit. In evaluating or appraising the above, one should also bear in
mind the distinction/difference between the corpus, the objects and the powers
of the concerned entity. The following decisions are relevant in this context :
Governing Body of Rangaraya Medical College v. ITO [1979] 117 ITR 284 (AP) and
Secondary Board of Education v. ITO [1972] 86 ITR 408 (Orissa). We make this
position clear in order to allay the apprehensions expressed by counsel.
Subject to these observations, the appeals filed by the
assessee also fail and they are dismissed, but with no order as to costs.
