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PETITIONER: ADITANAR EDUCATIONAL INSTITUTION

       Vs.

RESPONDENT: ADDITIONAL COMMISSIONER OFINCOME-TAX

DATE OF JUDGMENT:       05/02/1997

BENCH: B.P. JEEVAN REDDY, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                             WITH CIVIL APPEAL NOS. 356, 356A & 356B OF 1980, 3881-82 OF 1984, 379-80 OF 1985, 41-42 OF 1988, 8789 OF 1995                             AND CIVIL APPEAL NOS. 642-646 OF 1997 (Arising out  of S.L.P.  (c) Nos.  2357-59 of  1988, 3122 of 1987 and 6281 of 1986)                       J U D G M E N T Paripoornan, J.      Leave granted in Special Leave Petition Nos. 2357-59 of 1988, 3122 of 1987 and 6281 of 1986. 2.   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 (Additional  Commissioner  of  Income-tax,  Madras  vs. Aditanar Educational Institution, Madras). The said decision is reported  in 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 Appeal Nos. 2578-80 of  1979 and  the appeals  filed by  the Revenue are Civil Appeal  Nos. 356,  356A and 356B of 1980. Civil Appeal Nos. 41  and 42  of 1988  as also  the appeals  relating  to Special Leave Petition Nos. 2357-59 of 1988 and 3122 of 1987 relate to  the same  assessee. The  assessees in  the  other cases are  different. In  Civil Appeal  Nos. 3881-82 of 1984 and 379-80  of  1985,  the  assessee  is  Sri  Paramakalyani Education Society,  Madras. In  Civil Appeal  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 T.C. No. 114 of 1975 (Additional Commissioner of Income-tax, Madras  vs.  Aditanar  Educational  Institution, Madras) (118  ITR 235)  was followed in all the other cases. The following  table would show the parties and the relevant

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appeals and the assessment years: ------------------------------------------------------------ Case No.            Parties                  Year concerned ------------------------------------------------------------ 1                        2                        3 ------------------------------------------------------------ CA 2578-80/79  Aditanar Educational                Institution                   1965-66                   vs.                        1966-67             Additional Commissioner          1967-68             of Income Tax CA 356, 356A,   Additional Commissioner & 356B/80       of Income Tax, Madras        1965-66                           vs.                1966-67                 Aditanar Educational         1967-68                 Institution, Madras CA 3881-82/84    CIT, Madras                     vs.                 Sri Paramakalyani Education  1972-72                 Society, Madras              1972-73 CA 379-80/85   CIT, Madras                     vs.                Sri Paramakalyani Education   1973-74                Society, Madras               1974-75 CA 41-42/88    CIT, Madras                     vs.                Aditanar Educational          1963-64                Institution, Madras           1964-65 CA 8789/95     CIT, Madurai                     vs.                Sattur Hindu Nadar’s Edward   1980-81                School Committee, Sattur SLP 2357-59/88  CIT, Madras                     vs.                      1977-78                Aditanar Educational          1978-79                Institution, Madras           1979-80 ------------------------------------------------------------ 1                   2                             3 ------------------------------------------------------------ SLP 3122/87    CIT, Madras                     vs.                Aditanar Educational          1980-81                Institution, Madras SLP 6281/86    CIT, Madras                     vs.                      1979-80                Rajagopal Educational Trust ------------------------------------------------------------      It should  be mentioned  that in the appeal relating to Special Leave  petition No.  6281 of 1986 (CIT vs. 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 merits along with the other appeals. 3.   We heard  counsel. It  is agreed  before  us  that  the decision rendered in the main appeals will govern the entire batch of cases. 4.   The question  of law  that arises  for consideration in this batch of cases is to the following effect:      "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

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    Act, 1961?" 5.   It is sufficient to state the minimal facts in the main case, T.C.  No. 114  of 1975  (Civil Appeal  Nos. 2578-80 of 1979 and  356, 356A  and 356B of 1980; the decision reported in 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 for  the assessment  year 1956-66, a sum of  Rs.5,62,432.25 during the previous year relevant for the assessment  year 1966-67  and a  sum  of  Rs.4,78,899.67 during the  previous year  relevant for  the assessment year 1967-68. The  assessees 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  prejudical 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  30.3.1972 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 30.3.1972.  For the  other two  years, the orders were  passed on  2.3.1973. It was stated in the order dated 2.3.1973  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  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  22.4.1974,  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. 6.   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 --      XXX       XXX            XXX      (22) any  income of a University or      other    educational    institution      existing  solely   for  educational      purposes and  not for  purposes  of      profit.      XXX       XXX            XXX      (Emphasis supplied)      The sole  question that  arises  for  consideration  is

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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 n  to have anything to      do   with   the   University.   The      categories are  so different,  that      the University cannot be the genus,      and    the    ‘other    educational      institutions’ the  Species thereof.      Thus, the  college here  could come      under   the    ‘other   educational      institutions’."      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 to 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 Appeal  Nos. 2578-80 of 1979 and 356, 356A and 356B of 1980. 7.   Counsel for  the Revenue  mainly stressed the plea that the exemption  under Section  10( 2) 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  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 vs. Income Tax Officer (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

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10(22) of  the Act.  (See CIT vs. Do on Foundation - 154 ITR 208-Cal. -  and Agarwal  Shiksha Samiti  Trust vs. CIT - 168 ITR 751-Raj.)  It will  be rather unreal and hyper-technical to hold  that the  assessee-society is only a financing body and will  not come  within the  scope of  ‘other educational institution’ 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  ever  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 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 the  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 vs. ITO (117 ITR 284-AP) and Secondary Board of Education vs. ITO (86 ITR 408 - Orissa). We make this position clear in order to allay the apprehensions expressed by counsel. 9.   Subject to these observations, the appeals filed by the assessee also fail and they are dismissed, but with no order as to costs.