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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.