Income Tax Appellate Tribunal - Gauhati
The Assam State Textbook Production And ... vs Deputy Commissioner Of Income Tax on 30 April, 2003
Equivalent citations: [2003]87ITD99(GAU), [2004]266ITR1(GAU), (2003)81TTJ(GAU)10
ORDER
N.R.S. Ganesan, J.M.:
1. All these appeals relate to the asst. yrs. 1978-79, 1981-82 to 1988-89 and 1989-90 to 1992-93. In respect of the asst. yrs. 1989-90 to 1992-93 the Department is in appeal. In respect of other assessment years the assessee is in appeal before this Tribunal. The common point involved in all the 13 appeals is whether the assessee is entitled for exemption under Section 10(22) of the IT Act, 1961. Hence, we heard all the appeals together and disposing of the same by this common order.
2. Mr. Uttam Kumar Barthakur, the learned counsel for the assessee, submitted that originally the assessee was known as "Board for Production of Textbooks and Research", Assam. His Excellency, the Governor of Assam, dissolved this Board by a notification dt. 26th July, 1972, and the assets and liabilities were placed in the newly constituted "The Assam State Textbook Production and Publication corporation Ltd". The learned counsel for the assessee submitted that the main object of the assessee is to do research and printing and publishing of textbooks for the school students as per the norms fixed by the advisory board. Since the printing and publication of the textbooks for the school students is an activity for educational purposes the assessee must be allowed exemption under Section 10(22) of the Act. The learned counsel further pointed out that the entire share capital of the assessee was borne by the Government of Assam and no share was issued in the name of private individual or corporation. The learned counsel invited our attention to p. 25 of the paper book and submitted that the majority of the shares of the assessee are held by His Excellency, the Governor of Assam and the other sharers are the Financial Commissioner and Secretary to the Government of Assam and the Chairman of the Board of Secondary Education. Since the entire shares are held by the State Government of Assam, the company is a Government company within the meaning of the Companies Act. The learned counsel further submitted that the corporation even though has ancillary object, it has restricted its activity only in printing and publishing the textbooks for educational purposes. The learned counsel drew our attention that a senior officer of the assessee has filed an affidavit before the lower authorities that the corporation had never given any dividend to any person or it has any intention to give any dividend or profit to any other person in future also. According to the learned counsel the assessee is investing its surplus amount in the process of printing and publishing the textbooks and not for any other purposes. During the course of argument the learned counsel relied upon several judgements in support of his contention. We find that most of the judgments were not applicable to the facts of this case. However, the judgments which are relevant to the facts of the case we are referring at the appropriate place in our discussion.
3. Mr. D.K. Biswas, the learned Departmental Representative, submitted that the assessee is a company having several objects apart from printing and publishing the textbooks. The learned Departmental Representative invited our attention to the order of the AO and submitted that the assessee has the following objects :
(1) To carry on business as publishers and printers in all its branches and of all kinds;
(2) To purchase or otherwise acquire, own, establish, either wholly or in part and print, publish, edit and sell, import or export or otherwise deal in any magazines, pamphlete, leaflets, posters, journals, reviews, pictorials, books of all kinds, pictures, atlases and maps, to carry on business of press; to manufacture and deal in pictures, charts;
(3) To regulate and fix prices of the publications of the corporation consistent with its objects.
The other objects incidental or ancillary to the main objects listed in the memorandum of association are as follows :
(1) To carry on any other trade or business whatsoever which can in the opinion of the directors of the corporation be advantageously carried on by the corporation in connection with or ancillary to the general business of the corporation.
(2) To place, to reserve or to distribute as dividend or bonus or bonus shares among the members or otherwise to apply as the corporation may from time to time think fit any money belonging to the corporation including those received by way of premium on shares or debentures issued at a premium by the corporation and any moneys received in respect of dividends accrued on forfeited shares and moneys arising from the reissue by the corporation of forfeited shares or from unclaimed dividends.
The learned Departmental Representative mainly relied upon these ancillary clauses contained in the memorandum of association and vehemently argued that these clauses are not in connection with the educational activities. In view of the above ancillary objects of the company, the learned Departmental Representative submitted that the assessee is not entitled for exemption under Section 10(22) of the Act. The learned Departmental Representative also relied upon a large number of judgments out of which we are of the considered opinion that the majority of the judgements are not relevant to the facts of this case. However, we are referring the relevant judgments in our discussion in the appropriate place.
4. We have considered the rival contentions of both the learned counsel for the assessee and the learned Departmental Representative in the light of the materials available before us. Section 10(22) of the Act as it stood at the relevant point of time reads as follows :
"Section 10(22) any income of a university or other educational institution, existing solely for educational purposes and not for purpose of profit."
5. In view of the above clause in Section 10(22) of the Act we have to consider whether the assessee is a university or other educational institution existing solely for educational purposes and not for the purpose of profit. Admittedly, the assessee is not a university. Now, we have to see whether the assessee comes within the definition of other educational institution existing for educational purposes. The learned counsel for the assessee submitted that the Government of India has taken decision to treat all State Textbooks Publication Boards as educational institution as a matter of policy and the power has been given to the CIT(A) to decide the case by case on factual aspect, as it appears from the letter of Government of India, dt. 9th July, 1973, issued by the Ministry of Education, Social Welfare (Deptt. of Education), vide letter No. F-68/71-72-12. There was a conference of Directors of State Boards and Academies for production of university level books in Hindi and other regional languages. It appears from the aforesaid letter that the conference resolved that the Government of India should take up the matter with the IT authorities for exempting the profit from sale proceeds of books produced under the aforesaid scheme from payment of income-tax. It appears from the aforesaid letter that the Government of India has taken a decision and the matter has to be examined in each case by the CIT and the textbooks production Boards are required to approach the CIT with full particulars for exemption. The materials produced before us in the form of paper book by the assessee shows that necessary application has been filed before the concerned CIT and since no action was taken by the concerned CIT, a petition was also made to CBDT on 9th June, 1989. Even then it appears no decision was taken either by the respective CIT or by the CBDT either to grant exemption or not. In view of the above facts the learned counsel for the assessee submitted that the case has to be examined on year-to-year basis till a final decision is taken either by the CIT or CBDT for granting exemption, in a blanket manner. The learned counsel further submitted that the CBDT has granted exemption to the Tamil Nadu Textbooks Society which is also undertaking a similar activity of printing and publishing of textbooks as per the letter dt, 19th Aug., 1975, and file No. 184/26/75. In that case the CBDT held that the Tamil Nadu Textbook society was an educational institution existing solely for the purpose of education within the meaning of Section 10(22) of the Act. In a similar set of facts in a reported case in Secondary Board of Education, Orissa v. ITO (1972) 86 ITR 408 (On) exemption was granted by the Hon'ble Orissa High Court. In a similar set of facts the Rajasthan State Text Book Board was also granted exemption by the Hon'ble Rajasthan High Court in the case of CIT v. Rajasthan State Text Book Board (2000) 244 ITR 667 (Raj). The learned counsel for the assessee also relied upon another judgment of the Hon'ble Rajasthan High Court in the case of Dy. CIT v. Cosmopolitan Education Society (2000) 244 ITR 494 (Raj). In the case of Katra Education Society v. ITO (1978) 111 ITR 420 (All), the Hon'ble Allahabad High Court held that an educational society running an educational institution was held to be an educational institution and granted exemption under Section 10(22) of the Act. In the case of Gujarat State Co-operative Union v. CIT (1992) 195 ITR 279 (Guj), the Hon'ble Gujarat High Court held that a co-operative union imparting education to the members of the co-operative society and its worker are held to be an educational institution solely existing for the education purpose and accordingly granted exemption under Section 10(22). In the case of CIT v. Dharmodayam Co. (1977) 109 ITR 527 (SC), the Hon'ble Supreme Court held that the business of the assessee is the conducting of the chit fund in trust for charitable purpose and hence the income from chit fund business is exempt from tax under Section 2(15) of the Act.
6. Now, we shall refer the judgments cited by the learned Departmental Representative. The learned Departmental Representative relied upon a judgment in the case of CIT v. Sorabji Nusserwanji Parekh (1993) 201 ITR 939 (Guj). The Hon'ble Gujarat High Court held that a trust established with aim and object of imparting education but educational institution was not established, in that case the income of the trust in providing scholarship and financial assistance to the students is not entitled to exemption under Section 10(22). According to the Hon'ble High Court, the establishment of educational institution was a condition precedent for grant of exemption under Section 10(22). The other case referred by the learned Departmental Representative is in the case of CIT v. Maharaja Sawai Mansinghji Museum Trust (1988) 169 ITR 379 (Raj). In this case the Hon'ble Rajasthan High Court held that a museum cannot be taken to be an educational institution existing solely for educational purposes. Accordingly, it was not entitled to exemption under Section 10(22) of the Act. In another case of the Hon'ble Madras High Court in the case of Rao Bahadur A.K.D. Dharmaraja Education Chanty Trust v. CIT (1992) 182 ITR 80 (Mad), it was held that the trust was receiving income from running a cinema theatre, leasing, etc. but spent only a small portion of income for education purposes. Major part of the income was spent on religious purposes. In that factual situation the Hon'ble Madras High Court held that the trust is not solely existing for education purposes and it is not entitled for exemption under Section 10(22) of the Act.
7. With the above background, now we have to examine whether the present assessee is an institution existing solely for the educational purposes and not for the purpose of profit. We have perused the entire material available before us. We have noticed that the entire activity of the assessee is restricted only in printing and publishing the textbooks. As it was pointed out by the learned Departmental Representative that the assessee is having ancillary object of other business, still it is an admitted case of both the parties that no such activity was carried on so far by the assessee except printing and publishing the textbooks. It is also not disputed by the Revenue that an organisation which is printing and publishing textbooks was treated as institution existing solely for educational purposes as per the notification issued by the CBDT in file No. 184/26/75, dt. 19th Aug., 1975, in the case of Tamilnadu Text Book Society. It is also not disputed before us that the main object of the assessee was printing and publishing textbooks as in the case of Tamilnadu Text Book Society. It is also not the case of the Department that the surplus amount, if any, of the assessee is used for any other purposes or distributed to other members. In fact, it is a definite case of the assessee that the surplus amount is also invested in carrying out the printing and publication of textbooks which is not denied by the Department. As rightly stated by the learned counsel for the assessee that one of the senior officers of the assessee has filed an affidavit before the lower authorities that no dividend or bonus was issued to any person from the date of its establishment. It is also categorically stated by the assessee that the assessee has no intention to distribute the bonus or dividend to any person in future also. The learned counsel further submitted that even though there was an ancillary clause in the memorandum of association so long as the assessee restricted its activities only in publication and printing textbooks, the exemption under Section 10(22) of the Act cannot be rejected. When we posed a specific question whether the Department is having any material to show that the assessee is investing any of its fund to any other business other than printing and publishing of textbooks, the learned Departmental Representative could not give any answer to our query. We have perused the entire material placed before us. We do not find any material to show that the assessee is investing or spending any of its fund for other purposes apart from printing and publishing textbooks. In view of the above facts, it is very clear that even though the assessee is having an ancillary object in its memorandum of association the activity of the assessee is restricted only to printing and publication of textbooks. Hence, we cannot say that merely because the ancillary clause was incorporated in the memorandum of association by the assessee, it is not entitled for exemption under Section 10(22) unless and until the said activity actually carried on by the assessee. It is also not the case of the Department that the object contained in ancillary clause was actually carried on by the assessee. Furthermore, the Hon'ble Supreme Court in the case of Asstt. CIT v. Thanthi Trust (2001) 247 ITR 785 (SC) held as follows :
"A business whose income is utilised by the trust or the institution for the purpose of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust."
In view of the above observation of the Hon'ble Supreme Court even if the activity contained in the ancillary clause of the memorandum of association is carried out in order to achieve objective of printing and publishing the textbooks, the said ancillary objective is only an incidental to the attainment of main objective of the organisation. Hence, merely because the assessee contained an ancillary clause it cannot be said that the assessee is not an educational institution existing solely for the purpose of education.
8. In another case of Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC), the Hon'ble Supreme Court held that registered educational society formed for the sole purpose of establishing, running, managing or assisting schools or colleges is an educational institution and entitled to exemption. In view of the above fact, it is very clear that the assessee existed solely for the purpose of printing and publishing textbooks and other object, if any, is only incidental to achieve the objects of the main purpose.
9. In view of our above discussion, we have no hesitation to hold that the assessee is entitled to exemption under Section 10(22) of the Act since the assessee is an institution existing solely for the purpose of educational activities.
10. Apart from this, the Department has filed only four appeals for the asst. yrs. 1989-90 to 1992-93 even though a common order was passed by the CIT(A) for the asst. yrs. 1989-90 to 1993-94. Apparently, no appeal was filed for the asst. yr. 1993-94 and no explanation was forthcoming from the Department for not filing the appeal for the asst. yr. 1993-94. It is well-settled principles of law that when a common order is passed, an appeal has to be filed against all the orders of the first appellate authority. Here admittedly, the Department has filed only four appeals and no appeal has been filed in respect of the asst. yr. 1993-94. In other words, the Department is admitting the finding of the first appellate authority in respect of the asst. yr. 1993-94. Since the Department allowed the order of the first appellate authority to become final it cannot challenge the very same order in respect of other assessment years. Since the finality which is reached in respect of the asst, yr. 1993-94 cannot be disturbed unless and until proper appeal is filed by the Department, on this ground also the four appeals filed by the Department are liable to be dismissed.
11. In respect of appeals in ITA No. 51(Gau) of 1993 and ITA No. 287 (Gau) of 1995 the assessee has taken other grounds also apart from the exemption claimed under Section 10(22). In view of our decision holding that the assessee is entitled for exemption under Section 10(22), the entire other grounds taken by the assessee in ITA No. 51(Gau) of 1993 for the asst. yr. 1982-83 and ITA No. 287 (Gau) of 1995 for the asst. yr. 1981-82 are remanded back to the file of the AO for fresh consideration in the light of our decision above. In view of this, we set aside this part of the order of the CIT(A) and remand back the matter to the file of the AO for reconsideration as indicated above.
12. In view of our foregoing discussion, we allow all the appeals filed by the assessee and the Departmental appeals are dismissed.
13. In the result, ITA Nos. 786 (Gau) and 787 (Gau) of 1991, ITA Nos. 50 (Gau) and 51 (Gau) of 1993, ITA Nos. 287 (Gau), 288 (Gau), 289 (Gau), 290 (Gau), 291 (Gau) of 1995 are allowed. The Revenue's appeals in ITA Nos. 209 (Gau), 210 (Gau), 211 (Gau) and 212 (Gau) of 1996 are dismissed.
N.S. Saini, A.M.
1. I have gone through the proposed order of learned JM in these cases. With great respect I regret my inability to agree with his conclusion for the reasons stated hereinafter :
(1) The main issue in this case is in a narrow compass and the determination thereof depends upon the true and correct interpretation of Section 10(22) of the IT Act. Section 10(22) of the Act, as it stood at the material time, reads as under :
"Section 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..........."
(2) On examination of the provisions of Section 10(22), the condition precedent to the availability of the exemption can be stated as thus :
(a) Income should be that of a character of a university or other educational institution; and
(b) Such institution or university must exist solely for educational purposes and not for the purpose of profit.
(3) Now, in the instant case, it has been admitted by both the parties that the assessee is not a University. Hence, it has to be seen whether the income derived by the assessee can be characterised as an income derived by an educational institution. Further, it has also to be examined that whether the assessee can be held to be existing only for educational purposes and not for the purpose of profit.
(4) For ascertaining meaning of educational institution let us examine a few legal decision on the point-
(5) In CIT v. Sorabji Nusserwanji Pareekh (1993) 201 ITR 939 (Guj) it has been held ".............. In order to earn total exemption under s. 10(22) of the Act, an assessee should be an educational institution or an establishment which primarily engages itself in educational activities. Though the words "educational activities" are words of very wide amplitude, we would like to add that the element of imparting education to students or the element of normal schooling where there are teachers and taught must be present so as to fall within the sweep of Section 10(22) of the Act. We would, at the same time, like to add that such an institution may, incidentally, take other activities for the benefit of the students or in furtherance of their education. It may invest its fund in the manner it likes or it may provide scholarship or other financial assistance which may be helpful to the students in pursuing their studies. However, such incidental activities alone, in the absence of actual activity of imparting education by normal schooling or normal conducting of classes, would not be sufficient for the purpose of qualifying the institution to earn the benefit of Section 10(22) of the said Act".
(6) Observed as above, the Hon'ble Gujarat High Court has held that simply by giving scholarship or grants to the students to enable them to pursue their educational activities without any control whatsoever on such students and institution cannot be said to be an educational institution.
(7) The Hon'ble Supreme Court in Sole Trustee, Loka Shikshna Trust v. CIT (1975) 101 ITR 234 (SC) has held that the word "education" connotes the process of training and developing of knowledge, skill, mind and character of students by normal schooling and has not been used in the wide and extensive sense according to which acquisition of further knowledge constitutes education.
(8) In CIT v. Oxford University Press (1996) 221 ITR 77, 87 (Bom), the Hon'ble Bombay High Court has held that if the assessee concerned does not exist as a university or an educational institution solely for such purposes and does not carry on the primary activities of a university or educational institution, but merely runs the business of press in India for printing and publishing books and selling and supplying the same as well as books published by other publisher for the purpose of profit it cannot be held to be a "university" within the meaning of Section 10(22) of the Act merely by reason of the fact that it is run by a university existing outside India for educational purposes or that it is a part of such university.
(9) Now, coming to the facts of the instant case, as elaborately discussed in the order of the learned JM, the main object of the assessee-company is to carry on business as publisher and printers in all its branches and of all kinds and all other objects are incidental or ancillary to this main object. This fact is not disputed by both the parties and it has been admitted by the learned counsel of the assessee that the activities of the assessee during the periods under appeal were confined only to printing and publishing textbooks for educational purposes.
(10) The case of the assessee is that although it is not carrying on the primary activity of a university or an educational institution but carrying on the activity of printing and publishing of textbooks for schools and supplying them at subsidised rates or at free of cost, therefore, such activity is also an educational activity within the extended meaning of university or educational institution as provided in Section 10(22), the benefit of Section 10(22) therefore, cannot be denied to it. In my considered opinion, howsoever, the laudable, noble or charitable the object of the assessee may be, it may claim exemption under Sections 11 and 12 of the Act but it cannot be granted exemption under Section 10(22) of the Act unless it satisfies the conditions laid down in that sections i.e., deriving income has a character of income of a university or other educational institution and solely existing for the purposes of education and not for the purposes of profit.
(11) The learned representative of the assessee submitted that the Government of India has taken a decision to exempt income of textbook producers and the matter has to be examined in each case by the CIT and the textbooks production Boards are required to approach the CIT with full particulars of exemption. In this connection, I find that nowhere in the IT Act, 1961, the CIT has been empowered by the Act to examine the case of any person to grant him exemption under Section 10(22) in a blanket manner. Cases where exemptions under Sections 11 and 12 of the Act are to be allowed, registration with the CIT is required, but not in a case claiming exemption under Section 10(22). In other words, an assessee which does not derive any income from a university or educational institution, the CIT under the Act cannot grant exemption to such an assessee under Section 10(22) of the Act.
(12) Further, the assessee also placed reliance on the CBDT's letter No. 184/26/75, dt. 19th Aug., 1975, and submitted that in this letter the CBDT has held that Tamil Nadu Textbooks Society was an educational institution existing solely for the purpose of education within the meaning of Section 10(22) of the Act. However, before us no copy of the said letter of the CBDT was filed and neither any material to indicate the objects and activities of Tamil Nadu Textbooks Society was filed. In absence of these the letter of the CBDT cannot be properly appreciated and how the activities of the Tamil Nadu Textbooks Society Were same as that of the assessee also could not be verified. However, be that as it may be, if the letter of the CBDT is contrary to the provisions of law, the same is not binding on us.
(13) Now let us examine the decisions relied upon by the learned counsel for the assessee. In Secondary Board of Education v. ITO (1972) 86 ITR 408 (Ori) the point at issue before the Court was whether the board of secondary education exists solely for educational purposes and not for the purpose of profit. It was not in dispute before the Court that the board of secondary education is not an educational institution. Thus, the Court has examined and found that as per the Act under which the board was constituted the surplus earned by the board entered into the board's fund and its entire expenditure is to be directed towards development and expansion of educational purposes. In the circumstances, the Court has held that Secondary Board of Education, Orissa, exists solely for the educational purposes and not for the purpose of profit and hence, eligible for exemption under Section 10(22). Thus, in the circumstances, I am of the considered opinion that the above decision of the Hon'ble Orissa High Court does not help us in interpreting the meaning of educational institution.
(14) Further, it was claimed by the assessee that in the similar circumstances the Hon'ble Rajasthan High Court in Asstt. CIT v. Rajasthan State Textbook Board (2000) 244 ITR 667 (Raj) granted the exemption under Section 10(22). In this case also, as per the Hon'ble High Court main issue was that according to the Revenue, the respondent-assessee is making profit hence, it deprives itself of the benefit of exemption under Section 10(22) of the Act. The Court has observed that it was not in dispute before them that the aim and objects of the Tamil Nadu Textbooks Society and those of the respondent-assessee are almost identical and the surplus amounts of the assessee was (sic: not) used for. any other purposes or distributed to other members. Having regard to these facts, the Court has held that no question of law arises for consideration much less a substantial question of law and, hence, rejected the appeal of the Revenue. In the circumstances, from the above decision of the Hon'ble Rajasthan High Court it cannot be concluded that after considering the objects and activities of the assessee the High Court has held that the same is an educational institution eligible for exemption under Section 10(22) as claimed by the learned counsel of the assessee.
(15) Another decision of the Hon'ble Rajasthan High Court relied upon by the learned counsel for the assessee is Dy. CIT v. Cosmopolitan Education Society (2000) 244 ITR 494 (Raj). In this case the two questions raised before the High Court were ;
(i) whether the assessee-society is entitled for claiming exemption under the provisions of Section 10(22) of the Act even if its funds are being misutilised by the members of the society; and
(ii) whether the relief under Section 10(22) can well be given to the assessee-society when its property is used for personal gain by its members and surplus funds of profit are invested in creating personal property, Having regard to the facts of the case, the High Court concluded that it is not possible to say that any substantial question of law arises for consideration in this appeal, so as to admit it. Coming to this conclusion, the High Court rejected the appeal. Thus, from this decision also support for claim of the assessee that its character is that of an educational institution eligible for exemption under Section 10(22) cannot be derived.
(16) In Katra Education Society v. ITO (1978) 111 ITR 420 (All), the Hon'ble Allahabad High Court has observed that there is no reason why an educational society cannot be regarded as an educational institution if that educational society is running educational institution or institutions. In the present case, it is an admitted fact that the assessee-company is not running any educational institution or institutions. Thus, the above decision of the Hon'ble Allahabad High Court is not applicable to the facts of the instant case. Similar to the decision of the Hon'ble Allahabad High Court was the decision of the Hon'ble Madras High Court in the case of CIT v. Devi Educational Institution (1985) 153 ITR 571 (Mad) wherein it was held that the actual existence of the educational institution is a precondition for application of Section 10(22) of the Act.
(17) In Gujarat State Co-operative Union v. CIT (1992) 195 ITR 279 (Guj), the Hon'ble Gujarat High Court has held that though in the context of the provisions of Section 10(22), the concept of education need not be given any wide or extended meaning, it surely would encompass systematic dissemination of knowledge and training in specialised subjects. In that case the union was engaged in imparting the education to the members of the cooperative society and its workers. In the instant case, the assessee is engaged in the activity of printing and publishing of the textbooks only and hence, the. facts of the instant case are different from the facts of the case which was before the Hon'ble Gujarat High Court.
(18) The Hon'ble Supreme Court in the case of CIT v. Dharmodayam Co. (1977) 109 ITR 527 (SC) has held that the business of the assessee in the conducting of the chit fund is ancillary to its object of charitable purpose and hence, income from the chit fund business is exempt from tax under Section 2(15) of the Act. In the analogy of this decision, it can be held that if the main activity of the assessee is that of a university or other educational institution solely for educational purposes and was an ancillary to this if printing and publishing of textbooks is undertaken, income so derived will qualify for exemption under Section 10(22) of the Act. However, in the instant case, the main object of the assessee is not that of a university or an educational institution but is of printing and publishing of textbooks hence, in my considered view the ratio of the above judgment of the Hon'ble Supreme Court is not applicable to the facts of the instant case.
(19) From the above discussion, in my opinion, the assessee-company does not exist as a university or other educational institution as it does not carry on the primary activities of a university or educational institution of imparting education, but merely runs the business of printing and publishing of textbooks.
(20) Further, let us examine that the. assessee-company exists solely for the educational purpose and not for the purpose of profit. I fully agree with the contention of the learned counsel for the assessee that merely because there is a surplus, i.e., to say, a surplus of receipts over expenditure, it cannot be said that the institution exists for profit. Though the learned counsel for the assessee vehemently contended that the assessee-company has never declared any dividend to its members nor intends to declare the same in future also but he admitted that the assessee-company is not registered under Section 25 of the Companies Act, 1956, and the memorandum of association and the articles of association of the assessee-company does not restrict the payment of dividend and issue of bonus share to its members.
(21) In this connection reference may be made to the circular of the CBDT being Circular No. F. No. 194/16-17-IT(AI) reproduced from Birla Vidhya Vihar Trust v. CIT (1982) 136 ITR 445, 453-54 (Cal) which states that :
"(3) The question for consideration is whether an educational institution existing solely for educational purposes but which shows come surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational trust will be subject to tax. However, there may be cases where the educational institution may be owned by the trust or societies to whom the provisions of Section 11 may be applicable. Where all the object of the trust are educational and the surplus, if any, from running the educational institution is used for educational purposes only, it can be held that the institution is existing for educational purposes and not for the purpose of profit. However, if the surplus can be used non-educational purposes, it cannot be said that the institution is existing solely for educational purposes and such institution will not be liable for exemption under Section 10(22). But, in such cases, the applicability of Section 11 can be examined and if the conditions laid down therein are satisfied, the income will be exempted under Section 11."
(22) From the above circular, it is clear that if the profit of the institution can be diverted for the personal use of the owner, in the instant case by way of payment of dividend to shareholders, then the institution will not be regarded as an institution not for the purpose of profit. In my considered opinion, the actual payment of dividend is, thus, not material but, if it is not necessary for the owner of the institution to utilise all the surplus for educational purposes and if the unfettered power of diverting the surplus for the payment of dividend is within the power of the owner of the institution, such institution will not qualify for exemption under Section 10(22) of the Act.
(23) For the above conclusion, I am supported by the decision of the Hon'ble Supreme Court in the case of Yogjraj Charity Trust v. CIT (1976) 103 ITR 777 (SC) wherein it has been held that when the trust deed confers full discretion on the trustees to spend the trust fund for an object other than religious or charitable nature, the exemption from tax under s, 4(3)(i) of the IT Act, 1922, is not available to the assessee. Another decision of the Hon'ble Supreme Court which may be cited on the point is in the case of Sole Trustee, Loka Shikshana Trust v. CIT (supra). The Loka Shikshana Trust was engaged in the business of printing and publication of newspapers and journals and the further fact that the activity yielded profit and there were no restrictions on the trust earning profits in the course of its business went to show that the members of the trust did not satisfy the requirement that it was one not involving the carrying on any activity for profit. Further, a decision of the jurisdictional High Court in the case of CIT v. P.K. Barooah (1970) 77 ITR 967 (Gau) is also relevant to the issue under consideration. In this case the Hon'ble High Court has held that when the trustees had the indefeasible alternative right to apply the funds to non-charitable purposes, without making donation to charitable purpose, the matter is hit by the principle that if there are several objects of a trust of which some are charitable and some are non-charitable, and the trustees in their discretion are to apply the income to any of the objects, the whole trust fails and no part of the income is exempt from tax.
(24) In view of the above, it is very difficult for me to hold that the assessee was existing solely for educational purposes and not for the purposes of profit during the periods under consideration.
(25) As I have already held that the income of the assessee-company cannot be held to be bearing the character same as of the income of an university or other educational institution and further the assessee-company cannot be held to be existing solely for educational purposes and not for the purpose of profit, exemption under Section 10(22) of the Act cannot be granted to the assessee-company. In my opinion, the assessee-company was correct in law in offering its income for assessment all throughout in the past from its inception to the asst. yr. 1977-78 and there was no plausible reason to change its consistent stand and to claim exemption under Section 10(22). of the Act.
(26) In respect of appeal No. 287(Gau) of 1995 for the asst. yr. 1981-82 and in respect of appeal No. 51(Gau) of 1993 for the asst. yr. 1982-83 the assessee took some other grounds of appeal. No arguments by both the parties were advanced before us during the course of hearing. Hence, on the basis of the materials available on record I am disposing of the same. ITA No. 287 (Gau) of 1995, Asst. yr. 1981-82 (27) One of the grounds of appeal was directed against the confirmation of addition of Rs. 95,552 made on account of shortage and excess stock found. The AO from the auditor's report found that the auditor has pointed out the following discrepancies in two sales depots :
Jorhat sales depot Shortages Rs. 46,082 Excess Rs. 2,840 Dibrugarh sales depot Shortage Rs. 35,971 Excess Rs. 10,659 (28) Observing as above the AO concluded that shortages are unaccounted sales of the assessee and excess shown reflects the extent of undervaluation of closing stock. Hence, he added the aggregate amount of Rs. 95,552 to the total income of the assessee. The CIT(A), by observing that the argument of the authorised representative of the assessee in this regard is not at all satisfactory, confirmed the addition of Rs. 95,552.
(29) I went through the auditor's report and the balance sheet. The auditor has observed that the above difference in stock was found by going through the physical stock verification report of sales depots as on 31st March, 1981, in comparison to the figures of stock register. From the balance sheet it reveals that the closing stock was valued on the basis of actual stock found at the end of the year. Thus, the excess stock found as per remark of the auditor was already accounted for by the assessee in its closing stock. The AO was not justified in making again an addition on that count and the CIT(A) was not justified in confirming the same. Further, actual shortage of stock found on physical verification was treated as unaccounted sales of the assessee without bringing any material on record. In my considered opinion, merely finding shortage on the basis of physical verification, it cannot be concluded that the same was on account of unaccounted sales only. The same may be on account of other reasons also like damage, pilferage, etc. Thus, as the addition was made without brining any material on record, and merely on the basis of surmises and conjectures, the same cannot be sustained in law. Hence, the addition of Rs. 95,552 is deleted.
(30) The next ground of appeal was directed against confirmation by the CIT(A) of the addition of Rs. 11,100 being short provision for expenses relating to the earlier years. From the P&L Appropriation A/c the AO found that some debit was made on account of expenses relating to earlier year. In absence of evidence he added Rs, 30,045 to the income of the assessee. The CIT(A) out of the above addition, restored the issue regarding the addition of Rs. 18,945 to the file of the AO and sustained the addition of the balance amount of Rs. 11,100.
(31) I have gone through the assessment order as well as the P&L A/c of the assessee. I find that the assessee has debited this amount in the Appropriation A/c, i.e., below the line whereas the AO has started the computation of the assessee's income by taking net profit as shown in the P&L A/c at Rs. 6,20,363 i.e., figure shown above the line. Thus, the above debit of Rs. 11,100 was not reduced from the figure of Rs. 6,20,363 at any time in computation of the total income of the assessee. In the circumstances, the addition was not warranted. Thus, the CIT(A) was not justified in sustaining the addition of Rs. 11,100 which is hereby deleted. ITA No. 51(Gau) of 1993, Asst yr. 1982-83 (32) One of the grounds of appeal was directed against the direction of the CIT(A) to allow deduction for payment of bonus of Rs. 82,695 in the year of actual payment instead of the year in which provision is made.
(33) The AO has found that the assessee had made a provision for bonus at the rate of 20 per cent amounting to Rs. 1,39,704 relating to the assessment year under appeal. From the details filed before him, he observed that Rs. 57,009 only was actually paid by the assessee-company and hence he disallowed the balance of Rs. 82,695. The CIT(A) has observed that the bonus was paid by the assessee-company in instalments over the years. He was of the opinion that the amount paid was to be allowed during the year in which actual payment was made. He has given no reason for his above opinion. He, therefore, directed the AO to verify the actual payment made and allow the deduction in the year in which it is paid.
(34) From the order of the assessment, it is observed that the method of accounting followed by the assessee-company is mercantile. Further, Section 43B of the Act was inserted in the statute w.e.f. 1st April, 1984, and the Clause (c) thereof which relates to payment of bonus came into force w.e.f. 1st April, 1989. Thus, these provisions were not applicable for the year under appeal. In the circumstances, the CIT(A) was not justified in directing the AO to allow the deduction in respect of the bonus related to the year under consideration in the year in which it was actually paid and the same was allowable as deduction in the year to which it pertains. Hence, the order of the CIT(A) is modified to the above extent.
(35) The other ground of appeal was directed against the upholding by the CIT(A) of the order of the AO in levying interest under Section 139(8) and Section 215 of the Act without giving an opportunity of being heard to the assessee.
(36) In Banshidhar Sewbhagowan & Co. v. CIT (1996) 222 ITR 16, 26 (Gau) it has been held that the assessee cannot claim an opportunity of hearing as of right before the interest is. levied under Section 139(8). Thus, the order of the CIT(A) in respect of interest under Section 139(8) is hereby confirmed.
(37) In Oriental Hotels Ltd. v. CIT (1999) 102 Taxman 451 (Mad) it has been held that where interest has been charged under Section 215 without giving an opportunity to the assessee and without passing a speaking order, such an order cannot be sustained and the same is liable to be quashed with a direction to the authority concerned to pass a fresh speaking order after giving opportunity to the assessee. I have gone through the order of assessment and find that the same is not a speaking order in respect of the levy of interest under Section 215. Hence, respectfully following the above decision, I hereby cancel the charging of interest under Section 215 of the Act and direct the AO to pass a fresh speaking order after giving sufficient opportunity to the assessee in this respect.
2. In the result, the appeals filed by the Revenue in ITA Nos. 209, 210, 211 and 212 (Gau) of 1996 are allowed. The appeals filed by the assessed in ITA Nos. 786 (Gau) and 787 (Gau) of 1991, 50 (Gau) of 1993, 288 (Gau), 289 (Gau), 290 (Gau) and 291 (Gau) of 1995 are dismissed. The appeals filed by the assessee being ITA Nos. 287 (Gau) of 1995 and 51 (Gau) of 1993 are partly allowed as discussed above.
REFERENCE UNDER SECTION 255(4) OF THE IT ACT/1961 2nd Jan., 2002 In this appeals there is difference of opinion between the Members in respect of granting exemption under Section 10(22) of the IT Act, 1961. In view thereof, the issue is referred to the Hon'ble President of the Tribunal under Section 255(4) of the IT Act, 1961, for opinion of the Third Member on this issue. The issue framed is as under:
"Whether, on the facts and circumstances of the case, the assessee is an educational institution existing solely for the educational purposes and not for the purpose of profit and thereby entitled for exemption under Section 10(22) of the IT Act, 1961 ?"
V. DONGZATHANG, PRESIDENT (AS THIRD MEMBER)
1. The following point of difference was referred to me under Section 255(4) of the IT Act, 1961 :
"Whether, on the facts and circumstance of the case, the assessee is an educational institution existing solely for the educational purposes and not for the purpose of profit and thereby entitled for exemption under Section 10(22) of the IT Act; 1961 ?"
2. The assessee in this case is a corporation constituted by the State Government and was assessed as a company. The assessee was initially constituted as Central Textbook Committee which was attached to the office of the Director of Public Instructions. In 1950, the name was changed to Assam Textbook Committee with 10 members nominated by the State Government. Again in 1968, the Government constituted it as the Board for Textbook Production and Research. In 1972, the Board was converted into a corporation by the name of the Assam State Textbook Production and Publication Corpn. Ltd. by dissolving the Board for Production of Textbooks and Research through the notification of the Governor of Assam, dt. 26th July, 1972. All the assets of the Board for Production of Textbook and Research were transferred to the Assam State Textbook Production and Publication Corpn. Ltd., Guwahati, w.e.f. 1st July, 1972. The corporation had authorized and paid up share capital of Rs. 1,00,00,000 and the break-up of the share holding is as follows :
Name Shares Face value
1. Governor of Assam, represented by Secretary, Education Department, Government of Assam 9,998 Nos.
99,98,000
2. Financial Commissioner & Secretary, Finance Department, Government of Assam 1 No. 1,000 3, Chairman, Board of Secondary Education, Assam 1 No. 1,000 1,00,00,000 Since the entire share capital is controlled and owned by the Government of Assam, the corporation can be called a Government company as defined in Section 617 of the Companies Act, 1956.
3. The main object of the corporation is to do research and printing and publishing of textbooks for the school students as per the norms prescribed and approved by the competent authorities and/or approved or required by the Government of Assam or other educational authorities, institutions and bodies, statutory or otherwise, etc. which are listed as the main objects as follows :
Main Objects :
1. To acquire and take over the business and other activities of the Board of Textbook Production and Research, Assam, relating to production, publication and sale of textbooks and reference books together with all the assets, rights, privileges and liabilities of the said Board and to carry on such business and activities, and do, exercise, perform and carry on such functions, powers and authorities as may from time to time be given, assigned and directed by the Government of Assam in that regard or with regard to any other like matter and objects.
2. To prepare, print, publish, sell, supply or otherwise deal in textbooks, supplementary books and literature on all subjects and in all languages for primary, secondary and teachers' education in the State of Assam and elsewhere prescribed and approved by the competent authorities and/or approved or required by the Government of Assam or other educational authorities, institutions and bodies, statutory or otherwise.
3. To carry on business as publishers and printers in all its branches and of all kinds.
4. To purchase or otherwise acquire, own, establish, either wholly Or in part and print, publish, edit and sell, import or export or otherwise deal in any magazines, pamphlets, leaflets, posters, journals, reviews, pictorials, books of all kinds, pictures, atlases, and maps, to carry on business of press; to manufacture and deal in pictures, charts.
5. (a) To regulate and fix prices of the publication of the corporation consistent with its objects.
5. (b) To establish and conduct research work and promote studies in connection with the preparing, printing and publishing textbooks, reference books, and other instructional literature, and other allied business and trade that may be considered by the corporation likely to assist the corporation business and to provide grants for such purpose.
4. The corporation also has objects incidental or ancillary to the main objects as listed in the said memorandum of association.
5. The assessee has been religiously doing and carrying out the above objectives by printing and publishing textbooks of school students under the Government of Assam as prescribed by the authorities. The assessee has been assessed to income-tax as regular assessee as it did not claim exemption under Section 10(22) of IT At, 1961. It was only in the asst. yr. 1979-80 that it was claimed for the first time at the second stage of appeal before the Tribunal for exemption under Section 10(22) of the IT Act, 1961. The Tribunal, however, did not entertain the same, observing as follows in M.P. No. 23/Gau/1989, in ITA No. 194/Gau/1987, dt. 12th Feb., 1990 :
"In this view of the matter, we are of the opinion that since the Tribunal would have no jurisdiction to entertain such point of fact, which had not been raised before the authorities below, this point of the assessee cannot be accepted. It is open to the assessee to take up the matter before the CIT(A), if such ground had been raised before the CIT(A) originally for taking appropriate action."
The Tribunal, however, allowed reference to the High Court which the. Hon'ble High Court declined to answer the question referred vide IT Ref. No. 63 of 1990 of 3rd June, 1996.
6. In the assessment years relevant to the present appeals, the claim was made right at the stage of assessment. The AO on scrutiny of the memorandum of association, found that the objects incidental or ancillary to the main objects include the following :
"(3) To carry on business as publishers and printers in all its branches and of all kinds.
(4) To purchase or otherwise acquire, own, establish, either wholly or in part and print, publish, edit and sell, import or export or otherwise deal in any magazines, pamphlets, leaflets, posters, journals, reviews, pictorials, books of all kinds, pictures, atlases, and maps, to carry on business of press, to manufacture and deal in pictures, charts.
5. (a) To regulate and fix prices of the publication of the corporation consistent with its objects.
(b) To establish and conduct research work and promote studies in connection with the preparing, printing and publishing textbooks, reference books and other instructional literature, and other allied business and trade that may be considered by the corporation likely to assist the business and to provide grants for such purpose.
Further, the objects incidental or ancillary to the main objects listed in the memorandum of association and numbered 6 to 28 also include the following :
(12) To carry on any other trade or business whatsoever which can in the opinion of the directors of the corporation be advantageously carried on by the corporation in connection with or ancillary to the general business of the corporation.
(21) To place, to reserve or to distribute as dividend or bonus shares among the members or otherwise to apply as the corporation may from time to time think fit any money belonging to the corporation including those received by way of premium on shares or debentures issued at a premium by the corporation and any moneys received in respect of dividends accrued on forfeited shares and moneys arising from the reissue by the corporation of forfeited shares or from unclaimed dividends."
7. Having regard to the above ancillary objects read with the main objects at paras. 3, 4 and 5, the AO came to the conclusion that the assessee is a profit earning organization. There is no restrictive clause in the memorandum requiring the assessee to apply its income solely for the purpose of education.He, therefore, denied the exemption observing as follows :
"The main objects listed in the memorandum and numbered as 3, 4 and 5 together with the ancillary objects (Nos. 12 and 21) mentioned above, clearly indicate that the assessee-company is a profit earning organization. Also, there are no restrictive clauses in the memorandum requiring the assessee to apply its income solely for the purpose of education. Moreover, the facts and issues involved in the case laws cited by the assessee are not identical with the assessee's case. In particular, it may be mentioned that the two cases decided by the Supreme Court of India referred to by the assessee viz., CIT v. A.P. Transport corporation and the Surat Art Silk Manufacturers Associations' case concerned the exemption of income under Sections 11 and 12 of the IT Act, 1961. Section 10(22) of the IT Act, 1961 requires the institution to exist solely for educational purposes and not for the purpose of profit. The example of the Tamil Nadu Textbook Society referred to by the assessee also does not lend support to the assessee's claim for exemption under Section 10(22) as the assessee has not been able to establish with supporting evidence that the laws and bye-laws governing the society and its objects were identical with the assessee's case.
In view of the above, the exemption claimed by the assessee under Section 10(22) of the IT Act, 1961, is not being allowed."
8. On appeal, the learned CIT(A) upheld the order of the AO on the same reasoning as follows :
"8. I have given due consideration to the submission put forward by the authorised representative as above. The language of Section 10(22) is very simple and clear as to which it states that any income of an university or other educational institution existing solely for educational purpose and not for the purposed profit is not includible in the income of a person. To identify whether the income of the appellant-corporation is to be exempted or not as profit under Section 10(22) of the IT Act, the memorandum of association of the appellant-corporation, is to be referred to. On going through the memorandum of association, it is to be noted that besides the objects' of publication or production of textbooks, etc., the main objects listed in the memorandum of association also include the following as noted by the AO which it is necessary to reproduce even at the cost of repetition :
(3) To carry on business as publishers and printers in all its branches and of all kinds.
(4) To purchase or otherwise acquire, own, establish, either wholly or in part and print, publish, edit and sell, import or export or otherwise deal in any magazines, pamphlets, leaflets, posters, journals, reviews, pictorials, books of all kinds, pictures, atlases and maps, to carry on businesses of press; to manufacture and deal in pictures, charts.
(5) (a) To regulate and fix prices of the publications of the corporation consistent with its objects.
(b) To establish and conduct research work and promote studies in connection with the preparing, printing and publishing textbooks, reference books and other instructional literature, and other allied business and trade that may be considered by the corporation likely to assist the corporation business and to provide grants for such purpose.
Further, the objects incidental of ancillary to the main objects listed in the memorandum of association and numbered 6 to 28 also include the following :
(12) To carry on any other trade or business whatsoever which can in the opinion of the directors of the corporation be advantageously carried on by the corporation in connection with or ancillary to the general business of the corporation.
(21) To place, to reserve or to distribute as dividend or bonus shares among the members or otherwise to apply as the corporation may from time to time think fit any money belonging to the corporation including those received by way of premium on shares or debentures issued at a premium by the corporation and any money received in respect of dividends accrued on forfeited shares and moneys arising from the reissue by the corporation of forfeited shares or from unclaimed dividends.
9. It is, therefore, clear that the main objects listed in the memorandum of association Nos. 3, 4 and 5 together with ancillary objects (12) and (21) mentioned above indicate that the appellant-corporation is a profit earning organization. On close scrutiny of the memorandum of association, there are no restrictive clauses mentioned in the memorandum requiring the appellant to apply its income solely for the purpose of education. I agree with the AO that in the case referred to by the authorised representative, i.e., CIT v. A.P. Transport Corporation, the exemption sought far as for as the income of the corporation concerned the exemption under Sections 11 and 12 of the IT Act, 1961. As mentioned earlier, Section 10(22) of the IT Act requires the institutions to exist solely for education purpose and not for the purpose of profit. Other decisions referred to by the authorised representative do not lend support to put forward the claim that the appellant-corporation's income is solely for the purpose of education qualifying the claim for exemption under Section 10(22) of the IT Act. In the facts and circumstances of the case, I fully agree with the AO that exemption claimed by the appellant under Section 10(22) of the IT Act is not be allowed on the total income."
9. Aggrieved by the said order, the assessee took up the matter in appeal before the Tribunal. The learned JM considered the rival submissions and it was his view that the assessee would be" entitled to exemption under Section 10(22) of the Act. According to him the provisions of Section 10(22) provide for exemption of any income of university or other educational institutions existing solely for educational purposes and not for purpose of profit. In this regard, the first issue was whether the assessee comes within the definition of other educational institution existing for educational purpose and not profit. For this definition, reliance was placed on the clarification made by the Department of Revenue and Insurance as communicated to Ministry of Education, Social Welfare (Department of Education), vide letter No. F. 68/71-72-12 of 9th July, 1973, wherein it was decided that all State Textbooks Publication Boards should be treated as educational institutions as a matter of policy and the power has to be given to the CIT to decide the case on factual aspect. The learned JM further found that the question of taking up the issue from year to year by the CIT was considered necessary as to whether there was any violation in the form of utilization of the income for any purpose other than for educational purposes. The learned JM further examined the case of the assessee and it was found by him that there was no such violation or misuse of the income by the assessee. The assessee has been restricting its entire activity to printing and publishing the textbooks. There was never any declaration of dividend or issue of bonus shares to the shareholders. It was further found by him that the shareholders consist of the Government and the Financial Commissioner and Chairman, Board of Secondary (Education) in their official capacity and no shares were held by any private party. The learned JM also noticed that out of the combined order passed by the learned CIT(A) for asst. yrs. 1989-90 to 1993-94, the Department has only challenged the order for asst. yrs. 1989-90 to 1992-93 only. It was, therefore, opined by him that the Revenue cannot accept one assessment year and challenge the other. According to him it is well-settled principle of law that when a common order is passed an appeal has to be filed against all the orders of the appellate authority. Since the order of the first appellate authority is allowed to become final for asst. yr. 1993-94, it was his view that the appeals of the assessee for the earlier years also have to be allowed as the issue stands settled in the asst. yr, 1993-94.
10. The learned JM also noticed that the Tamil Nadu Textbook Society was granted exemption by the Department itself. It is also noticed by him that the Secondary Board of Education, Orissa was granted exemption under Section 10(22) by the Hon'ble Orissa High Court in Secondary Board of Education v. ITO (1972) 86 ITR 408 (Ori). Reference also was made to the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Rajasthan State Text Book Board (2000) 244 ITR 667 (Raj). Reference also was made in the case of Dy. CIT v. Cosmopolitan Education Society (2000) 244 ITR 494 (Raj). The learned JM also considered other decisions cited before him in the case of Gujarat State Co-operative Union v. CIT (1992) 195 ITR 279 (Guj) and in the case of CIT v. Dharmodayam Co. (1977) 109 ITR 527 (SC) where the Hon'ble Supreme Court held that the business of the assessee in conducting chit fund in the trust was for charitable purpose and hence the income from chit fund business was exempt from tax under Section 2(15) of the Act.
11. The learned JM distinguished the decision of the Hon'ble Gujarat High Court in the case of CIT v. Sorabji Nusserwanji Parekh (1993) 201 ITR 939 (Guj) and that of the Hon'ble Rajatshan High Court in the case of CIT v. Maharaja Sawai Mansinghji Museum Trust (1988) 169 ITR 379 (Raj).
12. Having regard to the above facts and considering that the ancillary objectives were only for the purpose of achieving the main objectives and there being no violation of the provisions of the memorandum and article of associations and the assessee having concentrated exclusively for the publication and printing of textbooks, it was held by him that the assessee is entitled to exemption under Section 10(22) of the Act.
13. The learned JM also further cited the decision of the Hon'ble Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC) for the proposition that since the assessee existed solely for the purpose of printing and publishing textbooks and other object is only incidental to achieve the object of the main purpose and, therefore, it will not be deprived of the benefit of Section 10(22) of the Act.
14. On the other hand, the learned AM agreed with the view taken by the learned CIT(A) and held a view different from that of the learned JM. The learned AM considered the various decisions cited before the Bench and eventually came to the conclusion that the assessee-company did not exist as university or other educational institution as contemplated under Section 10(22) of the Act as it does not carry on the primary activities of university or educational institution of imparting education but merely runs the business of printing and publishing of textbooks. Secondly, it was his view that the assessee has not existed solely for the educational purpose and, therefore, it cannot be said that it was not for the purpose of profit, According to him the assessee-corporation was not registered under Section 25 of the Companies Act, 1956. The memorandum of association and articles of association of the assessee-corporation did not restrict the payment of dividend and issue of bonus shares to its members. In that view of the matter and considering the decision in the case of Birla Vidya Vihai Trust v. CIT (1982) 136 ITR 445 (Cal) and the circular of the CBDT F. No. 194/16-17-IT (A1) reproduced therein, it was held by him that the assessee cannot be given the benefit as the profit can be diverted for any other purpose than for the purpose for which it was created.
15. Relying further on the decision of the Hon'ble Supreme Court in the case of Yogiraj Charity Trust v. CIT (1976) 103 ITR 77 (SC) wherein it has been held that when the trust deed confers full discretion on the trustees to spend the trust fund for an object other than of a religious or charitable nature, the exemption from tax under Section 4(3)(i) of the IT Act, 1922, is not available to the assessee. Similar view was taken in the case of Sole Trustee, Loka Shikshana Trust v. CIT (1975) 101 ITR 234 (SC). The decision of the jurisdictional High Court in the case of CIT v. P.K. Barooah (1970) 77 ITR 967 (Gau) also was cited in support of the view taken by him that the assessee cannot be treated even as charitable institution and the benefit for exemption under Section 11 of the Act. In this view of the matter it was held by him that the assessee cannot be given the benefit of exemption under Section 10(22) particularly when, the assessee has been offering income for taxation all throughout in the past from its inception to the asst. yr. 1977-78.
16. On the difference of opinion, the Bench referred the above question under Section 255(4) of the Act. At the time of hearing before me, Shri U.K. Barthakur, learned counsel, appeared for the assessee, and Shri B.B. Dev, learned Departmental Representative, appeared for the Revenue. They were heard at length.
17. On careful consideration of the rival submissions in the light of the material on record, I am of the view that this controversy is set at rest by the decisions of the Hon'ble High Courts and the Hon'ble Supreme Court. The Hon'ble Supreme Court considered the scope of the provisions of Section 10(22) of the IT Act, 1961, in the case of Aditanar Educational Institution v. Addl. CIT and Ors. (supra). The Hon'ble Supreme Court held that it would be unreal and hypertechnical to hold that the assessee which was only a financing body would not come within the scope of "other educational institution" as specified in Section 10(22). The object of the society was 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 were the media through which the assessee imparted education and effectuated its objects. In substance and reality, the sole purpose for which the assessee had come into existence was 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. It was further observed that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purposes of profit could be regarded as "other educational institution" coming within Section 10(22) of the Act.
18. The Hon'ble Supreme Court further observed 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. By holding this view, the Hon'ble Supreme Court approved the decision of the Hon'ble Orissa High Court in the case of Secondary Board of Education v. ITO (supra).
19. It is further seen that the Hon'ble Rajasthan High Court considered exactly identical issue in the case of CIT v. Rajasthan State Text Book Board (supra). In that case, it was observed by the Hon'ble Rajasthan High Court that in the case of the Tamil Nadu Textbook Society, the CBDT, as per the letter dt. 19th Aug., 1975 and File No. 184/26/75 stated that the Tamil Nadu Text Book Society was an educational institution, existing solely for the purpose of education, within the meaning of Section 10(22) of the IT Act, 1961. It was further found that the aims and objects of the Tamil Nadu Text Book Society and those of the respondent-assessee were almost identical. It was also not shown that the surplus amount, if any, of the assessee was used for any other purpose or distributed to other members. On these facts, it was held by the Hon'ble High Court that the Tribunal was right in upholding the order of the CIT(A) allowing the exemption under Section 10(22) of the Act.
20. If the case of the assessee is examined in the light of the above decisions, it is seen that the facts of the case are identical to the facts of the decisions in the case of Aditanar Educational Institution (supra) and in the case of Rajasthan State Text Book Board (supra), The assessee in this case is a corporation established in the year 1972. The paid-up share capital of the corporation was held by the Government of Assam represented by the Governor of Assam, through the Secretary, Education Department, the Financial Commissioner and Secretary, Finance Department, and the Chairman, Board of Secondary Education, in their official capacity. The entire share capital is, therefore, controlled and owned by the Government of Assam.
21. The main object of the corporation is to do research and printing and publishing of textbooks for the school students as per the norms prescribed and approved by the competent authorities and/or approved or required by the Government of Assam or other educational authorities, institutions and bodies, statutory or otherwise, etc. The corporation has the main objects and the objects incidental or ancillary to the main objects for achieving the main objective. The corporation has been restricting its entire activities to printing and publishing textbooks as required by the Government of Assam. There was no declaration of dividend or issue of bonus shares to the shareholders. There was no concessional loan or advances made to the members of governing body in violation of the provisions of the articles and memorandum of association.
22. It is also seen that the assessee failed to claim exemption due to its ignorance and it was only from asst. yr. 1979-80 that it made a claim by way of additional ground which was rejected on technical grounds. There has never been any claim of such exemption in the earlier years due to ignorance of the corporation. This, however, is not a valid reason for rejecting the claim of the assessee, if otherwise entitled.
23. The Hon'ble Supreme Court in the case of Aditanar Educational Institution (supra) considered the scope of exemption under Section 10(22) and it was held that if the claim of society which was only a financing body was held not to come within the scope of "other educational institutions" as specified in Section 10(22) of the Act, it would be unreal and hypertechnical as the object of the society was 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. The assessee in this case has also fully concentrated on printing and publication of textbooks for the use entirely of the educational institutions and in substance arid reality the sole purpose for which the assessee had come into existence was to impart education at the school and college levels by supplying schools, colleges textbooks as per the syllabus prescribed. As held by the Hon'ble Supreme Court in the above case, it can be held that the assessee is also "other educational institution" as specified in Section 10(22) of the Act.
24. The Hon'ble Supreme Court further held that the decisive or acid test is whether, on an overall view of the matter, the object is to make profit. And for this purpose, it was further explained 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. This acid or decisive test prescribed by the Hon'ble Supreme Court is fully satisfied arid complied with by the assessee-corporation during the relevant assessment years. There has never been any utilization of the income for the purpose other than for printing and publication of the textbooks prescribed by the authorities. The surplus income has never been distributed as dividend nor any bonus shares have been issued by the corporation. It is, therefore, seen that the assessee has fully qualified the test prescribed by the Hon'ble Supreme Court in this regard.
25. As regards the question whether the assessee being the Assam State Text Book Production & Publication corporation Ltd. can be treated as educational institution as contemplated under Section 10(22), it is seen that the Hon'ble Rajasthan High Court in the case of CIT v. Rajasthan State Text Book Board (supra) settled the issue by citing the case of Tamil Nadu Text Book Society which the CBDT has recognized as an educational institution existing solely for the purpose of education within the meaning of Section 10(22) of the IT Act, 1961. The Hon'ble Rajasthan High Court, therefore, held that the Rajasthan State Text Book Board also fulfils the conditions and, therefore, the Tribunal was justified in holding that the assessee was entitled to exemption under Section 10(22) of the Act. Respectfully following the above decisions, I have no hesitation in concurring with the view taken by the learned JM.
26. With regard to the objections raised by the learned AM, I am of the view that the apprehensions and reservations harboured by him have been fully considered by the Hon'ble Supreme Court and the CBDT itself. There is, therefore, no scope for harbouring such apprehensions or reservations in this regard. Firstly, with regard to the question whether the assessee can be an educational institution for the purpose of Section 10(22) of the Act, it is directly settled by the circular of the CBDT cited by the Hon'ble Rajasthan High Court in the case referred to above. Until and unless the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Rajasthan State Text Book Board (supra) is reversed the said decision has to be taken as final. It is also seen that the decision of the Hon'ble Supreme Court in the case of Aditanai Educational Institution (supra) covers the claim of the assessee in that the assessee-corporation can come within the scope of "other educational institution" as specified in Section 10(22) of the Act.
27. With regard to the next ground regarding registration under Section 25 of the Companies Act, 1956, and also the absence of restriction on the payment of dividend and issue of bonus shares, etc. it is seen that the decision of the Hon'ble Supreme Court in the case of Aditanar Educational Institution (supra) has taken care of this aspect and it was held that the availability of 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. In that view of the matter and having regard to the findings of the learned CIT(A) and the learned JM, it can be held that the assessee has not violated any of the provisions and there is no utilization of the profit for the purpose other than for the objective for which it was created i.e., to print and publish textbooks of school students under the Government of Assam. Having regard to the above, there is no scope for doubting the genuineness of the claim of the assessee and the same is to be allowed. Consequently, I concur with the view taken by the learned JM.
28. The exemption granted for the above assessment years will not be a blanket exemption for the future years as the case of the assessee is to be evaluated from year to year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. With this rider the claim of the assessee for the above years is granted.
29. The matter will now go before the regular Bench for decision according to majority opinion.
BY THE BENCH:
1. The learned President, Shri V. Dongzathang as Third Member by his opinion dt. 9th April, 2003, concurred with the views of the JM on the issue of exemption under Section 10(22) of the IT Act, 1961 and answered the question in affirmative. In accordance with majority view, the issue of exemption under Section 10(22) of the IT Act, 1961, stands decided in favour of the assessee and against the Revenue.
2. In ITA No. 287 (Gau) of 1985, for the asst. yr. 1981-82 and in ITA No. 51 (Gau) of 1993 for the asst. yr. 1982-83, the assessee has taken four other grounds of appeal. Since, it has been held by us that the income of the assessee is exempt under Section 10(22) of the Act, the other grounds of appeal have become academic in nature which was agreed to by both the parties in the open Court. We decline to adjudicate upon the same.
3. In the result, the appeals of the assessee are allowed and that of the Revenue are dismissed.