Income Tax Appellate Tribunal - Kolkata
Nopany Education Trust vs Additional Director Of Income Tax ... on 24 November, 2004
Equivalent citations: [2005]93ITD152(KOL), (2005)92TTJ(KOL)1143
ORDER
G. Chowdhury, J.M.
1. The assessee has filed this appeal for the asst. yr. 1998-99 against the order passed by the learned CIT(A). Although a number of grounds have been raised by the assessee, however, the main issue is with regard to the exemption under Section 10(22) of the Act.
2. In this case, the assessment was framed under Section 144 of the Act. Originally, the return was processed under Section 143(1)(a). Thereafter, the same was taken up for scrutiny. The case of the assessee is that although the assessee-trust is running a school, but the assessee-trust was incurring various expenditure by providing aids and donations to different institutions which are mostly for non-education purposes. The list of such expenses has been incorporated in the assessment order. The assessee-trust has been earning profit by running the school. Therefore, the sole purpose of the trust is not education but for earning income. The assessee had incurred similar expenditure for non-education purpose from the asst. yrs. 1990-91 to 1998-99. Therefore, according to the AO, the decision of the Supreme Court in the case of McDowell & Co. v. CTO (1985) 154 ITR 148 (SC), is applicable in this case. Hence, the exemption under Section 10(22) was denied to the assessee. The finding was confirmed by the CIT(A).
3. The learned counsel appearing on behalf of the assessee has submitted that during the earlier years and subsequent years, the assessee was allowed exemption in similar circumstances. Therefore, there is no reason to withhold the exemption under Section 10(22) in this year. It was submitted that in the case of the assessee, the Tribunal for the asst. yrs. 1995-96 to 1997-98 and 1980-81 decided similar issues in favour of the assessee after allowing exemption under Section 10(22) of the Act. Copies of the orders have been filed before us along with the paper book. The learned Authorised Representative of the assessee in this connection placed reliance on different decisions as follows:
1. Birla Vidhya Vihar Trust v. CIT (1982) 136 ITR 445 (Cal)
2. Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC)
3. CIT v. Rao Bahadur Cunnan Chetty Charities (1982) 135 ITR 485 (Mad).
Further reliance was placed on the Circular No. 712 dt. 25th July, 1995, issued by the CBDT. Copies of the orders passed by the Tribunal have been filed by the assessee along with the paper book. On the other hand, the learned Departmental Representative supported the order passed by the AO and further argued that the assessee failed to invest the excess income in accordance with law. Therefore, the exemption under Section 10(22) was rightly disallowed by the AO.
4. After hearing both the sides and on perusal of the materials on record, we find that the main grievance of the AO is that the assessee had given donations and aids to different concerns. The AO has mentioned details of such donations at para 5 of his order. On perusal of the said details, we find that the donations/aids were given by the assessee to different institutions, namely, Anamika Kala Sangam for performing cultural programme, Anjali Homeo Cancer Research & Treatment Centre for research of homeopathic treatment of Cancer, Radhakishan Jhunjhunwala Charity Trust as grant for school, Shri Rahul Kr. Sharma of G.D. Birla Sovaghar for performing cultural programme etc. From the above chart it is clear that the aids were given by the assessee for education, cultural research in medical field and other education-related programmes. The assessee has filed a written submission before the CIT(A), copy of which is at p. 23 of the paper book! In the said written submission it has been stated that after reviewing the accounts of both the trusts as well as school that during the relevant previous year, the school has actually spent for education purpose of Rs. 91,78,679 as against the surplus generated for the year for Rs. 86,19,577. The assessee has placed reliance on the Circular No. 712 dt. 25th July, 1995 issued by the CBDT which is as follows:
"Under Section 10(22) of the IT Act, any income of a university or other educational institution, existing solely for educational purposes and not for purpose of profit, it exempt form income-tax.
2. The Board have received representation from various institutions which fulfil the conditions laid down under Section 10(22) of the Act, but are denied exemption because their funds are not invested in accordance with the provisions of Section 11(5) of the Act. It is hereby clarified that since Section 10(22) does not impose any restriction regarding mode of investment of funds, such institutions are not required to invest their funds in the modes specified under Section 11(5) of the IT Act. This clarification will not apply to the institution seeking exemption under Section 11 of the Act."
From the said circular, it appears that if the assessee-trust fails to invest funds as provided under Section 11(5) of the Act, exemption under Section 10(22) cannot be denied. It has been clearly explained that investment of funds under Section 11(5) is required in the case of exemption under Section 11 of the Act which is not the case here. The Supreme Court in the case of Aditanar Educational Institution (supra) held that 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 purpose, since the object is not one to make profit and the surplus, if any, is incidental to dominant and primary object. Similar view has been taken by the jurisdictional High Court m the case of Birla Vidya Vihar Trust (supra), where the jurisdictional High Court has held as follows :
"In this case, the Tribunal has emphasised that the trust, which is the assessee, had its objects in the trust deed-objects other than the educational objects, that is to say, other objects which we have referred to, which objects though charitable in nature, were not solely or exclusively for education" but that is only relating to the trust and that guides the recipient or the owner of the income, but so far as one of the clauses of the trust deed, that is to say, Clause 2(a) and (b) of the trust deed is concerned, that is to permit the trust to establish and start aid, run, maintain or manage schools, colleges or educational institution of all kinds.........
It is not the entirety of the income of the recipient-the trust in this case-but the income of the particular source, namely, educational institution, that comes within the purview of Sub-section (22) of Section 10 of the Act". The said High Court has further observed at p. 460 that "merely because there is a surplus, that is to say, surplus of receipt over expenditure, it cannot be said that the educational institution exist for profit."
From the details of expenses, we are satisfied that all the aids and donations were for educational purpose save and except a small amount of Rs. 36,546 which was given by the assessee for medical relief. There is no dispute that during the earlier and subsequent years the trust has been exempted from taxation. During the asst. yrs. 1995-96 to 1997-98, the trust was exempted under Section 10(22) of the Act by the order passed by the Tribunal in ITA Nos. 103, 104 & 1603/Cal/2000. Copy of the order has been filed at p. 2 of the paper book. On perusal of the said order, we find that the facts of those years are similar to the present assessment year. Moreover, on perusal of para 3 of the Tribunal's order, we find that in that year the assessee had incurred some expenditure by making donations to Hanuman Mandir, Tollygunge Club and also for purchase of air ticket and hotel expenses whereas during the present assessment year, all the expenses are mostly related to education only. Therefore, we do not find any reason to take a different view from the order already passed by the Tribunal. Accordingly, we direct the AO to allow exemption under Section 10(22) of the Act.
5. In the result, the appeal is allowed.
M.K. Sarkar, A.M. May, 2004
1. The assessee is in appeal with the following grounds :
"1. That the learned CIT(A) was wrong in enhancing the assessment and determining the total income of the appellant for the asst. yr. 1998-99 at Rs. 84,05,370 as against the returned, loss of Rs. 90,82,933 and the total income assessed by the AO at Rs. 83,62,580.
2. That the learned CIT(A) was wrong in holding that the income of the school, Shree Daulatram Nopany Vidyalaya, which is a part of the appellant-trust, is not exempt from taxation under Section 10(22) of the IT Act, 1961 for the asst. yr. 1998-99.
2.1 That the learned CIT(A) was wrong in holding that the ratio of the decision of the Tribunal 'E' Bench, Kolkata, dt. 9th Nov., 2001 in the case of the appellant for the asst. yrs. 1995-96 to 1997-98, is not applicable in so far as it relates to the income of Shree Daulatram Nopany Vidyalaya.
2.2 That the learned CIT(A) failed to appreciating that, on the facts and in the circumstances of the appellant's case, insofar as it relates to the income of the school, Shree Daulatram Nopany Vidyalaya, the facts are the same as it were in the assessment for the asst. yrs. 1995-96 to 1997-98, inasmuch as the school during the relevant previous year existed solely for education purposes and not for the purpose of any profit to any individual or group.
2.3 That the learned CIT(A) failed to appreciate that, though during the previous year the school generated a revenue surplus of Rs. 86,19,577, the following amounts were ploughed back during the previous year for the purpose of education.
(a) Addition to the school building and other fixed assets installed in the school Rs. 53,78,492
(b) Aids and donations for educational purposes Rs. 38,00,187
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Rs. 91,78,679
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3. That the learned CIT(A) was wrong in denying the exemption under Section 11 of the IT Act, 1961 in respect of the income, other than the income of the school, Shree Daulatram Nopany Vidyalaya which is exempt under Section 10(22) of the IT Act, 1961.
3.1 That the learned CIT(A) was wrong in holding that the trust has violated the provisions of Section 11(5)/13(1)(d) of the IT Act, 1961 and failed to appreciate that the alleged investments were made by the school whose income is exempt under Section 10(22) of the IT Act, 1961 and the issue is already covered in favour of the appellant by the order of the Hon'ble Tribunal, 'E' Bench, Kolkata dt. 9th Nov., 2001 in the case of the appellant for the asst. yrs. 1995-96 to 1997-98.
3.2 That the learned CIT(A) failed to appreciate that the net result of the computation of the income of the trust other than the school, is a net loss and as such the question of violation of Section 11(1)/11(2) of the IT Act, 1961, does not arise on the facts and circumstances of the case.
4. That the learned CIT(A) was unjustified in confirming the charging of interest under Section 234A and 234B of the IT Act, 1961, for the asst. yr. 1998-99.
5. The order passed by the learned CIT(A) is against law and the facts of the case."
2. The first and the only substantive ground relates to the CIT(A) enhancing the assessment of the assessee determining the total income of the assessee for asst. yr. 1998-99 at Rs. 84,05,370 as against the returned loss of Rs. 90,82,933 and the total income assessed by the AO at Rs. 82,62,580.
3. The facts of the case are that the assessee is a trust owning an educational institution, Shree Daulatram Nopany Vidyalaya which is the part of the assessee-trust. Before the AO, it was contended that the trust's income would be exempt under Section 11 and the income of the school would be exempt under Section 10(22). The AO wanted the assessee to furnish the following details at the time of assessment:
"1. Balance sheet/annual accounts of the school, Shree Daulatram Nopany Vidyalaya, for the financial year 1997-98 with the auditor's report.
2. Detailed break-up of additions to the assets to the tune of Rs. 50,32,980 claimed as deduction in the computation of total income.
3. Break-up of interest income of Rs. 33, 442 and administrative expenses of Rs. 2,03,548 thereon.
4. You have claimed deduction under Section 10(22) (in Part IV of the ITS 3A Return) for school. Is your case covered in law in view of the ratio of the decision in the case of Aditanar Education Institute v. Addl. CIT (1997) 224 ITR 310 (SC).
5. Details of aids and donations of Rs. 38,36,733 and purpose of these aids and donations.
6. There is credit of Rs. 86,19,577 to the P&L a/c of the trust as "By excess of income over expenditure as per audited account of Shree Daulatram Nopany Vidyalaya for the year ended 31st March, 1998". How this income has been set off against expenses other than administrative expense of Rs. 2,13,256?"
4. The assessee filed reply to the above queries by letter dt. 13th March, 2001. In the reply, the assessee contended that all payments by the school were made for the advancement of education, relief/scholarship to past students and for organising cultural/educational programmes. As regards investment by the school, it was submitted that no new investment in shares was made during the year. Investments in shares were held since 31st March, 1993. Reference was made to the CBDT Circular No. 712 dt. 25th July, 1995 in which it has been laid down that investment of fund by education institution which was exempt under Section 10(22) would not attract the restriction as laid down in Section 11(5) of the Act. As regards utilisation of surplus of school, it was submitted that surplus was utilised for addition to fixed assets, payment/grants for advancement of education and for meeting day-to-day administrative expenses.
5. The AO went through the details of aids and donations during the year. The AO found that 83.96 per cent of its total expenses were incurred on aids and donations. He found that mostly the donations were made for non-educational purpose and likewise many other expenses have nothing to do with educational activities. The AO went through the profitability ratio of net profit to turnover of the school and found that average of 34.6 per cent net profit was earned by the assessee, going by the accounts for asst. yrs. 1990-91 to 1998-99. From this the AO inferred that the school was run with the purpose to earn profit. He went on to show that the trust was earning steady profit as well from which it could be easily said that the nature of the educational institution was not public charitable institution alone. Moreover, he also found that the assessee-trust or the school made investments in the companies which are with the assessee's group companies, viz. Shree Annapurna Finance Co. (P) Ltd.; Hanuman Industries (India) (P) Ltd.; Continental Electronics (P) Ltd., Shree Hanuman Sugar & Industries Ltd. This contention of the AO has not been contested either before CIT(A) or before us. The AO referred to the decision in the case of Governing Body of Rangaraya Medical College v. ITO (1979) 117 ITR 284 (AP) and Secondary Board of Education v. ITO (1972) 86 ITR 408 (Ori). The AO also went on to apply the acid test prescribed by the Hon'ble Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC) and found that the assessee failed in the acid test as prescribed by the Hon'ble Supreme Court and, therefore, its income could not be exempted from tax either under Section 11 or under Section 10(22). He adopted the income of Rs. 83,62,579 and initiated consequent penal proceedings.
6. The assessee went in appeal before the CIT(A) who observed that the school run by the assessee-trust had made investment in equity shares in assessee's group companies. He also found that the profit of the school was not spent for education purpose but was given away as donation and aids during the financial year. He found that the AO's action of applying the estimated net profit rate of 45 per cent on the turnover of the school at Rs. 1,85,83,509 to determine the taxable income of the trust was not the correct approach. According to him, the taxable income of the trust has to be computed on the basis of the accounts of the trust and not that of the school which is only a part of the trust. Therefore, according to the CIT(A), to compute the taxable income of the trust solely from the facts of the school is an incorrect procedure as it rejects the accounts of the trust without assigning any reason. He was also of the opinion that the AO had not discussed whether the trust was entitled to the benefits of Section 11 and how the estimated income of the school could be implanted on the trust. After considering the submissions of learned Authorised Representative of the assessee, the CIT(A) held that taxability of income of the assessee is not to be determined with reference to the income from the school but the income of the trust. Therefore, he based his finding on the accounts of the trust and found that income and expenditure account of the trust reflected the excess of income to the extent of an amount of Rs. 45,69,524. This income was transferred to the balance sheet of the assessee-trust. The total income of the trust amounting to Rs. 86,78,201 consisted of rental, interest and income that the trust was receiving from the school. Out of the receipts, the assessee had applied towards its charitable and religious activities an amount of Rs. 41,08,577 which included aids and donations made by the trust amounting to Rs. 38,36,733. According to the CIT(A), there could not be dispute that the amount received from the school is also part of its income. Since this transfer from the school is also part of its receipts, the trust has to apply Jhe total receipts to charitable and religious purposes as per law. The law under Section 11(1) provides that a minimum of 75 per cent of the receipt of the trust should be applied to charitable and religious purposes and the remaining amount, if any, should be accumulated as provided under law under Section 11(1) and (2) of the Act. For the purposes of accumulation, the law also provides that the assessee has to file Form No. 10 along with the return. He referred to the decision of the Hon'ble Supreme Court in the case of CIT v. Nagpur Hotel Owners Association (2001) 247 ITR 201 (SC) wherein it was held that Form No. 10 is mandatory and if no such form was filed, exemption under Section 11 could not be allowed to such trust. In this case the assessee applied less than 75 per cent of its income towards charitable and religious purposes, the remaining amount has also not been accumulated as provided under Section 11(1) and 11(2). Further, such unspent income has also not been deposited or accumulated in the manner provided under Section 11(5) and 11(1)(d). Besides, the assessee did not file Form No. 10. In this view of the matter, the CIT(A) was of the view that exemption available under Section 11, could not be extended and allowed to the assessee. According to him, since the assessee would no longer enjoy the benefit of exemption under Section 11, the aids and donations made by the assessee amounting to Rs. 38,36,733 could also not be allowed as an allowable deduction as they were not allowable in normal business activity, except in respect of a trust which has the benefit of exemption under Section 11. In this view of the matter, he decided that the excess of income over expenditure in the income and expenditure account of the assessee amounting to Rs. 45,69,524 could not be exempted under Section 11. Further, aids and donations amounting to Rs. 38,36,733 which was debited to the income and expenditure account will also have to be added back to the taxable income. Accordingly, he enhanced the total income of the assessee to Rs. 84,05,367 as against Rs. 83,62,580 determined by the AO.
7. The assessee is in appeal before us against this order. Both the Departmental Representative as well as the learned Authorised Representative of the assessee made detailed submissions. Learned Authorised Representative of the assessee, Shri K.V. Singh, in his note contended that the school, Shree Daulatram Nopany Vidhyalaya is owned by Nopany Education Trust. In all the assessments upto the asst. yr. 1997-98, the income of the school has been held to be exempt under Section 10(22) and exemption was allowed under Section 11 in respect of other charitable activities of the trust.
8. We have considered the rival submissions and we have also considered the decision of the Hon'ble Calcutta High Court in the case of Birla Vidya Bihar Trust v. CIT (1982) 136 ITR 445 (Cal), which was relied upon by the learned Authorised Representative of the assessee. It was the main plunk of the learned Authorised Representative's submission that the school is exempt under Section 10(22) and, therefore, the income derived from such educational institution could not be brought to tax nor exemption under Section 10(22) be denied.
9. The main issue to be decided is to go to the finding of fact whether (i) the school had applied its income for purposes other than for education, particularly with a profit motive; (ii) if the school has invested the amount either in the past or in the current year for purpose other than education, whether the school can be exempt under Section 10(22); and (iii) in the case of the trust, whether the trust can be exempted in spite of the fact that the trust received surplus income of the school and made investment in violation of Section 11(5).
10. We find from the analysis of facts of the case projected by the AO that the excess income of the school which was not required for the purpose of the school for the current year amounting to Rs. 45,69,524 was merged with the funds of the trust and the trust, in its turn, made certain donations to certain persons, organisations, institutions, which cannot be said to be exclusively for the purpose of education or charity. However, we also observe that neither the AO nor the learned CIT(A) has come to a finding of fact whether the investments made by the school with the companies viz., Shree Annapurna Financing Co. Ltd. (Rs. 15 lakh); Hanuman Industries (India) (P) Ltd. (Rs. 20 lakh); Continental Electronic Industries Ltd. (Rs. 10 lakhs); and Shree Hanuman Sugar & Industries Ltd. (Rs. 31.89 lakh), totalling Rs. 76.89 lakhs are actually the investments made by the school or by the trust in the assessee's group companies which would leave an effect on eligibility of benefit of exemption under Section 10(22) to the school and/or denial of exemption under Section 11 to the trust. It is also seen that such investment by the school and/or transactions with various companies over a number of years have also not been examined as to in which year/years the investments were originally made and whether the investments were in the name of the school or the trust and whether any income was derived therefrom.
11. In the case of Birla Vidhya Vihar Trust (supra) the Hon'ble Calcutta High Court gave the following finding "but in this case except that there was one solitary instance in one of the prior years when there was the application of some income to non-educational purposes, there was no other fact. That by itself, in our opinion, would not be very material. If, however, an educational institution as a source of income was generally or usually used as a means of earning income to be utilised for non-educational purposes, then other considerations would apply".
12. Thus, it will be seen that even in this case the Hon'ble High Court had given a warning to the educational institution that failure of the institution in one solitary instance might not disentitle the educational institution, exemption under Section 10(22). But perpetual violation for number of years might. While giving this decision, the Hon'ble Calcutta High Court differed from the findings of the Hon'ble Madras High Court in the case of CIT v. Aditanar Educational Institution (1979) 118 ITR 235 (Mad) in which the Hon'ble Madras High Court held that the expression "existing" used in Section 10(22) clearly showed that the matter would have to be investigated in each year and so long as it was found that the institution existed solely for educational purposes in the relevant year, and so long as its profit is incidental to the purpose of education, the income would be exempt, and not any income however remotely, connected with the educational institution. A society by merely running a college cannot utilise this provision as an instrument for exemption in respect of all its sources of income which had no connection with its educational activity. There must be some correlation between the income earned and the educational institution. The Hon'ble High Court was of the view that the expression 'existing' must be judged with the correlation of facts of the relevant year only. However, the facts of the relevant year would be very material factor whether the institution exists or existed solely for any particular purpose or not cannot be judged by the facts of one year.
13. We have had the occasion to go through the order of the Hon'ble Supreme Court adjudicating the matter of Aditanai Educational Institution (supra) in which the view taken by the Madras High Court was upheld as against the view taken by the Hon'ble Calcutta High Court. In this decision, the Hon'ble Supreme Court held that the sole purpose for which the assessee has come into existence is to impart education at the level of college and school and such educational society should come under Section 10(22) of the Act. With this observation, the Hon'ble Supreme Court declined to interfere with the order of Hon'ble Madras High Court. More importantly, the Hon'ble Supreme Court made the observations viz., "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 educational institute existed during the relevant year solely for educational purposes and not for the purpose 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 on the acid test is whether, on an overall view of the matter, the object is to make profit."
14. In the instant case, the AO has established beyond reasonable doubt that applying the acid test required by the Hon'ble Supreme Court in the case reported in (1997) 224 ITR 310 (SC) (supra), it can be said easily that there was profit motive both from the view of holding the surplus which is in excess of assets required for running the school and the fact that the school invested a huge amount of Rs. 76,89,000 in companies stated to be associates of the trustees of the trust. This serious finding of fact cannot be brushed away easily.
15. We hasten to add that the Hon'ble Tribunal in ITA Nos. 103, 104 and 1603/Cal/2000 for asst. yrs. 1995-96 to 1997-98 in the assessee's own case has given a finding that investment made by the school in violation of provision of Section 11(5) or Section 13(1)(d) were made by the school, most probably for augmenting its income. The words used "most probably" show clearly that the facts were not before the Tribunal as to whether the investments were made to the companies to augment income of the assessee. The facts also indicate whether there were the better options open to the school to augment its income. Moreover, it does not appear from records that the various companies in which the investments were made by the school or from the joint fund of the school and/or the trust had caused augmentation of the income of the school or not. From the accounts perused by us, it was not clear that any income was derived by the school/trust from the investments so made.
16. In view of the fact that neither the fact nor the law was presented properly before the Hon'ble Tribunal deciding the assessee's case in earlier years, the same did not have any binding effect on us. It is very clear that the decision in the case of Birla Vidhya Vihar Trust (supra), on which the assessee largely relied on, does not remain good law after the contents of the same were overruled by the Hon'ble Supreme Court. In the decision Aditanai Educational Institution (supra) in which it has been clearly held that the question of applicability of Section 10(22) in the case of educational institution has to be seen in year-to-year basis. If we take the decision of the Hon'ble Supreme Court as the basis of our terms of adjudication, we will find that the school or the trust managing the school had consciously invested huge amount of Rs. 76.89 lakhs with various companies run by the associates of the trustees of the trust. This has resulted in the school applying the funds for non-educational purpose. It cannot be said by any stretch of imagination that if the school invested substantial surplus money in some companies run for commercial operations, the motive was not profit. Obviously, the school management, which may also include management of the trust, were propelled by profit motive as well as commercial consideration while such investments were made from the surplus of the school. This is clearly violative of the provisions of Section 10(22) and, therefore, the question of exemption under Section 10(22) to such institution does not arise at all, on a plain reading of the provision of Section 10(22) which prohibits activity for profit.
17. Similarly, as regards the trust also, since the trust has consciously encouraged unauthorised investment in this case, provision of Section 11(5) has been clearly violated. Therefore, there cannot be any question of exemption under Section 11 to be granted to the trust. On both the counts, taken together, the school is no longer eligible for exemption under Section 10(22) on the facts and circumstances of the case. Similarly, the trust also is not eligible for exemption under Section 11 on the facts and circumstances of the case as elaborated hereinabove. Since another Bench of the Tribunal has taken a different decision in this regard, we think it proper to refer the matter to a larger Bench for adjudicating the following questions:
(a) In view of the fact that the school has invested huge amounts in commercial institutions with a profit motive, whether the school can claim exemption under Section 10(22) of the Act; and
(b) Whether the trust which has made investment in violation of Section 11(5), can be allowed exemption under Section 11 of the Act.
REFERENCE UNDER Section 255(4) OF THE IT ACT, 1961 5th July, 2004 Since there is a difference of opinion between the Members of the Bench, we state following point of difference and refer the same to the Hon'ble President of the Tribunal in accordance with the provisions of Sub-section (4) of Section 255 of the IT Act. The point of difference is as under:
"Whether, in the facts and in the circumstances of the case, the assessee-trust is entitled for exemption under Section 10(22) or Section 11 of. the IT Act or not."
2. It is, therefore, requested that Hon'ble President may nominate a Third Member for the decision in regard to the point of difference referred to above.
Vimal Gandhi, President (Third Member) 24th Nov., 2004
1. This matter has been referred to me under Section 255(4) of the IT Act on account of difference between the learned Members of Kolkata 'C' Bench. The question referred for consideration is as under:
"Whether, in the facts and in the circumstances of the case, the assessee-trust is entitled for exemption under Section 10(22) or Section 11 of the IT Act or not."
2. The facts of the case briefly stated are that the assessee-trust in the relevant period was running school, Shree Daulatram Nopany Vidyalaya, and had also income from other sources. The trust was allowed exemption under the IT Act upto asst. yr. 1979-80. In the asst. yr. 1980-81 exemption claimed under Section 10(22) as also under Section 11 of the IT Act was refused. The assessee went in appeal and the Tribunal vide its order dt. 3rd June, 1989 allowed exemption to the trust under Section 11 and under Section 10(22) of the IT Act in respect of the income of Vidyalaya. In the subsequent years exemption upto asst. yr. 1994-95 was allowed under Sections 11 and 10(22) of the Act. Again exemption in the asst. yrs. 1995-96 to 1997-98 was refused and finally Tribunal in appeal, allowed exemption under Section 10(22) of the Act to the income of the Vidyalaya and to the trust under Section 11 of the Act.
3. For the assessment year under consideration, the assessee filed return declaring income at 'nil'. It claimed exemption under Section 10(22) of the IT Act. The AO after making assessment under Section 143(1)(a) of the IT Act, issued notices under Section 142(1) of the IT Act calling for certain details. In response to above notices, the assessee as per reply dt. 13th March, 2001 placed information on record. The AO, however, felt that his notice under Section 142(1) was not fully complied with and details were not filed. He, therefore, held that provisions of Section 144 were attracted in this case and proceeded to make assessment under the above section to the best of his judgment.
4. He noted details of donation of Rs. 38,36,733 made by the trust to different persons in the year under consideration. These details are mentioned at pp. 5 to 7 of the assessment order. The assessee claimed that above donations were made for advancement of education, relief and scholarships were allowed to poor students and for advancement/organising cultural programmes. The AO found that donations constituted 85.96 per cent of total expenses and were given to Tabla reciter Shri Zakir Hussain (Rs. 80,000); Tennis Camp (Rs. 5 lakhs) etc. which had nothing to do with educational activities for which the assessee-trust was created.
5. The AO then turned to profit earned by school run by the assessee. The AO held that in the last nine years, from 1991 to 1998, the average profit of the assessee was 34.6 per cent sometimes it was as high as 47.9 per cent. The profit was not incidental to the running of the school. In fact, profit was the motto for running the school. He took into account figure of net profit of the trust and worked it out at average figure of 28.04 per cent to conclude that motive of the trust was to earn profit. He further observed that school was holding equity shares of various companies which had face value of Rs. 76,89,000 as on 31st March, 1997 and 31st March, 1999. The investment was made in group-companies of the assessee with a view to siphon off profit in a certain manner.
6. Having noted above background, the AO referred to provision of Section 10(22) of the Act. He found that income of educational institution existing solely for educational purposes and not for purpose of profit, was exempt. The AO referred to decision of Hon'ble Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC) and purporting to apply the "acid test" laid down in the above decision worked out the ratio of quick assets over current liabilities as follows:
Quick Assets = 15,64,032
"Acid Test Ratio = --------------- ------------- = 0.17
Current liabilities =90,64,116
The ratio worked out was found to be as low as 0.1. The AO observed that the assessee is using its own secret or whatever funds were with the assessee for the last many years for carrying on activities for profit and not for factors like education. The assessee had relied upon the decisions of the Tribunal in his favour, but those were held to be not applicable. The assessee was held to be not existing solely for educational purposes but for purposes of profit.
7. The AO further observed that on examination and analysing accounts of school, he has found that the same was being run for profit for the past several years. The assessee was spending its income for non-educational purposes. The income of the trust from sources other than school was only Rs. 58,624. The AO, accordingly, concluded that the assessee is not entitled to exemption under Section 10(22) of the Act. In his view the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC), was applicable. During the year under consideration, the assessee had earned as high as 52.6 per cent profits from school. The aids and donations taken as expenditure if ignored, the net profit would be as high as Rs. 84,06,357 which was 96.8 per cent. The AO was of the view that profit of the institution was to be computed at 45 per cent of receipt and this way computed assessee's income at Rs. 83,62,579 after rejection of books of account.
8. Above assessment of income and denial of relief under Sections 10(22) and 11 of the IT Act was challenged by the assessee in appeal before the CIT(A). The learned CIT(A) found that the assessee-trust had three types of income from properties held under the trust. The income was earned from leasehold building, interest and income from running of the school. The assessee was found to be maintaining two balance sheets and two income and expenditure accounts one for the Vidyalaya and the other for the trust. The excess of income over expenditure of school was Rs. 86,19,577. This was transferred to the income and expenditure account of the trust and net result was income of Rs. 45,69,524 in the hands of the trust as on 31st March, 1998. The learned CIT(A) found that no application on Form No. 10 was filed by the assessee. The assessee claimed before the learned CIT(A) that entire income of school was exempt under Section 10(22) of the IT Act as school existed solely for educational purposes. As regards income of trust, the assessee claimed that same was exempt under Section 11 of the Act. The assessee placed reliance on the decision of the Tribunal, Kolkata Bench in its own case for the asst. yrs. 1995-96 to 1997-98 granting exemption of income from school under Section 10(22) of the IT Act. Further, as far as income of the trust was concerned, the assessee claimed that there was no need to apply provisions of Section 11(1)(a) or 11(5) of the Act as there was loss only when income of school was considered separately.
9. The learned CIT(A) after considering income and expenditure account of the school, particularly aids and donations given by the school and its investment in equity shares, held that the assessee was not entitled to exemption under Section 10(22) of the Act. Investment was made by the school in companies in which the trustees were holding substantial interest. The school was held to be engaged in commercial activities and did not exist solely for purposes of education. He held that investment made were in violation of provisions of Section 11(5) and Section 13(1)(d) of the Act. Therefore, exemption of claim under Section 11 of the Act was also not valid. He held that income of the trust was to be seen and not that of the school and in the account of the trust, there were excess of Rs. 45,69,624 over expenditure. The learned CIT(A) further observed that income from school was also income of the trust and, therefore, under Section 11(1), the assessee-trust was to apply 75 per cent of its receipts to charitable and religious purposes and remaining amount, if any, was to be accumulated as provided under Section 11(1) and 11(2) of the Act but here the assessee did not file Form No. 10 nor made any application for accumulation of income. Further, the "unspent income" was not deposited as provided under Section 11(5) and 11(1)(d) of the Act. The aids and donations amounting to Rs. 38,36,733 claimed as deduction could not be allowed as they were not normal business activities in the hands of the trust. Thus, above amount was to be added to excess of income over expenditure of trust, i.e. Rs. 45,69,524. Thus, total taxable income of the assessee was worked out at Rs. 84,05,367. The learned CIT(A) further held that maximum marginal rate was to be applied to the above income.
10. The assessee being aggrieved, took up the matter in appeal before the Tribunal. After hearing both the parties, the learned JM found that the assessee had given donations and aids to different concerns. On perusal of details of above donations, the learned JM held that these were given for education and cultural research and for advancement of medical and other education related programmes. In the written submissions filed before the learned CIT(A) (copy at p. 23 of the paper book), the assessee had submitted accounts of trust as well as that of the school which showed that school had actually spent for educational purposes Rs. 91,78,679 against surplus of Rs. 86,19,577, generated by the school. The learned JM also relied upon and quoted Circular No. 712 of the CBDT dt. 25th July, 1995, according to which provision of Section 10(22) did not impose any restriction on mode of investment of funds by the educational institution. Applying the above circular, the learned JM held that exemption under Section 10(22) could not be denied to the assessee. The learned JM also applied decision of the Hon'ble Supreme Court in the case of Aditanar Educational Institution (supra) to hold that if there was any surplus resulting incidentally from lawful activity carried on by the educational institution, it will not effect the claim of the educational institution, that it was existing for educational purposes and not for making profit. The dominant and primary object of the educational institution was to be seen. According to the learned JM, a similar view was held by the Hon'ble jurisdictional High Court in the case of Birla Vidhya Vihar Trust v. CIT (1982) 136 ITR 445 (Cal). The relevant portion of the aforesaid decisions has been reproduced in the proposed order of the learned JM.
11. The learned JM further observed that from detail of expenses he was satisfied that all the aids and donations except for small amount of Rs. 36,546 was given for educational purposes. The learned JM following earlier order of the Tribunal, held that facts and circumstances before the Bench and before the Tribunal deciding the case in earlier assessment years of the assessee were identical and therefore, there was no reason to take a different view in the matter. The learned JM accordingly directed the AO to exempt income of the assessee under Section 10(22) of the IT Act.
12. The learned AM did not agree with the order proposed by the learned JM. He reproduced grounds raised by the assessee before the Tribunal and observed that substantive ground in appeal related to enhancement of assessment by the CIT(A). The learned AM then referred to proceedings before the AO and CIT(A). A detailed reference to these orders of the Revenue authorities have already been made and, therefore observations of the learned AM are not repeated. The operative portion of the learned AM's proposed order starts from para 9, where according to the learned AM, the following three issues require to be considered:
(i) Whether the school had applied its income for purposes other than for education, particularly with a profit motive;
(ii) if the school has invested the amount either in the past or in the current year for purpose other than education, whether the school can be exempt under Section 10(22); and
(iii) in the case of the trust, whether the trust can be exempted in spite of the fact that the trust received surplus income of the school and made investment in violation of Section 11(5).
The learned AM further observed that excess of income over expenditure amounting to Rs. 45,69,524 was carried to and merged with funds of the trust and the trust in turn made certain donations to persons, organisations, institutions which were held not to be exclusively for purposes of education or charity. However, Revenue authorities did not come to a finding of fact whether these investments were made with companies by the school or by the trust as above finding has an effect over claim of exemption under Section 10(22) to the school and denial of exemption under Section 11 to the trust. The Revenue authorities further did not examine the year in which investments in the companies were made and whether any income was derived from them.
13. The learned AM then referred to the decision of the Hon'ble Calcutta High Court in the case of Birla Vidhya Vihar Trust (supra) and that of the Hon'ble Madras High Court in the case of Addl. CTT v. Aditanar Educational Institution (1979) 118 ITR 235 (Mad). The latter decision was subsequently approved by the Hon'ble Supreme Court in the case reported in (1997) 224 ITR 310 (SC) (supra). The learned AM noted that the Hon'ble Supreme Court has held that for the purposes of Section 10(22) of the Act, the availability of exemption has to be evaluated each year to find out whether educational institution existed during the relevant year solely for educational purposes and not for purposes of profit. If there were any incidental surplus from activities carried on, it will not cease to be one existing solely for educational purposes and not to make profit. The decisive acid test is whether on an overall view in the matter, the object is to make profit. The learned AM then referred to the decision of the AO and also to the decision of Tribunal in the case of the assessee for asst. yrs. 1995-96 to 1997-98. On analysis of above decisions, the learned AM held that neither facts nor law were presented properly before the Hon'ble Tribunal in assessee's cases in those years and, therefore, above decision did not have binding effect on the Tribunal. The decision in the case of Birla Vidhya Vihar Trust (supra) applied in earlier years was no more a good law. Taking decision of the Hon'ble Supreme Court as basis, the learned AM held that the school or the trust managing the school had consciously invested the huge amount of Rs. 76.89 lakhs with various companies run by the associates of the trustees of the trust. This way school had applied its funds for non-educational purposes and motive was to make profit. This was in violation of provisions of Section 10(22) of the IT Act. As regards the trust, the learned AM held that trust also violated provisions of Section 11(5) of the Act and was not entitled to exemption under Section 11 of the IT Act. However, as another Bench of the Tribunal had taken a different view, the learned AM in the ultimate analysis held that the following questions should be referred to a larger Bench for adjudication:
"(a) In view of the fact that the school has invested huge amounts in commercial institutions with a profit motive, whether the school can claim exemption under Section 10(22) of the Act; and
(b) Whether the trust which has made investment in violation of Section 11(5) can be allowed exemption under Section 11 of the Act."
14. On the above difference, the question quoted earlier has been referred to me under Section 255(4) of the IT Act. The matter was fixed for hearing and both the parties were heard at Kolkata on 12th Oct., 2004. Both the parties were also permitted to file written submissions upto the end of October, 2004. The assessee has filed written submissions whereas the Department has relied Upon oral submissions made during the course of hearing. All the relevant material has been taken into account.
15. Shri K.V. Singh, learned counsel for the assessee pointed out that question proposed by the learned Members does not cover the entire controversy as the learned AM has directed for constitution of a larger bench to consider the question of exemption to the assessee. The aforesaid view is not reflected in the proposed question. He, therefore, suggested that an appropriate question be framed to cover the entire controversy. This submission was not opposed by. the learned Departmental Representative. Accordingly, the following question is also added as question No. 2 for consideration:
"2. Whether, on the facts and in the circumstances of the case, the learned AM is right in directing constitution of a larger Bench for adjudication of above question?"
16. Shri K.V. Singh, learned counsel for the assessee in his arguments relied upon the proposed order of the learned JM. He submitted that on almost similar facts, the matter has already been decided in favour of the assessee by the Tribunal and therefore, in the light of principle of consistency, the assessee could not be denied exemption under Section 10(22) or 11 of the IT Act. In this connection, he drew my attention to order of the Tribunal for the asst. yr. 1980-81 available at p. 7 of the paper book, wherein the assessee-trust was allowed exemption under Section 10(22) of the Act in respect of the income of the trust other than Vidhyalaya. In fact the Tribunal in the above decision dt. 3rd June, 1989, referred to the fact that the AO and the other Revenue authorities consistently allowed exemption to the assessee under Section 10(22) and 11 of the IT Act. Shri Singh further pointed out that income and accounts of school are being separately maintained. He referred to the balance-sheet and P&L a/c of school for the period ending on 31st March, 1998 at pp. 24 & 25 of the paper book. Likewise trust maintained it's separate accounts and the balance-sheet for the relevant period was available at p. 33 of the paper book. No investments in shares were made by the trust or school in the year under consideration. In this connection, he drew my attention to p. 35 of the paper book which showed that investment in shares was brought forward balance. It was made by school in earlier assessment years in which exemption under Section 10(22) was duly granted. With reference to balance-sheet of school, he pointed out that investment in shares was made out of development deposit lying with the school (Rs. 1,47,32,800). These deposits were returnable to students when they leave the school. With reference to balance-sheet of the trust, he pointed out that no investment was made by the trust nor any was reflected in its balance-sheet. The excess of income over expenditure in school account, Rs. 86,90,577 was utilised in making donations to educational and other charitable institutions or making capital investment in the building of the school. He drew my attention to p. 35 of the paper book which showed that a sum of Rs. 49,01,250 was added to the building of the school in the period under consideration. Thus, total amount spent on school was much more than what was received from the school. He also drew my attention to details of donations made for educational purposes similar donations made were allowed by the Bench of the Tribunal right upto asst. yr. 1996-97. Shri Singh further placed reliance on Circular of CBDT referred to by the learned JM in his proposed order.
17. Referring to the proposed order of the learned AM, Shri Singh submitted that wrong observations have been made by the learned AM. In this connection, he referred to para 9 of the proposed order, where it has been observed that investment was made by the trust. This was wrong as investment was made by the school out of development deposits as explained above. The investment was made in earlier year. In spite of above clear facts, the learned AM as per para 10 of the proposed order, was not sure as to who made investment in shares. As pointed out by their Lordships of the Hon'ble Supreme Court, affairs of the assessment years under consideration were required to be seen to decide whether the assessee was entitled to exemption or not. Even if investment was made by school for earning income, exemption under Section 10(22) of the Act could not be denied, Shri Singh further submitted. For the above proposition, he placed reliance on the Circular of the CBDT. This way Shri Singh supported the proposed order of the learned JM.
18. The learned Departmental Representative opposed above submissions. He strongly relied upon the orders of the AO, CIT(A) and the learned AM. He argued that pattern of activities carried on by the assessee clearly showed that the assessee was existing for making profit and not solely for purpose of education. The excess amount earned by the school has been utilised for making donations for non-business purposes. Large investment in shares of limited companies in which trustees were interested clearly showed that purpose of the assessee was to earn profit and not to carry on educational activities. Therefore, there was no question of allowing exemption to the assessee under Section 10(22) of the IT Act. The assessee further failed to prove that 75 per cent of its income was utilised for educational purposes and balance 25 per cent was accumulated as per provisions of Section 11(1) of the IT Act. No application on Form No. 10 was filed by the assessee for accumulation of income not spent in the year under consideration. In the above circumstances, the assessee was not entitled to exemption under Section 10(22) or Section 11 of the IT Act. The learned Departmental Representative placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Nagpur Hotel Owners Association (2001) 247 ITR 201 (SC). This way, proposed order of the learned AM was supported by the learned Departmental Representative for the Revenue.
19. I have given careful thought to the rival submissions of the parties and also examined material available on record. Nopany Education Trust (hereinafter referred to as trust) came into existence in the year 1945. The trust established school named Shree Daulatram Nopany Vidhyalaya (hereinafter referred to as Vidhyalaya) and the income of the Vidhyalaya has been treated as exempt under Section 10(22) of the IT Act all along right upto asst. yr. 1997-98. Of course there was a dispute in the asst. yrs. 1980-81 and 1995-96 to 1997-98 but on further appeal, Tribunal as per their orders, held that income of the Vidhyalaya was exempt.
20. In the year under consideration, the AO took into account factors like profit made by the Vidhyalaya from its teaching activities, investments made in shares of company in which the trustees are interested etc. etc. and held that the assessee was not entitled to exemption under Section 10(22) of the IT Act. The trust and the school were held to be existing for making profit and not solely for purposes of education. The AO also rejected book results of the assessee and applied a flat rate to determine assessee's income at Rs. 83,62,579. On appeal, the learned CIT(A) not only confirmed the addition but enhanced the same from Rs. 83,62,579 to Rs. 84,05,370.
21. On further appeal before the Tribunal, the Members have differed and details of their proposed orders have already been noted.
22. After careful consideration of rival submissions, I do not see any difference between the facts and circumstances of the case in the year under consideration from those involved in the earlier assessment years. The assessee was running a school in the past and continued to run the same in the same fashion. The school is primarily existing for purposes of education and not for making profit. The aforesaid finding has been consistently recorded by the Tribunal in the asst. yr. 1980-81 as also in subsequent three asst. yrs. 1995-96 to 1997-98. The learned AM while holding that the assessee was not entitled to benefit of Section 10(22) or Section 11 of the IT Act, has recorded that the assessee was existing for purposes of education and not for profit. He has referred to the investment of funds of Rs. 76.89 lakhs with various companies controlled by the trustees or their associates. He has further observed that earlier decisions of the Tribunal in assessee's case do not have binding effect on the Tribunal as neither facts nor law was presented properly before the Tribunal in earlier assessment years. Further, the Tribunal had relied upon the decision in the case of Birla Vidya Vihar Trust (supra) which was no more a good law. The school had applied its funds for non-educational purposes and motive was to make profit. The learned AM held that provisions of Section 10(22) and of Section 11(5) of the IT Act stood violated by the assessee-trust and, therefore, the trust was not entitled to exemption under Section 11 of the IT Act. As he was taking a view different from one taken by the earlier Bench of the Tribunal, he thought it fit to refer the matter to a larger Bench.
23. On facts and circumstances of the case, I am unable to agree with the views expressed by the learned AM as far as income of Vidhyalaya is concerned. Since 1945, it has all along been accepted to be existing for educational purposes and not for purposes of earning income. This position has all along been accepted by the Revenue. Similar fees was charged by the school and if any surplus was left, the same was transferred to the trust funds and again ploughed back to the school. Even in the period under consideration as per accounts of the school, there was surplus of Rs. 86,19,577. As against the above, the trust has ploughed back Rs. 91,78,679 to school's account by means of making addition to school building (Rs. 49,01,250) and addition in computers etc. apart from spending Rs. 38,36,733 for educational purposes. Thus, income of the school is being spent on the school itself and not distributed in the hands of the trustees or others. Therefore, on facts of the case, it is difficult to hold that school did not exist for educational purposes but for making profit. The decision of the apex Court also supports the claim of the assessee. There is absolutely no justification for not granting exemption of income of the school under Section 10(22) of the IT Act.
24. Here I may point out a distinction which exists between Section 11 and Section 10(22) of the IT Act. Income falling under various clauses of Section 10 including Clause (22) are not to be included in the total income of the person, here trust. Thus, while computing income of the trust, income of school was required to be excluded under Section 10(22) from the total income of the trust. The exemption under the above provision could not be denied merely because the school had made investment in shares of certain companies in which the trustees of the assessee were interested. Having regard to CBDT Circular No. 712 dt. 25th of July, 1995, it was not material to see where and how investments have been made by the school. As pointed out by their Lordships of Supreme Court in the case of CIT v. Aditanar Educational Institution (supra), each assessment year was required to be evaluated to find out whether the institution existed during the relevant year solely for educational purposes. On identical circumstances, the school was treated to be existing solely for purposes of education in the past, it could not be said to be existing for making profit in the period under consideration. No material to justify the conclusion that school was existing for purposes of profit has been made available on record. Why income of school and of the trust was clubbed in spite of the decisions of Tribunal in earlier years has not been made clear by the Revenue authorities?
25. The learned AM in order to justify the direction that the matter be referred to a larger Bench, took into account, the decision of the Hon'ble Supreme Court in the case of Aditanai Educational Institution (supra) as also the decision of the Hon'ble Calcutta High Court in the case of Birla Vidhya Vihar Trust (supra) and was of the view that the decision of the Hon'ble Calcutta High Court now stands overruled by the Supreme Court. However, on close scrutiny of the decision of the Hon'ble Supreme Court, I do not find any reference to the decision of Birla Vidhya Vihar Trust (supra) and, therefore, question of overruling that decision did not arise. The Hon'ble Calcutta High Court of course had dissented from certain observations of Hon'ble Madras High Court in the case of Aditanai Educational Institution (supra) where it was stated that the question of determination whether trust was existing solely for educational purposes and not for purposes of profit was required to be judged with reference to the facts of the relevant year only. Their Lordships of Hon'ble Calcutta High Court have observed that facts of relevant year are very material but all cumulative factors will have to be taken into consideration, namely the clause or the power enabling the institution to function, its activities in general etc. Effect of all the cumulative factors was required to be considered. Their Lordships of Hon'ble Supreme Court have also made similar observations by stating that activities of the educational institution along with its object etc. were required to be seen to evaluate whether the institution existed during the relevant year solely for educational purposes. In fact, the above question on which some dissenting notes are available in the decision of the Hon'ble Calcutta High Court, was raised by the assessee in its appeal before the Hon'ble Supreme Court, which was also dismissed by making a passing reference that the apprehension relating to hypothetical question, causing prejudice to the assessee were unfounded. Their Lordships stated that for proper evaluating or apprising the question, the decision of Hon'ble Andhra Pradesh High Court in the case of Governing Body of Rangaraja Medical College v. ITO (1979) 117 ITR 284 (AP) laid down the correct test to be applied. The test to be applied is whether an institution is existing for profit, is to see whether surplus of the institution is being utilised for purposes and for promotion of object of the institution or is distributed among certain persons and the individuals. If surplus was to serve, individual or personal purpose, then institution was held to be existing for profit, otherwise surplus rose from operation of the institution has to be treated as incidental income qualifying for exemption. The claim of exemption has been denied on irrelevant considerations by the Revenue authorities. In the light of above discussion, there is no question of denying exemption of income from school under Section 10(22) of the IT Act.
26. The trust in this case has to be treated as different from Vidhyalaya for purposes of computing its income. As the trust, apart from holding Vidhyalaya as its property, has other sources of income namely rent and interest. It is nobody's case that interest and rent would also be treated as exempted under Section 10(22) of the IT Act. After excluding income of Vidhyalaya under Section 10(22) of the IT Act, if any income is left in the hands of the institution, the same could only be treated as exempt under Section 11 of the IT Act. Once Section 11 is held to be applicable, then one has to see whether provision of Section 11(5) and Section 13(1)(d) are attracted in this case. Therefore, one may be required to look into type of investment made by the trust and other related questions.
27. The learned AM in his order has also suggested that a larger Bench should examine the question of exemption under Section 10(22) as also the question, whether trust has made investments in violation of Section 11(5) and can be allowed exemption under Section 11 of the Act. However, in the body of the proposed, order he has stated that the Revenue authorities did not come to a finding of fact whether these investments were made with companies by the school or by the trust. He has emphasised that the Revenue authorities further did not examine the year in which investments in the companies were made. I find some contradiction in the order of the learned AM. As far as question of exemption of the income of school under Section 10(22) is concerned, I have already discussed the issue and see no scope to refer the question to a larger Bench. On the other question of exemption to trust under Section 11 of IT Act, I find that the trust has all along been allowed exemption and, therefore, it is reasonable to presume that even in the year or years in which investment(s) were made, exemption was allowed to the trust. It will not, therefore, be appropriate to examine the question in the year where there is no violation of Section 11(5) of the IT Act, particularly when their Lordships of the Supreme Court have held that activities of the institution for the assessment year under consideration are relevant and are to be evaluated. It is further clear from record that a sum of Rs. 86,90,577 was transferred as excess of income over expenditure to the trust account from school and the resultant figure of excess of income over expenditure in the hands of the trust is only Rs. 45,69,524. Therefore, if income of Vidhyalaya is treated as exempt under Section 10(22) of the IT Act, and the same is excluded from the income of the trust, there is loss in the hands of the trust and Revenue authorities made no attempt to show that the above figures were not correct. No attempt was made to establish that trust had income independent of income of the Vidhyalaya. The order of CIT(A) also takes income of trust (inclusive of income of the school) at Rs. 45,69,524 and thereafter disallows expenditure of Rs. 38,36,733, the amount spent on donations. He did not examine details of donations and justification of their payments and therefore his finding on above disallowance cannot be approved. On the other hand, I agree with the findings of the learned JM on this point. Even if 100 per cent of the donations are disallowed, it remains a case of loss as far as the trust is concerned. If the trust does not have income, then question of allowing or denying exemption to it, is not material in the year under consideration. For the above reasons, I do not think that any useful purpose will be served by referring the matter to a larger Bench or to Revenue authorities to examine whether income of the trust is exempt under Section 11 of the Act for the year under consideration. It is a case of no income as far as trust is concerned. This is besides the fact that on identical facts and circumstances, exemption has been allowed to the trust all along in the past since 1945. There is further limitation on the jurisdiction of Third Member while deciding the controversy under Section 255(4) of the IT Act. He has to agree with one of the Members and cannot hold a third view. His jurisdiction is very limited. Having regard to circumstances stated above, I agree with the view expressed by the learned JM and answer both the questions accordingly. Let the matter be referred back to the regular Bench for disposal in accordance with law.