Madras High Court
Commissioner Of Income-Tax vs A.M.M. Arunachalam Educational ... on 27 October, 1998
Equivalent citations: [2000]243ITR229(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. The questions referred to us, at the instance of the Revenue are "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee should be regarded as an educational institution for the purposes of Section 10(22) and that its income is exempt under that section ? and (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that income by way of dividend is exempt as attributable to the educational activities of the society ?" The assessment years are 1982-83 and 1983-84.
2. The assessee-society was formed on March 9, 1981, with the object of running and maintaining a school which was earlier run by another trust. In the previous year ended March 31, 1982, the trust handed over the school to the society for running the same along with the funds maintained by the trust. Thus the assessee received shares to the value of Rs. 4,86,579 from the trust, Rs. 6,000 from Lakshmi Machine Works Ltd. and Rs. 300 from Ponds India Ltd., which constituted its capital. The income derived by the assessee by the investment of this capital less the expenses incurred left the balance of Rs. 34,770. The assessee claimed that that being the income of the educational institution it should be treated as exempt under Section 10(22) of the Act
3. Though the claim was rejected by the Income-tax Officer, it was allowed in appeal. The Tribunal has found that it was not disputed that the asses-see-trust which was being regarded as an educational institution within the scope of Section 10(22), existed solely for running the institution and that it had no other activity and no other income which required computation.
4. The Revenue has caused this reference to be made seeking answer to the above two questions.
5. Counsel for the Revenue fairly stated that the first question is required to be answered in favour of the assessee, having regard to the decision of the Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310. Having perused the decision of the apex court we must hold that the law laid down therein applies to the facts of the case. The object of the assessee is to run the educational institution and that is what it has been doing. It has been held by the apex court in the case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310, that the petitioner educational society formed for the sole purposes of establishing, running and managing or assisting schools and colleges is an educational institution and is entitled to exemption under Section 10(22) of the Act.
6. The first question referred to us is, therefore, answered in favour of the assessee and against the Revenue.
7. As regards the second question, the argument for the Revenue was that the dividend is not directly related to the running of an educational institution and; therefore, it cannot qualify for exemption under Section 10(22) of the Act. That provision exempts any income of a University or other educational institution, existing solely for educational purposes and not for purposes of profit.
8. There is no dispute about the fact that the assessee exists only for educational purposes, namely, for running a school and not for purposes of profit. It is an educational institution. Section 10(22) of the Act exempts "any income" of such institution. That would clearly include dividend income as well.
9. Counsel for the Revenue, however, contended that this court has held in the case of Addl. CIT v. Aditanar Educational Institution [1979] 118 ITR 235, that a society merely running a college cannot utilise the provision as an instrument for exemption in respect of all its sources of income which had no connection with its educational activity. The decision of the Supreme Court in Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310, to which a reference has already been made was the decision in an appeal from the judgment of this court in the case of Addl. CIT v. Aditanar Educational Institution [1979] 118 ITR 235, and the Supreme Court has not in that judgment held that the width of language of Section 10(22) notwithstanding income qualifying for exemption should be limited or restricted, having regard to its proximate connection or otherwise with the activity of running educational institutions. The observation made by this court having regard to the issues which were considered therein were obiter.
10. It is obvious that granting exemption to the income of the educational institutions is to enable such institutions to utilise the monies available with them for the purpose of running the educational institutions. The source from which the money is received is not of any consequence, what is relevant is the application. So long as the institution is an educational institution which is not engaged in earning profit, income of such institution is exempt under Section 10(22).
11. The second question is, therefore, answered in favour of the assessee and against the Revenue.