Madras High Court
Commissioner Of Income-Tax vs Kshatriya Girls Schools Managing Board on 12 June, 1998
Equivalent citations: [2000]245ITR170(MAD)
JUDGMENT N. V. Balasubramanian, J.
1. The assessee is an educational trust and the objects of the trust are as under :
"3. Objects of the Board.--(a) To undertake to run and improve the Kshatriya, Girls High School and Kshatriya Girls Elementary School run by the Virudhunagar Hindu Nadargal Dharma Paripalana Sabai, Virudhu-nagar, at Tuticorin.
(b) To upgrade the schools belonging to the Board as colleges and training schools ; so also, to improve the conduct and knowledge of the students ;
(Corrigendum ; It was resolved unanimously in the general body meeting convened on August 29, 1953, to amend Clause (b) as follows : To convert Board schools into special schools or branch schools ; to found and improve ladies college and ladies training school ; and to improve the conduct and knowledge).
(c) To administer and improve the properties mentioned in the schedule ;
(d) To construct buildings in the lands belonging to the Board ; and to change, modify or remove the existing buildings ;
(e) To get immovable properties like land, buildings, etc., or movable properties on lease basis or to purchase them, that are necessary for the Board ;
(f) Powers of the members of the Board are limited. Corrigendum made in the general body meeting convened on August 19, 1967 :
(g) It was resolved unanimously to include the following as 3(g) in the memorandum of association of our managing board :
To utilise all the income from the properties, buildings, lands and such other movable and immovable properties belonging to the Board for the purpose of implementation of the objects mentioned in Clauses 3(a) and 3(b)."
2. The assessee during the assessment years 1978-79 and 1982-83 claimed exemption under Section 10(22) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"). The Income-tax Officer held that the income of the assessee was not exempt under Section 10(22) of the Act and the activities of the trust were also hit by the provisions of Section 13(l)(bb) of the Act. The Commissioner of Income-tax (Appeals) held that the assessee was entitled to the benefits of Section 10(22) of the Act which view was confirmed by the Appellate Tribunal. The Revenue sought for a reference and the following question of law has been referred to us for our consideration, at the instance of the Revenue :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee was entitled to the exemption provided under Section 10(22) of the Income-tax Act ?"
3. We are of the opinion that the question involved is covered in favour of the assessee by a decision of the Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT (1997] 224 ITR 310, wherein the Supreme Court laid down the following test to determine when the institution would qualify for exemption under Section 10(22) of the Act (page 318) :
"We may state that the language of Section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for 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."
4. The assessee in fulfilment of the objects is running the schools, viz., Kshatriya Girls Higher Secondary School, Kshatriya Girls High School, Kshatriya Girls Middle School, S. V. Annamalaiammal Middle School and Kshatriya Nursery School. Except the Nursey School, it has been found, all other schools were approved by the State Government for the purposes of grant. The assessee derives income by way of rent from Virudhunagar Nadar Mansions and some income by way of rent from some godowns at Tuticorin and few items of house property at Virudhunagar. It has been found that the income from the properties was spent and applied towards the assessee's object, namely, education. The objects of the assessee-trust make it clear that the assessee-trust was established to undertake, to run and improve the Kshatriya Schools and to upgrade the schools belonging to the Board, the trustees have been given power to construct buildings and to lease out the properties. Though the powers given to the trustees are found in the object clauses, a fair reading of the objects clause would show that they are mere powers conferred on the trustees and they cannot be regarded as objects of the trust. The apex court in Aditanar Educational Institution's case [1997] 224 ITR 310, held that a distinction/difference should be made between the corpus, objects and powers of the trustees. When the distinction between the objects and powers are kept in mind, Clauses (c) to (e) are only powers of the trustees which is made explicit by Clause (f). That apart, Clause 3(g) of the trust deed also makes it clear that the income from the properties should be utilised to implement the objects mentioned in Clauses 3(a) and 3(b). Therefore, we are of the view, the object of the trust is education and it is not to make profit. As held by the Supreme Court the acid test is whether the object is to make profit. But, in construing the objects, one has to weed out the powers of the trustees and when the objects of the assessee are seen, we are of the opinion, the assessee-trust has been founded solely for educational purposes and not for earning profit.
5. Learned counsel for the Revenue relied upon the decision of this court in the case of Addl. CITv. Aditanar Educational Institution [1979] 118 ITR 235. The decision of this court in Aditanar Educational Institution's case [1979] 118 ITR 235, which has been affirmed by the Supreme Court would support the case of the assessee. The contention of learned counsel for the Revenue is that it is only such income which has direct relation to the running of the institution which imparts education, that would be exempt and not all income. We are unable to accept the contention of learned counsel for the Revenue. The Supreme Court, on appeal against the judgment of this court in Aditanar Educational Institution's case [1979] 118 ITR 235 held that a distinction should be made between the objects of the trust and the powers of the trustees. Though income might have been earned by the board of trustees in exercise of powers conferred upon them, if the object of the trust is education, the assessee would be entitled to exemption provided under Section 10(22) of the Act. We have seen that Clause 3(g) of the trust deed requires the trustees to utilise the income only for the purpose of education and it is not possible to mix up the objects and powers of the trust or to bifurcate the income between two segments of the trust.
6. The Kerala High Court in CITv. Sree Narayana Chandrika Trust [1995] 212 ITR 456 and Brahmin Educational Society v. Asst. CIT [1997] 227 ITR 317, held that the question of eligibility to exemption under Section 10(22) of the Act has to be decided with reference to the objects of the society and if the trust, in order to attain its main object, conducts some business for raising the funds, the claim for exemption under Section 10(22) of the Act would still be available to the trust. The distinction between the objects of the trust and the powers of the trustees has been applied by the Kerala High Court in the above two decisions. We are in respectful agreement with the view expressed by the Kerala High Court in the above two decisions. Following the decision of the Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310, we hold that tbe Tribunal was correct in holding that the assessee is entitled to exemption under Section 10(22) of the Act.
7. Accordingly, we answer the common question of law referred to us in the affirmative and against the Revenue. However, in the circumstances of the case, there will be no order as to costs.