Income Tax Appellate Tribunal - Indore
Income Tax Officer vs Lokmanya Shiksha Samiti on 20 December, 2007
Equivalent citations: (2008)115TTJ(INDORE)135
ORDER
M.L. Gusia, A.M.
1. This appeal by Revenue is directed against the order of learned CIT(A)-I, Indore dt. 29th Aug., 2006 for asst. yr. 2003-04 on the following grounds of appeal :
On the facts and in the circumstances of the case, the learned CIT(A) erred:
1. In deleting the addition of Rs. 9,51,229 made by the AO on account of surplus income and disallowance of expenses.
2. While coming to the above conclusion the learned CIT(A) has not appreciated the facts on record:
(a) The appellant was involved in providing transportation facilities and mess activities which were not necessary for running of educational institution.
(b) There was no pre-condition that for imparting high quality of education, [sic] increased from year to year as well invested.
3. The order of CIT(A) is thus erroneous in law as well as on the facts of the case.
4. Thus it is prayed that the order of CIT(A) be set aside and the order of AO be restored.
2. We have heard representatives of both the parties and gone through the orders passed by authorities below and also gone through the material furnished during course of hearing.
3. Facts of the issue are that the assessee is engaged in running of school in the name of Lokmanya Shiksha Samiti and filed return of income declaring income at nil on 24th Nov., 2003, claiming exemption under Section 10(23C)(iiiad) of the IT Act. The AO while completing the assessment order held that the assessee society is not entitled to exemption under Section 10(23C)(iiiad) for the reason that the assessee is engaged in activities like running of transportation and mess which are not essential to run an educational institution. It is neither pre-condition from the side of the Government nor a pre-requisite to deliver good education. The society was purchasing transport vehicle, utensils, cooking items, buying vegetables, which are used for transportation of the students and to provide lunch during school hours are not activities wholly and exclusively for the purpose of running educational institution. By such ancillary activities, the society was involved in profit earning activities. It is also observed by the AO that education means process of training and developing the knowledge, skill and character of students by normal schooling and for exemption, the institution must not be for the purpose of the profit. However, in assessee's case, accumulated profits have been growing year after year.
4. According to the CIT(A), the AO has wrongly concluded that the assessee institution was not existing solely for the educational purposes and was also earning profits and the AO has simply jumped to the conclusion without properly analyzing the facts of the case and just by referring to the surplus earned by the institution and adopting subjective view about ancillary activities that the institution was existing for the purpose of the profits. According to the CIT(A), merely because some surplus was left after meeting regular expenses, when such surplus was in no way utilized by or diverted to the trustee or other persons connected with the management of institution, it cannot be held that such institution was not existing for the purpose of education and there was profit motive embedded in the activities of the institution. Further, the assessee has furnished ample clarification about the connected activities which are found to be ancillary to the main activities of imparting education and on consideration of the same, it clearly emerges that the institution was existing solely for the purpose of education and there was no profit motive embedded in any activities of the institution. Learned Departmental Representative relied upon the order of the AO.
5. After hearing rival contentions, we noted that the transportation facilities provided by the assessee society to its students for coming and going to the school, are ancillary to the main activities of imparting education. Further, providing lunch during the school hours to the students cannot be held by any stretch of imagination as profit earning activities. The AO without considering the distances from the residence of the students to the school and to provide lunch during school hours held that it is not required for running the educational institution. We also noted that day by day high quality of education increased for which various activities are carried out to achieve the objects of the educational society. Earlier the income of the educational institution does not found (did not form) part of total income under the provisions of Section 10(22) of the IT Act, which has been re-enacted in Section 10(23C)(iiiad) of the IT Act w.e.f. 1st April, 1999. The educational institution run without the motive of earning profit was exempt from income-tax. The Hon'ble Supreme Court in the case of Aditanar Educational Institution Etc. v. Addl CIT has held as under:
The language of the Section 10(22) of the Act is plain and clear and the availability of the exemption is to be evaluated each year to find out whether the institution existed during the relevant year solely for the educational purposes and not for the purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for the educational purposes, since 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 or difference between the corpus, the objects and the powers of the concerned entity.
6. The above decision has been followed by the Bombay High Court in the case of Trustees of Vanita Vishram v. CIT , wherein it was held as under:
Held, that there was no dispute about the fact that the assessee existed only for educational purposes, viz., for running schools and not for the purposes of making profit. The assessee was entitled to exemption under Section 10(22) on interest earned on surplus funds of the school run by the assessee trust for the asst. yrs. 1979-80 and 1980-81.
7. The Hon'ble Delhi High Court in the case of Director of IT (Exemption) v. Manav Bharti Institute of Child Education (2007) 163 Taxman 50 (Del) has held that when assessee society was running an educational institution and CIT(A) and Tribunal had concurrently concluded that society had been established without any profit motive, objects of the society were purely educational and it has been granted exemption on that basis for previous assessment years, merely because certain surplus amounts had been declared by the assessee in assessment year in question, would not justify denial of exemption claimed under Section 10(22) of the Act.
8. Keeping in view the facts and circumstances discussed above and respectfully following the decisions referred above, the appeal of the Revenue is dismissed.