Rajasthan High Court - Jaipur
Commissioner Of Income-Tax vs Shri Lal Bahadur Shastri Education ... on 16 February, 2001
Equivalent citations: [2001]252ITR837(RAJ)
JUDGMENT Rajesh Balia, J.
1. Heard learned counsel for the Revenue. No one appeared on behalf of the respondent in spite of service.
2. The Income-tax Appellate Tribunal has referred the following questions of law said to be arising out of its consolidated order passed in five appeals relating to the assessment years 1983-84 to 1987-88 arising out of assessment proceedings for levy of tax on the income of the assessee which is claimed to be exempted from payment of tax under Section 10(22) of the Income-tax Act, 1961, as an educational institution solely existing for the educational purpose not for the purpose of profit and two appeals for the assessment years 1985-86 and 1987-88 arising out of penalty appeals under Section 221(1) of the Act.
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the income of the assessee was exempt under Section 10(22) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in cancelling the penalty levied under Section 221 of the Income-tax Act, 1961 ?"
3. The facts as emerging from the statement of case are that the assessee is a registered society which was formed some times in 1966 and was duly registered under the Societies Registration Act vide registration certificate dated June 15, 1966. The objects of the society were mentioned as under :
"(a) To promote educational values and provide facilities to acquire education through schools, colleges, training centre, research centre, libraries, reading rooms and lectures, etc.,
(b) To carry out institutions to attain humanitarian democratic and patriotic values.
(c) To enrol on subscription basis without any discrimination of caste creed or sex."
4. After its inception in 1966, the assessee-society opened six educational institutions from time to time since its formation until 1985. The assessee-society had undertaken the activities known as Seekho Kamao Yojna (in short "SKY"). The SKY was a programme of the Education Department and this scheme was started by the assessee-society in its Lal Bahadur Shastri School at its instance. Under this Scheme, the students were taught to manufacture steel furniture, etc., which was used to be sold to various schools under the District Education Officer (DEO), at Jodhpur and other institutions.
5. The stone crushing unit was a unit undertaken by the society. The scheme was envisaged by the Central Social Welfare Board and was intended to provide employment to 400 poor ladies belonging to SC/ST community. The said project of stone crushing lasted for two years for the year ended on March 31, 1986 and March 31, 1987.
6. The Assessing Officer was of the view that had all steel furniture prepared by the students under the SKY was sold directly to the other institutions, the school would have earned profit but the same has been sold to one Atex Industries which was owned by the son of Z.H. Iraqi, Trustee Secretary, and also the society was running a stationery shop under the name of Jodhana Suppliers in the premises of the society. The books and other stationery items were supplied to the students and thus another son of the said Mr. Z.H. Iraqi was deriving income from his dealings in the society premises.
7. The Assessing Officer was further of the view that while accounts of stone crushing were audited the accounts of the SKY were not audited.
8. From the aforesaid two facts, the Income-tax Officer drew the inference that the society does not exist solely for educational purposes but it is diverting its profit to the sons of Z.H. Iraqi through other activities and made additions of the profit made by Atex Industries as declared by him in the income of the assessee and brought the income of the assessee under charge of the tax.
9. Penalty under Section 221(1) for non-payment of tax in respect thereof was also levied.
10. In appeals against that said order those orders passed were also dismissed by the Commissioner of Income-tax (Appeals). He affirmed the finding of the Assessing Officer that the society is not existing solely for educational purposes but also for the purposes of profit and such profits have been diverted directly or indirectly for the benefit of family members of the Secretary, Z.H. Iraqi. The society is, therefore, not entitled to exemption of its income under Section 10(22). Consequently, the penalty orders were also sustained.
11. Aggrieved with these orders, the assessee preferred appeals before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal recorded its finding on the question of the purpose of existing of the society as under :
"After a detailed discussion of the facts and the law applicable thereto, the Tribunal found and held that the assessee-society was formed by a group of individuals of whom Shri Z.H. Iraqi and his wife, Smt. Zefrinissa, were the founder members. Lal Bahadur Shastri Middle School was established on July 1, 1966, as a primary school and other institutions were also established in due course of time. Shri Iraqi and other members of his family property for running the school. The Tribunal pointed out that taking into account the past history of the society as also its activities and contribution in educational field the learned Commissioner of Income-tax (Appeals) had himself admitted the position that the assessee-society was established with the sole aim of promotion of education and in that process the society had opened as many as six schools all of which were recognised by the Educational Department and four out of them were also getting grant-in-aid. The Tribunal held that looking to the objects and the past history of its activities the character of the assessee-society as an educational institution cannot be doubted.
The Tribunal examined the merits of the Revenue's objection regarding the functioning of 'Seekho Kamao Yojana' 'Stone Crushing Unit' started and undertaken by the assessee-society under the directions and supervision of the State Education Department and the Central Social Welfare Board and held that regular and complete accounts in respect to these activities were duly maintained and that no part of the aid or donation received by the educational institutions of the society was ever diverted to the said scheme or to the Secretary or the members of his family. After appreciating the relevant facts regarding the supply of books and other stationery items by Shri Parvez Iraqi son of Shri Z. H. Iraqi to the institutions of the society and the alleged financial interests of the secretary and/or the members of his family the Tribunal held that there was nothing on record to show that the students were obliged to purchase their books or other stationery items from the shop of Mr. Parvez Iraqi and that the relationship between the members of the family of the secretary and the society was that of landlord and tenant respectively and in their dealings as such the members had derived no benefit from the society instead they had helped it from time to time by advancing loans in the hours of need. Finally, the Tribunal summed up its findings and conclusions in para. 28 of its order in the following manner :
'To sum up, the above discussion leads us to conclude that looking to the past history of the assessee in obtaining the various objects in the field of education and its running several educational institutions it cannot be said that the society had changed its character from an educational institution to that of a profit-making institution. The SKY was carried on by it in the direction of educating the students in making certain items used in the educational institutions. The stone crushing unit was also not established for the purposes of making any profits or earning income. The intention to run the SKY and the crushing unit was only to make the students self-dependent in life and also to give confidence to the members of SC/ST communities and there was no profit earning motive of the society in running such allied or educational institutions. We, therefore, hold that the assessee-society existed as an educational institution in the years under consideration solely for educational purposes and not for any profit earning purpose and, therefore, it is entitled to exemption under Section 10(22) of the Act.' Section 10(22) reads as under :
'Clause (22) any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit'."
12. We are of the opinion that the findings recorded by the Tribunal on a circumspect view of the material before it, taking into consideration that since the establishment of the society, the society has installed as many as six educational institutions, took into consideration the modus operandi of its dealing with the finances inter se between the schools and the society. It also found that engaging the students of the institution in the activity of manufacturing furniture was relevant and the incidental activity of running a school for making the students self-reliant, that the activity was undertaken under the auspices of the Education Department of the State and the sale of furniture prepared by the students were under the direct supervision of the D.E.O. Such activity could not be held to be a deviation from the object of the society. Likewise stone crushing activity was also run only for two years in the context of a scheme sponsored by the Central Welfare Board and that would not detract from the fact that the institutions existed solely for the purpose of educational purposes and not for the purposes of profit. All these findings are pure findings of fact and do not involve any application of legal principles. No questions of law arise out of the order of the Tribunal, in our opinion, so far as regular assessment proceedings are concerned, and need not be answered.
13. Question No. 2 is merely consequential to follow the result of answer to question No. 1.
14. We, therefore, decline to answer the same also.
15. No order as to costs.