BRAHMIN EDUCATIONAL SOCIETY vs ASSISTANT COMMISSIONER OF INCOME TAX and Another

S. SANKARASUBBAN, J. :

Petitioner is Brahmin Educational Society, Nurani. It is a society registered under the Societies Registration Act, 1860. According to the memorandum of association, it is a Society formed solely for educational purposes and with non-profit motive. The objects of the society are to establish, maintain and run schools, colleges, polytechnics, etc., to promote studies of Sanskrit and promote research work in art, literature, science and technology, etc. In order to attain the main objects, society receives donations, grants from persons and also conducts chits for raising funds for the purpose of running the educational institutions.

Petitioner claimed exemption under S. 80G of the IT Act for donations received. By proceedings dt. 5th Feb., 1981, the CIT granted exemption under S. 80G for the asst. yrs. 1980-81 and 1981-82. Exemption was renewed for the years 1982-83, 1983-84, 1984-85 and 1985-86. Thereafter, petitioner filed applications for exemption on various dates for the asst. yrs. 1988-89, 1989-90, 1990-91 and 1991-92. By Ext. P7, the ITO, Palakkad wanted to know whether the donations received are being used for kuri business. He also wanted to know whether the petitioner claimed exemption under Ss. 11 and 12 of the IT Act and whether the petitioner has fulfilled the conditions laid down in S. 12A(a) & (b). To Ext. P7, petitioner sent Ext. P8 reply. In the reply, petitioner stated that the object of the society is solely to run educational institutions and it runs five educational institutions. The income from the chit business is used for the educational purposes. Petitioner further contended that it claimed exemption under S. 10(22) of the IT Act. It also submitted that the donations are used only for the purpose of education. It was further stated that the petitioner is not claiming exemption under S. 11 or S. 12 of the IT Act. By Ext. P9, petitioner was informed that as the society derives income from running chits not connected with its objects, exemption cannot be granted. Thereafter, petitioner filed Ext. P10 giving details of the transactions and claiming reconsideration of Ext. P9. Subsequently, CIT passed Ext. P11 order. In Ext. P11 it is stated that in view of the provisions of S. 11(4A), petitioner is not entitled to exemption. Original Petition is filed challenging Exts. P7, P9 and P11.

Learned counsel for the petitioner Shri P. Balachandran contended that exemption had been granted to the petitioner/society regarding the donations, under S. 80G for the various assessment years upto 1987-88. The same position was existing in the assessment years in question. According to learned counsel for the petitioner, CIT has not applied his mind in passing Exts. P7, P9 and P11 orders. Income of the university or other educational institution existing solely for educational purposes and not for the purpose of profit is not liable to be included in the total income. He further submitted that under S. 80G donation to certain funds and charitable institutions are liable to be deducted in computing the total income of the assessee. The relevant clause in question for the present case is S. 80G(2)(a)(iv) : "any other fund or any institution to which this section applies". Sub-s. (5)(i) of S. 80G of the IT Act states as follows :

"This section applies to donations to any institution or fund referred to in sub-cl. (iv) of cl. (a) of sub-s. (2), only if it is established in India for a charitable purpose and if it fulfills the following conditions, namely :

(i) where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of Ss. 11 and 12 or cl. (22) or cl. (22A) or cl. (23) or cl. (23C) of S. 10".

According to learned counsel, if the income is used for the purpose of education, then the income is not liable to be included. Kuri business is being done to augment the income of the educational institution and hence the authorities went wrong in denying exemption on the ground that kuri business is being done. Learned counsel further submitted that Ext. P11 refers to S. 11(4A). Sec. 11 is not applicable. The relevant section is S. 10(22) and hence the conditions in S. 11(4A) are not applicable.

Learned counsel for the Revenue submitted that originally the assessee claimed exemption invoking Ss. 11 and 12 of the IT Act. He further contended that separate accounts were not maintained with regard to the income from the business and securities. It is also contended that petitioner is not entitled to exemption with regard to the business income derived and supported Ext. S. P7, P9 and P11.

First point to be decided is whether it was justified on the part of the CIT to deny exemption under S. 80G on the ground that the society is deriving income from running chits. There is no dispute that the income derived from the chits is not being made use of for educational purposes. Sec. 10(22) of the IT Act states as follows :-

"any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit".

The position is well established on the strength of decisions that if a society exists solely for educational purposes and it runs an educational institution, its income will be the income of the educational institution, and, therefore, exempt under S. 10(22). The fact that the assessee had other objects, will not disentitle it to the exemption so long as the activity carried on by it is that of running an educational institution and its activities are not for profit. The question was considered by a Division Bench of this Court in CIT vs. Sree Narayana Chandrika Trust (1995) 212 ITR 456. Their Lordships were considering S. 10(22A) which is analogous to S. 10(22). Sec. 10(22A) deals with income of a hospital while S. 10(22) deals with income of an educational institution. In that case the question was that whether the income derived from securities can be treated as the income of the hospital. Their Lordships considered various decisions which were mostly on S. 10(22). It was held as follows :

"The emphasis, in our opinion, is not on whether the income was derived from the educational institution or hospital itself, but on the purpose for which the institution, trust or society was existing and utilising the income".

Their Lordships referred to the decisions in Commissioner of Income Tax, Karnataka-I Vs. Academy of General Education, Manipal, , where the income sought to be exempted included income from securities, properties and from other sources like dividends, interest, registration fee, donations, etc. and also Governing Body of Rangaraya Medical College Vs. Income Tax Officer, A-Ward, , where the income was by way of compulsory contribution for seats in the college.

Thus, going by the reasoning of the Division Bench in (1995) 212 ITR 456, and other decisions, it is clear that if an institution exists solely for the purposes of education and it derives income from any other source and if that income is used only for the purpose of education, then it will come under S. 10(22) of the IT Act. It is clear from the memorandum of association of the society that chits are being conducted in order to make use of the commission for the purpose of education. There is no case for the Department that this amount is being used for any other purposes. In such circumstances, I hold that the CIT was wrong in holding that since chit is being conducted, which is business activity, petitioner is not entitled to exemption under S. 10(22) of the IT Act. Refusal is based under the provisions of S. 11(4A). According to me, this is a mistake committed by the authorities. Exemption sought for was under S. 10(22). Sec. 11(4) is applicable only with regard to the income from various properties. It cannot override S. 10(22). Hence this reasoning is also not correct.

In the above view of the matter, I quash Exts. P7, P9 and P11 and direct the respondents to grant certificates under S. 80G of the IT Act, to the petitioner for the assessment years required by it. Original Petition is allowed.