Commissioner of Income Tax vs U.S. Srivastava Educational Memorial Society

Anil Kumar, J.—By means of the present appeal u/s 260A of the IT Act, 1961, the judgment and order dt. 18th Sept.. 2003 passed by Tribunal in ITA No. 47/Luck/2003. for the asst. yr. 1996-97 is under challenge.

Heard Shri D.D. Chopra, learned Counsel for the appellant.

Facts in brief of the present case are that "U.S. Srivastava Educational Memorial Society" (hereinafter referred to as the society) is registered under the Societies Registration Act. The aim and object of the society as given in the "Smriti Patra" were to establish Central school for development of education and social as well as spiritual development and to carry out proceedings for achieving the same for the society as per its object in providing education through a school in the name and style "Sherwood Academy".

For the asst. yr. 1996-97, the assessee had filed return showing nil income, as the society claimed the benefit u/s 10(22) of the IT Act, 1961 (hereinafter referred to as the Act); the assessment however was completed at an income of Rs. 3,56,650 u/s 143(3) of the Act for the asst. yr. 1996-97.

Thereafter the CIT in the interest of Revenue had issued a notice u/s 263 of the Act on 7th July, 1999 calling upon the assessee as to why the assessment order should not be set aside as the same was erroneous. The assessee submitted his reply and the CIT vide order dt. 3rd March, 2002 cancelled the assessment order with the direction to the AO to reframe the same de novo after taking care of the observation made in the order dt. 3rd March, 2002 passed u/s 263 of the Act.

Accordingly the assessing authority (Asstt. CIT-II, Lueknow) on 28th March, 2002 passed the assessment order for the asst. yr. 1996-97 in question and the assessee was denied exception u/s 10(22) of the Act on the ground that the society was not existing solely for the education purpose; it was also held that the society''s income was also not exempted u/s 11 of the Act as there was no proof of registration u/s 12A. A total income of Rs. 21,10,360 was assessed by the order dt. 28th March, 2002.

Aggrieved by the order dt. 28th March, 2002, the assessee filed an appeal before the appellate authority [CIT(A)-I, Lucknow], the same was partly allowed by order dt. 7th Oct., 2002. The said order was challenged by the assessee before the Tribunal, Lucknow Bench, Lucknow by way of second appeal (ITA No. 47/Luek/2003, for the asst. yr. 1996-97, U.S. Srivastava Educational Memorial Society v. Asstt CIT [reported at (2004) 82 TTJ 471 and by means of the order dt. 18th Sept., 2003, the Tribunal had set aside the order of the AC) and order passed by the CIT(A) and directed the assessing authority to extend benefit of Section 10(22) of the Act to the assessee.

Aggrieved by the order dt. 18th Sept., 2003 passed by the Tribunal, Lucknow Bench, Lucknow, the present appeal has been filed by the Department.

Shri D.D. Chopra, counsel for the appellant, while assailing the order under challenge in the present appeal, has argued and pressed the following substantial questions of law:

(a) Whether on the facts and in the circumstances of the case the learned Tribunal was justified in law, holding that the assessee exists solely for educational purposes'' within the meaning of the provisions of Section 10(22) of the IT Act, 1961 ?

(b) Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in law, in holding that a society having multifarious objects including spread of education but in practice pursuing educational activities only can said to be eligible for exemption u/s 10(22) of the IT Act 1961 ?

(c) Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in law, in holding that as an alternative ground that the assessee society was entitled to get the benefit of registration u/s 12A even though the proof regarding registration was never filed either before the AC) or the CIT(A) and the plea for exemption u/s 11 of the Act was never pleaded before the AO ?

In the support of the above said substantial questions of law, Shri D.D. Chopra, learned Counsel for the appellant, in brief, had submitted that the assessee was not able to prove that the society was constituted solely for educational purpose as it was having multifarious objects as laid down in "Smriti Patra". He further submits that the granting of registration u/s 12A of the Act will not extend the benefit to the assessee who was not found engaged in the educational purpose or for charity purpose. So the orders passed by the AO and CIT(A) in the present case are perfectly valid on the one hand and on the other hand the order passed by the Tribunal is contrary to the law and liable to be set aside.

We have heard Shri D.D. Chopra, learned Counsel for the appellant and perused the record.

The sole controversy which is to be decided and adjudicated in the present case is whether the assessee is entitled for a benefit of the provisions as provided u/s 10(22) of the Act which exists at the relevant point of time and the same is quoted hereinbelow:

Section 10(22) of the Act runs as follows:

Incomes not included in total income. - In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included:

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

In the case of M/s. Oxford University Press etc. Vs. Commissioner of Income Tax, the apex Court while (interpreting) the provisions of Section 10(22) of the Act (as exists at the relevant point of time) has held as under:

The imparting of education is service to the society. From the language of Section 10(22), it does not appear that without any such service in India, the legislature intended to exempt the total income of the assessee. I do not think that from the language of Section 10(22), it can be said that the hands of the Court are so tied that it cannot read into this provision, the requirement of imparting education or some other educational activity in this country. A university or other educational institution which exists solely for educational purposes and not for purposes of profit though not established in India but having some educational activity in this country alone would be entitled to claim exemption.

In view of the abovesaid proposition of law as laid down by the Hon''ble Supreme Court, if a society/institution is operating for educational purposes and not for the purposes of earning any profit then the same is entitled for exemption u/s 10(22) of the Act.

In the present case, the Tribunal on the basis of the material evidence and pleading before it had given a finding of fact that the Department has not been able to prove on record that the assessee was found engaged in any other activity other than running the institution in the name of "Sherwood Academy". The Tribunal further held that the assessee had been registered u/s 12A of the Act by the CIT and the copy of that certificate dt. 2nd Dec, 1994 is on record which shows that the assessee''s society was registered u/s 12A of the Act w.e.f. 1st April, 1992, so the Department was bound to give effect to the same in accordance with law and accordingly on the said findingt, the order dt. 18th Sept., 2003 has been passed by the Tribunal by which the order of the AO dt. 28th March, 2002 and the order of CIT(A) dt. 1st Oct., 2002 were set aside and the AO was directed to extend the benefit of Section 10(22) of the Act to the assessee.

In view of the above said finding of facts given by the Tribunal that the assessee was an institution existing for educational purpose and not for the purpose of earning any profit, so the assessee is entitled to get the benefit within the ambit and scope of the provisions of Section 10(22) of the Act. In our considered view ''Education'' means transaction of knowledge, hence it would be rather unreal and hypertechnical to hold that the assessee''s society was only a financing body and will not come within the scope of educational institution as provided in Section 10(22) of the Act.

Further keeping in view the aim and object of the society as mentioned in the "Smriti Patra" was to establish Central school for development of education and social as well as spiritual development and to carry out proceedings for achieving the same although other object was also there but the main object for providing education through its school namely "Sherwood Academy" was established initially with junior section and later on the said school got affiliation from the Council of Indian School Certificate Examination w.e.f. 26th Oct., 1992, as per certificate issued by the Council of Indian School Certificate Examination, so in substance reality the sole purpose for which the assessee had came into existence was to impart education at school level and as such the same should be regarded as an "educational institution" coming within the meaning of Section 10(22) of the Act.

For the foregoing reasons, we find that there is neither illegality nor any infirmity in the order dt. 18th Sept., 2003 passed by the Tribunal, Lucknow Bench, Lucknow in ITA No. 47/Luck/2003 for the asst. yr. 1996-97 as such the action on the part of the Tribunal to hold the assessee as an "educational institution", running an educational institution solely for education purpose is perfectly valid and needs no interference.

Accordingly, the questions of law which have been raised by the Department in the present appeal are answered in negative, and the appeal is dismissed having no merit. No order as to costs.