Director Of Income-Tax (Exemption) v. Prakash Education Society (And Connected Appeal)

1. The respondent-assessee is running an educational institution for the past many years. It has been allowed exemption under section 10(22) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), from payment of tax ever since the assessment year 1986-87. For the assessment years 1995-96 and 1996-97, the Assessing Officer declined exemption under the provision mentioned above on the ground that the assessee was a profit making organisation and that the same did not exist solely for educational purpose. In support, the Assessing Officer relied upon investments made by the respondent in three different companies of the Birla group, namely, Kesoram Industries K. Ltd., Padmavati Raje Cotton Mills and Rajeshwari Polyfil Ltd., for the assessment years 1991-92 and 1994-95.

2. Aggrieved by the above order the assessee went up in appeal to the Commissioner of Income-tax (Appeals) who upon an appraisal of the available material came to the conclusion that the society existed only for educational purposes and that it had been enjoying exemption for the previous assessment years since it was running the educational institution without any profit motive. The Commissioner further held that investments made in the three companies mentioned earlier did not disentitle the society from claiming exemption under section 10(22) as it could utilise the surplus funds available with it for better returns which would in turn be used for educational purposes.

3. Reliance in support was placed upon the decisions in Birla Vidhya Vihar Trust v. CIT, [1982] 136 ITR 445 (Cal), Gujarat State Co-operative Union v. CIT, [1992] 195 ITR 279 (Guj) and Secondary Board of Education v. ITO, [1972] 86 ITR 408 (Orissa). Reliance was also placed upon Circular No. 712, dated July 25, 1995 (see [1995] 215 ITR (St.) 3), issued by the Government wherein it was clarified that section 10(22) did not impose any restriction regarding the mode of investment of the funds. The additions made by the Assessing Officer were on those findings deleted by the Commissioner (Appeals). Aggrieved by the said order, the Revenue filed appeals before the Income-tax Tribunal who has by the order impugned in the present appeal before us affirmed the view taken by the Commissioner (Appeals).

4. We have heard Mr. Jolly, learned counsel for the Revenue and Mr. Sharma, learned counsel appearing on behalf of the respondent. We have also perused the orders passed by the Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal. We entirely agree with the view taken by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal that the respondent-assessee-society existed solely for educational purposes and that it had no profit motive in mind. We also are of the view that the surplus funds available with the assessee could be suitably invested whether by way of fixed deposit in a bank or financial institution or in stock market to earn profit which would in turn be available to the society for being utilised to pursue its educational purposes. Inasmuch as the assessee had in the instant case invested a part of its surplus funds for purchase of rights and bonus shares in companies wherein it had acquired some shares in the earlier years, it could not be said to have digressed from its basic purpose of running the educational institution. It is noteworthy that the Tribunal has on a question of fact found that the assessee had applied funds to the extent of Rs. 1,47,04,829 towards the running of the educational institution. It was not, therefore, a case where the society had received funds which it had entirely directed for investment purposes by neglecting its basic object of running the institution.

5. In the totality of the above circumstances, we see no error of law or perversity in the order passed by the Tribunal to warrant interference. No substantial question of law arises in this appeal for our consideration. The same, therefore, fails and is hereby dismissed.