1. In this reference under Section 256(1) at the
instance of the assessee, the following question has been
referred for our opinion for assessment year 1981-82:-
Whether on the facts and in the circumstances of
the case, the assessee would be entitled to
exemption as contemplated under Section 10(22) of
the Income-tax Act, 1961 ?
2. The assessee is a trust registered a public
charitable trust on 10.1.1978. When the trust was
registered on 10.1.1978 its objects were as under:-
(a) To raise and/or improve the standard of education
of the students and for this purpose to run,
conduct and/or manage Bal Mandirs, Kindergartens,
primary schools, colleges, degree courses,
secondary schools, high schools, higher secondary
schools, diploma courses, educational centres,
libraries, reading rooms, and other institutions
for imparting education.
(b) To arrange and/or organise meetings, lectures,
workshop classes, weekend courses, exhibitions,
seminars, symposium and conferences with a view
to raise and/or improve the standard of
education.
(c) To establish run, conduct and/or manage
institutions for training of Teachers,
Professors, Lecturers, Demonstrators, Tutors and
other persons connected and or interested in
raising and or improving the standard of
education.
(d) To arrange for modern teaching aids, audio visual
equipments, charts, slides, films etc. for
imparting education and to make them available to
various educational institutions.
(e) To promote, organise and coordinate research in
education by providing college of education for
B.Ed., M.Ed., Ph.D. etc. degrees, conduct
intensive research projects and extensive surveys
to provide effective extension programmes and
consultative services to educational
institutions.
(f) To provide for and/or arrange for counselling
centre comprising of educational and vocational
guidance bureau, educational and psychological
testing services and child guidance clinic.
(g) To enter into any agreements or arrangements
with any Government, Local Authority,
Institution, Body of Individuals as may appear
conductive to the objects of SEF and to carry
out, exercise and comply with such agreements
and arrangements.
(h) To print, publish, distribute or support any
publications, periodic or not, for the promotion
of the aforesaid objects of SEF.
(i) To do all such other things, either alone or in
conjunction with others as are incidental or
conducive to the attainment of the aforesaid
objects or any of them of SEF.
Subsequently, to promote educational activities
in the rural area, the following clause was added in the
main objects clause:-
To undertake, carry out, promote and sponsor any
programme of rural development and of improvement
of rural technology including training of persons
for implementing programmes of rural
development.
For achieving the aforesaid objects, the assessee
conducted various classes for students of Standards X, XI
and XII as also for CA Entrance Examination. It also
held refresher courses for teachers teaching in various
schools. It also held lectures, meetings, exhibitions
and audio visual shows on relevant educational topics.
In view of these activities, the assessee claimed
exemption under Section 10(22) of the Income-tax Act,
1961 (hereinafter referred to as "the Act") on the ground
that it was an educational institution existing solely
for the purpose of education. For the assessment year
under consideration, although the assessee was given the
benefit of section 11(1)(a), the ITO did not accept the
assessee's claim for exemption under Section 10(22) on
the ground that the expression "educational institution
existing solely for education" in Section 10(22) of the
Act must be given a narrow meaning than that given to the
term "education" in section 2(15) of the Act and that
Section 10(22) only refers to formal education given in
schools and colleges and not to other forms of education
which is for development, advancement and betterment of
education. In appeal, the AAC held in favour of the
assessee that education need not mean only formal
education but it refers to various activities carried on
to provide education through modern techniques including
holding of exhibitions, audio visual shows etc. which is
meant for students and teachers who are interested in the
relevant fields. In appeal, at the instance of the
revenue, the Tribunal held that the assessee was not
entitled to the benefit of Section 10(22) of the Act and
restored the order of the ITO. Hence, this reference at
the instance of the assessee.
3. We have heard Mr SN Soparkar, learned counsel for
the applicant-assessee and Mr Manish R Bhatt, learned
Standing Counsel for the revenue.
4. Mr Soparkar has invited our attention to the
findings given by the Appellate Assistant Commissioner
and submitted that the Tribunal has erred in taking a
very narrow definition of the expression "education". He
submitted that though in Sole Trustee, Loka Shikshana
Trust vs. CIT (1975) 101 ITR 234, the Apex Court gave
illustrations to indicate that certain casual activities
could not be termed as educational activities, the
activities being carried on by the assessee are not such
activities. The learned counsel referred to various
letters and certificates issued by the institutions
running schools, colleges and even Physical Research
Laboratory at Ahmedabad, the Vikram Sarabhai Community
Science Centre at Ahmedabad, Saurashtra University, Nehru
Science Centre etc. and submitted that on perusal of
those letters and certificates it is clear that the
activities being run on by the assessee are intimately
connected with formal education being imparted in schools
and colleges.
Mr Soparkar further submitted as under :-
(i) When an assessee has been granted the benefit
under section 11(1)(a), there is no reason to justify
denial of benefit under Section 10(22), as both the
provisions deal with the same subject "education".
(ii) Reference is made by way an an illustration to
the Institute of Chartered Accountants of India and it is
submitted that earlier the institute was not running its
own classes and that without any geographical proximity
to the students it was imparting instructions through
postal tuitions but its status as an educational
institution was never doubted. Similarly open
universities also impart education without geographical
proximity with the students.
(iii) Reliance is placed on the decision of this Court
in Gujarat State Cooperative Union vs. Commissioner of
Income-tax, (1992) 195 ITR 279, and it is submitted that
advancement of knowledge brings within its fold suitable
methods of its dissemination and though the primary
method of sitting in a class-room may remain ideal for
most of the initial education it may become necessary to
have a different outlook for further education. It is
not necessary to nail down the concept of education to a
particular formula. Its progress lies in acceptance of
new ideas and development of appropriate means to reach
them to the recipients.
5. On the other hand, Mr Manish R Bhatt, learned
Standing Counsel for the revenue has submitted that the
Tribunal has applied the correct test laid down by the
Apex Court in Sole Trustee, Loka Shikshana Trust vs. CIT
(1975) 101 ITR 234 which has also been subsequently
applied by this Court in CIT vs. Sorabji Nusserwanji
Parekh, (1993) 201 ITR 939 and by the Patna High Court in
Bihar Institute of Mining and Mine Surveying vs. CIT,
(1994) 208 ITR 608.
6. Before considering the rival submissions, it is
necessary to refer to the relevant statutory provisions
in this behalf.
Chapter III of the Income-tax Act, 1961 specifies
"Incomes which do not form part of total income".
Section 10 commences with the heading "Incomes not
included in total income", and the relevant clause reads
as under:-
10. 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 -
(1) ... ... ...
.... .... ... ...
(22) any income of a university or other
educational institution, existing solely for
educational purposes and not for purposes of
profit. This clause was omitted by Finance (No.2) Act,
1998 w.e.f. 1.4.1999 and the following relevant
sub-clauses were added as parts of clause (23C) by the
same Amendment Act:-
(23C) any income received by any person on
behalf of -
(i) .. ... ......
... .... ... .....
(iiiab) any university or other educational
institution existing solely for educational
purposes and not for purpose of profit, and which
is wholly or substantially financed by the
Government; or
(iiiac) .. ... ....
(iiiad) any university or other educational
institution existing solely for educational
purposes and not for purposes of profit if the
aggregate annual receipts of such university or
educational institution do not exceed the amount
of annual receipts as may be prescribed; or
.... .... ..... ....
(vi) any university or other educational
institution existing solely for educational
purposes and not for purposes of profit, other
than those mentioned in sub-clause (iiiab) or
sub-clause (iiiad) and which may be approved by
the prescribed authority, or
Section 11 commences with the heading, "Income
from property held for charitable or religious purposes".
11(1). Subject to the provisions of sections 60 to 63, the following income shall not be included
in the total income of the previous year of the
person in receipt of the income -
(a) income derived from property held under
trust wholly for charitable or religious
purposes, to the extent to which such income is
applied to such purposes in India; and, where any
such income is accumulated or set apart for
application to such purposes in India, to the
extent to which the income so accumulated or set
apart is not in excess of twenty-five per cent of
the income from such property.
The percentage 25 is now substituted by 15% by
Finance Act, 2002 w.e.f. 1.4.2003.
The expression "charitable purposes" is defined
by clause (15) in section 2 as under:-
2(15) "charitable purpose" includes relief to
the poor, education, medical relief, and the
advancement of any other object of general public
utility not involving the carrying on of any
activity for profit.
The words, "not involving the carrying on of any
activity for profit" have been omitted by Finance Act,
1983 w.e.f. 1.4.1984.
7. A perusal of the aforesaid statutory provisions
would show that while Section 11 provides for exemption
of the income of a trust holding property wholly for
charitable or religious purposes subject to certain
conditions and the charitable purposes include education,
Section 10(22) at the relevant time provided for total
exemption to income of a university or other educational
institution, existing solely for educational purposes and
not for purposes of profit. Two aspects stand out from
clause (22) of Section 10.
The exemption is granted to the income of a
university or other educational institution. The
expression, "educational institution" would, therefore,
take colour from the preceding word, "university".
Noscitur a socci (a word is known by the company its
keeps) is a well settled rule of interpretation of a
statute. A university is admittedly an educational
institution set up for imparting formal education.
Hence, applying the aforesaid rule of interpretation the
expression, "other educational institution" would mean an
institution imparting formal education in an organised
and systematic training where the institution would be
accountable to some authority and where there would be
teachers and taught the former having some degree of
control over the latter.
8. It is significant to note that while a trust
holding property for a charitable purpose of education as
defined by section 2(15) may also be an educational
institution existing solely for the purpose of education,
the two institutions cannot be treated as belonging to
the same class. An institution may be carrying on
educational activities as are being carried on by the
assessee herein without imparting formal education and
without being affiliated to or accountable to any
authority. Such a trust can certainly be considered as
qualifying for exemption under Section 11(1)(a) read with
section 2(15), but the term "the educational institution"
contemplated by Section 10(22) is a narrower concept.
Though "educational institution" and the educational
activities are closely interconnected; in Section
11(1)(a) read with section 2(15) it is the activities
which are in focus whereas in Section 10(22) both the
institution and the activities are in focus. An
educational institution under Section 10(22) is,
therefore, more than a body carrying on charitable
activities in the field of education as contemplated by
section 2(15).
9. Keeping the above analysis in mind and applying
the aforesaid tests to the facts of the present case, it
is obvious that the assessee would not satisfy the above
tests. The assessee itself does not conduct any courses
in formal education. It is true that the assessee
carries on activities which are connected with formal
education and which are quite laudable inasmuch as the
assessee runs English improvement classes for Stds. X,
XI and XII and also runs guidance classes for C.A.
entrance examination; it also runs refresher course for
English language teachers and guidance course for banking
service recruitment; it screens educational films for the
benefit of college and school students and organises
lectures, and exhibitions on popular science, maths etc.
and it also publishes and distributes booklets, but all
these activities, though commendable, are piecemeal
additions to courses of instructions being given in
schools or colleges and universities. The assessee
itself does not run any composite or integrated course of
organised and systematic training. The assessee is not
affiliated to, or registered by, any authority. The
assessee does not claim any control over the recipients
of training being given by the assessee.
10. As regards the illustration of the Institute of
Chartered Accountants of India, although the Institute
was earlier not running formal classes and there was no
geographical proximity when instructions where being
imparted through postal tuitions, the Institute of
Chartered Accountants of India has always been an
institution set up, inter-alia, for imparting formal
education and for testing proficiency for entry to the
profession of Chartered accounts. The Institute imparts
formal education in accountancy and connected subjects in
an organised and systematic manner. The Institute is
accountable as per the provisions of the Act establishing
it and the Institute also has disciplinary control over
the students who are required to be registered with it in
the first place and who appear at the exams being held by
the Institute. Hence, the example of the Institute of
Chartered Accountants of India is not apposite and the
assessee is not at all comparable to the said Institute.
Similarly, open universities possess all the three
indicia of an educational institution - imparting formal
training, accountability to an authority and control over
students. The assessee can not, therefore, compare
itself with any open university either.
11. At this stage, we may refer to the decision of
the Apex Court in Sole Trustee, Loka Shikshana Trust vs.
CIT (1975) 101 ITR 234 wherein the Apex Court enunciated
the following principles while interpreting the
expression "education" in section 2(15) of the Act:-
"The sense in which the word "education" has been
used in section 2(15) in the systematic
instruction, schooling or training given to the
young is preparation for the work of life. It
also connotes the whole course of scholastic
instruction which a person has received. The
word "education" has not been used in that wide
and extended sense, according to which every
acquisition of further knowledge constitutes
education. According to this wide and extended
sense, travelling is education, because as a
result of travelling you acquire fresh knowledge.
Likewise, if you read newspapers and magazines,
see pictures, visit art galleries, museums and
zoos, you thereby add to your knowledge. Again,
when you grow up and have dealings with other
people, some of whom are not straight, you learn
by experience and thus add to your knowledge.
Again, when you grow up and having dealings with
other people, some of whom are not straight, you
learn by experience and thus add to your
knowledge of the ways of the world. If you are
not careful, your wallet is liable to be stolen
or you are liable to be cheated by some
unscrupulous person. The thief who removes your
wallet and the swindler who cheats you teach you
a lesson and in the process make you wiser though
poorer. If you visit a night club, you get
acquainted with and add to your knowledge about
some of the not much revealed realities and
mysteries of life. All this in a way is
education in the great school of life. But that
is not the sense in which the word "education" is
used in clause (15) of section 2. What education
connotes in that clause is the process of
training and developing the knowledge, skill,
mind and character of students by normal
schooling."
12. Mr Soparkar for the assessee, however, vehemently
submitted that the illustrations given by the Apex Court
in the second part of the above paragraph referred to
casual activities like travelling, reading newspapers and
magazines, visiting art galleries, museums and zoos but
merely because such activities are not being considered
as educational activities, it does not mean that the
activities being carried on by the assessee cannot be
termed as educational activities. Mr Soparkar submitted
that in between the formal schooling which is admittedly
being considered by all as educational activity and the
other casual activities referred to hereinabove, there is
another category of activities which though not
constituting formal schooling as such are very much
connected with such formal schooling and filling the gaps
in the present formal educational set-up. Mr Soparkar,
therefore, submitted that the decision in Sole Trustee,
Loka Shikshana Trust vs. CIT (1975) 101 ITR 234 does not
rule out such activities as educational activities.
13. It is true that the various activities referred
to in the above quoted paragraph in the decision of the
Apex Court in Sole Trustee, Loka Shikshana Trust vs. CIT
(supra) may be considered as casual activities and, that
there may be certain activities which, though not casual
activities described above, and though not a part of
formal education as such, would have some relation to
education and, therefore, a trust carrying on such
activities may be classified as a trust holding property
for charitable purpose which includes education as per
section 2(15) of the Act. Hence, there is nothing wrong
with the assessee being recognised as a trust holding
property for educational purposes. However, as indicated
above, what Section 10(22) contemplates is an institution
imparting formal education, which institution is
accountable to some authority and has control over the
taught.
14. Mr Soparkar has submitted that in Gujarat State
Cooperative Union vs. CIT, 195 ITR 279, the institution
was not any such school or college but was imparting
education in cooperative field. The objects of the
assessee in that case were to impart education to
cooperative societies and to workers in the cooperative
movement; to act as a coordinating agency on all matters
pertaining to cooperative education and function as a
body of experts in matters relating to education etc.; to
promote the study of problems connected with cooperation;
to open circulating libraries, to publish periodicals,
books, pamphlets, and literature in general on
cooperation, rural development and allied subjects, to
conduct training classes, training centres etc. and to
run a printing press. Hence, if such activities could be
considered as educational activities for the purpose of
Section 10(22), the activities being carried on by the
assessee in the instant case are also similar.
15. However, a close reading of the above judgment
indicates that the Gujarat State Cooperative Union, the
assessee in the above case, was carrying on the following
activities as indicated on page 284 of the reports:-
The assessee therein was also conducting seminars
and running four cooperative training centres which
conduct Special Course for employees of Urban Cooperative
Banks, District Cooperative Banks and Market Class, and
also seminars. The assessee also conducted Cooperative
Education Programme, Consumer Education Programmes
(Project), Women Cooperative Education Programme, Special
Training Classes in the District under Cooperative
Education and Industrial Projects of the nature and
duration as mentioned in the said list of its activities.
The assessee therein was accordingly imparting formal
education in the cooperative field.
It was in the context of the aforesaid activities
that the Court held that the assessee was existing solely
for educational purposes. It appears that the real
controversy in that case was whether the revenue was
justified in contending that though some of the
activities of the assessee were educational activities,
there were other activities which were not educational
and, therefore, the assessee was not existing solely for
educational purposes. It was in the context of that
controversy that the Court held that it cannot be doubted
that the assessee was a society for diffusion of a
certain branch of knowledge, namely, knowledge of the
cooperative movement in various fields governing human
life and the activities for the purpose were carried out
in an organised and systematic manner by conducting
regular courses for imparting instruction and training on
various subjects included in the curricula as is
reflected from the list of its activities. The Court
also noted that the assessee was given financial
assistance by the Government and the Government
Resolutions indicated that the grants sanctioned by the
Government were for educational purposes. This Court
also referred to the above quoted observations of the
Hon'ble Supreme Court in Loka Sikshana Trust's case
(supra) and then further made the following
observations:-
"The Supreme Court, in the above observations, by
referring to the systematic instruction,
schooling or training given to the young has only
cited an instance in order to indicate as to what
the word "education" appearing in section 2(15)
of the Act which defines "charitable purposes" is
intended to mean. We are certain that these
observations were not intended to keep out of the
meaning of the word "education", persons other
than "young". The expression "schooling" also
means "that schools, instructs or educates" (The
Oxford English Dictionary, Vol.IX, page 217).
The Supreme Court has observed that the word
"education" also connotes the whole course of
scholastic instruction which a person has
received. This clearly indicates that the
observations of the Supreme Court were not
intended to give a narrow or pedantic sense to
the word "education"."
While respectfully agreeing with the Division
Bench that the word "education" is not confined to
teaching the "young", even so, the Division Bench did not
do away with the test of systematic instruction or
training eveolved by the Supreme Court. Although the
term "other educational institution" may not be confined
only to schools or colleges, the expression does
contemplate an institution imparting formal education or
training just as the Gujarat State Cooperative Union was
conducting courses in various disciplines related to the
cooperative movement.
16. Similar view was taken by this Court in
Commissioner of Income-tax vs. Sorabji Nusserwanji
Parekh, (1993) 201 ITR 939 where the assessee was a trust
which was primarily founded to establish a school or
college for imparting instructions to Zoroastrian
students but it was not successful in establishing any
such school or college and was giving scholarships to the
needy Parsi students to enable them to pursue their
educational activities. There the Court held that the
assessee neither actually imparted any knowledge to the
students nor did it keep any control over such students.
Therefore, it cannot be said that the trust was carrying
on educational activities or that it was an educational
institution established for educational purposes. It,
therefore, appears that this Court did lay down control
over the taught as one of the tests for deciding whether
the institution was an educational institution.
Applying the aforesaid test also, it is clear
that although the activities of the assessee are
connected with formal education being given by other
institutions running schools and colleges, the assessee
itself does not have or exercise any control over the
students who get the benefit of the activities being
carried on by the assessee.
17. In Bihar Institute of Mining and Mine Surveying
vs. CIT, (1994) 208 ITR 608 also, Hon'ble Mr Justice SB
Sinha speaking for the Division Bench of the Patna High
Court (as His Lordship then was) has taken the view that
where the principal project of the assessee institution
running private tuition classes was the object of
coaching and preparing the students for appearing in
various examinations, it is not an institution for
imparting of education and, therefore, cannot be said to
be an educational institution.
18. In view of the above discussion, we are of the
view that the Tribunal was right in holding that the
assessee was not an educational institution established
solely for educational purposes and was, therefore, not
entitled to exemption as contemplated under Section
10(22) of the Income-tax Act.
We accordingly answer the question in the
negative i.e. in favour of the revenue and against the
assessee.
19. At this stage, Mr Soparkar submits that since the
reference pertains to the assessment year 1981-82 and,
therefore, the Tribunal's decision as well as our opinion
are given in the context of the activities which were
then being carried on by the assessee, the opinion for
the said assessment year may not be treated as binding
for any subsequent year when the assessee may commence
other activities which may qualify the assessee for
exemption under section 10(22)/10(23c), as the case may
be.
We, therefore, clarify that our opinion for
assessment year 1981-82 is rendered in the context of the
activities which were then being carried on by the
assessee.
20. The Reference accordingly stands disposed of.
21. At this stage, Mr Soparkar, learned counsel for
the assessee prays for a certificate under Section 261 of
the Income-tax Act, 1961 for appealing against this
decision to the Hon'ble Supreme Court.
Although what we have done is following the
decision of the Apex Court in Sole Trustee, Loka
Shikshana Trust vs. CIT, (1975) 101 ITR 234, we do feel
that having regard to the emerging trends and the modern
means of teaching and the growing importance of the
institutions other than those engaged in formal teaching,
this is a fit case for appeal to the Hon'ble Supreme
Court. We certify accordingly.