Queen’s Educational Society vs. CIT [2015] 372 ITR 699 (SC)
The
Appellant filed its return for the assessment years 2000-01 and 2001-02
showing a net surplus of Rs.6,58,862 and Rs.7,82,632, respectively.
Since the appellant was established with the sole object of imparting
education, it claimed exemption u/s. 10(23C)(iiiad) of the Income-tax
Act, 1961. The Assessing Officer, vide his order dated 20th February, 2003, rejected the exemption claimed by the appellant. The Commissioner
of Income-tax (Appeals) by his order dated 28th March, 2003, allowed the
appellant’s appeal, and the Income-tax Appellate Tribunal, Delhi, by
its judgment dated 7th July, 2006, passed an order dismissing the appeal
preferred by the Revenue.
The Income-tax Appellate Tribunal while granting exemption u/s. 10(23C)(iiiad) recorded the following reasons:
“During
the years relevant for the assessment year 200-01 and 2001-02, the
excess of income over expenditure stood at Rs.6,58,862 and Rs.7,82,632,
respectively. It was also noticed that the appellant society had made
investments in fixed assets including building at Rs.9,52,010 in the
financial year 1999-2000 and Rs.8,47,742 in the financial year 2000-01
relevant for the assessment years 2000- 01 and 2001-02, respectively.
Thus, if the amount of investment into fixed assets such as building,
furniture and fixture, etc., were also kept in view, there was hardly
any surplus left. The assessee-society is undoubtedly engaged in
imparting education and has to maintain a teaching and non-teaching
staff and has to pay for their salaries and other incidental expenses.
It, therefore, becomes necessary to charge certain fees from the
students for meeting all these expenses. The charging of fee is
incidental to the prominent objective of the trust, i.e., imparting
education. The trust was initially running the school in a rented
building and the surplus, i.e., the excess of the receipts over
expenditure in the year under appear (and in the earlier years) has
enabled the appellant to acquire its own property, acquire computers,
library books sports equipment, etc., for the benefit of the students.
And more importantly the members of the society have not utilised any
part of the surplus for their own benefit. The Assessing Officer wrongly
interpreted the resultant surplus as the main objective of the assessee
trust. As held above, profit is only incidental to the main object of
spreading education. If there is no surplus out of the difference
between receipts and outgoings, the trust will not be able to achieve
the objectives. Any education institution cannot be run in rented
premises for all the times and without necessary equipment and without
paying to the staff engaged in imparting education. The assessee is not
getting any financial aid/assistance from the Government or other
philanthropic agency and, therefore, to achieve the objective, it has to
raise its own funds. But such surplus would not come within the ambit
of denying exemption u/s. 10(23C)(iiiad) of the Act.”
In a
reference to the High Court u/s. 260A of the Income-tax Act, the High
Court, vide the impugned judgment set aside the judgment of the
Incometax Appellate Tribunal and affirmed the order of the Assessing
Officer.
The Uttarakhand High Court held: “Thus, in view of the
established fact relating to earn profit, we do not agree with the
reasoning given by the Income-tax Appellate Tribunal for granting
exemption.”
On appeal, the Supreme Court held that the High
Court did not apply its mind independently. The High Court copied one
paragraph from the Supreme Court judgment in Aditanar Educational
Institution vs. Addl CIT (1997) 224 ITR 310 (SC), followed by a
paragraph of faulty reasoning by the Assessing Officer and the said
faulty reasoning of the Assessing Officer had been wrongly said to be
the law laid down by the apex court. The High Court had erred by quoting
a non-existent passage from the said judgment
Further, the High Court had erred quoting a portion of a property tax judgment in Municipal Corporation of Delhi vs. Children Book Trust and Safdarjung Enclave Educational Society vs. Municipal Corporation of Delhi (1992) 3 SCC390, which expressly stated that ruling arising out of the Income-tax Act would not be applicable. It also went on to further quote from a portion of the said property tax judgment which was rendered in the context of whether an educational society is supported wholly or in part by voluntary contributions, something which was completely foreign to section 10(23C)(iiiad).
According to the Supreme Court, the final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall foul of section 10(23C) is to ignore the language of the section and to ignore tests laid down in the Surat Art Silk Cloth’s case (121 ITR1), Aditanar’s case (supra) and the American Hotel and Lodging’s case (301 ITR 86).
The Supreme Court held that when a surplus is ploughed back for educational purposes, the educational institution exist solely for educational purposes and not for purposes of profit.
The Supreme Court set aside the judgment of the Uttarakhand High Court holding that the reasoning of the Income-tax Appellate Tribunal (set aside by the High Court) was more in consonance with the law laid down by it.
The Supreme Court approved the judgment of the Punjab and Haryana High Court in Pinegrove International Charitable Trust (327 ITR 73), Delhi High Court in St. Lawrence Educational Society vs. CIT (353 ITR 320) and Bombay High Court in Tolani education Society (351 ITR 184).
