Holding

A society that runs or assists educational institutions solely for educational purposes, and not for profit, is an "other educational institution" under Section 10(22) and its income, including voluntary contributions, is exempt, subject to annual verification of its educational purpose.

Summary

The Aditanar Educational Institution, a society registered under the Societies Registration Act, 1960, was created to establish, run, manage or assist schools and colleges solely for educational purposes. It received substantial voluntary donations and filed nil returns, claiming exemption under Section 10(22) of the Income Tax Act, 1961. The Income Tax Officer accepted the exemption, but the Commissioner ordered fresh assessments, contending that the society was merely a financing body and not an "educational institution" within the meaning of the statute. The Income Tax Appellate Tribunal and the Madras High Court held that the society itself qualified as an "other educational institution" and that the exemption must be examined each year to ensure the entity exists solely for educational purposes, with any incidental profit also exempt. The Supreme Court affirmed this view, rejecting the Revenue's contention and dismissing both the Revenue's and the assessee's appeals, while noting no order as to costs.

Issues considered

Whether a society established to manage or assist schools and colleges qualifies as an "other educational institution" under Section 10(22) of the Income Tax Act, 1961.
Whether income from voluntary contributions to such a society is exempt under Section 10(22).
Whether the applicability of the exemption under Section 10(22) must be evaluated annually.

Legislation cited

Income Tax Act, 1961s. 10(22), s. 263

Subjects

Income TaxSection 10(22)Educational institutionExemptionSocietyDonationsAnnual assessmentProfit motive

Judgment

A ADITANAR EDUCATIONAL INSTITUTION ETC.
v.
ADDITIONAL COMMISSIONER OF INCOME TAX

FEBRUARY 5, 1997
B
[B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.]

Income Tax Act, 1961-Section 10(22)--lnterpretation and Scope
of-Assessee, a Society established to rnn, manage or assist schoois, colleges
C or other educational institutions solely for educational pwposes and in that
regard to raise or collect funds, donations etc.-Held, is an educational in-
stitution within the ambit of the phrase-Entitlement of such an institution to
exemption has to be evaluated annually.

.D The assessee, (in appeal No. 2578-80/79) a society registered under
the Societies· Registration Act 1960 with objects to establish, run, manage
or assist colleges, schools and other educational organisations existing
solely for educational purposes, received certain sums of money as dona·
tions during the previous years relevant for the assessment year 1965-66
to 1976-68. For these years, the assessee filed 'nil' returns. The Income Tax
E Officer accepted the stand of the assessee that for all the three years in
question, the taxable income was 'nil' as the assessee was an educational
institution. The Commissioner of Income Tax however set aside the order
of the Income Tax Officer and directed him to make fresh assessments
after taking into consideration the voluntary contributions received. The
p orders further stated that the exemption under section 10(22) would apply
only to educational institutions as such and not to anyone who might be
financing such an institution. On appeal by the assessee, the Income Tax
Appellate Tribunal held that the assessee was an educational institution
within the ambit of section 10(22) of the Act existing solely for educational
purposes and not for earning profits. On further appeal by the assessee,
G the High Court upholding that view of the Tribunal also observed that the
applicability of Section 10(22) should be evaluated or investigated every
year and only if it is found that the 'institution' exists for educational
purposes in the relevant year and even if any profit results, which is only
incidental to the purpose of education, the income would be exempt.
H Aggrieved, the Revenue as also the. assessee filed the appeals.
948
ADITANAREDNL. INSIITUTIONv. ADDL.COMNR. OF INCOME TAX 949

The contention of the Revenue was that the assessee was not by itself A
an educational institution and thereby not eligible for exemption under
Section 10(22) of the Act.

Dismissing the appeal filled by the Revenue and the cross appeal of
the assessee, this Court
B
HELD : 1.1. An educational society or Trust or other similar body
running an educational institution solely for educational purposes and not
for purposes of profits could be regarded as 'other educational institution'
coming within Section 10(22) of the Act. [954-F]

Katra Education Society v. Income Tax Officer, 111 ITR 420 (All); CIT c
v. Doon Foundation, 154 ITR 208 (Cal) andAgaiwal Shiksha Samiti Trust v.
CIT, 168 ITR 751 (Raj), approved.

. 1.2. On facts, the assessee society comes within the scope of 'other
' edu~ational institution' under section 10(22) of the Act and was not only a

"' financing body. The sole purpose of the existence of the Assessee society
was to impart education at the levels of schools and colleges. The object was
accomplished by establishing, running, managing or assisting colleges,
D

schools or other educational institutions solely for educational purposes
and in that regard, raise or collect funds, donations, gifts etc. [953-F]
E
2. As regard the assessee's appeals, the High Court rightly obs~rved
that applicability of Section 10(22) is to be evaluated or investigated in each
· year to ascertain whether the institution existed during the relevant year
solely for educational purposes and not for purposes of profits. In the event
of profits arising, the income would be exempt as it was incidental to the
main purpose of education. [955-F] F
Governing Body of Rangaraya Medical College v. ITO, 117 ITR 284
(AP) and Secondary Board of Education v. ITO, 86 ITR 408 (Orissa), ap-
proved.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2578-80 G
of 1979 Elc.

From the Judgment and Order dated 23.2.79 of the Madras High
Court in T.C. No. 114 of 1975.

' G.C. Sharma, J. Ramamurthy, P.A. Choudhary, T.A. Ramachandran, H
'
}

950 SUPREME COURT REPORTS (1997] 1 S.C.R.
A Sr. Advs., Vineet Kumar, C., Ramesh, B.K. Prasad, S. N. Terdol, Ms. Janki --<. '
Ramachandran for the appearing parties.

The Judgment of the Court was delivered by

B PARIPOORNAN, J. Leave granted in Special Leave Petition Nos.
2357-59 of 1988, 3122 of 1987 and 6281 of 1986.

2. In this batch of 18 cases, a common question of law - the scope of
. Section 10(22) of the Income-tax Act, 1961 - arises for consideration. The
C main case is the decision rendered by the Madras High Court in Tax Case
No. 114 of 1975 (Additional Commissioner of Income-tax, Madras v.
Aditanar Educational Institution, Madras). The said decision is reported in
118 !TR 235. The assessee as well as the Revenue have filed appeals from
the said decision, which covered a period of three years, 1965-66, 1966-67
and 1967-68. The appeals filed by the assessee are Civil Appeal Nos.
D 2578-80 of 1979 and the appeals filed by the Revenue are Civil Appeal Nos.
356, 356A and 356B of 1980. Civil Appeal Nos. 41 and 42 of 1988 as also
the appeals relating to Special Leave petition Nos. 2357-59 of 1988 and
3122 of 1987 relate to the same assessee. The assessees in the other cases
are different. In Civil Appeal Nos. 3881-82 of 1984 and 379-80 of 1985, the
E assessee is Sri Paramakalyani Education Society, Madras. In Civil Appeal
Nos. 8789 of 1995, the assessee is one Sattur Hindu Nadar's Edward School
Committee. In the appeal relating to Special Leave Petition No. 6281 of
1986, the assessee is one Rajagopal Educational Trust. As stated, the
common question involved in this Batch of 18 cases is the interpretation to
be placed on Section 10(22) of the Income-tax Act, 1961 (hereinafter
F referred to as "the Act"). The decision of the Madras High Court rendered
in T.C. No. 114 of 1975 Additional Commissioner of Income-tax, Madras v.
Aditanar Educational Institution, Madras, 118 ITR 235 was followed in all
the other cases. The following table would show the parties and the
relevant appeals and the assessment years :

G Case No. Parties Year concerned
1 2 3

~
CA 2578-80/79 Aditanar Educational Institution v. 1965-66
Additional Commissioner of 1966-67
Income Tax 1967-68
H
(
-{
ADITANAR EDNL. INSJITUTION '· ADD!..COMNR. OF INCOME TAX ( PARIPOORNAN, J.] 951

CA 356, 356A Additional Commissioner of 1965-66 A
& 356B/80 Income Tax, Madras v. Aditanar 1966-67
Educational Institution, Madras 1967-68
CA 3881-82/84 CIT, Madras v. Sri Paramakalyani 1971-72
Education Society, Madras 1972-73
CA 379-80/85 CIT, Madras v. Sri Paramakalyani 1973-74
B
Education Society, Madras 1974-75
CA 41-42/88 CIT, Madras v. Aditanar 1963-64
Educational Institution, Madras 1964-65
CA 8789195 CIT, Madurai v. Sattur Hindu
Nadar's Edward School 1980-81
c
Committee, Sattur
SLP 2357-5988 CIT, Madras v. Aditanar 1977-78
Educational Institution, Madras 1978-79
1979-80
D
SLP 3122/87 CIT, Madras v. Aditanar
1980-81
.
Educational Institution, Madras
SLP 6281/86 CIT, Madras v. Rajagopal
1979-80
Educational Trust

It should be mentioned that in the appeal relating to Special Leave Petition E
No. 6281 of 1986 [CIT v. Rajagopal Educational Trust,] the Madras High
Court dismissed the application filed by the Revenue under Section 256(2)
of the Act. By this judgment, we withdraw the said application to the file
of this Court and finally dispose of the same on merits along with the other
appeals. F

3. We heard counsel. It is agreed before us that the decision rendered
in the main appeals will govern the entire batch of cases.

4, The question of law that arises for Consideration in this batch of G
cases is to the following effect :

"Whether, on the facts and in the circumstances of the case,
the Tribunal was right in holding that the income of the assessee
is entitled for exemption under Section 10(22) of the Income-tax
Act, 1961 ?" H
}-
952 SUPREME COURT REPORTS (1997] 1 S.C.R.
A 5. It is sufficient to state the minimal facts in the main case, T.C.
No. 114 of 1975 (Civil Appeal Nos. 2578-80 of 1979 and 356, 356A and
356B of 1980; the decision reported in 118 ITR 235. The assessee is a
society registered under the Societies Registration Act, 1960. Its objects
are to establish, run, manage or assist colleges, schools and other
B educational organisations existing solely for educational purposes. The
assessee received donations from a Trust called 'Thanthi Trust' a sum
of Rs. 15,71,370 during the previous year relevant for the assessment
year 1965-66, a sum of Rs. 5,62,432.25 during the previous year relevant
for the assessment year 1966-67 and a sum of Rs. 4,78,899.67 during the
previous year relevant for the assessment year 1967-68. The assessee
C filed 'nil' returns for all these years. According to the assessee, its
taxable income was 'nil' as it was an educational institution existing
solely for educational purposes. The Income Tax Officer closed the
assessments stating that there is no taxable income. There was no
question of granting exemption under Section 10(22) of the Act since,
D according to the assessee, it incurred loss for all the· three years. The
Commissioner of Income-tax initiated suo motu proceedings under Sec-
ti.on 263 of the Act as, in his opinion, the assessments made by the
Income-tax officer were erroneous and prejudicial to the Revenue. He
opined that the Income-tax officer failed to consider the question
E whether the assessee was entitled to exemption in respect of the receipts
of voluntary contributions. According to him, the assessee was not
entitled to any exemption. An order was passed on 30.3.1972 directing
the Income-tax officer to make fresh assessments taking into considera-
tion the voluntary contributions received from Thanthi Trust. The order
F so passed for the assessment year 1965- 66 is dated 30.3.1972. For the
other two years, the orders were passed on 2.3.1973. It waE stated in the
order dated 2.3.1973 that Section 10(22) of the Act will apply only to
exempt the income for a college, academy or school. In other words,
the exemption under Section 10(22) would apply to educational institu-
tions as such and not to anyone who might be financing the running of
G such an institution. In the appeals filed by the assessee for all the three
years, by a cominon order dated 22.4.1974, the Appellate Tribunal held
that the assessee was an institution existing for educational purposes
and not for purposes of earning any profit and the assessee itself could
be termed as an educational institution within the ambit of Section
H 10(22) of the Act. It is thereafter, at the instance of the Revenue, the
ADITA '~R EDNL INSITI1JTION v. ADDLCOMNR. OF INCOME TAX f PARIPOORNAN. l.J 953
question of law mentioned hereinabove was referred to the Madras High A
Court for its decision.
-- ·_>-
6. Section 10(22) of the Act runs as follows :

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

xxx xxx xxx

· (22) any income of a University or .other educational institution
existing solely for educational purposes and not for purpose of C
profit.

xxx xxx xxx
(Emphasis supplied)
D
The sole question that arises for consideration is whether the assessee will
be taken in by the words 'other educational institution'. On this aspect, the
High-Court held thus:

"...... 'Any educational institution' would fall within the scope of
Section 10(22) even though it may have or may not have anything E
to do with the University. The categories are so different, that the
University cannot be the genus, and the 'other educational
. institutions' the Species thereof. Thus, the college here could come
under the 'other educational institutions'."
F
) Proceeding further, the ·High Court held that the assessee came into
existence for the purpose of establishing, running, managing or assisting
colleges, schools and other educational organisations and in pursuance to
its objects' the assessee has established a college. It was further held that
the medium through which the assessee could effectuate its objects is the
college and by employing this medium, the assessee imparts education. The G
High Court opined that it is not possible to accept the contention of the
Revenue that the assessee is only a financing body and does not, on the
facts, come within the scope of other educational institution' occurring in
Section 10(22). It was found that the sole purpose for which the assessce
has come into existence is education at the levels of college and school and H
)-
954 SUPREME COURT REPORTS [1997] 1 S.C.R.

A that an educational society could be regarded as an educational institution
if the society was running an educational institution not for the purpose of
profit, but its existence was solely for the purpose of education. On the
basis of the above findings, the High Court answered the question referred
to it in the affirmative and in favour of the assessee. It is this judgment
B which is objected to by the assessee as also by the Revenue in the main
appeals - Civil Appeal Nos. 2578-80 of 1979 and 356, 356A and 356B of
1980.

7. Counsel for the Revenue mainly stressed the plea that the exemp-
C tion under Section 10(22) of the Act would apply only to educational
institutions as such. According to him, in this case, the assessee might be
financing for running an educational institution, but it is not itself an
educational institution. As noted earlier, the Tribunal held that the assessee
was an institution existing for educational purposes and not for the pur-
poses of earning any profit and the assessee itself could be termed as an
D 'educational institution' coming within Section 10(22) of the Act. The High
Court has concurred with this view. The High Court has further held that ·~ I

the medium-through which the assessee could effectuate its objects Is the
college and by employing this medium, the assessee imparts education and
it cannot be stated that the assessee is only a financing body and does not,
E on facts, come within the scope of 'other educational institution' occurring
in Section 10(22) of the Act. Reliance was placed on the decision of the
Allahabad High Court in Katra Education Society v. Income Tax officer, 111
ITR 420, to hold that an educational society could be regarded as an
educational institution if the society was running an educational institution.
F We are of the view that an educational society or a Trust or other similar
body running an educational institution solely for educational purposes and
not for the purpose of profit could be regarded as 'other educational
institution' coming within Section 10(22) of the Act. (See CIT v. Doon
Foundation, 154 ITR 208 (Cal.) - andAggamal Shiksha Samiti Trnst v. CIT,
168 ITR 751 (Raj.). It will be rather unreal and hyper-technical to hold
G that the assessee-society is only a financing body and will not come within
the scope of 'other educational institution' as specified in Section 10(22)
of the Act. The object of the society is to establish, run, manage or assist
college or schools or other educational institutions soley for educational
purposes and in that regard to raise or collect funds, donations, gifts, etc.
H Colleges and schools are the media through which the assessee imparts
ADITANAREDNL. INSITI1JTION v. ADDL.COMNR. OF INCOME TAX [ PARIPOORNAN, J.] 955

education and effectuates its objects. In subsequence and reality, the A
sole purpose for which the assessee has come into existence is to impart
education at the levels of colleges and schools and so, such an educa-
tional society should be regarded as an 'educational institution' coming
within Section 10(22) of the Act. We hold accordingly. In our view, the
judgment of the High Court does not merit interference. The plea of B
the Revenue to the contrary is untenable and we repel the same. All the
appeals filed by the Revenue shall stand dismissed, but there shall be
no order as to costs.

8. We will now take up the appeals filed by the assessee in the
main case - Civil Appeal Nos. 2578-80 of 1979. It passes our comprehen- c
sion as to why the assessee filed the appeals at all from the judgment
of the High Court dated 23.2.1979, which is in its favour. When ques-
tioned, senior counsel appearing for the assessee, Mr. G.C. Sharma,
stated that there are some observations of the High Court in the con-
cluding portion of the judgment, which may prejudicially affect the D
assessee in future. We are of the view that this apprehension has 'no
basis. All that the High Court has stated in the penultimate paragr!jph
of the judgment is that counsel for the assessee gave a right answer to
a hypothetical question put forward by the Court to the effect that the
applicability of Section 10(22) should be evaluated or investigated every
year and only if it is found that the 'institution' exists for educational E
purposes in the relevant year and even if any profit results, which is only
incidental to the purpose of education, the income would be exempt.
The High Court has made an observation that any income which has a
direct relation or incidental to the running of the institution as such
would qualify for exemption, We may state that the language of Section F
10(22) of the Act is plain and clear and the availability of the exemption
should be evaluated each year to find out whether the institution existed
during the relevant year solely for educational purposes and not for the
purposes of pn;>fit. After meeting the expenditure, if any surplus results
incidentally from the activity lawfully carried on by the educational

1 institution it will not cease to be one existing solely for educational G
purposes since the object is not one to make profit. The decisive or acid
test is whether on an overall view of the matter, the object is to make
profit. In evaluating or appraising the above, one should also bear in
mind the distinction/difference between the corpus, the objects and the
powers of the concerned entity. The following decisions are relevant in H
>--
956 SUPREME COURT REPORTS [1997] 1 S.C.R.
A this context: Governing Body of RangarayaMedical College v. ITO, 117 ITR
284 - (AP) and Secondary Board of Education v. ITO, 86 ITR 408 -
(Orissa). We make this position clear in order to allay the apprehensions
expressed by counsel.

9. Subject to these observations, the appeals filed by the assessee also
B fail and they are dismissed, but with no order as to costs.

R.D. Appeals dismissed.

)

f