D.K. Jain, J.
CM No. 79/02
1. Allowed subject to just exceptions.
ITA No. 181/02
2. An order dated 3 January 2002, passed by the Income Tax Appellate Tribunal, Delhi Bench-E, New Delhi in ITA No. 5443/Del/96 in respect,
of the assessment year 1993-94 is under challenge in this appeal by the Revenue u/s 260A of the Income Tax Act, 1961 (for short the Act).
3. Briefly stated, the material facts are as follows:
4. During the course of assessment proceedings of the respondent Society, hereinafter referred to as the assessed, for the aforenoted assessment
year, the Assessing Officer noticed that the assessed had given interest free loans to: (i) its Secretary and Principal of the School namely, Shri G.C.
Lagan in assessment year 1987-88, 1991-92 and 1992-93; (ii) its Vice Principal namely, Shri Bharat Bhushan and (iii) one Bal Vikas Public
School, in which the said Shri G.C. Lagan was also one of the trustees. Besides, the assessed had also paid rent for the use of building, belonging
to one of the trustees, for running the school. He, thus, felt that by giving these loans and paying the rent, the assessed had violated the provisions
of Section 13(1)(c) read with Section 13(3) of the Act. He also observed that since the assessed had earned some income in the running of the
schools, there was profit motive in its activities. It was also observed by him that since the society had claimed depreciation, it had an element of
business in its operations. Accordingly, he denied exemption to the assessed u/s of the Act.
5. Aggrieved, the assessed preferred appeal to the Commissioner of Income Tax (Appeals) {(in short the CIT(A)}. The CIT(A), while allowing
assessed''s appeal and directing the Assessing Officer to allow exemption u/s 10 of the Act, took into consideration the following factors: (i) no
loan was given to said Shri Lagan during the relevant assessment year and the loan taken earlier was refunded to the society; (ii) the interest free
loan given to Shri Bharat Bhushan in his capacity as the Vice Principal of one of the schools run by the assessed was also received back; (iii) the
portion of the house, on which rent had been paid was ultimately purchased by the assessed; and (iv) the loan given to another society for
construction of building for educational purpose had been received back with no interest charged thereon. The CIT(A) also observed that the
assessed has been running educational institutions without any profit motive and no part of profit was shared by any of the members of the
assessed and that during its existence for the last 25 years, the assessed has not carried any activity other than education and further it has not
collected any donations or contributions.
6. The Revenue challenged the order of the CIT(A) before the Tribunal, but without any success. The Tribunal, while observing that on the facts
and circumstances, they were satisfied with the reasoning and the conclusions arrived at by the CIT(A), affirmed the view taken by him. Hence the
present appeal.
7. The following questions, stated to be substantial questions of law, have been proposed in the appeal memo.
1. ""Whether on the facts and in the circumstances of the case, the ITAT was correct in upholding the order of CIT(A) and thereby granting the
benefit of Section to the assessed?
2. ""Whether on the facts and in the circumstances of the present case, the judgment of Hon''ble Supreme Court in the case of MCD v. Children
Book Trust (Taxman 63 Vo. 93) is applicable?
3. ""Whether ITAT was right in holding that CIT(A) has rightly allowed the claim of assessed u/s 10 of the Act even in respect of the Society''s
independent income and when there are infringement u/s 13 of the I.T.Act, 1961?
8. We have heard learned counsel for the parties. It is submitted by Mr. R.D. Jolly, learned senior standing counsel for the Revenue, that the view
taken by the Tribunal is vitiated because the Tribunal as also the CIT(A) has failed to take into consideration a very vital fact that had the assessed
not given the interest free loans to the aforenoted three persons, more funds would have been available with it to carry on its activities, in
furtherance of its objects, more effectively. As a last resort, learned counsel would submit that the Tribunal having failed to record its independent
reasons for coming to the conclusion that the assessed is entitled to exemption u/s 10(22) of the Act, its order gives rise to a substantial question of
law. In support of this proposition, learned counsel has placed reliance on the decision of the Madras High Court in Vinjane Centre Vs. Dy.
Commissioner of Income Tax, , wherein it has been held that the Tribunal being the final fact finding authority, it is expected to apply its mind and
record separate findings on each issue and an order merely quoting the findings recorded by the CIT(A) does not show application of mind by the
Tribunal and, Therefore, cannot be sustained.
9. Mr. Goyal, learned counsel for the assessed, on the other hand, supporting the orders passed by both the appellate authorities, submits that any
alleged violation of Section is of no consequence insofar as the question of exemption u/s 10(22) of the Act is concerned. He also states that
except for the assessment year in question and assessment year 1997-98, right from assessment year 1970-71 till date, the assessed has been
granted exemption u/s of the Act.
10. We are of the view that the contentions urged on behalf of the Revenue are without any substance. In fact, the main ground, viz. violation of
Section 13 of the Act, on which the exemption was denied by the Assessing Officer, has no bearing on the question whether the assessed exists
solely for educational purposes and not for purposes of profits, so as to fall within the ambit of Section of the Act. The test to determine when an
institution would qualify for exemption u/s 10(22) of the Act has been laid by the Apex Court in Aditanar Educational Institution Vs. Additional
Commissioner of Income Tax, , as follows:
We may state that the language of Section 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 purposes of profit. After meeting the
expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing
solely for educational 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.
11. Thus, the question of eligibility of exemption under the said Section has to be determined with reference to the objects of the assessed (society)
and the exemption cannot be denied merely because while working of the society some surplus results. Similarly, in the context of exemption u/s ,
the conditions as stipulated in either Section 11 or 13 of the Act are irrelevant.
12. In the present case, as noticed above, while holding that the assessed is entitled to exemption u/s of the Act, the CIT(A) has recorded a
categorical finding that the assessed has been running educational institutions for the past 25 years without any profit motive. Although it is not a
relevant factor but we may note that when the loans in question were given in the earlier years, exemption u/s 10(22) was still not denied to the
assessed in respect of those assessment years. We are in agreement with both the appellate authorities that claim of depreciation in respect of
certain assets of the assessed does not per se shows the business/profit motive of the assessed, disentitling it from exemption u/s of the Act.
13. Having perused the order of the Tribunal carefully, we are not persuaded to agree with learned counsel for the Revenue that the Tribunal has
failed to record any reason for coming to the conclusion that the assessed was entitled to exemption u/s of the Act. The Tribunal has endorsed the
view of the CIT(A) on the basis of the aforesaid circumstances noticed by the CIT(A) in his order. We also find substance in the contention of
learned counsel for the assessed that in the absence of any change in the objects and activities of the assessed, the Assessing Officer was not
justified in taking a different view only in respect of the present assessment year when from assessment year 1970-71, exemption under the said
provision was being allowed to the assessed consistently. In this behalf it would be appropriate to notice the following observations of the Apex
Court in M/s. Radhasoami Satsang Saomi Bagh, Agra Vs. Commissioner of Income Tax, :
We are aware of the fact that, strictly speaking, res judicata does not apply to Income Tax proceedings. Again, each assessment year being a unit,
what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years
has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be
at all appropriate to allow the position to be changed in a subsequent year.
14. We feel that the afore-extracted observations squarely apply on facts in hand.
15. For the foregoing reasons, we do not find any merit in this appeal and accordingly decline to entertain the same. Dismissed.