THE TRUSTEES OF VANITA VISHRAM SARDAR VALLABHA- DAS PATE RD., BOMBAY. vs. C.I.T.-VI, BOMBAY.,

IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION

INCOME INCOME INCOME TAX REFERENCE NO. 150 OF 1988. TAX REFERENCE NO. 150 OF 1988. TAX REFERENCE NO. 150 OF 1988.

Trustees of Vanita Vishram,

Sardar Vallabhai Patel Road,

Bombay- 400 004.

... Applicant.

V/s.

Commissioner of Income-tax,

Bombay City-IV, Bombay.

... Respondent.

V.H.Patil for the applicant.

Parag Vyas for the respondent.

CORAM CORAM CORAM : V.C.DAGA AND A.S.AGUIAR, JJ. : V.C.DAGA AND A.S.AGUIAR, JJ. : V.C.DAGA AND A.S.AGUIAR, JJ.

DATED DATED DATED : 29th June 2005. : 29th June 2005. : 29th June 2005.

JUDGMENT JUDGMENT JUDGMENT : : :

(Per V.C.Daga, J.)

-------- -------- --------

By this reference under section 256(1) of

the

Income-tax

Act,

1961 ("Act" for

short),

the

Income

Tax

Appellate

Tribunal

has

referred

the

following question of law, at the instance of the

assessee, for the opinion of this Court:

"Whether,

the

facts

and

the

circumstances

of the case, assessee was

entitled

exemption

u/s.10(22)

interest

earned on surplus funds of the

school (run by the assessee-trust) for

asst.years 1979-80 and 1980-81?" CNR No : HCBM020001061988 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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The The The Facts : Facts : Facts :

--------- --------- ---------

The trustees of Vanita Vishram having their

office

Sardar Vallabhai Patel Road, Mumbai

are

representing

the association formed in the month of

January

1928

with

the

object

running

and

maintaining schools for imparting religious, secular

and

industrial education and training in fine

arts

and

libraries

including circulating libraries

and

reading

rooms,

with

allied objects

providing

gymnasiums,

play-grounds

etc.

incidental

the

educational

activities.

The Trust filed return for

the

assessment year 1978-79 showing interest income

earned from the investment of surplus income (funds)

of the schools run by it and claimed exemption under

section

10(22) of the Act.

The said exemption

was

denied

the

Income Tax

Officer

("I.T.O."

for

short) holding that the source from which the income

was generated was an interest earned from investment

surplus,

thus,

it was not an

income

directly

earned from the educational activities qualifying

exemption.

The Appellate Assistant Commissioner was

pleased

affirm the decision of the

I.T.O.

appeal

holding

that

the

income

having

direct

relation

incidental

the

running

the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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educational

institution

could

only

qualify

for

exemption

under

section 10(22) of the Act

and

other

income.

The said decision was followed

and

accepted by the assessee for the assessment year

1978-79.

For the assessment year 1979-80 and 1980-81

the assessee claimed exemption under section 10(22),

which

came

to be denied by I.T.O.

as well as

the

Commissioner

Income Tax (Appeals) and chose

follow

the

earlier orders denying exemption.

The

Tribunal

upheld

the orders of the Commissioner

Income Tax;

holding that interest earned on surplus

funds

does

not

qualify

deduction

under

section

10(22) of the Act.

The Tribunal, at the instance of

the

assessee,

has

referred

the

above-mentioned

question to seek opinion of this Court as to whether

the

only

income which had direct relation

was

incidental

the

running

the

educational

institution

would

qualify for exemption

other

income generated from the surplus income earned from

running

educational institution would

also

exempt

under section 10(22) of the Act.

Thus,

the

issue revolves around interpretation of section

10(22) of the Act. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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Statutory Statutory Statutory Provision : Provision : Provision :

------------------- ------------------- -------------------

In order to answer, it is necessary to turn

sub-section

(22)

section

which

stood

omitted by the Finance Act (No.2 of 1998) with

effect from 1.4.1999. The said section reads thus:

"10. 10. 10. Incomes not included in the total Incomes not included in the total Incomes not included in the total

income. income. income. ..... ..... .....

(22) any income of a university or other

educational institution, existing solely

for educational purposes and not for

purposes of profit;"

Submissions Submissions Submissions : : :

----------- ----------- -----------

Mr.Patil, learned counsel appearing for the

applicant - assessee submits that the surplus income

generated

from running educational institution came

profitably invested, and the investment

has

earned

interest, as such, the interest earned

from

such

surplus

generated from running of the

school

has

treated as income

the

educational

institution

existing

solely

for

the

educational

purposes

and

not

for

the

purposes

profit.

According to him, the source from which the money is

received

is of no consequence.

What is relevant is

its

application.

So long as the institution is

educational

institution

which

is not

engaged

earning

profit,

the

income

earned

such Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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institution may be; from any other source, is

exempt under section 10(22) of the Act.

Mr.Patil went a step ahead and submitted

that

income

from all the sources received

the

assessee

exempt

provided

assessee

educational

institution

existing

solely

for

educational

purposes.

He placed reliance

the

judgment

various High Courts, viz., C.I.T.

v. C.I.T.

v. C.I.T.

A.M.M.Arunachalan A.M.M.Arunachalan A.M.M.Arunachalan Educational Society

Educational Society

Educational Society (2000) 243 ITR

229

(Mad);

C.I.T.

Sree

Narayana

Chandrik C.I.T.

Sree

Narayana

Chandrik C.I.T.

Sree

Narayana

Chandrik

Trust Trust Trust,

(1995)

212

ITR

456

(Ker);

C.I.T.

v. C.I.T.

v. C.I.T.

Kshatriya Kshatriya Kshatriya

Girls Schools Managing Board

Girls Schools Managing Board

Girls Schools Managing Board, (2000)

245

ITR 170 (Mad);

C.I.T.

Eco.

& Enterpreneurship C.I.T.

Eco.

& Enterpreneurship C.I.T.

Eco.

& Enterpreneurship

Dev. Dev. Dev.

Foundation

Foundation

Foundation, (1991) 188 ITR 540 and Director of Director of Director of

Income-Tax Income-Tax Income-Tax v. A.M.M.Hospitals v. A.M.M.Hospitals v. A.M.M.Hospitals (2003) ITR 241 (Mad)

in support of his contention.

Per contra, Mr.Vyas,

learned counsel

appearing

for

the respondent - Revenue urged

that

the

income

directly received from the

educational

activities

of the educational institution, is

only

exempt

under section 10(22) of the Act and no other

income.

He further urged that the interest

income

question

has neither been earned directly

from

and

out

of the educational activities nor

has Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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incidental

relation

with

the

running

the

educational

institution, as such it cannot be

said

exempt under section 10(22) of the Act.

other

words,

the submission is that

the

interest

income

question

has no direct nexus

with

the

running

of the educational institution, as such

exemption

with

respect

such

income

can

claimed.

Thus, in his submission such income

does

not qualify for exemption under section 10(22) of

the Act.

CONSIDERATION CONSIDERATION CONSIDERATION : : :

------------- ------------- -------------

We have heard the parties at length. The

question of exemption from income of the educational

institution

has

been

perennial

teaser

for

the

assessee

well as Judiciary.

There are

various

situations

which give rise to the question

whether

or not income is exempt under sub-section (22) of

Section 10 of the Act.

10.

One of the situations in which question

needs consideration is:

whether or not the interest

income

derived from investment of surplus income of

the universities and other educational institutions,

existing solely for educational purposes and not for

the

purposes of profit, is exempted?

The intention Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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the Legislature appears to be to grant exemption

to the institution, under section 10(22) of the Act,

if it solely exists for the educational purposes and

not for the purposes of profit.

11.

This provision

has

been judicially

scrutinised by various High Courts as well as by the

Apex

Court

while

considering

the

question

exemption of income received from various sources by

the

educational

institution

existing

solely

for

educational purposes and not for the purposes of

profit.

12.

In the case of A.M.M.Arunachalan Educational A.M.M.Arunachalan Educational A.M.M.Arunachalan Educational

Society Society Society

(supra),

the assessee-society

was

formed

with

the object of running and maintaining a school

which

was

earlier

run

another

trust.

The

transferor

trust

handed

over the

school

the

assessee-society for running the same with the funds

maintained

the

trust.

The

assessee-society

claimed that the income derived by it was the income

the

educational institution and exempted

under

section

10(22).

The claim of the

assessee-society

was

rejected by the Income-tax Officer, but it

was

allowed

appeal.

The Tribunal

held

that

the

assessee-society

which

was

being regarded

an Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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educational

institution within the scope of section

10(22),

existed solely for running the

institution

and

that

had no other activity

and

other

income

which required a computation.

On reference,

was held that the object of the assessee-society

was

to run the educational institution,

therefore,

the

Tribunal was right in holding that the assessee

should

regarded as an

educational

institution

well

within the sweep of section 10(22) as such its

income

exempt under that section.

That the

source

from

which

the

income

was

derived

was

consequence.

What was relevant was the application

the

income.

It was thus ruled that so long

the

institution is an educational institution,

not

engaged

earning

profit,

the

income

such

institution

earned

by way of dividend

was

exempt

under section 10(22) as attributable to the

educational activities of the assessee-society.

13.

In the case of Addl.C.I.T. v. Aditanar Addl.C.I.T. v. Aditanar Addl.C.I.T. v. Aditanar

Educational Educational Educational

Institution

Institution

Institution (Mad) (supra), the assessee

was

the

society

registered

under

the

Societies

Registration

Act

constituted

establish,

run,

manage

assist

colleges,

schools

and

other

educational

organisations

existing

solely

for

educational

purposes.

The

assessee

received Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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donations

from

a Trust.

It started a college

and

utilised

the entire donation for the college.

the

question was whether the assessee was an educational

institution

entitled to the exemption under section

10(22).

The

Departmental

view

was

that

this

provision

applied only to educational

institutions

such

and

not

anyone

else

who

might

financing

the running of the institution.

that

context,

the High Court upheld the assessee’s plea,

holding

that the purpose for which it had come into

existence was education at the level of colleges and

schools.

order to effectuate its objects,

the

assessee

had

necessarily to impart education

only

through

the

medium

college

consisting

professors and students.

Unless a college itself is

brought

into existence by the professors, a college

could

ordinarily come into existence only by

third

parties.

Therefore, it could not be said that

the

assessee was a mere financing body not coming within

the

expression "other educational institutions"

section

10(22).

An educational society

could

regarded

educational

institution

the

society

was running an educational institution.

holding

so,

the

Madras High

Court

rejected

the

further

contention of the Revenue that the

college

which

was

the

educational

institution

was Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

- 10 -

incorporated

a separate;

registered body.

other

words,

the

High Court equated

the

society

which

was running the educational institution

with

the educational institution itself inasmuch as the

society existed only for educational purposes.

14.

In the case of C.I.T. v. Sindhu Vidya C.I.T. v. Sindhu Vidya C.I.T. v. Sindhu Vidya

Mandal Mandal Mandal

Trust

Trust

Trust, (1993) 142 ITR 633, the Gujarat

High igh igh

Court

held that where the Trust existed solely

for

educational

purposes,

and was running primary

and

secondary

schools,

such schools were part

the

assessee-Trust,

which

fell within

the

expression

"other

educational institutions" in section

10(22)

entitled

to exemption thereunder.

Another

similar

case of a society running an educational institution

C.I.T.

Academy of General Education, C.I.T.

Academy of General Education, C.I.T.

Academy of General Education, (1984)

150 ITR 135 (Kar).

The assessee-academy was running

many

educational

institutions and

controlled

and

aided

many

others.

derived

income

from

securities,

properties and from other sources

like

dividends,

interest, registration fees,

donations,

etc.

The question was whether its income was exempt

under

section

10(22).

The Division Bench

the

Karnataka

High

Court, speaking through

Jagannatha

Shetty, J. (as he then was), upheld the assessee’s

plea and exempted the income from tax. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

- 11 -

15.

In the case of Katra Education Society v. Katra Education Society v. Katra Education Society v.

I.T.O. I.T.O. I.T.O., (1978) 111 ITR 420, the Allahabad High Court

held

that there was a no reason why an

educational

society

cannot

regarded

educational

institution if that society was running educational

institutions.

16.

In Agarwal Shiksha Samiti Trust v. C.I.T. Agarwal Shiksha Samiti Trust v. C.I.T. Agarwal Shiksha Samiti Trust v. C.I.T.,

(1987)

168 ITR 751 is an analogous decision of

the

Rajasthan

High

Court.

The

assessee

collected

donations

with

the sole purpose of disbursing

the

same

for

education

institutions

run

under

the

auspices

of one Agarwal Shiksha Samiti.

The

Court

held

that

merely

because

these

educational

institutions

were

not run and managed directly

the

assessee-Trust, it could not be stated that the

assessee

did

not

fulfil

the

requirements

under

section

10(22).

Admittedly, the assessee collected

money

for

the

purposes of education;

had

profit motive at all. Therefore, it was entitled to

exemption under section 10(22).

17.

The decision of the Andhra Pradesh High

Court

the case of Governing Body

Rangaraya Governing Body

Rangaraya Governing Body

Rangaraya

Medical Medical Medical College

College

College v.

I.T.O.

I.T.O.

I.T.O., (1979) 117 ITR 284 is in Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

- 12 -

point.

The governing body of the Rangaraya Medical

College was a society registered under the Societies

Registration

Act

to manage the college

which

had

been

started

another

society,

the

Medical

Educational Society, six years earlier.

The college

had

not been formally transferred to the

assessee,

the assessee was awaiting orders from Government

its

application for exemption from

payment

stamp

duty and registration charges.

The

assessee

had

collected

compulsory donations of

Rs.12,000/-

per

seat

and the bank accounts and

deposits

were

maintained in the name of the society itself and not

the

name

of the college.

The objects

the

society

were

widely worded, to manage the

medical

college

and

ancillary

institutions

and

various

others.

The question was whether the society could

claim

exemption

under

section 10(22).

The

High

Court

held

that

the

assessee

society

was

not

different

from the medical college.

This was

said

despite

the fact that the ownership of the

college

did not vest in the society and continued to be with

the

Medical

Educational Society.

The

Court

said

that

there

was no distinction between the

society

and

the college, and the society was an educational

institution

with

no motive of private or

personal

profit.

Merely because certain surplus arose

from Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

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the

society’s operations, it could not be held that

the institution was run for the purpose of profit so

long

as no person or individual was entitled to any

portion

of the said profit and the said profit

was

utilised

for

the purpose and for the promotion

the

objects of the institution.

the income of

the

society was, therefore, exempt under section 10(22).

18.

We must also refer to the decision of the

Calcutta

High

Court

in the case of

Birla

Vidhya Birla

Vidhya Birla

Vidhya

Vihar Vihar Vihar

Trust

C.I.T.

Trust

C.I.T.

Trust

C.I.T., (1982) 136 ITR

445.

The

assessee in that case was a charitable Trust running

educational

institutions.

the question was whether

the

Trust

could claim exemption as an

educational

institution in respect of the income it derived from

the

educational

institutions.

The

question

was

answered

the affirmative with

the

observation

that

the

condition precedent for claiming

benefit

under

section 10(22) was that the university or the

educational

institution

must

exist

solely

for

educational purposes and not for the purposes of

profit.

19.

The Apex Court had also an occasion to

consider

the scope of Section 10(22) of the Act

Aditanar Aditanar Aditanar

Educational

Institution v.

Addl.C.I.T.

Educational

Institution v.

Addl.C.I.T.

Educational

Institution v.

Addl.C.I.T., Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

- 14 -

(1997)

224

ITR

310;

wherein the Apex

Court

was

pleased

to hold that the language of section 10(22)

the Act being plain and clear, it required

that

the exemption should be evaluated every year to find

out

whether

the

institution existed

during

that

relevant

year

solely for educational purposes

and

not

for

the purposes of profit.

It has also

been

ruled

that

after meeting the expenditure,

any

surplus

results

incidentally,

from

the

activity

lawfully

carried on by the educational institution,

will not cease to be an institution not existing

solely for educational purposes, since the object is

not one to make profit.

20.

The decisive or acid test laid down in the

above judgment is to find out whether, on an overall

view

the matter, the object is to make

profit.

the very same judgment, the Apex Court has

also

held

that

one

should

also

bear

mind

the

distinction/difference

between

the

corpus,

the

objects and the powers of the concerned entity.

The

Apex

Court

recorded this finding while

dismissing

assessee’s

appeals against the observations of

the

Madras

High

Court;

wherein High Court

had

ruled

that

the applicability of section 10(22) should

evaluated

or investigated every year and only if it Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

- 15 -

was

found that the "institution" existed solely for

educational

purposes

in that relevant

year,

then

even

any profit is resulted;

may be

from

the

activities incidental to the purpose of education;

such income would also be exempted.

21.

The legal position is thus well established

the

strength of the above decisions that

Trust

or Society exists solely for the

educational

purposes and it runs an educational institution, its

income

will

the

income

the

educational

institution

and, therefore, exempted under

section

10(22).

The

fact

that

the

assessee

had

other

objects

will not disentitle it to the exemption

long

the

activity

carried on by

that

assessment year was that of running an educational

institution and not for profit.

22.

In the instant case, there is no dispute

about

the

fact that the assessee existed only

for

educational

purposes, viz.

for running schools and

not

for

the

purposes of making profit.

Now

the

question

is:

whether or not the income by way

interest

derived

the

Trust from

and

out

investment,

its surplus income/funds,

made

augment

the resources for running school is

exempt Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

- 16 -

under

section

10(22)

the

Act.

this

connection,

must be mentioned that there is

integral

unity between the Trust and the school for

the purposes of section 10(22).

The amount invested

belonged

to the school.

Consequently, the interest

derived

such investments also belonged

the

school.

The

school

is not merely a

building

which

housed,

the

equipment

that

contained

it,

but something more.

institution,

and

that institution belongs

the

Trust.

dealing with the question, whether

the

income

that of the school, the significance

the

expression "any income of a university or other

educational institution" in section 10(22) has to be

noticed.

In our opinion, both words "any" and "of"

carry a definite meaning.

It is not income from the

educational

institution

that

exempt

but

any

income

of the educational institution.

If the word

had

been "from", the position would have been

that

the

income should have been derived from the actual

running

the school itself.

What appears to

relevant

is that the income should reach the school

to be utilised by it for educational purposes and;

not for the purposes of profit. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

- 17 -

23.

This Court, in the case of C.I.T. v. Vidya C.I.T. v. Vidya C.I.T. v. Vidya

Vikas Vikas Vikas

Vihar

Vihar

Vihar,

(ITA

Nos.27 to 29 of

2001

and

ITA

Nos.6,

7 and 19 of 2002 decided by Nagpur Bench

13th February, 2003) (unreported) to which one of us

(Daga,

J.) is a party had an occasion to deal

with

more

or less similar issue and decide it

following

the

judgment

the

Apex Court in

the

case

Aditanar Aditanar Aditanar

Educational

Institution

Educational

Institution

Educational

Institution

(supra).

While

deciding

the

question

whether

donation

received

the

Trust

running

educational

institution would qualify exemption under section

10(22), this Court held as under:-

In the instant case, it is not in

dispute that the assessee-institution solely

existed for educational purposes. The

incidental object of constructing houses for

weaker sections was never implemented or

acted upon by the assessee in the relevant

assessment year. Under these circumstances

no fault can be found with the findings

recorded by the Tribunal. The view taken by

the Tribunal is absolutely in accordance

with law and in consonance with the view

taken by the Apex Court in Aditanar

Educational Institution’s case (supra). It

would be necessary for the assessee to file

Return every year and to demonstrate that

the educational institution existed during

the relevant year solely for educational

purposes and not for purposes of profit."

24.

It is, thus, obvious that granting exemption

the income of the educational institutions is to

enable

such

institutions

utilise

the

moneys Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41

- 18 -

available

with them for the purpose of running

the

educational institutions.

The source from which the

moneys

are

received is of no consequence, what

relevant

is the application of income.

So long

the

income of the institution, which solely

exists

for

educational purpose and not for earning profit,

applied for the educational purpose, such income

of the institution is exempted under section 10(22)

of the Act.

25.

The question referred is, thus, answered in

the affirmative i.e. in favour of the assessee and

against the revenue.

(A.S.AGUIAR, (A.S.AGUIAR, (A.S.AGUIAR, J.) J.) J.)

(V.C.DAGA, (V.C.DAGA, (V.C.DAGA, J.) J.) J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 06:38:41 Powered by TCPDF (www.tcpdf.org)