Judgment:
M.S. Shah, J.
1. In this reference under Section 256(1) at theinstance of the assessee, the following question has beenreferred for our opinion for assessment year 1981-82:-
'Whether on the facts and in the circumstances ofthe case, the assessee would be entitled toexemption as contemplated under Section 10(22) ofthe Income-tax Act, 1961 ?'
2. The assessee is a trust registered a publiccharitable trust on 10.1.1978. When the trust wasregistered on 10.1.1978 its objects were as under:-
(a) To raise and/or improve the standard of educationof 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 secondaryschools, diploma courses, educational centres,libraries, reading rooms, and other institutionsfor imparting education.
(b) To arrange and/or organise meetings, lectures,workshop classes, weekend courses, exhibitions,seminars, symposium and conferences with a viewto raise and/or improve the standard ofeducation.
(c) To establish run, conduct and/or manageinstitutions for training of Teachers,Professors, Lecturers, Demonstrators, Tutors andother persons connected and or interested inraising and or improving the standard ofeducation.
(d) To arrange for modern teaching aids, audio visualequipments, charts, slides, films etc. forimparting education and to make them available tovarious educational institutions.
(e) To promote, organise and coordinate research ineducation by providing college of education forB.Ed., M.Ed., Ph.D. etc. degrees, conductintensive research projects and extensive surveysto provide effective extension programmes andconsultative services to educationalinstitutions.
(f) To provide for and/or arrange for counsellingcentre comprising of educational and vocationalguidance bureau, educational and psychologicaltesting services and child guidance clinic.
(g) To enter into any agreements or arrangementswith any Government, Local Authority,Institution, Body of Individuals as may appearconductive to the objects of SEF and to carryout, exercise and comply with such agreementsand arrangements.
(h) To print, publish, distribute or support anypublications, periodic or not, for the promotionof the aforesaid objects of SEF.
(i) To do all such other things, either alone or inconjunction with others as are incidental orconducive to the attainment of the aforesaidobjects or any of them of SEF.
Subsequently, to promote educational activitiesin the rural area, the following clause was added in themain objects clause:-
'To undertake, carry out, promote and sponsor anyprogramme of rural development and of improvementof rural technology including training of personsfor implementing programmes of ruraldevelopment.' For achieving the aforesaid objects, the assesseeconducted various classes for students of Standards X, XIand XII as also for CA Entrance Examination. It alsoheld refresher courses for teachers teaching in variousschools. It also held lectures, meetings, exhibitionsand audio visual shows on relevant educational topics.In view of these activities, the assessee claimedexemption under Section 10(22) of the Income-tax Act,1961 (hereinafter referred to as 'the Act') on the groundthat it was an educational institution existing solelyfor the purpose of education. For the assessment yearunder consideration, although the assessee was given thebenefit of Section 11(1)(a), the ITO did not accept theassessee's claim for exemption under Section 10(22) onthe ground that the expression 'educational institutionexisting solely for education' in Section 10(22) of theAct must be given a narrow meaning than that given to theterm 'education' in Section 2(15) of the Act and thatSection 10(22) only refers to formal education given inschools and colleges and not to other forms of educationwhich is for development, advancement and betterment ofeducation. In appeal, the AAC held in favour of theassessee that education need not mean only formaleducation but it refers to various activities carried onto provide education through modern techniques includingholding of exhibitions, audio visual shows etc. which ismeant for students and teachers who are interested in therelevant fields. In appeal, at the instance of therevenue, the Tribunal held that the assessee was notentitled to the benefit of Section 10(22) of the Act andrestored the order of the ITO. Hence, this reference atthe instance of the assessee.
3. We have heard Mr SN Soparkar, learned counsel forthe applicant-assessee and Mr Manish R Bhatt, learnedStanding Counsel for the revenue.
4. Mr Soparkar has invited our attention to thefindings given by the Appellate Assistant Commissionerand submitted that the Tribunal has erred in taking avery narrow definition of the expression 'education'. Hesubmitted that though in Sole Trustee, Loka ShikshanaTrust vs . CIT : [1975]101ITR234(SC) the Apex Court gaveillustrations to indicate that certain casual activitiescould not be termed as educational activities, theactivities being carried on by the assessee are not suchactivities. The learned counsel referred to variousletters and certificates issued by the institutionsrunning schools, colleges and even Physical ResearchLaboratory at Ahmedabad, the Vikram Sarabhai CommunityScience Centre at Ahmedabad, Saurashtra University, NehruScience Centre etc. and submitted that on perusal ofthose letters and certificates it is clear that theactivities being run on by the assessee are intimatelyconnected with formal education being imparted in schoolsand colleges.
Mr Soparkar further submitted as under :-
(i) When an assessee has been granted the benefitunder Section 11(1)(a), there is no reason to justifydenial of benefit under Section 10(22), as both theprovisions deal with the same subject 'education'.
(ii) Reference is made by way an an illustration tothe Institute of Chartered Accountants of India and it issubmitted that earlier the institute was not running itsown classes and that without any geographical proximityto the students it was imparting instructions throughpostal tuitions but its status as an educationalinstitution was never doubted. Similarly openuniversities also impart education without geographicalproximity with the students.
(iii) Reliance is placed on the decision of this Courtin Gujarat State Cooperative Union vs . Commissioner ofIncome-tax, : [1992]195ITR279(Guj) and it is submitted thatadvancement of knowledge brings within its fold suitablemethods of its dissemination and though the primarymethod of sitting in a class-room may remain ideal formost of the initial education it may become necessary tohave a different outlook for further education. It isnot necessary to nail down the concept of education to aparticular formula. Its progress lies in acceptance ofnew ideas and development of appropriate means to reachthem to the recipients.
5. On the other hand, Mr Manish R Bhatt, learnedStanding Counsel for the revenue has submitted that theTribunal has applied the correct test laid down by theApex Court in Sole Trustee, Loka Shikshana Trust vs . CIT : [1975]101ITR234(SC) which has also been subsequentlyapplied by this Court in CIT vs . Sorabji NusserwanjiParekh, : [1993]201ITR939(Guj) and by the Patna High Court inBihar Institute of Mining and Mine Surveying vs . CIT, : [1994]208ITR608(Patna) .
6. Before considering the rival submissions, it isnecessary to refer to the relevant statutory provisionsin 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 notincluded in total income', and the relevant clause readsas under:-
10. In computing the total income of aprevious year of any person, any income fallingwithin any of the following clauses shall not beincluded -
(1) ... ... ...
.... .... ... ...
(22) any income of a university or othereducational institution, existing solely foreducational purposes and not for purposes ofprofit. This clause was omitted by Finance (No.2) Act,1998 w.e.f. 1.4.1999 and the following relevantsub-clauses were added as parts of clause (23C) by thesame Amendment Act:-
(23C) any income received by any person onbehalf of -
(i) .. ... ......
... .... ... .....
(iiiab) any university or other educationalinstitution existing solely for educationalpurposes and not for purpose of profit, and whichis wholly or substantially financed by theGovernment; or
(iiiac) .. ... ....
(iiiad) any university or other educationalinstitution existing solely for educationalpurposes and not for purposes of profit if theaggregate annual receipts of such university oreducational institution do not exceed the amountof annual receipts as may be prescribed; or
.... .... ..... ....
(vi) any university or other educationalinstitution existing solely for educationalpurposes and not for purposes of profit, otherthan those mentioned in sub-clause (iiiab) orsub-clause (iiiad) and which may be approved bythe prescribed authority, or
Section 11 commences with the heading, 'Incomefrom property held for charitable or religious purposes'.
11(1). Subject to the provisions of sections 60 to 63, the following income shall not be includedin the total income of the previous year of theperson in receipt of the income -
(a) income derived from property held undertrust wholly for charitable or religiouspurposes, to the extent to which such income isapplied to such purposes in India; and, where anysuch income is accumulated or set apart forapplication to such purposes in India, to theextent to which the income so accumulated or setapart is not in excess of twenty-five per cent ofthe income from such property.
The percentage 25 is now substituted by 15% byFinance Act, 2002 w.e.f. 1.4.2003.
The expression 'charitable purposes' is definedby clause (15) in Section 2 as under:-
2(15) 'charitable purpose' includes relief tothe poor, education, medical relief, and theadvancement of any other object of general publicutility not involving the carrying on of anyactivity for profit.
The words, 'not involving the carrying on of anyactivity for profit' have been omitted by Finance Act,1983 w.e.f. 1.4.1984.
7. A perusal of the aforesaid statutory provisionswould show that while Section 11 provides for exemptionof the income of a trust holding property wholly forcharitable or religious purposes subject to certainconditions and the charitable purposes include education,Section 10(22) at the relevant time provided for totalexemption to income of a university or other educationalinstitution, existing solely for educational purposes andnot for purposes of profit. Two aspects stand out fromclause (22) of Section 10.
The exemption is granted to the income of auniversity or other educational institution. Theexpression, 'educational institution' would, therefore,take colour from the preceding word, 'university'.Noscitur a socci (a word is known by the company itskeeps) is a well settled rule of interpretation of astatute. A university is admittedly an educationalinstitution set up for imparting formal education.Hence, applying the aforesaid rule of interpretation theexpression, 'other educational institution' would mean aninstitution imparting formal education in an organisedand systematic training where the institution would beaccountable to some authority and where there would beteachers and taught the former having some degree ofcontrol over the latter.
8. It is significant to note that while a trustholding property for a charitable purpose of education asdefined by Section 2(15) may also be an educationalinstitution existing solely for the purpose of education,the two institutions cannot be treated as belonging tothe same class. An institution may be carrying oneducational activities as are being carried on by theassessee herein without imparting formal education andwithout being affiliated to or accountable to anyauthority. Such a trust can certainly be considered asqualifying for exemption under Section 11(1)(a) read withSection 2(15), but the term 'the educational institution'contemplated by Section 10(22) is a narrower concept.Though 'educational institution' and the educationalactivities are closely interconnected; in Section11(1)(a) read with Section 2(15) it is the activitieswhich are in focus whereas in Section 10(22) both theinstitution and the activities are in focus. Aneducational institution under Section 10(22) is,therefore, more than a body carrying on charitableactivities in the field of education as contemplated bySection 2(15).
9. Keeping the above analysis in mind and applyingthe aforesaid tests to the facts of the present case, itis obvious that the assessee would not satisfy the abovetests. The assessee itself does not conduct any coursesin formal education. It is true that the assesseecarries on activities which are connected with formaleducation and which are quite laudable inasmuch as theassessee 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 forEnglish language teachers and guidance course for bankingservice recruitment; it screens educational films for thebenefit of college and school students and organiseslectures, and exhibitions on popular science, maths etc.and it also publishes and distributes booklets, but allthese activities, though commendable, are piecemealadditions to courses of instructions being given inschools or colleges and universities. The assesseeitself does not run any composite or integrated course oforganised and systematic training. The assessee is notaffiliated to, or registered by, any authority. Theassessee does not claim any control over the recipientsof training being given by the assessee.
10. As regards the illustration of the Institute ofChartered Accountants of India, although the Institutewas earlier not running formal classes and there was nogeographical proximity when instructions where beingimparted through postal tuitions, the Institute ofChartered Accountants of India has always been aninstitution set up, inter-alia, for imparting formaleducation and for testing proficiency for entry to theprofession of Chartered accounts. The Institute impartsformal education in accountancy and connected subjects inan organised and systematic manner. The Institute isaccountable as per the provisions of the Act establishingit and the Institute also has disciplinary control overthe students who are required to be registered with it inthe first place and who appear at the exams being held bythe Institute. Hence, the example of the Institute ofChartered Accountants of India is not apposite and theassessee is not at all comparable to the said Institute.Similarly, open universities possess all the threeindicia of an educational institution - imparting formaltraining, accountability to an authority and control overstudents. The assessee can not, therefore, compareitself with any open university either.
11. At this stage, we may refer to the decision ofthe Apex Court in Sole Trustee, Loka Shikshana Trust vs.CIT : [1975]101ITR234(SC) wherein the Apex Court enunciatedthe following principles while interpreting theexpression 'education' in Section 2(15) of the Act:-
'The sense in which the word 'education' has beenused in section 2(15) in the systematicinstruction, schooling or training given to theyoung is preparation for the work of life. Italso connotes the whole course of scholasticinstruction which a person has received. Theword 'education' has not been used in that wideand extended sense, according to which everyacquisition of further knowledge constituteseducation. According to this wide and extendedsense, travelling is education, because as aresult of travelling you acquire fresh knowledge.Likewise, if you read newspapers and magazines,see pictures, visit art galleries, museums andzoos, you thereby add to your knowledge. Again,when you grow up and have dealings with otherpeople, some of whom are not straight, you learnby experience and thus add to your knowledge.Again, when you grow up and having dealings withother people, some of whom are not straight, youlearn by experience and thus add to yourknowledge of the ways of the world. If you arenot careful, your wallet is liable to be stolenor you are liable to be cheated by someunscrupulous person. The thief who removes yourwallet and the swindler who cheats you teach youa lesson and in the process make you wiser thoughpoorer. If you visit a night club, you getacquainted with and add to your knowledge aboutsome of the not much revealed realities andmysteries of life. All this in a way iseducation in the great school of life. But thatis not the sense in which the word 'education' isused in clause (15) of section 2. What educationconnotes in that clause is the process oftraining and developing the knowledge, skill,mind and character of students by normalschooling.'
12. Mr Soparkar for the assessee, however, vehementlysubmitted that the illustrations given by the Apex Courtin the second part of the above paragraph referred tocasual activities like travelling, reading newspapers andmagazines, visiting art galleries, museums and zoos butmerely because such activities are not being consideredas educational activities, it does not mean that theactivities being carried on by the assessee cannot betermed as educational activities. Mr Soparkar submittedthat in between the formal schooling which is admittedlybeing considered by all as educational activity and theother casual activities referred to hereinabove, there isanother category of activities which though notconstituting formal schooling as such are very muchconnected with such formal schooling and filling the gapsin the present formal educational set-up. Mr Soparkar,therefore, submitted that the decision in Sole Trustee,Loka Shikshana Trust vs . CIT : [1975]101ITR234(SC) does notrule out such activities as educational activities.
13. It is true that the various activities referredto in the above quoted paragraph in the decision of theApex Court in Sole Trustee, Loka Shikshana Trust vs. CIT(supra) may be considered as casual activities and, thatthere may be certain activities which, though not casualactivities described above, and though not a part offormal education as such, would have some relation toeducation and, therefore, a trust carrying on suchactivities may be classified as a trust holding propertyfor charitable purpose which includes education as perSection 2(15) of the Act. Hence, there is nothing wrongwith the assessee being recognised as a trust holdingproperty for educational purposes. However, as indicatedabove, what Section 10(22) contemplates is an institutionimparting formal education, which institution isaccountable to some authority and has control over thetaught.
14. Mr Soparkar has submitted that in Gujarat StateCooperative Union vs . CIT, : [1992]195ITR279(Guj) the institutionwas not any such school or college but was impartingeducation in cooperative field. The objects of theassessee in that case were to impart education tocooperative societies and to workers in the cooperativemovement; to act as a coordinating agency on all matterspertaining to cooperative education and function as abody of experts in matters relating to education etc.; topromote the study of problems connected with cooperation;to open circulating libraries, to publish periodicals,books, pamphlets, and literature in general oncooperation, rural development and allied subjects, toconduct training classes, training centres etc. and torun a printing press. Hence, if such activities could beconsidered as educational activities for the purpose ofSection 10(22), the activities being carried on by theassessee in the instant case are also similar.
15. However, a close reading of the above judgmentindicates that the Gujarat State Cooperative Union, theassessee in the above case, was carrying on the followingactivities as indicated on page 284 of the reports:-
Activity Duration
(i) Higher Diploma in Cooperation 18 weeks
(condensed)
(ii) Diploma in Land Development 12 weeks
Banking
(iii) Certificate Course in 10 weeks
Cooperative Credit and Banking
(iv) Specialised Short-term Courses/ -
Orientation courses
(v) Junior Basic Course for 24 weeks
Diploma in Cooperation
The assessee therein was also conducting seminarsand running four cooperative training centres whichconduct Special Course for employees of Urban CooperativeBanks, District Cooperative Banks and Market Class, andalso seminars. The assessee also conducted CooperativeEducation Programme, Consumer Education Programmes(Project), Women Cooperative Education Programme, SpecialTraining Classes in the District under CooperativeEducation and Industrial Projects of the nature andduration as mentioned in the said list of its activities.The assessee therein was accordingly imparting formaleducation in the cooperative field.
It was in the context of the aforesaid activitiesthat the Court held that the assessee was existing solelyfor educational purposes. It appears that the realcontroversy in that case was whether the revenue wasjustified in contending that though some of theactivities of the assessee were educational activities,there were other activities which were not educationaland, therefore, the assessee was not existing solely foreducational purposes. It was in the context of thatcontroversy that the Court held that it cannot be doubtedthat the assessee was a society for diffusion of acertain branch of knowledge, namely, knowledge of thecooperative movement in various fields governing humanlife and the activities for the purpose were carried outin an organised and systematic manner by conductingregular courses for imparting instruction and training onvarious subjects included in the curricula as isreflected from the list of its activities. The Courtalso noted that the assessee was given financialassistance by the Government and the GovernmentResolutions indicated that the grants sanctioned by theGovernment were for educational purposes. This Courtalso referred to the above quoted observations of theHon'ble Supreme Court in Loka Sikshana Trust's case(supra) and then further made the followingobservations:-
'The Supreme Court, in the above observations, byreferring to the systematic instruction,schooling or training given to the young has onlycited an instance in order to indicate as to whatthe word 'education' appearing in section 2(15)of the Act which defines 'charitable purposes' isintended to mean. We are certain that theseobservations were not intended to keep out of themeaning of the word 'education', persons otherthan 'young'. The expression 'schooling' alsomeans 'that schools, instructs or educates' (TheOxford English Dictionary, Vol.IX, page 217).The Supreme Court has observed that the word'education' also connotes the whole course ofscholastic instruction which a person hasreceived. This clearly indicates that theobservations of the Supreme Court were notintended to give a narrow or pedantic sense tothe word 'education'.'
While respectfully agreeing with the DivisionBench that the word 'education' is not confined toteaching the 'young', even so, the Division Bench did notdo away with the test of systematic instruction ortraining eveolved by the Supreme Court. Although theterm 'other educational institution' may not be confinedonly to schools or colleges, the expression doescontemplate an institution imparting formal education ortraining just as the Gujarat State Cooperative Union wasconducting courses in various disciplines related to thecooperative movement.
16. Similar view was taken by this Court inCommissioner of Income-tax vs . Sorabji NusserwanjiParekh, : [1993]201ITR939(Guj) where the assessee was a trustwhich was primarily founded to establish a school orcollege for imparting instructions to Zoroastrianstudents but it was not successful in establishing anysuch school or college and was giving scholarships to theneedy Parsi students to enable them to pursue theireducational activities. There the Court held that theassessee neither actually imparted any knowledge to thestudents nor did it keep any control over such students.Therefore, it cannot be said that the trust was carryingon educational activities or that it was an educationalinstitution established for educational purposes. It,therefore, appears that this Court did lay down controlover the taught as one of the tests for deciding whetherthe institution was an educational institution.
Applying the aforesaid test also, it is clearthat although the activities of the assessee areconnected with formal education being given by otherinstitutions running schools and colleges, the assesseeitself does not have or exercise any control over thestudents who get the benefit of the activities beingcarried on by the assessee.
17. In Bihar Institute of Mining and Mine Surveyingvs . CIT, : [1994]208ITR608(Patna) also, Hon'ble Mr Justice SBSinha speaking for the Division Bench of the Patna HighCourt (as His Lordship then was) has taken the view thatwhere the principal project of the assessee institutionrunning private tuition classes was the object ofcoaching and preparing the students for appearing invarious examinations, it is not an institution forimparting of education and, therefore, cannot be said tobe an educational institution.
18. In view of the above discussion, we are of theview that the Tribunal was right in holding that theassessee was not an educational institution establishedsolely for educational purposes and was, therefore, notentitled to exemption as contemplated under Section10(22) of the Income-tax Act.
We accordingly answer the question in thenegative i.e. in favour of the revenue and against theassessee.
19. At this stage, Mr Soparkar submits that since thereference pertains to the assessment year 1981-82 and,therefore, the Tribunal's decision as well as our opinionare given in the context of the activities which werethen being carried on by the assessee, the opinion forthe said assessment year may not be treated as bindingfor any subsequent year when the assessee may commenceother activities which may qualify the assessee forexemption under Section 10(22)/10(23C), as the case maybe.
We, therefore, clarify that our opinion forassessment year 1981-82 is rendered in the context of theactivities which were then being carried on by theassessee.
20. The Reference accordingly stands disposed of.
21. At this stage, Mr Soparkar, learned counsel forthe assessee prays for a certificate under Section 261 ofthe Income-tax Act, 1961 for appealing against thisdecision to the Hon'ble Supreme Court.
Although what we have done is following thedecision of the Apex Court in Sole Trustee, LokaShikshana Trust vs . CIT, : [1975]101ITR234(SC) we do feelthat having regard to the emerging trends and the modernmeans of teaching and the growing importance of theinstitutions other than those engaged in formal teaching,this is a fit case for appeal to the Hon'ble SupremeCourt. We certify accordingly.