1. This appeal by revenue is directed against the order of learned Commissioner (Appeals), Dehradun dated 13-2-2004. The only issue in this appeal is whether the assessee is entitled to exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961 (hereinafter referred to as the Act).
2. The brief facts of the case are that the appellant society was registered under the Societies Registration Act and has been imparting education to children. The appellant, society claimed exemption under Section 10(23C)(iiiad). The assessing officer observed that the exemption under Section 10(23C)(iiiad) is available to such other educational institutions which were akin to a university in stature, management, regulatory mechanism, standard of education etc. The assessing officer doubted whether a school run by the appellant society was eligible to be covered under Section 10(23C)(iiiad) as an institution. Further, the Assessing officer observed that the main object of the appellant society was to earn profit by running school and utilize excess of receipts over expenditure towards religious and charitable purposes and society had not done anything to achieve the other objects except pursuing the main object and earning profit. It was further observed in the assessment order that with the profits earned the appellant society had strengthened or enhanced its capacity to earn more rather than to undertake any other activities to fulfil the other noble objects for the cause of poor and needy people or advancement of religion. The assessing officer held that it was well settled principle that income attracted tax as soon as it accrued. The application or destination of income had nothing to do with its taxability; thus, income-tax was attracted when the income was earned; taxability of income did not depend upon its destination or manner of its utilization. The assessing officer held that the society was running the school on commercial lines and relying on the judgment of the Apex Court in the case of Safdarjung Enclave Educational Society v.MCD ; it was held that society was not entitled to 3. The learned Commissioner (Appeals) held that all the objects pertain to education only and there was hardly any mention of any charitable or religious purpose. Relying upon the decisions of Hon'ble Supreme Court in the case of Aditanar Educational Institution v. Additional CIT , Delhi High Court in the case of CIT v. Lagan Kala Upvan and that of Calcutta High Court in the case of Birla Vidya Vihar Trust v. CIT , learned Commissioner (Appeals) held that the assessee is entitled to exemption under Section 10(23C)(iiiad) of the Act. Revenue is in further appeal before us.
4. The learned Departmental Representative Dr. Balwan submitted that a close scrutiny of the facts and circumstances of the case indicates that assessee-society is engaged in running the institution/school on commercial lines and exists not solely for the educational purpose.
This finds support from the following facts extracted from the Income and expenditure accounts of the assessee for the year under consideration: Thus, it is clear from the table above that total fees charged in the aforesaid heads comes to Rs. 10,73,320, whereas, expenditure made against it was Rs. 2,27,211 only and profit/surplus of Rs. 8,46,109 was generated. These trends clearly gives an indication that the institution exists for profit earning. Thus, assessee society does not fulfil One of the basic condition of 10(23C)(iiiad) i.e. "exists solely for education purposes".
6. We have considered the relevant facts, arguments advanced and the case laws cited. On perusal of the records and objects of the society, it is evident that the appellant society was established in 1959 with five students only; it was upgraded to High School in 1985 and got recognition for Intermediate classes in the year 1988. Presently, the institution is stated to be having about 120 staff members and about 2000 students. Most of the objects of the appellant society pertain to education e.g. imparting education to children, including spirit of brotherhood and love, giving academic, moral and physical education to develop children natural instincts and aptitude and to prepare children for higher education. The society is registered under the Societies Registration Act. During the year it has shown gross receipts at Rs. 96,49,062 (major receipts are from fee at Rs. 85,80,575 other receipts are on account of fuel charges, bank interest, donation, rent, breakage and fine etc.). The surplus of income over expenditure stood at Rs. 7,12,704. During the year there has been investment at Rs. 10,40,501 in fixed assets such as building, furniture and fixture and vehicle etc.
If the above investment into fixed assets is also taken into expenditure, the total expenditure during the year exceeded the receipts by an amount of Rs. 3,27,797. A perusal of the balance sheet of the appellant society shows that the accumulated capital fund at Rs. 71,32,879 as on 31-3-2001 stood represented mainly in the fixed assets such as buildings (Rs. 45,98,650), furniture and fixture (Rs. 4,91,501), vehicle (Rs. 17,66,011), other assets (Rs. 87,035), generator (Rs. 16,000). It may be worthwhile to view the position of income/surplus in five years as under: Gross Receipts Surplus Investment in fixed assets Net surplus 2001-02 1,15,72,753 97,313.56 11,41,275.76 1043962.20 2000-01 96,49,062 7,12,704.80 10,40,501.92 32797.12 1999-00 64,05,334 13,29,531.54 8,00,908.40 528623.14 1998-99 61,96,745 7,58,397.20 5,89,670.90 168726.30 1997-98 52,10,985 5,85,764.56 5,80,858.21 4906.35 It is evident from the above figures pertaining to 5 years that the surpluses generated over the years by the society have been utilized for purposes of expansion and improvement of building and other infrastructure so that the institution may be able to give better educational facilities to more number of students. This is very much obvious from the fact that the appellant institution had started with 5 students only in 1959 and is now having about 2000 students, thus, in the appellant's case the surplus generated from year to year appear to have been utilized for educational purposes mainly towards addition into fixed assets for expansion and improvement. The assessing officer has not brought on record any evidence to prove that the surplus generated by the appellant has either been diverted for purposes other than educational or the same has been used for private profit. In the light of above facts, there was no justification for the assessing officer's observation that the appellant society was not formed solely for educational purposes but to earn profit by running school and utilize the profit for charitable and religious purposes. Again the assessing officer's observation "with the profit earned the society had strengthened or enhanced its capacity to earn more rather than to undertake any other activities to fulfil other noble objects for the cause of poor and needy people or advancement of religion" seems to be factually incorrect. Such noble objects for cause of poor and needy or advancement of religion do not find any mention in the object clauses of the appellant society.
7. As per Section 10(23C)(iiiad) any income received by any university or educational institution existing solely for education purposes and not for the purpose of profit, is exempt. Merely because there is some surplus, it cannot be said that the assessee society is not existing solely for the purpose of education or is existing for the purpose of profit. The assessing officer has referred to the decision of Hon'ble Supreme Court in the case of Assistant Commissioner v. Aditanar Educational Institution and the passage from the judgment of the Apex Court reproduced in the assessment order under appeal itself goes against the interpretation of the assessing officer which says "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 or difference between the corpus, the objects and the powers of the concerned authority". The Hon'ble Supreme Court further held in this case that if it is found that the "educational institution exists for educational purposes in the relevant year and if any profit results which is only incidental to the purpose of education, the same would be exempt." Confirming the finding of the Madras High Court in Additional CIT v.Aditanar ,Educational Institution , the Apex Court further observed "any income which has a direct relation or is incidental to the running of the institution as such, would qualify for exemption," But the assessing officer has failed to consider this later portion of the Supreme Court judgment. The law is clear that any judgment or decision or legal pronouncement must be read word by word, clause by clause, and then as a whole. The law does not permit choosing a portion of judgment which might be beneficial to one and the portions going to the advantage of the other should be excluded. The assessing officer has also referred to a Supreme Court decision in the case of Safdarjung Enclave Educational Society's case (supra). This decision of the Hon'ble Supreme Court is with reference to Section 115(4) of Delhi Municipal Corporation Act dealing with property tax and does not have any relation with the provisions of the Income Tax Act. The Asstt. CIT in his assessment order has also tried to rely on another Supreme Court judgment in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT assessee's case. This case involved a dispute about the various heads of income under the Income Tax Act, 1961 and laid down the rule that the computation of income under various heads of income will have to be made independently and separately, for which specific rules for deduction and allowances under each head have been provided. Learned Departmental Representative has not been able to distinguish the case laws relied by learned Commissioner (Appeals) or cite any contrary decision. So far as claim of exemption under Section 10(23C)(iiiad) is concerned, this Supreme Court decision is irrelevant. 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 fee 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 receipts over expenditure in the year under appeal (and in earlier years) has enabled the appellant to acquire its own property, acquire computers, library books, sports equipments etc. for the benefit of the students. And more importantly the members of the society have not utilized 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 the receipts and outgoings, the trust will not be able to achieve the objectives. Any educational institution cannot be run in rented premises for all 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 objectives, it has to raise its own funds. But such surplus would not come within the ambit of denying exemption under Section 10(23C)(iiiad) of the Act. We accordingly, hold that the assessee trust is entitled to exemption under Section 10(23C)(iiiad) of the Act.