Allowability of exemption u/s 10(22) of IT Act, 1961 to a State-controlled Educational Society/Board

CASE LAW DETAILS

Decided by: SUPREME COURT OF INDIA,  In The case of: Assam State Text Book Production and Publication Corpn. Ltd. Vs. CIT, Appeal No.: Civil Appeal No. 2879 of 2007, Decided on: October 20, 2009

RELEVANT PARAGRAPH

In these appeals, we are concerned with Assessment Years 1981-1982 to 1996-1997, except Assessment Year 1989- 1990. The question which arose before the Assessing Officer was whether the Corporation could be termed as an `Educational Institution’ in terms of Section 10(22) of the 1961 Act”? According to the Assessing Officer, since the assessee, during the relevant years, had income exclusively from publication and selling of text books to the students, exemption under Section 10(22) of the Income Tax Act, 1961 [for short, “the Act”], as it stood at the material time, was not admissible. According to the Assessing Officer, the assessee did not exist solely for educational purposes, particularly in view of Clause 21 of the Memorandum of Association which provides for distribution of dividends, hence, its income was not exempt under Section 10(22) of the Act. This decision of the Assessing Officer was upheld by Commissioner of Income Tax (Appeals]. In the Tribunal, there was difference of opinion between Member [Judicial] and Member [Accountant] .

By decision of the majority, it was held that the Corporation was an educational Institution and, consequently, the Corporation was entitled to the benefit of exemption under Section 10(22) of the Act for the relevant Assessment Years in question. However, in appeal filed by the Department, the High Court came to the conclusion that the income of the Corporation, during the relevant Assessment Years, was not exempt, particularly in view of the fact that the assessee did not exist solely for educational purposes; that it did not solely impart education and that its income during the relevant assessment years was only from publishing and sale of text books, which, according to the High Court, constituted a profit earning activity. Against the said decision, the assessee has come to this Court by way of civil appeals. On going through the records, we find that the High Court has not taken into account the prior history of the case, particularly in the context of incorporation of the Corporation under the Companies Act, 1956, as a Government Company. Initially, as stated above, the assessee was a State-controlled Committee and Board, which were attached to the office of the Director of Public Instruction, State of Assam. It is only in the year 1972 that the Government Company got constituted under Section 617 of the Companies Act, 1956. That, prior to 1972, the entire funding for the working of the Committee/Board was done by the State of Assam and that even the ownership of the assets remained vested in the State of Assam which stood transferred to the Corporation in 1972 when it got incorporated under Companies Act, 1956. It is important to note that the

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