- (1.) This is an appeal filed by the assessee against the order of the learned first appellate authority in which the following grounds have been taken : 1. Because the learned CIT(A) has erred in law and on facts in holding that the appellant institution was not entitled to the exemption envisaged under s. 10(22) of the IT Act, 1961, and in holding that it was liable to be assessed at an income of Rs. 36,15,633 represented by the surplus shown in the P &L a/c as against 'Nil' income shown by appellant in the return filed in compliance with the notice under s. 142(1) . 2. Because a correct reading of "Aims and Objects" of the appellant society coupled with the activities actually carried on by it ever since its inception, go to prove unmistakably that it existed solely for education purposes and not for purpose of profit and accordingly the appellant's claim for exemption under s. 10(22) was justified and true on facts as well as in law. 3. Because in any case, the findings given by the learned CIT(A) and the order passed by him amounted to : (a) finding out new source of income which was beyond the scope of his appellate jurisdiction, and (b) enhancement in the income of the appellant, without complying with the mandatory requirements in this regard, and the impugned order is, therefore, wholly vitiated illegal and without jurisdiction. Without prejudice to the aforesaid 4. Because the learned CIT(A) has erred in law and on facts in holding that the appellant society did not exist solely for 'educational purpose' and in holding that the benefit of exemption as contained in s. 10(22) was not available to it. 5. Because various 'aims and objects' with which the appellant society came into existence/fall squarely within the category of 'educational purpose' and finding to the contrary is wholly inconsistent with the material and evidence as were on record. 6. Because the case law referred to and relied upon by the learned CIT(A) for coming to the conclusion that the appellant society did not exist solely for education purposes' and was, therefore, not entitled to relief under s. 10(22) of the IT Act, 1961 had been delivered in an altogether different context and background having no bearing on the case of the appellant and the finding that the entire surplus of Rs. 36,15,633 as revealed by the relevant P &L a/c attracted taxation under the IT Act, 1961, are not justified either on facts or in law. 7. Because in any case and without prejudice to the contention in the foregoing grounds, the learned CIT(A) after having himself found and accepted that the surplus of Rs. 36,15,633 as was revealed by the P &L a/c originated solely from the activities carried on for 'educational purposes' should have held that no part of the same was taxable and even the income of Rs. 9,12,760 which was subjected to tax in its hands by the AO was liable to be excluded. 8. Because the basic character of the appellant society that it carried all through its existence only such activities as were relevant for educational purposes, could not be said to have altered merely for the reason that by virtue of by-laws the society could have carried on some other objects which according to the learned CIT(A) were not connected with 'educational purposes' so long as the fact remained that : (a) such disputed 'Aims and Objects' remained dead letter, and (b) the entire surplus had undisputedly originated from the activities connected with educational purposes'. 9. Because the order appealed against is contrary to the facts, law and principles of natural justice. In support of the contentions raised in the grounds of appeal as many as 4 volumes of paper book were fined on behalf of the assessee and written submissions by the Department are also on record. So far as the facts of the case are concerned there is hardly any dispute. In fact, there is no dispute. The controversial point in this appeal is whether the conditions laid down in s. 10(22) of the IT Act, 1961, are satisfied or not. The crux of the matter in this appeal is the applicability or otherwise of exemption under s. 10(22) of the IT Act, 1961. If it is found that the appellant institution can be said to be existing solely for educational purposes and not for purposes of profit, the income of the institution will be exempt under s. 10(22) -on the contrary if it is established that the institution is existing not solely for educational purposes but for purposes of profit then the exemption under s. 10(22) of the IT Act will not be available to the assessee. Before adjudicating upon the controversy not debated in this appeal, it will be necessary to narrate in some detail the sequence of events that took place in this case :
(2.) The institution City Montessori School is in existence since 1963 onwards. There are 16 branches and there are 18,000 students in all getting education in various branches of this institution, City Montessori School, Lucknow. Notice under s. 142(1) asking the assessee to furnish the return for the asst. yr. 1991-92 was issued. Return of income was filed on 25th Feb., 1992, in compliance with the above-mentioned notice. The assessee filed the return of income showing nil income claiming exemption under s. 10(22) of the IT Act, 1961. The observation and finding of the AO in the order dt. 31st March 1993/28th April, 1993, is as under : "The assessee is an educational institution which has sought exemption under s. 10(22) of the IT Act, 1961. From the details and accounts filed during the hearing and placed on record, it is seen that surplus during the year is shown at Rs. 36,15,633. The source of income is shown to be fees and fines, sales of forms. miscellaneous income and profit on sale of assets. Interest income earned by the assessee shown during the year is Rs. 9,12,761. In the succeeding paragraph also, the AO observed that during the year under consideration (1991-92), though the assessee is engaged in the running of educational institution in the name of City Montessori School, income of Rs. 9,12,761 shown under the head 'interest', according to the perception of the AO did not seem to have relation with the educational activities. The nature of this income was that of interest on fixed deposits. The AO further noted that the fixed deposits made by the assessee were not under any legal obligation to carry out educational activity. In the case of Add]. CIT vs . Aditanar Educational Institution, 1979 118 ITR 235, it was held that income which was incidental to running of educational institution was not exempt under s. 10(22) of the IT Act. The assessee's contention before the AO was that ratio of the aforesaid Madras High Court's decision did not adversely affect the case of the assessee because in the case of the assessee interest arose out of the surplus funds available with the banks. However, the AO found that this interest income of Rs. 9,12,761 shown in the P &L a/c did not have any bearing to the educational activity and be brought to tax this amount of interest.
(3.) The assessee filed appeal against this order of the AO before the learned first appellate authority and the latter for the reasons discussed in the appellate order dt. 5th Sept., 1994 not only confirmed the ITO's action to bring the interest income to tax but also enhanced the assessment and after giving the assessee proper opportunity of being heard in accordance with law, assessed income of the assessee institution at Rs. 36,15,633 in the status of AOP. The assessee produced before the Departmental authorities copy of the assessee's constitution, filed replies dt. 10th Aug., 1994. placed reliance on CIT vs . St. Xaxders, 1990 184 ITR 284 and produced all the voluminous material, copies of which were filed before the Tribunal also to convince the first appellate authority that all the conditions mentioned in s. 10(22) of the IT Act were satisfied in this case but for the reasons discussed in paras 2.7 to 2.20, the first appellate authority negatived the contention of the assessee and as stated earlier enhanced the assessment of the assessee institution to Rs. 36,15,633 in the status of AOP.;