Rajesh Balia, J. - (1.) HEARD learned counsel for the Revenue. No one appeared on behalf of the respondent in spite of service.
(2.) THE Income-tax Appellate Tribunal has referred the following questions of law said to be arising out of its consolidated order passed in five appeals relating to the assessment years 1983-84 to 1987-88 arising out of assessment proceedings for levy of tax on the income of the assessee which is claimed to be exempted from payment of tax under Section 10(22) of the Income-tax Act, 1961, as an educational institution solely existing for the educational purpose not for the purpose of profit and two appeals for the assessment years 1985-86 and 1987-88 arising out of penalty appeals under Section 221(1) of the Act. "1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the income of the assessee was exempt under Section 10(22) of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in cancelling the penalty levied under Section 221 of the Income-tax Act, 1961 ?" The facts as emerging from the statement of case are that the assessee is a registered society which was formed some times in 1966 and was duly registered under the Societies Registration Act vide registration certificate dated June 15, 1966. The objects of the society were mentioned as under : "(a) To promote educational values and provide facilities to acquire education through schools, colleges, training centre, research centre, libraries, reading rooms and lectures, etc., (b) To carry out institutions to attain humanitarian democratic and patriotic values. (c) To enrol on subscription basis without any discrimination of caste creed or sex." After its inception in 1966, the assessee-society opened six educational institutions from time to time since its formation until 1985. The assessee-society had undertaken the activities known as Seekho Kamao Yojna (in short "SKY"). The SKY was a programme of the Education Department and this scheme was started by the assessee-society in its Lal Bahadur Shastri School at its instance. Under this Scheme, the students were taught to manufacture steel furniture, etc., which was used to be sold to various schools under the District Education Officer (DEO), at Jodhpur and other institutions. The stone crushing unit was a unit undertaken by the society. The scheme was envisaged by the Central Social Welfare Board and was intended to provide employment to 400 poor ladies belonging to SC/ST community. The said project of stone crushing lasted for two years for the year ended on March 31, 1986 and March 31, 1987. The Assessing Officer was of the view that had all steel furniture prepared by the students under the SKY was sold directly to the other institutions, the school would have earned profit but the same has been sold to one Atex Industries which was owned by the son of Z.H. Iraqi, Trustee Secretary, and also the society was running a stationery shop under the name of Jodhana Suppliers in the premises of the society. The books and other stationery items were supplied to the students and thus another son of the said Mr. Z.H. Iraqi was deriving income from his dealings in the society premises.
(3.) THE Assessing Officer was further of the view that while accounts of stone crushing were audited the accounts of the SKY were not audited. From the aforesaid two facts, the Income-tax Officer drew the inference that the society does not exist solely for educational purposes but it is diverting its profit to the sons of Z.H. Iraqi through other activities and made additions of the profit made by Atex Industries as declared by him in the income of the assessee and brought the income of the assessee under charge of the tax. Penalty under Section 221(1) for non-payment of tax in respect thereof was also levied. ;