ORDER
R.V. Easwar, J.M.
These cross-appeals pertain to the assessment year 1996-97. In the appeal by the department, the decision of the Commissioner (Appeals) accepting the assessee’s claim that it is an educational institution and hence its income is exempt under section 10(22) of the Income Tax Act, is challenged and in the appeal by the assessee, objection is taken to the decision of the Commissioner (Appeals), denying such exemption in respect of its income by way of dividend and interest.
2. The appeals arise this way. The assessee is a company incorporated in 1928 under the Indian Companies Act, 1913. It was allowed to omit the word “limited” from its name under section 26 of the said Act, which is the forerunner of section 25 of the Companies Act, 1956, since its objects were charitable. The principal objects of the assessee, as per its memorandum of association, are :
(i) To encourage the study of the theory of banking and for that purpose to institute a scheme of examinations and to give certificates, scholarships and prizes.
(ii) To promote information on banking and kindred subjects by lectures, discussions, books, correspondence with public bodies and individuals, or otherwise.
(iii) To collect and circulate statistics, and other information, relating to the business of banking in India.
(iv) To acquire by purchase, donation or otherwise and to maintain, extend and improve a library consisting of works on banking, commerce, finance, political economy, and kindred subjects.
Clause (4) of the memorandum says that the income of the assessee shall not be distributed by way of dividend to its members and clause (8) says that in case of winding up, the assets shall not be distributed to the members but shall be handed over to another institution which has similar objects.
3. It appears that from the inception (1928) the income of the assessee has been exempt under the Income Tax Act in its assessments and the position continued till the assessment year just prior to the assessment year now in appeal. For the year under appeal, the assessing officer was of the view that the object of the assessee was only to conduct examinations for the employees of the banking industry, which cannot be considered to be an educational activity and hence, the claim for exemption under section 10(22) cannot be accepted. No formal classes were conducted for educational purposes either in a school or a college run by the assessee. He noted that the assessee derived substantial income by way of examination fees. He also noticed that the surplus derived by the assessee every year was quite substantial and hence, profit motive was not ruled out. In this view of the matter, he rejected the assessee’s claim for exemption and brought the income of Rs. 1,46,60,466 to tax.
4. The assessee appealed and reiterated its claim before the Commissioner (Appeals) with the help of decided cases on the issue of exemption under section 10(22). It was pointed out that the assessee conducted coaching classes which were attended by bank employees and also supplied study material. There were also contact centres in every state in India and the bank employees who were registered with the assessee could utilise them for the purpose of their studies. In particular, it was submitted that the assessee was not a body merely to conduct examinations, but it carried on continuous educational activities for the benefit of bank employees. Profit-motive was absent. It was, therefore, claimed that exemption should be granted.
5. The Commissioner (Appeals) accepted the claim for exemption under section 10(22) on the ground that the activities carried on by the assessee were educational activities. He, however, held that the income by way of dividend and interest cannot be exempt since they were not derived from educational activities but out of investments. He directed the assessing officer to bring such income to tax.
6. While the department is in appeal against the grant of exemption under section 10(22), the assessee is in appeal against the taxing of the dividend and interest.
7. We have heard the learned Departmental Representative in support of the appeal by the department. We have also heard Mr. Mistry, the learned counsel for the assessee. We are unable to accept the contention of the learned Departmental Representative that the assessee does not qualify for exemption under section 10(22). Its objects, which we have extracted earlier, are clearly to carry on educational activities. Conducting examinations is only the logical culmination of the pursuit of education. We have gone through the mass of material contained in the paper book filed by the assessee. The objects are implemented by conducting coaching classes and by supplying study material. There are also continuous educational programmes. The syllabus, to which our attention has been drawn on behalf of the assessee, contains subjects which are connected to the banking business and are similar to the syllabi for any professional course. Various subjects and taught-rural economics, banking law and practice, principles of economics, Indian economic problems, and so on and so forth. The fees charged for tutorial classes are low, only Rs. 50 per subject and appear to be heavily subsidised. The fees for correspondence course is Rs. 150 per subject and is subsidised. The examination fees are also low (Rs. 100 for six subjects) and also appear to be subsidised. It is no doubt true that there is no formal school or college in the sense in which we understand modern schools or colleges-fixed hours of study, lunch recess, principal, staff, playground, rules for discipline and the like but that is no ground for holding that the activities pursued are not educational activities. There is no requirement in section 10(22) that the assessee should run a school or college in the formal sense in order to qualify for the exemption. We are, therefore, satisfied, having regard to the objects and the activities pursued by the assessee, that it is an educational institution qualifying for exemption under section 10(22).
8. The learned Departmental Representative heavily relied on Sole Trustee Loka Sikshana Trust v. CIT (1975) 101 ITR 234 (SC) to contend that “education” should be imparted in a formal way and that the word cannot be widely construed. The decision was rendered in the context of section 2(15) of the Income Tax Act which defined “charitable object”. The assessee before the court was publishing a newspaper and the contention was that it was a charitable object, the object being the spread of education. The court negatived the contention and observed that any kind of education, such as the education one may get by reading a newspaper, is not contemplated by the provision and what was contemplated is formal instruction in a particular sphere of human activity. But even in this judgment, there is nothing to suggest that the court meant to convey that educational activities could be pursued only in a formal atmosphere such as a school or a college in the sense in which we know them. This decision, therefore, does not advance the case of the department.
9. Two more authorities were cited by the learned Departmental Representative, both of the Karnataka High Court, (i) CIT v. Academy of General Education (1984) 150 ITR 135 (Karn) and (ii) CIT v. Saraswat Poor Students Fund (1984) 150 ITR 142 (Karn). They also do not advance the case of the revenue. In the first, the decision in fact went in favour of the claim for exemption and there are observations to the effect that the assessee claiming exemption under section 10(22) need not run a school or college in the formal sense. The second judgment is on different facts. There, the assessee was a mere financing body for poor students of a particular community. The assessee before us is not a mere financing body as we have seen earlier. Further, in the case of Secondary Board of Education v. ITO (1972) 86 ITR 408 (Ori), the Board was also conducting examinations in addition to imparting education through schools and colleges over which it had administrative and supervisory control. The exemption under section 10(22) claimed by the Board was upheld by the Orissa High Court and this judgment has also been impliedly approved by the Supreme Court in the case of Aditinar Educational Institution v. (1997) 224 ITR 310 (SC). In this judgment, the Supreme Court accepted the proposition that education could be imparted through the medium of colleges and schools and also through other media. It is, therefore, not necessary that an assessee in order to claim exemption of its income under section 10(22) should necessarily impart education through the medium of schools and colleges. In Gujarat State Cooperative Union v. CIT (1992) 195 ITR 279 (Guj) the Gujarat High Court held that advancement of knowledge in the context of section 10(22) includes suitable methods of dissemination and though the primary method of sitting in a classroom may remain an ideal format of the initial education, it may become necessary to have a different outlook for further education. It was held further that it is not necessary to nail down the concept of education to a particular formula and the progress lies in acceptance of new ideas and development of appropriate means to reach them to the recipients. These observations apply to the means adopted by the present assessee, such as correspondence courses, contact centres, supply of study material, permitting the use of library and, of course, the tutorial classes.
10. We may record at this juncture that Mr. Mistry in support of the claim that the assessee before us was carrying on educational activities drew our attention to the following pages in the paper book :
Page No.
Details
8
Various educational support services such as seminars, workshops, self-study kits, guidelines for answering questions, V-SAT network for banking and management education. IIB Portal for online banking education, tutorial classes, contact programmes, question bank and publication of text-books.
46, 56 to 76
Revised syllabus for the studies.
49-59
List of examinations conducted by the assessee.
22 to 24 of paper book No.
Correspondence course, tutorial class, library, contact centres, sub-centres, etc.
11. The next point made by the learned Departmental Representative was that the assessee was motivated by profit in carrying on the activities and pointed out to the following figures to show that it consistently earned surplus from which such a motive could be inferred :
Indian Institute of Bankers
F.Y. 1991-92
F.Y. 1992-93
F.Y. 1993-94
F.Y. 1994-95
F.Y. 1995-96
F.Y. 1996-97
F.Y. 1997-98
Subscription Commutted
31,63,000
26,69,900
42,67,100
31,44,000
3,30,63,120
6,23,45,740
6,59,19,370
Annual
2,64,34,440
2,55,94,270
2,90,76,800
3,01,15,950
Examination fees
2,35,21,410
2,13,91,200
1,15,09,565
1,04,28,530
1,88,47,830
2,61,05,925
2,34,67,585
Tutorial class Fees
8,55,939
12,96,326
9,65,817
14,69,306
7,80,015
12,22,725
12,08,580
Correspondence course fees
3,56,700
5,60,110
9,20,425
5,13,550
8,60,150
32,82,550
54,89,160
Interest & dividend
1,03,26,080
1,46,74,957
1,65,55,288
2,18,25,341
1,15,02,970
1,61,09,133
1,43,69,029
Misc. income
2,37,436
1,32,712
1,45,808
1,23,704
2,10,785
1,85,769
8,32,173
Surplus
16,69,118
35,958
12,57,959
53,02,315
3,79,89,843
3,09,85,144
He cited Lok Sikshana Trust (supra) again to contend that it was not sufficient that the document contained a proscription against distribution of profits but it was absolutely necessary that the institution claiming exemption should not make profits. It is difficult to appreciate how an assessee can so manage its affairs that it just breaks even and no surplus or deficit is made. This would be an impossible task to achieve, nor is it necessary to do so, as the later decision of the Supreme Court in Addl. CIT v. Surat Art Silk Mfrs. Association (1980) 121 ITR 1 (SC) would show. Observations to the contrary contained in Lok Sikshana (supra) which were cited by the learned Departmental Representative before us were disapproved by the larger Bench in Surat (supra). Further, if that were to be so simple of achievement, there is perhaps no need for a provision granting exemption to the income unless there are profits/surplus, the question of granting exemption just does not arise, as held by the Madras High Court in CIT v. Madras Stock Exchange & Ors. case 1977 CTR (Mad) 1 : (1976) 105 ITR 546 (Mad) at page 556. Thus the law does not place an embargo on profit-making or surplus resulting; what its prohibits is profiteering or the profit-motive. Clause (4) of the memorandum prohibits the distribution of the profits to the members of the assessee by way of dividend, etc. The very basis of recognition under section 26 of the Indian Companies Act, 1913 (section 25 of the Companies Act, 1956) is that the object of the company is not that of profit-making but some laudable or charitable object. Therefore, it is also essential that there is an in-built prescription against profit-making. That is present in this case.
12. But the argument of the learned Departmental Representative is that a prohibition on distribution of profits by which private persons (members of the company or its shareholders) were prevented from enjoying the surplus is not sufficient and even if a clause to that effect exists, in actual practice the institution could carry on the activities with a profit-motive, which is what has happened in this case. He pointed out that the assessee has “consistently” made surplus and furnished the relevant figures (supra) for a few years to prove his point. We are unable to accept the argument. As we have seen, the assessee has collected subscription from its members including institutional members (banks) which are substantial. But this has in part gone to subsidise the expenses in conducting tutorial classes and examinations and the supply of study material. The balance which remained as a surplus, after incurring all the expenses in running the institution, has been retained under “reserves and surplus” in the balance sheet as on 31-3-1996 and ploughed back into the activities pursued by the assessee (see Sch. I at page 34 of annual accounts). In our view, it is not proper to infer a profit-motive from the consistency with which surplus is made, but the more important criterion is to see if such surplus is ploughed back for the furtherance of the activities pursued. This criterion is answered in the positive in this case. The surplus or the assets, even in the case of winding up, are not to be divided amongst the members but have to be handed over to an institution or organisation having similar objects (clause (8) of the memorandum). Thus, the surplus consistently resulting in each year is not proof per se of a profit-motive.
13. The next point made by the learned Departmental Representative was that the assessee is a body which exists merely to conduct CIEB examinations and that does not qualify as an educational activity. He relied on the order of the Tribunal in the case of Institute of Banking Personnel Selection (Income Tax Appeal Nos. 5474/Bom/1994, 2966/Bom/1997 and 6742/Bom/1997, dated 24-12-1997), a copy of which was filed before us. But then that assessee was a body, whose function it was to merely advise the banks as to the selection procedure to be followed and the personnel to be selected out of the applicants for banking posts, a specialist job-more in the nature of the consultancy-made necessary in view of the heavy recruitment by nationalised banks. They found it difficult to manage the job of selecting proper personnel for the vacancies and a specialised body was established to help them. In the course of the selection process, examinations were conducted and the results were made known to the banks. The income of the assessee was claimed to be exempt under section 10(22) but it was negatived by the Tribunal on the ground that it was a purely examination-conducting body which was not an educational activity. We respectfully agree with the view taken in this order, but the order is not applicable to the case before us in view of the entirely different nature of the activities carried on by the present assessee. This is not a case of the assessee acting merely as an examination-conducting body, we have already seen that it also conducts tutorial classes, supplies study material, has contact programmes, etc. It also conducts examinations at the end of the course. But as we have already held that is only the logical culmination of the study-process and is not fatal to the claim of exemption.
14. It is not clear why the exemption claim has been negatived for the first time this year. The learned Departmental Representative explained that the assessing officer became wiser after the Tribunal’s order in the case of the Institute of Banking Personnel & Selection (supra). But as we have seen, the facts before us are different; the assessee is different. Since inception the claim has been accepted in the assessee’s case and that could not have been done without a scrutiny of the activities of the assessee by successive assessing authorities. A conscious and informed decision must have been taken to accept the claim. The acceptance of the claim for a number of years is a fundamental aspect of the case and affords a very strong indication that the authorities were satisfied about the correctness thereof. That cannot be permitted to be changed unless there are strong factual or legal grounds and none has been found by us. The action of the assessing officer appears to us to be contrary to the principles laid down by the Supreme Court in Radhasaomi Satsang Sabha v. (1992) 193 ITR 321 (SC).
15. In the assessee’s appeal, the claim is that the Commissioner (Appeals) ought to have exempted the dividend and interest income also under section 10(22). It is pointed out that the section exempts “any” income of an educational institution and it is not a condition for the exemption that the income should be derived from or have nexus with any educational activity. It is pointed out further that wherever the legislature wanted to impose such a condition, it expressly said so in the provision and the provisions of sections 10(20A), 10(21), 10(22B) or 10(27) are cited by way of contrast. It is also contended that this issue is now fully concluded by the judgment of the Supreme Court in Orissa State Warehousing Corporation v. (1999) 237 ITR 589 (SC) and the following observations at pp 595 and 596 (of 237 ITR) are relied upon :
“Needless to say that the word “any income” as appearing in the body of the statute is restrictive in its application by reason of the user of the expressions “derived from”. In the event, the intent of the legislature was otherwise, there was no embargo or restraint to use and express in clear and unequivocal language as has been so expressed in section 10(20A) or 10(21) or 10(22B) or 10(20BB) (sic) or 10(27). These statutory provisions go to show that wherever as a matter of fact the legislature wanted an unrestrictive exemption, the same has used “any income” without any restriction so as to make it explicit that the entire income of the assessee would be exempt.”
16. We are of the view that the contention is well-founded. The issue is also fully concluded by the aforesaid decision of the Supreme Court as the quoted observations show. We therefore, accept the claim and direct the assessing officer to grant exemption of the entire income of the assessee under section 10(22), including dividend and interest.
17. The assessee has raised two additional grounds, one being an alternative ground to the effect that if the assessee is not eligible for exemption under section 10(22), the assessing officer may be directed to consider the assessee’s claim for exemption under section 11. The other additional ground is against the levy of interest under section 234B. The judgment of the Supreme Court in the case of CIT v. Ranchi Club (2000) 164 CTR (SC) 200 : (2001) 247 ITR 209 (SC) is cited. So far as the first additional ground is concerned, there is no need to pronounce upon the same since we have held that the entire income of the assessee is exempt under section 10(22). As regards the interest under section 234B, there is no question of charging interest, because the assessee is exempt from tax. The additional grounds are disposed of accordingly.
18. In the result, the appeal by the department is dismissed and that by the assessee is allowed. The assessee is entitled to costs which we assess at Rs 5,000 which shall be deposited with the Registrar of the Tribunal within 3 months from the receipt of this order whereupon the assessee will be entitled to withdraw the same on making an application to that effect to the Registrar.