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income-tax Officer Vs. Gujarat State Co-op. Union - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1985)11ITD450(Ahd.)
Appellantincome-tax Officer
RespondentGujarat State Co-op. Union
Excerpt:
.....pertaining to co-operative education and function as body of experts in the matters relating to education. object no.(iv) does not deal with education but with the spread of the co-operative movement, which is different from education. object no.(v) also seeks to promote the study of problems connected with co-operation and research in the same. object no. (vi) is of a general nature and deals with opening circulating libraries, publication of periodicals, books and pamphlets and literature in general on co-operation, rural development and allied subjects. object no. (vii).deals with conducting of training classes, training centres, schools, colleges, prescribing courses of instruction for them, conducting examinations, and award certificates or diplomas. but when examined in the.....
Judgment:
1. These are appeals filed against the various orders of the AAC and the Commissioner (Appeals). The speaking order is the order of the Commissioner (Appeals) dated 22-11-1983. As common issues are involved, they have been considered together and are being disposed of by a common order.

2. In IT Appeal Nos. 396 to 399, the revenue has filed the appeals alleging that the AAC has erred in directing the ITO to give carry forward and set off of earlier years' losses in the hands of the assessee. There is a further ground of appeal that the AAC erred in treating the income of the assessee as exempt under Section 10(22) of the Income-tax Act, 1961 ('the Act').

3. The departmental representative invited our attention to the order of the ITO for the assessment year 1972-73 dated 26-10-1974. Similar orders for other years have been passed. In this order, the ITO computed the income from property at Rs. 40,769. He observed that originally the assessee had filed its returns declaring losses but subsequently the returns were amended. The departmental representative further invited our attention to the request of the assessee for rectification under Section 154 of the Act for giving set off of losses of earlier years. The ITO, by his order dated 23-10-1978, held that the claim cannot be allowed as the assessee has only income from property during the assessment year. The ITO further held that if there is any business profit, the business loss is to be given set off and, therefore, the assessee's application is treated as filed.

4. The departmental representative explained that the correctness of this order wa s challenged in appeal before the AAC, who held that the assessee is entitled to carry forward and set off of the earlier years' losses. The AAC also held that the income of the assessee is exempt under Section 10(22).

5. The departmental representative submitted that on both the issues, the AAC is not right in law. As far as the carry forward of loss is concerned, the assessee did not claim the same in the return against the column provided therein. Further, the question whether there is any business profit or not, is itself not free from debate and, therefore, there is no mistake apparent from record. Regarding exemption under Section 10(22), the departmental representative submitted that the AAC has not given any reasons why the conditions of Section 10(22) are considered to have been fulfilled.

6. In reply, Shri Kaji submitted that the ITO himself has not given any reason why Section 10(22) is not applicable. Even assuming that the assessee did not make a specific claim in the proper column of the return, the ITO is duty bound to examine his records and to allow such set off as may be due under the law. The ITO has to see the entire records, including the earlier years' assessment orders to see to what extent the benefit of the carry forward of loss is available. Shri Kaji further explained that in each of the earlier years, the ITO has actually determined the loss. Therefore, the conditions of Section 80 of the Act are fulfilled. Shri Kaji admitted that in the pre-1972-73 assessments, there is no specific direction of the ITO that the loss is available for carry forward. However, it is the duty of the ITO to examine his records in each subsequent year and to find out to what extent the loss is available for carry forward. Accordingly, it was submitted that the order of the AAC is correct on both the issues.

7. On an examination of the various facts, we hold that although the assessee may not have made a specific claim in the appropriate column in the return, the ITO was duty bound to examine his records and ascertain the extent to which the previous losses would be available for carry forward and set off against the business income of this year.

As held in CIT v. Manmohan Das [1966] 59 ITR 699 (SC), it is for the ITO, framing the assessment of the later years, to decide whether a particular loss is available for carry forward and set off.

8. Shri Kaji further submitted that the ITO committed factual error in holding that the assessee has only income from property during the assessment years in question. The statement sent along with the returns showed that there was a printing press from which loss arose in the past. The business of printing press at least [without prejudice to the contentions regarding Section 10(22)] existed in the account period. It may be that the income from this very business in respect of the assessment years 1972-73 to 1975-76 was nil, as the assessee itself felt that these would be reimbursements to the extent of the loss from the State Government. Shri Kaji's contention was that the property income, though assessed under Chapter IV-C, really constitutes business income and, therefore, the previous losses should be set off against the income from property. He referred to the case law to show that the various heads of income do not delimit the sources of income and that income assessable under a head other than the business nevertheless can constitute income from business. Accordingly, it was submitted that all the conditions for set off of the previous losses are fulfilled.

9. As mentioned in para 7 above, we hold that the ITO was duty bound to examine his record for deciding whether the previous years' losses are available for carry forward and set off. Examined from this point of view, there can be no doubt that such losses were actually determined.

It is equally clear that the business from which such losses arose, was in existence in the accounting year. To this extent, we agree that the ITO was duty bound to examine the question.

10. The second aspect of the case, however, is a debatable issue, not constituting a glaring and obvious mistake apparent from the records.

It cannot be straightaway said that the income assessed under the head 'Income from house property' constitutes business income. There could conceivably be two opinions on this point and it may require long arguments and examinations of new facts to decide the issue. We hold that under Section 154, the ITO could not have set off the previous losses against property income. Regarding Section 10(22), we have discussed the issue separately below in IT Appeal Nos. 363 and 364 (Ahd.) of 1984.

11. Now coming to the IT Appeal Nos. 363 and 364 of 1984 and 1121 and 1122 of 1984, the departmental representative explained the case with reference to the exemption under Section 10(22). Referring to the assessment order of the ITO dated 10-1-1979, the departmental representative highlighted the main aspects of the case. The ITO has held, after examining the various object clauses, that the assessee's claim under Section 10(22) is not tenable because the assessee co-operative union cannot be termed as an educational institution existing solely for educational purpose. The ITO held that the assessee institution is not recognised or approved by the Government as an educational institution (possibly for the purpose of grant-in-aid). The ITO summed up his case by observing that the assessee has not filed any evidence in respect of claim under Section 10(22).

12. Against these findings of the ITO, the assessee filed an appeal to the Commissioner (Appeals), who examined the objects of the assessee and held that the assessee is an educational institution for the purpose of Section 10(22), for the reasons given by him. The departmental representative submitted that the Commissioner (Appeals) erred in not examining the true scope of Section 10(22), which exempts income of university or other educational institutions existing solely for educational purposes. Relying on a Supreme Court judgment, in S.Azeez Baaha v. Union of India AIR 1968 SC 662, the departmental representative submitted that educational institution connotes something akin to a University, where a student-teacher relationship exists. The departmental representative further submitted that the various objects referred to in para 3 of the order of the Commissioner (Appeals) are distributive and not ancillary to each other. Thus, all the objects do not fall under the category of educational purpose.

Particular reference was made to object No. (iii), which visualises the assessee's functioning as a focussing centre on non-official opinion on various subjects affecting the movement and for representing it in proper quarters. Reference was also made to object No. (viii), which is to run a printing press. Even the remaining objects do not fall under the category of educational institutions because there is no school as such. Object No. (i) deals with education to members of the co-operative societies and to workers in the co-operative movement.

Object No. (ii) deals with the aspect of acting as a coordinating agency on all matters pertaining to co-operative education and function as body of experts in the matters relating to education. Object No.(iv) does not deal with education but with the spread of the co-operative movement, which is different from education. Object No.(v) also seeks to promote the study of problems connected with co-operation and research in the same. Object No. (vi) is of a general nature and deals with opening circulating libraries, publication of periodicals, books and pamphlets and literature in general on co-operation, rural development and allied subjects. Object No. (vii).

deals with conducting of training classes, training centres, schools, colleges, prescribing courses of instruction for them, conducting examinations, and award certificates or diplomas. But when examined in the light of all the objects, the overall impression is that the assessee may qualify for exemption under Section 11 of the Act but not under Section 10(22). We are, however, concerned with Section 10(22) and not Section 11 here.

13. Elaborating his arguments further, the departmental representative submitted that the assessee is running a printing press for the purposes other than the objects, in the sense that it takes outside works. To our query as to whether the character of the institution would change if only spare capacity of the press is utilised for doing the work of the members of the public, the departmental representative submitted that the activity partakes the character of a commercial activity, not connected with the education mentioned in Section 10(22).

14. The departmental representative then referred to Annexure A of the order of the Commissioner (Appeals), which gives the various courses and the duration taken up by the assessee. The departmental representative submitted that these courses cannot be said to be exhaustive and covering all the objects mentioned above. Secondly, even if it is assumed that these courses do represent the whole scope of all the objects, the holding of seminars, refresher courses, etc., does not fall within the subject of education. The departmental representative submitted that the Commissioner (Appeals) has not examined these aspects of the case and has gone by what the Commissioner (Appeals) has called primary object of the appellant. The Commissioner (Appeals) has expanded the scope of the meaning of educational purpose and has laid unwarranted stress on the fact that there is a net loss in the maintenance of the press and that the press was closed from 30-6-1980.

15. In reply, Shri Kaji submitted that the ITO raised no ground for denying exemption under Section 10(22) except the ground regarding the running of a printing press. Shri Kaji invited our attention to the fact that the assessee institution is running under the close supervision of the Registrar of Cooperative Societies, who is a member of the board. Shri Kaji further submitted that the objects are to be seen as a whole. Consequently, the object regarding the printing press would be only an ancillary object. The learned representative further invited our attention to para 5 of the order of the Commissioner (Appeals) and Annexure A, as also to para 6 of the order of the Commissioner (Appeals), which shows that by and large there is a loss in the press and there is an exceptional surplus only in one year. Shri Kaji further pointed out that according to the constitution as also in terms of Section 115 of the Co-operative Societies Act, 1912, distribution of the surplus, if any, amongst the members is not permitted. On winding up, the funds go to similar institutions.

Reliance was placed on Secondary Board of Education v. ITO [1972] 86 ITR 408 (Ori.), Governing Body of Rangaraya Medical College v. ITO [1979] 117 ITR 284 (AP) and Addl. CIT v. Surat Art Silk Cloth Mfrs.

Association [1980] 121 ITR 1 (SC).

16. At this stage of the hearing, we invited the attention of Shri Kaji to the observations of the ITO in para 11 of his order for the assessment year 1976-77, wherein the ITO has taken up the entire gamut of taxation vis a vis Section 10(22). In other words, the ITO has not rejected the claim on the sole ground that the assessee is running a printing press. Besides, when a specific legal issue is raised, it has to be examined in full in the light of the issues arising out of the order of the Commissioner (Appeals), against whose order the present appeals have been filed. The issue of applicability of Section 10(22), in the light of the object clauses, arises directly out of the order of the Commissioner (Appeals) and, accordingly, we are bound to examine the entire issue. We further pointed out to the learned Counsel that the word 'education' has already been explained by their Lordships of the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234. We also invited Shri Kaji's attention to the fact that the observations of the Supreme Court on this question were considered by the Chokshi Committee, which actually suggested amendment of law. But since so far, there is no such amendment, clarificatory or otherwise, we are duty bound to examine the issue in the light of the above Supreme Court judgment. Shri Kaji contended that the relevant observations of the Supreme Court do not come in the way of the assessee. As mentioned in Annexure A of the order of the Commissioner (Appeals), the assessee has been engaged wholly in activities, which could be called educational even in the light of the Supreme Court judgment in Sole Trustee, Loka Shikshana Trust's case (supra).

17. On an examination of the various facts and the arguments, we hold that the case of the assessee for exemption under Section 10(22) has to be rejected. The words 'educational institution' and 'educational purpose' have a specific connotation. The word 'education' itself appears in Section 2(15) of the Act and has become the subject-matter of decision by the Supreme Court in Sole Trustee, Loka Shikshana Trust's case (supra). In this case, their Lordships, Khanna J., with whom Gupta J., agreed, held as under: The word 'education' in Section 2(15) of the Income-tax Act, 1961, connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling....(p.

235) In other words, it is limited to schools, colleges and similar institutions and does not extend to every acquisition of further knowledge, whatever be the media for such acquisition. We have no reason to give a different meaning to the words occurring in Section 10(22). Examined from this point of view, we cannot say that the various objects mentioned by the Commissioner (Appeals) in para 3 of his order reproduced below: (i) to impart education to members of co-operative societies and to workers in the co-operative movement; (ii) to act as a co-ordinating agency on all matters pertaining to co-op. education and function as a body of experts in the matters relating to education; (iii) to function as a focussing centre on non-official opinion on various subjects affecting the movement and for representing it in proper quarters; (v) to promote the study of problems connected with co-operation and carry on research in the same; (vi) to open circulating libraries, to publish periodicals, books and pamphlets and literature in general on co-operation, rural development and allied subjects; (vii) to conduct training classes, training centres, schools, colleges, prescribe courses of instruction for them, conduct examinations and award certificates or diplomas; and Or the activities mentioned in Annexure A of the order of the Commissioner (Appeals), fall wholly under educational purpose. It may be stated here that the question whether the objects of the assessee constitute an advancement of object of public utility or not, does not arise out of the order of the Commissioner (Appeals) and has not been examined by us. The various facts given by Shri Kaji in para 15 above are, thus, not relevant for the purpose.

18. Now coming to the case law relied upon by the assessee, we do not find anything therein to support the assessee's contention. Secondary Board of Education's case (supra) deals with the case where a Board of Education was compiling, printing and publishing and selling the text books. It was held that these activities would show that the assessee existed solely for the purpose of education and that the income is exempt under Section 10(22). It is to be noted that the assessee in this case was a Secondary Board of Education, instituted under the State statute, entrusted with the task of holding examinations and controlling education up to the secondary education level. There are no such facts in the case before us now.

19. Governing Body of Rangaraya Medical College's case (supra) deals with the case of an education society, which started a medical college and collected compulsory donations. There was no dispute that the object of the assessee were study of medical courses and encouragement of research thereon. In the case before us, as mentioned above, the objects do not come anywhere near the objects, which are considered by their Lordships of the Andhra Pradesh High Court.

20. Surat Art Silk Mfrs. Association's case (supra) deals with the case of charitable purpose of the last category, viz., advancement of object of public utility and not education. This case too, therefore, would not help the assessee. We would, however, clarify that we have not considered the printing activity as coming in the way of exemption under Section 10(22).

21. Before closing, we may refer to the following extracts from the Direct Tax Laws Committee's Final Report of September 1978.

I-1.20. The word 'education' in the context of charitable purpose has been used for several decades and has been widely construed since the beginning of the previous century. It has always been understood as not being limited within an unduly narrow ambit and as extending much beyond the narrow compass of mere scholastic instruction. The question as to the extent of the area covered by education would naturally be decided by the Court in each case but it is the well settled law in India and England for several decades that the word is not limited in its character to mere scholastic instruction. The concept of education, as explained in the observations of Khanna J., is not supported by any judgment of the Supreme Court in India or the Appellate Courts in England. The Court of Appeal in England has in the case of Incorporated Council of Law Reporting for England and Wales v. Attorney General 47 Tax Cases 321 sufficiently dealt with the scope of the word 'education' and the Supreme Court has not expressed any dissent from that case nor is it referred to in the judgment. As the issue of what constitutes education generally, as opposed to the issue whether the activities of that particular trust constituted education, was not before the Supreme Court, the observations cannot be construed as laying down the law on what constitutes 'education' generally in the context of charitable purpose.

I-1-21. We, therefore, recommend that an explanatory definition of the term 'Education' should be introduced with retrospective operation to the effect that 'Education shall not be restricted to scholastic instruction only'. Since it would be a purely clarificatory amendment, it is appropriate that it should be enacted with retrospective effect as from the commencement of the Act.

As the proposed amendment has still not come on the statute book, we have no option but to follow the decision of the Supreme Court. Even if it is assumed that the observations of the Supreme Court are in the nature of obiter dicta, in absence of any other authority, we are bound to follow the same. Accordingly, we hold that the assessee is not entitled to exemption under Section 10(22).

22. In the result, IT Appeal Nos. 396 to 399 are partly allowed and IT Appeal Nos. 363, 364, 1121 and 1122 of 1984 are allowed.


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