The Delhi high court has ruled that the use of contributions by educational institutions to promote the cause of education without any profit motive would enable them to claim the benefit of deduction under the provision of the Income Tax Act.
In our opinion, section 10 (22) of the IT Act should not be given a restrictive meaning and so long as the income is used for fulfilling educational purpose, the exemption should be available, ruled a high court bench. The court rejected the plea of the Revenue Department which had said that if the donations received by the educational institutes are not voluntary, then the dominant intent is to earn the profit.

Merely, non-distribution of such contributions to the members of the institutes or use of such amount for the educational activities would not be sufficient to claim exemption under section 10 (22) of the Act of 1961, the department had said.

The court, however, said: It cannot be lost sight of that if an institution has to expand, additional infrastructure has to be created, quality education has to be imparted, all these activities require funds. There may be an original corpus of the society but thereafter the corpus for such activity can be created only through voluntary donations either from any philanthropist or through collection of funds in the process of admission.

The court said: We are not concerned with the morality of the issue while deciding whether exemption has to be granted under section 10 (22) of the IT Act as all that is required is the absence of profit motive. The department had denied the exemption claimed by the assessee, Shanti Devi Progressive Educational Society for assessment year of 1993-94.

The assessing officer had zeroed in on three components of the school the admission fee of Rs 7, 12, 000, the corpus fund of Rs 17,24,085 and the loan from the parents of the students amounting to Rs 10,85,000. It were treated by the department as the income of the assessee. Aggrieved, the school had approached the CIT (A).

It dismissed the appeal. The assessee then filed appeal before the Income Tax Appellate Tribunal (ITAT). There were difference of opinion among the two members of the quasi-judicial body. Then the matter was referred to the third member of the ITAT. The tribunal then in its majority order had ruled in favour of the assessee. Aggrieved, the Revenue Department had came to the high court.