Case Note & Summary
The case involves a reference under Section 256(1) of the Income-tax Act, 1961, by the Income Tax Appellate Tribunal at the instance of the assessee, the Trustees of Vanita Vishram, which runs a school. The trust was formed in January 1928 with the object of running and maintaining schools for imparting religious, secular, and industrial education, along with allied activities. For the assessment years 1979-80 and 1980-81, the trust filed returns showing interest income earned from the investment of surplus funds of the schools. The question referred to the High Court was whether such interest income is exempt under Section 10(22) of the Act. The court examined the facts and held that the interest income is incidental to the educational activities and is derived from the surplus funds of the educational institution. The court reasoned that the exemption under Section 10(22) is intended to cover all income of an educational institution existing solely for educational purposes, including income from surplus funds invested temporarily. The court answered the question in the affirmative, in favor of the assessee, and directed that the reference be disposed of accordingly.
Headnote
A) Income Tax - Exemption under Section 10(22) - Interest on Surplus Funds - The issue was whether interest earned on surplus funds of a school run by a trust is exempt under Section 10(22) of the Income-tax Act, 1961. The court held that such interest income is incidental to the educational activities and qualifies for exemption, as the surplus funds belong to the educational institution and are used for its purposes. (Paras 2-5)
Issue of Consideration
Whether the assessee-trust is entitled to exemption under Section 10(22) of the Income-tax Act, 1961, on interest earned on surplus funds of the school run by it for the assessment years 1979-80 and 1980-81.
Final Decision
The court answered the question in the affirmative, holding that the assessee is entitled to exemption under Section 10(22) on interest earned on surplus funds of the school for the assessment years 1979-80 and 1980-81.
Law Points
- Exemption under Section 10(22) of the Income-tax Act
- 1961
- applies to interest income earned on surplus funds of an educational institution
- as such income is incidental to the educational activities and does not lose its character as income of the educational institution.
