I.T.AS. NOS. 1999/LB, 2000/LB AND 2002/LB OF 1996, DECIDED ON 17TH DECEMBER, 1997 VS I.T.AS. NOS. 1999/LB, 2000/LB AND 2002/LB OF 1996, DECIDED ON 17TH DECEMBER, 1997, 1998 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1099 (1997)

Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cls. 86, 93 & 94---Income of educational institution-- Mode of determination ---Principles---Assessing Officer, without bringing home any disqualification in terms of Cl. 86, Second Sched. of the Income Tax Ordinance, 1979, could not treat the income of such institution as taxable---Where the institution was established solely for the educational purposes and not for the purposes of profit, provision of Cl. 86, Second Sched- of the Income Tax Ordinance, 1979 was attracted.

Ahmad Kamal, D.R. for Appellant.

Syed Aftab Hameed, F.C.A. and H. U. Baig, Member, Board of Directors for Respondent.

Date of hearing: 18th November, 1997.

ORDER

NASIM SIKANDAR (JUDICIAL MEMBER).---The common grouse in these departmental appeals for the years 1990-91 to 1992-93 reads:

"That the learned CIT(A) was not justified in allowing exemption under clauses 86 and 93/94 of the Second Schedule, since the exemption is available to an educational institute whereas the foundation does not fulfil the requirements of the definition of an educational institution, established solely for the purposes of education, with reference to clause 86 of the Second Schedule."

2. The assessee respondent is a society registered under the Societies Registration Act of 1860. Its main objects include promotion and research in pure and applied Science and Technology, to produce Muslim Scientists and Technologist of the highest calibre, to help financially or otherwise to talented students as well as institutions imparting education in science and technology in Pakistan. Returns were filed to disclose incomes at Rs.1,42,66,587, Rs.1,26,54,422 and Rs.1,04,29,745. The sources included profit on K.D.Cs. and other National Saving Certificates, P.L.S. account, dividend from N.I.T. units in the year 1992-93 free income and rentals. Original assessments were finalized by accepting the claim of exemption on

profit of K.D.Cs., profit on Khas Deposit Accounts and profit on National Saving Certificates. However, bank profit on P.L.S. account and dividend income from N.I.T. units was taxed. The assessment orders so framed were set aside by CIT(A) on 24-8-1994 with the direction to re-assess the claim of the assessee that whole of its income was exempt in accordance with the provisions of clause 86 of the Second Schedule to the Income Tax Ordinance read with clause 93 thereof. Also that in case the assessee succeeded in establishing its claim of exemption and order should be made as N.A.

3. After remand the assessee was served with a notice to explain its position with regard to interest on P.L.S. deposits, profit on N.I.T. units and the fact that fees received from students were liable to minimum tax under section 80-D. In reply the assessee reiterated its earlier stand viz. that main object of the Society was to promote science and technology, that it as an approved charitable foundation under section 47(1)(d) and that it wake educational institution for all intents and purposes. Therefore, it was stated that it qualified for exemption under section 86 of the Second Schedule to the Ordinance. With regard to application of section 80-D the opinion expressed by the assessing officer through the aforesaid notice was challenged. It was in this regard stated that section 80-D was applicable to commercial sales and services while the assessee is not engaged in any such kind of activity. The assessing officer observed "Record shows that the assessee has been engaged m educational activities since its inception. The returns have also been marked as "educational Institution non-profit making". However, he rejected the aforesaid contentions of the assessee on the ground that though the "main" object of the foundation was the advancement of science and technology yet it was not the "sole" or only object of the foundation. Therefore, according to the assessing officer it did answer the requirement of he definition of, an institution established only for the purpose of education.

It was further opined that investment K.D.C. accounts and N.I.T. units which, yielded interest or profit to the foundation was not in any way related to educational activities. Also that such investments were required by trust or other charitable institutions claiming exemption under clause 93 or 94 of the Second Schedule The assessing officer further held that the assessee had failed to provide "circumstantial evidence" of non-profit motive of the foundation. With regard to the application of the provisions of section 80-D the assessing officer again repelled the submissions made in this behalf. The tuition fees received were, therefore, held to be in lieu, of services rendered and, therefore, found hit by the mischief of the definition of "turnover" for the purpose of section 80-D. Accordingly, in the year 1990-91 the income from property, profit from K.D.C.'s accounts though found exempt under various other provisions of the Ordinance the fee receipts shown at Rs.8,50,993 as against expenses shown at Rs.69,04,995 were treated business income to assessee at no profit no loss basis. The bank profit at Rs.1,899 was, however, separated for tax purposes. In the assessment year 1991-92 besides the above P.L.S. profit of Rs.1,362 was separated for the purpose of tax and fee receipts at Rs.14,76,609 were subjected to section 80-D. In the year 1992-93 profit on N.I.T. units was found subject to deduction of tax at source. However, income receipts disclosed at Rs.23,22,569 were subjected to section 80-D.

4. Learned first Appellate Authority CIT(A)-II, Lahore by way of its consolidated order recorded for the three years involved on 2-1-1996 accepted the claim of the assessee that whole of the income arisen to the foundation from operation of the institution qualified for exemption under clause 86 of the Second Schedule to the Ordinance. The other submission of the assessee with regard to non-application of provisions of section 80-D however, failed. This issue is not before us in these appeals by the Revenue.

5. Parties have been heard. Learned D.R. in terms of the aforesaid ground reproduced at the start of this order contends that the assessee having failed to establish its aim or exemption the first appellate authority was not justified in allowing the saint Mr. H.U. Baig a Member, Board of Directors of the foundation assisted by his A.R Mr. Aftab Hameed, F.C.A. has addressed us at length on the issue. He has very rightly pointed out that the Assessing Officer at page 2, para. 3 of the consolidated assessee a order dated 30-3-1995 himself accepted that the assessee was engaged in educational activities since its inception, Therefore, without bringing home any disqualification in terms of clause 86 of the Second Schedule to the Ordinance, he could not treat the income of the assessee as taxable. In the view of the gentleman Director and the A.R. of the assessee, the provisions, of clause 86 were fully attracted in the case of the assesses inasmuch as it was an institution established solely for the educational purposes and not for the purpose of profit. Also they take exception to the finding of the Assessing Officer that promotion of education though was main object of the assessee yet it was not its sole object. In this regard reliance has been placed upon memorandum of association of the foundation which details the objects as already detailed earlier. From them we do not find any support for the finding of the assessing officer that promotion of education was not the sole purpose of the assessee foundation. It appears that break-up of the objects of the foundation into five different parts motivated the assessing officer to think that these were more than one in substance and nature. However, a bare glance on them will indicate that they speak of promotion of education from various angles. In object No. l the foundation speaks of study and research in pure and applied science, in object No.2 reference is made to the aforesaid and research by Muslim scientists and a desire to produce more and more of them, in Nos.3 and 4 the intention to help financially the students and the in situations of technology is expressed and para. 5 is a residue clause which has been made to enable the foundation to "adopt all possible means, measures and scheme to forward the aforementioned objects". In none of these objects we trod an alien element which could be said to be non related to promotion of education. It is not the case of the assessing officer that the foundation or any of its managers have a motive or purpose to make profit. The report of auditors M/s. Hyder f3himji & Company, Chartered Accountants for the periods ending on December 31, 1991 and December 1992 also indicate that none of the receipts or incomes of the foundation was diverted towards profit for the benefit of an individual or others. The finding of the assessing officer that the assessee had failed to provide "circumstantial evidence" of non-profit motive appears perfunctory and casual. In the first place, he has not explained as to what amounted to circumstantial evidence of non-profit motive and secondly, it has not even made any reference to any act which could lead to an inference against the declared non-profit object. The loss occurring to the foundation on its educational activities was first taken as an argument to favour of non-profit motive and then repelled on the ground that mere fact of loss m running of the organization could not be taken as a criterion that the foundation had no-profit motives. This way of reasoning on the part of the Assessing Officer is totally unacceptable both in law as well as on fact. In such-like cases, the most important aspect always renames the judging of actual functions of the organization on the touchstone of the pious declarations made in the memorandum and articles of association. It is only the facts and actual conduct of the activities by an organisation which can support or belie the honest intention expressed in its charter, memorandum and articles of association. Both the words and acts when juxtaposed will lead to a logical conclusion if those have been translated into action or expressed intention was only of cosmetic significance. The motive to make a profit out of an activity is not far to seek. 'The vigilant eye or a Tax Collector by a glance at the expense portion of a balance-sheet can dig out if the Managers or the organisers of a charitable institution or an institution of the kind before us had any personal axe to grind. There are other numerous ways by which not only the motive but its actual achievement or accomplishment can be proved as a mathematical equation. This however, requires a lot of labour and in depth inquiry. In order to avoid such exercise a short-cut is generally adopted to pick up words used to different contexts to assign them meanings to expand or restrict their significance in order to reach a pre-determined conclusion.

6.This is what actually happened to the case before us. The Assessing Officer even after remand did not care to look into the activities of the foundation and to see their working in the perspective of the declared objects. XII force was consumed to distinguish between the "main" and --sole" purpose. The whole of such discussion made in this regard was totally extraneous and irrelevant to the issue before the Assessing Officer.

7. The Revenue having failed to establish on record that the assessee foundation was incurring any disability or disqualification to cloud its right to the benefits of clause 86 of the Second Schedule to the Ordinance, we will refuse to interfere. Therefore, the three departmental appeals shall meet their fate.

8. Dismissed.

M.B.A./467/Trib. Appeals dismissed.