QUAID-I-AZAM COLLEGE OF COMMERCE, LAHORE VS COMMISSIONER OF INCOME-TAX/WEALTH TAX, COYS-I, LAHORE, 2002 PTD-LAHORE-HIGH-COURT-LAHORE 2832 (2002)

(a) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cl. (86)---Income of educational institution---Claim of exemption, grant of---Essential conditions---Firstly, such institution should have been established for educational purposes; and secondly, its purpose should not be to make profit.

(b) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cl. (86) & S. 136(2)---Income of educational institution---Claim of exemption---Assessing Officer refused exemption for the reasons that assessee-institution was a commercial institution charging normal fee like similar educational institutions in market; and that same had been declaring surplus funds over the years, the part of which was unverifiable---Such order was maintained by First Appellate Authority and Tribunal---Validity---Both such reasons were not sufficient to refuse claimed exemption---Such refusal could have been made, if Assessing Officer had .established on record that motive or purpose behind establishment of the educational institution was nothing but to make profits; and that actual profits were being made in the guise of imparting education---Assessing Officer instead of making such exercise, had kept on grappling with irrelevant facts---Tribunal had gone further out of the way to refuse exemption by taking into consideration the facts not considered by the Assessing Officer---Tribunal was, thus, not justified in confirming rejection of exemption---High Court answered the reference in negative.

Mehran Girls Gollege v. Commissioner of Income-tax 2001 PTD 987 ref.

Shahid Abbas for Appellant.

Muhammad Ilyas Khan for the Revenue.

Date of hearing: 27th May, 2002.

JUDGMENT

NASEEM SIKANDAR, J.---The appellant is an A.O.P. For the assessment years 1993-94 to 1997-98 its claim for exemption under clause (86) of the Second Schedule, to the Income Tax Ordinance, 1979 was refused by the Assessing Officer mainly on two grounds. Firstly, that it was a commercial institution and was charging normal fees like similar educational institutions in the market Secondly, it has been declaring surplus funds over the years, the part of which was also unverifiable.

2. Learned First Appellate Authority/CIT (Appeals) on 16-1-2001 maintained that order for similar reasons. On further appeal .the leaned Tribunal observed that there was enough material to support the findings that Commerce College was being run by the trustees on commercial basis in order to make profit out of it; that meetings of the alleged trust were chaired by a person who was neither one of the trustees nor was in any manner connected with the Trust. According to the learned members of the Division Bench of 'the Tribunal advancement of huge amount as rent to the landlord of the premises in which Quaid-i-Azam College of Commerce was being run by the Trust was located was also indicative of the fact that it was not a body working without profit/consideration. After the dismissal of the appeal, the prayer of the appellant for a reference of following three questions of law to this Court under section 136(2) of the Income Tax Ordinance, 1979 was declined:---

(i) "Whether on the facts and circumstances of the case the learned Tribunal was justified in holding that Quaid-i-Azam College of Commerce running by Ghaus-i-Azam Trust formed under Societies Act, 1860 is not a valid trust and is not entitled for exemption under clauses (86)/(94) of the Second Schedule of the Income Tax Ordinance, 1979?

(ii) Whether on the facts and circumstances of the case the learned Tribunal was justified in holding that in the absence of blotless account as well as proceeding of minutes of the meeting regarding selection of teachers and other functions cannot qualify under clause (86) of the Second Schedule to the Income Tax Ordinance, 1979?

(iii) Whether on the facts and circumstances of the case the Tribunal was justified in confirming the rejection of exemption under clause (86) of the Second Schedule of the Income Tax Ordinance, 1979 that non-submission of name of building owner at any assessment stage is enough to reject the claim of exemption under the said clause?

3. After hearing the learned counsel for the parties we will agree with the appellant that the consideration that weighed and the inquiries made by the Assessing Officer to refuse the claimed exemption were necessarily misdirected. Clause (86) of the Second Schedule to the Ordinance prescribes only two conditions for grant of claim of exemption. The first that it should be an educational institution solely established, for educational purposes and the second that the purposes of establishment of the

institution should not be to make profit. The establishment of an educational institution namely Quaid-i-Azam College of Commerce and its imparting of education was not disputed. However, the Assessing Officer considered the aforesaid two factors against the claimed exemption. These factors being the charge of fee like other similar institutions and declaration of surplus. Both reasons by them were not sufficient to refuse the claimed exemption. It could have only been done if the Assessing Officer could establish beyond doubt that the motive or the purpose behind establishment of the educational institution was nothing but to make profits. Secondly, that actual profits were being made in the guise of imparting education. This, however, was not done and instead the Assessing Officer kept on grappling for irrelevant facts.

4. We are also in agreement with the learned counsel for the appellant that the learned Members of the Tribunal went all the more out of way to deny the claimed exemption by taking into consideration the facts which had not even been considered by the Assessing Officer.

5. The fact as to who is on the driving seat of the management of the society running the educational institution is hardly of any significance as far the claim of an exemption under the aforesaid clause of the Second Schedule to the Income Tax Ordinance is concerned. It also appears that the learned Members misconstrued the accounts earlier. submitted by the appellant before the Assessing Officer. The observation of the learned Members of the Tribunal with regard to advancement of huge amount to the owner of the premises in which the educational institution was established again were wide of the mark. In the first instance the stated amount as advance for the stated period housing and educational institution does not appear excessive. The Revenue could have, however, a better case for denying the exemption if it could bring sufficient material on record to show that the premises being rented out to the College were directly or indirectly owned by any Member of tire Management Committee of the Society that the amount advanced or the rent fixed was disproportionate to the building its location and other similar considerations which determines the rental value of a property. Therefore, the reliance of the learned counsel on a recent judgment In re: Mehran Girls College v. Commissioner of Income-tax (2001 PTD 987), is relevant and pertinent.

6. Accordingly we will hold that question No. (iii) as framed is a mixed question of law on account of the Revenue Authorities as well as the Tribunal having drawn an inference from undisputed facts. For the various reasons discussed above, it shall be answered in the negative to the facts that the Tribunal was not justified in confirming rejection of exemption. Likewise for the aforesaid reasons the other two questions Nos. (i) and (ii) are also answered in the negative.

7. Reference disposed of.

S.A.K./Q-21/LReference answered.