2014 (2) TMI 887 - AT - Income Tax

Tribunal Partially Grants Revenue's Appeal on Exemption Conditions Verification

Dy. Director of Income-tax (Exemption) Versus Chaitanya Memorial Education Society,

The Tribunal partly allowed the Revenue's appeal, directing verification of specific conditions like maintenance of separate books of account and ... Eligibility for exemption u/s 11 - Approval u/s 10(23C) of the Act not granted - Educational institution – Charitable purpose - Held that:- The decision in Ass. DIT Versus Sri Chaitanya Memorial Education Society [2014 (2) TMI 670 - ITAT HYDERABAD] followed - The appellant would be eligible for the claim of exemption u/s 11, even if the conditions u/s 10(23C)(vi) had not been complied with, subject to the fulfilment of the conditions u/s 11 to 13 – there is no finding of any charging of donation etc. in the case of the appellant by the Assessing Officer, the Assessing Officer is directed to verify this aspect while giving effect to this order - The institutions falling u/s. 10(23C)(vi) are eligible for exemption u/s. 11 also - Merely because section 10(23C)(vi) of the Act provides for exemption of the income of an educational institution it does not follow that such institution cannot avail exemption u/s. 11 subject to fulfilment of the conditions laid down. Whether the approval under sub-section (vi) to section 10(23C) is distinct from registration u/s 12A of the IT Act – Held that:- It is mandatory on the part of the assessee in terms of section 11(4A) of the Act to maintain separate set of books of account for letting out of function hall - The assessee taken a plea that the assessee has maintained separate books of account - if the assessee maintained separate books of account for letting out the function hall it has to be produced before the Assessing Officer. Assessee had collected money over and above prescribed by concerned authority for admission of student, such an amount was to be classified as capitation fee and it could be said that assessee's case was a clear case of sale of education by assessee – thus, it could not be considered as charitable institution under section 2(15) of the Act because the purpose of the organisation as a whole was to make profit - The issue remitted back to the AO to consider the entire facts and verify the records whether the assessee collected capitation fees from students for the purpose of giving admission – Decided partly in favour of Revenue. Issues Involved:1. Eligibility for exemption under Section 11 of the IT Act.2. Distinction between approval under Section 10(23C)(vi) and registration under Section 12A.3. Violation of provisions of Section 13(1)(c) read with Section 13(3)(a).4. Commercial activities and maintenance of separate books of account.5. Collection of capitation fees.Issue-Wise Detailed Analysis:1. Eligibility for Exemption under Section 11 of the IT Act:The Revenue contended that the assessee was not eligible for exemption under Section 11 due to the absence of approval under Section 10(23C)(vi). The CIT(A) and the Tribunal held that obtaining approval under Section 10(23C)(vi) is not mandatory for claiming exemption under Section 11. The Tribunal reiterated that an assessee could claim exemption either under Section 10(23C)(vi) or Section 11, and it is not necessary to obtain approval under Section 10(23C)(vi) if the assessee opts for exemption under Section 11. This position was supported by previous decisions, including those in the cases of St. Theresa Convent Society and AP Society for Knowledge.2. Distinction between Approval under Section 10(23C)(vi) and Registration under Section 12A:The Revenue argued that approval under Section 10(23C)(vi) is distinct from registration under Section 12A. The Tribunal upheld that the two provisions are separate and independent. The CIT(A) directed the Assessing Officer to verify the compliance with conditions under Sections 11 to 13, despite the absence of approval under Section 10(23C)(vi).3. Violation of Provisions of Section 13(1)(c) read with Section 13(3)(a):The Assessing Officer had rejected the exemption claim under Section 11, citing violations of Section 13(1)(c) read with Section 13(3)(a) due to honorarium payments to certain individuals. The CIT(A) found no evidence that the payments were not commensurate with the services rendered. The Tribunal agreed with the CIT(A) that there was no violation of Section 13, and thus, the exemption under Section 11 could not be denied.4. Commercial Activities and Maintenance of Separate Books of Account:The Revenue contended that the assessee's activity of letting out an auditorium for rent was commercial and required separate books of account under Section 11(4A). The CIT(A) and the Tribunal found that the assessee maintained separate books for the educational activities and the letting out of the function hall. However, the Tribunal noted that the actual production of these books was disputed and remitted the issue back to the Assessing Officer for fresh adjudication, emphasizing the necessity of maintaining separate books of account.5. Collection of Capitation Fees:The Revenue raised concerns about the collection of fees exceeding prescribed limits, which could classify as capitation fees. The Tribunal referenced past decisions, including those in the cases of Vodithala Education Society and Vasavi Academy of Education, where such collections were deemed as capitation fees, disqualifying the institution from being considered charitable under Section 2(15). The Tribunal remitted this issue back to the Assessing Officer to verify whether capitation fees were collected, which would disqualify the assessee from exemption under Section 11.Conclusion:The Tribunal partly allowed the Revenue's appeal for statistical purposes, directing the Assessing Officer to verify specific conditions and compliance issues, including the maintenance of separate books of account and the collection of capitation fees, before granting exemption under Section 11. The Tribunal's decision was consistent with previous rulings and emphasized the need for thorough verification by the Assessing Officer.