2015 (9) TMI 129 - AT - Income Tax

Non-profit educational institution qualifies for tax exemption under Section 10(23C)(iiiad)

Assistant Commissioner of Income Tax, Circle-1, Alwar. Versus M/s Public Rose Shiksha Samiti,

The ITAT upheld the CIT(A)'s decision that the assessee's annual receipts were below Rs. 1 crore and that it existed solely for educational purposes. ... Eligibility for exemption U/s 10(23C)(iiiad) - whether annual credit receipt is more than one crore is not eligible for exemption U/s 10(23C)(iiiad) ? - CIT(A) found that total receipts were less than Rs. One crore and allowed exemption - Held that:- On verification of the total receipt mentioned by the Assessing Officer there was a transaction of sale of land for ₹ 47,90,000/-. The Hon’ble Madras High Court has considered the issue of annual receipts as envisaged in Section 10(23C)(iiiad) of the Act in the case CIT Vs. Madrasa EBakhiyath -Us-Salihath Arabic College (2014 (8) TMI 565 - MADRAS HIGH COURT ) wherein the annual receipt, the sale proceed of land and Bond held not to be equated to annual receipts as stated U/s 10(23C)(iiiad) of the Act. If the sale of land to the tune of ₹ 47,90,000/- reduced from the total receipt, it comes within the limit prescribed U/s 10(23C)(iiiad) of the Act. Further the Hon’ble Jurisdictional High Court and Hon'ble Supreme Court’s decision referred by the Assessing Officer has been considered by the Hon’ble Gujarat High Court in the case of Gujarat State Co-operative Union Vs. CIT [1992 (2) TMI 74 - GUJARAT High Court] wherein it has been held that word education was not used in a wide or extended sense so as to include addition to the knowledge of a visitor to a zoo or museum, the High Court held that the museum cannot be taken to be an educational institution existing solely for educational purposes. The object of the samiti as mentioned by the Assessing Officer in his assessment order supports the assessee’s claim that it is an educational institution. The Coordinate Bench has allowed the assessee’s registration U/s 12AA of the Act in financial year 2000-01. - Decided in favour of assessee. Issues Involved:1. Determination of annual aggregate receipts of the assessee.2. Eligibility for exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961.3. Consideration of the assessee's purpose of existence and the definition of 'solely' in the context of educational purposes.Detailed Analysis:Issue 1: Determination of Annual Aggregate ReceiptsThe primary contention was whether the annual aggregate receipts of the assessee exceeded Rs. 1 crore. The Assessing Officer (AO) calculated the total receipts as Rs. 1,46,81,760/-, including various items such as the sale of land, scholarships, and other miscellaneous receipts. However, the CIT(A) disagreed, interpreting 'annual receipts' to include only recurring income related to educational activities, excluding non-recurring items like the sale of land and interest on FDRs. The CIT(A) concluded that the annual receipts were Rs. 90,36,200/-, which is below the Rs. 1 crore threshold, thus making the assessee eligible for exemption under Section 10(23C)(iiiad).Issue 2: Eligibility for Exemption under Section 10(23C)(iiiad)The AO denied the exemption, arguing that the total receipts exceeded Rs. 1 crore and that the assessee did not exist solely for educational purposes. The CIT(A) and ITAT, however, found that the AO's calculation included non-recurring receipts that should not be considered as part of the annual receipts. The CIT(A) applied the principle that the interpretation favoring the assessee should be adopted when multiple reasonable interpretations exist, citing the Supreme Court's decision in CIT v. Vegetable Products Ltd. Consequently, the CIT(A) held that the assessee's receipts were below Rs. 1 crore, thereby qualifying for the exemption.Issue 3: Purpose of Existence and Definition of 'Solely'The AO argued that the assessee did not exist solely for educational purposes, citing the presence of other objects in its constitution and the diversion of funds for non-educational purposes. The CIT(A) and ITAT, however, found that the assessee's activities during the relevant year were exclusively educational. The CIT(A) noted that the assessee had not conducted any non-educational activities and had utilized its funds solely for educational purposes. The ITAT upheld this view, referencing the Gujarat High Court's distinction in Gujarat State Co-operative Union v. CIT, which clarified that the term 'solely' should be interpreted in the context of the assessee's actual activities rather than its stated objects.Conclusion:The ITAT upheld the CIT(A)'s order, concluding that the assessee's annual receipts were below Rs. 1 crore, and it existed solely for educational purposes during the relevant year. Therefore, the assessee was eligible for exemption under Section 10(23C)(iiiad). The revenue's appeal was dismissed.