2017 (2) TMI 547 - AT - Income Tax

Appeal granted: Appellant eligible for exemption under Section 10(23C)(iiiad) of Income Tax Act. Assessing Officer directed to grant exemption.

Gandhi College of Pharmacy Versus ACIT, Circle, Karnal

Gandhi College of Pharmacy Versus ACIT, Circle, Karnal - TMI Issues Involved:1. Validity of the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)].2. Eligibility for exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961.3. Assessment of income at Rs. 18,93,376/- against NIL income returned by the appellant.Issue-wise Detailed Analysis:1. Validity of the Order Passed by the CIT(A):The appellant argued that the order passed by the CIT(A) was erroneous both in law and on facts. The CIT(A) had confirmed the action of the Assessing Officer (AO) in denying the exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961, and assessing the income at Rs. 18,93,376/-. The Tribunal noted that the CIT(A) had not independently examined the issue but rather relied on the previous assessment orders and the ITAT's decision for earlier years, which had denied the exemption.2. Eligibility for Exemption under Section 10(23C)(iiiad):The appellant claimed exemption under Section 10(23C)(iiiad) on the grounds that it was an educational institution existing solely for educational purposes and not for profit. The AO denied this exemption, arguing that the trust deed was unsigned, unwitnessed, and unregistered, and that the trust existed for profit as evidenced by the surplus income and advances given to trustees.The Tribunal examined the appellant's submissions, which included:- The institution was imparting education through a recognized college of pharmacy.- The trust had a corpus fund and was engaged solely in educational activities.- The trust deed, although unsigned, indicated the intention to create a charitable trust.- The Supreme Court's decision in Aditanar Educational Institution held that incidental surplus from educational activities does not disqualify an institution from exemption.The Tribunal also noted that the judgment of the Uttarakhand High Court in Queens Educational Society, which the AO relied upon, had been overruled by the Supreme Court. The Supreme Court clarified that incidental surplus does not negate the educational purpose of an institution.3. Assessment of Income at Rs. 18,93,376/-:The AO assessed the income at Rs. 18,93,376/- by denying the exemption under Section 10(23C)(iiiad). The Tribunal found that the AO's reliance on the unsigned trust deed and the advances to trustees was not sufficient to deny the exemption. The Tribunal emphasized that the institution's primary purpose was educational and that the surplus was incidental.The Tribunal concluded that the appellant was eligible for exemption under Section 10(23C)(iiiad) as it met all the conditions, including having gross receipts below Rs. 1 crore and existing solely for educational purposes. The Tribunal set aside the order of the CIT(A) and directed the AO to allow the exemption.Conclusion:The Tribunal allowed the appeal, holding that the appellant was eligible for exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961. The Tribunal directed the AO to allow the exemption and assessed the income as NIL, in line with the appellant's return. The Tribunal's decision was based on the recognition of the educational purpose of the institution and the Supreme Court's clarification on incidental surplus.