2018 (11) TMI 633 - AT - Income Tax

Tax Exemption for Educational Institutions: Verification of Gross Receipts & Compliance with Section 10(23C)(iiiad)

The Tribunal directed the Assessing Officer to verify the gross receipts of each educational institution individually. If the receipts are below Rs. 1 ... Exemption under section 10(23C)(iiiad) - deemed approval under section 10(23C)(vi) - aggregate annual receipts test - remand for factual verification and opportunity of hearingDeemed approval under section 10(23C)(vi) - remand for factual verification and opportunity of hearing - Deletion of addition by CIT(A) on the basis that the assessee shall be deemed to have received approval under section 10(23C) where the application remained neither disposed nor rejected - HELD THAT: - The Tribunal examined the basis on which the CIT(A) deleted the addition - namely that the pending application for approval under section 10(23C)(vi) filed on 23.12.2004, having neither been approved nor rejected after long lapse of time, should be treated as deemed approval. The Tribunal did not rest the matter on a blanket acceptance of deemed approval by the CIT(A). After considering rival submissions and authorities, the Tribunal directed that the factual position regarding the pending application and the receipts of the institutions be verified by the Assessing Officer. The Tribunal recorded that the question whether exemption should be allowed could not be finally determined without such verification and an opportunity being given to the assessee. [Paras 11, 13, 14]CIT(A)'s deletion premised on deemed approval was not sustained as a final adjudication; the matter requires factual verification and hence is remitted to the Assessing Officer with directions to afford the assessee reasonable opportunity of being heard.Exemption under section 10(23C)(iiiad) - aggregate annual receipts test - Applicability of section 10(23C)(iiiad) where the assessee runs multiple educational institutions and whether receipts must be tested institution-wise against the prescribed limit - HELD THAT: - Relying on the decision of the Karnataka High Court in CIT v. Children's Education Society, the Tribunal accepted the legal proposition that the exemption under section 10(23C)(iiiad) is to be applied by testing the aggregate annual receipts of each individual educational institution; if the aggregate annual receipts of an individual institution do not exceed the prescribed limit (Rule 2BC - Rs. 1 crore for the relevant period), income from that institution need not be included in the assessee's total income. Applying that ratio, the Tribunal held that the Assessing Officer must verify whether each institution run by the assessee exists solely for educational purposes and whether the aggregate receipts of each such institution are below the threshold; if so, the benefit of section 10(23C)(iiiad) may be allowed. The Tribunal therefore remitted the matter to the AO to carry out the said verification and act in accordance with law. [Paras 12, 13]Question of exemption under section 10(23C)(iiiad) is remitted to the Assessing Officer for verification of the nature of each institution and institution-wise aggregate receipts; if conditions are satisfied, exemption may be granted subject to admissible procedure.Final Conclusion: Revenue's appeal is allowed for statistical purposes and the matter is remitted to the Assessing Officer to verify, institution-wise, whether each educational institution is solely for educational purposes and whether its aggregate annual receipts fall below the prescribed limit, and thereafter to decide entitlement to exemption under section 10(23C)(iiiad), all after affording the assessee a reasonable opportunity of being heard. Issues Involved:1. Deletion of addition of Rs. 90,31,280/- on account of disallowance of excess of income over expenditure.2. Applicability of Section 10(23C)(vi) of the Income Tax Act, 1961.3. Verification of gross receipts of various educational institutions under Section 10(23C)(iiiad).Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 90,31,280/- on Account of Disallowance of Excess of Income over Expenditure:The Revenue challenged the deletion of Rs. 90,31,280/- by the CIT(A), which was made by the Assessing Officer (A.O) due to the disallowance of excess income over expenditure. The A.O had denied the benefit of exemption under Section 11 and Section 10(23C)(vi) of the Income Tax Act, 1961, on the grounds that the registration under Section 12AA was granted from 01.04.2004, and the assessee did not have the necessary approval from the prescribed authority for the exemption under Section 10(23C)(vi).2. Applicability of Section 10(23C)(vi) of the Income Tax Act, 1961:The CIT(A) had allowed the assessee's appeal on the basis that the application for approval under Section 10(23C)(vi) was neither approved nor declined after a significant lapse of time, thereby deeming the approval to have been granted. The Revenue contended this decision, citing a precedent from the ITAT Amritsar Bench, which required explicit approval for the exemption to be valid.3. Verification of Gross Receipts of Various Educational Institutions under Section 10(23C)(iiiad):The Senior Counsel for the assessee argued that before considering Section 10(23C)(vi), the applicability of Section 10(23C)(iiiad) should be examined. According to the assessee, each educational institution's gross receipts were below Rs. 1 crore, making them eligible for exemption under Section 10(23C)(iiiad). The Karnataka High Court's judgment in CIT vs. Children’s Education Society supported this view, stating that each educational institution's receipts should be considered individually rather than aggregating them.Tribunal's Decision:The Tribunal, after considering the arguments and the judgment of the Karnataka High Court, directed that the issue of the gross receipts of the various institutions run by the assessee should be verified by the A.O. If each institution's receipts are found to be below Rs. 1 crore and they exist solely for educational purposes and not for profit, the A.O is to grant the exemption under Section 10(23C)(iiiad). The appeal was allowed for statistical purposes, and the case was remanded back to the A.O for verification, ensuring a reasonable opportunity for the assessee to be heard.Conclusion:The Tribunal emphasized the need for a detailed verification of the gross receipts of each educational institution individually to determine the applicability of the exemption under Section 10(23C)(iiiad). The decision underscored the importance of adhering to the statutory provisions and judicial precedents while granting tax exemptions to educational institutions.