Educational Society Secures Partial Relief: ITAT Directs 15% Statutory Deduction on Gross Receipts for Tax Calculation.

The ITAT partially allowed the appeal of the educational society, directing the AO to permit a statutory deduction of 15% of the gross receipts. Consequently, only the shortfall amount beyond this threshold should be taxed. The ITAT emphasized statutory provisions and relevant circulars, ensuring alignment with legislative intent for taxation of excess income.

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Issues:
- Appeal against order of ld. CIT(A) at National Faceless Appeal Centre for assessment year 2017-2018.
- Taxation of entire excess income over expenditure claimed exempt by the educational society.
- Set off of excess application in preceding years or restriction of taxable income to a specific amount.

Analysis:
The judgment involves an appeal by an educational society against the order of the ld. CIT(A) at the National Faceless Appeal Centre for the assessment year 2017-2018. The primary issue pertains to the taxation of the entire excess income over expenditure claimed exempt by the assessee. The assessee, an educational society, had filed its return of income declaring total income and claiming exemption u/s.12A of the Act. The CPC Bangalore processed the return and created a demand by not allowing the exemption available to the assessee. Subsequently, an application u/s.154 of the Act was filed for rectification of the order, which was rejected by the ld. AO. The appeal before the ld. CIT(A) was dismissed, leading to the current appeal before the ITAT.

During the hearing, the assessee contended that it had applied almost 85% of the receipts and requested a set off of excess application against preceding years or alternatively a restriction of taxable income to a specific amount. The Revenue, however, supported the lower authorities' orders, arguing that the remaining amount should be taxed at the maximum marginal rate. The ITAT considered the rival submissions and observed that the assessee had made two claims: set off of excess application from preceding years and taxation of only the shortfall in application of 85%. The ITAT found that while the set off claim was not supported by the records, there was an error in taxing the excess income over expenditure without allowing the statutory deduction of 15% available to the assessee.

The ITAT referred to Circular No.387 dated 6.7.1984, which clarified the taxation provisions for charitable trusts. Additionally, it noted the insertion of Section 115BBI by the Finance Act, 2023, providing a special tax rate on specified income accumulated in excess of fifteen percent. Based on these provisions, the ITAT held that only the amount in excess of 15% not applied or exempted should be taxed. Therefore, the ITAT directed the AO to allow the deduction of 15% of the gross receipts and tax only the shortfall amount. Consequently, the appeal of the assessee was partly allowed.

In conclusion, the ITAT's judgment addressed the taxation issue concerning the excess income over expenditure claimed exempt by the educational society, emphasizing the statutory provisions and circulars to determine the correct taxable amount in line with the legislative intent.

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