Educational institution's s.10(23C)(vi) exemption denied for late Form 10BB; assessment must allow expenses, remanded for net income.

Where an educational institution's exemption under s.10(23C)(vi) was denied for belated filing of Form 10BB, the Tribunal held that, even if exemption is not presently available, the assessee cannot be assessed on gross receipts by CPC/CIT(A) without allowing corresponding revenue expenditure, since income chargeable must be computed on net basis and legitimate deductions cannot be denied merely due to exemption denial. Following binding HC precedent, the impugned orders were set aside and the matter remanded to AO/CPC to assess only net income (including verification of excess expenditure) for the relevant AYs under s.143(1), with exemption to be allowed by rectification if CBDT later condones the delay.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, on denial of exemption under Section 10(23C)(vi) due to belated filing of audit report in Form 10BB, the CPC/Assessing authority while processing under Section 143(1) can tax the entire gross receipts by disallowing the corresponding expenditure, or must compute and tax only the net income after allowing expenditure reflected in the income and expenditure account.

(ii) What consequential direction should be issued regarding the assessee's claim of exemption under Section 10(23C)(vi) when an application seeking condonation of delay in filing Form 10BB under Section 119(2)(b) is stated to be pending before the CBDT.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Taxability of gross receipts vs. net income when exemption under Section 10(23C)(vi) is denied

Legal framework (as discussed in the decision): The Court dealt with processing/intimation under Section 143(1) and the assessee's exemption claim under Section 10(23C)(vi), in the context of failure to file Form 10BB within the due date. The Court also addressed the assessee's contention that, even if exemption is not available and the assessee is treated as an AOP, assessment must be on net income and not on gross receipts.

Interpretation and reasoning: The Court accepted the submission that taxing gross receipts by denying corresponding expenditure is inherently erroneous and results in an unjust tax burden. It held that even where the benefit under Chapter III is not granted, the computation cannot ignore legitimate expenditure incurred for earning the receipts. The Court applied the principle that the assessment should recover "just tax" and not impose tax on the entirety of receipts without the related deductions/expenses.

Conclusions: The impugned appellate orders were set aside and the matter was restored to the AO/CPC with a direction to compute tax liability by taxing only the net income as per the respective income and expenditure account for each assessment year, after verification. The AO/CPC was directed to pass an order under Section 143(1) in accordance with law on that basis.

Issue (ii): Effect of pending condonation application for belated Form 10BB on exemption under Section 10(23C)(vi)

Legal framework (as discussed in the decision): The Court noted the assessee's application for condonation of delay under Section 119(2)(b) in respect of belated filing of audit report in Form 10BB, stated to be pending before the CBDT, and considered the manner in which the exemption claim should be dealt with in light of such pendency.

Interpretation and reasoning: While the Court did not itself grant condonation, it treated the pending condonation request as relevant for the eventual availability of exemption. It therefore structured relief so that the computation is first corrected to net income, and the exemption under Section 10(23C)(vi) can thereafter be allowed if the statutory authority condones the delay.

Conclusions: The Court directed that the assessee's exemption claim under Section 10(23C)(vi) shall be granted subject to the CBDT granting condonation of delay; upon such condonation, the AO/CPC was to give effect by passing a rectification order in accordance with law.

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