Educational exemption and depreciation rules: coaching activity did not defeat section 10(23C)(vi), and retrospective depreciation denial failed.

An educational institution may retain exemption under section 10(23C)(vi) where its coaching or short-term preparatory courses remain incidental to a primary educational purpose and income is applied for education without private gain; the coaching receipts did not, by themselves, defeat eligibility. Section 11(6) was treated as prospective, so depreciation on the opening block of assets could not be denied retrospectively where no post-amendment acquisition was involved; the depreciation claim was allowed. A later-year receipt from sale of library books was not taxable again when the sale had already been adjusted in an earlier year; the addition was deleted. The article states that the assessee succeeded on all substantive issues.

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Issues: (i) Whether an educational institution claiming exemption under section 10(23C)(vi) of the Income-tax Act, 1961 loses eligibility merely because it conducts coaching or short-term preparatory courses and earns receipts from such activities; (ii) whether depreciation on opening block of assets can be denied in view of section 11(6) of the Income-tax Act, 1961; and (iii) whether the amount received in the relevant year from sale of library books could be brought to tax though the sale had already been adjusted in the earlier year.

Issue (i): Whether an educational institution claiming exemption under section 10(23C)(vi) of the Income-tax Act, 1961 loses eligibility merely because it conducts coaching or short-term preparatory courses and earns receipts from such activities.

Analysis: The exemption applies to a university or other educational institution existing solely for educational purposes and not for profit. The activity of education was understood broadly enough to include structured coaching aimed at intellectual and professional development, provided the institution's primary object remained educational and its income was applied for educational purposes without diversion for private gain. Registration under section 12A was noted as relevant to charitable character, but not as a substitute for satisfying the requirements of section 10(23C)(vi).

Conclusion: The coaching activities did not by themselves disentitle the assessee from exemption, and the disallowance under section 10(23C)(vi) was not sustained.

Issue (ii): Whether depreciation on opening block of assets can be denied in view of section 11(6) of the Income-tax Act, 1961.

Analysis: The amendment introducing section 11(6) was held to operate prospectively. Since no new assets were acquired after the effective date of the amendment and the claim related to depreciation on the opening balance of fixed assets, the restriction could not be applied retrospectively. The claim for depreciation was therefore permissible.

Conclusion: The depreciation disallowance was deleted and the claim was allowed.

Issue (iii): Whether the amount received in the relevant year from sale of library books could be brought to tax though the sale had already been adjusted in the earlier year.

Analysis: The sale of library books had already been reduced from the block of assets in the earlier financial year, and the later receipt of the sale consideration did not justify a fresh addition in the year under appeal. The amount had already been given effect in the books for the earlier year.

Conclusion: The addition on account of sale of library books was deleted.

Final Conclusion: The assessee succeeded on all substantive issues, and the appeals were allowed.

Ratio Decidendi: An educational institution does not lose exemption under section 10(23C)(vi) merely because it conducts coaching activities, so long as it exists solely for educational purposes and not for profit, and the retrospective denial of depreciation is impermissible where the statutory restriction operates prospectively.

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