Educational society gets tax exemption under section 10(23C)(iiiad) as combined receipts stay below Rs. 1 crore limit

The ITAT Visakhapatnam allowed exemption under section 10(23C)(iiiad) to an educational society. The revenue contended that gross receipts exceeding Rs. 1 crore disqualified the assessee from exemption, arguing combined receipts from degree and junior colleges should be considered together. The tribunal held that gross receipts from degree college (Rs. 84,81,714) and junior college (Rs. 18,66,811) did not exceed Rs. 1 crore individually or collectively, after excluding certain receipts from previous financial year. Following precedent, the tribunal ruled in favor of the assessee, granting the exemption.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1. Whether, for the purpose of exemption under section 10(23C)(iiiad) of the Income Tax Act, 1961, the "aggregate annual receipts" threshold of Rs. 1 crore is to be applied to each distinct educational institution run by a society (each institution separately) or to the total receipts of the society as a single person under one PAN.

2. Whether receipts inadvertently allocated to the assessment year under appeal but pertaining to an earlier financial year must be excluded when determining the applicability of the Rs. 1 crore threshold under section 10(23C)(iiiad).

3. Whether absence of registration under section 12A or approval under section 10(23C)(vi) is determinative against grant of exemption under section 10(23C)(iiiad) where the statutory receipts threshold is not exceeded.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of the Rs. 1 crore "aggregate annual receipts" threshold - per institution or per society (single PAN)

Legal framework: Section 10(23C)(iiiad) excludes from total income incomes of any university or educational institution existing solely for educational purposes where the "aggregate annual receipts" of such institution do not exceed Rs. 1 crore. The exemption operates by excluding specified institutional receipts from computation of the society's total income.

Precedent treatment: The Tribunal followed the view of a coordinate bench which relied on a High Court decision holding that where a society runs multiple educational institutions, each institution is an independent entity for the purpose of section 10(23C)(iiiad) and the statutory test is the aggregate annual receipts of each educational institution, not the consolidated receipts of the society as a single person.

Interpretation and reasoning: The Court reasons that the statutory language contemplates exclusion of income "received by any person on behalf of" universities or educational institutions; the "aggregate annual receipts" limitation is directed at the receipts of the institution. Treating the society's consolidated receipts as the test would defeat the statutory purpose and render the exemption otiose for societies running multiple institutions. The Tribunal observed that educational institutions, though managed by societies or trusts, operate as separate independent entities for many statutory purposes, and the exemption threshold must be applied to each institution's receipts. The Tribunal also noted factual matrix showing that each institution's receipts did not exceed Rs. 1 crore and that certain receipts attributable to an earlier year could be excluded (see Issue 2), resulting in institution-level receipts beneath the threshold.

Ratio vs. Obiter: The holding that the Rs. 1 crore threshold is to be applied to each educational institution separately (and not to the consolidated receipts of the society) is treated as ratio of the decision and followed as binding by the Tribunal in the instant appeal. Reliance on the coordinate bench and High Court reasoning is integral to the ratio; remarks about policy and the public interest in permitting private educational providers to operate are explanatory but ancillary.

Conclusion: The Tribunal held that the "aggregate annual receipts" threshold under section 10(23C)(iiiad) must be applied to each educational institution separately. Where the receipts of each institution do not exceed Rs. 1 crore, the receipts attributable to those institutions are excludable from the society's total income and the society is entitled to exemption under section 10(23C)(iiiad).

Issue 2: Treatment of receipts pertaining to an earlier financial year when determining the threshold for section 10(23C)(iiiad)

Legal framework: The exemption depends on the "aggregate annual receipts" of the educational institution in the relevant financial year. Proper attribution of receipts to the correct financial year is therefore material to determining whether the threshold has been exceeded.

Precedent treatment: The Tribunal followed the coordinate-bench approach that receipts belonging to an earlier financial year should not be included in the receipts of the financial year under consideration for testing the threshold, thereby potentially altering whether an institution exceeds the Rs. 1 crore limit.

Interpretation and reasoning: The Tribunal observed that certain fee receipts included in the AO's computation related to the prior financial year and, when excluded, reduced the society's gross receipts below the statutory threshold. The Court treated correct year-wise allocation of receipts as a necessary step before applying the statutory threshold; mechanical aggregation without regard to proper year attribution would lead to an incorrect result.

Ratio vs. Obiter: The conclusion that receipts attributable to an earlier financial year must be excluded when testing the Rs. 1 crore threshold is applied as part of the operative reasoning (ratio) in allowing the exemption in the appeal before the Tribunal.

Conclusion: Receipts properly attributable to an earlier financial year should be excluded when determining whether an educational institution's aggregate annual receipts exceed Rs. 1 crore under section 10(23C)(iiiad). Exclusion of such earlier-year receipts can result in entitlement to the exemption.

Issue 3: Relevance of registration under section 12A or approval under section 10(23C)(vi) to claim exemption under section 10(23C)(iiiad)

Legal framework: Sections 12A and 10(23C)(vi) provide routes to tax-exempt status for certain charitable and educational entities; compliance with procedural/registration requirements is often relevant to claims of exemption.

Precedent treatment: The Tribunal noted that the assessing officer highlighted absence of registration/approval; however, the Tribunal did not make the absence of such registration the decisive factor against exemption where the statutory receipts threshold was satisfied.

Interpretation and reasoning: The Tribunal's adjudication focused primarily on the statutory threshold test in section 10(23C)(iiiad) and correct year-wise allocation of receipts. Although the AO pointed to the lack of registration/approval, the Tribunal did not deny relief on that ground where the material established that each institution's receipts were within the statutory limit - the threshold criterion under section 10(23C)(iiiad) was determinative in the facts of the case. The Tribunal therefore granted exemption without making an express finding that registration/approval requirements were waived or unnecessary; rather, it treated the receipts threshold as dispositive.

Ratio vs. Obiter: Any observations regarding registration under section 12A or approval under section 10(23C)(vi) are ancillary and do not form the core ratio. The operative ratio concerns the application of the receipts threshold per institution and correct year attribution of receipts.

Conclusion: In the present factual matrix, absence of registration under section 12A or approval under section 10(23C)(vi) did not prevent grant of exemption where the statutory "aggregate annual receipts" test under section 10(23C)(iiiad) was satisfied on institution-wise and year-wise analysis. The Tribunal did not adopt a general rule excusing registration/approval in all cases; its conclusion is limited to facts where the threshold criterion was met.

Overall Disposition

The Tribunal allowed the appeal, holding that the exemption under section 10(23C)(iiiad) is available where each educational institution run by the society had aggregate annual receipts not exceeding Rs. 1 crore (after proper exclusion of receipts attributable to an earlier financial year); accordingly, the receipts in question were excludable from the society's total income and the assessment was set aside.

---