Educational society gets tax exemption under section 10(23C)(iiiad) for nursery and primary school operations

ITAT Chennai-AT allowed the appeal, reversing the denial of exemption under section 10(23C)(iiiad). The assessee society operated a nursery and primary school in the same building with shared staff and bank account. AO and CIT(A) denied exemption, treating combined receipts as single entity revenue. ITAT held that since each school's annual income was below Rs. 1 crore and the society existed solely for educational purposes, exemption was applicable. The tribunal found lower authorities erred in confirming exemption denial and set aside CIT(A)'s order.

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ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment were:

• Whether the income from two educational institutions run by the assessee society qualifies for exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961.
• Whether the aggregate annual receipts of each educational institution should be considered separately for exemption purposes, or if they should be combined.
• The applicability of various judicial precedents to the facts of the case, particularly concerning the interpretation of "aggregate annual receipts" under Section 10(23C)(iiiad).

ISSUE-WISE DETAILED ANALYSIS

1. Exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961

Relevant Legal Framework and Precedents: Section 10(23C)(iiiad) provides that any income received by a university or other educational institution existing solely for educational purposes and not for profit is exempt if the aggregate annual receipts do not exceed Rs. 1 crore. Rule 2BC of the Income Tax Rules, 1962, specifies this limit.

Court's Interpretation and Reasoning: The Tribunal examined whether the receipts from the nursery and primary schools should be considered separately or combined. The Tribunal referred to precedents such as CIT vs Children's Education Society and DCIT vs. Jat Education Society, which support the view that each educational institution should be treated as a separate entity for the purpose of calculating annual receipts.

Key Evidence and Findings: The assessee society runs two educational institutions, each with receipts below Rs. 1 crore. The total combined receipts exceeded Rs. 1 crore, but individually, each institution's receipts were below the threshold.

Application of Law to Facts: The Tribunal found that the assessee's argument to treat each institution separately was consistent with the judicial precedents cited. The Tribunal noted that the educational institutions were run independently, and the receipts from each did not exceed the statutory limit.

Treatment of Competing Arguments: The Revenue argued that the combined receipts should be considered, as the institutions were run by the same society. However, the Tribunal favored the assessee's interpretation, supported by case law, that each institution should be considered separately.

Conclusions: The Tribunal concluded that the assessee was entitled to the exemption under Section 10(23C)(iiiad) for each institution, as their individual receipts did not exceed Rs. 1 crore.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Each educational institution is a separate entity controlled under various statutes for various purposes... Therefore, if an assessee is running several educational institutions, if any of them is wholly or substantially financed by the Government, then the income from such educational institution received by the assessee is not included while computing his total income."

Core Principles Established: The judgment reinforces the principle that for the purpose of Section 10(23C)(iiiad), each educational institution should be treated as a separate entity when determining eligibility for exemption based on annual receipts.

Final Determinations on Each Issue: The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and allowed the appeal of the assessee, granting the exemption under Section 10(23C)(iiiad) for each educational institution individually.

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