2025 (3) TMI 517 - AT - Income Tax

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

ICF Silver Jubilee Nursery & Primary School Versus Deputy Commissioner of Income Tax, Non Corporate Ward -10 (1), Chennai

ITAT Chennai-AT allowed the appeal, reversing the denial of exemption under section 10(23C)(iiiad). The assessee society operated a nursery and primary ... Exemption denied u/s.10(23C)(iii)(ad) - Charitable purposes or not? - assessee is running educational institution in the same building and the same teaching staff is teaching for both the entities as seen in the website of the society HELD THAT:- The assessee is existing solely for educational purpose and annual income earned during the year does not exceed Rs. 1.00 crore from each school i.e., nursery school and primary school and hence, the society is exempted from tax as per the provisions of section 10(23C)(iiiad) r.w.r. 2BC of I.T. Rules, 1962 and filed the return of income on 07.03.2023 u/s.139(4C) of the Act showing the gross receipts from Nursery school and from Primary School. AO has considered the entire receipts as revenue of the organization and hence assessed to tax without giving the benefit of section 10(23C)(iiiad). The same was confirmed by the ld.CIT(A) stating that the assessee is having run both the institutions in the same premises and maintaining one bank account and depositing fee receipts. The said receipts have been deposited to the common bank account held by the society. The cash deposited into bank account, receipts of fees collected in the educational institutions and the same has been shown in the audited financial statements along with the supported bank statements furnished before the lower authorities. We also note that the annual income is less than Rs. 1.00 crore from each school i.e., Nursery school and Primary school and existing solely for educational purposes, is exempted from tax in the hands of the assessee as per the provisions of section 10(23C)(iiiad) of the Act r.w.r. 2BC of I.T. Rules, 1962. Thus, we are of the considered opinion that the CIT(A) has erred in confirming the denial of exemption u/s.10(23C)(iiiad) to the assessee for the impugned assessment year and hence we are setting aside the order of the CIT(A) by allowing the grounds of appeal of the assessee. ISSUES PRESENTED and CONSIDEREDThe 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 ANALYSIS1. Exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961Relevant 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 HOLDINGSPreserve 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.