For claiming exemption under section 10(23C)(iiiad), entity must be registered as an University or other Educational Institute

Short Overview:

Where the assessee was running a school for educational purposes and not for earning profit, approval for exemption under section 10(23C)(vi) was to be granted.

Assessee was a school of ‘Sanatam Dharma Paracharak Sabha’, a society registered in the office of Registrar of Joint Stock companies. It filed an application for grant of exemption under section 10(23C)(vi), but the same was denied by Commissioner (Exemptions) on the ground that assessee, even though a school, was not registered as separate entity with Income Tax Department having separate PAN and its claim in the past and evidence thereof were based on its existence as a unit of society.

It is held that, For claiming exemption under section 10(23C)(iiiad), entity must be registered as an University or other Educational Institute existing solely for educational purposes and not for the purposes of profit. Thus, as it was not in dispute that assessee-school was affiliated to the ‘Council for the India School Certificate of Examination’, copy of which was placed on record and it was existing not for the purpose of profit, following the decision in CIT and Another v. Children Education Society’ (2013) 358 ITR 373 (Karn-HC), assessee was entitled to claim exemption under section 10(23C)(vi).

Decision: In assessee’s favour.

IN THE ITAT, AMRITSAR BENCH

N.K. SAINI, V.P. & RAVISH SOOD, J.M.

Ram Lal Bhasin Public School v. CIT (Exemptions)

ITA No. 699/Asr/2017

17 January, 2019

Assessee by: Ashwani Kumar, CA & Vinay Shrivastav, CA

Revenue by: Parvinder Kaur, CIT D.R

N.K. Saini, V.P.

This is an appeal by the assessee against the order dated 29-9-2017 of the Commissioner (Exemptions) Chandigarh (hereinafter referred to as Commissioner (Exemptions)).

2. The only ground raised in the appeal reads as under :–

The order passed under section 10(23C)(vi) of the Income Tax Act, 1961 by the learned Commissioner (Exemptions) Chandigarh is against law and facts on the file in as much as he was not justified to hold that the applicant school does not qualify for exemption under section 10(23C) of the Act.

3. The facts of the case in brief are that the assessee filed an application in Form No. 56D for grant of exemption / approval under section 10(23C)(vi) of the Income Tax Act, 1961 (for short ‘Income Tax Act’). The learned Commissioner (Exemptions) observed that the assessee is a school of “Sanatam Dharma Paracharak Sabha” a society registered in the office of Registrar of Joint Stock Companies under Societies Registration Act on 5.2.1914. There was no evidence of the assessee claiming exemption under section 10(23C) (iiiad) of the Act in the past. He also observed that the assessee had never filed return of income but the return of Sabha has been filed. The learned Commissioner (Exemptions) also observed that an entity claiming approval under section 10(23C)(vi) of the Act needs to measure up to the stringent conditions of existing ‘solely for education’ and not for profits. The assessee submitted to the learned Commissioner (Exemptions) that institution had been claiming exemption under section 10(23C)(iiiad) of the Act till Financial Year 2014-15 and that the Audit Report in form No. 10BB for Financial Year 2015-16 was furnished in the case of the school which revealed that it had claiming exemption under section 10(23C)(vi) of the Act. However, the learned Commissioner (Exemptions) was of the view that the information provided by the assessee was not relevant as the assessee was not a separate entity having a PAN of its own and what had been filed was copies of the Income-tax returns filed by the Society. The learned Commissioner (Exemptions) held that exemption under section 10(23C)(vi) of the Act was allowable to any University or any other educational institution solely for educational purposes and not for the purpose of profit and that the assessee even though a school was not registered as a separate entity with the Income Tax Department did not have its own PAN number and that its claim in the past and evidence thereof were based on its existence as a unit of a society. He, therefore, rejected the application moved by the assessee.

Now the assessee is in appeal.

4. The learned Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the exemption under section 10(23C) (vi) of the Act is allowable to a University or Educational Institution and not to any other assessee i.e. Trust or Society. It was further stated that the assessee trust is running educational institution in the name of ‘Ram Lal Bhasin Public School’ and in its Income-tax returns earlier was used to claim exemption under section 10(23C)(iiiad) of the Act till the assessment year 2015-16 and for the year under consideration the assessee school filed an application for exemption in Form No. 56D in accordance with rule 2CA(2) of the Income Tax Rules and no PAN is required for claiming the exemption under section 10(23C)(iv) of the Act. The reliance was placed on the judgement of the Hon’ble Karnataka High Court in the case of CIT, Central Circle-1(3) Vs Children Education Society reported at (2013) 358 ITR 373 (Karn-HC) : 34 taxmann.com 285 (Karn-HC) : 2013 TaxPub(DT) 2490 (Karn-HC).

5. In his rival submissions, the learned DR strongly supported the impugned order passed by the learned Commissioner (Exemptions) and reiterated the observations made in the impugned order.

6. We have considered the rival submissions of both the parties and carefully gone through the material available on record. In the present case it is not in dispute that the assessee furnished its application in form No. 56D of the Act in accordance with rule 2CA(2) of the Income Tax Rules, 1962. To resolve the present controversy, it is relevant to discuss the provisions contained in section 10(23C)(vi) of the Act, which reads as under :–

“Section 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included –

10 (23C) any income received by any person on behalf of–

….

(vi) any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority; or

…..

7. From the aforesaid provisions it is clear that for claiming exemption under section 10(23C)(iiiad) of the Act, the entity must be an University or other educational institute existing solely for educational purpose and not of the purposes of profit. In the present case it is not in dispute that the assessee is a school which is affiliated to the ‘Council for the India School Certificate of Examination’ (ISCE), copy of which is placed on the record. It is also not the case of the Department that the assessee school was existing for the purpose of the profit. On a similar issue, the Hon’ble Karnataka High Court in ‘CIT and Another v. Children Education Society’ (2013) 358 ITR 373 (Karn-HC) : 34 taxmann.com 285 (Karn-HC) : 2013 TaxPub(DT) 2490 (Karn-HC) has held as under :–

“Clause (22) of section 10 was deleted with effect from April 1, 1999. The provisions are now substituted under (23C) of section 10. By the amended provisions what is intended to be done is that where any university or other educational institution existing solely for education purpose and not for purposes of profit, it wholly or substantially financed by the Government, then the income of such educational institution in the hands of the assessee, is not included in the total income of the assessee. The next exemption is contained in sub-clause (iiiad) in the case of any university or other educational institution existing solely for educational purpose and not for the purpose of profit, if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed. Clause (vi) makes it clear that even if educational institution do no fall under either of those two categories such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore, all the three provisions apply under three different spheres.

…….

Each educational institution is a separate entity controlled under various statutes for various purposes.

The management of these educational institutions may be in the hands of the societies or the trust, but for all other purposes they are different, independent entities.

“Any person” in section 10(23C) refers to the assessee and “on behalf of” refers to such institution. It may be an university, it may be an educational institution, it may be a hospital or other institutions of similar nature.

As all such institutions are independent entities and they generate income when that income is received by the assessee, it becomes the income in the hands of the assessee and it is such income which is sought to be excluded while computing the total income of the assessee under section 10. The test prescribed under the provision is not the income of the educational education. It is the aggregate annual receipts of such educational institution that is prescribed at Rs.  1 crore.

Therefore, the expression “aggregate annual receipts” has to be understood in the context in which it is used and the purpose for which the provision was inserted, keeping in mind, the scheme of the Act. Therefore, in the case of an assessee 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 its total income. Similarly, income from each educational institution if it is not receiving any aid from the Government wholly or substantially in respect of which the aggregate annual receipts do not exceed Rs.  1 crore received by the assessee, is also not included while computing the annual total income of the assessee. The aggregate annual receipts of other educational institution means, the total annual receipts of each educational institution.”

It has further been held that –

……..

“(ii) That the Tribunal was correct in holding that the exemption in terms of provisions of section 10(23C) (iiiad) was available to the assessee as annual receipts of each of the institutions of the assessee was less than the prescribed limit under the provision.”

8. We, therefore, by keeping in view the ratio laid down in the aforesaid referred to case are of the view that when the assessee was running a school for educational purposes and not for earning profit, then it was entitled to the exemption under section 10(23C)(vi) of the Act. We, therefore, set aside the impugned order and direct the learned Commissioner (Exemptions) to allow the exemption / approval claimed by the assessee under section 10(23C) (vi) of the Act.

In the result, the appeal of the assessee is allowed.