UNIVERSAL EDUCATION MISSIONS TRUST,THANE vs. INCOME TAX OFFICER, THANE

The return was processed by CPC, Bengaluru, under section 143(1) of the Act. In the intimation dated 02.01.2018, CPC did not allow the amount of Rs.1,01,83,461/- shown by the assessee as application of income towards its educational objects. Consequently, the entire amount of Rs.1,01,83,461/- was treated as taxable income. The resulting tax and interest liability was computed at Rs.45,89,060/-.

According to the assessee, exemption under section 11 was selected inadvertently instead of exemption under section 10(23C)(iiiad) of the Act. As the time for filing a revised return had expired, the assessee filed an application under section 154 seeking exemption under the correct provision. The application was rejected by CPC by an order dated 12.02.2020. The appeal preferred against the rectification order was dismissed on 08.12.2021, with the observation that the assessee ought to have challenged the original intimation under section 143(1).

The assessee thereafter filed an appeal against the intimation dated 02.01.2018.

Before the learned CIT(A), the assessee submitted that the receipts attributable to its three educational sections were as follows:

It was contended that each section constituted a separate educational institution and that the receipts of each section were below the prescribed limit of Rs.1 crore. The assessee, therefore, claimed that its income was exempt under section 10(23C)(iiiad) read with Rule 2BC of the Income-tax Rules, 1962.

The learned CIT(A), by the impugned order dated 07.02.2026 passed under section 250 of the Act, dismissed the appeal. The learned CIT(A) held that filing an audit report in Form 10BB was mandatory where the income, without giving effect to section 10(23C), exceeded the maximum amount not chargeable to tax. Since the total receipts of the assessee amounted to Rs.1,01,83,461/-, the learned CIT(A) held that non-furnishing of Form 10BB constituted a substantive default.

The learned CIT(A) also distinguished the decisions relied upon by the assessee on the ground that those decisions dealt with segregation of the receipts of different educational institutions and did not dispense with the requirement of furnishing an audit report. Accordingly, the claim under section 10(23C)(iiiad) was rejected and the action of CPC was upheld.

Aggrieved by the order of learned CIT(A) the assessee is in further appeal before us.

The learned AR further submitted that, during the relevant assessment year, the requirement of furnishing Form 10BB under the then applicable proviso to section 10(23C), read with Rule 16CC, applied to institutions covered by section 10(23C)(iv), (v), (vi) and (via). The said requirement did not apply to an institution claiming exemption under section 10(23C)(iiiad). It was, therefore, contended that the learned CIT(A) had rejected the claim on a legally untenable ground.

The learned AR submitted that separate income and expenditure accounts and balance sheets were maintained for the pre-primary, primary and secondary sections. Since the receipts of each section were below Rs.1 crore, the receipts could not be clubbed for determining eligibility under section 10(23C)(iiiad).

Reliance was placed upon the judgment of the Hon’ble Karnataka High Court in CIT v. Children’s Education Society [2013] 34 taxmann.com 285/[2013] 358 ITR 373/[2014] 264 CTR 389 (Karnataka), dated 18.03.2013. The learned AR relied upon the following observations: “Each educational institution is a separate entity controlled under various statutes for various purposes. May be the Management of these educational institutions would be in the hands of the Societies or the Trust, but for all other purposes they are different, independent entities.”

The learned DR relied upon the intimation issued by CPC and the order passed by the learned CIT(A). It was submitted that the aggregate receipts of the assessee exceeded the prescribed limit of Rs.1 crore and that the assessee was not entitled to exemption under section 10(23C)(iiiad).

We have considered the rival submissions and examined the material placed on record. The controversy is whether the pre-

The material facts necessary for examining the claim under section 10(23C)(iiiad), namely, the nature of the activities and the amount of receipts, were available before the authorities below. The alternative claim does not introduce a new source of income or require investigation into an altogether new factual foundation. We, therefore, hold that the claim under section 10(23C)(iiiad) cannot be rejected merely because the assessee inadvertently selected section 11 while filing its return. The claim is required to be examined on its merits.

The learned CIT(A) rejected the claim principally on the ground that the assessee had not furnished an audit report in Form 10BB. For the assessment year under consideration, the requirement contained in the relevant proviso to section 10(23C), read with Rule 16CC, applied to the institutions referred to in section 10(23C)(iv), (v), (vi) and (via). It did not govern an institution claiming exemption under section 10(23C)(iiiad). The learned CIT(A) was, therefore, not justified in treating non-furnishing of Form 10BB as a substantive default disentitling the assessee to exemption under section 10(23C)(iiiad). Ground No. 3 is allowed to this limited extent. However, removal of this objection does not, by

The assessee contends that its pre-primary, primary and secondary sections constitute three separate educational institutions and that the receipts of each section are below the prescribed limit of Rs.1 crore as detailed in the facts

In support of the institution-wise application of the threshold, the learned AR relied upon the judgment of the Hon’ble Karnataka High Court in CIT v. Children’s Education Society [2013] 34 taxmann.com 285/[2013] 358 ITR 373/[2014] 264 CTR 389 (Karnataka). The principle emerging from the aforesaid judgment is that where an assessee runs more than one distinct educational institution, the prescribed threshold is to be applied separately to each institution. The judgment does not lay down that every class, section, stream or level of education conducted within one recognised school must necessarily be regarded as an independent educational institution.

The distinction assumes significance in the present case. The approval dated 23.09.2002 issued by the School Education Department, Government of Maharashtra, is in respect of the English-medium primary school conducted by the assessee at Mira Road. The communication refers to the earlier permission granted to the school for Standard I and thereafter permits the school to commence one division each of Standards II to VII from June 2002 on a permanent unaided basis. Thus, the permission is granted to the primary school as one educational institution. The individual standards or divisions have not been granted separate recognition as independent educational institutions.

The separate maintenance of accounts or preparation of section-wise income and expenditure statements may facilitate internal accounting and administration. Likewise, the conduct of different sections at different premises may be relevant administratively. These circumstances, by themselves, do not establish that every section is an independent educational institution when the statutory and educational authorities recognise the school as one institution.

In Children’s Education Society, the Hon’ble Karnataka High Court proceeded on the factual position that the assessee- society was running several educational institutions which were separate entities controlled under different statutory approvals. It was in that context that the Hon’ble High Court held that the threshold should be examined with reference to each educational institution. In the present case, the pre-primary, primary and secondary units are sections of the same recognised school, and there is no separate statutory recognition of each section as an independent institution. The judgment, therefore, does not support the proposition that different sections of one school must be treated as separate educational institutions.

The learned AR also relied upon the decision of the Chennai Bench of the Tribunal in ICF Silver Jubilee Nursery & Primary School v. DCIT [2025] 172 taxmann.com 86/[2025] 212 ITD 72

Once the pre-primary, primary and secondary sections are treated as constituent parts of one recognised educational institution, their receipts are required to be aggregated. The total receipts of the school amount to Rs.1,01,83,461/-, which exceed the prescribed limit of Rs.1 crore applicable for the assessment year under consideration. The assessee, therefore, does not satisfy the monetary condition prescribed under section 10(23C)(iiiad) read with Rule 2BC.

Accordingly, although the learned CIT(A) was not justified in denying the claim for non-furnishing of Form 10BB, the assessee is not entitled to exemption under section 10(23C)(iiiad) because the aggregate receipts of the single recognised educational institution exceeded Rs.1 crore. Grounds Nos. 2, 4 and 5 are dismissed. Ground No. 3 is allowed only to the limited extent stated in earlier paragraphs.

We shall now deal with the alternative contention of the learned AR. CPC has treated the entire gross receipts of Rs.1,01,83,461/- as taxable income after reducing the amount claimed as application of income to nil. Denial of exemption under

The charge under the Act is on total income computed in the manner provided by the Act and not upon gross collections as such. Once the exemption is denied, the income of the assessee must be determined under the applicable normal computation provisions. The legitimate expenditure incurred for earning the receipts or carrying on the educational activities cannot be disregarded merely because the assessee is found ineligible for exemption.

At the same time, the amount described in the return as “application of income” cannot automatically be allowed in its entirety as a deduction. The concept of application of income under the exemption provisions is distinct from deduction of expenditure under the normal computation provisions. Revenue expenditure and statutory allowances may be considered in accordance with law. Capital expenditure cannot be allowed as revenue expenditure merely because it was incurred for educational purposes, though depreciation or any other permissible allowance shall be considered under the applicable provisions.

This aspect was not examined either at the stage of processing under section 143(1) or by the learned CIT(A). CPC proceeded by treating the entire amount of Rs.1,01,83,461/- as income. The learned CIT(A) also confined the adjudication to the assessee’s claim for exemption and did not determine the income chargeable under the normal provisions.

The alternative contention concerns the correct quantification of the very income brought to tax and does not involve assessment

The Assessing Officer is directed to examine the books of account, section-wise income and expenditure statements and supporting evidence produced by the assessee. The Assessing Officer shall determine the appropriate head or heads under which the receipts are chargeable; allow such expenditure, depreciation and other allowances as are admissible under the applicable provisions; and assess only the resultant net taxable income. No expenditure shall be disallowed merely on the ground that exemption under section 10(23C)(iiiad) has been denied.

We make it clear that the restoration is confined strictly to the computation of taxable income under the normal provisions of the Act, after verification of the receipts, expenditure and allowances claimed by the assessee. Such restoration shall not be construed as setting aside the entire matter for a de novo assessment or as authorising a complete scrutiny of the return of income. The Assessing Officer shall restrict the proceedings to the limited issue restored herein and shall not undertake any roving or unrelated enquiry. The issue of the assessee’s eligibility for exemption under section 10(23C)(iiiad), having already been adjudicated hereinabove, shall not be reopened in the consequential proceedings.

The without-prejudice contention of the assessee is accordingly allowed for statistical purposes. Ground No. 1 is partly allowed in the above terms. Ground No. 6 is general and requires no separate adjudication.