THE DIRECTOR OF INCOME TAX vs. SREE GANGADHARESHWARA EDUCATIONAL TRUST

ITA/38/2012HC KarnatakaKAHC01013421201218 December 2013Bench: N.KUMAR,RATHNAKALA10 pages

AI SummaryPartly Allowed

What did the High Court hold?

The High Court held in favor of the assessee and against the Revenue on the substantial questions of law. The Court relied on its earlier decision in Commissioner of Income-tax and another Vs. Children’s Education Society. The Court reasoned that each educational institution is a separate entity, and the term 'aggregate annual receipts' in Section 10(23C)(iiiad) refers to the receipts of each individual institution, not the combined receipts of all institutions managed by a trust or society. This interpretation upholds the legislative intent of encouraging genuine educational institutions by providing exemptions. The Court found that the Tribunal's earlier finding that the aggregate receipts of all institutions should be considered was incorrect. The Court allowed ITA No. 296/2010 and dismissed ITA No. 38/2012. The issue regarding the Assessing Officer's jurisdiction and the justification for reopening were answered in favor of the assessee as part of the overall decision. The question regarding the Revenue's power to review under Section 254(2) was expressly left undecided.

What were the facts?

The assessee, Sree Gangadhareshwarar Education Trust, appealed against an order of the Income Tax Appellate Tribunal (ITAT) which denied its claim for exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961. The assessee contended that each of its educational institutions should be treated as a separate entity, and the threshold limit of Rs. 1 Crore for exemption was met by each institution individually. The Revenue appealed against a subsequent rectification order by the ITAT which recalled its earlier order and held that each institution should be considered separately for exemption. Both appeals were filed under Section 260A of the Income Tax Act, 1961.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the Tribunal was justified in holding that the Appellant was not eligible for exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961, on the facts and circumstances of the case? 2. Whether the Tribunal was justified in law in holding that the gross receipts collected from the educational institutions managed by the Appellant trust is taxable in the hands of the Appellant? 3. Whether the Assessing Officer had the jurisdiction to assess the appellant under the status of association of persons on the facts and circumstances of the case? 4. Whether the Tribunal was justified in law in holding that, to claim exemption under Section 10(23C)(iiiad) of the Act, the aggregate gross receipts of all the institutions managed by the Appellant Trust has to be taken? 5. Whether the Tribunal was justified in law in holding that the reopening was justified in law on the facts and circumstances of the case? The Assessee argued that each educational institution is a separate entity and the threshold limit of Rs. 1 Crore for exemption under Section 10(23C)(iiiad) should be applied to each institution individually. The Revenue contended that the aggregate annual receipts of all institutions managed by the Trust should be considered for the exemption limit. The judgment also notes that the Revenue's power to review an order under Section 254(2) was raised but not decided on merits.

Which sections of the Income-tax Act were involved?

Section 254(2),Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 18th DAY OF DECEMBER 2013

PRESENT

THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MRS. JUSTICE RATHNAKALA

I.TA. NO.296/2010 A/W. I.T.A. NO.38/2012

In I.T.A. No.296/2010

BETWEEN :

Sree Gangadhareshwarar Education Trust, Rep. by its Trustee Dhananjaya. G, No.241, Magadi Main Road, Sunkadakatte, Vishwaneedam Post, Bangalore – 560 091. ...APPELLANT

(By Sri.A.Shankar & Sri.M.Lava, Advs.)

AND :

The Deputy Director of Income Tax (Exemption) C.R.Building, Queens Road, Bangalore – 560 001. …RESPONDENT

(By Sri.K.V.Aravind, Adv.)

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. . . .

This I.T.A. is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.787/Bng/2009 dated 31.03.2010 in the interest of justice and equity.

In I.T.A. No.38/2012

BETWEEN :

The Director of Income-tax, Exemptions), C.R.Building, Queens Road, Bangalore.

The Deputy Director of Income-tax, (Exemptions), Circle – 17(2), C.R.Building, Queens Road, Bangalore. ...APPELLANTS

(By Sri.K.V.Aravind, Adv.)

AND :

Sree Gangadhareshwara Education Trust, No.241, Magadi Main Road, Sunkadakatte, Bangalore – 560 091. …RESPONDENT

(By Sri.A.Shankar & Sri.M.Lava, Advs.)

. . . .

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This I.T.A. is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the orders passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.787/Bng/2009 dated 31.03.2010 &

M.P. No.104/Bang/2010 dated 27.09.2011 and confirm the order of the Appellate Commissioner confirming the order passed by the Deputy Director of Income Tax, Circle-17(2), Bangalore, in the interest of Justice and equity.

These I.T.As. coming on for hearing, this day, N.Kumar J., delivered the following:

JUDGMENT

Sri.A.Shankar has filed his power for the respondent in I.T.A. No.38/2012.

I.T.A. No.296/2010 is preferred by the assessee against the order of the Tribunal negativing the contention of the assessee to treat each institution as a separate entity and claim threshold limit of Rs.1 Crore complied with for claiming exemption under Section 10(23C)(iiiad) of the Income-tax Act, 1961.

It is submitted that after preferring this appeal, a miscellaneous petition was filed by the assessee for

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rectification of the said order on the ground that there is an error apparent on the face of the record. That miscellaneous application was allowed recalling the earlier order holding that each of the Institution should be considered separately for the purpose of claiming exemption under Section 10(23C)(iiiad) of the Act. Aggrieved by the said order, the Revenue has preferred appeal No.38/2012.

Both the appeals are taken up for consideration together and disposed of by this common order.

This Court had an occasion to consider the said question in the case of Commissioner of Income-tax and another Vs. Children’s Education Society reported in (2013) 358 ITR 373 (KAR) where the following questions were framed: (i) Whether, on the facts of the case, the Tribunal is correct in holding that the exemption in terms of provisions of Section 10(23C)(iiiad) of Income-tax Act, 1961, is available to the respondent- assessee as annual receipts of each of the institutions of the respondent-

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society is less than the prescribed limit under the said provision?

(ii) Whether the Tribunal is correct in holding that the exemption in terms of Section 10(23C)(iiiad) of Income-tax Act, 1961, is allowable?

They are answered in favour of the assessee and against the Revenue, as under: “No doubt, education has become a business, a very profitable business also. But it requires huge investment. It is the duty of the Government to provide education to all its citizens, as the Government is not able to shoulder the responsibility completely. Therefore, the field of education is now thrown open to private organizations. But for throwing open the field to the private operators, probably, the country would not have achieved in the field of education what it has achieved. Therefore, lot of funds are invested in running these educational institutions, either by creating a Society or a Trust. In course of time, they have expanded their activity providing course in various subjects at various levels and for that purpose they have established more than one

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educational institution. 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. That is the reason why Section 10 (23)(c) is worded as under: “Any income received by any person on behalf of…”

Here “any person” refers to the assessee and “on behalf of” refers to such institutions. 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 entity and they generate income and when that income is received by the assessee, it becomes the income in the hand 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 aforesaid provision is not the income of the educational education. It is the aggregate annual receipts of such educational institution that is prescribed at

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Rs.1 crore. Therefore, irrespective of the expenditure incurred by those institutions, the exemption is based on the total receipts. Even if the word “aggregate” has to be understood as suggested by the Revenue as the annual receipts of such educational institutions put together, probably, the said provision regarding exemption would be of no use at all. Especially, if the society is running a medial college or any engineering college or other professional courses, then the annual receipt of each institution would run to few crores and therefore, the very object of granting exemption to such genuine institution would be lost.

Therefore, the word “aggregate annual receipt” has to be understood with the context in which it is used and the purpose for which the said provision was inserted, keeping in mind, the Scheme of the Act. 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. Similarly, income from each educational institution if they are not receiving any aid from the Government wholly

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or substantially in respect of which the aggregate annual receipt do not exceed Rs.1 crore received by the assessee, is also not included while computing annual total income of the assessee. Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference.

I.T.A. No.296/2010 was admitted on 21.10.2010 to consider the following substantial questions of law: 1. Whether the Tribunal was justified in holding that the Appellant was not eligible

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for exemption under Section 10(23C)(iiiad) of the facts and circumstances of the case?

Whether the Tribunal was justified in law in holding that the gross receipts collected from the education institution managed by the Appellant trust is taxable in the hands of the Appellant?

Whether the Assessing Officer had the jurisdiction to assess the appellant under the status of association of persons on the facts and circumstances of the case?

Whether the Tribunal was justified in law in holding that, to claim exemption under section 10(23C)(iiiad) of the Act the aggregate gross receipts of all the institutions managed by the Appellant Trust has to be taken?

Whether the Tribunal was justified in law in holding that he reopening was justified in law on the facts and circumstance of the case?

The substantial questions of law, which have arisen for consideration in these proceedings are also

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answered in favour of the assessee and against the Revenue.

The power of the Tribunal to review the order passed under Section 254(2) of the Income-tax Act by the Revenue is concerned, we will not go into the said question because on merits, the assessee is entitled to succeed and therefore, the finding recorded by the Tribunal on that question is not decided and it will be decided in an appropriate forum if and when the occasion arises.

In that view of the matter, we pass the following order:

(a) I.T.A. No.296/2010 is allowed.

(b) I.T.A. No.38/2012 is dismissed.

Sd/- JUDGE

Sd/- JUDGE SPS

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