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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These appeals by assessee are directed against different orders of CIT(A) dated 1.8.2019 for assessment year 2017-18 & 2018-19.
The only issue in this appeal is with regard to non-granting of exemption u/s 10(23C)(iiiad) of the Income-tax Act,1961 ['the Act' for short] while processing the return u/s 143(1) of the Act in these assessment years.
Page 2 of 6 3. Facts of the case are similar in both the assessment years. We consider the facts in AY 2017-18 in which the assessee stated that the assessee is a charitable institution running education institutions at Ranebennur having 5 segments and having each segment gross receipts is less than Rs.1 cr and filed return of income by claiming exemption u/s 10(23C)(iiad) of the Act. The assessment was done u/s 143(1) of the Act dated 31.3.2019 by disallowing claim of exemption u/s 10(23C)(iiiad) of the Act and levied tax thereon. Aggrieved by the order, assessee has filed application u/s 154 of the Act. Subsequently, Ld. AO has not considered the assessee’s submission and passed order u/s 154 of the Act dated 1.8.2019 without allowing claim of exemption of assessee u/s 10(23C)(iiiad) of the Act and levied tax on Rs.78,70,412/- by raising demand of tax and consequential interest thereon total amounting to Rs.30,89,184/-. Aggrieved by the order u/s 154 of the Act, the assessee preferred this appeal for the AY 2017-18.
On appeal before Ld. CIT(A) by the assessee, he has observed that Segment (Section) wise income and expenditure account for the year ended 31.3.2017 of Rotary English Medium School, run by the assessee, all the segments are run under the name of “Rotary English Medium School” and every segment is not an “Educational Institutions”. Al the segments are not registered under separate statutes. He relied on the judgement of the Hon’ble High Court in the case of CIT Vs. Children’s Education Society (358 ITR 373) wherein held that “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.” But in the present case there are no such facts that each segment (section) are under control of various statutes for various purposes, therefore ratio of case law is not applicable in this case. Thus, Ld. CIT(A) observed
Page 3 of 6 that the Ld. AO correctly merged the receipts of all segments for calculation of exemption u/s 10(23C) of the Act, which has been bifurcated section wise by the assessee. Therefore, these grounds of appeal were dismissed by the Ld. CIT(A). Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us.
We have heard the rival submissions and perused the materials available on record. In our opinion, this issue is covered by the judgement of Hon’ble Karnataka High Court in the case of CIT Vs. Children’s Education Society (2013) 358 ITR 0373 dated 18.3.2013, wherein it was held as under:-
“3.3 CIT vs. Children’s Education Society, (2013) 358 ITR 0373 (Karn), dt.18-3-2013. AY 1999-2000, 2000-01 The trust was running 28 educational institutions located in various places and received fees and corpus donations. The AO clubbed all of them and taxed being more than Rs.1 crore. There were multiple disallowances including donations, grants, expenditures. The CIT(A) allowed the exemption and ITAT allowed all the claims. Hon. High Court also allowed the same. Amongst various points on the computation of limit of Rs.1 crore important observations of Hon. High Court are as under- 21. Firstly, if the word “aggregate annual receipts” of other educational institution is to be under stood as clubbing of annual receipts of all educational institutions run by an assessee society, then it will also include the annual receipts of an educational institution which is wholly or substantially financed by the Government. If that was intention of the Legislature, they would not have introduced separate sub-clauses as (iii)(ab) and (iii)(ad). If such interpretation is placed, sub-clause (iii)(ab) becomes otiose. Therefore, it is not possible to place such an interpretation. If an assessee society is running several educational institutions, if some of them are wholly or substantially financed by the Government in terms of sub-clause (iii)(ab), the income on behalf of such educational institution received by the assessee is exempted from being computed the total income of the assessee. If the assessee is running other educational institutions which are not wholly or substantially financed by the Government, then the benefit of that exemption is also extended to the income derived from such educational institutions and received by the assessee under sub- clause (iii)(ad) reading with sub-clause (iii)(ad) along with Rule2BC. It was contended, the Legislature used the word “aggregate annual Page 4 of 6 receipt” and “amount of annual receipts” and therefore, the provisions are not one and the same. The word “aggregate” has been defined in Chambers 21st Century Dictionary as under: “aggregate – noun = a collection of separate units brought together, a total taken altogether, bring together.” In Wharton’s Law Lexicon, it is defined as thus: “a collocation of individuals, units or things in order to form a whole”
Similarly relying on the judgment of the Apex Court in the case of Aditanar Educational Institution vs. Addl. CIT, it was contended the word “other educational institution’ refers to the assessee society and not to the individual educational institution. If the intention of the Legislature was to club the annual receipts of all educational institutions run by the assessee society, they could have said so in clear terms. On contrary what is stated in the said Section is the aggregate annual receipts of such University or such educational institution referring to other educational institution. Other educational institution is to be understood with the context of the first word i.e., the University. Both in the University end any educational institutions, education is imparted. The University is a statutory body. But there are a number of educational institutions which are not run by a statutory authority which are imparting education, the word “other educational institution” has to be understood in the context of other than any University. If so understood, all that it means is every educational institution existing solely for educational purpose and not for the purpose of profit, if the aggregate annual receipts of such educational institution exceeds Rs. l crore, then the income from such educational institution received by the assessee is excluded from his total income. In an educational institution the amounts are calculated periodically. It may be calculated under different heads. All such amount received constituted receipts and those receipts may be received throughout the year. Therefore, the word “annual” has been inserted. But to be eligible for exemption, aggregate of annual receipts should not exceed Rs. 1 crore i.e. the total annual receipts of a year if it does not exceed Rs.1 crore, then the income derived from such educational institution in the hands of the assessee cannot be taken into consideration to compute the income of the assessee.”
Further, in the case of Jat Education society Vs. Deputy Commissioner of Income-tax (2011) 141 TTJ 0316 (Delhi) dated 11.2.2011 the Hon’ble Delhi High Court has held as under:- 3.1 Jat Education Society vs DCIT — (2011) 141 TTJ 0316 (Delhi), dt. 11-2-2011, AY 2003-04, 200405 For the purpose of s.10(23C)(iiiad), the annual gross receipts of three educational institutions being run separately by the assessee society cannot be clubbed together for examining the fulfilment of the conditions of Page 5 of 6 receipt being less than the prescribed limit of annual gross receipts. If the annual gross receipts of three educational institutions are considered separately, the same is below Rs. 1 crore in each year for each of these educational institutions. As per the provisions of sub-cl. (iiiad) of cl. (23C) of s. 10, the term "aggregate annual receipts" of each educational institution is relevant and if any assessee is having more than one educational institution then the aggregate annual receipt of each of such educational institution has to be considered separately because this sub-cl. (iiiad) of cl. (23C) of s. 10 does not say that if an assessee is having more than one educational institution then the gross annual receipt of all of them should be considered together. (Followed — Pinegrove International Charitable Trust & Ors. vs. Uol & Ors. (2010) 230 CTR (P&H) 477, dt.29-1-2010 AY- 2000-01 to 2007-08 which has held that, capital expenditure has to be deducted from the gross income of the educational institution in determining whether 85 per cent of the income has been applied for its objects.) 3.2 Param Hans Swami Uma Bharti Mission vs. ACIT, (2013) 154 TTJ 0531 (Del) dt. 31-08-2012- AY-2006-07 From the plain reading of section 10(23C) (iiiad), it emerges that legislature had in its mind annual receipts of school or university as the case may be for consideration of exemption limit and not that of total income of society running that school or university. The present case is of a society running a school. The society besides income from running of a school is having other sources of income also. In the present case, the income from interest on FDRs is an additional income of society and it cannot be considered to be part of annual receipts of the school. Therefore, in our considered opinion assessee was eligible for exemption u/s 10(23)(iiiad) as annual school receipts did not exceed Rs. One crore.
Further, issue dealt by the lower authorities is u/s 143(1) of the Act, whereas the AO is entitled to carry out only prima facie adjustment as provided u/s 143(1) of the Act. He cannot deal in issues, which are debatable in nature. The issue taken up by the AO while processing u/s 143(1) of the Act is debatable on this count also, he cannot disallow the claim of the assessee claimed u/s 10(23C)(iiiad) of the Act, while processing return of income u/s 143(1) of the Act. In view of this, we allow the ground taken up by the assessee in these appeals and accordingly, both the appeals are allowed.
In the result, the appeals filed by the assessee are allowed.
Order pronounced in the open court on 1st Aug, 2022