MAQBOOL HUSSAIN EDUCATIONAL WELFARE SOCIETY,VISAKHAPATNAM vs. INCOME TAX OFFICER (EXEMPTION WARD), VISAKHAPATNAM

It is the argument of the learned AR that though the learned Assessing Officer referred to the decision of the Hon’ble Apex Court in the case of Sole Trustee, Loka Shikshana Trust 101 ITR 234 (SC), he failed to apply the same appropriately to the facts of the case. He placed reliance on the decision of the coordinate bench in the case of Assistant Director of Income Tax vs. Hyderabad Study Circle in wherein coordinate Bench noticed the decision of Loka Sikshana Trust and held that if an educational institution complies with the conditions of the provisions under section 10(23C)(vi) of the Act, then it shall be eligible for exemption thereunder.

Per contra, learned DR submitted that the amount collected from the students for short term courses will not come under the purview of deduction u/s 10(23C)(vi) of the Act as the learned Assessing Officer found that the assessee is engaged in deriving profits from the students. In support of the above the learned DR relied upon the judgement of Hon'ble Supreme Court in the case of Sole Trustee Vs. Loka Shikhshana Trust (supra) and Hon'ble Patna High Court in the case of Bihar Institute of Mining vs. CIT (208 ITR 608).

We have gone through the record in the light of the submissions made on either side. For proper appreciation of the contentions of parties it is necessary to look into the provisions of Section 10(23C)(vi) of the Act, which reads that,- Incomes not included in total income.

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— … … … … … …

It, therefore, makes it clear that Section 10(23C)(vi) of the Act provides tax exemptions to institutions that are established solely for educational purposes and do not operate for profit. Condition for this exemption is that all income generated by the institution must be used exclusively for educational purposes. This does not exclude the coaching activities conducted by the educational institutions that offer training for professional exams such as Civil Services, I-CET, or Group Exams, so long as they meet the necessary criteria. In Sole Trustee, Loka Shikshana Trust v. CIT (supra) Hon'ble Apex Court gave guidance for interpretation of the word "education" under the Income Tax Act. Hon'ble Court expanded the definition of education beyond formal schooling to include any structured activity aimed at intellectual, professional, or character development, such as coaching for professional exams.

For an institute to qualify for tax exemptions under Section 10(23C)(vi) of the Act , its primary objective must remain educational, and it must operate without a profit motive. The institution’s income, for example, from coaching fees, must be reinvested into the educational activities of the institution, such as faculty development or infrastructure improvement. If the income is diverted for non-educational purposes or distributed as profit, the institution would lose its eligibility for the exemption. This requirement is central to ensuring that institutions claiming exemptions under Section 10(23C)(vi) of the Act are truly focused on educational goals and not on generating private profit. 10. In addition to meeting the criteria of Section 10(23C)(vi) of the Act, the institution must also be registered under Section 12A of the Act, which ensures that the institution operates for charitable purposes. While Section 12A of the Act registration confirms the charitable nature of the institution, it does not automatically grant eligibility for tax exemptions under Section 10(23C)(vi) of the Act. The institution must still meet the specific requirements of using all income exclusively for educational purposes and operating without a profit motive. This is particularly important for the educational institutions which also conduct coaching activities, which, while not traditional schools or universities, can qualify as educational institutions under Section 10(23C)(vi) of the Act if they focus on educational activities and reinvest their income into furthering those activities.

Ultimately, the Supreme Court’s interpretation in Loka Shikshana Trust ensures that the scope of "education" under the Income Tax Act is broad enough to encompass non-traditional educational activities like coaching activities. Such institutions can qualify for tax exemptions as long as they fulfill the statutory requirements, namely, their income is used solely for educational purposes, they operate as non-profit entities, and they are registered under Section 12A of the Act. Therefore, while Section 12A registration is a critical mechanism to ensure the rendering of charitable activities, it is the alignment of the institution’s activities with the broader definition of education and its commitment to using all income for educational objectives that determines eligibility for tax exemptions under Section 10(23C)(vi) of the Act.

Next addition is on account of disallowance of depreciation that was made for the reason that the cost of acquisition was claimed as application in the year of acquisition. It is the argument of the learned AR that the provisions of section 11(6) of the Act have been inserted and was made w.e.f. 01/04/2015, thus the said provisions shall be applicable to the new assets acquired on or after 01/04/2015, in the present case no such new assets are acquired during the year after the said date and the depreciation on the opening balance of fixed assets cannot be denied, as the amendment made shall be prospectively applicable and not retrospectively. He placed reliance on the CIT Vs. Rajasthan and Gujrati Charitable Foundation [2018] 402 ITR 441 (SC).

Per contra, learned DR contended that depreciation should not be considered as an application if the cost of acquisition was already claimed as application in the year of acquisition, therefore the learned DR relied upon the order of the learned CIT(A) and prayed to uphold the contention of the lower authorities.

We have considered the rival submissions based on the material on record. In the present case no new assets are acquired during the year after the date of amendment in the Act and the assessee claimed the depreciation on the opening balance of fixed assets which cannot be denied. On the face of this fact, the issue is also no longer res integra. In the case of Rajasthan and Gujrati Charitable Foundation (supra), Hon'ble Apex Court held that the legislature, realizing that there was no specific provision in this behalf in the Act, has made amendment in Section 11(6) of the Act vide Finance Act No.2/2014 which became effective from the Assessment Year 2015-16, that the Hon'ble Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature, and it also follows that once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.

Respectfully following the judgement of Hon’ble Supreme Court in case of Rajasthan and Gujarati Charitable Foundation(supra), the depreciation claimed by the assessee is an allowable claim.

With regards to the addition of sale of library the learned AR submits that the sale of library was already accounted in the FY 2013-14 as reduction from block of asset, wherein the consideration was received in current FY 2014-15, the assessee follows mercantile method of accounting and the sale of the library books was already given effect in FY 2013-14 namely, AY 2014-15, thus, the addition made in this regard shall not hold good in the eye of law.

During the AY 2015-16, the amount receivable on sale of library books pertaining to FY 2013-14 was received for an amount of Rs.19,00,000/-, where the sale of library books made in FY 2013-14 was already reduced from the block of assets in that year itself, and therefore, the same cannot be taxed in AY 2015-16, merely because the amount of sale consideration was received in the subsequent year.

learned DR relied upon the findings of the learned CIT(A) and prayed to uphold the contention of the learned Assessing Officer that the amounts were not shown as receipts of this year neither in the Receipts & Payments A/c nor in the Income & Expenditure account.

On this aspect, we are of the considered opinion that since the sale of library books made in FY 2013-14 was already reduced from the block of assets in that year itself, which is evident from the depreciation schedule, no addition shall be made in the present case of the assessee as it was already reduced in the FY 2013-14. We, therefore, direct the deletion of the addition on this account. Appeal for the A.Y.2015-16 accordingly stands allowed.

In all these appeals, only ground involved is in respect of the disallowance of exemption under section 10(23C)(vi) of the Act, which we discussed and answered in the preceding paragraphs. Such a finding is equally applicable to these three years also on all its fours. Following the same, we answer the grounds in favour of the assessee. Since the appeals are disposed of, stay applications become infructuous and therefore, dismissed.

In the result, all the appeals of the assessee are allowed.