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Facts
The assessee, an educational institution, earned interest income but did not file its return of income within the prescribed time. The case was reopened under section 147. The assessee claimed exemption under section 10(23C) but was denied by the AO and CIT(A) for not filing the return in time.
Held
The Assessing Officer (AO) and the Commissioner (Appeals) disallowed the assessee's claim for exemption under section 10(23C) because the assessee failed to file its return of income within the prescribed time as required by section 139(4C). The Tribunal noted that the issue of whether late filing of a return leads to forfeiture of exemption was a point of contention, with differing judicial pronouncements.
Key Issues
Whether the assessee is eligible for exemption under section 10(23C) despite not filing the return of income within the prescribed time.
Sections Cited
10(23C), 147, 148, 139(4C), 250, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, NAGPUR BENCH “SMC”, NAGPUR
Before: SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 21.12.2023, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2013-14.
In the instant case, the Assessee trust is engaged in educational activities as approved by Government. The Assessee though earned the interest income of Rs.5,85,637/- during the assessment year under consideration but did not file her return of income and therefore by considering such fact, the case of the Assessee was reopened u/s 147 of the Act by recorded reason for reopening of the case and issuing notice dated 26.03.2021 u/s 148 of the Act.
M/s. Deepa Education Society 3. The Assessee in response to such notice u/s 148 of the Act filed its return of income on dated 07.01.2022 declaring total income of “Rs.Nil” after claiming exemption of Rs.11,58,310/- u/s 10(23C) of the Act. Thereafter, various statutory notices were issued to the Assessee, in response to which the Assessee filed its audit report, balance sheet and profit & loss account for the year under consideration.
On perusing the income and expenditure account of the Assessee the Assessing Officer (AO) has noticed that the Assessee has earned total receipts of Rs.1,17,58,635/- but has not filed its return of income and therefore he asked the Assessee as to whether the Assessee has got any approval under the provision of section 10(23C) of the Act.
The Assessee, in response to the query, replied that it is an educational institution, whose gross receipt is less than Rs.1,00,00,000/- and hence there is no need to take approval u/s 10(23C) of the Act, as its total income is exempted u/s 10(23C) of the Act. Though the AO considered the aforesaid claim of the Assessee, however, not being satisfied with the same, ultimately disallowed the claim of the Assessee u/s 10(23C) of the Act and consequently assessed the income of the Assessee, at Rs.11,58,310/- mainly by holding as under:
“4.2 Thus. By virtue of section 139(4C) every educational institution referred to in sub-clause (wad) or sub-clause (vi) of Section 10(23C) whose total income, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, shall furnish a return of income. Therefore, if the total receipts of the institution exceeds Rs.2,00,000/-it shall file the return of income. The Form of ITR is ITR-7 the same as applicable to a Section 12AA registered Trust. The assessee has failed to file any return of income. Therefore, the assessee has not followed the norms as prescribed by the provisions of section 10(23C) r.w.s. 139(4C) of the Act and therefore, the income of the assessee for the year under
The Assessee, being aggrieved, challenged the decision of the AO vide assessment order by filing first appeal before the Ld. Commissioner, however, of no avail, as the Ld. Commissioner justified the action of the AO in denying the claim for exemption and consequently upheld the same by dismissing the appeal of the Assessee mainly by observing and holding as under:
“That by virtue of section 139(4C) every educational institution referred to in sub clause (iiiad) of the Act or sub clause (iv) of section 10(23C) of the Act, whose total income, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income tax, shall furnish a return of income, as if it were to be filed, as per the provision of section 139(1) of the IT Act. It is a mandatory provision, since the Act uses the term “shall” in the verbatim. However, in this case as admitted by the appellant, the return has not been filed within time and prescribed manner as per the provision of section 139(1) of the Act though the total income exceeds the maximum amount, which is not chargeable to tax. The return was filed only in response to the notice issued by the AO u/s 148 of the Act. Hence, the appellant has not satisfied the conditions as prescribed by the provisions of section 10(23C) r.w.s. 139(4C) of the Act, therefore the action of the AO is justified in denying the claim for exemption”.
The Assessee being aggrieved has preferred instant appeal.
Having heard the parties and perusing the material available on record, this Court observes that the Ld. Commissioner more or less affirmed the decision of the AO mainly on the reason that the Assessee has not filed its return of income within the time prescribed u/s 139(1) of the Act, though exceeded maximum amount, not chargeable to tax. The Assessee therefore has mainly relied on the judgment passed by the Hon’ble SMC Bench at Bangalore in the case of Kenchappa Samajika Shikshana Foundation Vs. ACIT (ITA No.1974/Bang/2018 decided on 10.08.2018) wherein
The Assessee further claimed that it clearly appears from the Finance Bill, 2022 as relied on by the Assessee from 01.04.2023 furnishing of return of income for the previous year in accordance with the provisions of sub section 139(4C) of the Act, within the time allowed under that section has been made mandatory and the assessment year involved in this case pertains to 2013-14 and in that particular year it was not mandatory to file the return of income as prescribed under section 139(4C) of the Act.
The Assessee further claimed that though vide reply dated 19.03.2022 filed before the AO on ITBA portal in response to the show cause notice dated 14.03.2022, the Assessee specifically relied on the judgment passed by the Hon’ble Karnataka High Court wherein it has been held that each educational institution is a separate entity controlled under various statutes for various purposes may be the management of the educational institutions would be in the hands of the societies or the trust but for all other purposes they are different independent entities.
Further, the Tribunal at Delhi in the case of Jat Education Society Vs. ITO, Ward-4, Sonepat (2013) 37 taxmann.com 187 (Delhi – Trib.)
& 2543 (Delhi) of 2011 decided on 19.07.2013 has also held that for applying the provisions of section 10(23C) of the Act, receipts of individual institutions are to be considered but not the aggregate gross receipts of various institutions run by society.
The Tribunal at Lucknow in the case of ITO Vs. M/s. Chironji Lal Virendrapal Saraswati Shhiksha Parishad & M/s. Deepa Education Society 714/LKW/2014 decided on 31.03.2015 has also held that for considering the claim lodged u/s 10(23C)(iiiad) of the Act, the limit of Rs.1,00,00,000/- has to be considered for each institution separately and not the Assessee as a whole.
The Ld. Counsel for the Assessee has therefore raised the issue that both the authorities below have not considered the aforesaid aspects on its right perspective and proper manner.
This Court by considering the aforesaid peculiar facts and circumstances and the rival contentions of the parties and the observations made by the authorities below in their respective orders, find that the aforesaid aspects though are relevant aspects/factors for deciding the issue under controversy, however, both the authorities have failed to do so. Therefore, for just and proper decision of the case, equitable relief, fair play and substantial justice, deem it appropriate to remand the instant case to the file of the AO for decision afresh, suffice to say by considering the aforesaid claim and/or judgments quoted by the Assessee during the assessment and appellate proceedings before the Ld. Commissioner as well as before this court and also affording reasonable opportunity of being heard to the Assessee. Thus, the case is accordingly remanded to the file of the AO for decision afresh, in the aforesaid terms.
In the result, the appeal of the Assessee is allowed for statistical purposes.
Order pronounced in the open court on 15.09.2025.
Sd/- (NARENDER KUMAR CHOUDHRY) JUDICIAL MEMBER * Kishore, Sr. P.S.
Copy to: The Appellant The Respondent The CIT, Concerned, Nagpur The DR Concerned Bench //True Copy//
By Order Dy/Asstt. Registrar, ITAT, Nagpur.