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Facts
The Revenue challenged the CIT(A)'s order allowing exemption under section 10(23C)(iiiab) to the assessee, a society providing agricultural training, which had filed its return late. The CIT(A) found that the society's objective was education, substantially financed by the government, and allowed the exemption. The Revenue contended that the assessee did not file its return within the mandated time and questioned the CIT(A)'s decision without adjudicating the main issues.
Held
The Tribunal noted that the CIT(A) had allowed the exemption based on the society's educational objective and substantial government financing. However, the Tribunal disagreed with the CIT(A)'s reasoning, referencing a Supreme Court judgment which clarified that for exemption, an institution must exist 'solely for educational purposes and not for purposes of profit.' The Tribunal found that the CIT(A) had not critically examined whether the assessee was running solely for educational purposes.
Key Issues
Whether the CIT(A) was right in allowing exemption under Section 10(23C)(iiiab) without critically examining if the assessee was running solely for educational purposes and not for profit, and considering the late filing of the return.
Sections Cited
10(23C)(iiiab), 139(4C), 147, 148
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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 16/06/2025 Date of Order – 16/06/2025
O R D E R PER K.M. ROY, A.M.
By this appeal, the Revenue has challenged the impugned order dated 07/01/2025, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”] for the assessment year 2018–19.
Following grounds have been raised by the Revenue:–
“1. On the facts and circumstances of the case & the law, whether the Ld.CIT(A) was right in allowing the claim of exemption u/s 10(23C)(iiiab), even though assessee has not filed the return of 2 Vasantrao Naik State Agriculture Extension Management Institute ITA no.208/Nag./2025 income within time as mandated by the provisions of section 139(4C) of the Act. 2. On the facts and circumstances of the case & the law, whether the Ld.CIT(A) was right in allowing the appeal of assessee, without adjudicating the main issues on the basis of which case was reopened and captioned additions were made by the Assessing Officer. 3. The appellant craves leave to add, alter or amend any or all the grounds of appeal.”
3. The statement of facts, as recorded by the learned CIT(A) in his impugned order, is hereby reproduced below:–
“The appellant is a society registered under Maharashtra State Society Act, 1860 imparting education/ training in the field of agriculture. The society is incorporated with the sole object of providing training/ education in the field of agriculture and the training provided by the appellant is substantially financed by the State Government and the entire income of the appellant is exempt u/s 10(23C) (iiiab). Appellant was under the bonafide intention that as the entire income of the appellant is exempt, the appellant is not required to fle the return of income. The case of the appellant was selected for assessment u/s 147 due to the non-fling of return of income and the notice u/s 148 was issued on 30/03/2022 in response to which the appellant has fled the return of income on 11/10/2022 declaring total income of Rs. Nil, after claiming deduction u/s 10(23C) (iiiab). During the assessing proceedings various notices were issued to the appellant requesting to furnish/ upload the information and documents, the appellant has complied with all of them from time to time and has provided the requisite information/documents to the learned assessing officer A show cause notice 07/02/2023 asking the assessee to submit documentary proof regarding eligibility of exemption u/s 10(23) (iiiab) was also served upon the appellant with the hearing date of 13/02/023, in response to which the appellant fled a request for the adjournment on 11/02/2023 requesting adjournment till 25/02/2023. However the learned/assessing officer without considering the request of the appellant for the adjournment of the proceeding passed an order disallowing the deduction u/s 10(22C)(ab) on Aggrieved with the above, the appellant is before”
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On appeal, the learned CIT(A) held that the assessee is entitled to claim exemption under section 10(23C)(iiiab) of the Act and allowed the appeal of the assessee. The observations made by the learned CIT(A) in his impugned order vide Para–5 (conclusion part) is hereby reproduced below:–
“CONCLUSION: The details submitted by the assessee AOP have been perused and found that, the objective of the assessee AOP is to impart appropriate training to the officers and employees of agriculture department & allied department to promote modem management of agriculture extension. As per bye-law of the assessee AOP, the committee of General Council is headed by the Chief Secretary, Government of Maharashtra as Chairman and the receipts of grant is mainly from the State Government of Maharashtra. The amount available in surplus, over and above the expenditure incurred by the assessee AOP during the year under consideration is deposited as Time Deposit in the bank account and the contention made by the assessee AOP regarding the variation in quantum as mentioned in the order under section 148A(d) has been verified with the bank account statements and the assessee AOP's submission is accepted In the above circumstances, the assessment is hereby completed by accepting the income returned by the assessee AOP in response to the notice under section 148 for the year under consideration for the reasons discussed above. Thus, Thus, it can be observed that on same set of facts, the AO has passed assessment order for AY 2019-20 wherein claim of exemption u/s 10(23)(iiiab) has been allowed. In this regard, it is important to note that as per assessment order itself (AY 2018-19) the Appellant had submitted Balance Sheet, Income and expenditure statement, Certificate of Registration, By-Laws, Bank Accounts details, Partial bank statement and other documents regarding its claim. In my considered opinion, if the AO found these documents insufficient for the purpose of allowing exemption claimed u/s 10(23C) (iiiab), he could have asked the Appellant to submit specific documents to support its claim. However, the AO did not ask any such details and denied the exemption ignoring the details submitted by the Appellant and on mere assumption that the Appellant may be involved in business activities. Thus, in view of these facts and considering the 4 Vasantrao Naik State Agriculture Extension Management Institute ITA no.208/Nag./2025 findings of the AO in AY 2019-20 wherein, on same set of facts the AO has allowed, and rightly so, the exemption claimed u/s 10(23C)(iiiab); I hold that the Appellant is entitled to claim of exemption u/s 10(23C)(iiiab) of the Act. Appeal is, thus. Allowed. Allowed.”
We do not agree with the laconic approval of the learned CIT(A). The Hon’ble Apex Court, vide judgment dated 19/10/2022, in New Noble Education Society v/s The Chief Commissioner of Income Tax–1, And Anr., Civil Appeal no.3795 of 2014, a/w Civil Appeal no.3793 of 2014, Civil Appeal no.3794 of 2014, Civil Appeal no.9108 of 2012 and Civil Appeal no.6418 of 2012, has held as follows:– “49. It is evident, that in construing the term ‘any university or other educational institution existing solely for educational purposes and not for purposes of profit’ the other negative reference to profit, in respect of educational institutions, is in the seventh proviso which states that incomes which are profits of business, cannot be exempt, “unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business”.
The basic provision granting exemption, thus enjoins that the institution should exist ‘solely for educational purposes and not for purposes of profit’. This requirement is categorical. While construing this essential requirement, the proviso, which carves out the exception, so to say, to a limited extent, cannot be looked into. The expression ‘solely’ has been interpreted, as noticed previously, by other judgments as the ‘dominant / predominant /primary/ main’ object. The plain and grammatical meaning of the term ‘sole’ or ‘solely’ however, is ‘only’ or ‘exclusively’. P. Ramanath Aiyar’s Advanced Law Lexicon20 explains the term as, “‘Solely’ means exclusively and not primarily”. The Cambridge Dictionary defines ‘solely’ to be, “Only and not involving anyone or anything else”. 21 The synonyms for ‘solely’ are “alone, independently, single-handed, single-handedly, singly, unaided, unassisted” and its antonyms are “inclusively, collectively, cooperatively, conjointly etc.”
It is, therefore, clear that term ‘solely’ is not the same as ‘predominant / mainly’. The term ‘solely’ means to the exclusion of all others. None of the previous decisions – especially American
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Hotel (supra) or Queens Education Society (supra) – explored the true meaning of the expression ‘solely’. Instead, what is clear from the previous discussion is that the applicable test enunciated in Surat Art (supra) i.e., P. RAMANATHA AIYAR, ADVANCED LAW LEXICON, (6th Edn.), Pg. 5249-5250 (2019).” 52 to 75 ……… 76. The conclusions of this court are summarized as follows: a. It is held that the requirement of the charitable institution, society or trust etc., to ‘solely’ engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education. In other words, all objects of the society, trust etc., must relate to imparting education or be in relation to educational activities. b. Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the IT Act. At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities. c. The seventh proviso to Section 10(23C), as well as Section 11(4A) refer to profits which may be ‘incidentally’ generated or earned by the charitable institution. In the present case, the same is applicable only to those institutions which impart education or are engaged in activities connected to education. d. The reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) merely means that the profits of business which is ‘incidental’ to educational activity – as explained in the earlier part of the judgment i.e., relating to education such as sale of text books, providing school bus facilities, hostel facilities, etc. e. The reasoning and conclusions in American Hotel (supra) and Queen’s Education Society (supra) so far as they pertain to the interpretation of expression ‘solely’ are hereby disapproved. The judgments are accordingly overruled to that extent. f. While considering applications for approval under Section 10(23C), the Commissioner or the concerned authority as the case may be under the second proviso is not bound to examine only the objects of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The observations made
6 Vasantrao Naik State Agriculture Extension Management Institute ITA no.208/Nag./2025 in American Hotel (supra) suggest that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts etc. the proviso under Section 10(23C) is not confined to newly set up trusts – it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure. g. It is held that wherever registration of trust or charities is obligatory under state or local laws, the concerned trust, society, other institution etc. seeking approval under Section 10(23C) should also comply with provisions of such state laws. This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021.
In a knowledge based, information driven society, true wealth is education – and access to it. Every social order accommodates, and even cherishes, charitable endeavour, since it is impelled by the desire to give back, what one has taken or benefitted from society. Our Constitution reflects a value which equates education with charity. That it is to be treated as neither business, trade, nor commerce, has been declared by one of the most authoritative pronouncements of this court in T.M.A Pai Foundation (supra). The interpretation of education being the ‘sole’ object of every trust or organization which seeks to propagate it, through this decision, accords with the constitutional understanding and, what is more, maintains its pristine and unsullied nature.
In the light of the foregoing discussion, the assessees’ appeals fail. It is however clarified that their claim for approval or registration would have to be considered in the light of subsequent events, if any, disclosed in fresh applications made in that regard. This court is further of the opinion that since the present judgment has departed from the previous rulings regarding the meaning of the term ‘solely’, in order to avoid disruption, and to give time to institutions likely to be affected to make appropriate changes and adjustments, it would be in the larger interests of society that the present judgment operates hereafter. As a result, it is hereby directed that the law declared in the present judgment shall operate prospectively. The appeals are hereby dismissed, without order on costs.”
It appears that no such examination in threadbare manner has been carried out in the above lines. The learned CIT(A) was swayed
7 Vasantrao Naik State Agriculture Extension Management Institute ITA no.208/Nag./2025 by the assessment order passed in the assessment year 2019–20. However, he completely missed to critically examine as to whether the assessee is running solely for educational purpose and not for the purpose of profit. The assessee apart submitting any basic documents did not effectively participate in the proceedings. The slip shod approach of the learned CIT(A) can hardly be countenanced because he should have been guided by Apex Court directions. At the same time, the learned Authorised Representative for the assessee did not care to submit any document to effectively bolster his claim of exemption. Being handicapped by his lackadaisical approach of the learned A.R., we are constrained to remand the matter back to the file of the learned CIT(A) to decide the issue afresh by providing reasonable opportunity of hearing to the assessee. He shall proceed in the matter to examine the issue in the lines of direction of the Hon’ble Apex Court.
In the result, appeal by the assessee stands allowed for statistical purposes. Order pronounced in the open Court on 16/06/2025
Sd/- Sd/- N.K. CHOUDHRY K.M. ROY JUDICIAL MEMBER ACCOUNTANT MEMBER NAGPUR, DATED: 16/06/2025
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