VIDYODYA EDUCATIONAL SOCIETY,VISAKHAPATNAM vs. THE DCIT, VISAKHAPATNAM

आदेश / O R D E R

PER D.S. SUNDER SINGH, Accountant Member:

This appeal filed by the assessee is directed against order of the

Commissioner of Income Tax (Appeals)-2, {CIT(A)},Guntur vide ITA

No.130/2011-12 dated 15.6.2016 for the assessment year 2009-10.

ITA No.369 /Vizag/2016 Vidyodaya Educational Society, VSKP 2. The assessee is an educational institution and filed the return of

income for the AY 2009- declaring Nil income on 26.10.2010. The

assessee claimed exemption u/s 10(23C) of the Income Tax Act, 1961

(hereinafter called as 'the Act') stating that the gross receipts of the

assessee does not exceed Rs.1.00 crore. The case was selected for

scrutiny and during the assessment proceedings, the A.O. observed that

the assessee had received gross receipts of ` 19,65,000/- and claimed

the expenditure to the extent of ` 19,46,330/- under various heads such

as salaries, vehicle maintenance, office expenses, insurance,

depreciation, interest on loan, etc. and arrived at the net income over

expenditure of ` 18,670/- and claimed the same as exemption u/s

10(23C) of the Act. The assessee claimed that it is an educational

institution and the gross receipts are less than ` 1 crore, hence, the

assessee is entitled for exemption u/s 10(23C) of the Act. The assessing

officer called for the books of accounts and during the assessment

proceedings the A.O. found that the entire expenditure is not supported

by vouchers. The assessee also did not produce the books of accounts

and the assessee did not furnish copy of the registration u/s 12A of the

Act. Hence, the A.O. held that the assessee is not entitled for

exemption u/s 11 of the Act and for the assessee’s failure to produce

books of accounts and the relevant vouchers, the A.O. disbelieved the

ITA No.369 /Vizag/2016 Vidyodaya Educational Society, VSKP claim of the assessee that it is existing solely for educational purpose

and accordingly, rejected the claim of the assessee u/s 10(23C) of the

Act and assessed the entire gross receipts of ` 19,65,000/- at maximum

marginal rate.

before the CIT(A) and argued that the assessee is an educational

institution and the income is exempt u/s 10(23C) of the Act since the

gross receipts do not exceed ` 1.00 crore. The assessee also submitted

that in the absence of registration u/s 12A of the Act, the A.O., cannot

deny the exemption u/s 10(23C) of the Act. The Ld. CIT(A) called for

the remand report from the A.O. and the A.O. furnished the remand

report stating that the assessee produced books of accounts at remand

stage i.e. cash book and ledger and on verification of the books of

accounts with relevant vouchers, it was found that the entire

expenditure was incurred in cash and on self-made vouchers. Further

the A.O., stated in the remand report that the assessee failed to produce

bills even for payment of electrical charges, telephone charges etc. The

assessee also did not produce any bank account statement and failed to

prove the genuineness of the expenditure since it was incurred on self -

made vouchers. The Ld. CIT(A) considered the remand report and the

submissions made by the assessee and held that the assessee is not 3

ITA No.369 /Vizag/2016 Vidyodaya Educational Society, VSKP eligible for exemption u/s 10(23C) of the Act. The Ld.CIT(A) also held

that the assessee failed to produce evidence in respect of the

expenditure and has to be treated as not existing solely for educational

purpose but existing for profit motive and for the benefit of

management, accordingly, upheld the order of the A.O. to tax the entire

receipts at maximum marginal rate.

before us. During the appeal hearing, the Ld. A.R. argued that the

assessee is a registered society registered under Societies Act, 1860.

Assessee also placed copy of registration certificate in page No.41 of the

paper book and argued that in case of society, the income of the

assessee cannot be charged at maximum marginal rate. As per section

167B of the Act in case a society, registered under Societies Act, the

income shall be charged at normal rates. Accordingly, argued that the

assessing officer as well as the CIT(A) have committed error in

assessing the income of the assessee at the maximum marginal rate.

educational institution and the gross receipts of the assessee were less

than ` 1.00 crore, hence argued that the assessee’s income is entitled

ITA No.369 /Vizag/2016 Vidyodaya Educational Society, VSKP for exemption u/s 10(23C) of the Act, thus requested for exemption u/s

10(23C) of the Act.

the assessee is existing for profit motive and for the benefit of

management, the A.O. has taxed the entire receipts which is not correct.

The assessee has incurred the expenditure under the head salaries,

vehicle maintenance, telephone charges, electrical charges, office

expenses, depreciation, etc. Therefore, even if it is presumed that the

assessee is carrying on business activity, the entire receipts cannot be

treated as income and only the profit element should be assessed to tax,

hence requested to estimate the reasonable income as an alternative

submission.

the lower authorities.

on record and gone through the orders of the authorities below. In the

instant case, though the assessee is claimed to have running educational

institution solely for educational purpose, the assessee has not

established with relevant evidences, books of accounts and the

documents that the assessee is solely engaged for the education.

ITA No.369 /Vizag/2016 Vidyodaya Educational Society, VSKP Therefore, we do not find any infirmity in the order of the lower

authorities, hence, the assessee’s ground for treating the institution as

educational institution existing solely for the purpose of education is

dismissed. Accordingly, the assessee is not entitled for exemption u/s

10(23C) of the Act.

receipts should not be treated as income and only the profit element

required to be assessed to tax. In this case, the assessee has received

the gross receipts of ` 19,65,000/- and the assessee has produced the

books of accounts, bills and vouchers before the A.O. Though the bills

and vouchers are incurred in self- made vouchers, the entire receipt

cannot be income and taxed. Once it is believed that the assessee is

carrying on business activity, the expenditure relatable to earning

income required to be allowed as deduction. In the instant case, as per

the books of accounts and the profit & loss account, the gross receipts

of the assessee were ` 19,65,000/- and the expenditure was `

19,64,330/- resulting in profit of ` 18,670/-. As per the assessment

order, the assessee has claimed the expenditure such as salaries, vehicle

maintenance, office expenses, insurance, depreciation, interest on loans

and telephone charges, etc., but there was no proper evidence. During

the appeal hearing, for a query from the bench, the Ld. A.R. expressed 6

ITA No.369 /Vizag/2016 Vidyodaya Educational Society, VSKP no objection for estimation of income @ 20% of the gross receipts. We

have gone through the submissions of the assessee as well as orders of

the lower authorities and the arguments of the Ld.DR and of the view

that the estimation of income @ 20% of the gross receipts is

reasonable, accordingly, we direct the A.O. to estimate the income @

20% on gross receipts and assessess the same as income. The

assessee’s appeal on this ground is partly allowed.

maximum marginal rate. As per section 167B of the Act, in case of an

assessee registered under Socieites Act, the same is excluded for taxing

the income at for maximum marginal rate. For ready reference we

extract relevant part of Section 167B(1) of the Act which reads as

under:

167B. (1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate :

Plain reading of section 167B of the Act indicates that the

income of company or cooperative society or a society registered under

ITA No.369 /Vizag/2016 Vidyodaya Educational Society, VSKP Societies Act of 1860 are excluded from charging the tax at maximum

marginal rate ( MMR ) and would be chargeable at normal rates. In

the similar facts and circumstances, the coordinate bench of ITAT in ITA

Nos.212 to 215/vizag/2014 in the case of Sri Lakshmiganapathi Seva

Samithi Vs. CIT dated 26.8.2016 held that in case of society, the

application of maximum marginal rate does not arise. For ready

reference, we reproduce the extract of relevant part of the order of the

Tribunal in para No.13 which reads as under:

“13. ………..As regards the applicability of maximum marginal rate of tax is concerned, the CIT was of the opinion that the A.O. ought to have applied maximum marginal rate of tax to the income of the society. But, the fact is that once the society is registered under the Societies Registration Act, the applicability of maximum marginal rate does not arise, it is because the societies are registered under the Societies Registration Act are prohibited from distribution of any surplus to its members. Once the distribution of profit to its members is prohibited, the question of determination of share of each individual member does not arise. Hence, the CIT was not correct in coming to the conclusion that the rate of tax applicable to the assessee is maximum marginal rate of tax without understanding the provisions.” 11. The assessee is a society registered under Societies Act, 1860 as

evidenced from the registration certificate. The facts are similar in

this case, therefore, following the decision of coordinate bench and

section 167B of the Act, we hold that the income of the assessee is to

be taxed at normal rates but not at maximum marginal rate,

accordingly, we set aside the order of the Ld. CIT(A) and allow the

appeal of the assessee on this ground.

ITA No.369 /Vizag/2016 Vidyodaya Educational Society, VSKP 12. In the result, the appeal of the assessee is partly allowed.

The above order was pronounced in the open court on 26th Apr’18.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. . . . सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 26.04.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:-