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Facts
The appellant, a public charitable trust running educational institutions, filed its return of income for AY 2021-22 showing Nil income after claiming exemption under Section 10(23C)(iiiad). The return was processed, disallowing the exemption on the ground that the aggregate annual receipts of the trust exceeded Rs.1 crore. The appellant's petition for rectification was rejected, leading to an appeal.
Held
The Tribunal held that for the purpose of exemption under Section 10(23C)(iiiad), the aggregate annual receipts refer to the receipts of each individual educational institution and not the clubbed receipts of all institutions run by the assessee. The amendment to Section 10(23C)(iiiad) by the Finance Act 2021 was held to be prospective in nature.
Key Issues
Whether the exemption under Section 10(23C)(iiiad) is applicable based on the aggregate receipts of each educational institution or the total receipts of all institutions run by the assessee. Whether the amendment to Section 10(23C)(iiiad) is retrospective or prospective.
Sections Cited
10(23C)(iiiad), 154, 143(1)
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: HON’BLE SHRI INTURI RAMA RAO & SHRI SS VISWANETHRA RAVI
Appellant Respondent Assessee by : Mr.N.Arjun Raj, Advocate Revenue by : Ms.R.Anitha, Addl.CIT Date of Hearing : 08.01.2026 Date of Pronouncement : 08.01.2026 O R D E R PER INTURI RAMA RAO, A.M :
This appeal filed by the assessee is directed against the order of the Addl/JCIT(A) (herein after called CIT(A)’ in short], Mysore dated 23.06.2025 for Assessment Year-2021-22 2.0 Briefly the facts of the case are that the appellant is a public charitable trust formed for the purpose of rendering education. The appellant runs multiple educational institutions which are duly approved by the concerned Boards. The return of income for AY-2021-22 was filed on 31.03.2022 disclosing Nil income after claiming exemption u/s 10(23C)(iiiad) of the Income Tax Act, 1961. The said return of income was processed by CPC vide intimation dated 08.12.2022 u/s 143(1) by disallowing claim u/s 10(23C)(iiiad) for exemption on the ground that the aggregate annual receipts of the trust exceeds Rs.1 crore.
3.0 On receipt of the said intimation, the appellant’s trust filed a petition u/s 154 of the Act dated 20.05.2024 seeking the amendment of the intimation on the ground that the gross annual receipts from each educational institution does not exceed Rs.1 crore. For the purpose of claiming exemption u/s 10(23C)(iiiad), the aggregate turnover of the trust should not be considered, as held by the Hon’ble Karnataka High Court in the case of CIT Vs Children’s Educational Society 358 ITR 373 and also in the case of DCIT Vs M/s. Jat Educational Society, 10 taxmann.com 127(Delhi). However, the said petition was rejected by the ITO, Exemptions Ward, Trichy vide order dated 10.07.2024.
4.0 Being aggrieved by the above rectification order, an appeal was filed before the NFAC contending that the amended provisions of section 10(23C)(iiiad) have no application for the Assessment Year 2021-22. The law laid down by the Hon’ble Karnataka High Court in the Children’s Educational Society is squarely applicable. However, the NFAC had rejected the above contentions by holding that the amendment brought by Page - 2 - of 10 Finance Act 2021 by inserting the explanation to section 10(23C)(iiiad) is only a clarificatory in nature and have retrospective effect. Being aggrieved, the appellant is in appeal before us in the present appeal.
5.0 The learned A.R submits that the amendment is only prospective in nature as it is made explicitly clear that the amended provisions would come into effect w.e.f. 01.04.2022. The ratio of the decision of the Hon’ble Karnataka High Court in the Children’s Educational Society is squarely applicable.
6.0 On the other hand, the learned Sr.DR vehemently opposed the above submissions and submit that the order passed by the NFAC is reasoned one and requires no interference by the tribunal.
7.0 We heard the rival submissions and perused the material on record. The issue that arises for our consideration is for the purpose of computing the aggregate annual receipts of Rs.1 Crore, whether the clubbing of annual receipts of all the educational institutions run by the assessee trust should be done or not. The issued was considered by the Hon’ble Karnataka High Court in Children’s Educational Society, wherein it is held as under :-
“…..18. Therefore, one crore of rupees is the aggregate annual receipts which is prescribed under the Rules. In other words, if the aggregate annual receipts of an educational institution is less than one crore, the Page - 3 - of 10 income from such educational institution in the hands of the assessee, is not taken into consideration in computing the total income of the assessee.
Sub-clause (vi) provides that any University or other educational institution existing for educational purpose and not for the purpose of profit other than those mentioned in sub-clause (iii)(ab) and sub-clause (iii)(ad) and which may be approved by the prescribed Authority, they are also entitled to the said benefit. In other words, sub-clause (iii)(ab), sub- clause (iii)(ad) and clause (vi) applies to three categories of institutions.
Now, we are concerned with the meaning to be attached to the word "aggregate annual receipt". The argument is, other educational institution referred to in the said sub-clause refers to all educational institutions run by the assessee and aggregate annual receipts of such other educational institutions means the aggregate of annual receipts of all such educational institutions put together. Otherwise, the use of the word "aggregate" loses its meaning. We find it difficult to accept the said argument.
Firstly, if the word "aggregate annual receipts" of other educational institution is to be understood 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 the mare 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 Rule 2BC. It was contended, the Legislature
Page - 4 - of 10 used the word "aggregate annual 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(supra) 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 and 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.1 crore, then the income from such educational institution received by the assessee is excluded from his total income. In an educational institution the amount 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 Page - 5 - of 10 the assessee cannot be taken into consideration to compute the income of the assessee.
No doubt, education has become a business, a very profitable business also. But it requires huge investment. It is the duty of the Government to provide education to all its citizens, as the Government is notable to shoulder the responsibility completely. Therefore, the field of education is now thrown open to private organizations. But for throwing open the field to the private operators, probably, the country would not have achieved in the field of education what it has achieved. Therefore, lot of funds are invested in running these educational institutions, either by creating a Society or a Trust. In course of time, they have expanded their activity providing course in various subjects at various levels and for that purpose they have established more than one educational institution. 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. That is the reason why Section 10 (23)(c) is worded as under: "Any income received by any person on behalf of…" Here "any person" refers to the assessee and "on behalf of" refers to such institutions. It may be an University, it may be an educational institution, it may be a hospital or other institutions of similar nature. As all such institutions are independent entity and they generate income and when that income is received by the assessee, it becomes the income in the hand of the assessee and it is such income which is sought to be excluded while computing the total income of the assessee under Section 10. The test prescribed under the aforesaid provision is not the income of the educational education. It is the aggregate annual receipts of such educational institution that is prescribed at Rs.1 crore. Therefore, irrespective of the expenditure incurred by those institutions, the exemption is based on the total receipts. Even if the word "aggregate" has to be understood as suggested by the Revenue as the annual receipts of such educational institutions put together, probably, the said provision regarding exemption would be of no use at all. Especially, if the society is running a medial college or any engineering college or other
Page - 6 - of 10 professional courses, then the annual receipt of each institution would run to few crores and therefore, the very object of granting exemption to such genuine institution would be lost. Therefore, the word "aggregate annual receipt" has to be understood with the context in which it is used and the purpose for which the said provision was inserted, keeping in mind, the Scheme of the Act. Therefore, if an assessee is running several educational institutions, if any of them is wholly or substantially financed by the Government, then the income from such educational institution received by the assessee is not included while computing his total income. Similarly, income from each educational institution if they are not receiving any aid from the Government wholly or substantially in respect of which the aggregate annual receipt do not exceed Rs.1 crore received by the assessee, is also not included while computing annual total income of the assessee.
Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore all these three provisions apply under three differed spheres. Otherwise ,there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. Therefore the substantial questions of law Nos. 2 and 3 is answered in favour of the assessee and against the revenue. SUBSTANTIAL QUESTIONS OF LAW NOS.4 AND 5 PAYMENT OF SUBSIDY OF RS.2,12,26,465-00AND NOTIONAL INTEREST THEREON: 25. The assessee was running a hostel for the benefit of students studying in various institutions managed by it up to 31.12.1999. It was not a separate entity. From 01.01.2000, the society discontinued the activity of providing hostel facility to the students. They entered into an agreement on 01.01.2000 between the partners of M/s Oxford Girls Hostel and the society. The said partnership firm has to make available the hostel facility to the students studying in the various institutions. For Page - 7 - of 10
the said purpose, the society made interest free advance to three persons namely, S.L.V. Narasimharaju, Smt. Shakuntala and Smt. Triveni. Under the agreement, the society has to pay a composite rent for the building and the equipment installed therein at the rate of Rs.30/-per sq.ft. and the super built area was estimated to be 70000 sq.ft the monthly rent works out to Rs.21 lakhs. However, this agreement was cancelled and another agreement dated 01.01.2000 was entered into, under which no rent became payable to the aforesaid three persons. They agreed to pay the reduced subsidy from originally agreed in the earlier agreement dated 01.04.1988. The quantum of subsidy was arrived at Rs.2.12crores. In terms of the said agreement, a sum of Rs.1.12 crores was adjusted excess the amounts owed to the society by the M/s Oxford Girls Hostel. Therefore it was contended that the said payment of Rs.2,12,26,465-00 is to be treated as expenditure towards house building subsidy. The said case of the society was not accepted by the Assessing Authority as well as the first appellate authority on the ground that subsidy is not a payment for the purposes of the object of the society. It is at best, payment for acquiring enduring benefits. Since there was no genuine motive for such large scale expenditure, even after having cancelled the initial agreement, it was not allowed as genuine expenditure in the books of the society. The Tribunal interfering with the said order, held that the authorities below failed to appreciate that the provision of hostel facility in close vicinity of the educational institution is an absolute necessity to ensure security of the students, especially girl students who come from far of places to study in the educational institution of the assessee- society. The subsidy given amounts only 35% of the total investment requires to be made in the construction of the hostel facility to meet the specific requirement of the students studying in various educational institution run by the assessee-society. The society secured a big advance for a small price. Considering the benefits derived by the assesse-society from the said arrangement, it cannot be denied that the payment of the subsidy for running the hostel facility has resulted in furtherance of the object of the assessee-society only. Therefore they set aside the finding of the assessing authority and extended the benefit.
Page - 8 - of 10 8.0 It is only from the Assessment Year 2022-23 the amended provisions of section 10(23C)(iiiad) are applicable as explained in the memorandum explaining the provisions of Finance Bill 2021:-
“…..Raising of prescribed limit for exemption under sub-clause (iiiad) and (iiiae) of clause (23C) of section 10 of the Act Clause (23C) of section 10 of the Act provides for exemption of income received by any person on behalf of different funds or institutions etc. specified in different sub-clauses. Sub-clauses (iiiad) of clause (23C) of the section 10 provides for the exemption for the income received by any person on behalf of university or educational institution. as referred to in that sub-clause. The exemptions under the said sub-clause are available subject to the condition that the annual receipts of such university or educational institution do not exceed the annual receipts as may be prescribed. Similarly, sub-clauses (iiiae) of clause (23C) of the section provides for the exemption for the income received by any person on behalf of hospital or institution as referred to in that sub-clause. The exemptions under the said sub-clause are available subject to the condition that the annual receipts of such hospital or institution do not exceed the annual receipts as may be prescribed. The presently prescribed limit for these two sub-clauses is Rs 1 crore as per Rule 2BC of the Income-tax Rule. Representations have been received to increase this limit of Rs 1 crore, as provided under Rule 2BC. In order to provide benefit to small trust and institutions, it has been proposed that the exemption under sub-clause (iiiad) and (iiiae) shall be increased to Rs 5 crore and such limit shall be applicable for an assessee with respect to the aggregate receipts from university or universities or educational institution or institutions as referred to in sub-clause (iiiad) as well as from hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae). This amendment will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.
Page - 9 - of 10 [Clause 5] Extending due date for filing return of income in some cases, reducing time to file belated return and to revise original return and also to remove difficulty in cases of defective returns….” 9.0 In the light of above legal position, the order passed by NFAC is illegal and contrary to the plain provisions of Act. Therefore, the order of the NFAC is hereby set aside and direct the AO to amend the intimation allowing the exemption u/s 10(23C)(iiiad) of the Act.
10.0 In the result, the appeal filed by the assessee stands allowed. Order pronounced on 8th , January-2026 at Chennai.