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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI JASON P. BOAZ
Per Asha Vijayaraghavan, Judicial Member
This appeal by the assessee is directed against the order dated 29.04.2015 of the CIT(Appeals)-14, LTU, Bangalore relating to assessment year 2007-08.
The assessee, a charitable trust, is engaged in the activities of running educational institution, medical facility for the poor and social centres for women and children. It filed its return of income for the AY
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2007-08 on 06.10.2007 declaring NIL taxable income, after claiming accumulation of amount u/s. 11(2) in Form 10. During the year, the assessee had voluntary contribution amounting to Rs.1,63,59,419. The case was selected for scrutiny and notice u/s. 143(2) was issued on the assessee on 10.06.2008.
During the year, the assessee claimed an amount of Rs.30,58,591 as income exempt u/s. 10(23C)(iiiad). It was submitted by the assessee before the Assessing Officer that since the income was received from school activities which is less than Rs.1 crore, the claim made by the assessee has to be accepted. The AO held that the gross receipt of the assessee as a trust exceeds Rs.1 crore and hence the assessee’s claim was not acceptable. The AO held that approval of CCIT has to be obtained by the assessee as per section 10(23C)(iiiad) and even otherwise, the proviso allows the exemption only to the assessee whose objectives are solely for educational purpose. The AO observed that the objectives from (a) to (r) of the Memorandum of Association, the objects viz., (e), (f), (g), (h), (i) and (k) etc. indicated that the assessee is not existing solely or exclusively for the objectives of education only, hence the assessee’s claim for exemption of Rs.30,58,581 u/s. 10(23C)(iiiad) was disallowed.
Aggrieved, the assessee preferred appeal before the CIT(Appeals).
Before the CIT(Appeals), the ld. AR contended that the AO ought to have appreciated that an assessable “entity” or a person like a Trust or a
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Society is quite distinct and separate from the educational “institution” or a “school” run or operated by it and the said “entity” or a person may have
multi-varied objectives or income from different sources; but if a particular income is from an educational institution which exists solely for educational
purposes and not for purposes of profit, then the income would be entitled
to exemption provided that such income is directly relatable to the educational activity. It was argued that the AO ought to have appreciated
that the gross receipts from the educational institution viz., school does not exceed Rs. 1 crore and consequently the order from the Chief
Commissioner of Income Tax exempting the claim made u/s. 10(23C)(iiiad) would not be required having regard to the provisions of
section 10(23C)(iiiad) of the Act.
The CIT(Appeals) held that section 10(23C) is a later avatar of section 10(22) which prevailed up to 31.03.1999. In both the erstwhile
section 10(22) and in the new section 10(23C)(iiiad)/(vi) the eligibility
condition is that the institution should have been existing solely for education and not for profit. The judicial decision given in the context of
section 10(22) regarding exclusive existence for educational purposes, therefore, can be relied upon even in the context of section
10(23C)(iiiad)/(vi). The Hon’ble Andhra Pradesh High Court in the case of CIT vs Gurukul Ghatkeswar Trust 332 ITR 611 and the Hon’ble Orissa High
Court in the case of Xavier Institute of Management vs State of Orissa and
Ors.66 DTR 169 held that for claiming exemption u/s 10(22) the institution
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must exist solely for purposes of education. It was held that if the trust had other objects apart from the object of running educational institutions, it
was not entitled for exemption u/s 10(22). Respectfully following these decisions, the CIT(A) rejected the differentiation sought to be made by the
assessee between the school as an “institution” and the assessee Society
as a separate entity. The CIT(A) was of the view that the assessee is to be viewed in totality as the institution exists for educational purposes. Thus,
the assessee’s claim was rejected.
Aggrieved, the assessee is in appeal before us. We find that the
assessee is engaged in the activities of running educational institution,
medical facilities for the poor and social centre for women and children. The short point for consideration is, whether the assessee is entitled to
exemption of Rs.30,58,581 u/s. 10(23C)(iiiad) of the Act in respect of receipts on account of income from school run by the assessee, as the
gross receipts from the school did not exceed Rs.1 crore.
The ld. AR for the assessee submitted that an entity like a society or trust may have multiple objects or income from different sources, but
particular income is from educational institution which exists solely for educational purpose and not for the purpose of profit, then the income
would be entitled to exemption provided that such income is directly
relatable to the educational activity. He relied on the decision in the case of
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Educational Institute of American Hotel & Motel Association v. CIT, 229 ITR 113, 187 (AAR).
The ld. AR for the assessee further submitted that if the educational institution exists solely for educational purposes and not for purposes of profit, the fact that the recipient or the owner of the income is a person other than the educational institution would not affect the position. Nor would the fact that the person has or can have income from sources not falling under Section 10(22) would be relevant for deciding whether the income of such person from an educational institution would or would not be exempt. Reliance was placed on the following decisions:-
- CIT Vs St. Xaviers (1990) 184 ITR 284 (Patna); - CIT Vs Sindhu Vidhya Maridal Trust (1983) 142 ITR 633 (Guj); - CIT Vs Ranchi Loreto Educational Society (1992)196 ITR 567; - Brahmin Educational Society Vs ACIT (1997) 222 ITR 317 (Kerala); - CIT Vs Arunachalam Education Society (AMM) (2000) 243 ITR 229 (Mad); - Shanthidevi Progressive Educational Society Vs DIT (E) (1999) 236 ITR (AT) 40 (Delhi).
It was submitted that the exemption u/s 10(22A) is also available for trusts or societies running a hospital. Both Sections 10(22) and 10(22A) are analogous as pointed out by the Lordships of the Kerala High Court in CIT Vs Sree Narayana Chandrika Trust (1995) 212 ITR 456 (Kerala) as under:-
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“We have already pointed out that this section is analogous to Section 10(22) which relates to educational institutions and, therefore, the decisions thereunder and the analogy of trusts or societies running educational institutions could usefully be referred to for deciding the point in issue”.
The ld. AR further submitted that the fact that an institution may not itself be a hospital, but was only running a hospital would not lose the benefit of exemption U/s 10(22A) as held in DIT (E) Vs AMM Medical Foundation (2002) 257 ITR 292 (Mad), following the rationale of the decision in CIT Vs AMM Arunachalam Educational Society (2000) 243 ITR 229 (Mad) and Aditanar Educational Institution Vs CIT (AddI) (1997) 224 ITR 310 (SC). It was contended that the decision in the case of DIT(E) Vs AMM Hospitals and Medical Benefit Society (2003)- 262 ITR 241 (Mad) also supports the case of the assessee.
The ld. AR for the assessee submitted that as the provisions of Section 10 (23C) (iiiae) and Section 10(23C)(iiiad) are analogous or similar to the provisions of Sections 10(22) and I0(22A), the case laws enunciated as above constitute the settled law on this issue and the assessee is well entitled to the exemption under section 10(23C)(iiiad) of the Act.
The ld. DR, on the other hand, argued that the assessee is not solely an educational institution and the objects of the assessee as seen from the Memorandum of Association is also for providing medical relief and social activities for the upliftment of women and children, hence the
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assessee has to be viewed in totality as an institution which does not exist solely for educational purposes. Therefore, exemption of income from running the school being not less than 1 Crore cannot be availed by the assessee.
We have heard both the parties. In the case of CIT v. Children’s Education Society, 358 ITR 373 (Karn), the Hon’ble jurisdictional High Court dealt with two substantial questions of law which are as follows:-
“2. Whether, on the facts of the case, the Tribunal is correct in holding that the exemption in terms of provisions of section 10(23C)(iiiad) of Income-tax Act, 1961, is available to the respondent-assessee as annual receipts of each of the institutions of the respondent-society is less than the prescribed limit under the said provision ? 3. Whether the Tribunal is correct in holding that the exemption in terms of section 10(23C)(iiiad) of Income-tax Act, 1961, is allowable ?
Their Lordships of the Hon’ble High Court of Karnataka have held as follows:-
“23. 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 not able 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
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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(23C) is worded as under : "any income received by any person on behalf of . . ." 24. 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 entities and they generate income and when that income is received by the assessee, it becomes the income in the hands 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 institution. 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 professional courses, then the annual receipt of each institution would run to a few crores and, therefore, the very object of granting exemption to such genuine institution would be lost. Therefore, the words "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.”
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The Hon’ble jurisdictional High Court in the case of CIT v. Children’s Education Society (supra) dealt with a case where the institution was solely
for educational purposes and the society/institution was running various schools and colleges. However, in the present case before us, the facts
are slightly different inasmuch as the society is engaged in the activities
involving education, medical and social relief to the under-privileged, i.e., it is not engaged solely in educational activities. The fact is that the society
runs the school for which the gross income is less than Rs.1 crore. Applying the ratio of the decision in the case of CIT v. Children’s Education
Society (supra) to the facts of the present case, we are of the opinion that on a stand alone basis, the educational institution which is run under the
society is entitled to the benefit u/s. 10(23c)(iiiad). However, it is imperative
on the part of the society to maintain separate accounts so that the educational institution is identified as one of the objects for which the
society is formed. In short, the identity of educational institution being established separately and the accounts of the institution being maintained
regularly, it would be sufficient for the assessee to claim exemption u/s.
10(23c)(iiiad) of the Act in case the gross receipt is less than Rs.1 crore and the approval of CCIT is not necessary for the same. Therefore, we
hold that the assessee is entitled to exemption u/s. 10(23c)(iiiad) of the Act with respect to income derived from educational institution.
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The next issue is with respect to denial of carry forward of the deficit being the excess application of income to be set-off against income from property held under trust in the future.
The CIT(Appeals) relying on the decision in the case of CIT v. Indian National Theatre Trust (2008) 305 ITR 149 and ITO v. Trustees of Sri Satya Sai Trust (33 ITD 320) held that deficit cannot be allowed to be carried forward for set off in future years when surplus income is available.
Aggrieved, the assessee is in appeal before us.
The coordinate Bench of this Tribunal in the case of Jyothy Seva Society of Bangalore in ITA No.312/Bang/2015 by order dated 24.09.2015 on an identical issue has held as follows:-
“5.3.4 In the case of Indian National Theater (supra) relied on by the learned Departmental Representative. The Hon'ble High Court of Delhi has held that to satisfy the requirements of section 11(2)(b) of the Act, the investment must necessarily come out of current year’s income and the investment made in the past obviously cannot satisfy the requirements for the current year. The above decision of the Hon'ble Delhi High Court has considered the provisions of section 11(2) of the Act and has taken the view that the accumulation under Section 11(2) of the Act can be only out of current income. We, however, find that the co-ordinate benches of the Bangalore Tribunal have consistently followed the view of the Hon'ble Bombay High Court (supra) in which the application has been regarded as adjustable against the income of the future years. We are, therefore, inclined to follow the view taken by the co-ordinate benches of this Tribunal, inter alia, in the case of Baldwin Methodist Educational Society (supra), based on the view/decisions of the Hon'ble Bombay High Court in the case of Institute of Banking (supra) and the Hon'ble Gujarat High Court in the case of CIT V Shri Plot Swetamber
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Murti Pujak Jain Mandal reported in 211 ITR 293. In this view of the matter, the Assessing Officer is directed to allow carry forward of the excess application of Rs.7,44,328 for the year to be adjusted from income from property held under trust of the subsequent years. It is ordered accordingly. Consequently, Grounds 2 and 3 of assessee's appeal are allowed.” 21. Respectfully following the coordinate Bench decision in the case of Jyothy Seva Society of Bangalore (supra), we hold that carry forward of deficit to be set off against income from property held under trust in subsequent years is allowable.
In the result, the appeal by the assessee is allowed.
Pronounced in the open court on this 30th day of November, 2015.
Sd/- Sd/-
( JASON P. BOAZ ) (ASHA VIJAYARAGHAVAN ) Accountant Member Judicial Member
Bangalore, Dated, the 30th November, 2015.
/D S/
Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.