M/S CHANDIGARH INSTITUTE OF HOTEL MANAGEMENT & CATERING TECHNOLOGY (CIHMCT),CHANDIGARH vs. CIT (EXEMPTIONS), CHANDIGARH

Per Sanjay Garg, Judicial Member:

The present appeals has been preferred by the assessee

against the separate orders dated 5.12.2016 (in ITA No.

462/Chd/2017) of the Commissioner of Income Tax(A)-2,

Chandigarh [hereinafter referred to as ‘CIT(A)’] and dated 30.7.2016

ITA Nos. 462/Chd/2017 & 1021/Chd/2016- Chandigarh Institute of Hotel Management & Catering Technology, Chandigarh 2

(in ITA No.1021/Chd/2016) of Commissioner of Income Tax

(Exemptions), Chandigarh [hereinafter referred to as ‘CIT(E)’].

appeals, hence these were heard together and are being disposed of

by this common order. ITA No. 462/Chd/2017 is taken as lead case

for narration of facts.

ITA No. 462/Chd/2017 3. Though the assessee in this appeal has taken as many as 14

grounds of appeal, however, the effective issue raised in this appeal

is against the denial of exemption to the assessee claimed u/s

10(23C)(iiiab) of the Income-tax Act, 1961 (in short 'the Act').

registered with Registrar of Societies, Chandigarh and the main

object of the society is to undertake and to associate itself with

nutritional extension and development work. The broad objectives

are listed in the assessment order. The assessee is running an

educational institution in the name and style of Chandigarh Institute

of Hotel Management and Catering Technology and claimed

exemption u/s 10(23C)(iiiab) of the Income Tax Act, 1961. The

Assessing officer observed that the assessee was not fulfilling the

conditions of eligibility for claiming exemption u/s 10(23C) (iiiab)

of the Act. He observed that to claim exemption u/s 10(23C)(iiiab),

the educational institution must be solely for the purpose of

education and without any profit motive. He further observed that

ITA Nos. 462/Chd/2017 & 1021/Chd/2016- Chandigarh Institute of Hotel Management & Catering Technology, Chandigarh 3

though the assessee had been running hotel management course, yet,

simultaneously running profitable hotel in the name of Chandigarh

Hotel Beckons. Also the institute had been providing mid-day meal

for government schools of Chandigarh Administration and these

activities could not be said for educational purpose. Chandigarh

Hotel Beckons was being run on commercial basis to earn huge profit

and there was no objects shown in MOA of the assessee of running

of a hotel. The Assessing officer held that assessee was not existing

solely for the purpose of education and without any profit motive and

thus not eligible for deduction u/s 10(23C)(iiiab) of the Act, and the

same was accordingly disallowed.

the assessee preferred appeal before CIT(A). However, the Ld.

CIT(A) confirmed the findings of the Assessing officer on the above

issue. He further held that to claim exemption u/s 10(23C)(iiiab) of

the Act, one of the requirement was that institution must be wholly

or substantially financed by the Government. He further observed

that even the assessee institution was not substantially financed by

the Government which means that the grant received from the

Government should be more than of 50% of the total receipts during

the relevant year. However, in the case of the assessee, it was below

50%. He, therefore, held that assessee even otherwise did not satisfy

the condition that it was substantially financed by the Government

during the year. The Ld. CIT(A) therefore, upheld the order of the

Assessing officer. The assessee, thus, has come in appeal before us.

ITA Nos. 462/Chd/2017 & 1021/Chd/2016- Chandigarh Institute of Hotel Management & Catering Technology, Chandigarh 4

assessee society has been running its educational institute solely for

the purpose of education and not for profit and that the assessee

society has rightly claimed exemption u/s 10(23C)(iiiab) of the Act

in respect of the income of its educational institute. It has been

further submitted that assessee was allowed exemption u/s

10(23C)(iiiab) of the Act for the assessment years 2009-10, 2010-11

and 2012-13. However, for the year under consideration, the claim of

exemption has been wrongly denied to the assessee. It has been

further claimed that earlier the assessee society has been running the

educational institution only. However, in the year 2007, the

assessee society apart from its educational institution, established

‘The Hotel Chandigarh Beckons (a unit of CIHM, Chandigarh) for

providing hands on experience to the students of the Institute. As

such from 2007, the society started running its hotel activity apart

from its educational institute and both the activities are being run

separately as two separate divisions of the society and even books of

account are maintained separately for both its Educational Institute

and Hotel Chandigarh Beckons. The liability of due amount of

income tax is discharged for its hotel business. That the exemption is

claimed only for its educational institute and not for both the

educational institute and the hotel. The Ld. counsel, therefore,

submitted that assessee should be allowed exemption u/s

10(23C)(iiiab) of the Act in respect of the educational institution.

ITA Nos. 462/Chd/2017 & 1021/Chd/2016- Chandigarh Institute of Hotel Management & Catering Technology, Chandigarh 5

assessee is also involved in a business activity of running a hotel,

hence, the activities of the assessee cannot be said to be solely for

educational purposes and not for profit and, therefore, the deduction

has rightly been denied to the assessee by the lower authorities.

through the record. The Ld. counsel has relied upon the voluminous

record to submit that the activity of the assessee in respect of the

running of educational institute is separate and distinct from its

activity of running of a hotel and that both the activities cannot be

clubbed together. That separate books of account are being

maintained in respect of both the activities. Further, that educational

institute run by the assessee is substantially financed by the

Government and that the grants received from the Government cannot

be quantified in respect of total receipts of the assessee i.e. from

educational institute as well as hotel, rather, the same have to be

quantified in respect of receipts of the educational institute as the

same are received for funding of the educational activity only of the

assessee.

here the relevant provisions of the Section 10(23C)(iiiab) of the Act

“10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— ……….

ITA Nos. 462/Chd/2017 & 1021/Chd/2016- Chandigarh Institute of Hotel Management & Catering Technology, Chandigarh 6

(23C) any income received by any person on behalf of— ………. (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or ………..” A perusal of the above recorded provisions of section 10(23C)(iiiab)

reveals that they are not specific to the total income of a person,

rather, they talk of exemption of income received by a person on

behalf of any university or educational institute existing solely for

educational purposes and not for the purpose of profit which is

wholly or substantially financed by the Government; meaning

thereby that part of the income of a person which is received on

behalf of any institute falling under the provisions of section

10(23C)(iiiab) of the Act will be exempt, it does not mean that entire

income of the ‘Person’ should be from the institute solely existing

for educational purposes and not for profit and substantially

financed by the Government or that the ‘person’ is barred from

entering into any business activity. Hence, in our view, as per the

provisions of section 10(23C)(iiiab) of the Act, that part of the

income of the person will be exempt which is received from an

institution solely for educational purposes and not for profit and is

substantially financed by the Government. The claim of the assessee

in the case in hand is for exemption u/s 10(23C)(iiiab) of the Act is

relating to the income received on behalf of educational institution

being run by it solely for educational purposes and not for profit and

which is substantially financed by the Government. However, the

lower authorities have not examined this aspect. It is the claim of

ITA Nos. 462/Chd/2017 & 1021/Chd/2016- Chandigarh Institute of Hotel Management & Catering Technology, Chandigarh 7

the assessee that separate books of account are being maintained in

respect of educational institution run by it and that it is substantially

financed by the Government and is not run for profit. In view of

this, the matter requires to be remanded back to the file of the

Assessing officer to correctly apply the provisions of section

10(23C)(iiiab) of the Act and to examine and verify whether the

educational institution run by the assessee, irrespective of the other

activity of running of the hotel of the assessee, is run solely for

educational purposes and not for profit and whether the said

institution is substantially financed by the Government. If the

institute is found to qualify the above conditions of section

10(23C)(iiiab) of the Act, the assessee will be entitled to claim

exemption in respect of income received by it on behalf of such

educational institution.

We accordingly set aside the impugned order of the CIT(A) and

remand the matter to the Assessing officer and direct the Assessing

officer to decide the issue afresh in the light of the observations

made above and in accordance with law.

This appeal of the assessee is accordingly treated as allowed

for statistical purposes.

ITA No. 1021/Chd/2016

registration to the assessee society u/s 12A of the Act.

since the findings of the Ld. CIT(E)) in this case was based on the

ITA Nos. 462/Chd/2017 & 1021/Chd/2016- Chandigarh Institute of Hotel Management & Catering Technology, Chandigarh 8

findings of the Assessing officer holding that the assessee was running a hotel business along with an educational institute and since the matter has been restored to the file of the Assessing officer, in respect of ITA No. 462/Chd/2017 (assessment year 2013-14), as observed above, the matter in this appeal is also be restored to the file of Ld. CIT(E) to examine afresh in accordance with law.

Both the appeals of the assessee are treated as allowed for statistical purposes. Order pronounced in the Open Court on 21.08.2018.

Sd/- Sd/- (B.R.R KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated :21.08.2018 Rkk

Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR