CIT (Exemption) Vs Deccan Education Society (Bombay High Court)
Summary: The Bombay High Court, in Commissioner of Income Tax (Exemption), Pune Vs Deccan Education Society, dismissed the Revenue’s appeal challenging the exemption granted to the assessee society under Section 10(23C)(iiiab) of the Income Tax Act, 1961, for Assessment Year 2009-10. The Revenue challenged the Pune Income Tax Appellate Tribunal’s order dated 19 March 2018, which had allowed the society’s claim by following the Tribunal’s decision in its own case for Assessment Year 2008-09. The dispute concerned whether exemption should be examined at the level of the educational society as a whole or separately for each institution managed by it, particularly where certain institutions were unaided and had receipts exceeding ₹1 crore.
The Revenue raised four proposed substantial questions of law. It alleged that donations received from certain contributors were not voluntary contributions or corpus donations but payments made in exchange for admissions to educational institutions operated by the society. According to the Revenue, the institutions were functioning on commercial lines by collecting amounts over and above prescribed admission fees, making the society ineligible for exemption under Section 10(23C). It further argued that unaided institutions having gross receipts exceeding ₹1 crore could not claim exemption without approval from the prescribed authority under Section 10(23C)(vi). The Revenue also disputed the Tribunal’s conclusion that exemption under Section 10(23C)(iiiab) could be granted to the society collectively when some institutions were unaided.
The High Court examined the Tribunal’s reasoning and noted that the Commissioner of Income Tax (Appeals), while sustaining the Assessing Officer’s decision for Assessment Year 2009-10, had followed the appellate order for Assessment Year 2008-09. However, the Tribunal’s coordinate Bench had already allowed the assessee’s appeal for the earlier year. In the subsequent appeal, the Revenue had neither demonstrated any material difference between the two assessment years nor established that the earlier Tribunal decision had been reversed by a superior judicial forum. Consequently, the Tribunal had followed its earlier decision and held that the assessee was entitled to exemption under Section 10(23C)(iiiab).
The High Court further recorded that the Tribunal’s decision for Assessment Year 2008-09 had itself been challenged by the Revenue in Income Tax Appeal No. 400 of 2016. By an order dated 26 November 2018, the Bombay High Court had agreed with the Tribunal and dismissed that appeal, holding that no question of law arose. In that earlier judgment, the Court had rejected the contention that the society did not exist solely for educational purposes. Referring to the Supreme Court’s decision in Aditanar Educational Institution Vs Additional Commissioner of Income Tax, it had recognised that generating a reasonable surplus while carrying on educational activities does not, by itself, establish a profit-making purpose or disqualify an educational institution from exemption.
The earlier High Court judgment also addressed whether eligibility under Section 10(23C)(iiiab) should be determined separately for every institution functioning under a common educational society. It held that the statutory exemption applies to income received by a person on behalf of qualifying educational institutions and that the entitlement of the society or trust should not be rejected merely because certain institutions under its management, considered separately, might not satisfy the prescribed requirements. The Court reasoned that a society or trust may operate several educational institutions and that the Revenue’s proposed institution-specific approach was inconsistent with its interpretation of the provision. This reasoning remained subject to the society or trust satisfying the applicable statutory conditions.
Applying the decision in the assessee’s own case for the preceding assessment year, the Bombay High Court held that the Tribunal’s decision for Assessment Year 2009-10 did not give rise to any substantial question of law. The Court accordingly dismissed Income Tax Appeal No. 2550 of 2018 and upheld the Tribunal’s order allowing the exemption claim. The judgment reinforces the earlier Bombay High Court ruling concerning the examination of educational societies operating multiple institutions, while its operative conclusion rests on the precedent already established between the same parties for Assessment Year 2008-09.
Cases Discussed / Relied Upon
1. Aditanar Educational Institution Vs Additional Commissioner of Income Tax (Supreme Court); (1997) 224 ITR 310 (SC); (1997) 3 SCC 346. The Supreme Court recognised that an educational society or trust operating institutions solely for educational purposes may qualify as an educational institution and that an incidental surplus does not necessarily establish a profit motive. The Bombay High Court’s earlier decision, reproduced in the present judgment, relied upon this principle to reject the Revenue’s objection concerning the educational character of the assessee society.
2. Commissioner of Income Tax (Exemption), Pune Vs Deccan Education Society (Bombay High Court); Income Tax Appeal No. 400 of 2016; 26/11/2018; AY 2008-09. This was the earlier decision involving the same assessee. The Bombay High Court rejected the Revenue’s contention that exemption under Section 10(23C)(iiiab) must be independently determined for each institution operated by the society. It held that exemption could be examined at the society or trust level, subject to the statutory requirements, and dismissed the Revenue’s appeal as raising no question of law. The present Bench expressly adopted that reasoning in dismissing the Revenue’s appeal for Assessment Year 2009-10.
Related Supreme Court Order: The Supreme Court subsequently dismissed the Revenue’s Special Leave Petition against the Bombay High Court’s decision, finding no ground to interfere. The dismissal was without independent reasons. Read: Supreme Court Upholds Section 10(23C)(iiiab) Relief for Deccan Education Society.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Heard Shri.Saxena, learned counsel appearing for the Appellant –Revenue.
2. Shri.Saxena would urge that the present Appeal involves the following substantial questions of law:-
(I) Whether on the facts and in circumstances of the case and in law, the Hon’ble ITAT is justified in allowing the Appeal filed by the Assessee by relying on the ITAT decision for A.Y. 2008-2009 not appreciating that the A.O. had established the fact that the contributions paid by the donors were quid pro quo for securing admissions in various institutions run by the assessee and the same were neither voluntary contributions nor corpus donations?
(II) Whether on the facts and in circumstances of the case and in law, the Hon’ble ITAT is justified in not appreciating the fact that the institutions of the Assessee are run on commercial lines by collecting amounts in addition to the prescribed fees for admissions and therefore, the Assessee is not eligible for deduction under Section 10(23C) of the Income Tax Act, 1961?
(III) Whether on the facts and in circumstances of the case and in law, the Hon’ble ITAT is justified in holding that exemption under Section 10(23C)(iiiab) of the Act is available to the Society as a whole, without appreciating that the Unaided Institutions under the Assessee Trust with gross receipts exceeding Rs.1 Crore are not eligible for deduction as the Assessee has not obtained approval of the prescribed Authority as required under Sub-section (vi) of Section 10(23C) of the Act?
(IV) Whether on the facts and in circumstances of the case and in law, the Hon’ble ITAT is justified in holding that exemption under Section 10(23C)(iiiab) of the Act is available to the Society as a whole, ignoring that the Institutions under the Assessee Trust are unaided and thus fall outside the purview of Section 10(23C)(iiiab) of the Act?
3. The Appellant is challenging the order dated 19th March 2018 passed by the Income Tax Appellate Tribunal–Pune (“ITAT”) in respect of the Assessment Year 2009–2010 thereby allowing the Appeal filed by the Assessee.
4. We have perused the impugned order. The issue involved in the present case is denial of exemption under Section 10(23C)(iiiab) of the Income Tax Act, 1961. The ITAT observed that while upholding the order of the AO, CIT(A) had followed the order of his Predecessor for A.Y. 2008-2009. In respect of the A.Y. 2008-2009, the assessee had preferred appeal before the Co-ordinate Bench of the Tribunal. The Co-ordinate Bench of the Tribunal allowed the Appeal filed by the Assessee. Therefore, the ITAT was of the opinion that the Revenue has not pointed out any differentiating feature in the present case and that of the A.Y. 2008-2009 nor placed any material on record to demonstrate that the order of the Tribunal in Assessee’s own case for A.Y. 2008-2009 was set aside by the higher Judicial Forum. The ITAT for the same reason as given by the Co-ordinate Bench of the Tribunal held that the Assessee is eligible for deduction under Section 10(23C)(iiiab) of the Act.
5. It has now been brought to our notice that the order of the ITAT in respect of Assessee’s case for A.Y. 2008-2009 referred earlier was challenged by the Revenue in this Court in Income Tax Appeal No.400 of 2016. This Court by the order dated 26th November 2018 agreed with the view expressed by the ITAT and held that no question of law arises. The relevant observations of this Court need to be extracted which read thus:-
4. Having heard the learned counsel for the Revenue and having perused the material on record, in our opinion, the central question is whether the exemption under Section 10(23C)(iiiab) is specific to the assessee trust or whether such exemption can be examined by further bifurcating the position of different institutions which are run by the assessee trust. The Revenue’s ground that the assessee trust did not exist solely for the purpose of educational activity, needs to be recorded for rejection. It is by now well settled through various series of judgments of the Supreme Court that an educational institution is not precluded from generating reasonable surplus. Merely because, in the process of running an educational institution, the surplus funds are generated, would not disqualify the institution from being an institution existing solely for the educational purpose. In fact, this was a view taken by the Supreme Court in the case of Aditanar Educational Institution (supra).
5. Section 10(23C)(iiiab) grants exemption in relation to any income received by any person on behalf of any university or other educational institution existing solely for educational purposes and not for the purpose of profit, and which is wholly or substantially financed by the Government. This provision, thus, exempts the income received by a person on behalf of the institutions specifying the requirements of the said clause. The exemption is not relatable to the individual institution run under the common umbrella of a Trust. Therefore, if the assessee trust satisfies the statutory requirement noted above, the exemption provision would apply, irrespective of the fact that in isolated cases of a few institutions runs by such Trust, the requirement may not be seen to have been fulfilled. From the above, it is very clear that it is the trust or the society that has to apply for registration and claim exemption. Had it been the intention of the legislature to grant exemption only to the institutions individually or independently and not to the society as a whole, the language would have been different. The society or trust may run more than one institutions. Therefore, the argument of the Revenue that it should be institution specific and not the society as a whole in our opinion is not correct.
6. Thus, we are broadly in agreement with the view expressed by the Tribunal. No question of law arises.
The Income Tax Appeal is dismissed.”
6. For the same reasons, we are in agreement with the view expressed by the Tribunal. No question of law arises. The Income Tax Appeal is, therefore, dismissed.
