Sec.10(23C)(iiiad) Receipts from more than one educational institutions cannot be clubbed

Brief Facts of the Case and Question of Law :

Brief Facts

The assesse is engaged in providing educational services through its two institutes viz, Junior High School and Senior Secondary School. The annual receipts from both are as follows:

 The assesse claimed tax exemption of its income u/s 10(23C)(iiiad) as the gross annual income did not exceed Rs. 1 crore for both its schools. He submitted both these schools are separate institutions as separate permissions were available on record for both the schools.

However the AO denied this exemption as according to him the gross annual income of both the schools clubbed together exceeded Rs. 1 crore. The income should be clubbed together as both the schools were operating in the same premises.

The assesse appealed to CIT against the AO’s order and CIT dismissed AO’s order. Hence the revenue department appealed to ITAT.

Question of Law

Whether for the purpose of claiming exemption under section 10(23C)(iiiad), aggregate annual receipts should be considered or individual annual receipts should be considered.

Contention of the Assessee

The assessee contended that turnover of each institution should to be taken separately and not aggregate of all the institutions. The assessee also referred the judgment in the case of CIT v. Children Education Society reported in (2014) 264 CTR (Kar.) 389 where Hon’ble court concluded, aggregate annual receipts of other educational institutions referred to in section 10(23C) (iiiad) means total annual receipts of each educational institutions and not the aggregate of the annual receipts of all the educational institutions run by the assessee’s society put together”.

The assessee submitted that he was running two schools, namely M/s Chironji Lal Virendra Pal Saraswati Vidya Mandir Junior High School and M/s Chironji Lal Virendra Pal Saraswati Vidya Mandir Inter College, and gross receipts of each institution is less than one crore. The assessee also cited the following case laws on the same ground:

• LAWRENCE EDUCATIONAL SOCIETY (REGD.) & ANOTHER Vs COMMISSIONER OF INCOME TAX DELHI (CENTRAL) & ANOTHER W.P.(C)2463/2010

• THE BAPTIST EDUCATIONAL SOCY & ANR. Vs. Chief Commissioner of income tax

• HIGH COURT OF PUNJAB AND HARYANA, IN THE CASE OF: Pinegrove International Charitable Trust v. Union of India. APPEAL NO: CWP No.6031 of 2009, DECIDED ON: January 29. 2010.
  

Contention of the Revenue

The revenue contended that assessee is running a single school on single location, in single and distinct building with single playground and other facilities claiming to be two Separate educational institute.

Further the AO submitted that the assesse had quoted the use of prefix ‘COMBINED’ on books of account of Society. And hence both the schools should be treated as one and not separate.

The A.O. in his order noted that ‘all the arguments made by the assessee seems an effort to cover up its carelessness and inaction in following statutory provisions..’ and rightly denied the exemption and treated the surplus of income over Expenditure as business income. Findings of the AO were based on material available on records and not on presumption. The two school theory of the assessee is a bogus claim as there never existed two schools and mere only two sections which is also evident from the copy of balance sheet and other Annexures thereof which clearly indicated that there existed only two separate sections.

Rule 2BC (1) for the purpose of sub-clause (iiiad) of clause (23C) of section 10, clearly guides for annual receipts and not about aggregate receipts which includes income from all the sources, hence the AO was justified in taxing the surplus of the income over expenditure. AO relied on the Judgment in the case of Manas Seva Samiti Aligarh, in ITA No. 229/Agra/2011 whereby Hon’ble ITAT Agra has very clearly held that Segregation of Income is not allowed and in absence of approval U/s 10(23C)(vi) and registration u/s 12AA, assessee society is not eligible for exemption.

Held by the ITAT

Considering all these facts, we are of the considered opinion that for the purpose of limit prescribed in section 10(23C)(iiiad), Rs. One crore limit has to be considered for each institution separately and not for the assessee as a whole. This is very important to mention that as per section 10(23C)(iiiad) also, the term used is any university or other educational institution existing solely for educational purposes and not for purposes of profit, if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed and the receipts so prescribed is Rs. One crore as per Rule 2BC.

Hence, it is seen that the reference is to the educational institution and not the assessee as a whole. Considering these facts, we are of the considered opinion that when the annual receipt of each institution is below Rs. One crore, the assessee is eligible for exemption in respect of both the institutions having annual receipt of below Rs. One crore each. Hence, we decline to interfere in the order of CIT(A) on this issue.

(Analysed by our Team Member CA Ghanshyam Vaswani)