Universal Education Missions Trust Vs ITO (ITAT Mumbai)
Three School Sections, One Recognised Institution: ₹1 Crore Limit Crossed, but Gross Receipts Cannot Be Taxed
Mumbai ITAT rejects section 10(23C)(iiiad) exemption while directing computation of actual taxable income
Can a trust divide a school’s pre-primary, primary and secondary receipts to remain within the ₹1 crore limit under section 10(23C)(iiiad)? And if exemption is unavailable, can the Department tax the school’s entire collections without considering its expenditure? The Mumbai ITAT answered both questions in Universal Education Missions Trust v. ITO, ITA No. 5394/Mum/2026, decided on 23 September 2026.
The trust conducted educational activities at three levels. For AY 2015–16, it reported receipts of ₹21,68,941 from the pre-primary section, ₹57,96,193 from the primary section and ₹22,18,327 from the secondary section. Each figure was below ₹1 crore, but together they amounted to ₹1,01,83,461.
While filing its return, the trust claimed exemption under section 11. It subsequently explained that it had selected that provision inadvertently and had intended to claim exemption under section 10(23C)(iiiad). By then, the time to revise the return had expired. CPC, while processing the return under section 143(1), did not allow the amount shown as application of income towards the trust’s educational objects. It treated the full ₹1,01,83,461 as taxable income, resulting in tax and interest of ₹45,89,060.
The trust first sought rectification under section 154. After that attempt failed, and the appeal against the rectification order was dismissed with an observation that the original intimation should have been challenged, it appealed against the intimation itself. The CIT(A) rejected the claim under section 10(23C)(iiiad), principally treating the absence of an audit report in Form 10BB as a substantive default. The trust then approached the Tribunal.
Form 10BB was not the obstacle for this assessment year
The Tribunal found that the CIT(A)’s Form 10BB reasoning was incorrect. The audit report requirement relied upon by the CIT(A), as applicable to the year in question, concerned institutions covered by section 10(23C)(iv), (v), (vi) and (via). It did not apply in the same way to a claim under section 10(23C)(iiiad). Non-furnishing of Form 10BB therefore could not, by itself, defeat the trust’s claim under that clause.
That finding did not settle the exemption issue in the trust’s favour. The trust still had to show that the annual receipts of the relevant educational institution did not exceed the prescribed ₹1 crore limit. The real dispute was whether its three school sections were three distinct institutions or parts of one institution.
Separate accounts did not make each section a separate school
The trust relied on the Karnataka High Court judgment in CIT v. Children’s Education Society, which applied the receipts limit separately where a society ran distinct educational institutions. It also cited the Chennai Tribunal decision in ICF Silver Jubilee Nursery & Primary School v. DCIT, where a nursery school and a primary school were treated as separate institutions on the facts of that case. The trust pointed to its section-wise accounts and stated that the sections operated at separate premises.
The Mumbai Tribunal accepted the principle that genuinely separate educational institutions can be tested separately for the receipts limit. But it declined to treat every educational level within a school as a separate institution. The distinction depended on the facts and, in particular, the approvals and recognition granted to the educational units.
The approval produced in this case referred to an English-medium primary school at Mira Road. It permitted that school to add divisions covering further standards; it did not recognise each standard or division as an independent institution. The other approvals from the relevant authorities were likewise in the name of the school. There was no separate statutory recognition of the pre-primary, primary and secondary sections as three independent educational institutions.
The Tribunal held that separate books, section-wise income and expenditure statements, or different premises may help with administration and accounting, but those facts alone do not establish separate institutional identity. On the material before it, the three sections formed part of one recognised school. Their receipts had therefore to be aggregated. Since the total was ₹1,01,83,461, the trust exceeded the ₹1 crore limit and was not entitled to exemption under section 10(23C)(iiiad) for AY 2015–16.
The Tribunal distinguished Children’s Education Society and ICF Silver Jubilee Nursery & Primary School on precisely this point: those rulings dealt with institutions found to be separate on their respective records. They did not establish that the pre-primary, primary and secondary sections of every school must automatically be treated as separate institutions.
Exemption denied does not mean every rupee collected is income
The trust’s alternative argument succeeded. CPC had effectively taxed gross receipts after disallowing the amount entered as application of income. The Tribunal held that losing an exemption does not turn all collections into taxable income. Income must still be computed under the normal provisions of the Act after considering the expenditure and allowances legally available.
There is an important qualification. An amount described as “application of income” in an exemption claim cannot simply be deducted in full under the normal computation rules. The AO must examine the accounts and supporting evidence, allow admissible revenue expenditure, depreciation and other permissible allowances, and distinguish these from capital expenditure that cannot be claimed as a revenue deduction.
The Tribunal therefore restored only the computation of taxable income to the AO. It expressly confined the proceedings to verification of receipts, expenditure and allowances. The AO was not authorised to reopen the exemption issue or conduct an unrelated, wide-ranging enquiry. The appeal was partly allowed for statistical purposes.
Cases Discussed
- CIT v. Children’s Education Society, [2013] 34 taxmann.com 285/[2013] 358 ITR 373/[2014] 264 CTR 389 (Karnataka High Court), dated 18.03.2013 — Relied upon by the assessee for the proposition that where an assessee runs more than one distinct educational institution, the prescribed receipts threshold is to be applied separately to each institution. The Tribunal accepted that principle but distinguished the judgment because the pre-primary, primary and secondary units in the present case were sections of the same recognised school and did not have separate statutory recognition.
- ICF Silver Jubilee Nursery & Primary School v. DCIT, [2025] 172 taxmann.com 86/[2025] 212 ITD 72 (Chennai-Trib.), order dated 14.02.2025 — Relied upon by the assessee for separate application of the receipts threshold to a nursery school and primary school. The Tribunal distinguished the decision because the Chennai Bench had accepted, on the material before it, the separate institutional identity of the two schools, whereas the approvals in the present case recognised one school comprising different educational levels.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is directed against the order dated 07.02.2026 passed by the learned Additional/Joint Commissioner of Income-tax (Appeals), Ranchi [hereinafter referred to as “the CIT(A)”], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], arising from the intimation dated 02.01.2018 issued by the Centralized Processing Centre (CPC), Bengaluru, under section 143(1) of the Act for the assessment year 2015-16.
2. The assessee has raised the following grounds of appeal:
Ground no. 1:
The Order of Ld. National Faceless Appeal Center relevant to the AY 2015-16 dated 07/02/2026 is opposed to law, facts and circumstances of the case.
Ground no. 2:
The Ld. National Faceless Appeal Center erred in law and on facts in upholding the denial of exemption merely because the appellant had claimed exemption under section 11 instead of section 10(23C)(iiiad), without appreciating that the appellant is otherwise eligible for exemption under the correct provision of law.
Ground no. 3:
The Ld. National Faceless Appeal Center erred in holding that furnishing of audit report in Form 10BB was mandatory. The requirement of audit arises only where the income of the institution exceeds the prescribed limit. Since each school section, considered independently, has receipts below ₹1 crore, the requirement to furnish Form 10BB does not arise.
Ground no. 4:
The Ld. National Faceless Appeal Center has ignored the fact that each separate educational institution run by the Appellant have received gross receipts below Rs. 1 Crore only.
Pre-Primary Section -Rs.21,68,941/-
Primary School Section- Rs.57,96,193/-
Secondary Section-Rs.22,18,327/-
Total- Rs.1,01,83,461/-
Such income earned by the Appellant, being formed solely for educational purposes, is exempted from tax in the hands of Appellant as per the provisions of Section 10(23C)(iiiad) of the Act read with Rule 2BC of the Income Tax Rules, 1962 (“the Rules”)
Ground no. 5:
The Ld. National Faceless Appeal Center erred in aggregating the receipts of three independent school sections operated by the Appellant at separate premises with separate books of account. Each section, considered independently, has annual receipts below ₹1 crore. The aggregation of receipts is contrary to law and has resulted in erroneous denial of exemption.
Ground no. 6:
The Appellant craves leave to add, alter, amend, or withdraw any of the above grounds at the time of hearing.
3. Brief facts of the case are such that the assessee is a trust engaged in imparting education at the pre-primary, primary and secondary levels. The assessee filed its return of income for the assessment year 2015-16 on 17.03.2017 declaring nil income. While filing the return, the assessee claimed exemption under section 11 of the Act.
4. The return was processed by CPC, Bengaluru, under section 143(1) of the Act. In the intimation dated 02.01.2018, CPC did not allow the amount of Rs.1,01,83,461/- shown by the assessee as application of income towards its educational objects. Consequently, the entire amount of Rs.1,01,83,461/- was treated as taxable income. The resulting tax and interest liability was computed at Rs.45,89,060/-.
5. According to the assessee, exemption under section 11 was selected inadvertently instead of exemption under section 10(23C)(iiiad) of the Act. As the time for filing a revised return had expired, the assessee filed an application under section 154 seeking exemption under the correct provision. The application was rejected by CPC by an order dated 12.02.2020. The appeal preferred against the rectification order was dismissed on 08.12.2021, with the observation that the assessee ought to have challenged the original intimation under section 143(1).
6. The assessee thereafter filed an appeal against the intimation dated 02.01.2018.
7. Before the learned CIT(A), the assessee submitted that the receipts attributable to its three educational sections were as follows:
| School section | Gross receipts |
|---|---|
| Pre-primary section | Rs.21,68,941/- |
| Primary school section | Rs.57,96,193/- |
| Secondary section | Rs.22,18,327/- |
| Total | Rs.1,01,83,461/- |
8. It was contended that each section constituted a separate educational institution and that the receipts of each section were below the prescribed limit of Rs.1 crore. The assessee, therefore, claimed that its income was exempt under section 10(23C)(iiiad) read with Rule 2BC of the Income-tax Rules, 1962.
9. The learned CIT(A), by the impugned order dated 07.02.2026 passed under section 250 of the Act, dismissed the appeal. The learned CIT(A) held that filing an audit report in Form 10BB was mandatory where the income, without giving effect to section 10(23C), exceeded the maximum amount not chargeable to tax. Since the total receipts of the assessee amounted to Rs.1,01,83,461/-, the learned CIT(A) held that non-furnishing of Form 10BB constituted a substantive default.
10. The learned CIT(A) also distinguished the decisions relied upon by the assessee on the ground that those decisions dealt with segregation of the receipts of different educational institutions and did not dispense with the requirement of furnishing an audit report. Accordingly, the claim under section 10(23C)(iiiad) was rejected and the action of CPC was upheld.
11. Aggrieved by the order of learned CIT(A) the assessee is in further appeal before us.
12. Before us, the learned Authorised Representative (AR) submitted that the assessee existed solely for educational purposes and not for purposes of profit. It was submitted that selection of section 11 instead of section 10(23C)(iiiad) in the return was an inadvertent clerical error committed while selecting the applicable provision in the return of income. According to the learned AR, a lawful exemption could not be denied merely because the claim was made by referring to an incorrect provision.
13. The learned AR further submitted that, during the relevant assessment year, the requirement of furnishing Form 10BB under the then applicable proviso to section 10(23C), read with Rule 16CC, applied to institutions covered by section 10(23C)(iv), (v), (vi) and (via). The said requirement did not apply to an institution claiming exemption under section 10(23C)(iiiad). It was, therefore, contended that the learned CIT(A) had rejected the claim on a legally untenable ground.
14. The learned AR submitted that separate income and expenditure accounts and balance sheets were maintained for the pre-primary, primary and secondary sections. Since the receipts of each section were below Rs.1 crore, the receipts could not be clubbed for determining eligibility under section 10(23C)(iiiad).
15. Reliance was placed upon the judgment of the Hon’ble Karnataka High Court in CIT v. Children’s Education Society [2013] 34 taxmann.com 285/[2013] 358 ITR 373/[2014] 264 CTR 389 (Karnataka), dated 18.03.2013. The learned AR relied upon the following observations:
“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.”
16. The Hon’ble High Court ultimately concluded:
“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.”
17. The learned AR also relied upon the decision of the Chennai Bench of the Tribunal in ICF Silver Jubilee Nursery & Primary School v. DCIT [2025] 172 taxmann.com 86/[2025] 212 ITD 72 (Chennai-Trib.), order dated 14.02.2025, wherein the Tribunal observed in paragraph 13 as under:
“We also note that the annual income is less than Rs.1.00 crore from each school i.e., Nursery school and Primary school and existing solely for educational purposes, is exempted from tax in the hands of the assessee as per the provisions of section 10(23C)(iiiad) of the Act r.w.r. 2BC of I.T. Rules, 1962.”
18. Without prejudice to the claim for exemption, the learned AR submitted that the entire gross receipts of Rs.1,01,83,461/- could not be assessed as income. It was submitted that, even if the exemption were denied, taxable income was required to be determined in accordance with the normal principles of computation after allowing admissible expenditure incurred for carrying on the educational activities. The learned AR, therefore, prayed that the Assessing Officer be directed to verify the accounts, allow the admissible expenditure, and assess only the resultant net income, if any.
19. The learned DR relied upon the intimation issued by CPC and the order passed by the learned CIT(A). It was submitted that the aggregate receipts of the assessee exceeded the prescribed limit of Rs.1 crore and that the assessee was not entitled to exemption under section 10(23C)(iiiad).
20. We have considered the rival submissions and examined the material placed on record. The controversy is whether the pre-primary, primary and secondary sections operated by the assessee constitute independent educational institutions for applying the threshold prescribed under section 10(23C)(iiiad), or whether they are merely different sections of one recognised school. The assessee has also raised a without-prejudice contention that, even if exemption is denied, the entire gross receipts cannot be assessed as income without allowing the expenditure incurred in carrying on its educational activities.
21. The material facts necessary for examining the claim under section 10(23C)(iiiad), namely, the nature of the activities and the amount of receipts, were available before the authorities below. The alternative claim does not introduce a new source of income or require investigation into an altogether new factual foundation. We, therefore, hold that the claim under section 10(23C)(iiiad) cannot be rejected merely because the assessee inadvertently selected section 11 while filing its return. The claim is required to be examined on its merits.
22. The learned CIT(A) rejected the claim principally on the ground that the assessee had not furnished an audit report in Form 10BB. For the assessment year under consideration, the requirement contained in the relevant proviso to section 10(23C), read with Rule 16CC, applied to the institutions referred to in section 10(23C)(iv), (v), (vi) and (via). It did not govern an institution claiming exemption under section 10(23C)(iiiad). The learned CIT(A) was, therefore, not justified in treating non-furnishing of Form 10BB as a substantive default disentitling the assessee to exemption under section 10(23C)(iiiad). Ground No. 3 is allowed to this limited extent. However, removal of this objection does not, by itself, establish the assessee’s eligibility for exemption. The assessee must independently satisfy the prescribed monetary threshold.
23. The assessee contends that its pre-primary, primary and secondary sections constitute three separate educational institutions and that the receipts of each section are below the prescribed limit of Rs.1 crore as detailed in the facts
24. In support of the institution-wise application of the threshold, the learned AR relied upon the judgment of the Hon’ble Karnataka High Court in CIT v. Children’s Education Society [2013] 34 taxmann.com 285/[2013] 358 ITR 373/[2014] 264 CTR 389 (Karnataka). The principle emerging from the aforesaid judgment is that where an assessee runs more than one distinct educational institution, the prescribed threshold is to be applied separately to each institution. The judgment does not lay down that every class, section, stream or level of education conducted within one recognised school must necessarily be regarded as an independent educational institution.
25. The distinction assumes significance in the present case. The approval dated 23.09.2002 issued by the School Education Department, Government of Maharashtra, is in respect of the English-medium primary school conducted by the assessee at Mira Road. The communication refers to the earlier permission granted to the school for Standard I and thereafter permits the school to commence one division each of Standards II to VII from June 2002 on a permanent unaided basis. Thus, the permission is granted to the primary school as one educational institution. The individual standards or divisions have not been granted separate recognition as independent educational institutions.
26. Similarly, the approvals and recognition obtained from the concerned departments of the State Government, the Education Board and the Municipal Corporation are in the name of the school. No separate approval, affiliation or statutory recognition has been granted to the pre-primary, primary and secondary sections as three independent educational institutions.
27. The separate maintenance of accounts or preparation of section-wise income and expenditure statements may facilitate internal accounting and administration. Likewise, the conduct of different sections at different premises may be relevant administratively. These circumstances, by themselves, do not establish that every section is an independent educational institution when the statutory and educational authorities recognise the school as one institution.
28. In Children’s Education Society, the Hon’ble Karnataka High Court proceeded on the factual position that the assessee-society was running several educational institutions which were separate entities controlled under different statutory approvals. It was in that context that the Hon’ble High Court held that the threshold should be examined with reference to each educational institution. In the present case, the pre-primary, primary and secondary units are sections of the same recognised school, and there is no separate statutory recognition of each section as an independent institution. The judgment, therefore, does not support the proposition that different sections of one school must be treated as separate educational institutions.
29. The learned AR also relied upon the decision of the Chennai Bench of the Tribunal in ICF Silver Jubilee Nursery & Primary School v. DCIT [2025] 172 taxmann.com 86/[2025] 212 ITD 72 (Chennai-Trib.). The said decision was rendered on the factual finding that the assessee therein was running two educational institutions, namely, a nursery school and a primary school, and that the receipts of each institution were separately reflected in the audited financial statements. The bench accepted, on the material before it, the separate institutional identity of the two schools. In the present case, the approvals produced by the assessee do not recognise three independent institutions. They recognise one school comprising different educational levels. The decision of the Chennai Bench is, therefore, distinguishable on the foundational facts.
30. Once the pre-primary, primary and secondary sections are treated as constituent parts of one recognised educational institution, their receipts are required to be aggregated. The total receipts of the school amount to Rs.1,01,83,461/-, which exceed the prescribed limit of Rs.1 crore applicable for the assessment year under consideration. The assessee, therefore, does not satisfy the monetary condition prescribed under section 10(23C)(iiiad) read with Rule 2BC.
31. Accordingly, although the learned CIT(A) was not justified in denying the claim for non-furnishing of Form 10BB, the assessee is not entitled to exemption under section 10(23C)(iiiad) because the aggregate receipts of the single recognised educational institution exceeded Rs.1 crore. Grounds Nos. 2, 4 and 5 are dismissed. Ground No. 3 is allowed only to the limited extent stated in earlier paragraphs.
32. We shall now deal with the alternative contention of the learned AR. CPC has treated the entire gross receipts of Rs.1,01,83,461/- as taxable income after reducing the amount claimed as application of income to nil. Denial of exemption under section 10(23C)(iiiad), however, does not lead to the automatic conclusion that every receipt constitutes taxable income without deduction of any corresponding expenditure.
33. The charge under the Act is on total income computed in the manner provided by the Act and not upon gross collections as such. Once the exemption is denied, the income of the assessee must be determined under the applicable normal computation provisions. The legitimate expenditure incurred for earning the receipts or carrying on the educational activities cannot be disregarded merely because the assessee is found ineligible for exemption.
34. At the same time, the amount described in the return as “application of income” cannot automatically be allowed in its entirety as a deduction. The concept of application of income under the exemption provisions is distinct from deduction of expenditure under the normal computation provisions. Revenue expenditure and statutory allowances may be considered in accordance with law. Capital expenditure cannot be allowed as revenue expenditure merely because it was incurred for educational purposes, though depreciation or any other permissible allowance shall be considered under the applicable provisions.
35. This aspect was not examined either at the stage of processing under section 143(1) or by the learned CIT(A). CPC proceeded by treating the entire amount of Rs.1,01,83,461/- as income. The learned CIT(A) also confined the adjudication to the assessee’s claim for exemption and did not determine the income chargeable under the normal provisions.
36. The alternative contention concerns the correct quantification of the very income brought to tax and does not involve assessment of a new source of income. We, therefore, consider it appropriate to restore this limited issue to the file of the Assessing Officer.
37. The Assessing Officer is directed to examine the books of account, section-wise income and expenditure statements and supporting evidence produced by the assessee. The Assessing Officer shall determine the appropriate head or heads under which the receipts are chargeable; allow such expenditure, depreciation and other allowances as are admissible under the applicable provisions; and assess only the resultant net taxable income. No expenditure shall be disallowed merely on the ground that exemption under section 10(23C)(iiiad) has been denied.
38. We make it clear that the restoration is confined strictly to the computation of taxable income under the normal provisions of the Act, after verification of the receipts, expenditure and allowances claimed by the assessee. Such restoration shall not be construed as setting aside the entire matter for a de novo assessment or as authorising a complete scrutiny of the return of income. The Assessing Officer shall restrict the proceedings to the limited issue restored herein and shall not undertake any roving or unrelated enquiry. The issue of the assessee’s eligibility for exemption under section 10(23C)(iiiad), having already been adjudicated hereinabove, shall not be reopened in the consequential proceedings.
39. The without-prejudice contention of the assessee is accordingly allowed for statistical purposes. Ground No. 1 is partly allowed in the above terms. Ground No. 6 is general and requires no separate adjudication.
40. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 23.09.2026.
