2008 (3) TMI 501 - AT - Income Tax

Grant for exemption under section 11 - Approval u/s 10(23C)(vi) of the Act - Educational institution - registered under section 12A - Whether AO has exceeded his jurisdiction in saying that the assessee is not entitled to exemption under section 11? -HELD THAT - Merely because section 10( 23C ) provides for exemption of the income of an educational institution, it does not follow that such institution cannot avail exemption under section 11/12 subject to conditions being fulfilled. The 8th Edition of the treatise The Law and Practice of Income-tax by Kanga and Palkhivala mentions that exemption under section 10( 22 ) is separate from or in addition to the exemption under section 11. Therefore, it further says, in respect of income covered by section 10( 22 ), trust, association or institution would be entitled to exemption even if the same income also falls under section 11 and conditions under that section are not fulfilled. Conversely, income not covered by section 10( 22 ) would still be exempt under section 11 if conditions of that section are not fulfilled. Similarly, the 10th Edition of Law of Income-tax by Sampath Iyengar that institutions which are exempt under section 10( 22 ) may also be exempt under section 11 of the Act. In fact, it is difficult to conceive the idea of availability of exemption on the ground that one is activity oriented and the other is institution oriented. Further, the Tribunal in the case of Vodithala Education Society 2007 (10) TMI 437 - ITAT HYDERABAD did not grant exemption under section 11, not on this ground but because of the factual position in that case insofar as that there was a clear violation of the provisions of section 13(1)( c ) of the Act. Therefore, there is no gainsaying that the Division Bench of the Tribunal has held that where an institution is eligible for exemption under section 10( 23C ), it cannot claim exemption under section 11 of the Act. And how can the Tribunal hold so when the judgment of the Supreme Court in the case of Bar Council of Maharashtra 1981 (4) TMI 8 - SUPREME COURT stares in its face We may point out that there are other allied provisions like, for instance, sub-section ( 23C ) in section 10 which clearly indicate that the Legislature did not intend to rule out section 11 when exemption was claimable under such specific provisions of section 10. There cannot be a more eloquent expression of law and hence it is absolutely futile to argue that institutions falling under section 10( 23C ) cannot claim exemption under section 11. The above is the law of the land. There is another dimension to the issue. It is the Commissioner who grants registration under section 12AA of the Act. Once when registration is granted by the Commissioner, it implies that the trust or the institution is established for charitable purpose. Then it is for the Assessing Officer to examine ever year whether the income has been applied for charitable purpose or not. If the income is not so applied, it means that though the trust or institution is established for charitable purpose, it has carried out activities other than charitable and in that case it will be the duty of the Assessing Officer to tax such income. The role of the Assessing Officer in such cases stops here. But he cannot go further overruling a superior authority to hold that the trust or institution is not established for charitable purpose. Therefore in my opinion, the Assessing Officer has exceeded his jurisdiction in saying that the assessee is not entitled to exemption under section 11. He can say so, I may repeat, only when the income is not applied for the stated purpose, but not otherwise. Thus, I uphold the order of the CIT(A) granting exemption to the assessee under section 11 of the Act. In the result, both the appeals of the department are dismissed.

Summary

Issues:
1. Whether exemption under section 11 of the Income-tax Act can be granted to an educational institution also eligible for exemption under section 10(23C).
2. Whether the Commissioner exceeded jurisdiction by denying exemption under section 11 to the educational institution.

Detailed Analysis:
1. The main issue in this case was whether an educational institution, registered under section 12A of the Income-tax Act, could claim exemption under section 11 despite also being eligible for exemption under section 10(23C). The Assessing Officer denied exemption under section 11 to the institution, arguing that section 10(23C) was a specific provision for educational institutions, making it mandatory to obtain approval when receipts exceeded a specified limit. However, the CIT(A) held that both provisions operated parallel to each other, allowing the institution to seek exemption under either. The CIT(A) referred to relevant case laws and granted exemption to the institution under section 11 for the assessment years in question.

2. The second issue revolved around the jurisdiction of the Commissioner in denying exemption under section 11 to the educational institution. The Commissioner had granted registration under section 12AA, implying the institution was established for charitable purposes. The Assessing Officer argued that the institution was not entitled to exemption under section 11, but the CIT(A) disagreed, stating that the Assessing Officer's role was limited to ensuring income was applied for charitable purposes. The CIT(A) upheld the exemption granted under section 11, emphasizing that the Assessing Officer had exceeded jurisdiction by denying the exemption.

In conclusion, the Appellate Tribunal dismissed the department's appeals, affirming the grant of exemption under section 11 to the educational institution for the assessment years in question. The judgment clarified that an educational institution could avail exemption under section 11 alongside eligibility for exemption under section 10(23C), and highlighted the role and limitations of the Commissioner and Assessing Officer in determining such exemptions.