2016 (7) TMI 1369 - AT - Income Tax

Denying exemption u/s 10(23C)(iiiad) - scope of the object clause of the society - the stand of the AO was that apart from education the assessee has other objects also therefore it is not entitled for exemption under section 10(23C)(iiiad) - Held that - As decided in the case of Geetanjali Education Society (2014 (4) TMI 747 - KARNATAKA HIGH COURT) if it is established that the assessee has not carried out any other activities except education then the benefit of section 10(23C) cannot be denied. Even if an assessee having other objects in its memorandum of association but in a particular year it has acted exclusively for the purpose of education then exemption under section 10(23C) cannot be denied to an assessee. As in present case perusal of the details of expenditure would indicate that major amount incurred by the assessee was towards school expenses. It is a sum of 42, 56, 507/-. The other expenditure is of only 56, 895/-. Similarly major source of income to the assessee is fees from school amounting to 44, 79, 685/-. The alleged bank interest according to the assessee was out of the deposits from collection of fees etc. Thus the details of expenditure would indicate that the assessee has not incurred any expenditure except small amount on any other activities than the education. CIT(A) has highlighted masjid expenses of 21, 900/- which is a very meager amount which is not a deciding factor for the activities of the assessee. All these facts are to be seen in the light of subsequent years where registration under section 12A has been granted to the assessee. Taking into consideration all these facts and circumstances allow the claim of the assessee and direct the AO to grant exemption under section 10(23C)(iiiad) of the Income Tax Act. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Denial of exemption under Section 10(23C)(iiiad) of the Income Tax Act.
2. Addition of ?9,00,684/- by the Assessing Officer (AO).
3. Addition of ?14,58,500/- in reserve fund by the AO.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 10(23C)(iiiad):
The primary issue was whether the assessee, a public charitable trust registered since 1977, was entitled to exemption under Section 10(23C)(iiiad) of the Income Tax Act for the assessment year 2010-11. The AO denied this exemption on the grounds that the trust's deed indicated purposes beyond education, specifically for the social welfare of the Sunni Muslim Vohra Community. The AO argued that the trust did not exist solely for educational purposes as required by the statute. The assessee contended that despite having multiple objects in its memorandum, it exclusively engaged in educational activities during the relevant year. The Tribunal referred to authoritative judgments, including those from the Allahabad High Court (C.P. Vidya Niketan Inter College Shikshan Society) and Karnataka High Court (Geetanjali Education Society), which held that exemption should not be denied if the trust solely engaged in educational activities during the year. The Tribunal found that the assessee's major income and expenditure were related to education, with only minimal amounts spent on other activities. Consequently, the Tribunal directed the AO to grant the exemption under Section 10(23C)(iiiad).

2. Addition of ?9,00,684/- by the AO:
The AO treated the assessee as an Association of Persons (AOP) and computed a taxable income of ?9,00,684/- by debiting various expenses from the gross receipt of ?52,45,736/-. The AO made this addition on the grounds that the assessee was not registered under Section 12A during the relevant year. The Tribunal, however, noted that the assessee had subsequently obtained registration under Section 12A, indicating that the trust's objects were not doubted by the department. Given the Tribunal's decision to grant exemption under Section 10(23C)(iiiad), the addition of ?9,00,684/- was rendered moot, as the income was exempt.

3. Addition of ?14,58,500/- in Reserve Fund:
The AO also made an addition of ?14,58,500/- to the assessee's income, which was transferred to the Unity School Building Fund, arguing that the assessee was not entitled to claim this amount without registration under Section 12A. The Tribunal's decision to grant exemption under Section 10(23C)(iiiad) also covered this aspect, as the entire income, including the reserve fund, was considered exempt. Therefore, the addition of ?14,58,500/- was not sustained.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to grant exemption under Section 10(23C)(iiiad) of the Income Tax Act for the assessment year 2010-11. Consequently, the additions of ?9,00,684/- and ?14,58,500/- made by the AO were also set aside. The order was pronounced in the court on 15th July 2016 at Ahmedabad.