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2016 (1) TMI 1356 - AT - Income TaxEntitled to exemption u/s 10(23C)(iiiad) - Held that - Respectfully following the aforesaid decision of the Hon ble Supreme Court the case of M/s. Queen s Educational Society 2015 (3) TMI 619 - SUPREME COURT 13th proviso to Section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C) read with Section 11 of the Income Tax Act. - Decided in favour of assessee.
Issues Involved:
1. Exemption claimed under Section 10(23C)(iiiad) of the Income Tax Act, 1961. 2. Requirement of registration under Section 12AA of the Act. 3. Consideration of income/expenditure statement showing surplus profit. 4. Applicability of the decision of the Uttarakhand High Court in CIT vs. Queens Educational Society and CIT vs. St. Pauls Sr. Secondary School. Detailed Analysis: Issue 1: Exemption under Section 10(23C)(iiiad) The primary issue was whether the assessee trust, running a school, was entitled to claim exemption under Section 10(23C)(iiiad) despite generating surplus income. The AO disallowed the exemption, arguing that the trust had objectives beyond education and generated profit year after year. The CIT(A) deleted the disallowance, and the ITAT upheld this decision, emphasizing that the surplus was incidental and utilized for educational purposes, including infrastructure development. The ITAT referenced the Supreme Court's decision in "M/s. Queen's Educational Society vs. Commissioner of Income Tax," which clarified that a surplus does not negate the educational purpose if it is not aimed at profit-making. Issue 2: Registration under Section 12AA The department contended that the exemption under Section 10(23C)(iiiad) should not be allowed as the assessee was not registered under Section 12AA. The ITAT dismissed this argument, noting that Section 10(23C)(iiiad) does not mandate registration under Section 12AA for claiming exemption. The assessee's compliance with Section 10(23C)(iiiad) was sufficient. Issue 3: Income/Expenditure Statement Showing Surplus The AO argued that the income/expenditure statement showed a surplus, indicating profit-making motives. However, the CIT(A) and ITAT found that the surplus was used for educational purposes, such as constructing school buildings and purchasing educational equipment. The ITAT cited the Supreme Court's rulings in "Aditanar Educational Institution vs. Addl. CIT" and "Surat Art Silk Manufacturers' Association," which held that incidental surplus does not imply profit motive if used for educational purposes. Issue 4: Applicability of Uttarakhand High Court's Decision The AO relied on the Uttarakhand High Court's decision in CIT vs. Queens Educational Society, which denied exemption due to surplus generation. However, the ITAT noted that this decision was overruled by the Supreme Court in "M/s. Queen's Educational Society vs. Commissioner of Income Tax," which approved the Punjab & Haryana High Court's decision in "Pine Grove International Charitable Trust vs. Union of India." The Supreme Court clarified that surplus incidental to educational activities does not negate the educational purpose. The ITAT followed this precedent, rejecting the department's reliance on the Uttarakhand High Court's decision. Conclusion: The ITAT dismissed the department's appeal, upholding the CIT(A)'s decision to allow the exemption under Section 10(23C)(iiiad). The ruling emphasized that the assessee's surplus was incidental and used for educational purposes, aligning with the Supreme Court's interpretation of the law. The requirement for registration under Section 12AA was deemed irrelevant for the exemption under Section 10(23C)(iiiad). The ITAT's decision was consistent with the Supreme Court's rulings, ensuring that the assessee's educational activities were not undermined by incidental surplus generation.
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