2011 (10) TMI 171 - AT - Income Tax

Exemption under 10(23)(C)- Assessee is an educational institutions receipts do not exceed Rs. One Crore. AO proceeded that the institution is not run for the achievement of specified aims and objectives - No accounts have been audited and the assets of the institution are used for personal benefit. AO concluded that the trust exists solely for profit purpose and has lost sight-of its aims and objectives for which it was created. Moreover, registration u/s 12A applied by the trust was not granted by the department. - Held That - The expression solely for educational purpose and not for purpose of profit has been used in Section 10(23C) of the Act, in a number of clauses. Therefore, it is imperative to understand the meanings assigned to such expression in the light of the context it is used. The expression stands judicially defined in the case of Aditanar Educational Institution v. Addl.CIT (1997 -TMI - 5552 - SUPREME Court) as that if after meeting expenditure, any surplus results incidently from activity lawfully carried on by an educational institution, it will not cease to be one existing solely for educational purpose. The AO had not found any irregularity in the accounts of the trust. There was no document to show that the trust was being run for any purpose of profit except for educational purposes. The assessee was entitled to exemption u/s 10(22) of the Act. Further it is not statutorily incumbent upon the assessee to obtain registration u/s 12A of the Act, to enable it for exemption u/s 10(23C) of the Act. As is evident that registration is not relevant u/s 12A of the Act, having regard to the fact-situation of the case, as its receipts, don t exceed Rs. One Crore and the assessee trust exists solely for the educational purpose and not for the purpose of profit. Thus appeal of assessee is allowed.

Summary

Issues:
Appeal against the denial of exemption u/s 10(23C) of the Income-tax Act, 1961.

Analysis:
1. The assessee challenged the denial of exemption u/s 10(23C) by the CIT(A), contending that the school's receipts were below Rs.1 crore, making it eligible for tax exemption. The trust was formed as per a duly registered Trust Deed, and registration u/s 12A was not required due to the receipts being below the threshold. The earlier AO had accepted the exemption u/s 10(23C) in a previous order. The AR argued that the AO's conclusions lacked substance and were based on unproven allegations, advocating for the grant of exemption.

2. The AO alleged that the trust existed solely for profit, disregarding its educational objectives. The CIT(A) upheld this view, stating that the trust failed to disprove the allegations and did not qualify for registration u/s 12A. However, the AR highlighted discrepancies in the Trust Deed submissions and emphasized the lack of credible evidence supporting the profit motive claim, urging for the exemption to be granted under Section 10(23C).

3. The Tribunal analyzed the provisions of Section 10(23C)(iiiad) which exempt educational institutions from tax if their receipts are below a prescribed limit and they operate solely for educational purposes. Citing legal precedents, it clarified that surplus from lawful activities does not negate educational purpose. The Tribunal noted the absence of material proving profit-oriented operations by the trust and emphasized that the burden of proof lay with the AO. The trust's compliance with the exemption criteria was affirmed, and the denial of exemption by the CIT(A) was deemed contrary to the law and judicial precedents.

4. The Tribunal highlighted the amendments to Section 10(23C) post-Finance Act, 1998, expanding exemptions for educational institutions. It differentiated between trusts for charitable purposes under Sections 11, 12, 12A, 12AA, and 13, and institutions of national importance under Section 10(23C). Recognizing the trust's eligibility under Section 10(23C)(iiiad), the Tribunal concluded that registration u/s 12A was not mandatory due to the trust's compliance with the exemption conditions. The decision favored the assessee, allowing the appeal and granting the exemption under Section 10(23C).