2013 (1) TMI 496 - AT - Income Tax

Exemption u/s 10(23)(iiiad) Whether interest on FDR can be consider as a part of aggregate annual receipt for claiming exemption u/s 10(23C)(iiiad) - Receipts of the assessee during A.Y. 2006-07 including interest on FDRs exceeded Rs. One crore Society besides income from running of a school is having other sources of income also - Held that - From the plain reading of section 10(23C) (iiiad), it emerges that legislature had in its mind annual receipts of school or university as the case may be for consideration of exemption limit and not that of total income of society running that school or university. The income from interest on FDRs is an additional income of society and it cannot be considered to be part of annual receipts of the school for claiming exemption u/s 10(23C)(iiiad) in respect of school. - assessee was eligible for exemption u/s 10(23)(iiiad) as annual school receipts did not exceed Rs. One crore. - In favour of assessee

Issues:
1. Denial of exemption in respect of annual income of a school of Charitable Trust.
2. Interpretation of annual income of the school and inclusion of interest on fixed deposits.
3. Definition of annual income under section 10(23C)(iiiad) and relevance of Supreme Court judgment.
4. Bona fide belief of the Trust regarding income inclusion for exemption eligibility.
5. Obtaining prior approval of CCIT for exemption under section 10(23C)(vi) and its applicability.

Issue 1: Denial of exemption in respect of annual income of a school of Charitable Trust

The assessee appealed against the order of Ld. CIT(A) denying exemption for the assessment year 2006-07 due to the inclusion of interest on fixed deposits in the annual income of the school. The appellant argued that interest income fluctuated widely and did not form part of the school's annual income. The appellant claimed that the exemption should be allowed as the income exclusive of interest on fixed deposits was below the threshold of one crore rupees.

Issue 2: Interpretation of annual income of the school and inclusion of interest on fixed deposits

The appellant contended that the term "annual income of the school" was not defined in section 10(23C)(iiiad) and that interest income from fixed deposits should not be considered part of the annual income. However, the Assessing Officer held that interest on fixed deposits constituted a recurring receipt and formed part of the annual receipts. The Ld. CIT(A) upheld this view, stating that interest on FDRs was a recurring receipt and should be included in the annual income of the school.

Issue 3: Definition of annual income under section 10(23C)(iiiad) and relevance of Supreme Court judgment

The appellant argued that there was a difference of opinion regarding the meaning of annual income between the appellant and the authorities. They cited the Supreme Court judgment in CIT v. Vegetable Products Ltd. to support their claim that the appellant's interpretation should prevail. However, the Ld. CIT(A) dismissed this argument, stating that interest on FDRs formed part of the annual receipts and upheld the Assessing Officer's decision.

Issue 4: Bona fide belief of the Trust regarding income inclusion for exemption eligibility

The appellant Trust maintained a bona fide belief that the income of the school did not include interest income on fixed deposits. They argued that their income, excluding interest on fixed deposits, was below the one crore rupee threshold, making them eligible for exemption. The Tribunal acknowledged the appellant's belief and noted that they had obtained approval for subsequent years when the income exceeded the threshold, indicating good faith.

Issue 5: Obtaining prior approval of CCIT for exemption under section 10(23C)(vi) and its applicability

The appellant asserted that they were required to obtain approval only once, as per the CCIT's order for the assessment year 2007-08. They argued that the approval was valid for the year in question as well. The Tribunal considered the society's operations and income sources, concluding that the interest on FDRs should not be considered part of the school's annual receipts. Therefore, the appellant was eligible for exemption under section 10(23C)(iiiad) for the assessment year 2006-07.

In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling in favor of the appellant's eligibility for exemption under section 10(23C)(iiiad) for the assessment year 2006-07.

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