2013 (8) TMI 553 - AT - Income Tax

Exemption u/s 10(23C)(iiiad) - substantial govt aid - computation of turnover of Rs.1 crore - three educational institution - Held that - Assessing Officer has considered the total receipts of three educational institution being run by the assessee society whereas the claim of the assessee is that the same should be considered separately and if it is done then, the income of these institutions is fully exempt U/S 10(23C)(iiiad) - the annual gross receipts of three educational institution being run separately by the assessee society cannot be clubbed together for examining the fulfillment of the conditions of receipt being less then the prescribed limit of annual gross receipts. - Following decision of Jat Education Society Versus Dy. CIT 2011 (3) TMI 569 - ITAT DELHI - Decided in favour of assessee. Deduction u/s 10(23C)(iiiab) - requirement of approval of CCIT - Held that - As per the provisions of this sub-clause (iiiad) of clause (23C) of section 10 that the term aggregate annual receipts of each educational institution is relevant and if any assessee is having more than one educational institution then the aggregate annual receipt of each of such educational institution has to be considered separately - the income of these three institutions are also exempt u/s sub-clause(iiiad) of clause (23C) of section 10 because aggregate income of each of these institutions in each of these two years is below Rs. 1 crore. The requirement of approval of CCIT under sub-clause (vi) of clause (23C) of section 10 is for those who are not covered by sub-clauses (iiiab) or (iiiad) of clause (23C) of section 10. Since, these three institutions are covered by clause (iiiad), clause (vi) is not applicable - Decided in favour of assessee. Substantial Government Aid - Held that - the percentage of grants in aid with respect to total receipts are more than 34.33% considered by the Hon ble Karnataka High Court to be substantial 2011 (2) TMI 1235 - Karnataka High Court . - the assessee/institutions were substantially financed/aided by the Govt. and hence are eligible for exemption u/s 10(23C)(iiiab). - Decided in favor of assessee.

Issues Involved:
1. Enhancement of income by CIT(A).
2. Ignoring ITAT Delhi's prior decision.
3. Denial of exemption under sections 10(23C)(iiiab) and 10(23C)(iiiad).
4. Principle of receiving at least 60% of total receipts as government grant for exemption.
5. Violation of provisions of law and defiance of ITAT's decision.
6. Levy of interest and initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Enhancement of Income by CIT(A):
The appellant challenged the CIT(A)'s decision to enhance the income from Rs. 13,83,209/- to Rs. 20,28,227/- for the assessment year 2006-07. The CIT(A) held that the appellant was not entitled to exemptions under sections 10(23C)(iiiab) or 10(23C)(iiiad) for the society and some of its institutions. The enhancement was based on the finding that certain institutions were not financed by the government and their aggregate receipts exceeded Rs. 1 crore, necessitating approval under section 10(23C)(vi), which was not obtained.

2. Ignoring ITAT Delhi's Prior Decision:
The appellant argued that CIT(A) overlooked the ITAT Delhi's decision for assessment years 2003-04 and 2004-05, which was produced before him. The ITAT had previously ruled that the aggregate annual receipts of each institution should be considered separately for determining the exemption limit of Rs. 1 crore.

3. Denial of Exemption Under Sections 10(23C)(iiiab) and 10(23C)(iiiad):
The Assessing Officer (AO) denied the exemption on the grounds that some institutions were not financed by the government and their aggregate receipts exceeded Rs. 1 crore. The appellant contended that the individual gross receipts of each institution were below Rs. 1 crore, citing the ITAT's earlier decision. The AO's assessment included net surplus income, which was contested by the appellant as incorrect.

4. Principle of Receiving at Least 60% of Total Receipts as Government Grant for Exemption:
The CIT(A) evolved a principle that for exemption under section 10(23C)(iiiab), an institution must receive at least 60% of its total receipts as a government grant. The appellant argued that grants varied year to year and cited a Karnataka High Court judgment where 34.33% government aid was considered substantial. The appellant's institutions had grants ranging from 41% to 82%, which should qualify as substantial.

5. Violation of Provisions of Law and Defiance of ITAT's Decision:
The appellant claimed that the CIT(A)'s order violated legal provisions and defied the ITAT's jurisdictional decision, making it arbitrary and incorrect. The ITAT had previously ruled that the aggregate annual receipts of each educational institution should be considered separately, not collectively.

6. Levy of Interest and Initiation of Penalty Proceedings Under Section 271(1)(c):
The CIT(A) failed to address the grounds concerning the levy of interest and initiation of penalty proceedings under section 271(1)(c). The appellant sought relief from these penalties.

Judgment Analysis:
The ITAT considered two main issues: whether the aggregate gross receipts of various institutions should be considered collectively or individually, and whether the institutions received substantial government aid to qualify for exemption under section 10(23C)(iiiab). The ITAT upheld that individual receipts should be considered separately, following its earlier decision and the Karnataka High Court's interpretation of "substantial interest." The ITAT found that the appellant's institutions received substantial government aid, qualifying them for exemption. Consequently, the appeals filed by the appellant were allowed, and the income assessments were revised accordingly.

Conclusion:
The ITAT ruled in favor of the appellant, allowing the appeals and holding that the individual gross receipts of each institution should be considered separately for exemption purposes. The institutions were deemed to have received substantial government aid, qualifying them for exemptions under section 10(23C)(iiiab). The CIT(A)'s enhancement of income and denial of exemptions were overturned.

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