2014 (12) TMI 798 - AT - Income Tax

Nature of entity - Senate of Serampore College is a taxable entity or not Held that - The Serampore College Act, 1918 was passed by Government of India as Bengal Act IV of 1918 to supplement and supersede the Royal Charter of Incorporation and the statutes and regulations of Serampore College for better governance and management - Its legal assessable entity is The Serampore College and Senate of Serampore College is only a subordinate body under the Council with specified functions - the Serampore College is the assessable entity for the purpose of income tax and Senate of Serampore College is a constituent unit of the college whose accounts must be consolidated along with other units in the The Serampore College account - The Serampore College the entity, as per Serampore College Act 1918, exists for nearly two centuries as an educational institution catering to theological and general education - The college imparts formal education on different streams and subjects for public at large. Even religions or philosophical educations through formal systems of course, curricula, examination and awarding degrees is also education for the purpose of section 2(15) or 10(23C) - each unit maintains separate accounts of its receipts and payments and Income-Expenditure and is duly audited by Chartered Accountant - The Arts, Science and Commerce departments of the Serampore College is approved by the UGC and funded by Govt. like all other colleges under the University of Calcutta - accounts of these 4 units of The Serampore College are separately audited, and a consolidated financial statement is prepared and looked into for the purpose of taxation under the provisions of the Act considering The Serampore College as one and sole taxable entity - The Serampore College , although this consists of 4 units but a single taxable entity, whether under the name of The Serampore College or The Senate of Serampore , both are one and the same - the AO is directed to treat the assessee as sole taxable unit/entity. Entitlement for exemption u/s 10(23C)(iiiab) Held that - Assessee contended that the Serampore College exists solely for the purpose of Education and not for the purpose of profit - Even if running of an institution leads to some surplus but the profit is accumulated or ploughed back for the purpose and objects of the institution, it is deemed as existing not for the purpose of profit - The Serampore College will fall under the category of other educational institution u/s 10(23C) and will be exempt under clause (iiiab), since it exists solely for educational purpose and not for the purpose of profit, as no part of the profit or surplus is diverted for private gain. Whether the Serampore College is substantially financed by the Government or not Held that - In case the finding comes that the college is financed substantially, then it is covered by the section 10(23C) (iiiab) of Act and is eligible for exemption - CIT (A) as well as the AO has not examined the claim of the assessee as regards to the source of finance i.e. substantially financing by the Government or not, so as to eligibility of the claim of exemption u/s 10(23C)(iiiab) of the Act - mere rejection of application 10(23C)(via) of the Act cannot be reason to reject the claim of exemption u/s. 10(23C)(iiib) of the Act - assessee relied upon CIT V Parle Plastics Ltd. And Another 2010 (9) TMI 726 - BOMBAY HIGH COURT - the AO is directed to consider the case laws relied upon by assessee and decide the issue, whether the assessee s case falls in the category of wholly or substantially financed by the Government Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the institution known as 'Senate of Serampore College' is a taxable entity.
2. Whether the assessee is entitled to exemption under Section 10(23C)(iiiab) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Whether the institution known as 'Senate of Serampore College' is a taxable entity.
The assessee argued that the 'Senate of Serampore College' is not a separate taxable entity but a part of 'The Serampore College,' which is the actual legal entity. The assessee contended that the college's activities are discharged through four units: College Council, Senate of Serampore College, Theology Department, and Arts, Science, and Commerce departments. The assessee maintained that the Senate of Serampore College is a subordinate body under the Council, and its accounts should be consolidated with those of the other units.

The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this argument, treating the Senate of Serampore College as an independent entity. The CIT(A) noted that the appellant had filed its return as an independent entity and was not exempt under Section 10(23C)(via) of the Act, as its application for exemption had been rejected by the Chief Commissioner of Income Tax (CCIT).

Upon appeal, the Tribunal held that 'The Serampore College' is the assessable entity for income tax purposes, and the Senate of Serampore College is a constituent unit of the college. The Tribunal directed the AO to assess 'The Serampore College' as the sole taxable entity, consolidating the accounts of all its units.

Issue 2: Whether the assessee is entitled to exemption under Section 10(23C)(iiiab) of the Income-tax Act, 1961.
The assessee claimed that 'The Serampore College' exists solely for educational purposes and not for profit, thus qualifying for exemption under Section 10(23C)(iiiab). The AO and CIT(A) did not examine whether the college was substantially financed by the government, as required for this exemption. The CIT(A) dismissed the claim, stating that the appellant could not change its stand from seeking exemption under Section 10(23C)(via) to Section 10(23C)(iiiab).

The Tribunal noted that 'The Serampore College' is an educational institution existing for nearly two centuries, catering to theological and general education. It held that the college falls under the category of 'other educational institution' under Section 10(23C) and is eligible for exemption if it is substantially financed by the government. The Tribunal directed the AO to examine whether the college was substantially financed by the government, considering all relevant case laws and facts.

Conclusion:
The Tribunal set aside the assessments and remanded the cases to the AO for reassessment. The AO was directed to assess 'The Serampore College' as the sole taxable entity and to determine whether the college qualifies for exemption under Section 10(23C)(iiiab) by examining if it is substantially financed by the government. The appeals were allowed for statistical purposes.