2016 (1) TMI 236 - HC - Income Tax

Eligibility for registration under Section 12AA - exemption claimed by the respondent society in respect of receipts for the Assessment Year 2010-2011 and 2011-2012 from the institution established and run by it - Held that - In the instant case, there is nothing on record to indicate that the assessing officer proceeded to examine the status of the society and its annual receipts or income as a legal entity in itself. The assessing officer on the basis of the return filed has treated the income received from the two sections of the institution to be a receipt in the hands of the society without examining the legal status of either the Junior High School or the Intermediate College which stand recognized under different Acts. Consequently, for all the reasons given hereinabove, we are of the considered opinion that the substantial questions of law as raised do arise for consideration on the facts and the legal issues raised in the present case. Admit on the following substantial questions of law - 1. Whether the ITAT is justified in law under the facts and circumstances of the case, as the phrase Separate institute for the purpose of availing exemption u/s 10 is nowhere defined in the Act. The assessee cited judgement in case of CIT Vs. Children Education Society (2013 (7) TMI 519 - KARNATAKA HIGH COURT ) where the assessee society was running as much as 22 educational institutes separately which were miles away from the fact of this case where assessee is running a single school on single location, in single and distinct building with single playground and other facilities claiming to be two Separate educational institute. 2. Whether the ITAT is justified in law and on facts without appreciating the fact that, as the Assessing Officer in his order recorded that taking recognition of Junior and Senior Section in normal administrative process it never connotes that there are two schools. Further at page 3 of the Ld. CIT (Appeals) s order, the assessee, in support of his claim of being two schools quoted the use of prefix COMBINED on books of account of Society not Junior/Senior School in different books of accounts of the assessee which clearly indicates that these are merely two sections of a single School which were maintained for administrative ease and better monitoring. 3. Whether the ITAT is justified in law and on facts without appreciating the fact that as the assessee for the first time moved request for approval u/s 10(23C)(vi) in the Assessment Year 2013-14 whereas for the year under consideration the Assessee was neither registered u/s 12A nor got approval u/s 10(23C)(vi) of the I.T. Act, in spite of the fact that in A.Y. 2009-10, 2010-11 and 2011-12 total receipt of Society exceeded Rs. One Crore. The A.O. in his order noted that all the arguments made by the assessee seems an effort to cover up its carelessness and inaction in following statutory provisions, and rightly denied the exemptions and treated the surplus of income over Expenditure as business income. Findings of the AO were based on material available on records and not on presumption. The two school theory of the assessee is bogus claim as there never existed two schools and merely only two sections which is also evident from the copy of balance sheet and other Annexures thereof which clearly indicated that there existed only two separate sections. 4. Whether Hon ble ITAT is justified in law and on facts that he has wrongly accepted the breakup of receipt of Junior High School and Senior Secondary School in the impression that it was done by A.O., contrary to the fact that it was mere submission by the assessee Society. Further plain reading of Rule 2BC(1) which is as under - 2BC(1) for the purpose of sub-clause (iiiad) of clause (23C) of Section 10, the amount of annual receipts on or after the 1st day 1998, of any university or other educational institution, existing solely for educational purposes and not for purposes of profit, shall be one crore rupees. 5. Whether the ITAT is justified in law and on facts by allowing segregation of income to the assessee society however it is evident that the rule clearly guides for annual receipts and about aggregate receipts which includes income from all the sources, hence the AO was justified in taxing the surplus of the income over expenditure.

Summary

Issues involved:
1. Exemption claimed by a society for receipts from an educational institution.
2. Interpretation of separate educational institutions under Income Tax Act.
3. Legal status of educational institutions run by a society.
4. Application of Section 10(23-C)(vi) for exemption.
5. Distinction between Junior High School and Intermediate College.
6. Examination of legal identities of educational institutions.
7. Definition of Assessee, Person, and Income under Income Tax Act.
8. Claim of exemption under Section 10(23-C)(iiiad).
9. Justification of ITAT's decisions on various legal and factual grounds.

Detailed Analysis:

1. The appeal questions the exemption claimed by a society for receipts from its educational institution for the Assessment Years 2010-2011 and 2011-2012. The society operated a Junior High School and claimed exemption under the Income Tax Act for educational purposes.

2. The issue revolves around the interpretation of separate educational institutions under the Income Tax Act. The society claimed that its Junior High School and a separate senior school were distinct entities, while the assessing officer found them to be part of the same institution.

3. The judgment delves into the legal status of educational institutions run by a society. It analyzes the recognition and governance of Junior High Schools under the U.P. Basic Education Act and Intermediate Colleges under the U.P. Intermediate Education Act.

4. The application of Section 10(23-C)(vi) for exemption is crucial. The society's failure to obtain approval for exemption led to a demand notice disallowing the claimed status and exemptions.

5. The distinction between a Junior High School and an Intermediate College is examined. The recognition of an Intermediate College creates a separate legal entity, impacting the treatment of receipts by the society.

6. The judgment scrutinizes the legal identities of the educational institutions to determine if the receipts can be segregated based on the status of each institution.

7. The analysis includes a review of the definitions of Assessee, Person, and Income under the Income Tax Act to understand the legal framework for assessing the society's exemption claim.

8. The claim of exemption under Section 10(23-C)(iiiad) is evaluated in light of the society's educational activities and the legal requirements for obtaining exemptions.

9. The judgment questions the decisions of the ITAT on various legal and factual grounds, highlighting discrepancies in the interpretation of the law and the factual circumstances of the case.

This comprehensive analysis covers the key issues and legal aspects addressed in the judgment, providing a detailed understanding of the case and its implications under the Income Tax Act.