2016 (1) TMI 681 - AT - Income Tax

Reopening of assessment - claim of exemption under section 10(23C)(vi)denied - eligibility for approval from the prescribed authority - Held that - Upholding the order of CIT(A), we hold that the assessee is not entitled to the aforesaid deduction under section 10(23C)(vi) of the Act, in the absence of a approval being granted by the prescribed authority. We also uphold the order of Assessing Officer in treating the assessee as AOP instead of an institution solely existing for imparting education. Denial of deduction under section 10(23C)(vi is the taxability of receipts after adjustment of expenditure in the hands of the assessee - Held that - The Assessing Officer referred to the provisions of section 11(1)(d) of the Act, under which only those receipts were excluded from the scope of income, which were in the nature of voluntary contribution and that too with specific direction to form part of corpus. Since both these conditions were missing, the said receipts were held to be revenue receipts and not capital receipts as claimed by the assessee in its books of account. Accordingly, capital outlay contribution was treated as revenue receipts of the assessee.In view of the factual findings of the Assessing Officer in this regard and in the absence of approval being granted to the assessee under section 10(23C)(vi) of the Act, the capital outlay contribution is to be treated as revenue receipt in the hands of assessee, against which the deficit claimed by the assessee is to be adjusted. Whether in case the receipts are held to be taxable in its hands then, the benefit of set off of brought forward losses should be given to the assessee? - Held that - The perusal of the details furnished by the assessee does not clarify the objection raised by the CIT(A) whether the said returns of income were filed in time as the requirement of law is that the loss shall be allowed only if the return of income is filed within due date prescribed under section 139(1) of the Act. The second objection of the CIT(A) was that it was not clear whether the assessee has claimed exemption under section 10(23C)(vi) of the Act in the respective years. In case the capital outlay has not been brought to tax and only the deficit has been assessed as loss, then where the assessee has claimed the said capital outlay to be exempt under section 10(23C)(vi) of the Act, the losses arising therefrom cannot be set off against the income of the present assessment years. The Assessing Officer is directed to carry out the necessary verification and decide the issue in line with our direction after affording reasonable opportunity of hearing to the assessee.

Issues Involved:
1. Validity of reopening of assessment under section 147 r.w.s. 148 of the Income Tax Act, 1961.
2. Denial of exemption under section 10(23C)(vi) of the Income Tax Act, 1961.
3. Classification of the appellant as an Association of Persons (AOP) instead of an educational institution.
4. Treatment of capital outlay contributions as revenue receipts.
5. Entitlement to set off past years' deficits (losses) against taxable income.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 r.w.s. 148:
The assessee contested the reopening of assessments for the years 2002-03, 2003-04, and 2004-05, arguing that it was based on a change of opinion without new factual evidence. The Tribunal upheld the reopening, citing that no assessment under section 143(3) had been completed for the year 2002-03, thus making the reopening valid under the precedent set by the Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. For the years 2003-04 and 2004-05, where assessments had been completed, the Tribunal found that the reopening was justified due to the assessee's failure to obtain the necessary approval under section 10(23C)(vi), leading to the belief that income had escaped assessment.

2. Denial of Exemption under Section 10(23C)(vi):
The assessee claimed exemption under section 10(23C)(vi) despite not having the required approval from the prescribed authority. The Tribunal upheld the denial of exemption, referencing the larger Bench decision of the Hon'ble Allahabad High Court in CIT Vs. Muzafar Nagar Development Authority, which clarified that non-disposal of an application for registration does not result in deemed approval. The Tribunal noted that the assessee's applications for approval were either not filed correctly or not followed up adequately, and no evidence was provided to show that the applications were pending with the appropriate authority.

3. Classification as an Association of Persons (AOP):
The Tribunal upheld the Assessing Officer's classification of the assessee as an AOP instead of an educational institution, due to the lack of approval under section 10(23C)(vi). This classification was crucial as it affected the taxability of the assessee's income.

4. Treatment of Capital Outlay Contributions as Revenue Receipts:
The Assessing Officer treated the capital outlay contributions received by the assessee as revenue receipts, arguing that these contributions were not voluntary and were mandatory for admission to the institution. The Tribunal upheld this treatment, noting that the contributions lacked specific directions for utilization and were used for both operational and day-to-day needs. The Tribunal agreed that these contributions were not in the nature of corpus funds and should be taxed as revenue receipts.

5. Entitlement to Set Off Past Years' Deficits (Losses):
The assessee argued for the set-off of past years' deficits against the current year's taxable income. The Tribunal directed the Assessing Officer to verify whether the returns for the previous years were filed in time and whether the deficits were correctly claimed. The Tribunal allowed this plea for statistical purposes, subject to verification of compliance with the conditions under section 139(1) of the Act.

Conclusion:
The Tribunal dismissed the appeals for the years 2003-04, 2004-05, and 2007-08, upholding the reopening of assessments, denial of exemption under section 10(23C)(vi), classification as an AOP, and treatment of capital outlay contributions as revenue receipts. For the year 2002-03, the Tribunal allowed the plea for set-off of past years' deficits for statistical purposes, subject to verification by the Assessing Officer.

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