2023 (1) TMI 221 - AT - Income Tax

Revision u/s 263 - whether exemption u/s 10(23C)(iiiad) can be granted to any trust, educational institution or university, if the source of income in such a trust is out of educational activity? - HELD THAT - CIT misconstrued the provision. The source of income can have many springs whereas for eligibility of exemption, the institution should be involved in education only. We find that this aspect has been considered in the case of Swasthya Sewa Sanstha 2022 (2) TMI 868 - ITAT KOLKATA relied upon for the assessee. In this case, the assessee claimed exemption u/s 10(23C)(iiiae) of the Act i.e., for running a hospital and other medical institution. Action u/s 263 was taken by the ld. Commissioner on the ground that there was no nexus between the income and the expenditure and assessee has not shown receipt from the dispensary. We examine the facts of the present appeal, then it would reveal that the only distinction in the issue involved is that in the case of Swasthya Sewa Sanstha (supra) the assessee had claimed deduction u/s 10(23C)(iiiae) which is meant for any hospital or other institution for treatment of persons suffering from illness or mental defectiveness whereas in the present case, the exemption has been claimed u/s 10(23C)(iiiad) i.e., where an assessee is engaged in education activities. The reasoning and thought process at the end of the Commissioner in taking action u/s 263 is identical. Therefore, the facts of this case are fully applicable upon the assessee and following the order of the ITAT in which one of us i.e. (AM) was a party, we allow the appeal of the assessee and quash the impugned order. Appeal of the assessee is allowed.

Summary

Issues:
Appeal against order of Commissioner under section 263 of the Income Tax Act, 1961 for Assessment Year 2015-16.

Detailed Analysis:

1. Issue: Invocation of powers under section 263 of the Act
- The appeal challenges the order of the Commissioner invoking powers under section 263 of the Act and setting aside the assessment order for passing a fresh one.
- The Commissioner believed the assessment order to be erroneous and prejudicial to the revenue's interest due to discrepancies in the income and expenditure, particularly related to educational activities and claimed exemptions.
- The assessee argued against the invocation of section 263, stating that the Act allows entities to invest funds in prescribed investments, not limited to income from educational institutions.
- The Tribunal analyzed similar cases and concluded that the Commissioner misconstrued the provision, emphasizing that the institution should be involved in education for exemption eligibility, not limited to income sources.

2. Issue: Eligibility for exemption under section 10(23C)(iiiad) of the Act
- The Tribunal examined the requirement for granting exemption under section 10(23C)(iiiad) to educational trusts based on the source of income.
- It compared the case with a precedent involving exemption under section 10(23C)(iiiae) for hospitals, emphasizing the need for the institution to exist solely for philanthropic purposes, not for profit, without a direct requirement for income from the charitable activity.
- The Tribunal highlighted that the appellant trust fulfilled all conditions under section 10(23C)(iiiae) and was not involved in profit-making activities, justifying the exemption granted.

3. Conclusion
- The Tribunal allowed the appeal of the assessee, quashing the Commissioner's order under section 263 and upholding the eligibility for exemption under section 10(23C)(iiiad) for the educational trust.
- The decision was based on the interpretation of statutory provisions and the fulfillment of conditions by the trust, aligning with the purpose of the exemption provisions.
- The judgment emphasized the importance of the institution's philanthropic purposes and compliance with statutory requirements for granting exemptions under the Income Tax Act.