2018 (4) TMI 2007 - AT - Income Tax

Exemption u/s 10(23C) - assessee claimed that it is an educational institution and the gross receipts are less than Rs. 1 crore hence the assessee is entitled for exemption - AO held that the assessee is not entitled for exemption u/s 11 and for the assessee s failure to produce books of accounts and the relevant vouchers the A.O. disbelieved the claim of the assessee that it is existing solely for educational purpose - HELD THAT - In the instant case though the assessee is claimed to have running educational institution solely for educational purpose the assessee has not established with relevant evidences books of accounts and the documents that the assessee is solely engaged for the education. Therefore we do not find any infirmity in the order of the lower authorities hence the assessee s ground for treating the institution as educational institution existing solely for the purpose of education is dismissed. Accordingly the assessee is not entitled for exemption u/s 10(23C) of the Act. Submission of the assessee is that the entire gross receipts should not be treated as income and only the profit element required to be assessed to tax - Once it is believed that the assessee is carrying on business activity the expenditure relatable to earning income required to be allowed as deduction. In the instant case as per the books of accounts and the profit loss account the gross receipts of the assessee were Rs. 19, 65, 000/- and the expenditure was Rs. 19, 64, 330/- resulting in profit of Rs. 18, 670/-. As per the assessment order the assessee has claimed the expenditure such as salaries vehicle maintenance office expenses insurance depreciation interest on loans and telephone charges etc. but there was no proper evidence. During the appeal hearing for a query from the bench the Ld. A.R. expressed no objection for estimation of income @ 20% of the gross receipts. Thus direct the A.O. to estimate the income @ 20% on gross receipts and assesses the same as income. The assessee s appeal on this ground is partly allowed. Taxing the income at maximum marginal rate - As per section 167B of the Act in case of an assessee registered under Societies Act the same is excluded for taxing the income at for maximum marginal rate. The assessee is a society registered under Societies Act 1860 as evidenced from the registration certificate. The facts are similar in this case therefore following the decision of coordinate bench and section 167B we hold that the income of the assessee is to be taxed at normal rates but not at maximum marginal rate accordingly we set aside the order of the CIT(A) and allow the appeal of the assessee on this ground. Appeal of the assessee is partly allowed.

Summary

The Appellate Tribunal considered the appeal filed by an educational institution against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2009-10. The main issue revolved around the eligibility of the institution for exemption under section 10(23C) of the Income Tax Act, 1961, based on its gross receipts not exceeding Rs. 1 crore.1. **Issues Presented and Considered:** - Whether the institution qualifies for exemption under section 10(23C) of the Act. - Whether the entire gross receipts should be treated as income or only the profit element. - Whether the income should be taxed at the maximum marginal rate.2. **Issue-wise Detailed Analysis:** - The assessing officer disallowed the exemption claim due to lack of supporting vouchers and failure to produce relevant documents. - The CIT(A) upheld the assessing officer's decision based on the inadequacy of evidence provided by the institution. - The institution argued that as a registered society, its income should not be taxed at the maximum marginal rate. - The Tribunal found that the institution failed to establish its sole existence for educational purposes and upheld the denial of exemption under section 10(23C). - Regarding the treatment of gross receipts, the Tribunal directed the assessing officer to estimate income at 20% of the receipts. - The Tribunal ruled that as a society registered under the Societies Act, the income should be taxed at normal rates, not the maximum marginal rate.3. **Significant Holdings:** - The Tribunal dismissed the institution's claim for exemption under section 10(23C) due to lack of evidence supporting its educational purpose. - The Tribunal partially allowed the appeal by directing the assessing officer to estimate income at 20% of gross receipts. - The Tribunal allowed the appeal on the ground that the income should be taxed at normal rates, not the maximum marginal rate, based on the institution's registration under the Societies Act.In conclusion, the Tribunal's decision clarified the eligibility criteria for exemption under section 10(23C) and emphasized the importance of providing sufficient evidence to support such claims. The ruling also highlighted the distinction in tax treatment for registered societies under specific acts, ensuring fair taxation practices for such entities.