2024 (9) TMI 345 - AT - Income Tax

Denial of exemption u/s 11 - activities of the assessee society allowed as eligible for deduction u/s 10(23C)(vi) - Charitable activity or not? - as per AO assessee society was making profits from its publication business, and was also getting back the advances/finance made to its sister concern/ other State Universities - HELD THAT - As in the case of New Noble Educational Society 2022 (10) TMI 855 - SUPREME COURT held that if the surplus or profits are generated in the hands of the assessee applicant in imparting of education or related activities disproportionately, weight ought not to be given to surpluses or profits, provided they are incidental to the main activities of the assessee. Admittedly, the case of the assessee is that the assessee is having approval under section 10(23C) of the Act and for A.Ys. 2009-10 to 2013-14 and 2016-17. The assessment orders were passed by the Assessing Officer keeping the activities of the assessee society as eligible for deduction under Section 10(23C)(vi) of the Act. In the light of the above, we deem it appropriate to remand back the matter to the file of Assessing Officer with a direction to re-examine the issue denovo after affording opportunity of hearing to the assessee. Needless to say that the assessee shall furnish all the details / evidence / documents to prove that the activities of the assessee are not in commercial in nature and are interlinked with the imparting of education. The assessee shall be at liberty to file documents, if any, as required for proving its case.

Issues Involved:
1. Treatment of transactions between a sponsoring body and its universities as commercial activity.
2. Application of Section 2(15) read with Section 13(8) of the Income Tax Act.
3. Misinterpretation of the principles of Res Judicata.
4. Denial of assessment under Section 10(23C) for an educational institution.
5. Application of Supreme Court rulings in Ahmedabad Urban Development Authority and New Noble Educational Society cases.
6. Application of the case Institute of Chartered Financial Analysts of India vs. CC & CE.
7. Disallowance of interest application of Rs. 11.55 crore.
8. Disallowance of gratuity and EL encashment provisions amounting to Rs. 5.58 lakh.
9. Addition of Rs. 24.49 crore towards depreciation.
10. Rejection of condonation of delay petition in filing Form 35.

Detailed Analysis:

1. Treatment of Transactions as Commercial Activity:
The assessee argued that the transactions between the sponsoring body and its universities were wrongly treated as commercial activities. The Tribunal noted that the Assessing Officer (AO) observed the assessee society was not engaged in imparting education but was providing financial assistance to universities and making profits from its publication business. Consequently, the AO concluded that the assessee society was not eligible for exemption under Section 10(23C)(vi) as no claim was made in the return of income and on merits as well.

2. Application of Section 2(15) read with Section 13(8):
The AO applied Section 2(15) read with Section 13(8) of the Income Tax Act, which led to the denial of the exemption claim. The Tribunal remanded the case back to the AO to re-examine the issue, considering the assessee's activities and their linkage to imparting education.

3. Misinterpretation of Res Judicata:
The assessee contended that the AO deviated from principles followed in past assessment years without any change in facts and circumstances. The Tribunal referred to the Supreme Court judgment in Radhasoami Satsung vs. CIT, emphasizing that in the absence of any material change, the Revenue should not take a different view. The Tribunal directed the AO to consider the principle of consistency while re-examining the case.

4. Denial of Assessment under Section 10(23C):
The assessee argued that it should not have been denied assessment under Section 10(23C) as it was approved as a solely educational institution. The Tribunal noted the assessee's approval under Section 10(23C)(vi) for various assessment years and directed the AO to re-examine the case in light of the New Noble Educational Society judgment, focusing on whether the activities were solely educational.

5. Application of Supreme Court Rulings:
The CIT(A) applied the ratio of the Supreme Court rulings in Ahmedabad Urban Development Authority and New Noble Educational Society cases. The Tribunal found that the CIT(A) did not fully consider the relevant paragraphs (62 and 63) of the New Noble Educational Society judgment, which emphasize that surpluses or profits incidental to educational activities should not disqualify the institution from exemption.

6. Application of the Case Institute of Chartered Financial Analysts of India vs. CC & CE:
The assessee argued that the CIT(A) wrongly applied the ratio of this case, which was set aside by the Division Bench of CESTAT, Hyderabad. The Tribunal did not specifically address this issue but remanded the case for a fresh examination.

7. Disallowance of Interest Application:
The AO disallowed the application towards interest of Rs. 11.55 crore. The Tribunal directed the AO to re-examine this disallowance in the context of the assessee's educational activities.

8. Disallowance of Gratuity and EL Encashment Provisions:
The AO disallowed provisions for gratuity and EL encashment amounting to Rs. 5.58 lakh. The Tribunal directed the AO to reconsider these disallowances during the fresh examination.

9. Addition of Depreciation:
The AO made an addition of Rs. 24.49 crore towards depreciation not charged against income. The Tribunal directed the AO to re-examine this addition in light of the assessee's claim for exemption under Section 10(23C).

10. Rejection of Condonation of Delay Petition:
The CIT(A) rejected the condonation of delay petition for filing Form 35. The Tribunal opined that the delay should be condoned liberally, especially since it was only for 10 days, and directed the AO to re-examine the case on merits.

Conclusion:
The Tribunal remanded the matter back to the AO for a fresh examination, directing the AO to consider the assessee's submissions, the principle of consistency, and the relevant Supreme Court judgments. The appeal of the assessee was allowed for statistical purposes.

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