2024 (9) TMI 1332 - AT - Income Tax

Disallowance of the exemption u/s 10(23C)(ad) and/or 10(23C)(vi) - disallowing the expenditure Incurred for running the education institute / schools affiliated with State Govt. Education board against the fee income received from the students - Addition on the ground that the gross receipt of the assessee exceeds Rs.1 crore as prescribed monetary limit u/s 10(23C)(iiiad) of the Act - HELD THAT - Before CIT(A) assessee has specifically pointed out that it operates two educational institutions namely Rose Mary High Convent Higher Secondary School and Rose Mary High School and contended that the monetary limit of Rs.1 crore as prescribed u/s 10(23C)(iiiad) read with Rule 2BC of the Act should be applied in respect of the gross receipts of each of the educational institutions and not on the aggregate receipts of both the educational institutions. Assessee also pointed out that the entire gross receipt cannot be assessed to tax without allowing eligible deduction against said income. We find that the above stated facts have not been properly considered by CIT(A) while passing the impugned order as the claim of the assessee was disallowed on the ground that the assessee is neither registered u/s 12A/12AA nor approved/notified under the provisions of Section 10(23C)(iiiad) of the Act and therefore the claim of the assessee was denied as the total receipts are more than Rs.1 crore as prescribed under the said provisions of Section 10(23C)(iiiad) read with Rule 2BC CIT(A) has not disputed the fact that the assessee is running two separate educational institutions and therefore in our considered view the gross receipts of each of the educational institutions has to be separately considered for the purpose of allowing the claim of exemption u/s 10(23C)(iiiad) of the Act. In any case the total income of the assessee ought to have been assessed as per commercial principles and the eligible expenditure against the gross receipts should have been allowed while computing the total income. Accordingly in the facts and circumstances of the case we set aside the impugned order of CIT(A) and the matter is remanded to the record of the jurisdictional A.O for fresh adjudication - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of exemption u/s 10(23C)(ad) and/or 10(23C)(vi)
2. Disallowance of expenditure for running educational institute against fee income
3. Disallowance of legitimate expenditure incurred by society running educational institute
4. Failure to consider genuine and legitimate expenditure for salary, student welfare, etc.
5. Disallowance of exemption u/s 10(23C)(iiiad) due to gross receipts exceeding Rs.1 crore
6. Incorrect application of monetary limit for gross receipts of each educational institution
7. Total gross receipts assessed to tax without allowing eligible deductions
8. Need for separate consideration of gross receipts for each educational institution
9. Necessity to assess total income as per commercial principles and allow eligible expenditure

Analysis:
The appeal pertains to the disallowance of exemption u/s 10(23C)(ad) and/or 10(23C)(vi) by the Commissioner of Income Tax (Appeals) for the assessment year 2019-20. The appellant, a Society operating educational institutions in Bhopal, challenged the disallowance of exemption u/s 10(23C)(iiiad) by the CPC, which was upheld by the CIT(A). The CIT(A) disallowed the claim as the gross receipts exceeded Rs.1 crore, leading to the entire gross receipts being assessed to tax. The appellant contended that the gross receipts of each school should be separately considered for exemption and only net income should be taxed after deducting legitimate expenditure.

The Tribunal noted that the CIT(A) did not properly consider that the appellant runs two separate educational institutions, and the gross receipts of each institution should be separately evaluated for exemption u/s 10(23C)(iiiad). The Tribunal emphasized that the total income should be assessed as per commercial principles, allowing eligible expenditure against gross receipts. Consequently, the Tribunal set aside the CIT(A) order and remanded the matter to the AO for fresh adjudication, ensuring the relevant facts are considered and providing the appellant with a hearing opportunity.

In conclusion, the appeal was allowed for statistical purposes, with the Tribunal directing a reassessment by the AO in accordance with the principles outlined in the judgment.