2025 (1) TMI 655 - AT - Income Tax

Denial of exemption u/s 10(23C)(iiiad) - Addition of cash deposited in the bank account - registration u/s 12A was not granted - HELD THAT - There is merit in the argument of the Ld. AR that for getting exemption u/s 10(23C)(iiiad) of the Act for the receipt being less than the amount of the annual receipts as prescribed, no registration u/s 12A was required as the exemption u/s 10(23C)(iiiad) of the Act is granted to the universities and other educational institutions existing only for educational purposes and not for the purposes of profit while the exemption u/s 11 of the Act is granted to a charitable institution established for charitable purposes. Hence, the order of the CIT(A) dismissing the appeal on the ground that no evidence for registration was filed by the assessee or the other assessee viz Bharali Education Foundation (BEF) is not justified. Assessee being an educational institution is justified in claiming exemption u/s 10(23C)(iiiad) of the Act as no evidence has been brought on record that it was not existing solely for educational purposes. Hence, the order of the Ld. CIT(A) is set aside, ground nos. 1 2 are allowed and the deposits in bank account are deemed to be out of the fees received from the students and the AO is directed to delete the addition made to the income of the assessee. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the assessee, an educational institution, is entitled to tax exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961, despite not being registered under Section 12A/12AA of the Act.
Whether the cash deposits made during the demonetization period should be treated as business income or as receipts from educational activities.
Whether the assessee, being a unit of a registered trust, can be considered a separate taxable entity for income tax purposes.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Tax Exemption under Section 10(23C)(iiiad)

Relevant legal framework and precedents: Section 10(23C)(iiiad) provides tax exemption to educational institutions existing solely for educational purposes, provided their annual receipts do not exceed a prescribed limit.
Court's interpretation and reasoning: The Tribunal noted that the exemption under Section 10(23C)(iiiad) does not require registration under Section 12A/12AA. The focus is on whether the institution exists solely for educational purposes and not for profit.
Key evidence and findings: The assessee submitted evidence of being an educational institution and argued that the cash deposits were from student fees. The Tribunal found that the total fees collected exceeded the cash deposits, supporting the assessee's claim.
Application of law to facts: The Tribunal applied Section 10(23C)(iiiad) and concluded that the assessee met the criteria for exemption as an educational institution.
Treatment of competing arguments: The Department argued that the lack of registration under Section 12A/12AA disqualified the assessee from exemption. The Tribunal disagreed, emphasizing that Section 10(23C)(iiiad) does not require such registration.
Conclusions: The Tribunal concluded that the assessee is entitled to exemption under Section 10(23C)(iiiad), as it exists solely for educational purposes.

Issue 2: Treatment of Cash Deposits as Business Income

Relevant legal framework and precedents: The Income Tax Act requires that income from business activities be taxed unless exempted by specific provisions.
Court's interpretation and reasoning: The Tribunal considered whether the cash deposits during demonetization were business receipts or educational receipts. It found that the deposits were less than the total fees collected, indicating they were not business income.
Key evidence and findings: The assessee provided financial statements showing fees collected from students, which supported the claim that deposits were educational receipts.
Application of law to facts: The Tribunal applied the principles of taxation to determine that the deposits were not business income but were related to educational activities.
Treatment of competing arguments: The Department contended that the deposits were business income due to the lack of registration. The Tribunal rejected this, focusing on the nature of the receipts.
Conclusions: The Tribunal concluded that the cash deposits were not business income and should not be taxed as such.

Issue 3: Separate Taxable Entity Status

Relevant legal framework and precedents: The Income Tax Act considers a PAN holder as a separate taxable entity unless proven otherwise.
Court's interpretation and reasoning: The Tribunal examined whether the assessee, as a unit of a registered trust, should be treated as a separate entity. It found that the PAN was surrendered, and the institution was part of the trust.
Key evidence and findings: Evidence showed that the institution was a unit of Bharali Education Foundation, and the PAN was surrendered.
Application of law to facts: The Tribunal applied the relevant provisions to determine that the assessee was not a separate taxable entity.
Treatment of competing arguments: The Department argued for separate entity status based on the PAN. The Tribunal found that the PAN's surrender and the institution's trust affiliation negated this argument.
Conclusions: The Tribunal concluded that the assessee was not a separate taxable entity but part of the trust.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The exemption under Section 10(23C)(iiiad) is granted to universities and other educational institutions existing only for educational purposes and not for the purposes of profit."
Core principles established: The Tribunal established that registration under Section 12A/12AA is not required for exemption under Section 10(23C)(iiiad). It also clarified that educational receipts should not be taxed as business income if they are less than the total fees collected.
Final determinations on each issue: The Tribunal allowed the appeal, granting the assessee exemption under Section 10(23C)(iiiad) and directing the deletion of the addition of Rs. 12,97,000/- from the assessee's income.

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