2025 (3) TMI 587 - AT - Income Tax

Disallowance of claim of exemption u/s 10(23C) (vi) - Non-compliance of Section 143(3) in scrutiny assessment - AO in his assessment order has highlighted that the assessee has not fulfilled the conditions prescribed by Chief Commissioner of Income Tax Pune which mainly included non-following of condition of admission being open to members of public on the basis of merit without any protectionism - Appellant has contended that he was not given proper opportunity to put forth his submission and no show-cause notice was given to him to this effect HELD THAT - We find no merit in Revenue s instant technical objection going by Rule 27 of Appellate Tribunal Rules 1963 that this tribunal could indeed decide such a fundamental question on an issue which is decided against a respondent; followed by the main lower appellate order going in it s favour subject to a limitation that the maximum relief in such an instance is that of rejection of appeal only as per B.R. Bamasi vs. CIT 1970 (2) TMI 45 - BOMBAY HIGH COURT . There is also no indication in the Revenue s instant appeal about the foregoing compliance of sec.143(3) 1st proviso (i) and (ii) by the AO. We thus accept the assessee s foregoing legal arguments in principle and reject the Revenue s instant appeal in very terms. Ordered accordingly.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal questions considered in this judgment include:

1. Whether the exemption under Section 10(23C)(vi) of the Income Tax Act, 1961 was correctly granted to the appellant without proper scrutiny of adherence to stipulated conditions, particularly regarding non-discriminatory admission based on merit.
2. Whether the appellant engaged in commercial operations contrary to the spirit of educational institutions under Section 10(23C)(vi), as indicated by the hiring of a Manager (Marketing and Admissions).
3. Whether the remittance documentation and nature of expenses, particularly the medical insurance premium for the Director, were consistent with the intent and purpose of the exemption provision.
4. Whether the allowance of the appellant's depreciation claim was correct in light of concerns about double deductions and the statutory amendment applicable from A.Y. 2015-16.
5. Whether the appellant was deprived of an adequate opportunity to present its case, particularly regarding the mandatory issuance of a show-cause notice and the admission of additional evidence at the appellate stage.

ISSUE-WISE DETAILED ANALYSIS

1. Exemption under Section 10(23C)(vi)

The relevant legal framework involves Section 10(23C)(vi) of the Income Tax Act, which provides exemption to educational institutions subject to certain conditions. The court examined whether these conditions, particularly regarding non-discriminatory admissions, were met.

The Tribunal found that the Assessing Officer failed to provide evidence that the appellant did not fulfill the seven conditions prescribed by the Chief Commissioner of Income Tax. The AO's observations were deemed general and unsupported by evidence. The Tribunal concluded that the exemption was correctly granted as the conditions were not violated.

2. Commercial Operations

Section 10(23C)(vi) requires that educational institutions operate non-commercially. The AO argued that hiring a Manager (Marketing and Admissions) indicated commercial operations. However, the Tribunal noted that the institution was a registered educational society, not a charitable organization, and that charging fees and marketing its excellence did not contravene the exemption conditions. The Tribunal found no basis to rescind the exemption on these grounds.

3. Remittance Documentation and Expenses

The issue centered on whether the medical insurance premium for the Director was consistent with the exemption's intent. The Tribunal accepted the appellant's argument that the medical insurance was part of the Director's salary and treated as a taxable perquisite. Therefore, it was not disallowed by the AO.

4. Depreciation Claims

The appellant's depreciation claims were contested based on concerns of double deductions and statutory amendments effective from A.Y. 2015-16. The Tribunal, referencing a Bombay High Court ruling, held that the appellant was entitled to depreciation for A.Y. 2013-14 as the amendments were not retroactive. The Tribunal directed the AO to allow the correct depreciation claim.

5. Procedural Fairness and Admission of Evidence

The appellant argued that it was not given adequate opportunity to present its case, particularly regarding the issuance of a show-cause notice. The Tribunal found that the appellant was indeed given sufficient opportunities to contest the additions and that the admission of additional evidence was consistent with principles of natural justice. The procedural objections were dismissed.

SIGNIFICANT HOLDINGS

The Tribunal's significant holdings include:

"The AO has not adduced any evidence to buttress his contention that the appellant did not fulfill the seven conditions laid by Ld. CCIT by granting it the exemption certificate u/s 10(23C)(vi)."

"The school is not a registered charitable organisation but a registered education society which is to be run by taking fees from the students and as also marketing the excellence of the school in respect of its results etc."

"The appellant's depreciation claims were allowed with direction to the Ld. Assessing Officer to calculate and allow correct claim of depreciation."

The Tribunal concluded that the appellant was entitled to the exemptions and deductions claimed, and the Revenue's appeal was dismissed. The Tribunal emphasized the need for evidence to support allegations of non-compliance with exemption conditions and upheld the procedural fairness in the appellate proceedings.