2013 (7) TMI 728 - AT - Income Tax

Exemption u/s 10(23C) - Whether the CIT(A) has erred in allowing exemption under section 10(23C) even when a number of other objects are included in it object clause and section 12A was not available for A.Y. 2009-10 Held that - The CIT(A) after considering the material found that the assessee society exists solely for education purposes - they had also considered a resolution passed by the assessee trust wherein the alleged clause were dropped from the Memorandum of society the society has also given in writing that society has not used any part of the building and/or funds of the society on the activities - CIT(A) categorically held that the assessee society exists for educational activities - Revenue has failed to point out any contrary material to the finding of the CIT(A) - the other conditions for exemption u/s 10(23C) have been complied with by the assessee trust - there was not find any informality in the order of CIT(A). Validity of donations- Whether the CIT (A) erred in treating all donations as explained and for corpus even identity of donors were not established - Court set aside the orders of Revenue authorities and contention of the assessee is allowed that if any addition is sustained, the assessee is entitled to benefit of Section 11/10(23C) - Court relied upon the judgement of Director of Income Tax vs. Raunaq Education Foundation, (2007 (4) TMI 61 - HIGH court) appeal decided against revenue.

Summary

Issues:
1. Eligibility for exemption under section 10(23C) for a charitable educational institution.
2. Treatment of donations and their verification for tax exemption purposes.

Issue 1: Eligibility for exemption under section 10(23C) for a charitable educational institution:

The appeal filed by the Revenue challenged the order passed by the CIT(A), which granted exemption under section 10(23C) to the assessee, a Society engaged in educational activities. The Revenue contended that the assessee did not qualify for the exemption as it had various clauses in its objects clause other than education, and registration under section 12A was not available for the relevant assessment year. However, the CIT(A) found that the society existed solely for educational purposes, with incidental clauses being dropped from its Memorandum of Association. The CIT(A) also noted that the society maintained complete records of donations and confirmed donor identities, thus meeting the requirements for exemption under section 10(23C)(iiiad). Citing relevant case laws, the CIT(A) concluded that the society was entitled to the exemption, and the addition made by the A.O. was deleted. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order.

Issue 2: Treatment of donations and their verification for tax exemption purposes:

The A.O. had raised concerns regarding the donations received by the assessee society, particularly the lack of details regarding the identity of donors and the nature of donations. The A.O. added the donation amount to the income of the society under section 68 of the Act due to insufficient documentation. However, the CIT(A) disagreed with the A.O.'s findings, stating that the donations were earmarked for capital expenditure and that the society had maintained proper records of donors and donations. The CIT(A) observed that the society had a clear mandate for donations to the corpus fund, and the donations were utilized for constructing a school building. By considering relevant judgments and submissions, the CIT(A) concluded that the society was eligible for exemption under section 10(23C)(iiiad) due to proper documentation and utilization of donations. The Tribunal affirmed the CIT(A)'s decision, emphasizing that even if the donation amount was not to be added to the income, the society would still qualify for exemption under section 10(23C) based on precedents and legal interpretations.

In summary, the judgment addressed the eligibility of a charitable educational institution for tax exemption under section 10(23C) and the verification of donations for tax purposes. The CIT(A) and the Tribunal found in favor of the assessee, emphasizing the society's educational focus, proper documentation of donations, and adherence to legal requirements for exemption. The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decision.