2014 (2) TMI 670 - AT - Income Tax

Eligibility for exemption u/s 11 of the Act Approval u/s 10(23C) of the Act not granted Held that - The appellant would be eligible for the claim of exemption u/s 11, even if the conditions u/s 10(23C)(vi) had not been complied with, subject to the fulfilment of the conditions u/s 11 to 13 there is no finding of any charging of donation etc. in the case of the appellant by the Assessing Officer, the Assessing Officer is directed to verify this aspect while giving effect to this order - Relying upon Assessment. Director of IT (E), III, Hyderabad Versus M/s Vasavi Academy of Education 2010 (2) TMI 970 - ITAT HYDERABAD - The institutions falling u/s. 10(23C)(vi) are eligible for exemption u/s. 11 also - Merely because section 10(23C)(vi) of the Act provides for exemption of the income of an educational institution it does not follow that such institution cannot avail exemption u/s. 11 subject to fulfilment of the conditions laid down. Whether the approval under sub-section (vi) to section 10(23C) is distinct from registration u/s 12A of the IT Act Held that - It is mandatory on the part of the assessee in terms of section 11(4A) of the Act to maintain separate set of books of account for letting out of function hall - The assessee taken a plea that the assessee has maintained separate books of account - if the assessee maintained separate books of account for letting out the function hall it has to be produced before the Assessing Officer - assessee had collected money over and above prescribed by concerned authority for admission of student, such an amount was to be classified as capitation fee and it could be said that assessee s case was a clear case of sale of education by assessee thus, it could not be considered as charitable institution under section 2(15) of the Act because the purpose of the organisation as a whole was to make profit - The issue remitted back to the AO to consider the entire facts and verify the records whether the assessee collected capitation fees from students for the purpose of giving admission Decided partly in favour of Revenue.

Issues Involved:
1. Mandatory approval under Section 10(23C)(vi) of the IT Act.
2. Exemption under Section 11 of the IT Act.
3. Payment of salary to managing committee members.
4. Letting out of function hall and maintenance of separate books of account.
5. Collection of fees in excess of the prescribed limit by the State Government.
6. Registration under the AP Societies Registration Act.

Issue-Wise Detailed Analysis:

1. Mandatory Approval under Section 10(23C)(vi) of the IT Act:
The Revenue contended that obtaining approval from the prescribed authority is mandatory under Section 10(23C)(vi) of the IT Act for institutions with aggregate annual receipts exceeding one crore. The CIT(A) held that the assessee could avail exemption either under Section 10(23C)(vi) or Section 11 of the IT Act. The Tribunal supported this view, stating that obtaining approval under Section 10(23C)(vi) is not mandatory if the assessee opts for exemption under Section 11, as per various case laws including the case of St. Theresa Convent Society.

2. Exemption under Section 11 of the IT Act:
The CIT(A) allowed the exemption under Section 11, observing that the assessee met the requisite conditions. The Tribunal upheld this, noting that the assessee has the right to choose between exemptions under Section 10(23C)(vi) and Section 11, and the Assessing Officer cannot force the assessee to opt for a particular deduction.

3. Payment of Salary to Managing Committee Members:
The Assessing Officer disallowed the exemption under Section 11, citing provisions of Section 13(1)(c) due to payments made to Smt. Jyoti Rao and Smt. Aparna Rao. The CIT(A) found that the payments were for services rendered and were commensurate with the services provided. The Tribunal agreed, ruling that the payments were not for personal benefit but for services rendered, thus overruling the Revenue's objection.

4. Letting Out of Function Hall and Maintenance of Separate Books of Account:
The Assessing Officer denied exemption under Section 11, arguing that the assessee engaged in business activities by letting out a function hall and did not maintain separate books of account. The CIT(A) held that the letting out activity was incidental to the primary objective of education and allowed the exemption. However, the Tribunal found that the CIT(A)'s findings were not based on actual facts and remitted the issue back to the Assessing Officer to verify if separate books of account were maintained as required under Section 11(4A).

5. Collection of Fees in Excess of the Prescribed Limit by the State Government:
The Revenue argued that the assessee collected fees above the prescribed limit, classifying it as capitation fees, which disqualifies the institution from being considered charitable. The Tribunal cited the case of Vodithala Education Society, which held that collecting capitation fees disqualifies an institution from exemption under Section 2(15). The Tribunal remitted this issue back to the Assessing Officer to verify if the assessee collected capitation fees and decide accordingly.

6. Registration under the AP Societies Registration Act:
The Assessing Officer noted that the assessee was not registered under the AP Societies Registration Act and cited this as a reason for denying exemption under Section 11. The CIT(A) observed that registration under the AP Societies Registration Act is not conclusive evidence regarding alterations or amendments to the Memorandum of Association or Rules and Regulations of the society. The Tribunal did not provide a separate ruling on this issue, implying agreement with the CIT(A)'s observation.

Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, remitting the issues of maintenance of separate books of account for the function hall and the collection of capitation fees back to the Assessing Officer for fresh adjudication. The Tribunal upheld the CIT(A)'s decision on the other issues, allowing the exemption under Section 11 and ruling that payments to managing committee members were for services rendered.

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