2015 (10) TMI 1891 - AT - Income Tax

Entitlement to exemption u/s 10(23C)(iiiad) denied - Held that - The only activity carried on by the assessee during the year is that of construction of the school building. This fact remains undisputed by both the Taxing Authorities. Now, in Commissioner of Income Tax vs. Om Sarala Babu Educational Trust (2014 (6) TMI 377 - ALLAHABAD HIGH COURT), the assessee had taken various steps, including the construction of the building of the school. The CIT(A) allowed a similar claim u/s 10(23C)(iiiad) of the Act. This was confirmed by the Tribunal. The order of the Tribunal was confirmed by the Hon ble High Court. No decision to the contrary has been brought to our notice. It thus cannot, on facts, be said that during the year, the assessee institution did not exist solely for educational purposes. All the other distinctions sought to be made out by the learned CIT(A) do not act detrimental to the claim of the assessee, particularly when the expenses incurred were expenses incurred only on account of bank charges and interest, books and periodicals and purchase of dresses and lease rent and nothing else. Apropos the donations too, the affidavits of the donors were simply rejected summarily, without controverting the contents thereof and without showing the donations to be sham. It is pertinent to note that the capital contribution of ₹ 10,99,500/- was accepted by both the authorities below. Moreover, the assessee has obviously correctly not claimed deprecatioin on the assets, since the school did not start functioning during the year. Thus the order under appeal is reversed. Accordingly, the assessee s claim u/s 10(23C)(iiiad) of the Act is allowed. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of objective clause of educational institution.
2. Treatment of capital expenditure and depreciation.
3. Eligibility for exemption under section 10(23C)(iiiad) of the Income Tax Act.

Interpretation of Objective Clause of Educational Institution:
The appellant contested that the CIT(A) failed to recognize the educational purpose of the institution. The AO observed no enrollment, recruitment, or educational activities during the year. It was argued that the society was a family enterprise for profit. The CIT(A) upheld the AO's findings, emphasizing the lack of educational initiatives and the collateral for the loan being family property. The Tribunal noted that the only activity was school building construction, citing a similar case where a claim under section 10(23C)(iiiad) was allowed for school construction. The Tribunal found the institution existed solely for educational purposes during the year, reversing the CIT(A)'s decision.

Treatment of Capital Expenditure and Depreciation:
The AO and CIT(A) questioned the capital expenditure of Rs. 9,18,960, stating it was not spent on education and not taxable. They also noted the absence of depreciation claims. The appellant justified the expenses for school construction. The Tribunal accepted the capital contribution and explained that depreciation was not claimed due to the school not being operational. The Tribunal found the appellant's stance justified and reversed the decision, allowing the claim under section 10(23C)(iiiad).

Eligibility for Exemption under Section 10(23C)(iiiad) of the Income Tax Act:
The CIT(A) denied the appellant's exemption claim under section 10(23C)(iiiad) due to lack of educational activities and perceived profit motive. The Tribunal disagreed, highlighting the school construction activity as the primary focus. It criticized the rejection of donor affidavits without proper justification. The Tribunal upheld the capital contribution acceptance and non-claim of depreciation due to inactivity. Consequently, the Tribunal partially allowed the appeal, granting the exemption under section 10(23C)(iiiad) of the Act.