2015 (12) TMI 37 - AT - Income Tax

Non-granting of exemption u/s. 10(23C)(iiiab) - denial of benefits of exemption u/s. 11 also - Held that - An identical issue was considered by the Tribunal, Pune Bench in the case of Deccan Education Society 2015 (7) TMI 649 - ITAT PUNE wherein also the Tribunal had the occasion to consider the fact that the institution was accepting capitation fees in the form of donation and the Tribunal allowed exemption u/s. 10(23C)(iiiab) of the Act finding that nothing was brought on record to show that such donation has not been accounted for or utilized by any trustees or their relatives or utilized for purposes other than education. Thus, from the totality of the aforestated facts in the light of the judicial decisions discussed hereinabove, the two conditions vis- -vis institution should solely exist for the purpose of education and it should not exist for the purpose profit have been successfully fulfilled by the assessee society. If the Government grant receipt is less than 50%, the assessee cannot be denied exemption u/s. 10(23C)(iiiab) of the Act on the ground that the condition of substantially financed by the Government stands violated . Thus no hesitation to hold that the institution is substantially financed by the Government . Thus, fulfilling the third condition also for the eligibility for claiming exemption u/s. 10(23C)(iiiab) of the Act.It would not be out of place to mention here that even after the survey and search operation, the Government grants are still received by the Institution which establishes the fact that even in the eyes of the Government, the institution is solely existing for imparting education. We, therefore, direct the AO to grant exemption u/s. 10(23C)(iiiab) of the Act. In the case in hand, the exemption has been denied solely for the reason that the institution has received the capitation fees. This issue has been elaborately discussed by the Tribunal while restoring the registration u/s. 12A of the Act as mentioned elsewhere. There is not even a whisper in the orders of the authorities below which could suggest that the facts of the case are hit by the provisions of Sec. 13 of the Act. After considering the facts in totality in the light of the decision of the Tribunal in assessee s own case while restoring the registration u/s. 12A of the Act in our understanding of the facts qua the relevant provisions of the Act, we are of the opinion that the assessee is entitled for the benefit of Sec. 11 of the Act. We, therefore, direct the AO to grant the benefits of Sec. 11 of the Act. - Decided in favour of assessee

Issues Involved:

1. Denial of exemption under Section 10(23C)(iiiab) of the Income Tax Act.
2. Denial of exemption under Section 11 of the Income Tax Act.
3. Additions made on account of anonymous donations under Section 115BBC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 10(23C)(iiiab):

The primary issue was whether the assessee, an educational institution, was eligible for exemption under Section 10(23C)(iiiab) of the Income Tax Act. This section exempts income of any university or other educational institution existing solely for educational purposes and not for profit, which is wholly or substantially financed by the Government.

The Tribunal examined three conditions to determine eligibility:
- The institution should solely exist for educational purposes.
- It should not exist for profit.
- It should be wholly or substantially financed by the Government.

The Tribunal noted that the assessee had been imparting education since 1932 and any surplus generated was ploughed back into the institution. Despite the collection of capitation fees, the Tribunal concluded that this did not make the institution profit-oriented, as the funds were used for educational purposes and not for personal gains of the members. The Tribunal relied on the Supreme Court's rulings in Queen's Educational Society and other cases, which held that surplus ploughed back for educational purposes does not disqualify the institution from exemption.

Regarding government financing, the Tribunal found that the contribution ranged from 34% to 103% of the net expenditure, which was considered substantial based on precedents set by various High Courts. The Tribunal cited cases like National Education Society and Indian Institute of Management, which accepted lower percentages as substantial financing.

2. Denial of Exemption under Section 11:

The second issue was the denial of exemption under Section 11, which pertains to income from property held for charitable or religious purposes. The Revenue denied this exemption on the grounds that the institution received capitation fees.

The Tribunal referenced its earlier decision restoring the assessee's registration under Section 12A, stating that acceptance of capitation fees should not per se be treated as a business activity. The Tribunal noted that there was no evidence of misuse of funds or violation of Section 13, which would disqualify the institution from exemption under Section 11. The Tribunal reiterated that imparting education is a charitable purpose and directed the AO to grant the benefits of Section 11.

3. Additions on Account of Anonymous Donations under Section 115BBC:

The third issue involved additions made on account of anonymous donations under Section 115BBC. The Tribunal found that the First Appellate Authority had allowed the claim under Section 11 for receipts other than capitation fees. The Tribunal directed the AO to grant exemption under Section 10(23C)(iiiab) and Section 11, rendering the other issues moot.

Additional Observations:

- The Tribunal addressed the Revenue's argument that some institutions were not aided by the Government, clarifying that the exemption is granted to the assessee as a whole, not to individual institutions.
- It also dismissed the argument that running a Senior Citizen home disqualified the institution from exemption, noting that this activity was part of the society's objectives since inception and the revenues from this activity were minimal compared to the educational activities.

Conclusion:

The Tribunal directed the AO to grant the benefits of Section 10(23C)(iiiab) and Section 11 to the assessee, dismissing the Revenue's appeals and allowing the assessee's appeals. The Tribunal emphasized that the institution's primary purpose was educational and not profit-oriented, and the substantial government financing met the requirements for exemption.

← Previous Next →