2016 (5) TMI 873 - AT - Income Tax

Disallowance of exemption claimed U/s 10(23C)(iiiad)/ 10(23C)(iiiab) - Capital Subsidy grant received from State Government of Rajasthan - whether treated as Revenue Receipt and included in calculation of total receipts for calculation of the exemption limit prescribed u/s 10(23C)(iiiad)? - Held that - It is undisputed fact that the assessee is a charitable institution covered U/s 10(23C)(iiiab) as well as 10(23C)(iiiad) of the Act. The assessee substantially financed by the State Govt., which is also not part of the total receipts as held by the various ITATs as well as Hon ble High Courts. The actual receipt for the purposes of Section 10(23C)(iiiad) is to be earned out from the educational activity. The case law referred by the assessee are squarely applicable. We have considered view that the capital subsidy received from the State Govt. is not part of total receipts. The assessee wrongly claimed deduction U/s 11 as he did not have registration U/s 12AA of the Act but the ld Assessing Officer has to calculate the real income on the basis of material available with him and is duty bound to assess the correct income as per law.

Summary

Issues:
- Appeal against order dated 01/12/2014 passed by CIT(A), Alwar for A.Y. 2010-11
- Exemption claimed under sections 10(23C)(iiiad)/10(23C)(iiiab) of the Income Tax Act, 1961
- Treatment of subsidy received from the Government of Rajasthan as income
- Eligibility for exemption under sections 10(23C)(iiiad) and 10(23C)(iiiab) of the Act
- Registration under section 12AA of the Act

Analysis:
1. The appellant, a charitable Trust running an educational institute, filed a return for A.Y. 2010-11 with NIL income. The Assessing Officer observed discrepancies in the income declared and the exemption claimed under sections 10(23C)(iiiad)/10(23C)(iiiab) of the Act. The issue arose due to the receipt of a subsidy from the Government of Rajasthan, which was not included in the income and expenditure account. The Assessing Officer questioned the exemption claimed under section 11 of the Act and proposed disallowances due to lack of registration under section 12AA. The appellant argued that the subsidy was for building construction owned by the State Government and should not be considered as part of annual receipts.

2. The CIT(A) dismissed the appeal, stating that the subsidy received was considered part of the total receipts as registration under section 12AA was obtained after the relevant period. The appellant's contention that the subsidy was reimbursement for building expenses and should not be included in total receipts was rejected. The appellant failed to satisfy the conditions for exemption under section 10(23C)(iiiad) as gross receipts exceeded the limit. The CIT(A) upheld the Assessing Officer's additions and denied the appellant's claim for exemption under section 11 of the Act.

3. On appeal, the Tribunal considered the legislative intent and case laws cited by the appellant. It concluded that the capital subsidy received should not be considered part of total receipts for exemption purposes under section 10(23C)(iiiad). The Tribunal also noted that the appellant wrongly claimed deduction under section 11 due to lack of registration under section 12AA. Despite this, the Tribunal allowed the appeal, emphasizing that the Assessing Officer must assess the correct income as per law.

In conclusion, the Tribunal allowed the appellant's appeal, ruling that the capital subsidy grant received should not be included in total receipts for exemption calculation under section 10(23C)(iiiad) and that the Assessing Officer must accurately determine the income based on available evidence.