2019 (9) TMI 722 - AT - Income Tax

Exemption u/s 10(23C)(iiiad) denied - admitted gross receipts for the year under consideration breaches the limit provided U/s 10(23C)(iiiad) - exemption u/s 11 - charitable activity - arrangement made by the assessee with THEAL under which the assessee agree to receive the services from THEAL for providing facility in running the schools - HELD THAT - Even as per the admitted gross receipts for the year under consideration breaches the limit provided U/s 10(23C)(iiiad) of the act and therefore, the said benefit of provisions of Section 10(23C)(iiiad) would not available to the assessee. Accordingly to that extent we set aside the order of the ld. CIT(A) and restore the order of the Assessing Officer for denying the claim of exemption U/s 10(23C)(iiiad) of the Act. Receipt from THEAL - Entire arrangement between the assessee society and THEAL is in the nature of joint venture for 30 years. The agreement in question is irrevocable as the parties to the agreement have no right to terminate the agreement accept fulfillment of terms and conditions. Arrangement between the parties and the activity carried out by the assessee are to earn the profit from the activity and then transfer the same in the ratio as per the agreement to the other parties. The other entities are undisputed existed solely for the commercial activity and for earning the profit and not invested in the assessee for any charitable purpose. Thus the sharing of the profit or income under the agreement and 80% of the income is going to the commercial entities clearly established the intention of the parties in this arrangements being for profit are not solely for providing education - there is no intention of generating any income to be applied for education purposes and to meet the requirement of future expenses, modernization or to provide latest facility or infrastructure to the student. The income generated from the activity of running the school is substantially going in the hand of the commercial entities under these agreements. Hence assessee is not existed solely for education purpose and consequently the benefit of Section 10(23C)(iiiad) of the Act is otherwise not available to the assessee - Decided in favour of revenue

Summary

Issues Involved:

1. Deletion of addition of ?8,13,29,766/- received from THEAL.
2. Classification of amount received from THEAL as repayable liability vs. receipts in lieu of surrendering exclusive rights.
3. Classification of amount received from THEAL as security deposit vs. Business Commercial Receipts (BCR).
4. Eligibility for exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961.
5. Any other question of law as deemed fit.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?8,13,29,766/- Received from THEAL:

The Revenue argued that the amount received from THEAL should be treated as part of the gross receipts of the schools, thus making the total gross receipts exceed ?1 crore, disqualifying the assessee from the exemption under Section 10(23C)(iiiad). The assessee contended that this amount was a refundable security deposit, not income. The Tribunal found that the arrangement between the assessee and THEAL was a joint venture for sharing profits, not merely a facilitation agreement. The Tribunal concluded that the amount received was indeed part of the revenue and should be included in the gross receipts.

2. Classification of Amount Received from THEAL as Repayable Liability vs. Receipts in Lieu of Surrendering Exclusive Rights:

The Revenue contended that the amount received from THEAL was for the transfer of exclusive rights, and there was no recovery clause in the agreement. The assessee argued that the amount was a refundable security deposit under a facilitation agreement. The Tribunal noted that the agreement was irrevocable and primarily for sharing profits, not for providing services or transferring rights. Therefore, the amount should be treated as part of the gross receipts.

3. Classification of Amount Received from THEAL as Security Deposit vs. Business Commercial Receipts (BCR):

The Revenue argued that the amount should be classified as Business Commercial Receipts (BCR), while the assessee maintained it was a security deposit. The Tribunal found that the arrangement was for profit-sharing, and the amount received was part of the revenue from running the schools. Therefore, it should be classified as BCR.

4. Eligibility for Exemption under Section 10(23C)(iiiad):

The Revenue denied the exemption under Section 10(23C)(iiiad) on the grounds that the gross receipts exceeded ?1 crore. The assessee argued that the amount received from THEAL should not be included in the gross receipts. The Tribunal found that even excluding the disputed amount, the gross receipts exceeded ?1 crore due to an additional undisclosed receipt of ?2 crores. Therefore, the assessee was not eligible for the exemption under Section 10(23C)(iiiad).

5. Any Other Question of Law:

No additional questions of law were framed or discussed.

Conclusion:

The Tribunal concluded that the amount received from THEAL was part of the gross receipts and should be included in the total revenue. Consequently, the assessee was not eligible for the exemption under Section 10(23C)(iiiad). The order of the CIT(A) was set aside, and the order of the Assessing Officer was restored. The appeal of the Revenue was allowed.