2021 (10) TMI 468 - HC - Income Tax

Exemption u/s 10 (23C) (iiiad) denied - clubbing the voluntary contributions received by the appellant Society with the receipts of the educational institution - HELD THAT - Once that difference of the receipts was acknowledged by the assessing authority, there was absolutely no other material existing to treat the donations received by the Society to be receipts of the Institution. Further reasoning offered by the appellate authority to affirm the order of the assessing authority is wholly erroneous and contrary to law. Merely because the assessee Society was the person running the Institution, it did not cause any legal effect of depriving the benefit of Section 10(23C)(iiiad) which was activity specific and had nothing to do with the other income of the same assessee. Tribunal has also erred in looking at provisions Section 12 AA of the Act and the fact that the donations received by the Society may not have been received with any specific instructions. It is not relevant in the facts of the present case. It is so because here the assessee had only claimed the benefit of Section 10(23C)(iiiad) with respect to the receipts of the Institution, Information Management and Technology and it had not claimed any benefit with respect to the donations received by the Society. There would be no clubbing of the receipts of the Institution with the other income of the Society, for the purpose of considering the benefit of Section 10(23C)(iiiad).The question of law is answered in the negative i.e. in favour of the assessee and against the Revenue.

Issues Involved:
1. Denial of exemption under Section 10(23C)(iiiad) of the Income Tax Act.
2. Clubbing of voluntary contributions received by the Society with the receipts of the educational institution.
3. Interpretation of "aggregate annual receipts" under Section 10(23C)(iiiad).

Issue-wise Detailed Analysis:

1. Denial of exemption under Section 10(23C)(iiiad) of the Income Tax Act:
The appellant, a registered Society running an educational institution, claimed exemption under Section 10(23C)(iiiad) of the Income Tax Act for the Assessment Year 2007-08. The Tribunal dismissed the appeal, denying the exemption and upholding the assessment of the appellant’s income at ?86,34,460/-. The assessing authority accepted that the Society was running the Institution and that the total receipts of the Institution were below the prescribed limit of ?1 Crore. However, the exemption was denied because the aggregate of the fee receipts of the Institution and the receipts of the Society breached the prescribed upper limit of ?1 Crore.

2. Clubbing of voluntary contributions received by the Society with the receipts of the educational institution:
The assessing authority and the Commissioner of Income Tax reasoned that since the Institute was the only activity carried out by the Society, all donations received by the Society were attributable to that activity and therefore to the Institution. The Tribunal affirmed this reasoning, stating that there was no evidence that the donations received by the Society were directed to form part of the corpus of the Institution. The Tribunal also noted the absence of registration under Section 12AA of the Act, concluding that the Society did not exist solely for educational purposes.

3. Interpretation of "aggregate annual receipts" under Section 10(23C)(iiiad):
The High Court analyzed the interpretation of "aggregate annual receipts" and concluded that the benefit under Section 10(23C)(iiiad) is activity-specific and not person-specific. The Court relied on the Karnataka High Court's decision in CIT vs. Children's Education Society, which clarified that the term "aggregate annual receipts" refers to the receipts of each individual educational institution and not the combined receipts of all institutions run by the same Society. The Court emphasized that the exemption limit of ?1 Crore should be applied to the receipts of the specific educational institution and not to the total income of the Society running the institution.

Judgment:
The High Court found the reasoning of the assessing authority and the Tribunal erroneous. It held that the benefit of Section 10(23C)(iiiad) is granted with respect to the receipts arising from the specified educational activity and not conditioned on the aggregate income or receipt of the person running the institution. The Court noted that the receipts of the Society and the Institution were distinct and should not be clubbed for the purpose of determining eligibility for the exemption. The Court concluded that the donations received by the Society should not be considered as receipts of the Institution for the purpose of Section 10(23C)(iiiad).

The High Court allowed the appeal, ruling in favor of the assessee, and held that there should be no clubbing of the receipts of the Institution with the other income of the Society for considering the benefit under Section 10(23C)(iiiad). The question of law was answered in the negative, in favor of the assessee, and against the Revenue. The appeal was allowed with no order as to costs.

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