2023 (1) TMI 624 - AT - Income Tax

Exemption u/s 10(23C)(iiiab) - donations were received have to nexus with admissions of students in institutions, it cannot be treated as corpus funds qualifying for exemption - AR submits that the eligibility of an institution for exemption u/s 10(23C)(iiiab) has to be examined as whole, not institution-wise - Whether CIT(A) is justified in holding that the exemption u/s 10(23C)(iiiab) is available to the respondent-assessee as whole or whether there is any evidence of receipt of capitation fees, disentitling the respondent-assessee from exemption u/s 10(23C)(iiiab)? - HELD THAT - AO gave a finding that the respondent-assessee was not wholly or substantially financed by the Government of India. CIT(A) without adverting the facts of the case, had merely relied upon the legal proposition, granted exemption u/s 10(23C)((iiiab) - CIT(A) without dealing with the issue, whether the respondent-assessee was in receipt of donations having nexus with admissions of students or not, simply held that the donations received by the respondent-assessee form part of the corpus funds. It is pertinent to note that if the donations received had direct nexus with admissions of students in the institutions run by society, such donations does not qualify for exemption as held in the case of Sinhagad Technical Education Society 2022 (4) TMI 1173 - ITAT PUNE wherein, the Tribunal following the decision of the Hon ble Supreme Court in the case of Islamic Academy of Education vs. State of Karnataka 2003 (8) TMI 469 - SUPREME COURT Even recently, the Madras High Court in the case of CIT vs. MAC Public Charitable Trust Other Trust 2022 (11) TMI 137 - MADRAS HIGH COURT also held to the same effect. Thus, it is apparent from the order of the ld. CIT(A) that the ld. CIT(A) had decided the issue in appeal in perfunctory manner. In the circumstances, we are of the considered opinion that the interest of justice would be met if the matter is restored to the file of the ld. CIT(A) to decide the issue in appeal afresh after adverting to the facts of the case in the light of legal proposition discussed

Summary

Issues:
1. Whether the respondent-assessee is entitled to exemption under section 10(23C)(iiiab) of the Income Tax Act, 1961.
2. Whether the donations received by the respondent-assessee have a nexus with admissions of students in educational institutions.
3. Whether the ld. CIT(A) erred in granting exemption without considering the financing of the institutions by the Government of India.

Analysis:
1. The appeal was filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals) for the assessment year 2011-12. The respondent-assessee, an Educational Institution registered as a Public Charitable Trust, claimed exemption under section 10(23C)(iiiab) of the Act. The Assessing Officer raised concerns regarding donations received by the assessee and the financing of institutions by the Government of India.

2. During assessment proceedings, the Assessing Officer observed donations received by the respondent-assessee and sought confirmation from donors. The ld. CIT(A) held that the donations form part of the corpus funds and directed the Assessing Officer to allow the exemption under section 10(23C)(iiiab). The Revenue contended that the donations with a nexus to student admissions cannot be treated as corpus funds for exemption.

3. The Tribunal analyzed the issue of exemption under section 10(23C)(iiiab) and the financing of institutions by the Government. It was established that the exemption is granted to the institution as a whole, not institution-wise. The Tribunal emphasized that the question of whether the institution is substantially financed by the Government is a factual matter. The ld. CIT(A) was criticized for not thoroughly examining the facts and granting exemption solely based on legal propositions. The Tribunal highlighted that donations linked to student admissions do not qualify for exemption, citing relevant case law.

4. Considering the perfunctory manner in which the ld. CIT(A) decided the issue, the Tribunal decided to restore the matter to the ld. CIT(A) for a fresh decision after a detailed review of the case facts in light of legal principles discussed. Consequently, the appeal filed by the Revenue was partly allowed for statistical purposes.

This comprehensive analysis of the judgment addresses the key issues raised in the appeal and provides a detailed overview of the Tribunal's decision regarding exemption under section 10(23C)(iiiab) of the Income Tax Act, 1961.