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TMI Blog2013 (7) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... f an educational institution is less than one crore, the income from such educational institution in the hands of the assessee, is not taken into consideration in computing the total income of the assessee. - Sub-clause (vi) provides that any University or other educational institution existing for educational purpose and not for the purpose of profit other than those mentioned in sub-clause (iii)(ab) and sub-clause (iii)(ad) and which may be approved by the prescribed Authority, they are also entitled to the said benefit. In other words, sub-clause (iii)(ab), sub-clause (iii)(ad) and clause (vi) applies to three categories of institutions. Meaning of term aggregate annual receipt - Held that:- Each educational institution is a separate entity controlled under various statutes for various purposes. May be the Management of these educational institutions would be in the hands of the Societies or the Trust, but for all other purposes they are different, independent entities. Here “any person” refers to the assessee and “on behalf of” refers to such institutions. It may be an University, it may be an educational institution, it may be a hospital or other institutions of similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that:- the questions are purely a question of fact - the proper thing would be to set aside the finding and remand the matter back to the Assessing Authority, giving an opportunity to the assessee to produce the ledger books and other accounts showing the receipt of such payment and utilization of the said amount for the purpose of construction, so that on the aforesaid material, the Assessing Authority can pass suitable orders on merits. Whether the Tribunal is correct in not appreciating that the assessee was independently claiming section 10(23C) (iii)(ad) exemption in respect of the entire trust as well as in respect of independent institutions when the management and the control of the same vested with its Chairman, who was running the same as a business concerns i.e. for profit -the assessee constructed a building on a leased property. It was treated as block asset and depreciation was allowed under Section 32(1) - the said building was discarded - the building was surrendered to the lessor on the expiry of the lease period. On the date of the expiry of the lease period, the written down value was mentioned in the balance sheet. It is that amount claimed as deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The Oxford Polytechnic 1986-87 Govt. of Karnataka, Department of Technical Education 9. The Oxford Senior Secondary School 1990-91 CBSE, Delhi 10. The Oxford Evening Polytechnic 1991-92 Govt. of Karnataka, Department of Technical Education 11. The Oxford Institute of Pharmacy 1992-93 Govt. of Karnataka, Pharmacy, Council of India 12. The Oxford School of Pharmacy 1992-93 1992-93 Bangalore University, Govt. of Karnataka 13. The Oxford School of Nursing 1992-93 Kar. Nur. Council, Govt. of Karnataka 14. The Oxford College of Nursing 1992-93 Bangalore University, Govt. of Karnataka, R.G.U.H.S. 15. The Oxford Dental College 1992-93 Bangalore University, Govt. of Karnataka, D.C.I. 16. The Oxford College of Science 1994-95 Bangalore University, Govt. of Karnataka 17. The Oxford College of Business Management 1994-95 Bangalore University, Govt. of Karnataka 18. The Oxford College of Hotel Management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l filed by the revenue and allowed all the appeals filed by the assessee in-toto granting the relief to the assessee. Aggrieved by the said order of the Tribunal, the revenue is in appeal. 4. After going through the substantial questions of law raised and framed at the time of Admission, we are of the view, it requires to be recasted. The learned counsel appearing for the parties are also of the same view. Accordingly, the following substantial questions of law are framed: 1. Whether the Tribunal is correct in law in holding that the respondent assessee is to be assessed in the status of Artificial Juridical Person instead of status of Association of persons adopted by the Assessing Officer and confirmed by the Appellate Commissioner? 2. Whether, on the facts of the case, the Tribunal is correct in holding that the exemption in terms of provisions of section 10(23c)(iii)(ad) of Income Tax Act, 1961 is available to the respondent assessee as annual receipts of each of the institutions of the respondent society is less than the prescribed limit under the said provision? 3. Whether the Tribunal is correct in holding that the exemption in terms of section 10(23c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains. 6. A reading of the aforesaid definition makes it clear that a person includes an association of persons or body of individuals whether incorporated or not and also every artificial juridical person, not falling within any of the preceding sub-clause. Once a body/society is incorporated under a statute, it becomes juridical person. 7. Under the terms of the Society Registration Act, 1860, any seven or more persons associated for any literary, scientific or charitable purpose, may by subscribing their names, to a memorandum of association and filing the same with the Registrar of Societies may form themselves into a Society under the Act. 8. Once the society is formed, it would become a juridical person as opposed to natural persons. Business of the society is carried on in the name of the society and not in the name of the persons who form the said society. The properties of the society would vest in the name of the society managed by the governing body. The society so registered, may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutions those not falling under Sub-clause (iii)(ab) or Sub-clause (iii)(ad) and therefore, he submits, the order passed by the Tribunal holding aggregate annual receipts means aggregate of each educational institution, is contrary to the expressed provision contained in the statute. As such the said binding requires to be interfered with. 10. Per contra, Shri Shankar, the learned counsel appearing for the assessee submitted, as sub-section (22) of Section 10 stood before deletion, any income of a University or other educational institution existing solely for education purposes and not for purposes of profit, was excluded from the total income of the assessee. However, that provision is now deleted and in its place sub-clauses (iii)(ab), (iii)(ad) and even Clause (vi) are introduced. Now the wording used in 23(c), namely, any income received by any person on behalf of other educational institutions means the income from each of such educational institution run by the assessee and if aggregate annual receipts of such educational institution do not exceed the amount of annual receipts prescribed, namely, Rs.1 crore, the assessee is entitled to the benefit of Section 10. The aggre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the prescribed authority 14. Section 10 groups in one place various incomes which are exempted from tax, which includes certain types of income from the ambit of total income, as defined under the Act. The incomes enumerated in the Section are not only excluded from the taxable income of the assessee, but also from his total income. They are not to be taken into consideration for the purpose of determining either the taxable income or rate of tax. If any income falling within any of these clauses of the Section is in reality not the income of the assessee, but is deemed to be his income under any provision of this Act, the exemption would still be available. A receipt may not be income, at all, within the proper concept of the term and yet may come within the expressed exemption in this Section due to the over anxiety of the Taxmann to make the nontaxable clear from possibility of doubt. In other words from the fact that such a receipt is exempted under the Section which must not be assumed that, but for the exemption, it would necessarily be taxable. The onus of showing that a particular item of income falls within any clause of the Section, is on the assessee. The object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution if the society was running an educational institution. We are of the view that an educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit could be regarded as "other educational institution" coming within section 10(22) of the Act. (See CIT v. Doon Foundation [1985] 154 ITR 208 (Cal) and Agarwal Shiksha Samiti Trust v. CIT [1987] 168 ITR 751 (Raj). It will be rather unreal and hypertechnical to hold that the assessee-society is only a financing body and will not come within the scope of "other educational institution" as specified in section 10(22) of the Act. The object of the society is to establish, run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard to raise or collect funds, donations, gifts, etc. Colleges and schools are the media through which the assessee imparts education and effectuates its objects. In substance and reality, the sole purpose for which the assessee has come into existence is to impart education at the levels of colleges and schools and so, such an educational society should be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not exceed the amount of annual receipts as may be prescribed. 17. Rule 2BC of the Income Tax Rules prescribes the amount of annual receipts for the purposes of sub-clauses (iii)(ad) and (iii)(ae) of clause (23C) of section 10, which reads as under: 2BC (1) For the purposes of sub-clause (iii)(ad) of clause (23C) of section 10, the amount of annual receipts on or after the 1st day of April, 1998, of any university or other educational institution, existing solely for educational purposes and not for purposes of profit, shall be one crore rupees. (2) For the purposes of sub-clause (iii)(ae) of clause (23C) of section 10, the amount of annual receipts on or after the 1st day of April, 1998, of any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, shall be one crore rupees.] 18. Therefore, one crore of rupees is the aggregate annual receipts which is prescribed under the Rules. In other words, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th sub-clause (iii)(ad) along with Rule2BC. It was contended, the Legislature used the word aggregate annual receipt and amount of annual receipts and therefore, the provisions are not one and the same. The word aggregate has been defined in Chambers 21st Century Dictionary as under: aggregate noun = a collection of separate units brought together, a total taken altogether, bring together. In Wharton s Law Lexicon, it is defined as thus: a collocation of individuals, units or things in order to form a whole 22. Similarly relying on the judgment of the Apex Court in the case of Aditanar Educational Institution Vs. Additional Commissioner Of Income-tax, it was contended the word other educational institution refers to the assessee society and not to the individual educational institution. If the intention of the Legislature was to club the annual receipts of all educational institutions run by the assessee society, they could have said so in clear terms. On contrary what is stated in the said Section is the aggregate annual receipts of such University or such educational institution referring to other educational institution. Other educational institution is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are different, independent entities. That is the reason why Section 10 (23)(c) is worded as under: Any income received by any person on behalf of Here any person refers to the assessee and on behalf of refers to such institutions. It may be an University, it may be an educational institution, it may be a hospital or other institutions of similar nature. As all such institutions are independent entity and they generate income and when that income is received by the assessee, it becomes the income in the hand of the assessee and it is such income which is sought to be excluded while computing the total income of the assessee under Section 10. The test prescribed under the aforesaid provision is not the income of the educational education. It is the aggregate annual receipts of such educational institution that is prescribed at Rs.1 crore. Therefore, irrespective of the expenditure incurred by those institutions, the exemption is based on the total receipts. Even if the word aggregate has to be understood as suggested by the Revenue as the annual receipts of such educational institutions put together, probably, the said provision regarding exemption would be of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to the students studying in the various institutions. For the said purpose, the society made interest free advance to three persons namely, S.L.V. Narasimharaju, Smt. Shakuntala and Smt. Triveni. Under the agreement, the society has to pay a composite rent for the building and the equipment installed therein at the rate of Rs.30/- per sq.ft. and the super built area was estimated to be 70000 sq.ft the monthly rent works out to Rs.21 lakhs. However, this agreement was cancelled and another agreement dated 01.01.2000 was entered into, under which no rent became payable to the aforesaid three persons. They agreed to pay the reduced subsidy from originally agreed in the earlier agreement dated 01.04.1988. The quantum of subsidy was arrived at Rs.2.12 crores. In terms of the said agreement, a sum of Rs.1.12 crores was adjusted excess the amounts owed to the society by the M/s Oxford Girls Hostel. Therefore it was contended that the said payment of Rs.2,12,26,465-00 is to be treated as expenditure towards house building subsidy. The said case of the society was not accepted by the Assessing Authority as well as the first appellate authority on the ground that subsidy is not a payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irl students. It is in that context, whatever money had been paid earlier, was sought to be adjusted as the subsidy amount thereby the partnership firm committed to provide hostel facility. Having regard to the nature of construction, the extent of construction, the responsibilities and the advantages, the payment of Rs.2.2 crores as subsidy cannot be sought to be a huge amount. The Tribunal rightly allowed the said amount as expenditure and deleted the additions made by the assessing authority. In that view of the matter, we do not see any error committed by the Tribunal. Consequently, the disallowance of the notional interest on the said amount would also fall to ground. Accordingly, the substantial questions of law No.4 and 5 are answered in favour of the assessee and against the revenue. Substantial Questions Of Law No.6, 8 And 10 Building Fund/infrastructure Fund 27. This addition relates to assessment year 2001 to 2003. This addition is under the head of Building Fund. The Assessing Authority treated the Building Fund as revenue receipt. According to the society even if the addition is considered as income, that sum being an income of the society they can claim for exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestions of law No.6, 8 and 10 is not answered, as the matter is remanded back to the Assessing Authority. Substantial Questions Of Law No.9 Depreciation Of Rs.2,63,73,226-00: 29. The assessee claimed an extent of Rs. 2,63,73,226-00 on account of write off the lease hold properties at 6th Phase, J.P. Nagar. The said building had been shown as part of the fixed asset. The case of the Revenue was any loss relating to fixed asset is only a capital loss and cannot be allowed as revenue expenditure while computing excess of income over expenditure. Therefore they disallowed the expenditure of Rs. 2,63,73,226-00. The assessee s contention was that the said amount represents application of the income of the assessee-society for educational purpose. The depreciation is allowed in respect of the said building in accordance with Section 32(1)(i) and Explanation (1) thereto. Therefore it follows that the written down value is also written off as it is allowable having regard to the provisions of Section 32 (1) (iii) and therefore it cannot be a capital loss. The said contention was over-ruled and the appellate authority has upheld the said order. However, the Tribunal held that the loss r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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