Educational institution – Exemption u/s 10(23C) – Scope of s. 10(23C) – Benefit granted with reference to educational activity – Society deriving income from running educational institution having other income – Separate accounting for such other income – Income of society could not be aggregated for purposes of s. 10(23C)

Educational institution – Exemption u/s 10(23C) – Scope of s. 10(23C) – Benefit granted with reference to educational activity – Society deriving income from running educational institution having other income – Separate accounting for such other income – Income of society could not be aggregated for purposes of s. 10(23C)

The appellant-assessee is a society registered under the Societies Registration Act, 1860. Under its registered objects, it established an educational institution in the name of Institute of Information Management and Technology at Aligarh. For the previous year relevant to the A.Y. 2007-08, the Institution received fees of Rs. 85,95,790 and interest on fixed deposit receipt of Rs. 86,121. Thus, the total receipts of the institution were Rs. 86,81,911. After deducting expenditure of the institution, the excess of income over expenditure, Rs. 38,54,310 was carried to the income and expenditure account of the society. Also, the society received donations or subscriptions amounting to Rs. 47,62,000 and interest on fixed deposit receipt of Rs. 18,155. The A.O. denied exemption claimed u/s 10(23C)(iiiad).

The Tribunal upheld the denial of exemption.

In the appeal before the High Court the following question of law was raised by the assessee:

‘Whether, in view of the law laid down in CIT vs. Children’s Education Society [2013] 358 ITR 373 (Karn) and the order passed by this Court in CIT (Exemption) vs. Chironji Lal Virendra Pal Saraswati Shiksha Parishad [2016] 380 ITR 265 (All), the order of the Tribunal denying the exemption u/s 10(23C)(iiiad) and clubbing the voluntary contributions received by the appellant with the receipts of the educational institution is justified in law?’

The Allahabad High Court held as under:

‘i) Under the provisions of section 10(23C), any income received by any person on behalf of any university or other educational institution existing solely for educational purposes and not for purposes of profit, if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed… in the A.Y. 2007-08 the upper limit prescribed for such receipts was Rs. 1 crore under Rule 2BC of the Income-tax Rules, 1962.

ii) The benefit of section 10(23C)(iiiad) being activity-centric, the limit of Rs. 1 crore prescribed thereunder has to be seen only with reference to the fee and other receipts of the eligible activity / institution. Admittedly, those were below Rs. 1 crore. The eligibility condition prescribed by law was wholly met by the assessee. The fact that the institution did not exist on its own and was run by the society could never be a valid consideration to disallow that benefit. 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; the Tribunal had also erred in looking at the provisions of section 12AA and the fact that the donations received by the society may not have been received with any specific instructions.

iii) It was not relevant in the facts of the present case because here the assessee had only claimed the benefit of section 10(23C)(iiiad) with respect to the receipts of the institution, and it had not claimed any benefit with respect to the donations received by the society. There could 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).

iv) The question of law is answered in the negative, i.e., in favour of the assessee and against the Revenue.’