Court In Cit (Exemption v. With Respect To The Receipts Arising From Theinstitution, The Assessee Claimed Benefit Of Section10(23C)(Iiiad) Of The Act. Relevant To Our Discussion,That Prov

-Court No. 3 Case :- INCOME TAX APPEAL No. - 52 of 2013 Appellant :- Manas Sewa Samiti Respondent :- Addl. Commissioner Of Income TaxCounsel for Appellant :- Rahul Agarwal, VishwjitCounsel for Respondent :- C.S.C. I.T.,Gaurav Mahajan Hon'ble Naheed Ara Moonis,J.Hon'ble Saumitra Dayal Singh,J. 1.Heard Sri Rahul Agarwal, learned counsel for theappellant/assessee and Sri Gaurav Mahajan, learnedcounsel for the revenue. 2.Present appeal has been filed under Section 260-A of the Income Tax Act, 1961 (hereinafter referredas the Act) against the order of the Income TaxAppellate Tribunal, Agra Bench, dated 23.10.2012passed in ITA No.29/Agra/2011 for the A.Y. 2007-08.By that order the Tribunal has dismissed the appealfiled by the assessee and upheld the assessment ofthe appellant’s income at Rs.86,34,460/-, afterdenying the benefit claimed by the assessee underSection 10(23C)(iiiad) of the Act. 3.Upon earlier hearing, the question of law, onwhich the present appeal arises, was framed asbelow: "Whether, in view of the law laid down in CIT Vs.Children's Education Society [2013] 358 ITR 373(Kant.) and the order passed by this Hon'ble Court in CIT (Exemption) v. Chironji Lal VirendraPal Saraswati Shiksha Parishad [2016] 380 ITR265 (All), the order of the Tribunal denying theexemption under Section 10 (23C) (iiiad) andclubbing the voluntary contributions received bythe appellant Society with the receipts of theeducational institution is justified in law?" 4.Having heard the learned counsel for the parties,it transpires that the appellant/assessee Manas SewaSamiti is a Society (hereinafter referred to as“Society”). It is registered under the SocietiesRegistration Act, 1860. Under its registered objects,it established an educational institution in the name,Institute of Information Management and Technologyat Aligarh (hereinafter referred to as “Institution”).For the previous year relevant to A.Y. 2007-08,undisputedly the said Institution received fees Rs.85,95,790/- and interest on FDR Rs. 86,121/-. Thusthe total receipts of the Institution wereRs.86,81,911/-. After deducting expenditure of theInstitution, the excess of Income over Expenditure,Rs.38,54,310/- was carried to the Income andExpenditure Account of the Society. Also,undisputedly the Society received donations orsubscription amount Rs.47,62,000/- and interest onFDR Rs.18,155/-. 5.With respect to the receipts arising from theInstitution, the assessee claimed benefit of Section10(23C)(iiiad) of the Act. Relevant to our discussion,that provision of law is quoted below: “Section 10 In computing the total income of aprevious year of any person, any income falling withinany of the following clauses shall not be included:- S. 10 (23C) any income received by any person onbehalf of (i) ………………... (ii) ………………... (iii) ……………….. (iiia)................. (iiiaa)............... (iiiaaa)............. (iiiaaaa)............ (iiiab)............... (iiiac)................ (iiiad) any university or other educational institutionexisting solely for educational purposes and not forpurposes of profit if the aggregate annual receipts ofsuch university or educational institution do notexceed the amount of annual receipts as may beprescribed.” 6.It is also undisputed that in the relevantAssessment Year, the upper limit prescribed for suchreceipts was Rs.1 Crore, under Rule 2(BC) of theIncome Tax Rules, 1962. S. 10 (23C) any income received by any person onbehalf of (i) ………………... (ii) ………………... (iii) ……………….. (iiia)................. (iiiaa)............... (iiiaaa)............. (iiiaaaa)............ (iiiab)............... (iiiac)................ (iiiad) any university or other educational institutionexisting solely for educational purposes and not forpurposes of profit if the aggregate annual receipts ofsuch university or educational institution do notexceed the amount of annual receipts as may beprescribed.” 6.It is also undisputed that in the relevantAssessment Year, the upper limit prescribed for suchreceipts was Rs.1 Crore, under Rule 2(BC) of theIncome Tax Rules, 1962. 7.The assessing authority accepted the fact thatthe Society was running the Institution. He alsoaccepted the fact that the total receipts of theInstitution were below the prescribed limit of Rs.1Crore. However, he proceeded to deprive the assesseeof the benefit of Section 10(23C)(iiiad) of the Actsince the aggregate of the fee receipts of theInstitution and the receipts of the Society breachedthe prescribed upper limit of Rs.1 Crore. That reasoning came to be approved and affirmed byCommissioner of Income Tax vide his order dated15.3.2011, in Appeal No.59 of 2009. He rejected theclaim made by the assessee on the further reasoningsince the Institute was the only activity carried outby the Society, all donations received by the Societywere attributable to that activity alone and thereforeto the Institution. He further relied on the fact thatthe surplus of income over expenditure of theInstitute was carried to the accounts of the Society. 8. The Tribunal has also affirmed that order on thefurther reasoning that there was no evidence that thedonations had been received by the Society with anyspecific direction that they will form part of the corpusof the Institution. Reliance has also been placed onthe fact that there exists no registration under Section12AA of the Act. Hence the assessee was not entitledto the benefit and it did not exit solely for educationpurpose of imparting education. 9.In support of his submission, learned counsel forthe assessee has relied on the decisions in the case ofCIT vs M/S Childrens Education Society reportedin(2013) 358 ITR 373 (Kar); M/S VivekanandSociety of Education and Research vs. CITanother, dated 29.12.2017 in ITA No.23/2014 and adivision bench of this Court in ITA No.258 of 2013(The CIT Alld. Vs. Wachaspati Madhupati PraniSewa Sansthan) decided on 30.10.2017. 10.On the other hand, Sri Gaurav Mahajan, learnedcounsel for the revenue has relied on a decision of theSupreme Court in Visvesvaraya TechnologicalUniversity Vs. Assistant Commissioner ofIncome-tax reported in(2016)384 ITR 37(SC). 11.Having considered the submissions advanced bythe learned counsel for the parties and havingperused the record, the benefit granted underSection 10(23C)(iiiad) is only with reference to anactivity of running a University or other educationalinstitution, existing solely for educational purposes.By virtue of Section 10(23C)(iiiad) such receipts areexcluded from the income received by the “person”,who may have run such University or othereducational institution. 12.Thus, the benefit has been granted with respectto receipts arising from a specified activity. Thebenefit is not conditioned or restricted to the personwho may have established or may have run suchactivity or who may have been in receipt of suchreceipts. 13.Though, obviously, the issue whether that benefitis available or not would arise only in the course ofassessment proceedings of a person/assessee , whomay have engaged in such activity, at the same time,it is not the intent of the Act to look at the aggregateincome or receipt of such person for the purpose ofgranting the benefit under section 10(23C)(iiiad) of the Act. 12.Thus, the benefit has been granted with respectto receipts arising from a specified activity. Thebenefit is not conditioned or restricted to the personwho may have established or may have run suchactivity or who may have been in receipt of suchreceipts. 13.Though, obviously, the issue whether that benefitis available or not would arise only in the course ofassessment proceedings of a person/assessee , whomay have engaged in such activity, at the same time,it is not the intent of the Act to look at the aggregateincome or receipt of such person for the purpose ofgranting the benefit under section 10(23C)(iiiad) of the Act. 14.In fact, as lucidly explained in the decision of theKarnataka High Court, it is the receipt of eachindividual University or other educational institutionthat would be looked at to determine whether thereceipt would qualify for the benefit conferred underSection 10(23C)(iiiad), read with Rule 2 BC of theIncome Tax Rules, 1962. 15.In paragraphs 20, 21, 23 and 24 of the report inCIT Vs.M/S Childrens Education Society (Supra)decision, it was held as under:- 20. Now, we are concerned with the meaning tobe attached to the word "aggregate annualreceipt". The argument is, other educationalinstitution referred to in the said sub-clauserefers to all educational institutions run by theassessee and aggregate annual receipts of suchother educational institutions means theaggregate of annual receipts of all sucheducational institutions put together. Otherwise,the use of the word "aggregate" loses itsmeaning. We find it difficult to accept the saidargument. 21. Firstly, if the word "aggregate annualreceipts" of other educational institution is to beunderstood as clubbing of annual receipts of alleducational institutions run by an assesseesociety, then it will also include the annualreceipts of an educational institution which iswholly or substantially financed by theGovernment. If that was intention of theLegislature, they would not have introducedseparate sub- clauses as (iii)(ab) and (iii)(ad). Ifsuch interpretation is placed, sub-clause (iii)(ab)becomes otiose. Therefore, it is not possible to place such an interpretation. If an assesseesociety is running several educationalinstitutions, if some of them are wholly orsubstantially financed by the Government interms of sub-clause (iii)(ab), the income onbehalf of such educational institution received bythe assessee is exempted from being computedthe total income of the assessee. If the assesseeis running other educational institutions whichare not wholly or substantially financed by theGovernment, then the benefit of that exemptionis also extended to the income derived fromsuch educational institutions and received by theassessee under sub-clause (iii)(ad) reading withsub-clause (iii)(ad) along with Rule2BC. It wascontended, the Legislature used the word"aggregate annual receipt" and "amount ofannual receipts" and therefore, the provisionsare not one and the same. The word"aggregate" has been defined in Chambers 21stCentury Dictionary as under: "aggregate - noun = a collection ofseparate units brought together, a totaltaken altogether, bring together." In Wharton's Law Lexicon, it is defined asthus: "a collocation of individuals, units orthings in order to form a whole" 23. No doubt, education has become a business,a very profitable business also. But it requireshuge investment. It is the duty of theGovernment to provide education to all itscitizens, as the Government is not able toshouldertheresponsibilitycompletely.Therefore, the field of education is now thrownopen to private organizations. But for throwingopen the field to the private operators,probably, the country would not have achievedin the field of education what it has achieved.Therefore, lot of funds are invested in runningthese educational institutions, either by creating In Wharton's Law Lexicon, it is defined asthus: "a collocation of individuals, units orthings in order to form a whole" 23. No doubt, education has become a business,a very profitable business also. But it requireshuge investment. It is the duty of theGovernment to provide education to all itscitizens, as the Government is not able toshouldertheresponsibilitycompletely.Therefore, the field of education is now thrownopen to private organizations. But for throwingopen the field to the private operators,probably, the country would not have achievedin the field of education what it has achieved.Therefore, lot of funds are invested in runningthese educational institutions, either by creating a Society or a Trust. In course of time, theyhave expanded their activity providing course invarious subjects at various levels and for thatpurpose they have established more than oneeducational institution. Each educationalinstitution is a separate entity controlled undervarious statutes for various purposes. May bethe Management of these educationalinstitutions would be in the hands of theSocieties or the Trust, but for all other purposesthey are different, independent entities. That isthe reason why Section 10 (23)(c) is worded asunder: "Any income received by any person onbehalf of..." 24. Here "any person" refers to the assesseeand "on behalf of" refers to such institutions. Itmay be an University, it may be an educationalinstitution, it may be a hospital or otherinstitutions of similar nature. As all suchinstitutions are independent entity and theygenerate income and when that income isreceived by the assessee, it becomes theincome in the hand of the assessee and it issuch income which is sought to be excludedwhile computing the total income of theassessee under Section 10. The test prescribedunder the aforesaid provision is not the incomeof the educational education. It is the aggregateannual receipts of such educational institutionthat is prescribed at Rs.1 crore. Therefore,irrespective of the expenditure incurred bythose institutions, the exemption is based onthe total receipts. Even if the word "aggregate"has to be understood as suggested by theRevenue as the annual receipts of sucheducational institutions put together, probably,the said provision regarding exemption would beof no use at all. Especially, if the society isrunning a medial college or any engineeringcollege or other professional courses, then theannual receipt of each institution would run to few crores and therefore, the very object ofgranting exemption to such genuine institutionwould be lost. Therefore, the word "aggregateannual receipt" has to be understood with thecontext in which it is used and the purpose forwhich the said provision was inserted, keepingin mind, the Scheme of the Act. Therefore, if anassessee is running several educationalinstitutions, if any of them is wholly orsubstantially financed by the Government, thenthe income from such educational institutionreceived by the assessee is not included whilecomputing his total income. Similarly, incomefrom each educational institution if they are notreceiving any aid from the Government whollyor substantially in respect of which theaggregate annual receipt do not exceed Rs.1crore received by the assessee, is also notincluded while computing annual total income ofthe assessee.” 16.Similar view was taken by the Jammu andKashmir High Court in M/s Vivekanand Society ofEducation and Research vs. CIT and another(Supra). It was held as under:- 16.Similar view was taken by the Jammu andKashmir High Court in M/s Vivekanand Society ofEducation and Research vs. CIT and another(Supra). It was held as under:- 13.On a plain reading of the above provisions,it is evident that any income received by anyperson on behalf of any University or othereducational institution existing solely foreducational purposes and not for purposes ofprofit, if the aggregate annual receipts of suchUniversity or educational institution do notexceed the amount of aggregate receipts, asmay be prescribed (which is Rs. 1 crore as perRule 2BC of the said Rules), would not beincluded in the total income of that person. 14. It is not in issue that „the person in the‟ in thefacts of the present case has reference to theassessee society. It is also not in issue that the expression „educational institution‟ in the hasreference to the two institutions of the assesseesociety. It is also not disputed that these twoinstitutions exist solely for educational purposesand not for purposes of profit. It is, therefore,clear that there is a distinction between theexpression „any person‟ in the and „educationalinstitution , and that the two are not the same.‟ in theHad it been the intention of the legislature tohave limited the scope of the provision to theinterpretation which has been given by theTribunal, it could easily have said that, if theaggregate annual receipts of any person from allinstitution(s) do not exceed Rs. 1.00 crore thenthe income derived there from would not beincluded in the total income of that person. But,this is not the case here. The reference here ispointedly to the „aggregate annual receipts of‟ in thethe educational institution. The expression,„educational institution and „any person do‟ in the‟ in thenot refer to the same entity and are distinct anddifferent insofar as Section 10 (23C) (iiiad) ofthe said Act is concerned. 15. In our view, therefore, where there aremore than one such institutions, which areunder a particular society or trust, such as theassessee society in the present case, theaggregate annual receipts of each of theeducational institutions would have to beconsidered separately and not together. Thus, ifthere are two institutions A and B and if theaggregate annual receipts of the Institution A isless than Rs. 1.00 crore, then the incomereceived by a person (such as the assesseesociety) on behalf of the Institution A, would notbe included in the total income of that person(such as the assessee society). At the sametime, if the aggregate annual receipts ofInstitutionBexceedsRs.1.00www.taxguru.inITA No. 23/2014 Page 6 of 8crore, then any income received by any personon behalf of Institution B would be included inthe total income of that person. Similarly, by taking this logic further, if neither Institution Anor Institution B has aggregate annual receiptsof Rs. 1.00 crore or more, any income receivedby any person on behalf of these institutions,would not form part of the total income for thepurposes of income tax.” 17.Thereafter, the Jammu and Kashmir High Courtconcurred with the opinion of the Karnataka HighCourt in CIT Vs. Children's Education Society[2013] 358 ITR 373. 18.A coordinate bench of this Court also appears tohave offered a similar reasoning in ITA No.258 of2013 (The Commissioner of Income Tax Alld. Vs.Wachaspati Madhupati Prani Sewa Sansthan)wherein, it was observed as under:- taking this logic further, if neither Institution Anor Institution B has aggregate annual receiptsof Rs. 1.00 crore or more, any income receivedby any person on behalf of these institutions,would not form part of the total income for thepurposes of income tax.” 17.Thereafter, the Jammu and Kashmir High Courtconcurred with the opinion of the Karnataka HighCourt in CIT Vs. Children's Education Society[2013] 358 ITR 373. 18.A coordinate bench of this Court also appears tohave offered a similar reasoning in ITA No.258 of2013 (The Commissioner of Income Tax Alld. Vs.Wachaspati Madhupati Prani Sewa Sansthan)wherein, it was observed as under:- “We are in full agreement with the finding of theITAT as we find that the assessee society isrunning a school and has admittedly receivedthe tuition fee being the annual receipts belowthe prescribed limit of Rs.1 crore and accordingto us the exemption limit clearly provides thecut of figure of Rs.1 crore being the annualreceipt of the educational Institution or theUniversity, as the case may be, and not that ofthe total income of the society running theeducational Institution or University. In thepresent case, the income of Rs.6,67,000/-towards the buildings/capital assets andRs.4,01,900/- received towards donation cannotbe part of the annual receipts of the University/College/School. Therefore, in our consideredopinion the assessee is entitled for exemptionunder Section 10(23C)(iiiad) as annual incomeof the assessee society did not exceed Rs.1crore.” 19.Insofar as the decision of the Supreme Courtrelied upon by the learned counsel for the Revenue isconcerned, it was a case pertaining to provision ofSection 10(23C)(iiiab). The question that arose beforethe Supreme Court was whether the Universityreceiving finance by the Government below onepercent of its total receipts could be considered to bea University substantially financed by theGovernment. Those facts of law are not involved inthe present case. Therefore, the said decision is foundto be wholly distinguishable and hence inapplicable.20.In the first place, for reasons given above, wefind ourselves in complete agreement with thereasoning of the Karnataka High Court in CIT vs.Children's Education Society (Supra) as also thedecision of the Jammu & Kashmir High Court in M/sVivekanand Society of Education and Researchvs. CIT and another (Supra). 21.Next, we find, the reasoning adopted by theassessing authority as affirmed by the appellateauthority and the Tribunal, wholly erroneous in law.As noted above, the benefit of Section 10(23C)(iiiad)being activity centric, the limit of Rs. 1 croreprescribed thereunder had to be seen only withreference to the fee and other receipts of theeligibleactivity/Institution. Admittedly, those were below Rs.1 Crore. In the facts of the present case, the eligibilitycondition prescribed by law was wholly met by theassessee. 22.The further reasoning offered by the assessingauthority to disallow that benefit, on account ofexcess of income over expenditure of the Institutionhaving been carried to the Society, is extraneous tothe issue involved in the present case. 23.The fact that the Institution did not exist on itsown and was run by the Society could never be avalid consideration to disallow that benefit. It isclearly not contemplated under the Act. Here, we mayfurther note, according to the assessing authorityitself, there were two accounts maintained. One forthe Institution and the other of the Society. After theIncome and Expenditure account of the Institutionhad been made, its excess of Income overExpenditure were carried to the account of Society fortaxation and other purposes. That did not and it couldnot lead to the inference that the receipts of theSociety were also the receipts of the Institution. Thatreasoning is based on no material or evidence onrecord. 23.The fact that the Institution did not exist on itsown and was run by the Society could never be avalid consideration to disallow that benefit. It isclearly not contemplated under the Act. Here, we mayfurther note, according to the assessing authorityitself, there were two accounts maintained. One forthe Institution and the other of the Society. After theIncome and Expenditure account of the Institutionhad been made, its excess of Income overExpenditure were carried to the account of Society fortaxation and other purposes. That did not and it couldnot lead to the inference that the receipts of theSociety were also the receipts of the Institution. Thatreasoning is based on no material or evidence onrecord. 24.Legally, it is only a figment of imagination. Evenin the computation of the income, the assessingauthority has recognized the difference between thetwo receipts being “Surplus as per Income/Expenditure A/c of college”. It was taken at Rs.38,54,310 and, “Surplus as per Income/ExpenditureA/c of Society” of the of society which was taken atRs. 47,62,000/-. 25.Once that difference of the receipts was acknowledged by the assessing authority, there wasabsolutely no other material existing to treat thedonations received by the Society to be receipts ofthe Institution. 26.Similarly, the further reasoning offered by theappellate authority to affirm the order of theassessing authority is wholly erroneous and contraryto law. Merely because the assessee Society was theperson running the Institution, it did not cause anylegal effect of depriving the benefit of Section10(23C)(iiiad) which was activity specific and hadnothing to do with the other income of the sameassessee. 27.To complete the discussion, the Tribunal has alsoerred in looking at provisions Section 12 AA of the Actand the fact that the donations received by theSociety may not have been received with any specificinstructions. It is not relevant in the facts of thepresent case. It is so because here the assessee hadonly claimed the benefit of Section 10(23C)(iiiad) withrespect to the receipts of the Institution, InformationManagement and Technology and it had not claimedany benefit with respect to the donations received bythe Society. 28.In view of the above, the question of law isanswered in the negative i.e. in favour of theassessee and against the Revenue. There would be noclubbing of the receipts of the Institution with theother income of the Society, for the purpose of considering the benefit of Section 10(23C)(iiiad).29.Appeal Allowed. No order as to costs. Order Date :- 5.10.2021M. Tariq