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AFR

Court No. - 3

Case :- INCOME TAX APPEAL No. - 52 of 2013

Appellant :- Manas Sewa Samiti

Respondent :- Addl. Commissioner Of Income Tax

Counsel for Appellant :- Rahul Agarwal, Vishwjit

Counsel 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 the

appellant/assessee and Sri Gaurav Mahajan, learned

counsel for the revenue.

2.Present appeal has been filed under Section 260-

A of the Income Tax Act, 1961 (hereinafter referred

as the Act) against the order of the Income Tax

Appellate Tribunal, Agra Bench, dated 23.10.2012

passed in ITA No.29/Agra/2011 for the A.Y. 2007-08.

By that order the Tribunal has dismissed the appeal

filed by the assessee and upheld the assessment of

the appellant’s income at Rs.86,34,460/-, after

denying the benefit claimed by the assessee under

Section 10(23C)(iiiad) of the Act.

3.Upon earlier hearing, the question of law, on

which the present appeal arises, was framed as

below:

"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

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Court in CIT (Exemption) v. Chironji Lal Virendra

Pal Saraswati Shiksha Parishad [2016] 380 ITR

265 (All), the order of the Tribunal denying the

exemption under Section 10 (23C) (iiiad) and

clubbing the voluntary contributions received by

the appellant Society with the receipts of the

educational institution is justified in law?"

4.Having heard the learned counsel for the parties,

it transpires that the appellant/assessee Manas Sewa

Samiti is a Society (hereinafter referred to as

“Society”). It is registered under the Societies

Registration Act, 1860. Under its registered objects,

it established an educational institution in the name,

Institute of Information Management and Technology

at 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/-. 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,

undisputedly the Society received donations or

subscription amount Rs.47,62,000/- and interest on

FDR Rs.18,155/-.

5.With respect to the receipts arising from the

Institution, the assessee claimed benefit of Section

10(23C)(iiiad) of the Act. Relevant to our discussion,

that provision of law is quoted below:

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“Section 10 In computing the total income of a

previous year of any person, any income falling within

any of the following clauses shall not be included:-

S. 10 (23C) any income received by any person on

behalf of

(i) ………………...

(ii) ………………...

(iii) ………………..

(iiia).................

(iiiaa)...............

(iiiaaa).............

(iiiaaaa)............

(iiiab)...............

(iiiac)................

(iiiad) 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.”

6.It is also undisputed that in the relevant

Assessment Year, the upper limit prescribed for such

receipts was Rs.1 Crore, under Rule 2(BC) of the

Income Tax Rules, 1962.

7.The assessing authority accepted the fact that

the Society was running the Institution. He also

accepted the fact that the total receipts of the

Institution were below the prescribed limit of Rs.1

Crore. However, he proceeded to deprive the assessee

of the benefit of Section 10(23C)(iiiad) of the Act

since the aggregate of the fee receipts of the

Institution and the receipts of the Society breached

the prescribed upper limit of Rs.1 Crore. That

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reasoning came to be approved and affirmed by

Commissioner of Income Tax vide his order dated

15.3.2011, in Appeal No.59 of 2009. He rejected the

claim made by the assessee on the further reasoning

since the Institute was the only activity carried out

by the Society, all donations received by the Society

were attributable to that activity alone and therefore

to the Institution. He further relied on the fact that

the surplus of income over expenditure of the

Institute was carried to the accounts of the Society.

8. The Tribunal has also affirmed that order on the

further reasoning that there was no evidence that the

donations had been received by the Society with any

specific direction that they will form part of the corpus

of the Institution. Reliance has also been placed on

the fact that there exists no registration under Section

12AA of the Act. Hence the assessee was not entitled

to the benefit and it did not exit solely for education

purpose of imparting education.

9.In support of his submission, learned counsel for

the assessee has relied on the decisions in the case of

CIT vs M/S Childrens Education Society reported

in (2013) 358 ITR 373 (Kar); M/S Vivekanand

Society of Education and Research vs. CIT

another, dated 29.12.2017 in ITA No.23/2014 and a

division bench of this Court in ITA No.258 of 2013

(The CIT Alld. Vs. Wachaspati Madhupati Prani

Sewa Sansthan) decided on 30.10.2017.

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10.On the other hand, Sri Gaurav Mahajan, learned

counsel for the revenue has relied on a decision of the

Supreme Court in Visvesvaraya Technological

University Vs. Assistant Commissioner of

Income-tax reported in (2016)384 ITR 37(SC) .

11.Having considered the submissions advanced by

the learned counsel for the parties and having

perused the record, the benefit granted under

Section 10(23C)(iiiad) is only with reference to an

activity of running a University or other educational

institution, existing solely for educational purposes.

By virtue of Section 10(23C)(iiiad) such receipts are

excluded from the income received by the “person”,

who may have run such University or other

educational institution.

12.Thus, the benefit has been granted with respect

to receipts arising from a specified activity. The

benefit is not conditioned or restricted to the person

who may have established or may have run such

activity or who may have been in receipt of such

receipts.

13.Though, obviously, the issue whether that benefit

is available or not would arise only in the course of

assessment proceedings of a person/assessee , who

may have engaged in such activity, at the same time,

it is not the intent of the Act to look at the aggregate

income or receipt of such person for the purpose of

granting the benefit under section 10(23C)(iiiad) of

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the Act.

14.In fact, as lucidly explained in the decision of the

Karnataka High Court, it is the receipt of each

individual University or other educational institution

that would be looked at to determine whether the

receipt would qualify for the benefit conferred under

Section 10(23C)(iiiad), read with Rule 2 BC of the

Income Tax Rules, 1962.

15.In paragraphs 20, 21, 23 and 24 of the report in

CIT Vs. M/S Childrens Education Society (Supra)

decision, it was held as under:-

20. Now, we are concerned with the meaning to

be attached to the word "aggregate annual

receipt". The argument is, other educational

institution referred to in the said sub-clause

refers to all educational institutions run by the

assessee and aggregate annual receipts of such

other educational institutions means the

aggregate of annual receipts of all such

educational institutions put together. Otherwise,

the use of the word "aggregate" loses its

meaning. We find it difficult to accept the said

argument.

21. Firstly, if the word "aggregate annual

receipts" of other educational institution is to be

understood as clubbing of annual receipts of all

educational institutions run by an assessee

society, then it will also include the annual

receipts of an educational institution which is

wholly or substantially financed by the

Government. If that was intention of the

Legislature, they would not have introduced

separate sub- clauses as (iii)(ab) and (iii)(ad). If

such interpretation is placed, sub-clause (iii)(ab)

becomes otiose. Therefore, it is not possible to

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place such an interpretation. If an assessee

society is running several educational

institutions, if some of them are wholly or

substantially financed by the Government in

terms of sub-clause (iii)(ab), the income on

behalf of such educational institution received by

the assessee is exempted from being computed

the total income of the assessee. If the assessee

is running other educational institutions which

are not wholly or substantially financed by the

Government, then the benefit of that exemption

is also extended to the income derived from

such educational institutions and received by the

assessee under sub-clause (iii)(ad) reading with

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"

23. No doubt, education has become a business,

a very profitable business also. But it requires

huge investment. It is the duty of the

Government to provide education to all its

citizens, as the Government is not able to

shoulder the responsibility completely.

Therefore, the field of education is now thrown

open to private organizations. But for throwing

open the field to the private operators,

probably, the country would not have achieved

in the field of education what it has achieved.

Therefore, lot of funds are invested in running

these educational institutions, either by creating

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a Society or a Trust. In course of time, they

have expanded their activity providing course in

various subjects at various levels and for that

purpose they have established more than one

educational institution. 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. That is

the reason why Section 10 (23)(c) is worded as

under:

"Any income received by any person on

behalf of..."

24. 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 no use at all. Especially, if the society is

running a medial college or any engineering

college or other professional courses, then the

annual receipt of each institution would run to

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few crores and therefore, the very object of

granting exemption to such genuine institution

would be lost. Therefore, the word "aggregate

annual receipt" has to be understood with the

context in which it is used and the purpose for

which the said provision was inserted, keeping

in mind, the Scheme of the Act. Therefore, if an

assessee is running several educational

institutions, if any of them is wholly or

substantially financed by the Government, then

the income from such educational institution

received by the assessee is not included while

computing his total income. Similarly, income

from each educational institution if they are not

receiving any aid from the Government wholly

or substantially in respect of which the

aggregate annual receipt do not exceed Rs.1

crore received by the assessee, is also not

included while computing annual total income of

the assessee.”

16.Similar view was taken by the Jammu and

Kashmir High Court in M/s Vivekanand Society of

Education 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 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 aggregate receipts, as

may be prescribed (which is Rs. 1 crore as per

Rule 2BC of the said Rules), would not be

included in the total income of that person.

14. It is not in issue that „the person in the

‟ in the

facts of the present case has reference to the

assessee society. It is also not in issue that the

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expression „educational institution has

‟ in the

reference to the two institutions of the assessee

society. It is also not disputed that these two

institutions exist solely for educational purposes

and not for purposes of profit. It is, therefore,

clear that there is a distinction between the

expression „any person and „educational

‟ in the

institution , and that the two are not the same.

‟ in the

Had it been the intention of the legislature to

have limited the scope of the provision to the

interpretation which has been given by the

Tribunal, it could easily have said that, if the

aggregate annual receipts of any person from all

institution(s) do not exceed Rs. 1.00 crore then

the income derived there from would not be

included in the total income of that person. But,

this is not the case here. The reference here is

pointedly to the „aggregate annual receipts of

‟ in the

the educational institution. The expression,

„educational institution and „any person do

‟ in the ‟ in the

not refer to the same entity and are distinct and

different insofar as Section 10 (23C) (iiiad) of

the said Act is concerned.

15. In our view, therefore, where there are

more than one such institutions, which are

under a particular society or trust, such as the

assessee society in the present case, the

aggregate annual receipts of each of the

educational institutions would have to be

considered separately and not together. Thus, if

there are two institutions A and B and if the

aggregate annual receipts of the Institution A is

less than Rs. 1.00 crore, then the income

received by a person (such as the assessee

society) on behalf of the Institution A, would not

be included in the total income of that person

(such as the assessee society). At the same

time, if the aggregate annual receipts of

Institution B exceeds Rs. 1.00

www.taxguru.inITA No. 23/2014 Page 6 of 8

crore, then any income received by any person

on behalf of Institution B would be included in

the total income of that person. Similarly, by

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taking this logic further, if neither Institution A

nor Institution B has aggregate annual receipts

of Rs. 1.00 crore or more, any income received

by any person on behalf of these institutions,

would not form part of the total income for the

purposes of income tax.”

17.Thereafter, the Jammu and Kashmir High Court

concurred with the opinion of the Karnataka High

Court in CIT Vs. Children's Education Society

[2013] 358 ITR 373 .

18.A coordinate bench of this Court also appears to

have offered a similar reasoning in ITA No.258 of

2013 (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 the

ITAT as we find that the assessee society is

running a school and has admittedly received

the tuition fee being the annual receipts below

the prescribed limit of Rs.1 crore and according

to us the exemption limit clearly provides the

cut of figure of Rs.1 crore being the annual

receipt of the educational Institution or the

University, as the case may be, and not that of

the total income of the society running the

educational Institution or University. In the

present case, the income of Rs.6,67,000/-

towards the buildings/capital assets and

Rs.4,01,900/- received towards donation cannot

be part of the annual receipts of the University/

College/School. Therefore, in our considered

opinion the assessee is entitled for exemption

under Section 10(23C)(iiiad) as annual income

of the assessee society did not exceed Rs.1

crore.”

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19.Insofar as the decision of the Supreme Court

relied upon by the learned counsel for the Revenue is

concerned, it was a case pertaining to provision of

Section 10(23C)(iiiab). The question that arose before

the Supreme Court was whether the University

receiving finance by the Government below one

percent of its total receipts could be considered to be

a University substantially financed by the

Government. Those facts of law are not involved in

the present case. Therefore, the said decision is found

to be wholly distinguishable and hence inapplicable.

20.In the first place, for reasons given above, we

find ourselves in complete agreement with the

reasoning of the Karnataka High Court in CIT vs.

Children's Education Society (Supra) as also the

decision of the Jammu & Kashmir High Court in M/s

Vivekanand Society of Education and Research

vs. CIT and another (Supra).

21.Next, we find, the reasoning adopted by the

assessing authority as affirmed by the appellate

authority 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 crore

prescribed thereunder had to be seen only with

reference to the fee and other receipts of theeligible

activity/Institution. Admittedly, those were below Rs.

1 Crore. In the facts of the present case, the eligibility

condition prescribed by law was wholly met by the

assessee.

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22.The further reasoning offered by the assessing

authority to disallow that benefit, on account of

excess of income over expenditure of the Institution

having been carried to the Society, is extraneous to

the issue involved in the present case.

23.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. It is

clearly not contemplated under the Act. Here, we may

further note, according to the assessing authority

itself, there were two accounts maintained. One for

the Institution and the other of the Society. After the

Income and Expenditure account of the Institution

had been made, its excess of Income over

Expenditure were carried to the account of Society for

taxation and other purposes. That did not and it could

not lead to the inference that the receipts of the

Society were also the receipts of the Institution. That

reasoning is based on no material or evidence on

record.

24.Legally, it is only a figment of imagination. Even

in the computation of the income, the assessing

authority has recognized the difference between the

two receipts being “Surplus as per Income/

Expenditure A/c of college”. It was taken at Rs.

38,54,310 and, “Surplus as per Income/Expenditure

A/c of Society” of the of society which was taken at

Rs. 47,62,000/-.

25.Once that difference of the receipts was

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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.

26.Similarly, the 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.

27.To complete the discussion, the 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.

28.In view of the above, the question of law is

answered in the negative i.e. in favour of the

assessee and against the Revenue. There would be no

clubbing of the receipts of the Institution with the

other income of the Society, for the purpose of

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considering the benefit of Section 10(23C)(iiiad).

29.Appeal Allowed. No order as to costs.

Order Date :- 5.10.2021

M. Tariq