Recently Hon`ble high court held that u/s 10(23c)(iii)(ad) - Limit of 1 crore exemption available to the assessee as annual receipts of each of the institutions.
Assessee is running as many as 23 educational institutions upto assessment years 1999-2000 and 2000- 2001. Thereafter, as many as 25 and 28 educational institutions are being run during the previous years relevant to assessment years 2001-2002 and 2002-2003 respectively. The assessee filed returns of income claiming status of ‘artificial juridical person’. However, the assessee was assessed in the status of ‘association of persons’. The assessing officer framed assessment order. However, he denied exemption under Section 10(23C) (iii)(ad) for the years from 2000-2001 to 2005-2006.
On appeal Ld. CIT(A), had granted relief to the assessee for the assessment year 1999-2000, First year in which Section 10(23C) (iii)(ad) came into force. On further appeal the Tribunal allowed all the appeals filed by the assessee in-toto granting the relief to the assessee.
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 assessee as annual receipts of each of the institutions of the respondent – society is less than the prescribed limit under the said provision?
On appeal before High court Ld. Senior Counsel appearing for the Revenue contended that Clauses (iii)(ab), (iii)(ad) and Clause (vi) were introduced by the Finance (No.2) Act, 1998 with effect from 1.4.1999, as a substitute for Section 10(22) which was omitted by the said Act with effect from 1.4.1999. The reason being the blanket exemption in respect of the educational and medical institutions which is being misused, was proposed to be withdrawn, compelling such institutions to come under a discipline. However, safeguards are being provided to ensure that the institutions genuinely serving the social cause, in either field do not lose existing benefit and thus amended provisions have to be construed strictly. So construed. Though even after the said amendment, an assessee is entitled to the benefit of Section 10, its application is now restricted to income received by the assessee on behalf of other educational institution existing solely for educational purposes and not for the purposes of profit. If aggregate annual receipts of such educational institutions do not exceed the amount of annual receipts as may be prescribed. The word ‘aggregate annual receipts’ means annual receipts of such educational institutions run by the assessee. In the event of an assessee running more than one educational institution and if the annual receipts exceed more than a crore, then he has to seek approval under Clause (vi) which is made applicable to educational institutions 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.
Ld. counsel appearing for the assessee submitted, 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 aggregate annual receipts does not mean that the annual receipts of all educational institutions have to be clubbed. It only means it is an aggregate of annual receipts issued by each educational institution.
Hon`ble high court observed that 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.
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.
Hon`ble High court held that, 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 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.
Further Hon`ble high court also noted 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. 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 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 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.
Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct.
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