Exemption under Section 10(23C)(iiiab) is not applicable to societies that are not primarily funded by the government
Fact and issue of the case
The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals), Raipur, dated 17.10.2019, which in turn arises from the order passed by the A.O. u/s.143(3) of the Income-tax Act, 1961 (for short ‘Act’), dated 12.12.2018 for A.Y. 2016-17. The assessee has assailed the impugned order on the following grounds of appeal before us:
In the facts and circumstances of the case and in law the ld. Commissioner of Income-tax (Appeals) has erred in confirming order of ld. Assessing Officer denying exemption claimed at Rs.5,24,17,851/- u/s.10(23C)(iiiab) of the Income-tax Act, 1961.
In the facts and circumstances of the case and in law the ld. Commissioner of Income-tax (Appeals) has erred in not addressing the appellant alternate submission that, in view of CBDT’s Circular No.14/XL/35 dted 11/04/1955, ld. Assessing Officer should have advised the appellant to seek exemption u/s.10(23C)(vi) of the Income-tax Act, 1961 and allowed the same in the interest of justice.
The impugned order is bad in law and on facts.
The Appellant reserves the right to add, amend, alter, omit or withdraw all or any of the grounds of appeal.” Also, the assessee has raised an additional ground of appeal, which reads as follows:
“Without prejudice to other grounds of appeal, in the facts and circumstances of the case and in law, the ld. Assessing Officer may be directed to give effect to provisions of sub-section 2 of section 12A of the Income-tax Act, 1961 and allow exemption u/ s. 11 and 12 of the Act and exclude the appellant’s income from the total income for Assessment Year 2016-17.”
Succinctly stated, the assessee society, which was established with the Direction of Education Department of Chhattisgarh Government vide letter No.7/Raipur dated 27.08.2007 & F-55/2006/20 dated 10.01.2008 had filed its return of income for A.Y.2016-17 on 31.03.2018 in the status of an AOP/BOI, declaring an income of Rs. Nil. The case of the assessee society was thereafter selected for scrutiny assessment u/s.143(2) of the Act.
During assessment proceedings, it was observed by the A.O. that the assessee had claimed exemption u/s.10(23C)(iiiab) of the Act. On a perusal of the details, it was observed by the A.O. that the assessee society had a total gross receipts of Rs.24.04 crore (approx.) during the year under consideration. Observing, that the assessee society was not in receipt of any government grants during the year under consideration, the A.O called upon it to put forth an explanation as to why exemption claimed u/s.10(23C)(iiiab) of the Act may not be disallowed. Although the assessee tried to impress upon the A.O as regards its entitlement for exemption u/s.10(23C)(iiiab) of the Act, the same was declined by the latter for the reason that the following two conditions were not satisfied:
(i) The education institution/university must be existing solely for the purpose of education and without any profit motive and;
(ii) The educational institution/university must be wholly or substantially financed by the government.
Observation of the court
We are principally in agreement with the Ld. AR that as per the “2nd proviso” to Section 12A(2) of the Act, where registration had been granted to the trust or institution u/s.12AA of the Act, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the A.O as on the date of such registration, subject to the condition that the objects and activities of such trust or institution remain the same for such preceding assessment year. However, the claim of the Ld. AR that the A.O be directed as per the provisions of sub section (2) to Section 12A of the Act to allow exemption u/s.11 & 12 of the Act and exclude the income of the assessee society from the scope of its total taxable income for the year under consideration does not merit acceptance. In our considered view, the Ld. AR has on the basis of premature observations misconceived and wrongly construed the concession contemplated in the “1st proviso” to Section 12A(2) of the Act, and sought a direction to the said effect in the present appeal which challenges the declining of its claim of exemption u/s.10(23C)(iiiab) of the Act.
Although the claim raised on the basis of “additional ground of appeal” by the assessee society for relief/concession contemplated in the “2nd proviso” to Section 12A(2) of the Act does not emanate from the orders of the lower authorities, but as the same involves purely a question of law based on the facts available on record, therefore, the same is admitted. However, as the assessee society had been granted registration u/s.12AA of the Act by the CIT(Exemption), Bhopal vide his order dated 14.07.2023, on which date its assessment for the year under consideration, i.e. A.Y.2016-17 was not pending before the A.O, as the same had culminated vide an order passed by him u/s.143(3) of the Act, dated 12.12.2018, therefore the sine-qua-non for triggering the “2nd proviso” to Section 12A of the Act, i.e. “….assessment proceedings are pending before the Assessing Officer as on the date of such registration…..” is not found to be satisfied. Accordingly, in absence of satisfaction of the pre-condition contemplated in the “2nd proviso” to Section 12A(2) of the Act and CBDT Circular No.01/2015, the assessee society is not found to be entitled to avail the concession/relief therein provided.
Apropos the order of the ITAT, Raipur in the case of Shivom Vidyapeeth Shikshan Samity Vs. ITO, Exemption-2, Raipur, ITA Nos.262 & 263/RPR/2022 dated 17.03.2023 that had been pressed into service by the ld. AR, the same being distinguishable on facts, would, thus, not assist its case. In the case above, the issue before the Tribunal was the challenge thrown by the assessee society in light of the CBDT Circular No. 01/2015, dated 21/01/2015 to declining of the benefits under Sections 11/12 of the Act for the year under consideration, i.e. A.Y 2015-16 for which year assessment was pending at the time when registration u/s 12A was subsequently granted to it by the CIT(Exemption), Bhopal on 20.04.2017. As the assessee in the aforesaid case, had assailed the declining of the benefits under Sections 11/12 of the Act before the Tribunal, therefore, the facts therein involved are distinguishable as against those of the present assessee trust, wherein the declining of its claim for exemption u/s 10(23C)(iiiab) of the Act has been assailed before us.
Apropos the claim of the Ld. AR that the AO/CIT(Exemption) remained under a statutory obligation to have guided the assessee society, which admittedly not being wholly and substantially financed by the government, was disentitled from raising a claim for exemption u/s.10(23C)(iiiab) of the Act, to have applied for registration and raised a claim of exemption u/s.10(23C)(vi) of the Act, we are of the considered view that as the said issue does not emanate from the orders of the lower authorities, therefore, we refrain from dealing with the same. Thus, the additional ground of appeal raised by the assessee society being devoid and bereft of any merit is dismissed in terms of our observations above.
As the Ld. AR had not advanced any contentions regarding the Grounds of appeal Nos. 1 & 2; therefore, the same are dismissed as not pressed.
Grounds of appeal Nos. 3 & 4 being general are dismissed as not pressed.
In the result, the assessee’s appeal is dismissed in terms of our observations above.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereChhattisgarh-Rajya-Open-School-Madhyamik-Siksha-Mandal-Vs-DCIT-ITAT-Raipur-2