By TIOL News Service

AHMEDABAD, OCT 05, 2016: THE issue is - Whether if annual receipts of an educational body exceeds the sum prescribed, it needs to seek approval u/s 10(23C)(vi) for exemption of income received. YES is the answer.

Facts of the case

The assessee is a University established under the Gujarat Act No. 19 of 2005 as well as a trust registered under the Bombay Public Trust Act and enjoys registration u/s 12AA and approval u/s 80G(5). Later on, the assessee was also declared as a "Deemed University" by the University Grants Commission. Under the University, various colleges are functioning, imparting eduction in various fields such as engineering, management, pharmacy, computer etc. The trust also runs secondary and higher secondary schools. One of the objects of the Trust was to develop the knowledge of science, technology, dental, medical, pharmaceutical, physiotherapy, pharmacy, commerce, management and humanistic, for advancement of mankind. For the concerned A.Y, the assessee filed an application seeking exemption u/s 10(23C)(vi). However, the Chief Commissioner having some prima facie doubt about granting such application, issued a letter seeking clarification on certain points. He conveyed to the assessee that the accounts of the University showed profit of extremely high percentage which was 80.35%, 67.37% and 58.91% for A.Ys 2008-09, 200-10 and 2010-11 respectively, and therefore, called upon the assessee to provide the details of fees charged to the students and copies of income tax returns. He also confronted the assessee with the non-filing of the audited accounts mandated as per 10th proviso to section 10(23C). After considering the response, the Commissioner held that the figures represented by assessee regarding accumulation of the profit were not correct and the institution had charged fees in excess of what was fixed by the fee regulatory committee. He therefore rejected the application made u/s 10(23C).

Having heard the parties, the High Court held that,

++ in terms of clause (vi) of section 10(23C), any income received by university or other educational institution existing solely for educational purposes and not for the purposes of profit other than those mentioned in sub clause (iiiab) or (iiiad) and which may be approved by the prescribed authority. Clause (iiiad) of section 10(23C) also grants exemption to the income received by any university or the educational institution existing solely for educational purposes and not for the purposes of profit but limits its eligibility by providing that if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed. Therefore, any university or educational institution claiming to be existing solely for educational purposes and not for purposes of profit but whose aggregate annual receipts exceed the amount of annual receipts which may have been prescribed, would have to apply for approval u/s 10(23C)(vi), if it is desired of seeking exemption for the income received by it. The question of surplus generated by the educational institution which is otherwise existing for the purposes of education has been considered by the Supreme Court in numerous occasions. In one of the later judgements of Supreme Court, in case of Aditanar Educational Institution vs. Addl. Commissioner of Income Tax, it is observed that after meeting the expenditure when any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for the purposes, since the object is not one to make profit;

++ it can be seen that generating certain surplus after carrying out educational activities by itself would not indicate that the institution did not exist for educational purposes but for the purposes of making profit. Whether the surplus so generated was utilized for the purposes of educational activities also would be a relevant consideration. Be that as it may, when the assessee contends that the Commissioner had not taken into account correct figures and was thus misguided into coming to the conclusion that the assessee had generated sizeable profit, it would be appropriate to request the Commissioner to reconsider the issue with the assistance of the assessee. The 10th Proviso to section 10(23C) provides that where the total income of the trust or institution referred to in clause (vi) besides others without giving effect to the exemption clauses exceeds the tax exemption limit such trust or the institution shall get its accounts audited and furnish the same alongwith return of income. This requirement obviously would arise at the time of filing of the return and not at the time of filing of application for approval and was therefore, wrongly invoked by the Commissioner for rejecting the application. If the case of the Commissioner was that the assessee did not fulfill the requirements of the third proviso, it has not been elaborated in the impugned order. In view of above discussion, the impugned order is set aside and the proceedings are placed back before the Commissioner for fresh consideration.

(See 2016-TIOL-2361-HC-AHM -IT)