ITAT Kolkata: Income Tax Exemption under Section 10 (23C)(vi) Allowed on Gross Receipts Including Rental Income
I-T Exemption on Educational Income: In a recent decision on 1.12.23, the Kolkata bench of the Income Tax Appellate Tribunal (ITAT), in Case no.498/Kol/2023, highlighted the eligibility of income derived from educational activities for exemption under section 10(23C)(vi) of the IT (Income Tax) Act, 1961. The case involved scrutiny of The Durgapur Society of Management Science, a registered educational entity, for the Assessment Year 2018-19.
The scrutiny was initiated after the entity submitted an e-return indicating zero income, and concerns were raised regarding trust receipts and refund claims. Notices under sections 142(1) and 143(2) of the Income Tax Act were issued, leading to findings by the Assessing Officer.
Upon further review by the Commissioner of Income Tax (Exemption), it was discovered that gross receipts amounted to Rs. 3,97,86,090, with building rent exceeding 50%. Subsequently, a show cause notice under Section 263 of the Income Tax Act was issued on 13/02/2023.
In defence, the counsel for the assessee, Sunil Surana, argued that the unused section of the building was leased to generate income, utilized for charitable endeavours. Emphasizing the institution’s primary educational purpose, legal precedents supporting similar cases were cited.
Representing the revenue, Abhijit Kundu sought exemption under Section 10(23C)(vi) of the Income Tax Act, emphasizing profits exclusively from educational activities. The argument stressed the necessity of excluding profits for purposes other than education, as stipulated in sub-clause (iiiab) of section 10(23C).
The two-member tribunal bench concluded that the challenge lay in contesting the revisionary order issued by the Commissioner of Income Tax (Exemption) under Section 263. Despite the gross receipts and building rent scrutiny, the tribunal ruled in favour of the assessee.
Significantly, the lack of separate accounting for rental income and expenses was noted. The CIT (E) pointed out that rental income not originating from educational activities did not qualify for exemption under Section 10(23C)(vi). The CIT (E) considered the Assessing Officer’s failure to examine this as both erroneous and detrimental to the revenue’s interests.
The tribunal justified the ld. Assessing Officer’s acceptance of the claim, treating the gross receipts as earned from educational activity, even if some rental income was earned to utilize it in charitable purpose. Consequently, the order under Section 263 was quashed, and that of the ld. Assessing Officer under Section 143(3) was restored.
In conclusion, the ITAT Kolkata’s ruling provides clarity on the exemption of educational income under Section 10(23C)(vi), emphasizing the importance of profits derived exclusively from educational activities. The decision highlights the need for proper accounting practices to ensure compliance with tax regulations.
To Access the CBDT Notification 16/2024 CLICK HERE
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