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Judgment
This appeal filed on behalf of the Department questions the exemption claimed by the respondent society in respect of receipts for the assessment year 2010-11 and 2011-12 from the institution established and run by it. The society set up a junior high school for imparting education from class 6 to class 8 that was continuing in a premise. The society was registered on April 7, 2010, under the Societies Registration Act, 1860. For the financial year 2009-10, i.e., assessment year 2010-11, the respondent-assessee indicated receipt of a sum of Rs. 1,02,22,229. It claimed deduction and exemption as per the provisions of the Income-tax Act, 1961, on the ground that it is existing solely for educational purposes. Admittedly, the society was not registered under section 12AA nor did have any approval of the prescribed authority for exemption under section 10(23C)(vi) of the Income-tax Act, 1961. In this background a show-cause notice was issued to the society on December 14, 2012, calling upon it as to why the said income be not assessed as purely business income, and, consequently, the exemptions be disallowed as sought by it. The society responded by submitting that they had already applied before the competent authority for approval in relation to exemption under section 10(23C)(vi) of the 1961 Act.
During hearing before the Assessing Officer it was found that since the application for exemption had not been moved prior to 30th September, of the relevant assessment year, the request for exemption stood rejected. It was also recorded by the officer that during the course of hearing the assessee came up with a plea that the society is running two separate schools, namely, a junior high school and a separate senior school from class 9 to class 12, and, therefore, on account of existence of two separate schools, the assessee claimed that the break-up of total receipts for both the schools separately were less than Rs. 1 crore, and, hence, the total receipts exceeding Rs. 1 crore, was not a fact on the basis whereof the assessee could be assessed for having business income.
The Income-tax Inspector was deputed for making a field enquiry who reported that the school runs in the name of an intermediate college in the same building in a single premise with common teaching and non-teaching staff and students wearing the same uniform without there being any distinct identity of two separate institutions.
The Assessing Officer, therefore, disallowed the claim of the status as urged by the respondent and demand notice was accordingly issued.
The assessee preferred an appeal and the learned Commissioner of Income-tax Appeals held that "aggregate annual income" means total annual receipt of each separate education institution and not the aggregate of the annual receipts of all the educational institutions run by the respondent society. It, accordingly, allowed the appeal relying on the judgment in the case of CIT v. Children''s Education Society reported in , [2013] 358 ITR 373 (Karn) : [2014] 264 CTR (Karn) 389.
The Department approached the Tribunal against the said appellate order and the same has been dismissed in relation to both the assessment years on the same ground. This is how the Department has come up in appeal before us.
Sri Alok Mathur, learned counsel for the appellant, contends that the findings recorded by the Assessing Officer are justified on facts and its reversal by the Commissioner Income-tax (Appeals) in an appeal was an erroneous approach. The confirmation of the same by the Tribunal is equally erroneous inasmuch as neither the learned Commissioner of Income-tax (Appeals) nor the learned Tribunal have appreciated the fact that the assessee is the society that was claiming to have set up both the institutions that were in fact one and the same without separate existence. The aggregate income derived from running of the institution in the same premises by the assessee-society was a composite aggregate income that could not have been segregated on the premise on two separate sections running in the same institution. He, therefore, submits that a substantial question of law clearly arises as the judgment of the Karnataka High Court appears to have been wrongly applied where there were separate institutions spread far away even though run by the same society.
It is, therefore, contended that the appeal deserves to be admitted for reversal of the impugned orders.
We have considered the aforesaid submissions and we find that much would depend upon the status of the institutions and their legal identities for the purpose of treating their incomes separately. It is evident that the society is one and the same. The society was running the junior high school and continues to do so. The distinction between the junior high school section and the recognised intermediate college has to be considered on the basis of recognitions of the institutions. A junior high school is governed by the provisions of the U.P. Basic Education Act, 1972, whereas an intermediate college duly recognised is governed by the provisions of the U.P. Intermediate Education Act and the regulations framed thereunder. From the impugned judgment it is evident that approval to commence the intermediate college was granted on July 14, 2012. Once an intermediate college comes into existence then the institution would not be governed by the Basic Education Act which was only up to the junior high school level. A distinct legal entity, therefore, is created with the recognition of an intermediate college. The question is as to whether the receipts claimed by the society up to the level of the junior high school classes, i.e., class 8, can be treated to be a separate segregated receipt and would not form part of the aggregate income including that the intermediate college so as to construe it as an aggregate receipt in the hands of the respondent-assessee-society.
This will also have to be further examined that a society established under the Societies Registration Act is a distinct legal entity as it is registered under the Societies Registration Act, 1860, where provisions exist for the annual submission of returns to be filed before the Registrar of Firms, Societies and Chits including the list of office-bearers and the income of receipts of the society.
In the instant case, there is nothing on record to indicate that the Assessing Officer proceeded to examine the status of the society and its annual receipts or income as a legal entity in itself. The Assessing Officer on the basis of the return filed has treated the income received from the two sections of the institution to be a receipt in the hands of the society without examining the legal status of either the junior high school or the intermediate college which stand recognised under different Acts.
There is yet another issue which the Tribunal and the Commissioner Income-tax (Appeals) have not examined, namely, as to whether during the assessment years in question, there was any separate inter college, inasmuch as it was for the first time that approval was granted to run an inter college on July 14, 2012. While reversing the order of the Assessing Officer, this factual aspect does not appear to have been dealt with at all.
Apart from this, Sri Mathur has further invited the attention of the court to the decision in the case of Dr. Smt. Sushila Gupta v. Joint Director of Education, Kanpur Region, Kanpur , [2006] 2 AWC 1561 and the decision in the case of Brijesh Tripathi v. State of U.P. , [2013] 11 ADJ 425 to contend that once an institution is upgraded to an Intermediate College, then the junior high school loses its identity and it merges with the Intermediate college. This aspect of the law relating to educational institutions including the one presently involved also does not appear to have been examined either by the Assessing Officer or even by the appellate authorities while reversing the order of the Assessing Officer.
All the aforesaid issues, therefore, have to be looked into along with the definition of the word "assessee" (section 2(7)), the definition of the word "person" (section 2(31)), the definition of the word "income" and section 10 of the Income-tax Act as contained in section 2(24) of the Income-tax Act, 1961. It is in this background that the claim of exemption as sought under section 10(23C)(iiiad) will also have to be seen.
Consequently, for all the reasons given hereinabove, we are of the considered opinion that the substantial questions of law as raised do arise for consideration on the facts and the legal issues raised in the present case.
Admit on the following substantial questions of law:
"1. Whether the Income-tax Appellate Tribunal is justified in law under the facts and circumstances of the case, as the phrase ''separate institute" for the purpose of availing of exemption under section 10 is nowhere defined in the Act. The assessee cited the judgment in the case of CIT v. Children''s Education Society , [2013] 358 ITR 373 (Karn) : [2014] 264 CTR (Karn) where the assessee-society was running as much as 22 educational institutes separately which were miles away from the fact of this case where the assessee is running a single school on single location, in single and distinct building with single playground and other facilities claiming to be two separate educational institute?
Whether the Income-tax Appellate Tribunal is justified in law and on facts without appreciating the fact that, as the Assessing Officer in his order recorded that ''taking recognition of junior and senior section in normal administrative process it never connotes that there are two schools''. Further, at page 3 of the learned Commissioner of Income-tax (Appeals)''s order, the assessee, in support of his claim of being two schools quoted the use of prefix ''combined'' on books of account of the society not junior/senior school in different books of account of the assessee which clearly indicates that these are merely two sections of a single school which were maintained for administrative ease and better monitoring?.
Whether the Income-tax Appellate Tribunal is justified in law and on facts without appreciating the fact that as the assessee for the first time moved request for approval under section 10(23C)(vi) in the assessment year 2013-14 whereas for the year under consideration the assessee was neither registered under section 12A nor got approval under section 10(23C)(vi) of the Income-tax Act in spite of the fact that in the assessment years 2009-10, 2010-11 and 2011-12 the total receipt of society exceeded Rs. 1 crore. The Assessing Officer in his order noted that all the arguments made by the assessee seems an effort to cover up its carelessness and inaction in following the statutory provisions, and rightly denied the exemptions and treated the surplus of income over expenditure as business income. The findings of the Assessing Officer were based on material available on records and not on presumption. The two school theory of the assessee is bogus claim as there never existed two schools and merely only two sections which is also evident from the copy of the balance-sheet and other annexures thereof which clearly indicated that there existed only two separate sections?
Whether the hon''ble Income-tax Appellate Tribunal is justified in law and on facts that he has wrongly accepted the break-up of receipt of junior high school and senior secondary school in the impression that it was done by Assessing Officer, contrary to the fact that it was mere submission by the assessee-society. Further, a plain reading of rule 2BC(1) which is as under:
''2BC. (1) For the purpose of sub-clause (iiiad) of clause (23C) of section 10, the amount of annual receipts on or after the 1st day April, 1998, of any university or other educational institution, existing solely for educational purposes and not for purposes of profit, shall be one crore rupees.''
Whether the Income-tax Appellate Tribunal is justified in law and on facts by allowing segregation of income to the assessee-society, however, it is evident that the rule clearly guides for annual receipts and about aggregate receipts which includes income from all the sources, hence, the Assessing Officer was justified in taxing the surplus of the income over expenditure?"
Issue notice to the opposite party, returnable at an early date. List thereafter.