Income earned from carrying out educational activity is eligible for exemption u/S 10 (23C)(vi) of Income Tax Act: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) observed that Income earned from carrying out educational activity was eligible for exemption under Section 10 (23C) (vi) of the Income Tax Act 1961

The Durgapur Society of Management Science, a registered educational entity under section 10(23C)(vi) of the Act, faced scrutiny for the 2018-19 Assessment Year after filing an e-return with zero income. The case was flagged for examination regarding trust receipts and refund claims. Notices under sections 142(1) and 143(2) of the Income Tax Act 1961 were served, and the Assessing Officer’s findings indicated concerns. The Commissioner of Income Tax (Exemption) later reviewed records, revealing gross receipts of Rs. 3,97,86,090, with building rent exceeding 50%. Consequently, a show cause notice under section 263 of the  Income Tax Act 1961 was issued on 13/02/2023.

The counsel for assesse Sunil Surana, argued that the unused section of the building was leased to generate income, which was subsequently utilized for charitable endeavors. Emphasizing that the institution’s primary purpose was educational, not profit-driven, the counsel referred to legal precedents favoring such cases.

The counsel for the revenue Abhijit Kundu claiming exemption under section 10(23C)(vi) of the  Income Tax Act 1961, requires stringent adherence, specifically considering only profits derived solely from educational activities.

The argument emphasized excluding profits generated for purposes other than education, as outlined in sub-clause (iiiab) of Section 10(23C) of the Income Tax Act 1961, rather than including income from building rent.

The two member bench of the tribunal comprising Sanjay Kumar ( Judicial member ) and Dr. Manish Board ( Account member ) concluded that the focus shifted to contesting the revisionary order by the Commissioner of Income Tax ( Exemption ) [ CIT (E) ] under section 263 of the Income Tax Act 1961. The Durgapur Society of Management Science, mainly engaged in educational activities, faced scrutiny as gross receipts for the year totaled Rs. 3,97,86,089, with building rent exceeding 50% at Rs. 2,02,34,592.

Notably, there was a lack of separate accounting for rental income and expenses. The CIT (E) highlighted that rental income, not stemming from educational activities, wasn’t eligible for exemption under section 10(23C)(vi)of the Income Tax Act 1961. The CIT (E) deemed the Assessing Officer’s oversight in examining this as both erroneous and prejudicial to the revenue’s interest.

Accordingly, the impugned order under Section 263 of the Income Tax Act, 1961 passed by the CIT (E) was quashed and that of the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 dt. 03/02/2021, was restored.

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