Facts of the Case

The assessee, S.D. Education Society, is an educational society engaged in running educational institutions and claiming exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.

For Assessment Years 2012-13 and 2013-14, the assessee filed its return declaring Nil income by claiming exemption under Section 10(23C)(vi).

During the assessment proceedings, the Assessing Officer (AO) asked the assessee to produce a valid exemption certificate granted by the Chief Commissioner of Income Tax (CCIT). The assessee submitted that:

  • Exemption under Section 10(23C)(vi) had earlier been granted by the CCIT vide order dated 26.03.2008 for AY 2007-08 and 2008-09.
  • The withdrawal of exemption by the CCIT through order dated 12.01.2010 had been quashed by the Punjab & Haryana High Court.
  • The CBDT Circular No. 7/2010 dated 27.10.2010 clarified that approvals granted after 01.12.2006 are one-time approvals valid until withdrawn.
  • Since the exemption order dated 26.03.2008 was not withdrawn under the 13th proviso to Section 10(23C), the exemption continued to remain valid.

However, the AO rejected the claim and treated the society’s income as taxable.

The AO assessed income as follows:

  • AY 2012-13: ₹1,25,42,875
  • AY 2013-14: ₹1,43,90,207

The CIT(A) upheld the action of the AO and confirmed the additions. 

Issues Involved

  1. Whether the assessee society was entitled to exemption under Section 10(23C)(vi) of the Income Tax Act.
  2. Whether the AO and CIT(A) were justified in taxing the excess of income over expenditure by denying the exemption.
  3. Whether CBDT Circular No. 7/2010 providing one-time approval for exemption applies to the assessee’s case.
  4. Whether the assessment should be decided after the outcome of pending proceedings relating to exemption before higher courts. 

Petitioner’s Arguments

The assessee contended that:

  • The society had already been granted exemption under Section 10(23C)(vi) vide order dated 26.03.2008.
  • The subsequent withdrawal of exemption by the CCIT had been quashed by the Punjab & Haryana High Court, restoring the earlier exemption order.
  • As per CBDT Circular No. 7/2010, approvals granted after 01.12.2006 are one-time approvals valid until withdrawn.
  • Since the exemption had not been withdrawn under the 13th proviso to Section 10(23C), the society continued to be eligible for exemption.
  • The Tribunal in the assessee’s own case for AY 2009-10 had already restored the issue to the AO to decide after the outcome of exemption proceedings. 

Respondent’s Arguments

The Department argued that:

  • The approval of exemption under Section 10(23C)(vi) by the competent authority was not in existence for the relevant assessment years.
  • Approval by the prescribed authority (CCIT) is a mandatory condition for claiming exemption.
  • Since such approval was not valid for AY 2012-13 and AY 2013-14, the income of the society was rightly taxed.

Court Findings

The Income Tax Appellate Tribunal (ITAT), Delhi Bench observed that:

  • In the assessee’s own case for AY 2009-10, the Tribunal had already dealt with a similar issue.
  • In that decision, the Tribunal had set aside the assessment and restored the matter to the AO with directions to decide the issue after the final outcome of the exemption application under Section 10(23C)(vi).
  • Since the facts in the present appeals were identical, the same approach should be followed.

Court Order

The ITAT held that:

  • The issues involved in the appeals should be remanded back to the Assessing Officer.
  • The AO shall decide the matter after the outcome of the proceedings relating to the assessee’s exemption application.

Accordingly:

  • The appeals of the assessee were partly allowed for statistical purposes, and
  • The matter was restored to the file of the Assessing Officer for fresh adjudication.

Important Clarification

The Tribunal clarified that:

  • The outcome of the assessee’s exemption proceedings under Section 10(23C)(vi) pending before the appropriate authorities/courts will determine the taxability of the society’s income.
  • Until such determination, the assessment requires reconsideration by the AO.

Sections Involved

  • Section 10(23C)(vi) – Exemption to educational institutions existing solely for educational purposes
  • 13th Proviso to Section 10(23C) – Conditions for withdrawal of exemption
  • CBDT Circular No. 7/2010 dated 27.10.2010

Link to download the order - https://itat.gov.in/public/files/upload/1703225405-S.D%20education%202031.pdf

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