AOP Running Educational Institution Eligible For Exemption Under Section 10 (23C) (VI) Of The Income Tax Act, Rules ITAT

The Assessee, an educational institution, formed as an AOP, filed an application seeking approval for exemption under section 10 (23C) (vi) of the Income Tax Act for the relevant assessment years. The Commissioner of Income Tax, Mumbai (CIT) rejected Assessee's application for exemption on the ground that an AOP is not eligible for exemption under section 10 (23C) (vi) of the Act. The Assessee filed an appeal before the ITAT against the impugned order.

The Assessee contends the CIT did not appreciate the charitable nature of the AOP running the educational institution. Additionally, the Assessee asserts, that since any 'person' can be exempted under section 10 (23C) (vi) of the Act, an AOP cannot be denied exemption, adding that an AOP was not required to be registered with a government agency under any law. The CIT contends that the AOP, formed by an agreement merging two Trusts, cannot be termed an educational institution since it was not registered with any authority, adding that there was no evidence available that the AOP was in fact running the educational institution.

Section 10(23C)(vi) of the Act provides that any income received by any person on behalf of any University or other educational institutions, existing solely for educational purpose and not for the purpose of profit, shall be exempt from tax if such authorities are approved by the prescribed authority.

The ITAT observed that, in the light the Supreme Court order in American Hotel & Lodging Association Educational Institute versus CBDT (2008), the prescribed authority while granting exemption under section 10(23C)(vi) is to be satisfied that the institution during the relevant year existed solely for educational purposes and not for profit. Once the above condition is satisfied, it would be justifiable to grant approval. The ITAT observed that a CBDT Circular issued in 2015, laying down the scope of enquiry by the prescribed authority, enshrined the same ratio laid down by the Supreme Court and stated that the court's 2008 judgment must be followed while granting exemption.

The ITAT applied the decision of Madras High Court in CIT versus Sengunthar Matriculation Higher Secondary School (2020) that held an AOP was entitled to exemption under section 10(23C)(vi) of the Act irrespective of whether it had a separate registration under any other law since section 10(23C)(vi) does not require the applicant to be a juristic person. The ITAT observed that the definition of a 'Person' under the Act includes an AOP, which need not be a registered body. Observing the Madras High Court order of 2020 that an assessee cannot be denied exemption merely in the absence of an independent Memorandum of Association or bylaws, the ITAT held that the Assessee was an "Institution" covered by section 10(23C)(vi) of the Act.

"Further assessee also cannot be denied exemption merely in absence of any independent memorandum of Association/bylaws etc. In the case of the assessee before us, it is evident that undisputedly it is an association of two charitable trusts. Both these charitable trusts are also registered with the income tax authorities. Objects of Assessee / Appellant AOP is education."

Allowing the appeal in favour of the Assessee, the ITAT directed the CIT to grant exemption to Assessee under section 10 (23C) (vi) of the Act.

Case Title: Sharda Mandir High School Versus CIT

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