The ITAT bench in Mumbaicomposed of members Kuldip Singh (judicial member) and Prashant Maharishi (accounting member), ruled that an unregistered association of persons (AOP), formed by an agreement merging two charitable trusts, is eligible for exemption under the Section 10 (23C) (vi) of the Income Tax Act 1961.
Assessed, an educational institution, formed as an AOP, has applied for exemption approval under Section 10(23C)(vi) of the Income Tax Act for the relevant valuation years. The Commissioner of Income Tax, Mumbai (CIT) has rejected the assessee’s claim for exemption on the grounds that an AOP is not eligible for exemption under Section 10 (23C) (vi) law. The assessee appealed to the ITAT against the contested order.
The assessee argues that the CIT did not appreciate the charitable nature of the AOP that runs the educational institution. Further, the assessee asserts that since any “person” can be exempted under Section 10 (23C) (vi) of the Act, an AOP cannot be denied the exemption, adding that an AOP was not required to be registered with any government agency under any law. The CIT argues that AOP, formed by an agreement merging two trusts, cannot qualify as an educational institution since it was not registered with any authority, adding that there is no evidence available that AOP actually ran the educational institution.
Section 10(23C)(vi) of the Act provides that any income received by any person on behalf of a university or other educational institution, existing solely for educational purposes and not for profit, is exempt from tax if these authorities are approved by the competent authority.
ITAT observed that, in light of the Supreme Court’s order in American Hotel & Lodging Association Educational Institute v CBDT (2008), the prescribed authority, while granting an exemption under the section 10(23C)(vi), must be satisfied that the establishment during the relevant year existed solely for educational purposes and not for profit. Once the above condition is met, approval would be warranted. The ITA observed that a CBDT circular issued in 2015, setting the scope of the investigation by the prescribed authority, enshrined the same ratio established by the Supreme Court and stipulated that the court judgment of 2008 should be followed when the granting of the exemption.
ITA has applied Madras High Court ruling in CIT v Sengunthar Matriculation Higher Secondary School (2020) that an AOP was entitled to exemption under Section 10 (23C) (vi) of the law whether or not it has a separate registration under any other law since Section 10(23C)(vi) does not require the applicant to be a body corporate. ITAT observed that the definition of a “person” under the law includes an AOP, which need not be a registered body. Observing the Madras High Court Order of 2020 that an assessee cannot be denied an exemption merely in the absence of a memorandum of association or independent statutes, ITAT held that the assessee was an “institution” covered by Section 10 (23C) (vi) of the Act.
“Another assessee also cannot be denied exemption simply in the absence of any independent memorandum of association/bylaws etc. In the case of the assessee before us, it is evident that he s “This is unmistakably an association of two charitable trusts. Both of these charitable trusts are also registered with the tax authorities. The objects of the assessee/appellant AOP are education.”
Allowing the appeal on behalf of the assessee, the ITAT ordered the CIT to grant an exemption to the assessee under section 10 (23C) (vi) of the Act.
Case Title: Sharda Mandir High School v CIT
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