Separate School Sections Cannot Individually Claim the ₹1 Crore Exemption Threshold: ITAT Mumbai Rules in Universal Education Missions Trust vs ITO

Overview of the Dispute

A fundamental question arising in the taxation of charitable educational trusts is whether different academic divisions of a single school — such as pre-primary, primary, and secondary sections — can each claim the benefit of the ₹1 crore gross receipts threshold independently under Section 10(23C)(iiiad) of the Income Tax Act, 1961. The Mumbai Bench of the Income Tax Appellate Tribunal addressed this precise controversy in Universal Education Missions Trust Vs ITO (ITAT Mumbai), ITA No. 5394/M/2026, decided on 23 September 2026, pertaining to Assessment Year 2015-16.

The Tribunal's ruling covers two distinct legal issues: first, whether multiple sections of one recognised school can be treated as separate educational institutions for computing the receipts threshold; and second, whether denial of exemption automatically renders the entire gross receipts of the assessee chargeable to tax without accounting for expenditure.

Background Facts

The assessee is a trust engaged in providing education across three academic levels — pre-primary, primary, and secondary. For AY 2015-16, the receipts from each section were as follows:

Each section, viewed independently, reported receipts below the ₹1 crore ceiling. However, when all three sections were aggregated, the total receipts amounted to Rs. 1,01,83,461/-, marginally exceeding the prescribed limit.

Return Filing and the CPC Intimation

The assessee filed its return of income on 17.03.2017 declaring nil income, claiming exemption under Section 11 of the Act. It subsequently acknowledged that Section 11 had been selected inadvertently and that the applicable provision ought to have been Section 10(23C)(iiiad). By the time this error came to light, the window for filing a revised return had already closed.

The Centralized Processing Centre (CPC), Bengaluru, processed the return under Section 143(1) of the Act and issued an intimation dated 02.01.2018. CPC disallowed the amount of Rs. 1,01,83,461/- that had been reflected as application of income toward the educational objects of the trust and treated the entire sum as taxable income. The resulting tax and interest liability was computed at Rs. 45,89,060/- as per the intimation.

Rectification and Appellate History

The assessee filed an application for rectification under Section 154 seeking to have the correct exemption provision applied. CPC rejected this application by an order dated 12.02.2020. The subsequent appeal against that rectification order was dismissed on 08.12.2021, with the appellate authority observing that the original intimation under Section 143(1) should have been challenged directly.

The assessee then challenged the original intimation dated 02.01.2018. Before the learned CIT(A), it was argued that each of the three school sections constituted an independent educational institution and that the receipts of each section, when examined separately, fell below the Rs. 1 crore threshold.

The learned Additional/Joint Commissioner of Income-tax (Appeals), Ranchi, dismissed the appeal by order dated 07.02.2026 passed under Section 250 of the Act, holding that non-filing of an audit report in Form 10BB amounted to a substantive default. The total receipts having exceeded the maximum amount not chargeable to tax, the CIT(A) concluded that the audit report requirement was mandatory and its absence fatal to the claim.

Issues Before the ITAT

The Tribunal was called upon to decide: