ITAT Chennai Clarifies: ₹1 Crore Limit Under Section 10(23C)(iiiad) Is Institution-wise, Not Society-wise

1. Background of the Dispute

The Chennai Bench of the Income Tax Appellate Tribunal in ICF Silver Jubilee Nursery & Primary School Vs DCIT (ITA No. 126/Chny/2024, order dated 14/02/2025) examined whether the monetary cap prescribed under Section 10(23C)(iiiad) read with Rule 2BC should be applied separately to each educational institution, or cumulatively to all institutions run by the same society.

The assessee in this case is a society registered under the Societies Registration Act, 1860, established in 1964 by the Central Government. Its stated and accepted object is to provide education, and it exists solely for educational purposes and not for profit. The society manages two separate schools in Chennai:

  • A nursery school (Kinder Garten, LKG and UKG), and
  • A primary school (Standards 1 to 5).

The controversy arose for Assessment Year 2018-19, when the Assessing Officer reopened the assessment on noticing sizeable cash deposits and interest income in the society’s bank account.

2. Reopening of Assessment and AO’s Findings

2.1 Trigger for Reassessment

For AY 2018-19, the assessee did not file a return of income initially. On information available to the department, the Assessing Officer observed that:

  • Cash deposits of Rs.1,25,22,839/- had been made into the society’s bank account; and
  • Interest income of Rs.51,055/- was credited during the year.

Consequently, reassessment proceedings were initiated by issuing notice under Section 148 and framing the proceedings under Section 147.

2.2 Assessee’s Explanation Before the AO

In the reassessment proceedings, the assessee clarified that:

  • It runs two distinct institutions – a nursery school for Kinder Garten, LKG and UKG, and a primary school for Standards 1 to 5;
  • Fees collected from students of both schools constitute the source of its income;
  • For operational convenience, fees from both institutions were deposited into a common bank account;
  • The financial records including audited financial statements and bank statements were produced;
  • The gross receipts of each institution for the relevant financial year 2017-18 were:
    • Nursery School: Rs.66,71,450/-
    • Primary School: Rs.91,38,932/-
  • Each school, considered individually, had annual receipts below Rs.1 crore, which was the monetary limit then prescribed under Rule 2BC for claiming exemption under Section 10(23C)(iiiad).

The assessee asserted that it existed solely for educational purposes and not for profit, and therefore, each school independently satisfied the conditions of Section 10(23C)(iiiad).

2.3 AO’s Interpretation and Assessment

The Assessing Officer, however, took the view that:

  • The entire receipts of Rs.1,58,10,382/- (nursery plus primary) represented the income of a single “educational institution” run by one society;
  • For purposes of Section 10(23C)(iiiad), the relevant receipt figure was the aggregate amount received by the society;
  • Since total receipts exceeded the then threshold of Rs.1 crore, the society was not eligible for exemption.

The AO relied on Section 10(23C)(iiad) (as referred to in the order) read with Rule 2BC, and concluded that the assessee did not qualify for the exemption. He consequently:

  • Denied the claim under Section 10(23C)(iiiad); and
  • Assessed the income at Rs.60,07,830/- by making an addition of Rs.60,07,821/- over NIL returned income, and determined the assessed income at Rs.60,07,830/-.

Penalty proceedings under Section 270A were also initiated separately.

3. Appeal Before CIT(A), NFAC and Its Rejection

3.1 Assessee’s Contentions in First Appeal

Before the Commissioner of Income Tax (Appeals), NFAC, the assessee reiterated that:

  • It operates two separate educational institutions –
    • A nursery school (Kinder Garten, LKG and UKG), and
    • A primary school (Standards 1 to 5);
  • Each of these institutions has its own government approvals/licences;
  • The gross fee receipts for AY 2018-19 were:
    • Primary School: Rs.91,38,932/-
    • Nursery School: Rs.66,71,450/-
    • Total: Rs.1,58,10,382/-
  • The common bank account was maintained only for smooth administration and did not alter the distinct identity of each school as a separate “educational institution”;
  • The receipts were fully reflected in audited accounts and supported by bank statements;
  • Each institution’s receipts were below Rs.1 crore, and therefore, both institutions independently satisfied the conditions of Section 10(23C)(iiiad) read with Rule 2BC.

3.2 Case Law Relied Upon Before CIT(A)

The assessee supported its position with judicial precedents including: