The main legal point established in the judgment is the significance of recognizing the legal identities of educational institutions and the timing of approvals for different sections of the institution in determining aggregate income for exemption purposes.

This appeal filed on behalf of the department questions the exemption claimed by the respondent society in respect of receipts for the Assessment Year 2010-2011 and 2011-2012 from the institution established and run by it.

2. The society set up a Junior High School for imparting education from Class 6 to 8 that was continuing in a premise. The society was registered on 7th April, 2010 under the Societies Registration Act 1860. For the Financial Year 2009-2010 i.e. Assessment Year 2010-2011, the respondent assessee indicated receipt of a sum of Rs. 1,0,2,22,229/-. It claimed deduction and exemption as per the provisions of the Income Tax Act 1961 on the ground that it is existing solely for educational purposes. Admittedly, the society was not registered under Section 12AA nor did have any approval of the prescribed authority for exemption under Section 10 (23-C)(vi) of the Income Tax Act, 1961. In this background a show cause notice was issued to the society on 14.12.2012 calling upon it as to why the said income be not assessed as purely business income, and consequently the exemptions be disallowed as sought by it. The society responded by submitting that they had already applied before the competent authority for approval in relation to exemption under Section 10(23-C)(vi) of the 1961 Act.

3. During hearing before the Assessing Officer it was found that since the application for exemption had not been moved prior to 30th September, of the relevant assessment year, the request for exemption stood rejected. It was also recorded by the Officer that during the course of hearing the assessee came up with a plea that the society is running two separate schools, namely a Junior High School and a separate senior school from Class 9 to 12, and therefore, on account of existence of two separate schools, assessee claimed that the breakup of total receipts for both the schools separately were less than Rs. One Crore, and hence the total receipts exceeding Rs. One Crore, was not a fact on the basis whereof the assessee could be assessed for having business income.

4. The Income Tax Inspector was deputed for making a field enquiry who reported that the school runs in the name of an Intermediate College in the same building in a single premise with common teaching and non-teaching staff and students wearing the same uniform without there being any distinct identity of two separate institutions.

5. The assessing officer, therefore, disallowed the claim of the status as urged by the respondent and a demand notice was accordingly issued.

6. The assessee preferred an appeal and the learned Commissioner of Income Tax Appeals held that aggregate annual income means total annual receipt of each separate education institution and not the aggregate of the annual receipts of all the educational institutions run by the respondent society. It accordingly allowed the appeal relying on the judgment in the case of CIT vs. Children Education Society reported in 2014 (264) CTR (Karnataka) 389.

7. The department approached the Tribunal against the said appellate order and the same has been dismissed in relation to both the assessment years on the same ground. This is how the department has come up in appeal before us.

8. Sri Alok Mathur, learned counsel for the appellant contends that the findings recorded by the assessing officer are justified on facts and its reversal by the Commissioner Income Tax in an appeal was an erroneous approach. The confirmation of the same by the Tribunal is equally erroneous, inasmuch as, neither the learned Commissioner nor the learned Tribunal have appreciated the fact that the assessee is the society that was claiming to have set up both the institutions that were in fact one and the same without separate existence. The aggregate income derived from running of the institution in the same premises by the assessee society was a composite aggregate income that could not have been segregated on the premise on two separate sect