Income Tax Act | Gross Receipts Cannot Be Taxed As Income Without Deducting Expenses: Bombay High Court

A Division Bench of Justice B.P. Colabawalla and Justice Amit S. Jamsandekar, while allowing a writ petition filed by the assessee, Godavari Shikshan Prasarak Mandal, Sindhi, set aside an order of the Commissioner of Income Tax (Exemption), Pune, which had directed the trust to deposit 15% of the disputed demand as a pre-condition for stay during pendency of the statutory appeal .

The Court observed that Though we find that it is factually correct that the Petitioner is not registered under Section 12A, nor has it filled Schedule IE-3: Income and Expenditure statement [applicable for Assessees claiming exemption under Section 10(23C)(iiiab)], what the 1st Respondent has missed is that the Assessing Officer has brought gross receipts to tax and not the income of the Petitioner. In the Income Tax Return, the Petitioner claimed income of Rs.1,83,33,150/-, and also set out the expenditure of Rs.1,84,34,140/- incurred. Before bringing any income to tax, the Assessing Officer ought to have taken into consideration the expenditure incurred by the Petitioner. This has been totally missed by the authorities. Once this is the case, we find that the Petitioner has made out a case for staying the entire demand against it. This is more so when we consider that the Petitioner is an Educational Trust, which is fully funded by the State Government.

The assessee, an educational trust fully funded by the State Government, had challenged the order whereby the Commissioner (Exemption) refused to grant a complete stay on the tax demand for Assessment Year 2020–21, directing payment of 15% of the demand in monthly instalments.

The assessee contended that its income was exempt under Section 10(23C)(iiiab) of the Income Tax Act, being an educational institution wholly financed by the government. Alternatively, it was argued that even if exemption was disputed, only income and not gross receipts could be subjected to tax.

The Revenue argued that the assessee was not registered under Section 12A and had also failed to fill Schedule IE-3 in its return, which is applicable to assessees claiming exemption under Section 10(23C)(iiiab).

On this basis, the Commissioner had concluded that the claim for exemption was not properly made in the return.

Aggrieved by the order of the Commissioner(Exemption) the assessee preferred a writ petition before the High Court.

The Bench noted that the Assessing Officer had taxed the gross receipts, completely ignoring the expenditure incurred by the trust.

The Court recorded that the petitioner had declared income of approximately ₹1.83 crore, while also disclosing expenditure of about ₹1.84 crore, which was required to be considered before bringing any amount to tax.

The Court observed that the tax authorities cannot treat gross receipts as taxable income without first deducting the expenses incurred. The Bench considering that the basic principle was overlooked, and that the petitioner is a state-funded educational institution held that the assessee had made out a case for grant of a complete stay on the tax demand.

In view of the above, the High Court allowed the writ petition filed by the assessee by setting aside the order of the Commissioner (Exemption) and directed that the entire tax demand shall remain stayed till disposal of the appeal pending before the appellate authority.

Case Title: Godavari Shikshan Prasarak Mandal Sindhi Vs Commissioner of Income Tax(Exemption), Pune and Ors.

Case No: Writ Petition No. 16464 of 2025

Appearance for Petitioner/Assessee: Adv. Sanket Bora, with Adv. Vidhi Punmiya & Adv. Amiya Das, i/b SPCM Legal

Appearance for Respondent/Revenue: Adv. A.K. Saxena

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