The provisions of section 10(23C)(iiiab) grant exemption of income earned by any person established for the purpose of imparting the education and not for the purpose of profits which are wholly or substantially financed by the Government.
§
Under
sub-clauses (iiiab) of clause (23C) of the Income-tax Act, 1961, educational
institutions are totally exempt from tax if they are wholly/substantially
financed by Government.
§
The
condition is that such institutions should be solely for educational purposes.
§
The
income of such organisation shall not be used for any private benefit, but it
can be retained in the corpus for future purposes as there is no restriction
regarding 85 per cent application of fund.
§
Only
compliance under Income-tax law is the filing of income-tax return in Form
ITR-7.
§
Such
organisations are not required to apply for an exemption or obtain approval to
claim exemptions.
§
Such
organisations are not required to apply 85 per cent of their income during the
previous year.
§
These
organisations are not subject to any audit under the Income Tax Act.
Text of Section 10(23C)(iiiab)
[1][(iiiab)
any university or other educational institution existing solely for educational
purposes and not for purposes of profit, and which is wholly or substantially
financed by the Government; or
Explanation : For the purposes of sub-clauses (iiiab)
and (iiiac), any university or other educational institution, hospital or other
institution referred therein, shall be considered as being substantially
financed by the Government for any previous year, if the Government grant to
such university or other educational institution, hospital or other institution
exceeds such percentage of the total receipts including any voluntary
contributions, as may be prescribed, of such university or other educational
institution, hospital or other institution, as the case may be, during the
relevant previous year; or]
KEY NOTE
1. Inserted by the Finance (No. 2) Act, 1998, with
effect from 01.04.1999.
Pursuant to Finance (No.
2) Act, 2014, an explanation was inserted w.e.f. 01.04.2015 clarifying the term
‘substantially financed by Govt.’. Consequently, CBDT had notified 50%
threshold for the expression 'substantially financed by Govt.' vide insertion of Rule 2BB.
Text of Rule 2BBB
2BBB. Percentage of Government grant for considering
university, hospital, etc., as substantially financed by the Government for the
purposes of clause (23C) of section 10
For the purposes of sub-clauses (iiiab) and (iiiac) of
clause (23C) of section 10, any university or other educational institution,
hospital or other institution referred therein, shall be considered as being
substantially financed by the Government for any previous year, if the
Government grant to such university or other educational institution, hospital
or other institution exceeds fifty per cent of the total receipts including any
voluntary contributions, of such university or other educational institution,
hospital or other institution, as the case may be, during the relevant previous
year.
Furnishing of Return of income is mandatory [With
effect from 2016-17]
By
virtue of section 139(4C)(e), every educational institution referred to in
section 10(23C)(iiiab) or section 10(23C)(iiiad) or section 10(23C)(vi) whose
total income in respect of which such institution is assessable, without giving
effect to the provisions of section 10, exceeds the maximum amount which is not
chargeable to income-tax, furnish a return of such income of the previous year
in the prescribed form.
Assessee, a Government-funded
educational institution, was allowed exemption under section 10(23C)(iiiab) based on prevailing legal framework and facts of case,
order of Assessing Officer could not be termed as erroneous or prejudicial to
interests of revenue and, thus, same could not be set aside
The assessee university,
established under the State Open University Act, 1994, was a Government-funded
educational Institution. The assessee claimed exemption under section
10(23C)(iiiab). Same was allowed.
Subsequently, the Commissioner
(Exemptions) invoked section 263 primarily contending that the assessee was not
wholly or substantially financed by the government for the relevant assessment
year, thereby questioning the assessee’s eligibility for the exemption under
section 10(23C)(iiiab). He concluded that the Assessing Officer failed to
properly examine whether the assessee qualified as substantially financed by
the government. The Commissioner (Exemptions) believed that the Assessing
Officer had overlooked critical facts, making the order erroneous and
prejudicial to revenue interests. The Commissioner (Exemptions) highlighted
that the Government grant only constituted 13 per cent of the total income, a
figure significantly below the level required to classify the institution as “substantially
financed” by the government. Therefore, he believed that the assessee did not
qualify for exemption under section 10(23C)(iiiab), which applies to
institutions that are wholly or substantially financed by the government. The
Commissioner (Exemptions) referred to rule 2BBB which defines “substantially
financed” as institutions receiving 50 per cent or more of their income from government
grants which came into effect from assessment year 2015-16. The Commissioner
(Exemptions) set aside the Assessing Officer’s assessment order and directed
the Assessing Officer to re-examine the case and re-adjudicate the issue of the
allowability of the exemption under section 10(23C)(iiiab), after proper
verification of facts. On appeal:
Held : The assessee submitted that
interest earned on Government grants should be considered part of government
financing, as per Rule 230(8) of the General Financial Rules (GFR), which
states that interest on Government grants must be returned to the Consolidated
Fund of India unless otherwise stipulated. By including the interest income,
the proportion of Government financing would rise to 54 per cent of the total
receipts, exceeding the 50 per cent threshold required under rule 2BBB. The
assessee contended that Rule 2BBB, introduced from assessment year 2015-16,
cannot be applied retrospectively to assessment year 2014-15.
The legal framework prevailing at
the time of assessment did not prescribe such a threshold. The assessee pointed
out that in prior assessment years, such as assessment year 2010-11 and
assessment year 2012-13, the Assessing Officer accepted the assessee’s claim
for exemption under section 10(23C)(iiiab). The facts and circumstances had not
changed, and the principle of consistency should apply. The Assessing Officer
accepted the assessee’s claim for exemption under section 10(23C)(iiiab) after
examining the relevant facts and submissions. The assessee provided detailed
calculations showing that when interest income on government grants is
included, the government financing exceeds 50 per cent of the total income,
thereby meeting the threshold for substantial financing. The Assessing Officer
did not apply Rule 2BBB retrospectively, as the rule was introduced only from
assessment year 2015-16. There was no legal requirement during
assessment year 2014-15 to adhere to the 50 per cent threshold outlined in Rule
2BBB. Moreover, the assessee relied on judicial precedents, which support the
inclusion of interest income in the calculation of Government financing. The
Assessing Officer’s decision to allow the exemption based on the prevailing
legal framework and facts of the case cannot be termed as erroneous. For an
order to be prejudicial to the interests of revenue, it must result in a loss
to the revenue. In this case, the Assessing Officer properly accepted the
assessee’s exemption claim after considering the applicable laws and facts. The
assessee’s income was primarily derived from government grants and regulated
fees, and the Assessing Officer correctly determined that the university was
substantially financed by the Government. The Commissioner (Exemption)
conclusion that the Assessing Officer’s order was prejudicial to revenue is
based on the incorrect exclusion of interest income and an erroneous
application of Rule 2BBB for assessment year 2014-15. As such, the order passed
by the Assessing Officer did not cause any loss to the revenue.
In light of the submissions,
judicial precedents, and factual background, it is found that the order passed
by the Assessing Officer was neither erroneous nor prejudicial to the interests
of revenue. The Assessing Officer’s decision to allow the assessee’s exemption
under section 10(23C)(iiiab) was based on a correct appreciation of the facts
and applicable law, and the principle of consistency must be upheld. The
Commissioner (Exemption) erred in excluding interest income from the government
grants and in attempting to apply rule 2BBB retrospectively. Accordingly, the
Commissioner (Exemption) order invoking section 263 is quashed, and the appeal
of the assessee is allowed. [In favour of assessee] (Related Assessment year : 2014-15)
- [Dr. Babasaheb Ambedkar Open University
v. CIT (Exemptions) [2025] 210 ITD 109 : (2024) 168 taxmann.com 92 (ITAT
Ahmedabad)]
Assessee-university was established
by State Legislature Act and was substantially financed by Government to extent
of 31.76 per cent, it was eligible for exemption under section 10(23C)(iiiab)
The assessee was established at
Amritsar by State Legislature Act No. 21 of 1969. The assessee was residential
and an affiliated university. The return of income as filed by the assessee was
initially processed under section 143(1) but the case was reopened to examine
various issues.
During the assessment proceedings
the assessee, inter-alia, stated it was entitled for exemption under section
10(23C)(iiiab) and in support, it tabulated a chart of receipts of grants. The
percentage of government grant as computed by the assessee vis-à-vis total
receipts was worked out to be 47 per cent. However, the Assessing Officer
recomputed the same to be 31.76 per cent. In other words, as per the findings
of the Assessing Officer, the percentage of financing by government was to the
extent of 31.76 per cent.
The Assessing Officer, in terms of
rule 2BBB, held that the expression 'substantially finance' would mean that
government grant should be more than 50 per cent of total receipts which was
not the case here. It was noted that though this criteria was applicable from
assessment year 2015-16, the amendment was clarificatory in nature as per CBDT
Circular No. 01/2015, dated 21.01.2015. Since the assessee did not fulfill the
said criteria, the deduction so claimed was denied and surplus of Rs. 61.57
crores was assessed to tax and the assessment was framed.
On appeal, the Commissioner
(Appeals) held that extent of grant of 31.76 per cent was very low and it could
not be said that the assessee was wholly or substantially financed by the
Government in terms of statutory provisions. Accordingly, the assessment was
confirmed. On appeal to the Tribunal:
Held : The impugned issue qua
amendment to section 10(23C) and interpretation of 'substantially finance'
prior to assessment year 2015-16 stood covered in assessee's favour by various
judicial decisions of higher forums, the copies of which have been placed on
record. The High Court of Punjab and Haryana in the case of CIT(Exemption) v. Swami Ganga Giri Janta Girls College (2024) 466 ITR 393 : 162
taxmann.com 677 (Punjab & Haryana)concurred with the finding of Tribunal
that Rule 2BBB was not applicable for assessment year 2012-13 and the same was
brought in force from 12.12.2014. The same clearly negates the action of the
Assessing Officer. Even the CBDT Circular No. 01/2015 dated 21.01.2015 clearly
state that the amendment to section 10(23C) shall take effect from 01.04.2015
and accordingly, apply in relation to assessment year 2015-16 and for
subsequent years. Therefore, quite clearly, the amendment prescribing higher
ceiling of 50 per cent would not apply for this year.
The interpretation of expression ‘substantially
finance’, prior to amendment with effect from assessment year 2015-16, has been
dealt in various judicial decisions. The Karnataka High Court in the case of CIT v. Indian Institute of Management (2010)
196 Taxman 276 : 8 taxmann.com 239 (Karn.) held that financing to the extent of
37.85 per cent would constitute substantial financing. In subsequent decision,
the Court in the case of DIT (Exemptions)
v. Dhamapakasha Rajakarya Prasakta B.M. Sreenivasaiah Educational Trust (2015)
372 ITR 307 : 232 Taxman 575 : 59 taxmann.com 33 (Karn.) again held that government grant to
the extent of 25 per cent would constitute substantial financing.
Following the decision in Indian Institute of Management (supra), the High
Court of Punjab and Haryana concurred with the finding of Tribunal that
government financing to the extent of 44.52 per cent would constitute
substantial financing. The other decisions as placed on record well support
this proposition and no contrary decision having similar facts is shown.
Respectfully following all these decisions, it is held that the assessee was
substantially financed by the government in this year and it was eligible to
lay claim on impugned deduction as claimed by it under section 10(23C)(iiiab).
Consequently, the other grounds as urged in the appeal have been rendered mere
academic in nature and there is no fruitful reason to deal with the same. The
Assessing Officer is directed to grant impugned exemption to the assessee. The
appeal stand allowed in terms of above order. [In favour of assessee] – [Guru Nanak Dev University v. DCIT (2025)
175 taxmann.com 810 (ITAT Chandigarh)]
Assessee claimed exemption under section 10(23C)(iiiab) and Assessing Officer added entire cash deposits in bank
account, interest income and payment to hotel and restaurant bills to income of
assessee without allowing any expenditure, even if exemption under section 10(23C)(iiiab) was not allowed, entire deposits could not have been added
without considering income on commercial basis and after allowing expenditure,
therefore, order of Assessing Officer was to be set aside and issue was to be
remitted back to him
The assessee-university claimed
that its income was exempt under section 10(23C)(iiiab). Accordingly, it did
not file return of income. As no return of income was filed, a notice under
section 148 was issued requiring assessee to file return of income - However,
no return of income was filed. Thus, the Assessing Officer added the entire
cash deposits in the bank account, interest income and payment to hotel and
restaurant bills to the income of the assessee without allowing any
expenditure. On appeal, the Commissioner (Appeals) dismissed the appeal of the
assessee on account of delay in filing the appeal. On appeal to the Tribunal:
Held : The assessee sought
adjournment but the same was declined as there was no justification for seeking
adjournment and no representation had been made either before the Assessing
Officer or before the Commissioner (Appeals). The assessment order is ex parte
and there was no representation before the Commissioner (Appeals) and the
appeal was dismissed on account of delay. The Assessing Officer has added the
entire cash deposits in the bank account, the interest income and also the
payment to hotel and restaurant bills. No expenditure whatsoever has been
allowed while the assessee claims to be a university which is substantially
financed by the Government and the University Grants Commission and has claimed
that its income is exempt under section 10(23C)(iiiab). Even if the exemption
under section 10(23C)(iiiab) was not allowed; however, the entire deposits
which were claimed to be out of the fee received and grants from the Government
could not have been added without considering the income on commercial basis
and after allowing the expenditure. Thus, the Bench was of the view that in the
interest of justice, another opportunity may be granted to the assessee.
Therefore, the order of the Commissioner (Appeals) as well as the order of the
Assessing Officer are hereby set aside as the reasons for the delay are found
to be justified and the assessee had a sufficient cause for the delay and the
submission made have not been considered and the issue is remitted to the file
of the Assessing Officer for framing the assessment de novo after considering
the submissions which may be filed by the assessee in support of the claim and
also in support of the claim that the exemption under section 10(23C)(iiiab) is
allowable. Hence, all the grounds of appeal are allowed for statistical
purposes. [Matter remanded] (Related Assessment year : 2015-16) – [University of North Bengal v. DCIT,
Exemption (2025) 175 taxmann.com 680 (ITAT Kolkata)]
For claiming exemption under section 10(23C)(iiiab), only two conditions are required i.e. university or other educational institution should exist solely for education purposes and not for purposes of profit, and second, university or other educational institution is wholly or substantially financed by Government; filing of return of income by assessee for claiming exemption under section 10(23C)(iiiab) is not mandatory
The assessee was a university
established under the Haryana and Punjab Agricultural University Act, 1970. As
per the objects of the university as stated in section 7, the university
existed solely for educational purposes and not for purposes of profit, and was
claiming exemption under section 10(23C)(iiiab).
For the year under consideration,
no return of income was filed by the assessee and thus, the Assessing Officer
had reopened the case under section 147. Notice under section 148 was issued to
the assessee requiring to furnish return of income. In response, the assessee
filed return of income declaring income Nil after claiming exemption under
section 10(23C)(iiiab).
Thereafter, a show cause notice was
issued to the assessee asking that as to why exemption claimed under section
10(23C)(iiiab) may not be disallowed. In response, the assessee filed reply
stating that the accounts of university were prepared which were further
approved by Joint Director, Local Audit, Chandigarh.
For the financial year 2017-18 the
accounts of university was not approved by Joint Director within the time limit
of filing of return of income as per section 139 and when the accounts were
approved by Director, Chandigarh the time of return as per 139 had been
expired. Now the university had filed its return of income in response to
notice issued under section 148 and claimed exemption under section
10(23C)(iiiab).
However, the Assessing Officer made
disallowance of exemption claimed under section 10(23C)(iiiab) holding that
claim of the assessee was not allowable as it had not filed its return of
income in compliance to provisions under section 139(1). Therefore, claimed
exemption was not allowable.
On appeal, the Commissioner
(Appeals) confirmed the action of the Assessing Officer by denying the
exemption claimed by the assessee under section 10(23C)(iiiab). On appeal to the Tribunal:
The filing of return of income by
the assessee for claiming exemption under section 10(23C)(iiiab) is not
mandatory. For claiming exemption under section 10(23C)(iiiab) only two
conditions are required i.e. the university or the other educational
institution should exist solely for education purposes and not for purposes of
profit, and the second, the university or other educational institution is
wholly or substantially financed by the Government and in the case of the
assessee both the above conditions are satisfied.
Further, the assessee vide letter
signed by the Comptroller of the said university certified that entire funds
received by the assessee was from State Government, Indian Council of
Agricultural Research (Ministry of Culture) and other Ministries and government
undertaking.
Therefore, the assessee satisfies
both the twin conditions for claiming the exception under section
10(23C)(iiiab). Moreover, the Assessing Officer has not brought any fact on
record that the assessee did not exist solely for education purposes and or for
purposes of profit, and that the university or other educational institution
was not wholly or substantially financed by the Government. Further, it may be
mentioned that there is a specific provision under section 234F for the
consequences for not filing of return in the case of an assessee, which is
required to file its return of income as per the provision of section 139. Moreover,
there are sections in the Act, wherein, it is mentioned that the claim of the
assessee shall not be admissible, if certain requirements as per law are not
filed along with the return. For example, sub-section-7 of section 80IA for
claiming deduction under section 80IA(1) during the material period i.e.
assessment year 2018-19 laid down a condition that the deduction under
sub-section (1) from profits and gains derived from an undertaking shall not be
admissible unless the accounts of the undertaking for the previous year
relevant to the assessment year for which the deduction is claimed have been
audited by an accountant, as defined in the Explanation below sub-section (2)
of section 288, and the assessee furnishes, along with his return of income,
the report of such audit in the prescribed form duly signed and verified by
such accountant.
There is no such mandate in the
provisions of section 10(23C)(iiiab) and section 139(4C)(e) that filing of
return under section 139(4C)(e) by the assessee was a mandatory condition for
claiming exemption under section 10(23C)(iiiab).
Moreover, on similar facts, in the
case of the assessee, wherein, on similar information, the assessment for
2019-20 was reopened by the Assessing Officer vide notice under section 148
dated 28.03.2023, wherein, the Assessing Officer had accepted the claim of the
assessee vide assessment order under section 147 read with section 144B dated
19.12.2023, and held that since, the assessee was a university and was exempted
from tax under section 10(23C) and no other details/evidence was available on
record through which the contention of the assessee could be rejected and
completed the assessment at Nil income filed as filed by the assessee on 17.11.2023.
Therefore, in view of the above
facts and discussion, it is held that the assessee is eligible for exemption under
section 10(23C)(iiiab) and the Assessing Officer and the Commissioner(Appeals)
were not correct in not allowing the claim of exemption as claimed by the
assessee. Therefore, this addition is deleted. In the result, the appeal of the
assessee is allowed. [In favour of assessee] (Related Assessment year : 2018-19)
-[Chaudhary Charan Singh Haryana
Agricultural University v. ITO(Exemption) [2025] 174 taxmann.com 917 (ITAT
Delhi)]
Assessee, an educational institution, received grant from Central Government which was utilized for purpose of institute as per memorandum of association and rules and regulations of society, assessee would be entitled for exemption under section 10(23C)(iiiab)
The assessee claiming to be an Educational
Institution namely Institute Management Committee Government Industrial
Training Institute, Peth, Nashik. It is also claimed that the assessee
institute is funded by the Central Government, Ministry of Labour and
Employment. Return of income for the assessment year 2022-23 was filed claiming
exemption under section 10(23C)(iiiab). However, the CPC vide its Intimation
order passed under section 143(1)(a) denied the exemption under section
10(23C)(iiiab) on the ground that the assessee institution was not
substantially financed by the Government and therefore not eligible for the
exemption claimed by it. Accordingly, the income of the institute was assessed
at Rs. 26.13 lakhs. On appeal, the Addl/Joint Commissioner(Appeals) observed
that the assessee was not recognized as a university by the University Grants
Commission and that the assessee had not received any Government grant during
the year and therefore not eligible for the exemption under section
10(23C)(iiiab). On appeal to the Tribunal:
Held : The only issue that arises for consideration
is whether the Addl/Joint Commissioner(Appeals) was justified in confirming the
action of the CPC in denying exemption under section 10(23C)(iiiab).
Admittedly, the assessee institute is a Government Education Institute, and in
the past received Grant of Rs. 2.50 crore from the Central Government, Ministry
of Labour and Employment under the Institute Development Plan for Government
ITI in the scheme ‘Upgradation of 1396 Government ITIs through Public Private Partnership’
and the said Grant has been invested in Fixed Deposit with Scheduled Bank. The
main aim of the institute is to assist in improvement of standard of vocational
training and skill development in the country as a whole and it functions on
the principle ‘no-profit no-loss’. It indicates under the Public Private
Partnership model assessee is working under the Ministry of Labour and
Employment. The said grant has been applied for the objects of the institute by
making Fixed Deposit during the year. The institute earned interest of Rs. 19.32
lakhs on such Fixed Deposit and Savings Account and the remaining amount is
collected ‘Fees’ from the students.
Section 10(23C) provides that ‘any income received
by any person on behalf of any university or other educational institution
existing solely for educational purposes and not for purposes of profit, and
which is wholly or substantially financed by the Government’. Admittedly, the
interest received on such grant from the Central Government was utilized by the
assessee institute for the purpose of the Institute as per the Memorandum of
Association and Rules and Regulations of Society.
So far as the aspect of substantially financed by
the Government, it is noticed that ostensibly the assessee received grant of
Rs. 2.50 crore during the period 2008-09 to 2011-12 and the said Grant received
by the institute from the Central Government was utilized making Fixed Deposit.
So far as the gross receipts during the year is concerned, out of total gross
receipts of Rs.26.13 lakhs the institute has received Rs.19.32 lakhs on account
of Interest from Fixed Deposit made from Govt. Grant and Saving Bank Account
and the same accounts for more than 50 per cent of Grant receipts during the
year. These facts reveal that the assessee institute is substantially funded by
the Central Government and the assessee would be entitled to exemption by
virtue of provisions of section 10(23C)(iiiab).
It is found that the Jodhpur Bench of the Tribunal
in the case of IMC of ITI v. ITO (2017)
82 taxmann.com 120 (ITAT Jodhpur) had an occasion to decide an identical issue
by holding that where the assessee institute was financed by the Central
Government; the amount granted by the Government was deposited in nationalized
bank and interest so received from bank was utilised for the purpose of the
institute as per memorandum of association and rules and regulation of the
society, the assessee was entitled to exemption under section 10(23C)(iiiab
Since the facts of the above case are identical to
that of the instant case and also in view of observations made hereinabove, it
is held that the assessee institute is entitled for exemption under section
10(23C)(iiiab). Thus, the Addl/Joint Commissioner(Appeals) erred in affirming
the action of CPC. The impugned order is therefore reversed. Effective grounds
of appeal raised by the assessee are allowed. [In favour of assessee] – [Institute Management Committee of
Government ITI Peth (2025) 171 taxmann.com 21 (ITAT Pune)]
Denial of Section 10(23C)(iiiab) exemption where
University not ‘substantially funded’ by Government
Pune
ITAT dismisses Assessee’s appeal, holds Assessee not eligible for deduction
where it was funded to the extent of 41% of total receipts from Government
grants; Relies on the Bombay High Court ruling in CIT v. Tata Institute of
Social Sciences (2019) 105 taxmann.com 128 (Bom.) and observes that the
meaning of ‘substantially financed by Government’ means cases where Government
grants are more than 50% of total receipts; Assessee, a university formed under
Maharashtra Universities Act, 1994, was not registered under section 12AA and
claimed exemption under Section 10(23C)(iiiab) for the Assessment year 2011-12;
Revenue denied exemption under Section 10(23C)(iiiab) on the grounds that
Assessee did not apply Rs. 5.11 Cr. towards the objects and made an addition of
Rs. 52.92 Lakh; On appeal, CIT(A) directed the Revenue to delete the additions
but held that Assessee was not eligible for exemption under Section
10(23C)(iiiab) on the grounds that it was not substantially funded by the
Government; ITAT finds Assessee received Government grant for Rs.6.20 Cr,
including the grant for salary and capital grant during the year which is only
41% of the total receipt for the year; Opines that the Assessee was not
substantially financed by the Government since the grants were less than 50%;
Thus, holds that the Assessee is not eligible for exemption under section
10(23C)((iiiab). [In favour of revenue] (Related Assessment Year : 2011-12) - [The
Punyashlok Ahilyadevi Holkar Solapur University Solapur v. ACIT [TS-541-ITAT-2022(PUN)]
- Date of Judgement : 22.06.2022 (ITAT
Pune)]
Assessee was conducting various skill training
programs for students to get placement, activities would fall within definition
of education under section 2(15), thus entitling it for exemption under section
10(23C)(iiiab)
The
assessee society was engaged in imparting education and in the same process
trained students by sending them to sports industries etc. It conducted various
short duration training programs of computer training, training in Computer
Accounting System, cricket bat manufacturing, carom board manufacturing,
training in R/P workshop, wood workshop etc. The assessee got raw material from
industries and after manufacturing the goods through its trainees, returned the
finished goods after receiving its job charges. The assessee claimed exemption
under section 10(23C)(iiiab).
The
Assessing Officer as well as the Commissioner (Appeals) declined the exemption
on the ground that the assessee did not exist solely for educational purposes.
The Commissioner (Appeals) had recorded further in his order that the issue of
charitable activities of the assessee society being of charitable nature was
not relevant in the instant case as assessee was yet to be registered under
section 12AA. On the assessee’s appeal to the Tribunal:
Assessee-society,
substantially financed by Government of India, was engaged in imparting
education and in same process conducted various skill training/Research based
education programs for students in manufacturing of sports goods and leisure
equipments without any profit motive so as to enable them to get placement.
Activities of assessee fell within definition of ‘education’ under section
2(15); thus, entitling it to claim exemption under section 10(23C)(iiiab). [In
favour of assessee] (Related Assessment years : 2010-11 to 2013-14) – [Process
- cum - Product Development Centre v. ACIT, Meerut (2019) 175 ITD 517 : 103
taxmann.com 191 (ITAT Delhi)]
Exemption under section 10(23C)(iiiab) is not relatable to individual institution run under common umbrella of a Trust and, thus, if assessee trust satisfies statutory requirement of section 10(23C)(iiiab), exemption provision would apply, irrespective of fact that in isolated cases of a few institutions run by trust, said requirement is not fulfilled
The assessee was a registered
Public Charitable Trust. It was running a large number of educational
institutions. For relevant assessment year the assessee claimed exemption under
section 10(23C)(iiiab). The Assessing Officer noticed that there were three
educational institutions run by the assessee which did not receive grant from
the Government and whose total receipts exceeded Rs. One Crore during the
relevant period. He was of the opinion that qua those institutions, the
assessee's claim of exemption was not valid. The Commissioner (Appeals) upheld
the order passed by Assessing Officer. The Tribunal, however, held that the
exemption under section 10(23C)(iiiab) was in relation to the assessee and was
not specific to the institutions individually run by the Trust. Accordingly,
the Tribunal concluded that exemption under section 10(23C)(iiiab) was
available to the society as a whole. On revenue’s appeal:
Held : The central question is
whether the exemption under section 10(23C)(iiiab) is specific to the assessee
trust or whether such exemption can be examined by further bifurcating the
position of different institutions run by the assessee trust. The revenue's
ground that the assessee trust did not exist solely for the purpose of
educational activity, needs to be recorded for rejection. It is by now well
settled through various series of judgments of the Supreme Court that an
educational institution is not precluded from generating reasonable surplus.
Merely because, in the process of running an educational institution, the
surplus funds are generated, would not disqualify the institution from being an
institution existing solely for the educational purpose.
Section 10(23C)(iiiab)) grants
exemption in relation to any income received by any person on behalf of any
university or other educational institution existing solely for educational
purposes and not for the purpose of profit, and which is wholly or
substantially financed by the Government. This provision, thus, exempts the
income received by a person on behalf of the institutions specifying the
requirements of the said clause. The exemption is not relatable to the
individual institution run under the common umbrella of a Trust. Therefore, if
the assessee trust satisfies the statutory requirement of section
10(23C)(iiiab), exemption provision would apply, irrespective of the fact that
in isolated cases of a few institutions runs by Trust, said requirement may not
be seen to have been fulfilled. From the above, it is very clear that it is the
trust or the society that has to apply for registration and claim exemption.
Had it been the intention of the legislature to grant exemption only to the
institutions individually or independently and not to the society as a whole,
the language would have been different. The society or trust may run more than
one institutions. Therefore, the argument of the revenue that it should be
institution specific and not the society as a whole is not correct. Thus, the
view expressed by the Tribunal is correct. No question of law arises. The
revenue's appeal is dismissed. [In favour of assessee] (Related Assessment year
: 2008-09) - [CIT(Exemptions), Pune v. Deccan
Education Society (2019) 101 taxmann.com 310 (Bom.)]
Grants Section 10(23C) exemption to Tata Institute applying subsequently inserted definition of ‘substantially financed’
Tata Institute of Social Science
(assessee) is registered under the Societies Registration Act and Bombay Public
Trust Act, 1966. It is also registered as a Trust under Section 12A of
the Act for Assessment year’s 2004-05 and 2006-07. For the subject Assessment
years, the assessee had filed its return of income, seeking exemption from tax
under Section 10(23C)(iiiab) of the Act. The Assessing Officer called
upon the assessee to explain its claim for exemption on the issue of it being
solely for educational purposes and being wholly or substantially financed by
the Government. The assessee in its reply, pointed out that it was established
solely for educational purposes and the grants from the Government were in
excess of over 50% of the total expenditure incurred during year.
Further,the grants received from the Government were also in excess of
50% of the total receipts of the assessee. Thus, on both the above
yardsticks, the assessee claimed to be substantially financed by the
Government. Therefore, it argued that it was entitled to the benefit of Section
10(23C)(iiiab) of the Act.
Further, the Assessing Officer
accepted the claim of the assessee that it existed solely for educational
purposes yet denied the benefit of Section 10(23C)(iiiab) of the Act on the
grounds of not being substantially financed by the Government. The Assessing
Officer held that the amount of Government grant of Rs.12.79 Crores as received
was less than 75% of the total expenditure of Rs.16.87 Crores. The Assessing
Officer applied the above measure of 75% by taking aid of / referring to
Section 14 of the Controller Auditor General’s (Duties, Powers and Conditions
of Service) Act, 1971 (“CAG Act” for short). Thus, the Assessing Officer held
that the assessee was not substantially financed by the Government. On further
appeal, CIT(A) allowed the appeal of the assessee, by taking the view that the
provisions of CAG Act would not be applicable to the Income Tax Act in the
absence of any reference to it. On further appeal, ITAT upheld the order of
CIT(A) and dismissed the appeal of Revenue. Aggrieved, Revenue filed an appeal
before Bombay High Court.
Bombay High Court upholds ITAT order
allowing exemption under section 10(23C)(iiiab) to Tata Institute of Social
Science (assessee) for Assessment years 2004-05 & 2006-07; Quashes
Revenue's action in importing the meaning of expression ‘substantially financed
by the Govt.’ from the CAG (Controller Auditor General) Act in absence of any
definition in the Income-Tax Act for the period pertaining pre- April 2015;
Though High Court refrains from holding the Finance (No. 2) Act, 2014 amendment
to Section 10(23C)(iiiab) [clarifying the expression ‘wholly or substantially
financed by the Government’ by setting out 50% threshold] as retrospective, it
uses the same as an aid in construing the ambiguous provision”; Cites CBDT
Circular No.1 of 2015 which embodied the said Explanation by stating that the
absence of the definition of the phrase ‘substantially financed by the
Government’ had led to uncertainty and litigation, thereby inferring the said
Explanation was clarificatory in nature; High Court remarks that ‘if the
Explanation is to be read retrospectively, the orders of the Authorities under
the Act would be required to measure the satisfaction of the words ‘substantially
financed’ in terms of an explanation i.e. qua total receipts and not qua total
expenditure’; Further cites Supreme Court rulings in State
of Bihar v. S.K. Roy
AIR 1966 (SC) 1995
and Thirui Menickan & Co. v. State of Tamil Nadu AIR 1977 SC 518. wherein it
was held that a subsequent legislation may be looked at in order to understand
proper interpretation of an earlier legislation; Observes that assessee in
present case had satisfied the 50% threshold in the context of total receipts as
well as expenditure as per the newly inserted Explanation even in the
pre-amendment period, thus grants Section 10(23C) benefit; Rejects Revenue’s
reliance on the CAG Act, holds that the scope and the purpose of the CAG Act
and the Income Tax Act are completely different and they cannot be said to be
pari material. (Related Assessment year : 2004-05) - [Director of Income Tax (Exemptions) v. Tata
Institute of Social Science [TS-152-HC-2019(BOM)]
– Date of Judgement : 26.03.2019 (Bom.)]
Assessee-society running a non-profit educational
institution claimed exemption under section 10(23C)(iiiab), merely because
assessee was simultaneously running profitable hotel, exemption under section
10(23C)(iiiab) could not be denied
The
assessee was running an educational institution in the name and stay of
Chandigarh Institute of Hotel Management and Catering Technology and assessee
claimed exemption under section 10(23C)(iiiab).
The
Assessing Officer observed that the assessee had been running hotel management
course, yet, simultaneously running profitable hotel in the name of Chandigarh
Hotel Beckons. The Assessing Officer held that assessee was not existing solely
for the purpose of education and without any profit motive and thus, not
eligible for deduction under section 10(23C)(iiiab) and the same was
accordingly disallowed.
On
appeal, the Commissioner (Appeals) observed that even the assessee institution
was not substantially financed by the Government, which means that the grant
received from the Government should be more than of 50 per cent of the total
receipts during the relevant year. However, in the case of the assessee, it was
below 50 per cent. He, therefore, held that assessee even otherwise did not
satisfy the condition of section 10(23C)(iiiab) that it was substantially
financed by the Government during the year. The Commissioner therefore, upheld
the order of the Assessing Officer. On appeal to the Tribunal:
Held
: The assessee has relied upon the voluminous record to submit that the
activity of the assessee in respect of the running of educational institute is
separate and distinct from its activity of running of a hotel and that both the
activities cannot be clubbed together. That separate books of account are being
maintained in respect of both the activities. Further, that educational
institute run by the assessee is substantially financed by the Government and
that the grants received from the Government cannot be quantified in respect of
total receipts of the assessee i.e. from educational institute as well as
hotel, rather, the same have to be quantified in respect of receipts of the
educational institute as the same are received for funding of the educational
activity only of the assessee.
The
provisions of section 10(23C)(iiiab) reveals that they are not specific to the
total income of a person, rather, they talk of exemption of income received by
a person on behalf of any university or educational institute existing solely
for educational purposes and not for the purpose of profit which is wholly or
substantially financed by the Government; meaning thereby that part of the
income of a person which is received on behalf of any institute falling under
the provisions of section 10(23C)(iiiab) will be exempt, it does not mean that
entire income of the 'Person' should be from the institute solely existing for
educational purposes and not for profit and substantially financed by the
Government or that the 'person' is barred from entering into any business
activity. Hence, as per the provisions of section 10(23C)(iiiab) that part of
the income of the person will be exempt which is received from an institution
solely for educational purposes and not for profit and is substantially
financed by the Government. The claim of the assessee in the case in hand is
for exemption under section 10(23C)(iiiab) is relating to the income received
on behalf of educational institution being run by it solely for educational
purposes and not for profit and which is substantially financed by the
Government. However, the lower authorities have not examined this aspect. It is
the claim of the assessee that separate books of account are being maintained
in respect of educational institution run by it and that it is substantially
financed by the Government and is not run for profit. In view of this, the
matter requires to be remanded back to the file of the Assessing Officer to
correctly apply the provisions of section 10(23C)(iiiab) and to examine and
verify whether the educational institution run by the assessee, irrespective of
the other activity of running of the hotel of the assessee, is run solely for
educational purposes and not for profit and whether the said institution is
substantially financed by the Government. If the institute is found to qualify
the above conditions of section 10(23C)(iiiab), the assessee will be entitled
to claim exemption in respect of income received by it on behalf of such
educational institution accordingly the impugned order of the Commissioner
(Appeals) is set aside and matter to be remanded back to the Assessing Officer
and directing the Assessing Officer to decide the issue afresh in the light of
the observations made above and in accordance with law. [In favour of
assessee/Matter remanded] (Related Assessment year : 2013-14) – [Chandigarh
Institute of Hotel Management & Catering Technology (CIHMCT) v. DCIT,
Chandigarh (2018) 172 ITR 356 : 97 taxmann.com 280 (ITAT Chandigarh)]
To consider a university as wholly or substantially
financed by Government as contemplated under section 10(23C)(iiiab), funds
received from Government must be direct grants/contributions from governmental
source and not fees collected from students under statute
The
assessee-University had been constituted under the Visveswaraiah Technological
University Act, 1994. It discharged functions earlier performed by the
Department of Technical Education, Government of Karnataka and exercised
control over all Government and private engineering colleges within Karnataka. For
relevant assessment year, assessee declared nil income claiming exemption under
section 10(23C)(iiiab). The revenue authorities negatived the assessee's claim
of exemption. The High Court also took the same view. On appeal to the Supreme
Court:
Supreme
Court by impugned order held that to consider a University as wholly or
substantially financed by Government as contemplated under section
10(23C)(iiiab), funds received from Government must be direct
grants/contributions from governmental source and not fees collected from
students under Statute - Further, where grants/direct financing by Government
during six assessment years in question had never exceeded 1 per cent of total
receipts of assessee-University, assessee could not be considered as directly
or even substantially financed by Government so as to be entitled to exemption
from payment of tax under section 10(23C)(iiiab) and, accordingly, denied
exemption under section 10(23C)(iiiab). Review petition against above impugned
order was to be dismissed. [In favour of revenue] (Related Assessment years :
2004-05 to 2009-10) – [Visvesvaraya Technological University v. ACIT (2016)
389 ITR 10 : 242 Taxman 247 : 73 taxmann.com 286 (SC)]
Assessee-society running educational institutions
filed its return claiming exemption under section 10(23C)(iiiab) in view of
fact that Government was substantially financing and interested in management
of assessee, its claim for exemption was to be allowed
The
assessee-society filed its return claiming exemption under section
10(23C)(iiiab). The revenue authorities rejected assessee’s claim. The
Tribunal, however, allowed assessee's claim holding held that the
institution/society run by the assessee had received substantial government aid
for the purpose of claiming exemption under section 10(23C)(iiiab). On revenue's appeal:
Held
: A plain reading of section 10(23C) shows that any university or other
educational institution existing for educational purpose and not for profit and
is wholly or substantially financed by the Government is entitled to claim
exemption under the Act.
In
the present case, there had been financing by the Government when examined on
individual institution basis to be ranging from 41 per cent to 82 per cent
whereas when the percentage was taken for the society as a whole then it came
to 44.52 per cent and 45.15 per cent for the two years. The Tribunal after
appreciation of evidence held that the Government was substantially financing
and interested in the management of the assessee and, therefore, were eligible
for exemption under section 10(23C)(iiiab)
In
view of the above, the Tribunal was right in holding that the aid given by the
Government to the assessee constitutes substantial finance by the Government which
had entitled the assessee to claim exemption under section 10(23C)(iiiab). No
infirmity or perversity could be pointed out by the revenue in the findings
recorded by the Tribunal. Consequently, finding no merit in the appeal, the
same is dismissed. [In favour of assessee] (Related Assessment year : 2007-08)
– [CIT v. Jat Education Society, Rohtak (2016) 383 ITR 355 : (2015) 64
taxmann.com 312 (P&H)]
Words ‘wholly or substantially financed by Government’
cannot be confined only to annual grants as apart from providing annual grant,
if Government grants land, invests money in building and infrastructure and
also running educational institution all that has to be taken into
consideration to decide whether institution is wholly or substantially financed
by Government in order to become eligible to claim exemption under section
10(23C)(iiiab)
Assessee-institute
was established in the year 1973. The entire property and assets of
assessee-institution had been created out of the funds given by the Government
of India. During relevant years, the assessee’s claim for exemption under
section 10(23C)(iiiab) was rejected on ground that grant of the Central
Government in those years was around 14.84 per cent and 6.84 per cent
respectively and, therefore, assessee failed to satisfy requirement of being
wholly and substantially financed by the Government. The Commissioner (Appeals)
as well as the Tribunal allowed assessee’s claim. On revenue’s appeal:
Held
: In order to be eligible for exemption under section 10(23C) three conditions
have to be satisfied:
(1)
The University or Educational Institutions should be existing solely for
educational purposes;
(2)
It should be existing not for the purposes of profit; and
(3)
It is wholly or substantially financed by the Government.
The
word “finance” has not been defined under the Act. Therefore, one has to rely
upon the dictionary meaning of the word ‘Finance’.
The
word ‘Finance’ means money given for establishing an Educational Institution or
a University and not necessarily confined to the money given every year to such
an institution by way of grant. Of course, in order to come to the said
conclusion, one has to look into the nature of the institution which is
established, the object for which it is established and how the said
institution is financed, not only for establishing the same, even for running
of such an Institution.
The
assessee is a public institution, the revenue generated by the institution
belongs to the consolidated fund of India. The Government after a conscious
decision has permitted the assessee to retain and spend the revenue so
generated for their maintenance/growth. In addition to that, the Government is
providing grants both for recurring and non-recurring expenditure. The amount
of such grant varies from year to year depending upon the short fall.
The
assessee has been established entirely with the budgetary support of the
Government. It is an institution wholly or substantially financed by the
Government. The fact that this institution was granted land by the Government
of Karnataka to the extent of 100 acres and the Government of India has funded
initially 100 per cent and it has permitted them to retain and spend the
revenue so generated for the maintenance and growth and the Government of India
is also granting grant every year is not in dispute.
Under
these circumstances, the contention of the revenue, that the grant which is
given by the Government of India in a particular year is to be taken into
consideration to decide whether the institution is wholly or substantially
financed by the Government is without any substance. The words ‘wholly or
substantially financed by the Government’ cannot be confined only to annual
grants, apart from providing annual grant, if Government granted land, invests
money in building and infrastructure and also running the Educational
Institutions all that has to be taken into consideration to decide whether the
institution is wholly or substantially financed by the Government.
The
facts of this case and the material on record clearly established that the
assessee was wholly or substantially financed by the Government and therefore,
the assessee is entitled to the benefit of exemption under section
10(23C)(iiiab) of Act. Thus, there is no merit in these appeals and accordingly
dismissed. [In favour of assessee] (Related Assessment years: 2003-04 and
2004-05)- [CIT, Bangalore v. Indian Institute of Management (2015) 370 ITR
81 : 275 CTR 424 : 226 Taxman 301 : (2014) 49 taxmann.com 136 (Karn.)]
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