Educational Institution’s Exemption u/s 10(23C) Allowed on Interest from Govt Grant Used for Institute’s Purpose.

“4. In that view of the matter, the findings of the Tribunal that the assessee is subsequently financed by the Government and therefore, the assessee is entitled to the benefit of exemption under s. 10(23C)(iiiab) of the IT Act, cannot be found fault with. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue.”

“(6) We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that penalty in the present case was imposed by the AO under s. 272A(e). As per the provision of s. 273B, any penalty’ imposed by the AO under sub-s. (2) of s. 271A is not imposable if the assessee proves that there was reasonable cause for the said failure. Penalty under s. 272A(2)(e) is imposable if the assessee fails to furnish the return of income, which he is required to furnish under sub-s. (4A) of s. 139. It is the submission by the learned Authorised Representative for the assessee that the assessee was under the bona fide belief that its income is exempt under s. 10(23C)(iiiab) and for this reason, the assessee was not required to file the return of income and the provisions of sub-s. (4A) of s, 189 are not applicable to the assessee. When we examine the provisions of sub-s. (4A) of s. 139, we find that there is no specific reference to those assessees who are covered by the provision of s. 10(23C)(iiiab). In this section, reference has been made to ss. 11 and 12, In addition to this reference was made to those assessees also, who have income from voluntary contributions referred to in sub-cl. (iia) of cl. (24) of s. 2 as has been pointed out by the learned Departmental Representative. When we examine the provisions of sub-s. (iia) of sub-s. (24) of s. 2, we find that reference has been made to various other clauses of sub-s. (23C) of s. 10. Under this factual position, we are of the considered opinion that it has to be accepted that there was reasonable cause on which the assessee might be having a bona fide belief that the provisions of s. 139(4A) are applicable to it and hence the penalty imposed by the AO is not justified. We, therefore, delete the same in both the years.”

“(7) The facts of this case and the material on record clearly establish that the assessee is wholly or substantially financed by the Government and therefore, the assessee is entitled to the benefit of exemption under s. 10(23C)(iiiab) of the Act. In that view of the matter, the substantial question of law which was framed is answered in favour of the assessee.”

“(5) Insofar as the claim of the assessee under s. 10(23C)(iiiab) of the Act is concerned, the material on record discloses that Government has financed the institutions and their share is roughly about 25 per cent. It is not in dispute that the assessee is carrying on its activities of imparting education. It is not existing for the sake of profit-making. When 25 per cent, of the finance to the assessee institutions flows from the Government it constitutes the substantial finance and, therefore, it has satisfied all the legal requirements provided under s. 10(23C)(iiiab) of the Act. In fact, this Court had an occasion to consider the said question in the case of CIT v. Indian Institute of Management [2015) 275 CTR (Kar) 424: [2015] 115 DTR (Kar) 251: [2014] 49 (Karnataka) and a finance to the extent of more than 10 per cent of the total finance would constitute substantial finance and, therefore, the finding recorded by the Tribunal that the assessee is entitled to the benefit exempted under s. 10(23C) (iiiab) of the Act cannot be found fault with

6. In the light of the aforesaid findings, in our view, it is unnecessary to go into the question whether the assessing authorities were justified in reopening the assessment and there was sufficient reasons and whether the assessee is entitled to the benefit under s. 11 of the Act also. Accordingly, we pass the following order:

Appeals are dismissed.

“(18) Since we have held that the assessee is eligible for claiming exemption under the provisions of s. 10(23C) (iiiab), it is not mandatory for the assessee to seek registration under the provisions of s. 10(23C) (vi). Be that as it may, the assessee had applied for registration in the year 2002. nothing was communicated to the assessee regarding the rejection or allowing application of the assessee for registration. The assessee cannot be held responsible for the inaction of the Department, if the Department is in slumber, the assessee cannot be faulted.

(19) Thus, in view of the aforesaid findings, the appeal of the assessee is partly allowed in the aforesaid terms.”

“As the institution is substantially financed by the Government of Sikkim (Rs. 23.37 crores) and by the Deptt of North-Eastern Council of India to the extent of Rs. 4.78 crores, the case of the assessee is covered by the provisions of s. 10(23C)(iiiab) of the IT Act. The application in Form No. 56D seeking approval under s. 10(23C)(vi) is misconceived as assessees “other than those mentioned in sub-cl. (iiiab) or sub-cl. (iiiad)” only can apply.

We find from the above order of Chief CIT, who has not granted approval under cl. (vi) only because he found that the assessee was substantially financed by the Government and therefore, its case was covered under cl. (iiiab). On one hand, Chief CIT could not granted approval under sub-cl. (vi) because assessee was covered under sub-cl. (iiiab). on the other hand, the AO and CIT(A) have held that assessee is not covered under sub-cl. (iiiab). This has created a very anomalous situation. Revenue as a whole should not be permitted to blow hot and cold in the same breath”

“7. As regards to the second issue, it was the contention of the learned counsel that the Serampore College exists solely for the purpose of education and not for the purpose of profit. Even if running of an institution leads to some surplus but the said profit is accumulated or ploughed back for the purpose and objects of the institution, it is deemed as existing not for the purpose of profit. He argued that the Serampore College fulfils wholly, both these requirements as existing solely for the purpose of education and not for the purpose of profit. According to him therefore, the College is covered and entitled to exemption under s. 10(23C)(iiiab) of the IT Act, 1961 as the provisions of s. 10(23C)(iiiab). provides that any university or other institution education existing solely for educational purpose and not for the purpose of profit, and which is wholly or substantially financed by the Government. We are of the view that the argument of learned counsel that “The Serampore College” will fall under the category of ‘other educational institution under s. 10(23C) and will be exempt under cl. (iiiab), since it exists solely for educational purpose and not for the purpose of profit, as no part of the profit or surplus is diverted for private gain. But only, condition to be examined factually is that, whether, on consolidation of the income expenditure accounts of 4 units of the Serampore College for relevant assessment year, can it be held that the college was substantially financed by the Government during the year as per provisions of the Act or not. Thus only fact to be determined is that whether, the Serampore College is substantially financed by the Government or not? In case the finding comes that the college is financed substantially then it is covered by the s. 10(23C)(iiiab) of the Act and is eligible for exemption. The Serampore College will then legally be governed by s. 10(23C) (iiiab) of the Act for its entire income including income of ‘Senate of Serampore College’. The CIT(A) as well as the AO has not examined the claim as regards to the source of finance i.e. substantially financing by the Government or not, so as to eligibility’ of the claim of exemption under s. 10(23C)(imab) of the Act, even though Chief CIT rejected the application for registration under s. 10(23C)(via) of the Act. The CIT(A) as well as the AO both, totally failed to consider whether the assessee is covered under s. 10(23C)(iiiab) of the Act or not, as is both were duty- bound to consider the claim and examine the same. The mere rejection of application under s. 10(23C) (via) of the Act cannot be reason to reject the claim of exemption under s. 10(23C)(iiiab) of the Act. Learned counsel for the assessee relied on the proposition laid down by the Hon’ble Bombay High Court in the case of CIT v. Parle Plastic Ltd. [2010] 236 CTR (Bom) 382: (2010) 48 DTR (Bom)7 ITR 63 (Bombay)-Panaji Bench and referred the same for the meaning of ‘Substantial’. He also relied on the, Bangalore Bench in the case of ITO v. National Educational Society in ITA Nos. 472 and 472/Bang/2009, of Mumbai Bench ‘E’ in Senate of Serampore College asst. yrs. 2009-10 to 2010-11, Tribunal in the case of Asstt. Director of IT (Exemption) v. Vivek Education Society in ITA No. 5896/Mum/2011, dt. 7th Dec, 2012, of Delhi Bench of this Tribunal in the case of Jat Education Society v. ITO in ITA Nos. 2542 and 2543/Del/2011, dt. 19th July, 2013 and of Chennai ‘B’ Bench of this Tribunal in the case of Ganapathy Educational Trust v. Asstt. Director of IT (Exemption) in ITA No. 159/Mad/2013, dt. 25th June, 2013, wherein, in all orders, the meaning of ‘substantially financed by the Government is discussed. The AO is directed to consider these case laws and also any other case law of Hon’ble Supreme Court or any High Court available at the point of decision, and decide the same, whether the assessee’s case falls in the category of ‘wholly or substantially financed by the Government. In terms of the above, these two appeals of assessee are set aside to the file of the AO. Appeals of assessee are allowed for statistical purposes.”