DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI vs. UNIVERSITY OF MUMBAI, MUMBAI

PER SAKTIJIT DEY, VICE PRESIDENT:

Caption appeals and cross objection by the assessee arise out of two separate

orders of National Faceless Appeal Center (‘NFAC’ for short), Delhi, pertaining to the

assessment year (‘A.Y.’ for short) 2018-19.

ITA No. 5393/MUM/2025 (Assessee’s appeal) 2. The primary issue arising in the appeal, as per main grounds, relates to denial of

assessee's claim of exemption u/s.10(23C)(iiiab) of the Income Tax Act, 1961 (‘the Act’

for short). Of course, vide letter dated 13.04.2026, the assessee has sought permission

to raise two additional grounds purely on legal issues. However, at the outset, we

propose to deal with the issue on merits qua assessee's claim of exemption

u/s.10(23C)(iiiab) of the Act.

Institution. For the assessment year under dispute, the assessee did not file any return of

income u/s.139(1) of the Act, with the understanding that its income is exempt

u/s.10(23C)(iiiab) of the Act. However, the Assessing Officer (‘A.O.’ for short) received

information that in the financial year relevant to the assessment year under dispute, the

assessee had huge financial transactions, including various deposits in the bank

accounts. Based on such information, the AO formed the belief that income chargeable

to tax has escaped assessment. Accordingly, he initiated proceedings for reopening of

assessment u/s.147 of the Act with the issuance of show cause notice u/s.148A(b) of the

Act. After receiving the objections, the AO passed an order u/s.148A(b) of the Act and

simultaneously issued notice u/s.148 of the Act. In response to the said notice, the

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI assessee filed return of income claiming exemption u/s.10(23C)(iiiab) of the Act. In

course of assessment proceedings, the AO noticed that in the year under consideration,

the assessee had receipts of Rs.250,21,76,406/- from fees from students, letting out

premises, publication of books, government grants, settlement of advances, etc. He

further observed that the receipts are kept in various deposits in the bank accounts and

expenses are met out of withdrawals from deposits available in the bank. After verifying

the information available on record, the AO called upon the assessee to justify the claim

of exemption u/s.10(23C)(iiiab) of the Act. read with Rule 2BBB.

receipts and expenditure and submitted that conditions of s.10(23C)(iiiab) of the Act.

read with Rule 2BBB are fully complied. The AO, however, was not convinced with the

submissions of the assessee. Upon verifying the receipts, the AO observed that out of

total receipts of Rs.250,21,76,406/-, Government grant was to the tune of

Rs.52,34,09,281/-, which is less than the threshold limit of 50% provided under Rule

2BBB. Thus, he held that the assessee is not entitled to claim exemption

u/s.10(23C)(iiiab) of the Act. Having held so, he brought the case of income over

expenditure amounting to Rs.40,09,978,758/- to tax.

exemption u/s.10(23C)(iiiab) of the Act, as also the addition made, however, learned

first appellate authority sustained the addition.

the history of University of Mumbai, the present assessee. He submitted that it is a

Government Institution, fully and totally under the control of Government of

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI Maharashtra. He submitted, the University is presently governed under the Maharashtra

Public Universities Act, 2016. Drawing our attention to the provisions of the said Act,

learned counsel appearing for the assessee submitted that the Government is having

pervasive control over the University and the assessee cannot decide independently

regarding the creation of new posts of teachers, employees, revise the pay allowance,

grant any special pay allowance, divert earmarked funds for any purpose other than the

purpose for which it was received, transfer by sale or lease of immovable property, incur

any expenditure out of funds received by the University Grant Commission (‘UGC’ for

short) or any personal bodies for the purpose other than the purposes for which the funds

are received.

affairs of the University. Referring to the provision of section 10(23C)(iiiab) of the Act,

learned counsel submitted, the assessee fully satisfies the conditions, as it is a University

existing solely for educational purposes and is wholly and substantially financed by the

Government. Insofar as, the conditions of Rule 2BBB, learned counsel drawing our

attention to the details of grants received by the university from various sources

including Government, submitted that the grants received from Government has

exceeded the threshold limits of 50% of all receipts. Thus, he submitted, the conditions

of u/s.10(23C)(iiiab) of the Act. read with Rule 2BBB stand complied. He submitted,

while computing the 50% threshold limit as per Rule 2BBB, the departmental authorities

have not taken note of grants received from UGC and capital grant from government in

the form of land. He submitted, if the grant received from UGC and interest on

government grant in kind is included, the total grant received from the Government

would exceed the limit of 50%.

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI 8. Without prejudice, learned counsel submitted that it is not necessary for a

University or Educational Institution to comply with the conditions of Rule 2BBB on

year on year basis. He submitted, in case, the condition is met in the first year of claim

after the introduction of Rule, that would suffice and it is not necessary to comply the

condition in each and every assessment year. He submitted, if in any subsequent

assessment year, Government grant falls below the limit of 50%, claim of exemption u

u/s.10(23C)(iiiab) of the Act cannot be denied. He submitted, a grant received from

UGC is to be treated as a grant received from Government as UGC is an intermediary

of the State. In support of his contention, learned counsel relied upon the decision of the

co-ordinate bench in case of Ganapathy Educational Trust v. Asstt. Director of IT

(Exemption) [2013] 144 ITD 509. He submitted, the AO while computing the grant

received from the Government has only taken the revenue grant while completely

ignoring the capital grant. He submitted, the capital grant received from the Government

in the form of land, as also to be treated as Government grant for the purpose of Rule

2BBB. He submitted, the issue is no more resintegra as in assessee's case in AYs.2006-

07 to 2011-12, under similar facts and circumstances, the Income Tax Appellate

Tribunal has upheld the decision of learned first appellate authority allowing assessee's

claim of exemption u/s.10(23C)(iiiab) of the Act. A copy of the said order of the co-

ordinate bench was placed on record. Additionally, learned counsel for the assessee

relied upon the decision of Hon'ble Bombay High Court in case of CIT vs. Amritlal and

Co. Ltd. [2012] 212 ITR 540 (Bom) for the proposition that the threshold condition

provided under Rule 2BBB cannot be examined on year-on year basis.

ld. DR submitted, the assessee has generated huge income exceeding Rs.250 crore

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI during the year. Whereas, the Government grants receipt is merely one-third of the total

receipts. Hence, the conditions of Rule 2BBB are not complied, as the assessee is not

wholly or substantially funded by the Government. Proceeding further, he submitted

that grant received from UGC cannot be treated as Government grant to compute the

threshold limit under Rule 2BBB. In this context, he drew our attention to Explanation

10 of section 43(1) of the Act. Further, he submitted, the claim of the assessee that the

notional interest computed on the grant receipt from Government in kind representing

immovable property, cannot at all be considered for computing the threshold limit under

Rule 2BBB. He submitted, once the UGC grant and notional interest computed @ 8%

on land received from Government is excluded, the Government grant would be much

below the threshold limit of 50% of the total receipts. Thus, he submitted, the assessee

has failed to comply with the conditions of section 10(23C)(iiiab) of the Act read with

Rule 2BBB. In support of his contention, learned counsel relied upon the decisions of

Hon'ble Karnataka High Court in case of Visvesvaraya Technological University v.

ACIT [2014] 42 taxmann.com 237 (Kar.).

before us and perused the materials available on record. The short issue arising for

consideration is whether the assessee is eligible to claim exemption u/s.10(23C)(iiiab)

of the Act. Undisputedly, the assessee is one of the oldest Universities existing in India.

It was created in the pre-independence era, as early as in the year 1857, through Act No.

XXII of 1857 passed in the Legislative Council of India. It is also a fact that the assessee

is engaged in educational activities. Subsequently, the assessee was governed under

various other Acts from time to time, and as on date, it is governed by Maharashtra

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI Public Universities Act, 2016. Section 8 of the said Act speaks of the Control of State

Government on Universities Sub-section (1) lays down the following conditions:

expenditure with the following conditions:

(2) The university shall be competent to incur expenditure, in consonance with the policies and directives of the State Government issued from time to time, from the funds received from,- (a) various funding agencies without any share or contribution from the State Government; (b) contributions received from individuals, industries, institutions, organizations or any person whosoever, to further the objectives of the university; (c) contributions or fees for academic or other services offered by the university for aided and self-supporting academic programmes; (d) development fund, or any other fund established by the university; for the purposes of, (i) creation of posts in various cadres; (ii) granting pay, allowances and other benefits to the posts created through its own funds provided those posts are not held by such persons, who are holding the posts for which government contribution is received; (iii) starting any academic programmes on self-supporting basis; (iv) granting remunerations or incentives to its employees for performing any task assigned to them other than their regular duties and responsibilities; (v) incurring expenditure on any development work and on welfare activities of its students and employees: Provided that, there is no financial liability, direct or indirect, immediate or in future, on the State Government. 12. As could be seen from the provisions contained u/s.8 of the Act reproduced

above, the Government exercises full control with reference to the matters enumerated

under sub-section (1). Whereas, the Government authorizes the University to incur

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI expenditure out of the funds received from sources other than the State Government,

ofcourse, in consonance with the policies of the State Government issued from time to

time. Sub-section (2) of Section 8 further clarifies that expenditure to be so incurred

should not create any financial liability, direct or indirect, immediate or future, on the

State Government. The other sub-sections contained u/s. 8 of the Act speaks of various

other control of the State Government over the activities of the University. Thus, section

8, read as a whole, signifies that the State Government has full control over the affairs

of the University and the grants received from State Government or instrumentalities of

the Government such as UGC, has to be utilized in the manner prescribed by the

Government. In other words, the University has no authority to spend the grant of the

Government or carryout the other activities like creating new posts, revising pay

allowance, etc., utilize funds received for any other purposes, transfer, sale, or lease

immovable property without the approval of the Government. Thus, it is factually

established that the assessee is under the control of the Government.

the Act. A reading of the said provision makes it clear that upon fulfillment of the

following conditions, the income will be exempt from taxation: (i) The assessee must be a University or other Educational Institution. (ii) It must be existing solely for educational purpose and not for the purpose of profit. (iii) It must be wholly or substantially financed by the Government.

The expression ‘wholly and substantially’ financed by the Government for the

purpose of u/s.10(23C)(iiiab) of the Act has been explained in Rule 2BBB introduced

w.e.f. A.Y. 2015-16. A reading of the said rule makes it clear that a University or other

Educational Institution can be treated as a wholly or substantially financed by the

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI Government, if the Government grant to such University or Educational Institution

exceeds 50% of the total receipts, including any voluntary contributions of such

University or Educational Institution during the relevant previous year. To establish

meeting of the threshold condition prescribed under Rule 2BBB, the assessee has

furnished before us the following chart:

consideration works out to 50.76 %. Hence, conditions of section 10(23C)(iiiab) of the

Act read with Rule 2BBB stand complied. Whereas, the department's case is, UGC grant

and the notional interest computed on land received from Government cannot be taken

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI as part of Government grant received for the year under consideration. So far as, grant

from UGC is concerned, it is to be borne in mind that UGC is a statutory body

established under the University Grants Commission Act, 1956. The object for creating

UGC is for distributing Central Government funds to various Universities. Thus, in sum

and substance, UGC is an intermediary between the Central Government and

Universities. As per Section 15 and 16 of the UGC Act, the entire fund of the

Commission is received from the Central Government out of the Consolidated Fund of

India, through Annual budget allocation approved by the Parliament. From the fund so

received, UGC allocates and distributes funds for the maintenance and development of

the Universities or for any other general or specific purpose. Thus, there cannot be any

doubt that the UGC is a medium for grant of Central Government funds to the

Universities. That being the case, the UGC grant received by the University for all

practical purposes is a grant received from Government. In fact, in case of Ganapathy

Educational Trust (supra), the co-ordinate bench held that UGC, being an

instrumentality of the Central Government, the grant received from the UGC can be

considered as grant from Government. Thus, in our view, the grant received from UGC

should form part of the grant received from Government.

assessee in the form of land. As discussed earlier, based on the value of the land received

from Government, the assessee has computed interest @ 8% and treated it as grant

received from Government. It is a fact on record that the campus of the University at

Fort is situated on a land granted by the Government on 28.06.1918 on long-term

leasehold basis for a period of 945 years. Additionally, another plot of land at Kalina

was granted to the assessee by the State Government, which is under the ownership of

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI the assessee. Both these lands form part of the fixed assets appearing in the books of

accounts of the assesse. It is a fact on record that assessee from past years is computing

notional interest on the land and treating it as part of the Government grant. While

adjudicating similar nature of dispute in assessee's case in A.Y. 2006-07, learned first

appellate authority accepted assessee's claim by relying upon the decision of Hon’ble

Karnataka High Court in case of Indian Institute of Management (2014) 49

taxmann.com 136 (Karnataka), wherein the Hon'ble High Court has held that the

expression ‘wholly and substantially financed by the government’ cannot be confined

only to the grants, but would include the capital gains such as grants for land, building,

infrastructure, etc. Notably, the aforesaid decision of learned first appellate authority in

A.Y. 2006-07 and subsequent assessment year upto A.Y. 2011-12 has been upheld by

the co-ordinate bench in assessee’s own case vide order dated 09.03.2026 in ITA No.

5385 to 5390/Mum/2025. Though, the assessment years involved therein are prior to

introduction of Rule 2BBB, however, the said rule would have no bearing on the

proposition laid down in the aforesaid decision. In case, the interest on grant received in

the form of land and UGC grant is considered as part of Government grant, the total

grant received from Government as a percentage of total receipts works out to 50.76%

exceeding the threshold limit of 50%. Therefore, the conditions of section 10(23C)(iiiab)

of the Act read with Rule 2BBB stand satisfied.

u/s.10(23C)(iiiab) of the Act. The A.O. is directed to compute assessee's income

accordingly after allowing exemption u u/s.10(23C)(iiiab) of the Act. In view of our

decision on merits, the additional grounds raised by the assessee, having become

academic, are kept open.

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI 17. Ground number 2 of the main grounds on levy of interest being consequential,

does not require adjudication.

ITA No. 3554/Mum/2026 and CO No. 121/Mum/2026 (by the Revenue) 18. The aforesaid appeal by the Revenue and cross objection by the assessee arise

out of penalty proceedings u/s.270A of the Act.

completion of assessment, after denying assessee's claim of exemption

u/s.10(23C)(iiiab) of the Act, the AO initiated proceedings for imposition of penalty

u/s.270A of the Act alleging under reporting of income on account of misreporting.

Ultimately, the AO passed an order imposing penalty of Rs.270,75,58,298/-, being

200% of tax on the income underreported as a consequence of misreporting.

CIT(A).

imposition of penalty, however, he directed the AO to treat it as case of underreporting

of income.

5393/Mum/2025, in the earlier part of the order, we have deleted the addition made by

the AO, which formed the basis of imposition of penalty u/s.270A of the Act. That being

the case, the penalty order cannot survive. Accordingly, the penalty imposed is deleted.

ITA 5393/MUM/2025 and others UNIVERSITY OF MUMBAI 24. In nutshell, assessee's appeal, being ITA No. 5393/Mum/2025, is partly allowed. Department's appeal being ITA No. 3554/Mum/2026 is dismissed. Whereas, CO No.212/Mum/2026 is allowed.

Order pronounced in the open court on 16.10.2026.

Sd/- Sd/- MAKARAND V MAHADEOKAR SAKTIJIT DEY ACCOUNTANT MEMBER VICE PRESIDENT Mumbai Dated: 16.10.2026 Roshani, Sr. PS Copy to: UNIVERSITY OF MUMBAI, UNIVERSITY OF MUMBAI, 1 12/ACCOUNTS DEPARTMENT, M.G. ROAD, FORT, MUMBAI-400032 INCOME-TAX OFFICER (EXEMPTION)- 2(3), CH-616, 6TH FLOOR, MTNL TEL. 2 EX. BUILDING, CUMBALLA HILLS, PEDDER ROAD, MUMBAI-400026, 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE