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Facts
The assessee, a technical university established under state legislation, claimed deduction under Section 10(23C)(iiiab). The Assessing Officer denied the deduction, holding that the university was not substantially financed by the government for the relevant year as required by Rule 2BBB. The Commissioner (Appeals) however, allowed the deduction.
Held
The Tribunal held that the assessee-university was established for educational purposes, solely under state legislation, and operated under the overall control of the State Government. Funds provided by the government for infrastructure and the retention of fees were considered constructive grants, fulfilling the conditions for exemption.
Key Issues
Whether the technical university, established by state legislation and funded by the state government, is eligible for deduction under Section 10(23C)(iiiab) despite not receiving direct government grants in the specific assessment year.
Sections Cited
10(23C)(iiiab), 143(3), 11(5), 2BBB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI LALIET KUMAR, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
(िनधा�रणवष� / Assessment Year: 2018-19 ACIT-Circle -1 (Exemption) Maharaja Ranjit Singh Punjab 5th Floor C.R. Building Technical University Bathinda बनाम/ Vs. Sector 17-D GZS Campus, Davwali Road Chandigarh 160017 Bhatinda – 151 001 �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAAGT-0124-M (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरAppellant by : Sh. Abdul Kadir (Advocate). – Ld. AR ��थ�कीओरसे/Respondent by : Shri Rajat Kumar Kureel (CIT) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 01-07-2025 घोषणाकीतारीख /Date of Pronouncement : 08-07-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appealby revenue for Assessment Year (AY) 2018-19 arises out of an order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 30-10-2023 in the matter of an assessment framed by Ld. AO u/s 143(3) of the Act on 23-04-2021. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
The assessee being technical university is stated to be established under The Maharaja Ranjit Singh State Technical University Act, 2014. To examine assessee’s claim of deduction u/s 10(23C)(iiiab), the return of this year was subjected to scrutiny. The provisions of Sec. 10(23C)(iiiab) r.w.r. 2BBB provide the such institution should be substantially financed by the Government and Rule 2BBB provide that substantially financed would mean that the government grant to such institutions should exceed 50% of total receipts. During the course of assessment proceedings, the assessee stated that the Government provided Rs.150 Crores during 2015-16 and 2016-17 to run the university. Since no fund was required in this year, no grant was received. In case the funds would be required, the same would be provided by Punjab Government. However, Ld. AO did not concur with the stand of the assessee. It was noted that receipts for this year were in the nature of interest income and fees. There was no government contribution at all in this year which violate the condition of Rule 2BBB. Accordingly, the impugned deduction was denied to the assessee and the income was computed at Rs.12.63 Crores. Aggrieved, the assessee assailed the assessment in first appeal.
The Ld. CIT(A) noted that the assessee university was formed by the State Legislature vide The Maharaja Ranjit Singh State Technical University Act 2014 (Punjab Act No 5 of 2015) as notified in Punjab Government Gazette dated 12th February 2015 for the advancement of the technical education, training, and research in technical education amongst all the students without making any distinction on the basis of religion, race, caste, sex or place of birth. The State Government provide funds from time to time by way of grants for meeting the capital, recurring or other expenditure of the University as it may deem fit. The Punjab Government provided the grant of Rs.25.00 crores during FY2019-20 and further grant of Rs 25 crore was in pipeline forFY 2020-21. These funds were provided to set-up infrastructure for the University i.e., to acquire Building, Furniture, Labs, Electrical Installations and other equipments. The appellant university was wholly controlled and managed by the Board of Governors with the Chief Secretary of the State Government as Chairman and the Principal Secretary of the Govt. of Punjab, Dept. of Technical Education as Vice- Chairman and the Governor of Punjab act as Chancellor of the University. The University works under the overall control of the State of Punjab. As per section 10(23C)(iiiab) the income of the assessee shall be exempt if the assessee is a university or an educational institution and it exist solely for educational purpose and not for profit. There was no adverse finding by Ld. AO on any of this aspect. The university was formed by the State Legislature for the advancement of the technical education, training, and research in technical education amongst all the students. There was no adverse allegation on this aspect also. The funds received by the assessee were to be spent on the creation of assets which take longer period of 4 to 5 years. The University was still under construction and was spending the amount for its infrastructure. The university was still spending the amount and till 2019- 20, it spent Rs 156.16 crores on the infrastructure of the university. The unspent amount has to be kept in such a way that it gives the maximum benefits to the institution and the same was in accordance with the provisions of section 11(5) of the Income Tax Act 1961. For this reason, the amount was kept in fixed deposits with the bank. The surplus of the university would not lead to inference that it did not exist for the purpose of education. There was no doubt about the purpose of creation of assessee-university and the assessee had fulfilled all the conditions laid out in section 10(23C)(iiiab). The assessee earned income on surplus funds which would be utilized in future for the purpose of education only as there was no other purpose to spend funds in future except for spreading education. Earning of income on surplus funds was only incidental income but not the purpose of assessee. Accordingly, the assessee was held entitled for impugned deduction. Aggrieved, the revenue is in further appeal before us.
After going through the impugned order, we are of the considered opinion that the issue of assessee’s eligibility to claim deduction u/s 10(23C)(iiiab) has correctly been adjudicated by Ld. CIT(A). It is quite clear that the assessee-university has come into existence by a state legislation. The assessee solely exists for the purpose of imparting technical education only. The Punjab Government provides grant to the assessee as and when it is required so as to enable the assessee to set-up the required infrastructure. The assessee university works under the overall control of the State of Punjab. There is no adverse finding by Ld. AO that the assessee does not exist for educational purpose or it is driven by any profit motive. The university receives grant from the government which is spent for creation of infrastructure. The unspent amount has been kept as fixed deposits so as to derive the maximum benefits to the institution. The investments are in accordance with the provisions of Sec. 11(5). The assessee has fulfilled all the conditions laid out in section 10(23C)(iiiab). The assessee earned interest income on surplus funds which would ultimately be utilized in future for the purpose of education only. The earning of income on surplus funds is only incidental income. The other source of income for the assessee is fee which is derived out of its normal activities.
We further find that Ld. AR has placed on record clarification dated 01-08-2024 as issued by Deputy Secretary, Department of Technical education & Industrial Training, Government of Punjab clarifying that the revenue generated by the university belongs to the local fund of the Government and the same has been permitted to be retained by the university for achieving the objectives of the university as per the Act. The annual budget of the university is passed every year through the Finance Committee under the administrative control of Govt. of Punjab, Department of Technical education & Industrial Training. On these facts, it could be said that the assessee is wholly funded by State Government and it is eligible to lay claim on impugned deduction u/s 10(23C)(iiiab) of the Act. The retention of fees by the assessee is nothing but constructive grant by the state government. The decision of this Tribunal in the case of Baba Hira Singh Bhattal Institute of Engg. & Technology vs. DCIT (ITA No.214/Chd/2020 dated 21-09-2022) is on similar facts and duly supports this proposition. On these facts, we see no reason to interfere in the impugned order, in any manner. The adjudication of Ld. CIT(A) could not be faulted with.
In the result, the appeal stands dismissed. Order pronounced on 08-07-2025.