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Facts
The assessee, Guru Nanak Dev University, claimed deduction under Section 10(23C)(iiiab) for AY 2012-13. The Assessing Officer denied the deduction, stating that the university was not substantially financed by the government, as its grant was only 31.76% of its total receipts.
Held
The Tribunal held that the interpretation of 'substantially finance' prior to AY 2015-16 was governed by judicial decisions which considered lower percentages as substantial. The Tribunal noted that Rule 2BBB and CBDT Circular 01/2015, which prescribed a 50% threshold, were not applicable for AY 2012-13.
Key Issues
Whether the assessee university was substantially financed by the government for the purpose of claiming exemption under Section 10(23C)(iiiab) for AY 2012-13, considering the applicable interpretation of 'substantially finance' prior to the amendment in AY 2015-16.
Sections Cited
10(23C)(iiiab), 143(3), 147, 2BBB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2012- 13 arises out of an order of learned Commissioner of Income Tax (Appeals), National Faceless Appeals Centre, Delhi [CIT(A)] dated 29- 03-2023 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s. 147 of the Act on 19-12-2019. The sole grievance of the assessee is denial of deduction u/s 10(23C)(iiiab) which provide that Income received by any university or educational institution existing solely for educational purposes and not for purposes of profit and which is wholly or substantially financed by the Government is fully exempt from tax vide Section 10(23C)(iiiab). In other words, a Government educational institution is fully exempt from income tax without any separate approvals etc. as long as it does not exist for profit purpose. In this appeal, the sole issue that fall for our consideration is to interpret the meaning of ‘substantial financing’ for the purpose of these provisions.
It emerges that the assessee was established at Amritsar by State Legislature Act No.21 of 1969. The assessee is residential and an affiliated university. The return of income as filed by the assessee was initially processed u/s 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 u/s 10(23C)(iiiab) and in support, it tabulated a chart of receipts of grants which is extracted at para-11 of the assessment order. The percentage of government grant as computed by the assessee vis-à- vis total receipts was worked out to be 47%. However, Ld. AO recomputed the same to be 31.76%. In other words, as per the findings of Ld. AO, the percentage of financing by government was to the extent of 31.76%.
The Ld. AO, in terms of Rule 2BBB, held that the expression ‘substantially finance’ would mean that government grant should be more than 50% of total receipts which was not the case here. It was noted that though this criteria was applicable from AY 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.
The Ld. CIT(A), by considering various judicial decisions, held that extent of grant of 31.76% 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 against which the assessee is in further appeal before us. Our findings and Adjudication 5. We find that the impugned issue qua amendment to Sec.10(23C) and interpretation of ‘substantially finance’ prior to AY 2015-16 stood covered in assessee’s favor by various judicial decisions of higher forums, the copies of which have been placed on record. The Hon’ble High Court of Punjab and Haryana in the case of Swami Ganga Giri Janta Girls College (162 Taxmann.com 677) concurred with the finding of Tribunal that Rule 2BBB was not applicable for AY 2012-13 and the same was brought in force from 12-12-2014. The same clearly negates the action of Ld. AO. Even the CBDT Circular No.01/2015 dated 21-01-2015 clearly state that the amendment to Sec.10(23C) shall take effect from 01-04-2015 and accordingly, apply in relation to AY 2015-16 and for subsequent years. Therefore, quite clearly, the amendment prescribing higher ceiling of 50% would not apply for this year.
The interpretation of expression ‘substantially finance’, prior to amendment w.e.f. AY 2015-16, has been dealt in various judicial decisions. The Hon’ble Karnataka High Court in the case of Indian Institute of Management (196 Taxman 276) held that financing to the extent of 37.85% would constitute substantial financing. In subsequent decision, the Hon’ble Court in the case of Dhamapakasha Rajakarya Prasakta B.M. Sreenivasaiah Educational Trust (59 Taxmann.com 33) again held that government grant to the extent of 25% would constitute substantial financing. Following the decision in Indian Institute of Management (supra), Hon’ble High Court of Punjab and Haryana concurred with the finding of Tribunal that government financing to the extent of 44.52% would constitute substantial financing. The other decisions as placed on record well support this proposition and no contrary decision having similar facts is shown to us. Respectfully following all these decisions, we would hold 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 u/s 10(23C)(iiiab). Consequently, the other grounds as urged in the appeal have been rendered mere academic in nature and we see no fruitful reason to deal with the same. The Ld. AO is directed to grant impugned exemption to the assessee. We order so.