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Facts
The assessee, HARSAC, a government institution, claimed exemption under Section 10(23C)(iiiab) for AY 2017-18. The AO completed the assessment under Section 143(3), partly disallowing exemption due to under-application of receipts.
Held
The Tribunal held that the CIT(E) failed to demonstrate that the assessment order was erroneous or prejudicial to the revenue. The AO had conducted proper inquiry, and the assessee fulfilled the conditions of Section 10(23C)(iiiab) regarding educational purposes and substantial government funding.
Key Issues
Whether the CIT(E) rightly invoked Section 263 to revise the assessment order concerning the assessee's eligibility for exemption under Section 10(23C)(iiiab).
Sections Cited
10(23C)(iiiab), 143(3), 263, 142(1), 2(15), 12A
AI-generated summary — verify with the full judgment below
िनधा"रती की ओर से/Assessee by : Shri K. Sampath, Advocate राज" की ओर से/ Revenue by : Shri Rohit Sharma, CIT, DR (Virtual Mode) सुनवाई की तारीख/Date of Hearing : 30/04/2025 उदघोषणा की तारीख/Date of Pronouncement : 26/05/2025 आदेश/Order PER LALIET KUMAR, J.M:
This appeal is filed by the assessee against the order dated 08.02.2022 passed by the Ld. CIT(Exemptions), Jaipur / Chandigarh under Section 263 of the Income Tax Act, 1961, in relation to the assessment order dated 14.12.2019 passed under Section 143(3) for the Assessment Year 2017–18.
The assessee, Haryana State Remote Sensing Application Centre (HARSAC), is a government-controlled institution under the Department of Science and Technology, Government of Haryana, engaged in providing research, training, and education in geoinformatics and remote sensing. It filed its return of income declaring NIL income and claimed exemption under Section 10(23C)(iiiab) of the Act. The case was selected for scrutiny and assessment was completed under Section 143(3) on 14.12.2019.
During the assessment proceedings, the Assessing Officer (AO) examined the assessee’s eligibility for exemption. The gross receipts for the relevant year were found to be Rs.5,37,40,947/-. As per Section 10(23C)(iiiab), 85% of such receipts, i.e.
2 Rs.4,56,79,804/-, were required to be applied to educational purposes. The assessee incurred revenue expenditure of Rs.3,43,61,692/- and capital expenditure of Rs.4,78,581/-, aggregating to Rs.3,48,40,273/-. Since Form 10 was not filed to justify any accumulation or to claim capital expenditure as application, the AO considered only the revenue expenditure as applied income and added the shortfall of Rs.1,08,39,531/- to the total income.
Subsequently, the CIT(E), Jaipur/Chandigarh invoked Section 263 of the Act on the ground that the AO had failed to verify whether the assessee was an institution existing solely for educational purposes and whether it was substantially financed by the Government. He concluded that the AO had not examined this issue adequately, rendering the assessment order erroneous and prejudicial to the interest of the Revenue. He, therefore, set aside the assessment for a fresh decision.
5. Feeling aggrieved by the order passed by the Pr. CIT the assessee is in appeal before us on the grounds mentioned in the memo of appeal.
The Ld. AR for the assessee submitted that the assessment order was passed after a full inquiry. The AO issued a detailed questionnaire under Section 142(1), to which the assessee responded comprehensively. It was pointed out that the reply to the questionnaire, referred to at page 27 of the PCIT order, clearly records that the assessee runs an M.Tech. (Geoinformatics) programme in collaboration with Guru Jambheshwar University of Science & Technology, a statutory university. The programme is formally recognized and approved, follows a structured curriculum, and is offered at nominal fees, which supports the claim that the assessee is engaged in education and not in profit-making activity. 6.1. The AR further drew attention to page 96 of the paper book, which contains a Government grant-in-aid sanction letter, evidencing that the primary source of income of the assessee is through government grants. It was submitted that these grants from both the State and Central Governments, including departments such as the Department of Space and Ministry of Science & Technology, are the mainstay of the assessee’s funding. Hence, the assessee is wholly or substantially financed by the Government, fulfilling the core requirement of Section 10(23C)(iiiab). 6.2 The Ld. AR submitted that the assessment order was passed after due verification. The AO issued a detailed questionnaire dated 11.09.2019 under Section 142(1), and the assessee’s reply, placed at page 27 of the assessment order, was on record. The reply detailed that:
3 “The objects of the society are to provide education, conduct survey and to develop efficient data and acquisition and retrieval system, to act as a repository of various natural resources. Major activities conducted by the HARSAC under the objectives of Education, Research, Training, Workshop and Exhibition are as follows:” The reply listed educational activities including: AICTE-approved M.Tech. course in Geoinformatics in collaboration with Guru Jambheshwar University, Hisar. Training and awareness programs for university/college teachers, school students, and researchers. Workshops, project completions, Eduset training, prototype development, and the National Land Record Modernization Programme. These clearly show that the assessee is engaged solely for educational purposes and not for profit.
Financial Structure – Government Funding: The AR also referred to the Income & Expenditure Account for the year ending 31st March 2017, available at page 96 of the paper book, which shows: Total Income: Rs.5,37,40,947/- Government Grants Received (Plan + Non-Plan): Rs.23,83,78,000/- Recovery from NRDMS (a Govt. programme): Rs.2,17,44,092/- Thus, over 95% of the income was received as grants from Central and State Governments or recoveries from Government programmes. This satisfies the requirement of “substantial financing by the Government” under Section 10(23C)(iiiab) read with Rule 2BBB of the Income Tax Rules, which defines “substantially financed” as 50% or more.
6.3 The AR also relied on the decision of the Coordinate Bench ITAT at Delhi in the assessee’s own case (ITA No. 1849/Del/2020), where, in similar factual circumstances, the Tribunal granted registration under Section 12A by holding that the assessee’s activities are educational and charitable under Section 2(15) of the Act. That decision has not been overturned and continues to hold the field. The AR argued that the Ld. CIT(E) failed to bring any new material on record, and his action was based on a mere difference of opinion with the AO. 6.4 It was also brought to our attention that the assessee had initially raised a ground that the CIT(E), Jaipur / Chandigarh, had no jurisdiction to pass the order since he had assumed charge of the Jaipur region as of 04.02.2022 and was no longer holding the charge of Chandigarh on the date of the impugned order. However, during the hearing, the AR specifically did not press this ground; accordingly, we do not adjudicate upon it.
The Ld. DR supported the revisionary order, arguing that the AO did not conduct proper inquiry into the educational nature of the assessee’s activities or its funding status. He relied on the judgment of the Hon’ble Supreme Court in New Noble Educational Society [(2022) 448 ITR 594 (SC)] to argue that an institution must impart structured, formal education to qualify under Section 10(23C)(iiiab), and that the AO did not satisfactorily examine this aspect.
We have heard both sides and carefully examined the record. It is not in dispute that the AO considered the assessee’s activities in light of the provisions of Section 10(23C)(iiiab) and partly denied the exemption by adding Rs.1,08,39,531/- to income on account of under-application. The AO recorded findings after calling for replies, examining utilisation of funds, and verifying the educational nature of the activities. The collaboration with Guru Jambheshwar University, approval of the M.Tech. programme, and the structured educational format followed by the assessee support its claim of existing solely for educational purposes. 8.1 Further, the evidence at page 96 of the paper book establishes that the primary source of income of the assessee is government grant-in-aid, which qualifies as substantial financing by the Government as per Rule 2BBB of the Income Tax Rules. The assessee’s funding structure satisfies the statutory condition of Section 10(23C)(iiiab). Additionally, the Tribunal’s decision in the assessee’s favour for grant of Section 12A registration under identical facts lends further credibility to its status as a charitable and educational institution. We further note that The assessee’s reply to the AO's questionnaire (at page 27) explicitly outlined its formal educational activities and the M.Tech. programme. Furthermore, the financial statements (at page 96) unambiguously establish that the assessee is funded almost entirely by government sources. As per Rule 2BBB, an institution is substantially financed by the Government if government grants exceed 50% of total receipts. The assessee’s records show such grants formed more than 95% of total receipts in FY 2016–17. Thus, both conditions of Section 10(23C)(iiiab) — (a) existing solely for educational purposes, and (b) being substantially financed by the Government — stand fulfilled.
8.2 Given the abovesaid undisputed facts, in our view, the CIT(E) has not demonstrated how the assessment order was either erroneous or prejudicial to the interest of the Revenue. There is no lack of inquiry by the AO. Reliance placed by the Revenue on New Noble Educational Society does not advance their case in light of the specific facts here, where the activities are formally educational, approved by a statutory university, and supported by public funding.
Accordingly, the order passed by the CIT(E), Jaipur / Chandigarh under Section 263 dated 08.02.2022 is quashed. The assessment order dated 14.12.2019 is restored.
In the result, the appeal of the assessee is allowed.