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Income Tax Appellate Tribunal, “A” BENCH,
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee directed against the order of ld.Commissioner of Income Tax(Appeals)-10, Pune, dated 03.05.2016 for the A.Y. 2011-12. The Assessee has raised the following grounds of appeal: “1] In the facts and circumstances of the case and in law, the learned C.I.T.[A] has grossly erred in rejecting the claim of exemption made by the appellant assessee u/s10[23C][iiiab] of the I.T. Act 1961. The various reasons given by the learned CIT[A] for rejecting the claim of exemption made by the appellant assessee u/s 10[23C] [iiiab] OF THE I.T.Act 1961 being legally unsustainable and devoid of merits the same may please be vacated and the exemption as claimed may please be granted to the appellant assessee.
A.Y. 2011-12 The Punyashlok Ahilyadevi Holkar Solapur University, Solapur Vs. ACIT, Circle-2, Solapur
2] In the facts and circumstances of the case and in law, it may please be held that since the appellant is owned and wholly financed by the State Government of Maharashtra and its surplus belongs to Govt of Maharashtra its income is exempt u/s 10[23C][iiiab] of the I.T.Act 1961. 3] The learned CIT[A] has failed to appreciate that the appellant assessee since its inception has received substantial immovable properties, machinery and equipments and other infrastructure facilities by way of grants from Govt of Maharashtra and if the same are considered the appellant assessee qualifies the conditions prescribed u/s 10[23][iiiab] of the I.T.Act 1961 and hence the consequential relief may please be granted. 4] The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal. 5] Any other equitable and just order that may be deemed fit and proper by your honour may please be passed in the matter.”
Brief facts of the case are that the assessee is a university formed by a notification issued on 22/07/2004 by Govt. of Maharashtra under Maharashtra Universities Act 1994. The requite resolution for formation of this university was duly passed by both houses of state legislature.
2.1 Issue involved in Appeal : In this case assessment order was passed on 28/03/2014 u/s 143(3) of the Income Tax Act by Assistant Commissioner Income Tax Circle 2 Solapur (AO) by holding that assessee has not applied Rs.5,11,42,005/- for the object. Also made addition of Rs.52,92,200/-. AO denied exemption u/s 10(23C)(iiiab) of the Act .
A.Y. 2011-12 The Punyashlok Ahilyadevi Holkar Solapur University, Solapur Vs. ACIT, Circle-2, Solapur
The assessee filed appeal before the Commissioner of Income Tax(appeal). The CIT(A) directed the AO to delete the additions for the reasons discussed in the order. The Department has not filed any appeal against these deletions. However, CIT(A) also held that assessee is not eligible for exemption u/s 10(23C)(iiiab) of the Act as it is not substantially funded by the Government.
Being aggrieved by the order of the ld.CIT(A), the assessee has filed an appeal before this Tribunal.
4.1 Thus, the only issue in appeal is Whether the assessee is eligible for exemption u/s 10(23C)(iiiab)?
The Ld.Authorised Representative(ld.AR) for the assessee explained us that the university is formed by the state government. It is a government university. Hence it is eligible for exemption u/s.10(23C)(iiiab). He also filed copy of the resolution dated 22/07/2004 vide which the university was formed by the state government. Ld.AR also submitted that for earlier years the exemption has been allowed.
Ld.Departmental Representative (ld.DR) for the Revenue relied on the order of the lower authorities. Ld.DR also relied on the decision of Hon’ble SC in the case of Visvesvaraya Technological University v/s ACIT 384 ITR 37(SC) order dated 22/04/2016.
A.Y. 2011-12 The Punyashlok Ahilyadevi Holkar Solapur University, Solapur Vs. ACIT, Circle-2, Solapur
Heard both the parties and perused the records.
7.1 It is a fact that the assessee university was formed by State Government under Maharashtra Universities Act 1994. Assessee claimed exemption u/s10(23C)(iiiab) for the relevant assessment year. It is also fact that the assessee is not registered u/s 12AA of the Act.
7.2 The Commissioner of Income Tax has held that assessee is not eligible for exemption. The relevant part of the order of the CIT(A) pertaining to facts of this case is reproduced here as under : Quote,“ For the sake of clarity, income and expenditure a/c of the appellant is reproduced here as under to signify and highlight the Govt. contribution. Expenditure (Rs.) Income (Rs.) (i) Establishment 4,82,87,201 (i) Examination 5,32,45,353 Exp. fee (ii) Examination 3,48,05,042 (ii) Academic 1,29,96,246 Exp. Fee (iii) Academic Exp 66,18,102 (iii) Other fee 2,67,02,866 (iv) Common 2,15,09,957 (iv) Salary Grant 4,72,85,300 General charges (v) Auxillary 8,13,836 (v) Income from 34,97,340 Services other sources (vi) Student 2,50,271 (vi) Interest from 77,59,214 welfare Bank (vii) Depreciation 71,87,443 Surplus 3,17,14,469 15,11,86,319 15,11,86,319 (d) As can be seen from the above, total receipt of the appellant from the various sources is at Rs.15,11,86,319/- out of it, the contribution from the Govt. is Rs.4,72,85,300/- in the form of Salary Grant which constitutes 31.27% of the total funds. Again the issue arises regarding the term financed by the Govt. whether includes both on the capital as A.Y. 2011-12 The Punyashlok Ahilyadevi Holkar Solapur University, Solapur Vs. ACIT, Circle-2, Solapur well as revenue and if we go by liberal meaning including capital aid also, in appellant’s case it is, an amount of Rs.1,48,00,000/- during the year, which constitutes only 41% of the total finance, which is below the limit of 50% i.e. the benchmark for the word substantially for this purpose.” Unquote 7.3 The government grant for salary during the year is Rs.4,72,85,300/- and capital grant is Rs.1,48,00,000/-. Totalling to Rs.6,20,85,300/- which is only 41% of the total receipt of Rs.15,11,86,319/- for the year.
7.4 Thus, in this case it is a fact that the Government grant is only 41% which is less than 50%.
7.5 It has been observed by Hon’ble Bombay High Court in the case of CIT v/s Tata Institute of Social Sciences, [2019] 105 taxmann.com 128 (Bombay), Quote, “This has so been held by the Apex Court in Thiru Manickain& Co. v. State of Tamil Nadu AIR 1977 SC 518. In the above case, the Court held that an amendment to the Act which is not retrospective may yet be used as an exposition of the Parliamentary intent as contained in the Section even before its amendment. Thus, in the present facts, the same measure as has been clarified by the Explanation introduced by the amendment viz.- grant from Government is in excess of 50% of its total receipts, it is substantially financed by the Government could be taken as the exposition of the Parliamentary intent of the unamended Section. Thus, without holding
A.Y. 2011-12 The Punyashlok Ahilyadevi Holkar Solapur University, Solapur Vs. ACIT, Circle-2, Solapur the Explanation to Section 10(23C)(iiiab) of the Act, inserted into the Act w.e.f. 1st April, 2015, is retrospective, the same is being used as an aid in construing the ambiguous provision.” Unquote.
Respectfully following the Hon’ble Bombay High Court, it is held that meaning of substantially financed by Government means cases where government grants are more than 50% of total receipts. In the case under consideration, the government grants are 41% which is less than 50%. Therefore, the assessee university is not substantially financed by the Government. Hence, it is not eligible for exemption u/s 10(23C)((iiiab) of the Act.
It is prima facie noticed before parting that as per the Income & Expenditure Account the profit of the university for AY 2011-12 is 20% and for AY 2010-11 is 32% which apparently indicates that the assessee’s surplus generated is far in excess of what has been held by the Hon’ble Supreme Court to be permissible (6 to 15%) in Islamic Academy of Education and Others Vs. State of Karnataka and Others in Writ Petition (Civil) No.350 of 1996, dated 14.08.2003 in Para 135 held as “While this Court has not laid down any fixed guidelines as regard fee structure, in my opinion, reasonable surplus should ordinarily vary from 6% to 15%.............”. However, since we have already concluded that this University is not “substantially” financed(supra). We do not A.Y. 2011-12 The Punyashlok Ahilyadevi Holkar Solapur University, Solapur Vs. ACIT, Circle-2, Solapur intend to adjudicate on the instant of profiteering. The assessee’s foregoing grounds are dismissed accordingly.
In the result, appeal of the assessee is dismissed. Order pronounced in the open Court on 22nd June, 2022.