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

Ld. DR appearing on behalf of the Revenue, while relying upon the order of AO submitted that the assessee was not entitled for exemption under Section 10 (23C) (iiiab) as it was observed by the AO that as per Section 10 (23C) (iiiab) of the Act: "any university or other educational institution existing solely for educational purposes and not for the purpose of profit, which is wholly and substantially financed by the government."

However, in the instant case, the assessee had earned surplus to the tune of 18,24,45,379 during the year under consideration as per its income and expenditure account which shows that the motive of the assessee is profit making rather than solely for the education. However, the content within the provision u/s 10(23C)(iiiab) of the IT Act clearly stipulates that those universities and educational institutions which, apart from existing solely for educational purposes and not for the purpose of profit making and substantially financed by the government are eligible for the exemption u/s 10(23C)(iiiab) of the IT Act. Secondly and equally important fact is that the assessee is not substantially financed by the Government. During the year under consideration, the assessee had received Government grant of 16,92,28,931 whereas the expenditure of the assessee is to the tune of ₹ 91,12,96,159. Thus, it can be seen that the assessee got only 19% of its expenditure as government grant which cannot be said as substantially financed by the Government.

Further, as per section 14(1) of C & AG Act 1971, substantially financed means not less than 75% of the expenditure of the assessee which is the only Central Govt. Act in which the meaning and content of the phrase "substantially financed" has been statutorily laid down. Such an organization is also audited by the Ca AG, which is not in the case of the assessee. There is no such provision in any of the Central Govt. Act in favour of the assessec by which it can be said that even if getting the grant at 19% of its expenditure only, the assessee may be accepted as substantially financed by the government. Hence, in the eye of the central government of India also, the institution in question is not substantially financed by the government.

In the instant case, the assessee is only financed by the government to the extent 19% of its expenditure; however as per section 14(1) of C AG Act 1971, the substantially financed means not less than 75% of the expenditure of the assessee. Hence, the assessee is not substantially financed by the Govt.

On the contrary Ld. AR reiterated the same arguments as were raised by them before the Ld. CIT(A) and also relied heavily on the order of Ld. CIT(A).

We have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that the assessee is a University of Mumbai and is governed under Maharashtra Universities Act. For the year under consideration the assessee has a net income of Rs. 18,24,45,379/- which was surplus amount of receipts and expenditure and accordingly the assessee has claimed the said amount of Rs.18,24,45,379/- as exemption u/s 10(23C) (iiiab) of the Act thereby determined total income as nil.

However, AO was of the view that the assessee had earned surplus to the tune of Rs. 18,24,45,379/- during the year under consideration, treating the assessee has profit making rather than solely for education and denied the exemption claimed by the assessee u/s 10(23C)(iiiab) of the Act. Further, the AO has also opined that the assessee has received Rs. 16,92,28,931/-as Government grant whereas the expenditure of the assessee as Rs.91,12,96,159/-which is 19% of its expenditure, hence determined that the assessee was not substantially financed by the government relying on section 14(1) of C&AG Act, 1971 and denied the claim of exemption u/s 10(23C) (iiiab) of the Act However, the AO has allowed the exemption of Rs.16,40,61,231/- u/s 11(1)(a) of the Act @ 15% of the Gross receipts.

Whereas on perusal of Section 10 (23C) (iiiab) of the Act we are of the view assessee is a university existing solely for educational purposes under Universities of Maharashtra Act, 1994. Further, the assessee has submitted that it has claimed its surplus income as an exemption u/s 10(23C)(iiiab) of the Act. Further, in rebuttal to the AO's view of profit making organisation, the assessee has relied on the view of Hon'ble ITAT, Kolkata in the case of Sikkim Manipal University in 1230/K/2011 dated 29.11.2011, wherein if was held that, a perusal of Sec 10(23C) (iiiab) shows that the educational institution should exist 'solely for educational purposes and not for purposes of profit, that is to mean that the institution should provide education and not indulge in any profit making activity. The determination of the existence of educational institution solely for educational purposes is to be done on the basis of its objects and utilization of its income in accordance with the conditions laid down in the third proviso to Sec. 10(23C). Merely for the reason that the educational institution has surplus funds, it would not ipso facto lead to an inevitable conclusion that an educational institution exists for making profits and not solely for educational purposes.

On this preposition we found strength from the decision of Sikkim Manipal University in dated 29.11.2011 and further reliance has also been placed upon the decision of Coordinate Bench of ITAT in the case of Banglore in the case of Bangalore University in order dated 28.03.2008. It is important to mention that the university gets its funds from Government and the Chancellor of the university is the Chancellor of University is the Governor of the Maharashtra State and the Vice-Chancellor shall be appointed by the Chancellor i.e., The Governor of Maharashtra.

As far as reliance of AO upon Section 14(1) of the CAG Act, 1971 is concerned in this regard we noticed that as per Section 103(3) of the Maharashtra University Act 1994, wherein the State Government shall conduct, the test audit or full audit of the accounts of the University at regular intervals by the t auditors appointed by the State Government. Further, there is no role for CAG to -conduct audit for determining the financing by the Government. Further, the assessee has also submitted that the AO has erred in disallowing the exemption u/s 11(1)(a) of the Act.

Another important aspect of this is that the AO had not considered the fact that the assessee university is financed by the state government of Maharashtra and received grant-in-aid from various government agencies having revenue nature such as Salary Grant etc., credited to Income & Expenditure account and capital nature such as funding for capital items credited to Balance Sheet on liability side. However, the AO has not considered the capital nature of receipts in order to determine the eligibility of claim of exemption u/s 10(23C)(iiiab). Further, the assessee had also submitted that the grant received in the form of land is substantial and interest factor @ 8% of value of land as on 2005 to be considered on straight line basis as fund received from Government. In support of the same, the assessee has submitted the copy of valuation report and calculation of percentage of grant in aids received by the assessee out of total receipts as below. Even, on perusal of the above working, it is construed that the assessee has received more than 100% for the expenditure it has incurred for the year under consideration 4/ after considering the interest on government grant in kind @ 8% for the government granted land and infrastructure. The assessee has submitted the copy of valuation report in support of the same

Now the question arises as to whether the Government granted land be considered as a part of grant in aid for determining the eligibility of claim of exemption u/s 10(23C) (iiiab), the said controversy was adjudicated by the Hon'ble High Court of Karnataka in the case of Indian Institute of Management [2014] 49 taxmann.com 136 (Karnataka) dated 17.06.2014 as below,

Thus, considering the above decision the Ld. CIT(A) had rightly considered the assessee to be substantially funded by the State of Maharashtra. Even otherwise, no new facts or circumstances or documents have been placed on records by Ld. DR in order to controvert or rebut the lawful findings so recorded by the Ld. CIT(A), therefore, we see no reasons to interfere into or to deviate from the findings so recorded by Ld. CIT(A), hence we dismiss the grounds raised by the Revenue.

Ground No. 6: This ground raised by the Revenue relates to challenging the order of ld. CIT(A) in accepting additional evidence filed by the assessee.

We have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that during the course of appellate proceedings the assessee had filed written submissions which was accepted as additional evidence under Rule 46A of the Income Tax Rules, 1962. However, a remand report was sought/called from the AO, in this regard by Ld. CIT(A). Even after multiple reminders, AO failed to submit any remand report, therefore, Ld. CIT(A) construed that the submissions made by the assessee are acceptable as the additional evidences under Rule 46A of the Income Tax Rules, 1962. In this regard reliance has placed upon the decision of Coordinate Bench in the case of ACIT V. Raj Bajwa in ITA No.

Ld. DR has not been able to substantiate the arguments raised by him and in this regard no written submissions or any contrary judgments were filed in order to demonstrate as to what illegality/impropriety has been committed by the Ld. CIT(A) while accepting the written submissions of the assessee as additional evidence, therefore, we see no reasons to interfere with or to deviate from the findings so recorded by Ld. CIT(A), hence we dismiss this ground raised by the Revenue.

In the net result appeal filed by the Revenue is dismissed.