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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, DCIT, Circle 1 (1), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 30.03.2018 passed by the Commissioner of Income-tax (Appeals)-40, New Delhi qua the assessment year 2013-14 on the ground that :-
“Whether on the facts and in circumstances of the case and in law, ld. CIT (A) has erred in allowing the benefit of exemption u/s 10(23C)(iiiac) to the assessee society particularly when the society is not substantially financed by the government in view of Rule 2BBB of the Income Tax Rules, 1962.” 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee being a society is into providing medical care in the field of liver and related diseases and is also registered under section 12A and 80G(5)(vi) of the Income-tax Act, 1961 (for short ‘the Act’). During the year under consideration, assessee trust received funds from Government of NCT of Delhi to the tune of Rs.1,57,93,89,043/-, out of which funds received from the Government at Rs.66,00,00,000/- (which is 41.78% of the total income of the assessee trust). Declining the contentions raised by the assessee, AO denied the exemption sought by the assessee u/s 10(23C)(iiiac) of the Act on the ground that this section applies to the bodies substantially financed by Government and thereby assessed the total income at Rs.20,72,34,969/-.
Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has directed the AO to allow exemption to the assessee u/s 10(23C)(iiiac) of the Act for the year under consideration by partly allowing the appeal. Feeling aggrieved by the order passed by the ld. CIT(A), the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
We have perused the order passed by the ld. CIT (A) who has thrashed the facts in the light of the decision rendered by Hon’ble Karnataka High Court in the case of CIT, Bangalore vs. Indian Institute of Management (2014) 49 taxmann.com 136 (Karnataka) and Rule 2BBB inserted by the IT (Thirteenth Amendment) Rules, 2014 prescribing the said percentage at 50% and by referring to the Rule 230(8) of the General Financial Rules, 2017 by returning following findings :-
“4.1.2 I have considered the assessment order and the submissions of the appellant. It is noted that the Assessing Officer has not taken into consideration the interest on capital grant for phase II building to be done by DMRC. In the audit conducted for Financial Year 2011-12, a specific para was raised regarding the interest income not being considered as a part of the grant with a direction that the amount is to be treated as part of the grant. The Assessing Officer has also noted that interest cannot be considered as a part of the Government's grant since the grants are not expected to be repaid by the recipient. In this regard, the appellant has invited reference to the grant release document of the Delhi Government in which it has, inter-alia, been mentioned that while submitting the proposal for further release of grant, the amount of interest earned on amount for phase II construction may also be included. Similarly directions were also given while releasing the 2nd and final installment of grants-in-aid during Financial Year 2011-12. Further, it has also been pointed out that as per Rule 230(8) of the General Financial Rules 2017, all interest or other earning against grants-in-aid or advances (other than reimbursement) released to any grantee institution are required to be mandatory returned to the Consolidated Fund of India. Hence the contention of the Assessing Officer that receipts on account of interest, etc. are to be not to be returned back is not correct. Hence, the grants- in-aid to the assessee during the year under consideration should be considered at 50.85%.
4.1.3 The Assessing Officer has contended that the term wholly or substantially financed has not been defined under the Income Tax Act and hence definition has been taken from the CAG Act, 1971. In this regard, it is to be noted that the explanation to section 10(23C)(iiiac) was inserted by the Finance(No.2) Act 2014 w.e.f. 01.04.2015 as per which an institution will be considered to be substantially financed if the Government grant to such institution exceeds the percentage as may be prescribed for the relevant previous year. It is to be noted that as per Rule 2BBB which was inserted by the IT (Thirteenth Amendment) Rules, 2014 prescribed the said percentage as 50%. Even if this percentage is considered, the grant received by the assessee including interest thereon which is to be included for the purpose of grant exceeds 50%.
4.1.4 Further, in the case of Commissioner of Income-tax, Bangalore v. Indian Institute of Management [(2014) 49 taxmann.com 136 (Karnataka)], the Hon'ble Karnataka High Court while considering the term ‘wholly or substantially financed by Government’ have held as under :-
• The word 'Finance' means money given for establishing an Educational Institution or an University and not necessarily confined to the money given every year to such an institution by way of grant. Of course, in order to come to the said conclusion, one has to look into the nature of the institution which is established, the object for which it is established and how the said institution is financed, not only for establishing the same, even for running of such an Institution. [Para 4]
• The assessee has been established entirely with the budgetary support of the Government. It is an institution wholly or substantially financed by the Government. The fact that this institution was granted land by the Government of Karnataka to the extent of 100 acres and the Government of India has funded initially 100 per cent and it has permitted them to retain and spend the revenue so generated for the maintenance and growth and the Government of India is also granting grant every year is not in dispute.
• Under these circumstances, the contention of the revenue, that the grant which is given by the Government of India in a particular year is to be taken into consideration to decide whether the institution is wholly or substantially financed by the Government is without any substance. • The word 'wholly or substantially financed by the Government' cannot be confined only to annual grants, apart from providing annual grant, if Government granted land, invests money in building and infrastructure and also running the Educational institutions all that has to be taken into consideration to decide whether the institution is wholly or substantially Government by the Government. [Para 6] 4.1.5 In the case under consideration from the assessment orders of the earlier years, copies of which were filed during the appellate proceedings, it is noted that the fact that the Assessing Officers have noted that the institute has received funds from the Delhi Government for construction of infrastructure, for procurement of machinery, treatment of patients and extending research facilities etc. 4.1.6 In view of the discussion above, the facts of the case and relying on the decision of the Hon'ble Karnataka High Court in the case of Commissioner of Income-tax, Bangalore v. Indian Institute of Management (supra) wherein the Hon'ble Court have considered the meaning of the term 'wholly or substantially financed by Government', the Assessing Officer is directed to allow exemption to the assessee under section 10(23C)(iiiac) for the year under consideration. Ground of appeal no.1 is allowed.”
We are of the considered view that the aforesaid order is passed by the ld. CIT (A) by applying the relevant Rules and law laid down by Hon’ble Karnataka High Court in case of CIT vs. Indian Institute of Management (supra) as the percentage of grant-in-aid to the assessee to the year under consideration is at 50.85% (which is inclusive of interest). Even otherwise, Hon’ble High Court has held that the word ‘wholly and substantially financed by the Government’ cannot be confined only to annual grants, apart from providing annual grant, if Government granted land and invested money in building and infrastructure etc. all that has to be taken into consideration. So, the case of the assessee is clearly covered under Rule 2BBB of IT (Thirteenth Amendment)
Rules, 2014 having total grant-in-aid to the tune of 50.85%. So, in view of the matter, we find no infirmity or perversity in the impugned order passed by the ld. CIT (A), hence the appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 16th day of November, 2021.