M/S. BARKATUIIAH VISHWAVIDYALAYA ,BHOPAL vs. DCIT (EXEMPTION), BHOPAL

आदेश / / / O R D E R / O R D E R O R D E R O R D E R

Per B.M. Biyani, A.M.:

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 “1. The ld. CIT(A) has erred in rejecting the exemption u/s 10(23C). 2. It was proved before the lower authorities that the university is getting a grant from the government and as such the case is covered u/s 10(23C). 3. The ld. CIT(A) erred in confirming the order of the Ld. AO wherein the total income is computed at Rs. 35,14,48,991/- and a demand is created.” 3. The assessee is a University established under M.P. Vishwavidhalaya Adhiniyam,1973, an Act of the State Govt. of Madhya Pradesh. The activities of assessee are to provide education, supervision and maintenance to various colleges and educational institutions as per regulations of the Govt. and to establish, maintain and manage colleges, teaching departments, school of studies, center of studies, to institute degree diplomas, certificates and other academic distinctions, etc. The assessee filed Return of Income declaring a total income of Rs. Nil after claiming exemption u/s 10(23C)(iiiab) of the act. The case was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) were issued from time to time which were duly complied with. The Ld. AO completed assessment u/s 143(3) by order dated 30.12.2016 at a total income of Rs. 35,14,48,991/-, after disallowing the exemption u/s 10(23C)(iiiab). Aggrieved by the order of assessment, the assesse filed appeal to Ld. CIT(A). The Ld. CIT(A), however, dismissed appeal and did not grant any relief. Against the order of Ld. CIT(A), the assessee has filed this appeal and now before us.

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 submitted that it has received government-grant of Rs. 3.90 crores and utilized the same for meeting mainly salary and establishment expenses. Regarding remaining receipts comprised in the sum of Rs. 109 crores, the assessee submitted that those receipts were compensatory in nature which have been derived for meeting various expenses for fulfilling the activities for which they were derived and therefore those receipts were not true income of assessee. However, the Ld. AO observed that the grant of Rs. 3.90 crore received from Govt. was miniscule having regard to the quantum of total receipts of Rs. 109 crores. Ld. AO further observed that the remaining receipts are in the nature of various types of fee charged by the assessee. The Ld. AO also observed that those other receipts were not in the nature of recovery or reimbursement of expenses. Ld. AO observed that out of those other receipts, the assessee has derived net surplus after meeting expenses. Ld. AO further observed that the word “substantially financed” occurring in section 10(23C)(iiiab) stood defined in Rule 2BBB of Income-tax Rules, 1962 w.e.f. 12.12.2014 according to which the condition of “substantially financed” shall be satisfied only if the government-grant exceeds 50% of the total receipts. Ld. AO further relied upon certain decision including the decision of this Bench in M.P. Rajya Open School, Bhopal Vs. DCIT (2013) 141 ITD 721.

Finally, Ld. AO concluded that the receipts from government-grant are much less and therefore the assessee does not satisfy the requirement of “substantially financed by Govt.” Based on this, the Ld. AO denied the exemption claimed by assessee u/s 10(23C)(iiiab).

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 purposes of profit, and (ii) it should be wholly or substantially financed by the Govt. Ld. CIT(A) analysed the figures of Incomes and Expenses of assessee and arrived at the same conclusions as made by Ld. AO, viz. (i) the receipts from government grant is only 3.90 crore out of the total receipts of Rs. 109.86 crore which constitutes a meagre 3.50%, and (ii) the assessee has earned a net profit of Rs. 24.68 crore from the total receipts of Rs. 109.86 crore. Ld. CIT(A) also relied upon Rule 2BBB which prescribes that the requirement of “substantially financed by Govt.” shall be satisfied only if the receipts from government-grant exceeds 50% of the total receipts. With these findings, the Ld. CIT(A) concluded that the assesse does not satisfy the requirements of section 10(23C)(iiiab). Ld. CIT(A) also turned down the contention of assessee that it was allowed exemption in the immediately preceding assessment year 2013-14 and hence the same must be allowed for assessment-year 2014-15 under consideration with the reasoning that there applies no res judicata in income-tax proceeding and every assessment-year is an independent assessment year. In support of this proposition, the Ld. CIT(A) relied upon ITAT, Amritsar in DCIT Vs. Malout Institute of Management & Information Technology (2014) 43 taxmann.com 228. With these observations and findings, the Ld. CIT(A) confirmed the disallowance made by Ld. AO.

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 financed by the Govt., yet there was no criterion prescribed in the Section or Rules in this respect. Ld. AR submitted that subsequently through Finance (No. 2) Act, 2014, a new Explanation was inserted in section 10(23C)(iiiab) which prescribed that an institution shall be considered as substantially financed by Govt., if the government-grant exceeds such percentage of total receipts as may be prescribed. Thereafter, in terms of this new Explanation, the Govt. introduced Rule 2BBB and prescribed 50% as quantum. Ld. AR submitted that the aforesaid Explanation and so the Rule 2BBB is applicable from assessment-year 2015-16 only and does not apply to the assessment- year 2014-15 involved in the present appeal. According to Ld. AR, therefore, the reliance of the lower authorities on the aforesaid Explanation and Rule 2BBB is absolutely mis-placed. Going further, the Ld. AR referred to the Income & Expenditure data and submitted that the major component of the receipt of Rs. 109 crore derived by the assessee is the examination fee of Rs. 58 crore. Ld. AR submitted that the examination fee has been received from the affiliated institutions and colleges who had in turn received grants from the Govt. as also from certain categories of students who have received grants and scholarships from the Govt. According to Ld. AR, therefore, the receipt of examination fee of Rs. 58 crore is also a receipt financed by the Govt. Ld. AR submitted that once the receipt of Rs. 58 crore is taken into account, the conclusion would be that the assessee is substantially financed by the Govt.

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15

Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the object and activities of the trust or institution remain the same for such preceding assessment year:” Analyzing the above Proviso, the Ld. AR submitted that once the registration has been granted u/s 12AA, the exemption u/s 11 and 12 shall apply in respect of any preceding assessment-year for which the assessment- proceeding is pending before the AO on the date of registration. Ld. AR submitted that in the present case, the assessee has been granted registration u/s 12AA on 17.06.2019 for assessment-year 2019-20 onwards. Ld. AR submitted that the present appeal of assessee pertaining to assessment-year 2014-15 was pending on 17.06.2019 before this Bench. Hence the benefit of the Proviso is available to the assessee. Ld. AR gainfully referred the decision of ITAT, Ahmedabad in Shri Bhanushali Mitra Mandal Trust Vs. ITO, ITA No. 2515/Ahd/2015 dated 22.02.2016 where it was held thus:

“7.1 To examine the first issue, necessarily I have to analyze the relevant provision, namely, the amendment to Section 12A by Finance Act, 2014 w.e.f. 01.10.2014 by way of insertion of provisos to Section 12A(2) of the Act which is reproduced below for ready reference:

"[(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made: Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects Page 6 of 13

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 and activities of such trust or institution remain the same for such preceding assessment year: Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA.]"

7.2 It is also relevant to reproduce the explanatory notes to the provisions of Finance (No.2) Act, 2014 as given in CBDT Circular No.01/2015 dated 21.01.2015 in reference F.No.142/13/2014- TPL, which read as follows:

"Para 8.2

Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available."

This clearly goes to prove that the first proviso to section 12A(2) was brought in the statute only as a retrospective effect with a view not to affect genuine charitable trusts and societies carrying on genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The benefit of retrospective application alone could be the intention of the legislature and this point is further strengthened by the Explanatory Notes to Finance (No.2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 dated 21.1.2015. Apparently the statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the ld. A.O., unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s147 could be taken by the AO merely for non-registration of trust for earlier years.

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Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 7.3 In the instant case, it is not in dispute that registration was granted w.e.f. 17.12.2013 by the order of CIT(A) dated 08.05.2014. It is also not in dispute that objects and activities of the assessee trust are charitable in nature during the relevant financial year. When Section 12A of the Act was amended by introducing new provisos to sub-section (2) of Section 12A by Finance Act, 2014 with effect from 01.10.2014, the assessment orders Asst. Year 2011-12 passed by the assessing officer in respect of the present assessee were pending in appeal before the first appellate authority. During such pendency, the assessee was granted registration u/s. 12AA of the Act on 17.12.2013 w.e.f. the assessment year 2013-14. The appeal is the continuation of the original proceedings and that the power of the Commissioner of Income-tax was co-terminus with that of the assessing officer were two well established principles of law. In view of the above and going by the principle of purposive interpretation of statues, an assessment proceeding which is pending in appeal before the appellate authority should be deemed to be 'assessment proceedings pending before the assessing officer' within the meaning of that term as envisaged under the proviso. It follows there-from that the assessee which obtained registration u/s 12AA of the Act during the pendency of appeal was entitled for exemption claimed u/s 11 of the Act.

7.4 The explanatory Memorandum to Finance (No.2) Bill, 2014, which sought to amend section 12A explains the objects and reasons for making such amendments. The explanation makes it clear that it was in order to provide relief to such trusts in respect of which, due to absence of registration u/s 12AA tax liability got attached though otherwise they were eligible for exemption by fulfilling other substantive conditions that the amendment was brought in. That being so, denying such benefit to a trust like the assessee who had obtained registration u/s 12AA during the pendency of the appeals filed against the orders of the assessing authority, by narrowly interpreting the term, 'pending before the assessing officer' so as to exclude its pendency before the appellate authority, will be doing violence to the provisions of the Statute and, as such, liable to be interfered with.

Moreover, under the Scheme of the Act, sections 11 and 12 are substantive provisions which provide for exemptions to a religious or charitable trust. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemptions under sections 11 and 12 by the assessee and the grant or rejection of such application by the commissioner. Thus, in my view, sections 12A and 12AA are only procedural in nature. Hence, it is not the registration u/s 12AA by itself that offers Page 8 of 13

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 immunity from taxation. A receipt whether it is revenue or capital in nature is to be decided at the assessment stage. Being procedural in nature, in my view, liberal interpretation will give effect to the intention of the amendment, thereby removing the hardship in genuine cases like the present assessee under consideration.

7.5 I am also supported by the order of Kolkata Bench of ITAT in case of Sree Sree Ramkrishna Samity vs. DCIT (ITA No. 1680/2012, order dated 09.10.2015) where it was held that amendment to Section 12A w.e.f. 01.10.2014 is retrospective. The relevant funding of the Hon'ble Kolkata Bench in case of Sree Sree Ramkrishna Samity vs. DCIT (supra) read as follows:

"6.10. We hold that it is an established position in law that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole and accordingly the said insertion of first proviso to section 12A(2) of the Act with effect from 1.10.2014 should be read as retrospective in operation with effect from the date when the condition of eligibility for exemption under section 11 & 12 as mentioned in section 12A provided for registration u/s.12AA as a pre-condition for applicability of section 12A." Ld. AR argued that the assessee is entitled to the benefit of this decision and therefore the assessment-year 2014-15 pending before this Bench in appeal must be construed as an assessment-year for which proceeding is pending before assessing officer. For the sake of completeness, Ld. AR also submitted that the assessee is a university established under the legislation of Madhya Pradesh Govt. and since beginning it is engaged in the very same objects and activities, therefore the objects and activities remained same. With these submissions, the Ld. AR argued that the assessee fully satisfies the requirement of aforesaid Proviso to section 12A(2) and therefore perfectly eligible for exemption u/s 11 / 12. Hence the Ld. AR requested to direct the Ld. AO to allow exemption u/s 11 / 12 to the assessee, if for any reason the exemption u/s 10(23C)(iiiab) is not allowed.

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Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 9. Per contra, the Ld. DR strongly supported the orders of lower authorities qua the disallowance of exemption u/s 10(23C)(iiiab). Ld. DR submitted that the receipts from government grant is just 3.50% and therefore the assessee is very far from the entitlement of section 10(23C)(iiiab). Accordingly, Ld. DR requested to uphold the disallowance made by lower authorities. However, the Ld. DR did not make any opposition to the alternative claim of exemption u/s 11 / 12 made by Ld. AR.

“3.4 ...During hearing, the ld. Counsel for the assessee contended that the word "substantially" will be made even if the grants are 10%. We are not agreeing with this proposition because the word is “wholly or substantially”, meaning thereby, either it can be 100% or near to 100% but in any case may not be less than 75% because it has been used with the word wholly and not singularly. Admittedly, there is no clear cut formula regarding percentage in the Act but some figure may be adopted under the facts and circumstances available on record.” Thus, this Bench has long-back emphasized the importance of “substantially financed by Govt.” occurring in the language of section 10(23C)(iiiab) and came to a conclusion that it has to be 75% even if no figure was prescribed, at that time, in the law. As noted earlier, the Govt. has subsequently prescribed 50%. Reverting back to the facts of present appeal, we observe Page 10 of 13

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 that the component of government-grant received by the assessee is just 3.50% of the total receipts which is so less that by no stretch of understanding, the assessee can be said to be “substantially financed by the Govt”. At this stage, we would also like to deal with the submission of Ld. AR that out of the total receipt of Rs. 109 crore, there is a receipt of examination fee of Rs. 58 crore from affiliated institutions and colleges who had in turn received grants from the Govt. as also from certain categories of students who have received grants and scholarships from the Govt. The Ld. AR submitted that the receipt of Rs. 58 crore should also be considered as receipt from Govt. We are afraid to accept this argument of Ld. AO. If the affiliated colleges / institutions / students have received grant or scholarship from Govt., it is those colleges / institutions / students who have been financed by the Govt. and not the assessee. Even otherwise although the Ld. AR has raised this point but there is no material or evidence produced before us to prove that such state of affairs actually exist. Therefore, we are not impressed by this argument of Ld. AR. In the nutshell, we derive this conclusion that the assessee is not substantially financed by the Govt. and therefore not entitled to exemption u/s 10(23C)(iiiab).

Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 held in Goetze India Ltd. Vs. CIT (2006) 284 ITR 323 (SC) that a fresh claim can be made only by filing a revised return. But various courts have already analysed the impact of this decision and vehemently held that a fresh claim before appellate authorities is not barred. It is constantly held in several decisions that a legal claim can be made by the assessee before appellate authorities even if the same was not claimed during assessment- proceedings. We also observe that the provisions of section 11 / 12 grant exemption to the assessee and such exemption, if not allowed, would result in illegal collection of tax from the assessee, which is never an objective of the Income-tax Act, 1961. In view of this position of law, we do not find any difficulty in accepting the alternative claim of assessee to allow exemption u/s 11 / 12. However, the claim of exemption u/s 11 / 12 involves a different type of working based on application and accumulation of income. Therefore, we feel that it would be more appropriate to refer this matter back to Ld. AO who shall give an opportunity to the assessee to provide the necessary information for computation of exemption u/s 11 / 12. Based on such information, the Ld. AO shall allow the exemption as admissible u/s 11 / 12 to the assessee.

Order pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 30.06. 2022.

Sd/- Sd/-

(MAHAVEER PRASAD) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Indore �दनांक /Dated : 30.06.2022 Patel/Sr. PS

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Barkatullah Vishwavidyalaya ITA No.924/Ind/2018 Assessment year 2014-15 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore 1. Date of taking dictation

Date on which the approved draft comes to the Sr. P.S./P.S. 3.

Date on which the file goes to the Head Clerk 6.

Date on which the file goes to the Assistant Registrar for signature on the order 7.

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