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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
This appeal by the assessee is directed against the order dated 12.08.2022 of Commissioner of Income Tax(Appeal), National Faceless Appeal Centre, Delhi arising from the order of the CPC passed u/s 143(1) of the Act for A.Y.2015-16. The assesse has raised following grounds:
“1.Expenses on running of College have not been allowed though income has been taxed That the assessee is an educational institute and it runs a College (Shri Vaishnav Polytechnic) at MOG Lines, Indore. The college receives grant from Government of Madhya Pradesh and fee from students. Such fee is fixed by Government of Madhya Pradesh. It follows all the norms of Government of Madhya Pradesh regarding admission of students, staff structure and management. The income has been Page 1 of 7 Shri Vaishnav Polytechnic College Page 2 of 7 taxed whereas expenditure incurred on running of college has not been deducted from such income. The income was offered under the head "Income from Other Sources and expenses were claimed on running of College u/s 57. (Tax Effect Rs. 3,33,66,390/-) 2. Addition of Rs. 5,39,50,000/- on account of grant received from Government of Madhya Pradesh and fee of Rs. 2,76,89,329/- from students is unjustified and improper. That the confirmation of addition of Rs. 5,39,50,000/- on account of grant received from Government of Madhya Pradesh is unjustified and improper. This grant is given to the College to meet expenses on payment of salary and other incidental expenses of College. The appellant collected fee of Rs. 2,76,89,329/- from students. The learned CIT(A) has erred in holding that such fee is taxable @30 % and expenses incurred to run the College are not allowable form such fee. (Tax Effect Rs. 3,33,66,390/-) 3. In absence of registration u/s 12A, full play has to be allowed to section 57(i). It is open to income-tax authorities to deny exemption u/s 11 in absence of registration u/s 12A and if they do so, then assessment has to be completed in accordance with provisions of IT Act. If income is assessed under residual head full play must be allowed to Section 57(iii). It was observed in Deputy Director Of Income Tax (Exemptions) vs. Petroleum Sports Promotion Board (2014) 111 DTR 0055 (Del) that assessee in present case was created with object of promoting sports; there was no other object and all its constituents were giving grants/ funds only for that purpose. Assessee was merely acting as custodian or conduit to constituents for purpose of promoting sports activity inside and outside country. Expenditure incurred by assessee was only for purpose of promoting sports events and activities and in this respect there was no challenge to finding of fact recorded by Tribunal. If such expenditure is not allowed, it may amount to taxing gross receipts of assessee and not income, which is not permissible. (Tax Effect Rs. 3,33,66,390/-).
Honourable ITAT in appellant's own case in AY 2014-15 has held in that expenses on running of college are deductible from grant and fee received. That honourable ITAT in appellant's own case in AY 2014-15 has held in ITA no. 469/Ind/2018 that expenses on running of college are deductible from grant and fee received from students after a thought full consideration of all the facts and circumstances of the case.
5. The College is substantially financed by Government of Madhya Pradesha dn income is exempt u/s 10(23C) (liiab)
Shri Vaishnav Polytechnic College Page 3 of 7 The educational institute exists solely for educational purpose and not for the purpose of profit. College is substantially financed by Government of Madhya Pradesh as major part of receipts are through grants from state Government. Accordingly, income of the institute is exempt u/s 10(23C)(iiab). The assessee has not been allowed such deduction. There is no column in the income tax return form to furnish details of exemption u/s 10(23C) (ilab), though there are specific columns in the return form to furnish details of exemptions under other clauses of section 10(23C). Honourable ITAT in appellant's own case in AY 2014-15 has held in that income of the assessee is exempt u/s 10(23C)(iiab).”
The assesse is a society inter alia running educational institution in the name of Shri Vaishnav Polytechnic, Indore. The assesse filed return of income on 16.09.2015 declaring loss of Rs.7612/- after claiming exemption u/s 11 of the Act. The return of income was processed u/s 143(1) on 06.03.2017 by CPC, Bangalore whereby the claim of exemption u/s 11 was denied and also made an adjustment on account of disallowance of expenses to the tune of Rs.6,15,62,177/- on the ground that the assesse society is not registered u/s 12A of the Act. The assessee filed the appeal before the Ld. CIT(A) and submitted that the assesse is entitled for exemption u/s 10(23C)(iiib) of the Act as Educational Institution, Shri Vaishnav Polytechnic has been substantially financed by the Government. The Ld. CIT(A) has confirmed the denial of benefit of section 11 of the CPC. However, the Ld. CIT(A) has allowed the claim of expenses and directed the AO to assessed the income after allowing the expenses as per the provisions of section 57(3) of the Act and the same to be taxed @ 30% on the net income. The Ld. CIT(A) has not adjudicated the issue of claim of exemption u/s 10(23C)(iiib) of the Act. Aggrieved by the impugned order of the Ld. CIT(A) the assesse filed the present appeal.
Before the tribunal, Ld. AR of the assesse has submitted that since the assesse is not registered u/s 12A of the Act, therefore, the assesse has claimed only benefit u/s 10(23C)(iiab) as the assesse substantially financed by the State Government. Ld. AR has referred to the consolidated income and expenditure account for the year under consideration and Shri Vaishnav Polytechnic College Page 4 of 7 submitted that the assessee received govt. grant of Rs.5,39,95,000/- whereas the total gross receipt is Rs.8,65,67,382/-. Thus, Ld. AR has submitted that the government grant received by the assessee is more than 50% of the gross receipt and therefore, the assessee is substantially financed by the Government as provided u/s 10(23C)(iiiab). Ld. AR has also referred to Rule 2BBB wherein the term substantially financed by the Government is defined. Thus, Ld. AR has submitted that the assesse is entitled for exempt u/s 10(23C)(iiiab) and the addition made by the CPC and confirmed by the CIT(A) is not justified and the same is liable to be deleted.
4. On the other hand, Ld. DR has relied upon the order of the Ld. CIT(A) and submitted that the assesse has claimed the exemption u/s 11 which is not available to the assesse because undisputedly the assesse is not registered u/s 12A of the Act. The assesse has not given the details of the Government grant in the return of income and therefore, the relevant details and particulars required for considering the claimed of the assesse were not available in the return of income.
We have considered the rival submissions as well as relevant material on record. The assesse society inter alia running educational institution namely Shri Vaishnav Polytechnic College Indore. In the computation of income the assesse has declared loss of Rs.7612/- as placed at page no.2 & 3 of the paper book as under:
Assesse Name : SHRI VAISHNAV SAHAYAK MARKET TECHNICAL EDUCATIONAL SOCIETY Address : 0 MOG LINES INDORE-452001 Mobile Number : 9977633018 E-mail : ITRPAN@yahoo.com PAN : AAFTS9636P Incorp. Date : 26/06/1962
COMPUTATION OF INCOME INCOME FROM OTHER SOURCES Rs. Rs. Rs. INCOME FROM INTEREST Other interest income Interest income from S.B. a/c and FDR 4756833 4756833 Page 4 of 7
Shri Vaishnav Polytechnic College Page 5 of 7 RENTAL INCOME FROM MACHINERY, PLANTS, BLDGS ETC. Rental income 148200 148200 INCOME FROM OTHERS Sales of tender forms fee 23020 27689329 27712349 27712349 VOLUNTARY CONTRIBUTIONS 53950000 53950000 Grant from Government
GROSS TOTAL INCOME 86567 Less : Deductions / Exemtions claimed u/s 11 a) Amount applied to charitable or religious purpose in India during the previous year Revenue Account 94180159 (- )94180159 GROSS TOTAL INCOME (LOSS) (-)7612
……………………………………………………………………………………………………….
CALCULATION OF TAX Tax on Total Income NIL Less: Tax deducted/collected t source from Interest 3839 Rent 27467 Professional Services 8400 (-) 39706 Net Tax Refundable (Subject to interest u/s 244A) (-) 39 Rounded off (-) 39
As apparent from the computation of income the assesse claimed exempt u/s 11 of the Act whereas admittedly the assesse is not registered u/s 12A of the Act therefore, the claim of exemption u/s 11 of the Act was not proper and allowable and denial of the same by the CPC is in accordance with law. However, the assesse has stated to have claimed the exemption u/s 10(23C)(iiiab) in the return of income but the copy of the return of income is not placed on record to verify this fact. However, before the Ld. CIT(A) the assesse has claimed the exemption u/s 10(23C)(iiiab) which was not considered and decided by the CIT(A) while passing the impugned order. It is pertinent to note that the as per the provisions of section 10(23C)(iiiab) any income received by any person on Shri Vaishnav Polytechnic College Page 6 of 7 behalf of any University or other educational institution existed solely for educational purposes and not for the purpose of profit and which is wholly or substantially financed by the Government would not form part of the total income of such person. Thus, the income of the educational institution in the hands of the assesse society would be exempt if the said educational institution or University is existed solely for educational purpose and not for the purpose of profit and the same is wholly or substantially financed by the Government. As per Rule 2BBB an University or educational institution shall be considered as being substantially financed by the Government for any previous year if the Government grant to such university or other educational institution, hospital exceeds 50% of the total receipts including any voluntary contribution of such university or other educational institution during the relevant previous year. For ready reference Rule 2BBB is quoted as under:
2BBB. For the purposes of sub-clauses (iiiab) and (iiiac) of clause (230) of section 10, any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds fifty per cent of the total receipts including any voluntary contributions, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year.]
Thus, an University or educational Institution received govt. grant more than 50% of the total receipts the same would be regarded as substantially financed by the Govt. In the case in hand the consolidated income and expenditure account placed at page no.18 of paper book is of the assesse society and not of the educational institution being Shri Vaishnav Polytechnic College. Therefore, the total receipt of the college as well as the Government grant receivable during the previous year is required to be verified from the relevant record to be produced by the assesse. Since this issue has not been examined by the authorities below therefore, in the facts and circumstances of the case and in the interest of justice we set aside the matter to the record of the AO for fresh adjudication of the same after proper verification of the relevant record Page 6 of 7
Shri Vaishnav Polytechnic College Page 7 of 7 and facts regarding the total receipts of the Shri Vaishnav Polytechnic College run by the assesse society and aid received by the said college from the Government during the previous year. In case the aid received from the Government is more than 50% of Total receipts as provided in Rule 2BBB of the Income Tax Rules then the income of the educational institution namely Shri Vaishnav Polytechnic College would be exempt in the hands of the assessee. Needless to say before passing fresh order the assessee be given an appropriate opportunity of hearing.
In the result, appeal by the assesse is allowed for statistical purposes.
Order pronounced in the open court on 26.10.2023