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2012 (12) TMI 1011 - AT - Income TaxClaim of exemption under section 10(23C)(iiiab) - Held that - Substantial part did not connote an idea of being a major part i.e. more than 50%, in which in the context of section 2(22)(e)(ii)) it was held that in case 40% of assets were deployed by way of loans and advances then the business of money lending has to be considered as substantial part of the business of the assessee. CIT(A) also relied on the judgment in the case of Indian Institute of Management (2010 (8) TMI 890 - KARNATAKA HIGH COURT), in which it was held that when 37.85% of total income was financed by Central Government it had to be considered as substantially financed by the government. In case of the assessee 57.46% of gross receipts is financed by the government. Further in the earlier orders similar financing by the government had been considered as substantially financed and exemption allowed to the assessee. We, therefore see no infirmity in the order of CIT(A) in allowing the claim of the assessee
Issues:
Claim of exemption under section 10(23C)(iiiab) for an educational institution wholly or substantially financed by the government. Analysis: The appeal was filed by the revenue against the order of the CIT(A) for the assessment year 2008-09, specifically disputing the claim of exemption under section 10(23C)(iiiab) allowed by the CIT(A). The Assessing Officer (AO) noted that the assessee, an educational institution, was not registered under section 12A of the Income Tax Act, and thus, provisions of section 11 were not applicable. The AO raised concerns about the claim of exemption under section 10(23C)(iiiab) due to the surplus earned by the institution, indicating profit-making activities. The AO emphasized that the institution was running unaided educational institutions without government grants, questioning the eligibility for exemption. The AO rejected the claim of exemption, citing the requirement of being "substantially financed" by the government, interpreted as at least 75% of expenditure being met by government grants. The AO also denied the application of res judicata in income tax proceedings, refusing to consider past exemptions granted. The assessee contested the AO's decision before the CIT(A), arguing that the interpretation of "substantially financed" as 75% government funding was incorrect. The assessee relied on judicial precedents to support its claim, emphasizing that more than 50% of the expenditure was covered by government grants, making it eligible for exemption under section 10(23C)(iiiab). The CIT(A) accepted the assessee's explanation, considering the grant received to be 57.46% of gross receipts, and allowed the exemption based on past approvals and judicial interpretations. The revenue, dissatisfied with this decision, appealed to the Tribunal. During the Tribunal proceedings, the revenue's representative supported the AO's order, while the assessee's representative reiterated the support from relevant judicial decisions. The Tribunal carefully reviewed the case, focusing on the interpretation of "substantially financed" under section 10(23C)(iiiab). It noted that the AO's reliance on the Comptroller and Auditor General's Act was misplaced as the definition of substantial financing provided there was not directly applicable. The Tribunal endorsed the CIT(A)'s reliance on judicial precedents from the High Courts of Bombay and Karnataka, emphasizing that substantial financing did not require a specific percentage but could be determined based on the circumstances. Considering that the government grant covered 57.46% of the institution's gross receipts and past approvals were granted on similar grounds, the Tribunal upheld the CIT(A)'s decision to allow the exemption. Consequently, the appeal of the revenue was dismissed, affirming the CIT(A)'s order in favor of the assessee. In conclusion, the Tribunal's decision centered on the eligibility criteria for exemption under section 10(23C)(iiiab) for educational institutions substantially financed by the government, emphasizing a flexible interpretation based on the specific circumstances and judicial precedents rather than a rigid percentage requirement.
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