2009 (8) TMI 1158 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) orders on exemption u/s 10(23)(iiiab) of IT Act on government grants received by assessee society.

Summary:

Issue 1: Interpretation of "wholly and substantially financed by the Government" u/s 10(23C)(iiiab)
The Tribunal considered whether the word "substantial" in section 10(23C)(iiiab) means financing to the extent of 90% as contended by the revenue or if 2/3rd of the expenditure financed by the Government would be considered substantial as held by CIT(A). The Tribunal noted that the term "substantial" is not defined in the Income-tax Act, but based on dictionary meaning, it signifies being considerable or mainly financed by the Government. Referring to the Supreme Court's interpretation in Santosh Hazari Vs Purushotham Tiwari, the Tribunal emphasized that a substantial question of law arises where there is room for difference of opinion, indicating that a considerable amount of financing by the Government would meet the criteria of section 10(23C)(iiiab).

Issue 2: Application of "substantial interest" in other legal provisions
The Tribunal drew parallels with other legal provisions like Banking Regulation Act, 1949 and explanation to section 40A(2)(a) of the IT Act, where "substantial interest" is defined based on specific thresholds such as beneficial interest exceeding 10% or voting power not less than 20%. Applying this analogy, the Tribunal found that in the case at hand, the Government's financing substantially covered the revenue deficit of the educational institution, justifying the CIT(A)'s decision that the institution was substantially financed by the Government. The Tribunal also noted that the High Court had previously upheld a similar decision by the ITAT, further supporting the conclusion that the institution qualified for exemption u/s 10(23C)(iiiab).

Conclusion:
Given the similarity of facts and issues, the Tribunal upheld the CIT(A)'s decision that the assessee was entitled to exemption u/s 10(23C)(iiiab) of the IT Act, dismissing the appeals filed by the revenue.