2022 (12) TMI 23 - AT - Income Tax

Disallowance of exemption claimed u/s 10(23C)(iiiab) - assessee society is registered under the Societies Registration Act and is engaged in imparting education and running an institute by the name of Baba Hira Singh Bhattal Institute of Engineering and Technology, Lehragaga since 2004-05 - condition as to whether the assessee is wholly or substantially financed by the Government? - HELD THAT - There is no limit specified on the quantum of revenues generated by the institute, the period during which such revenues are generated and the period for which the revenues are allowed to be retained by the institute. Therefore, irrespective of quantum of revenues which the institute generate in respective financial years, the revenues so generated belongs to the Consolidated fund of the Government and which continue to remain permitted to be retained by the institute. The Coordinate Bench has therefore taking into consideration the aforesaid contents of the said letter has decided the matter for all the years starting from A.Y 2006-07 to A.Y 2012-13 and for the year under consideration, we therefore donot see any basis to deviate from the decision of the Coordinate Bench as undisputedly, for the year under consideration, there is no change in the facts and circumstances of the case as regard retention of revenues by the assessee society as grant in aid by the Government of Punjab and the assessee society thus continue to remain wholly funded by the Government of Punjab and the assessee is thus held eligible for exemption under section 10(23C)(iiiab) of the Act. Appeal of assessee allowed.

Summary

Issues Involved:
1. Eligibility for exemption under section 10(23C)(iiiab) of the Income Tax Act.
2. Whether the assessee society is wholly or substantially financed by the Government.

Issue-wise Detailed Analysis:

1. Eligibility for exemption under section 10(23C)(iiiab):
The core issue in this case is the eligibility of the assessee society for exemption under section 10(23C)(iiiab) of the Income Tax Act. The assessee society, engaged in imparting education, claimed this exemption in its return of income. The Assessing Officer (AO) observed that the society had not received any funds from the Government for several years, except for two specific years. Consequently, the AO issued a show cause notice questioning the eligibility of the society for the claimed exemption.

The AO concluded that the society was not wholly or substantially financed by the Government, which is a crucial condition for claiming the exemption under section 10(23C)(iiiab). The AO noted that the society was intended to be self-sustainable and not reliant on regular government funding. Furthermore, the AO highlighted that the management control of the institute rested with the society, not the Government of Punjab, and no audited accounts by the Auditor General of Punjab were provided.

2. Whether the assessee society is wholly or substantially financed by the Government:
The assessee society argued that it was established by the Government of Punjab and was 100% financed by the Government in terms of infrastructure and occasional grants. The society also claimed that its accounts were audited by the Controller and Auditor General of Punjab, and the revenue generated was permitted to be retained by the society as a grant in aid.

The CIT(A) upheld the AO's decision, stating that the society did not receive more than 50% of its receipts from the Government during the relevant financial year, as required by Rule 2BBB. The CIT(A) noted that the society's receipts for the year under consideration were entirely from fees collected from students, with no government grants received, thus failing to meet the substantial financing criteria.

The assessee society appealed to the ITAT, referencing a previous decision by the Coordinate Bench for earlier assessment years, which had ruled in favor of the society. The ITAT considered the letter from the Principal Secretary of the Government of Punjab, which stated that the institute was fully owned and controlled by the Government, and the revenue generated belonged to the Consolidated fund of the Government but was permitted to be retained by the institute.

The ITAT found that the facts and circumstances of the case had not changed from the earlier assessment years, where the Coordinate Bench had ruled that the society was wholly funded by the Government. The ITAT concluded that for the year under consideration, the society continued to be wholly funded by the Government of Punjab, and thus, was eligible for exemption under section 10(23C)(iiiab).

Conclusion:
The ITAT allowed the appeal of the assessee society, holding that it was eligible for exemption under section 10(23C)(iiiab) of the Income Tax Act for the relevant assessment year. The decision was based on the consistent factual position that the society was wholly funded by the Government, as evidenced by the letter from the Principal Secretary and the previous rulings by the Coordinate Bench. The order was pronounced in the open court on 21/09/2022.