2016 (9) TMI 1680 - AT - Income Tax

Exemption u/s 10(23C)(iiiab) - appellant's society is wholly financed by the government and exists solely for educational purpose - HELD THAT - The assessee institute is financed by the Central Government, and the amount granted by the Government is deposited in the nationalized bank. The interest so received by the institute from the bank is utilised for the purpose of institute as per memorandum of association and rules and regulation of the society. Taking into consideration of the above decisions as well as facts of the case, it is observed that the assessee institute is covered and entitled to exemption under s. 10(23C)(iiiab) as the provisions of sec 10(23C)(iiiab) provides that any income received by any university or other institution education existing solely for educational purpose and not for the purpose of profit, and which is wholly or substantially financed by the Government is not includable in the total income. In this view of the matter, the appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following legal issues:

• Whether the interest income received by the appellant is exempt under Section 10(23C)(iiiab) of the Income Tax Act, given that the appellant's society is wholly financed by the government and exists solely for educational purposes.
• Whether the reopening of the assessment by the Assessing Officer (AO) was legal and within jurisdiction.
• Whether registration under Sections 11 to 13 is necessary for claiming exemption under Section 10(23C), as per the interpretation of the relevant legal provisions and CBDT Circular No. 712.
• Whether the CIT(A)'s reliance on certain case laws was appropriate and relevant to the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption of Interest Income under Section 10(23C)(iiiab)

• Relevant Legal Framework and Precedents: Section 10(23C)(iiiab) exempts income received by any university or educational institution existing solely for educational purposes and not for profit, provided it is wholly or substantially financed by the government. Relevant precedents include cases like CIT v. National Law School of India University and CIT v. Indian Institute of Management, which support the exemption if the institution is substantially financed by the government.
• Court's Interpretation and Reasoning: The court interpreted that the appellant's institution, being wholly financed by the government, qualifies for the exemption under Section 10(23C)(iiiab). The court emphasized that the institution's sole purpose is educational, and it is not for profit.
• Key Evidence and Findings: The appellant's institution received government grants and deposited them in a nationalized bank, earning interest. The funds were used according to the memorandum of association and rules, indicating compliance with the educational purpose requirement.
• Application of Law to Facts: The court applied Section 10(23C)(iiiab) to the facts, noting the institution's government financing and educational purpose, thereby granting the exemption for the interest income.
• Treatment of Competing Arguments: The court dismissed the AO's argument that the institution did not carry out educational activities during the relevant year, highlighting the substantial government financing and the institution's educational objectives.
• Conclusions: The court concluded that the appellant is entitled to the exemption under Section 10(23C)(iiiab), allowing the appeal on this ground.

Issue 2: Legality of Reopening the Assessment

• Relevant Legal Framework and Precedents: The legal framework for reopening assessments involves ensuring that there is a valid reason and jurisdictional basis for such action.
• Court's Interpretation and Reasoning: The court did not delve deeply into this issue, as the primary focus was on the exemption under Section 10(23C)(iiiab).
• Conclusions: The court found it unnecessary to address this issue in detail, given the resolution of the primary exemption issue.

Issue 3: Necessity of Registration under Sections 11 to 13

• Relevant Legal Framework and Precedents: CBDT Circular No. 712 clarifies that if a society is eligible for exemption under Section 10(23C), registration under Sections 11, 12, and 13 is not required.
• Court's Interpretation and Reasoning: The court agreed with the appellant that registration under Sections 11 to 13 is not necessary for claiming exemption under Section 10(23C), aligning with the CBDT circular.
• Conclusions: The court upheld the appellant's position, confirming that registration under Sections 11 to 13 is not a prerequisite for the exemption under Section 10(23C).

Issue 4: Relevance of Case Laws Cited by CIT(A)

• Relevant Legal Framework and Precedents: The court examined the applicability of case laws cited by CIT(A) in the context of the appellant's situation.
• Court's Interpretation and Reasoning: The court found that the case laws relied upon by CIT(A) were not relevant to the appellant's case, as they did not address the specific circumstances of government-financed educational institutions.
• Conclusions: The court dismissed the reliance on irrelevant case laws, siding with the appellant's argument.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The assessee institute is covered and entitled to exemption under s. 10(23C)(iiiab) of the IT Act, 1961 as the provisions of s. 10(23C)(iiiab) provides that any income received by any university or other institution education existing solely for educational purpose and not for the purpose of profit, and which is wholly or substantially financed by the Government is not includable in the total income."
• Core Principles Established: Institutions wholly or substantially financed by the government and existing solely for educational purposes are entitled to exemption under Section 10(23C)(iiiab) without needing registration under Sections 11 to 13.
• Final Determinations on Each Issue: The court allowed the appeals, granting exemption for the interest income under Section 10(23C)(iiiab), and confirmed that registration under Sections 11 to 13 is not necessary for such exemption.