2025 (1) TMI 611 - AT - Income Tax

Exemption u/s. 10(23C)(iiiab) - JCIT(A) observed that the assessee is not recognized as a university by the University Grants Commission and that the assessee has not received any Government grant during the year - HELD THAT - Admittedly, the assessee institute is a Government Education Institute, and in the past received Grant of Rs. 2.50 crore from the Central Government, Ministry of Labour and Employment under the Institute Development Plan for Government ITI in the scheme Upgradation of 1396 Government ITIs through Public Private Partnership and the said Grant has been invested in Fixed Deposit with Scheduled Bank. Section 10(23C) provides that any income received by any person on behalf of any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government . Admittedly, the interest received on such grant from the Central Government was utilized by the assessee institute for the purpose of the Institute as per the Memorandum of Association and Rules and Regulations of Society. So far as the aspect of substantially financed by the Government, as notice that ostensibly the assessee received grant of Rs. 2.50 crore during the period 2008-09 to 2011-12 and the said Grant received by the institute from the Central Government was utilized making Fixed Deposit. So far as the gross receipts during the year is concerned, out of total gross receipts of Rs. 26,13,473/- the institute has received Rs. 19,32,473/- on account of Interest from Fixed Deposit made from Govt. Grant and Saving Bank Account and the same accounts for more than 50% of Grant receipts during the year. These facts reveal that the assessee institute is substantially funded by the Central Government and the assessee would be entitled to exemption by virtue of provisions of section 10(23C)(iiiab) of the Act. Thus assessee institute is entitled for exemption u/s. 10(23C)(iiiab) - Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the assessee, an educational institution, is entitled to an exemption under Section 10(23C)(iiiab) of the Income-tax Act, 1961, for the Assessment Year 2022-23. This hinges on whether the institution is "wholly or substantially financed by the Government" and exists solely for educational purposes and not for profit.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 10(23C)(iiiab) of the Income-tax Act, 1961, provides that any income received by any university or other educational institution existing solely for educational purposes and not for profit, and which is wholly or substantially financed by the Government, is exempt from income tax. The interpretation of "substantially financed" is critical in this context.

Precedents considered include the decisions in the case of IMC of ITI vs. ITO and various High Court rulings, which have interpreted similar provisions and circumstances.

Court's Interpretation and Reasoning

The Tribunal examined whether the assessee institution was substantially financed by the Government. It noted that the institution had received a grant of Rs. 2.50 crore from the Central Government during the financial year 2008-09, which was invested in a fixed deposit. The interest earned on this deposit was used for the institution's objectives, as per its Memorandum of Association and Rules and Regulations.

Key Evidence and Findings

The assessee's financial records showed that out of a total gross receipt of Rs. 26,13,473/-, Rs. 19,32,473/- was interest from the fixed deposit and bank account, indicating that more than 50% of the gross receipts were derived from government grants. This evidence was crucial in establishing that the institution was substantially financed by the Government.

Application of Law to Facts

The Tribunal applied the legal framework of Section 10(23C)(iiiab) to the facts, determining that the institution met the criteria for being substantially financed by the Government. The Tribunal also referenced the Jodhpur Bench's decision in a similar case, which supported the assessee's claim for exemption.

Treatment of Competing Arguments

The Departmental Representative argued in support of the lower authorities' decisions, which denied the exemption on the basis that the institution was not substantially financed by the Government. However, the Tribunal found the assessee's arguments and evidence compelling, particularly the historical government grant and its utilization.

Conclusions

The Tribunal concluded that the assessee institution was entitled to the exemption under Section 10(23C)(iiiab) as it was substantially financed by the Government and existed solely for educational purposes. The order of the Additional/Joint Commissioner of Income Tax (Appeals) was reversed, and the appeal was allowed.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

"These facts reveal that the assessee institute is substantially funded by the Central Government and the assessee would be entitled to exemption by virtue of provisions of section 10(23C)(iiiab) of the Act."

Core Principles Established

The judgment reinforces the principle that an educational institution can qualify for tax exemption under Section 10(23C)(iiiab) if it is substantially financed by the Government and exists solely for educational purposes. The interpretation of "substantially financed" includes situations where a significant portion of the institution's receipts are derived from government grants.

Final Determinations on Each Issue

The Tribunal determined that the assessee institution was entitled to the claimed exemption under Section 10(23C)(iiiab), reversing the decision of the lower authorities. The appeal was allowed, and the income assessed at Rs. 26,13,473/- was exempted from taxation.

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