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2020 (9) TMI 423 - HC - Income TaxEntitled to exemption in terms of Sections 10 sub Section 23C(iiiab) - HELD THAT - Instant petitioner was carrying on the activity which squarely fell within the definition of Section 10(15) (charitable purpose) and was dependent upon the finance of the State. The Court was concerned with the factual matrix where gross receipts from different sources received by the petitioner exceeded more than a crore but since the organization was carrying out such activity, which fell wholly and squarely within the ambit and scope, fulfilling all the essential ingredients stipulated under Section 22 action of the Revenue in initiating proceedings for assessment of Income untenable in law. University established by the Government of Karnataka to be financed neither wholly nor substantially by the Government. Nor was it dependent upon it for finance. The finance of the University from the Government was only to the extent of 1% and profit from the relevant year was surplus to the extent of 500 crores, which also was not ploughed back for any activity for which the University was set up; fulfilled its object; or fees of the students reduced. Also, profits generated were far more than the permissible limits (6 to 15%) as laid down by in Islamic Academy of Education Vs. State of Karnataka 2003 (8) TMI 469 - SUPREME COURT . It is under these circumstances; the Court held that the mandate of the law of securing contributions from the Government source and not fees collected under the statute to be Income not generated from the sources of finance of the Government. We agree with the submission made by Sri Pathy that the impugned action is not only misconceived but wholly unsustainable and untenable in law.
Issues Involved:
1. Entitlement to exemption under Section 10(23C)(iiiab) of the Income Tax Act. 2. Validity of the notice issued under Section 148 of the Income Tax Act. 3. Assessment proceedings and the subsequent reassessment order. Detailed Analysis: 1. Entitlement to Exemption under Section 10(23C)(iiiab) of the Income Tax Act The core issue in the proceedings was whether the petitioner, Bihar State Text Book Publishing Corporation, is entitled to exemption under Section 10(23C)(iiiab) of the Income Tax Act. The petitioner is a government-owned entity engaged in printing, publishing, and distributing textbooks, incorporated solely for educational purposes and substantially financed by the Government of Bihar. The court examined the statutory provision of Section 10(23C)(iiiab), which exempts income of any university or educational institution existing solely for educational purposes and not for profit, provided it is wholly or substantially financed by the Government. The court noted that the petitioner met all the essential conditions: - It is an educational institution. - It exists solely for educational purposes. - It is not established for profit. - It is wholly or substantially financed by the Government. The court referred to the Supreme Court's ruling in Queen's Educational Society vs. Commissioner of Income Tax, which clarified that an educational institution making a surplus does not necessarily imply it is for profit if the surplus is used for educational purposes. The court found that the petitioner’s activities and financial structure aligned with these principles. 2. Validity of the Notice Issued under Section 148 of the Income Tax Act The petitioner received a notice dated 28.1.2010 under Section 148 of the Income Tax Act, indicating the Assistant Commissioner of Income Tax's belief that income assessable to tax had escaped assessment for the assessment year 2006-07. The petitioner challenged this notice, and the court issued an interim order preventing any coercive action. The court found the notice and subsequent reassessment order to be legally flawed. The Assessing Officer failed to address the petitioner’s contentions or apply the judicial principles established in prior decisions, making the order cryptic and unsatisfactory. The court emphasized that the reassessment was based on the petitioner receiving a subsidy under a government program, which should not have led to a reassessment without proper reasoning. 3. Assessment Proceedings and the Subsequent Reassessment Order During the pendency of the petition, the assessment proceedings concluded with an order dated 23.12.2010, determining the income chargeable to tax. The court found that the Assessing Officer did not consider the petitioner’s arguments or relevant judicial precedents, rendering the order unsustainable. The court highlighted that the petitioner’s surplus was utilized for educational purposes, and the activities were in line with the statutory requirements for exemption. The court referred to its earlier decision in Bihar State Text Book Publishing Corporation vs. The Commissioner of Income Tax-I, Patna, where similar circumstances led to the quashing of the Revenue’s order. The court also considered the Supreme Court’s decision in Assam State Text Book Production and Publication Corporation Limited vs. Commissioner of Income Tax, which supported the petitioner’s case. The court concluded that the petitioner’s activities fell within the exemption clause of Section 10(23C)(iiiab) and that the reassessment proceedings were unjustified. Conclusion The court quashed the notice dated 28.1.2010 and the consequential order dated 23.12.2010, allowing the writ petition and ruling in favor of the petitioner. The court found the Revenue’s actions to be misconceived and legally untenable, emphasizing that the petitioner’s activities were solely for educational purposes and substantially financed by the Government, thus qualifying for the exemption under Section 10(23C)(iiiab) of the Income Tax Act.
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