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TMI Blog2020 (11) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... ds application of funds for educational charitable purposes. Owing to loss situation, there was no occasion to claim exemption u/s 10(23C)(iiiab) in the return. Return was processed u/s 143(1) on 16.03.2016 wherein income was computed at Rs. 5,98,24,898 which represents the total gross receipts of the assessee [7,27,11,645 - 1,28,86,747 = 5,98,24,898]. Assessee filed two rectification applications u/s 154 claiming that assessee is governed by provisions of section 10(23C)(iiiab). Exemption under section 10(23C)(iiiab) is available to 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. Both the above mentioned rectification applications were rejected vide order dated 02.06.2016 and 11.12.2016 stating that details of registration u/s 12A/12AA are not mentioned in the return so filed. Fresh claim of addition/reduction of income or other details in the return shall not be made in rectification request. It was also stated that to claim exemption u/s 10, details of approving/registering authority and section under which exemption is claimed has to be furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or alter all or any other ground/grounds on or before the date of hearing. 4. Ld. Departmental Representative vehemently argued supporting the order of Ld. A.O which in this case is order by Centralized Processing Center (In Short 'CPC') and also submitted that the assessee had not filed the return properly in order to claim the benefit u/s 10(23C)(iiiab) and also pointed out that the grants received during the year were not received wholly from Government but from other sources also. Reliance was placed on the decision of Co-ordinate Bench of Indore in the case of M.P. Rajya Open School Bhopal v/s DCIT (2012) 28 Taxman.com 29 (Indore-Trib). 5. Per contra Ld. Counsel for the assessee referred to the submissions made before the lower authorities and also the findings of Ld. CIT(A). Following written submissions were also placed on record:- 1. Assessee made a lawful claim of exemption available to it under the provisions of section 10(23C)(iiiab) before the Ld. AO and also before the Ld. CIT(A) - 2, Indore. Assessee placed strong reliance on the following decisions for its claim made before the first appellate authority which was not claimed in the return filed originally owing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Bombay High Court in the case of Pruthvi Brokers and Shareholders (supra) we are of the view that ld. CIT(A) has rightly allowed the justifiable & correct claim of depreciation on 'goodwill' made by the assessee through revised computation of income without filing revised return of income during the course of assessment proceedings. Therefore, no interference is called for in the order of ld. CIT(A) on this issue. This ground of Revenue is dismissed." 2. In the first appellate proceedings, it was also submitted that - a. CBDT vide circular no. 14 dated 11.04.1955 specifically states in Para 3 that it is the duty of the Department to assist the taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs. It is also stated in this circular that the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him/her. [CLPB 34] Provisions of section 119(1) requires every officer to follow orders, instructions and directions of CBDT which are binding in nature on the tax authorities, even if the directions given by CBDT are at variance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the grant received from the Government of Madhya Pradesh is 45.30% of the total gross receipts and the relevant year is prior to the date of amendment. This aspect of government financing of less than 50% prior to amendment has been dealt by Hon'ble Madras High Court in the case of Indian Institute of Management [2010] 8 taxmann.com 239 wherein the government financing was to the tune of 37.85% was held to be entitled for exemption u/s 10(23C)(iiiab). Also, in the case of Jat Educatin Society, Rohtak [2015] 64 taxmann.com 312 by Hon'ble Punjab & Haryana High Court. Hon'ble Coordinate Bench of ITAT Chandigarh in the case of CRM Jat Post Graduate College [2019] 109 taxmann.com 425 dealt with this matter and held in favour of the assessee by following the above referred decisions of Hon'ble Madras High Court and Hon'ble Punjab & Haryana High Court, that [CLPB 15-26] - "In view of insertion of Explanation below clause (iiiab) and (iiiac) of sub-section (23C) of section 10 by Finance Act, 2014, prospectively i.e. with effect from 1-4-2015, prior to said date even institution getting finance less than 50 per cent of total receipts from Government, would be eligible for exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act in respect of the second flat. Additional grounds are allowed. Consequently, the ground raised by the assessee claiming deduction under section 54F of the Act having become redundant is dismissed." [emphasis supplied] e. Reliance placed by the Department on the decision in the case M.P. Rajya Open School, Bhopal [2012] 28 taxmann.com 29 (Indore) is distinguishable on the its own peculiar set of facts evidently tabulated in Para 3.4 of its order. In this case, the assessee had received only initial capital from the Government of M.P. i.e. in AY 1996-97 and nothing thereafter until year 2009. In case of the present assessee in the instant appeal, assessee has been receiving grants from the Government of Madhya Pradesh on year to year basis to meet its expenses of salary, allowances and others. Considering the above facts, circumstances of the case, submissions made, documents on record and judicial precedents, appeal of the department ought to be dismissed. 6. Ld. Counsel for the assessee referred and relied on following case laws:- 1. Indore Education and Service Society ITA No.468/Ind/ 2018 (Indore Trib.) 2. Gurmeet Singh Vikhu (2019) 104 taxmann.com 207 (M.P) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the College was substantially financed by the Government of Madhya Pradesh. Accordingly, income of the institute was exempt u/s 10(23C)(iiiab). The society had filed its return of income showing receipts under various heads (namely fee from students, grant from Government of MP, rent and sale of tender form). The appellant has also submitted a copy of audit report. The details of income and expenditure account is reproduced as under:- Narration Amount Narration Amount Salary and Allowances 6,86,28,876 Grant from Govt. of MP 2,71,00,000 Provident Fund 12,34,740 Interest 47,64,151 Repair and maintenance 2,25,947 Rent 2,03,990 Electricity Expenses 11,65,877 Sale of tender form 8,800 Other Expenses 14,56,205 Fee 2,77,47,957 Net deficit for the year 1,28,86,747 Total 7,27,11,645 7,27,11,645 2.4 The appellant has also argued that it had claimed deduction in respect of expenses for running college (salary to teachers and staff and other contingent expenses). The return of income was filed declaring loss of Rs. 1,28,86,747/-. Copy of computation of income was also submitted by the appellant. However, assessment u/s 143(1) had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies was not acceptable since even under Section 57(iii), any expenditure incurred for the purpose of making or earning the income is allowable as a deduction. It is open to the income-tax authorities to deny the exemption under Section 11 of the Act in absence of registration under Section 12A and if they do so, then the assessment has to be completed in accordance with the provisions of the Income Tax Act. If the income is assessed under the residual head full play must be allowed to Section 57(iii). The assessee in the present case was created in 1979 with the object of promoting sports; there was no other object and all its constituents were giving grants/ funds only for that purpose. In truth and reality the assessee was merely acting as a custodian or conduit to the constituents for the purpose of promoting sports activity inside and outside the country. The expenditure incurred by the assessee is only for the purpose of promoting the sports events and activities and in this respect there is no challenge to the finding of fact recorded by the Tribunal. If such expenditure is not allowed, it may amount to taxing the gross receipts of the assessee and not the income, which is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction, he will have to issue a notice under sub-section (2) of section 143. Indeed, in every case where the Revenue desires to have evidence in support of any claim, a notice can always be issued under section 143(2), a regular assessment made and the excess amount due recovered (Khatau Junkar Ltd. vs. K.S. Pathania, Dy. CIT (1992) 196 ITR 55 (Bom), Bank of America NT. and S.A. vs. Dy. CIT (1993) 200 ITR 739 (Bom) and Indian Rayon & Industries Ltd. vs. J.R. Kanekar, Asstt. CIT (1993) 200 ITR 747 (Bom). See also JKs Employees' Welfare Fund vs. ITO (1993) 199 ITR 765 (Raj), Adamas General Industries Ltd. &Anr. vs. Smt. Neela Krishnan (1993) 203 ITR 737 (Bom), SRF Charitable Trust vs. Union of India (1992) 193 ITR 95 (Del), Makum Tea Co. (India) Ltd. vs. Dy. CIT &Anr.(1999) 235 ITR 484 (Gau), Parikh Engineering & Body Building Co. Ltd. &Anr. vs. Union of India &Ors. (1999) 238 ITR 554 (Pat)). 5. For the purposes of adjustments under cl. (iii) to the first proviso to s. 143(I)(a), a deduction claimed must be inadmissible on the face of the return; documents and accounts accompanying it without any scope for doubt or debate; question of prima facie adjustment under s. 143(I)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... din vs. ITO & Anr. (2001) 240 ITR 550 (MP) it has been held that while passing an order under s. 143(l)(a) the AO cannot change the nature of income or exemption. In CIT vs. McDowell & Co. Ltd. (2006) 204 CTR (Kar) 353 in which decision in God Granites vs. CBDT &Ors. (1996) 218 ITR 298 (Kar) was followed and decision in Madan Gopal Bagla vs. CIT (1956) 30 ITR 174 (SC) was distinguished, it was held that only a claim which is prima facie admissible or inadmissible can be considered under s. 143(l)(a) and not a matter that requires a detailed consideration; assessee having made out a prima facie case in respect of deduction of 'corporate guarantee obligation' as there was an agreement and also a guarantee obligation, claim for deduction of corporate guarantee obligation could not be disallowed by way of prima facie adjustment under s. 143(l)(a). Following types of disallowances/ additions/ alterations have been held to be not permissible by resort to section 143(l)(a): Corpus donations received by a trust-SRF Charitable Trust vs. Union of India (1991) 100 CTR (Del) 160: (1992) 193 ITR 95 (Del) Amount claimed non-taxable in the relevant year-Bank of America NT. & S.A. vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellant society is an educational institute and it was financed by Government of M.P. Therefore, in light of the above judicial decisions and documents so submitted by the appellant, these ground of appeal is hereby allowed. Thus, its income was exempt u/s 10(23C)(iiiab) of the Act. In its alternative, the AO is directed to allow benefit of the expenses so claimed by the appellant against the receipts. 9. We observe that Ld. CIT(A) has thoroughly analysed the facts of the case and has also referred to the relevant decisions and judgments to arrive at the finding favouring the assessee. 10. We will first take up the second issue raised by the revenue regarding the allowability of the expenses claimed in the return of income. We find that the assessee filed its return of income on 14.8.2014 showing gross total income at Rs. 5,98,24,898/- and claiming expenditure of Rs. 7,27,11,645/- as an amount applied to charitable or religious purposes in India during the previous year. The net income for the year is a loss of Rs. 1,28,86,747/-. The return was processed u/s 143(1) of the Act and a communication was sent to the assessee denying the claim of expenses of Rs. 7,27,11,645/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in Civil, Mechanical and Electrical and such other branches of Engineering. The assessee institute runs solely for educational purposes and not for the purpose of earning profits. Most of the grants are received from Government of Madhya Pradesh. Irrespective of the fact that the assessee is eligible for exemption u/s 10(23C)(iiiab) of the Act or not even if the revenue authorities wanted to tax receipts during the year as income under the head income from other sources, they were not justified in grossly denying the benefit of genuine claim of incidental expenditure of Rs. 7,27,11,645/- u/s 57(iii) of the Act being the expenditure (not been in the nature of capital expenditure) laid out by the assessee institution wholly or exclusively for the purpose of making or earning such income. We thus confirm the finding of Ld. CIT(A) to this effect and allow the claim of expenses of Rs. 7,27,11,645/- u/s 57(iii) of the Act and dismiss revenue's Ground No.3. 12. Now we take up first issue about the eligibility of the assessee to claim exemption u/s 10(23C)(iiiab) of the Act which was accepted by Ld. CIT(A) but challenged by the revenue before us raising Ground No. 1 & 2. We find that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges collected by the institutions and made over to the society (c) All moneys received by the society by way of grant, gifts, donations beneficiations, bequests or transfers; and (d) All moneys received by the society by in any other manner or from any other source. (2) All moneys credited to the Fund shall be deposited in such banks or invested in such manner as the society may, with the approval of the State Government decide. (3) The fund shall be applied towards meeting the expenses of the society, Government Body and the institutions including expenses incurred in the exercise of its powers and performance of its duties by or under these regulations. (4) The institutions shall not spend any amount collected by them by way of fees and other charges and shall make one all such realisation to the government body. (5) The society shall earmark an adequate amount in its annual budget to cover all expenses of every institution and no institution shall incur an expenditure in excess of the amount so earmarked; Provided that in special circumstances, the society may make a special grant to meet any unforeseen expenditure of an institutions. 15. From perusal of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government. 19. We find that similar issue as raised before us also came up before the Co-ordinate Bench of Chandigarh in the case of JCIT (Exemption) v/s CRM Jat Post Graduate College(supra) and the issue of the institution being wholly or substantially funds by the Government was under consideration. The relevant finding of the Tribunal is reproduced below:- 9. Addressing the second issue framed by us where we are called upon to decide whether the assessee educational institution can be considered to be on facts substantially financed by the Government of Haryana and hence the case of the assessee can be said to be covered u/ s. 10(23C)(iiiab) of the Act, the relevant facts on record are that the percentage of government grant is 60 of the total receipts. This finding of fact available on record remains unrebutted. In the absence of any rebuttal on facts, we find no good reason to upset the conclusion drawn. 9.1 No doubt as far as the year under consideration is concerned, percentage of receipts to be considered as crossing the statutory threshold limit by way of insertion of ,Explanation below clause 10(23C) was not available as it was, inserted prospectively and the vaguen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment which had entitled the assessee to claim exemption under section 10(23C)(iiiab) of the Act, No infirmity or perversity could be pointed out by the learned counsel for the Revenue in the findings recorded by the Tribunal. The substantial questions of law as claimed by the Revenue are answered accordingly and consequently, finding no merit in the appeals, the same are hereby dismissed." 9.2 However, since today we have the benefit of the insertion of the Explanation to sub-clause (iiiab) and (iiiac) inserted by Finance (N0.2) Act, 2014 w.e.f. 0I.04.20I5, it 'will be appropriate to extract the relevant provisions: "Section 1O(23C) any income received by any person on behalf of - (i) (ii)..(iii)* (iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is who/Iv or substantially financed by the Government; or (iiiac) * Explanation.-For the purposes of sub-clauses (iiiab) and (iiiac) (iu(lb) and (iliac). any university or other educational institution, hospital or or other institution referred therein, shall be considered as being substantially financed by the Government for any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the above referred decision of Chandigarh Tribunal in the case of CRM Jat Post Graduate College (supra) we find that the Tribunal has referred to the judgment of Hon'ble Karnataka High Court in the case of Indian Institute of Management (supra) wherein the facts were that the government financing was 37.87% of the total contribution received during the year and the Hon'ble High Court held the assessee to be eligible for exemption u/s 10(23C)(iiiab) of the Act. 21. We also find that Hon'ble Punjab & Haryana High Court in the case of CRM Jat Post Graduate College (supra) has also held the assessee to be eligible for exemption u/s 10(23C)(iiiab) of the Act where the governments grants were ranging from 44.52% to 45.15%. We thus are of the considered view that before the insertion of the explanation to Clause 10(23C)(iiiab) of the Act w.e.f. 01.04.2015 setting out minimum threshold of 50% has been fixed for institution which has to be financed by Government for claiming benefit of section 10(23C)(iiiab) of the Act but before this stage as noted by way of judicial standards set by the Hon'ble courts and the Co-ordinate Benches and in the absence of non statutory guidelines even the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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