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TMI Blog2022 (3) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption of its entire income u/s 11 of the Act on account of application of its income for capital purposes. Alternative contentions of the assessee that even without claiming 15% exemption of its income from Government grants, it was entitled to exemption u/s. 11 of the Act after taking into account the amounts utilized for capital purposes - CIT(E), we find has rejected this contention of the assessee by stating that the assessee's claim of utilization of its income in capital asssets tantamounts to revising its return and therefore the contention is not acceptable. We are not in agreement with the same. The assesse s claim of exemption of its entire income has remained unchanged and unrevised. What has only changed is the basis of the claim that too without foregoing its original basis and as an alternate only and that too when confronted with the prospect of being denied exemption of 15% of Govt. grants as originally claimed. The same does not tantamount to revising its return by any chance. Also if the alternate basis of claim of the assessee was as per law the assessment order could not be held erroneous in allowing benefit of exemption u/s 11 to the assessee. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records thereafter found that the assessing officer had not properly assessed the income, for the reason that the assessee had been granted excess exemption of 15% of its income on grants from state government of ₹ 4.72 crores. Para 2.1 of the order of the Ld. CIT(E) bringing out the above is as under: 2.1 On perusal of assessment order U/s 143(3) of the Act dated 27/10/2016, it was noticed that the AO has allowed irregular excess exemption. As per audit report, it is noticed that total receipts of the assessee as per the return was ₹ 9,58,41,751/- which was inclusive of ₹ 4,72,00,000/- received as grant from the State Government. The Assessing Officer has accepted the calculation of exemption @15% of the income of trust including Grant of ₹ 4,72,00,000/-. Further, said amount of grant of ₹ 4,72,00,000/- received by the assessee from the State Government has not been deducted from the net income on which the exemption of 15% was to be included. 4. Accordingly, show cause notice was issued to the assesssee dated 16/07/2018 and jurisdiction assumed by the Ld. CIT(E) for initiating revisionary proceedings u/s. 263 of the Act. Due reply was fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of Rs. NIL along with the Auditor's report U/s 12A(b) of the Act in Form No. 10B. The same was selected for scrutiny and thereafter, Order U/s 143(3) of the I. T. Act for A.Y. 2014-15 was passed on 27/10/2016 determining total income of ₹ 96,24,705/-, by making addition on account of claim of depreciation. 3. During the course of assessment proceedings, the AO has allowed irregular exemption. As per audit report, it is noticed that total income of the assessee trust was ₹ 958.42 lakh which was inclusive of ₹ 472 lakh received as grant from the State Government. It is also observed that while calculating the exemption of 15% of the income of the trust, the AO has calculated it on total income including Grant. 3.1. As per the provisions of Section 11(1) subject to the provisions of Section 60 to 63, following income shall not be included in the total income of the previous year of the person in receipt of the income (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Section 11 disentitle the assessee to the said exemption. There is absolutely no basis mentioned in the show cause notice for this interpretation of law by the Ld. CIT(E) and it appears to be totally on his own whims and fancies . The Ld. DR, during the course of hearing before us, was unable to enlighten the bench as to which provision of law denied claim of exemption @ 15% of government grant . 7.1 The initial opinion of the Ld. CIT(E) of the assessment order being erroneous, we find ,is therefore without any basis at all. The Ld.CIT(E) has just arbritrarily found the assessment order erroneous. The section (263 of the Act) requires that if the commissioner considers (italics provided by us) any order passed by the AO being erroneous, jurisdiction to initiate revisionary proceedings may be exercised. Section 263 states so as under: 263. (1) The 67[Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no finding of the assessment order being erroneous. 11. Going further, we find that the assessee had explained as to why the order of the A.O. was not in error. He had stated that though the assessee had claimed exemption u/s. 11 of the Act, it was rightfully and legally entitled to claim its income as exempt as per the provisions of Section 10(23C)(iiiab) of the Act since it was wholly/substantially financed by the Government. Working depicting more than 90% of its receipts from government, to substantiate its claim, was also filed by the assessee. Alternatively, it was pleaded that even as per the provisions of section 11 of the Act its entire income was exempt, even after denying exemption of 15% of the grants received from the Government as contended by the Ld. CIT(E) ,since its application in capital assets was sufficient to cover the gap. Computation to this effect was also filed by the Ld. Counsel for the assessee. But we find that the Ld. CIT(E) rejected both the contentions without giving any reasons and totally arbitrarily. 12. The explanation of the assessee that it was entitled to exemption u/s. 10(23C)(iiiab) of the Act was submitted to the Ld. CIT(E) vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust and under the Societies Registration Act, 1960, it is managed by the officers of the Government appointed as trustees, it would be seen from the object of the Memorandum of Association that the Society is established by the government of Gujarat solely for the educational purposes in the field of dentistry not for the purposes of profit. Therefore the income of the Society is exempt u/s. 10(23C)(iiiab) of the I, T. Act, 1961, The relevant provision is reproduced for ready reference, (iiiab) 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; or] (iiiac) ........... [Explanation.-For the purposes of sub-clauses (iiiab) and (iiiac), any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds such percentage of the total receipts including any voluntary contributions, as may be prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For Society for Gujarat Health Education Research 13.. And then vide letter dated 28th August, 2018 reproduced under: To, Commissioner of Income Tax, (Exemptions), Ahmedabad Sir, Sub: Show cause notice u/s. 263 of the I.T. Act, 1961- Society for Gujarat Dental Health Education Research (PAN: AAKTS0210N) for A.Y. 2014-15 Submissions regarding With reference to the above subject and in continuation to our previous written submission dt.2 1-08-201 Sand also with reference to the hearing that took place on 21- 08-2018, we beg to make the following further submissions for your Honour's kind consideration. 2. In the course of hearing we have been desired to make further submissions in respect of the issues raised as under. i. To provide working u/s. 10(23C)(iiiab) of the Act for the A. Yrs. 2012-13, 2013-14 and 2014-15. ii. To submit explanation on merits in respect of the issue raised in the notice issued u/s. 263 of the Act. iii. Copies of sanction letters for the A. Yrs. 2012-13, 2013-14 and 2014-15. 2.2. We are enclosing herewith the copies of sanction letters relatable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000/- iii. Other receipts during the year, (income Expenditure A/c) ₹ 15,05,685/- TOTAL RECEIPTS ₹ 14,65,05,685/- The government grants works out to ₹ 14,50,00,000/- which comes to 98.97% of the total receipts. Accordingly the income of the trust is exempt u/s. 10(23C)(iiiab) of the Act. 14. The assessee had ,as is evident demonstrated that it was substantially financed by the state government and for the said purpose had shown that more than 90% of its total receipts was by way of endowment funds and grants and subsidies from the state government. 15. Ld. CIT(E), we find has rejected this contention by stating that the claim made by the assessee is incorrect and that it is not substantially financed by the Government ,its percentage of Government grants to total receipt being only 49.24%. The relevant findings of the Ld. CIT(E) in this regard at para 9(i) of the order is as under: (i) With regard to assessee's contention that it falls u/s 10(23C)(iiiab), it is not found acceptable in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder. Gross total income.₹ 9,58,41,751/- Less: deduction/exemption u/s. 11 as per statement. a) Amount applied to charitable purposes ₹ 6,69,07,110/- b) Application by expense on capital account by Increase in fixed assets. (40,56,96,528-28,90,93,377) ₹ 11,66,03,151/- c) 15% available for accumulation u/s. 11 of the Act. (1,43,76,263-70,80,000 as per notice u/s.263) ₹ 72,96,263/- Total ₹ 19,08,06,524/- Your Honour will kindly see from the above working that the re would be no tax liability even 11 of the Act even in a case it is assumed that provisions of S.I0(23C)(iiiab) are inapplicable. 17. The same was rejected by the Ld. CIT(E) holding at para 9(ii) of his order as under: ii. With regard to assessee's other contention as mentioned in para 6.b above, the same can not be accepted as in its computation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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