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TMI Blog2024 (10) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... o be prejudicial to the interests of revenue, it must result in a loss to the revenue. In this case, the AO properly accepted the assessee s exemption claim after considering the applicable laws and facts. The assessee s income was primarily derived from government grants and regulated fees, and the AO correctly determined that the university was substantially financed by the Government. CIT(E) s conclusion that the AO s order was prejudicial to revenue is based on the incorrect exclusion of interest income and an erroneous application of Rule 2BBB for AY 2014-15. As such, the order passed by the AO did not cause any loss to the Revenue. We find that the order passed by the AO was neither erroneous nor prejudicial to the interests of revenue. AO s decision to allow the assessee s exemption under Section 10(23C)(iiiab) of the Act was based on a correct appreciation of the facts and applicable law, and the principle of consistency must be upheld. CIT(E) erred in excluding interest income from the government grants and in attempting to apply Rule 2BBB retrospectively. Accordingly CIT(E) s order invoking Section 263 of the Act is quashed - Appeal of the assessee is allowed. - Ms. Suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ab) of the Act. The CIT(E) concluded that the AO failed to properly examine whether the assessee qualified as substantially financed by the government. The CIT(E) believed that the AO had overlooked critical facts, making the order erroneous and prejudicial to revenue interests. While doing so, the CIT(E) scrutinized the university's income composition for the assessment year and focused on the total income of Rs. 25,03,59,292/-, which included income from various sources such as: State Government Grants: Rs. 3,28,91,722/- Fees: Rs. 11,38,65,510/-. Interest Income: Rs. 10,17,71,295/-. Miscellaneous Income: Rs. 13,82,513/-. 2.2. The CIT(E) highlighted that the Government grant (Rs.3,28,91,722/-) only constituted 13% of the total income, a figure significantly below the level required to classify the institution as substantially financed by the government. Therefore, the CIT(E) believed that the assessee did not qualify for exemption under Section 10(23C)(iiiab) of the Act, which applies to institutions that are wholly or substantially financed by the government. The CIT(E) referred to Rule 2BBB of the Income Tax Rules, 1962, which defines substantially financed as institutions r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Karnataka High Court in the case of CIT (Exemptions), Delhi v. Institute of Liver and Biliary Sciences reported in (DELHC) 2023 ITL 2430 and in view of Rule 230(8) of the General Financial Rules, all interests or other earnings against grants-in-aid are required to be mandatory returned to the Consolidated Fund of India. If the said interest is not returned back the same is required to be added to the Grant by the Government. Thus in the instant case, the percentage of Government grant would come to 54 %. 3. That it ought to have been considered that the grants received by the assessee were Rs. 2,50,00,000/- + 78,91,722/- towards salary grant, totaling to Rs. 3,28,91,722/- and adding the interest of Rs. 10,17,71,295/-, the figure came to Rs. 13,46,63,017/-- Considering the receipt of fees of Rs. 11,38,65,510/-, the total comes to Rs. 24,85,28,527/- Comparing the total receipt of Rs. 24,85,28,527/-, the grant + interest would bare a proportion of 54 %. Thus, even applying the prospective Rule 2BBB, the assessee crossed the benchmark of 50%. 4. That in view of the decision of the Hon'ble Karnataka High Court in the case of Commissioner of Income Tax v. Indian Ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as part of the grant itself. Adding the interest income to the Government grant, the AR claimed that the total Government funding would constitute 54% of the university's gross receipts, thus meeting the threshold for substantial financing under Section 10(23C)(iiiab) of the Act. The AR highlighted that Rule 2BBB, which defines substantially financed as 50% or more of an institution's income being from government grants, was introduced only from AY 2015-16 which could not be applied retrospectively to AY 2014-15. The AR contended that the CIT(E) had incorrectly attempted to apply this rule retroactively, despite the fact that it did not apply to the year under consideration. The AR also argued that in previous assessment years, such as AY 2010-11 and AY 2012-13, the AO had consistently allowed the assessee's claim for exemption under Section 10(23C)(iiiab) of the Act and the facts of the case had not changed significantly, and there was no justification for deviating from the established position in AY 2014-15. 4.2. The AR relied on several judicial precedents, including the judgement of the Hon ble Delhi High Court in CIT (Exemptions) v. Institute of Liver and Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that Rule 2BBB, introduced from AY 2015-16, cannot be applied retrospectively to AY 2014- 15. The legal framework prevailing at the time of assessment did not prescribe such a threshold. The assessee pointed out that in prior assessment years, such as AY 2010-11 and AY 2012-13, the AO accepted the assessee s claim for exemption under Section 10(23C)(iiiab) of the Act. The facts and circumstances had not changed, and the principle of consistency should apply. 6.3. We first consider whether the AO s order was erroneous. The AO accepted the assessee s claim for exemption under Section 10(23C)(iiiab) of the Act after examining the relevant facts and submissions. The assessee provided detailed calculations showing that when interest income on government grants is included, the government financing exceeds 50% of the total income, thereby meeting the threshold for substantial financing. The AO did not apply Rule 2BBB retrospectively, as the rule was introduced only from AY 2015-16. There was no legal requirement during AY 2014-15 to adhere to the 50% threshold outlined in Rule 2BBB. Moreover, the assessee relied on judicial precedents, such as Institute of Liver and Biliary Scienc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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