The provisions of section 10(23C)(iiiab) grant exemption
of income earned by any person established for the purpose of imparting the
education and not for the purpose of profits which are wholly or substantially
financed by the Government.
* Under sub-clauses (iiiab) of clause (23C) of the
Income-tax Act, 1961, educational institutions are totally exempt from tax if
they are wholly/substantially financed by Government.
* The condition is that such institutions should be
solely for educational purposes.
* The income of such organisation shall not be used
for any private benefit, but it can be retained in the corpus for future
purposes as there is no restriction regarding 85 per cent application of fund.
* Only compliance under Income-tax law is the
filing of income-tax return in Form ITR-7.
* Such organisations are not required to apply for
an exemption or obtain approval to claim exemptions.
* Such organisations are not required to apply 85
per cent of their income during the previous year.
* These organisations are not subject to any audit
under the Income Tax Act.
Text of Section 10(23C)(iiiab)
[1][(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
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, of such university or other
educational institution, hospital or other institution, as the case may be,
during the relevant previous year; or]
KEY NOTE
1. Inserted by the Finance (No. 2) Act, 1998, with
effect from 01.04.1999.
Pursuant to Finance (No. 2) Act, 2014, an explanation was
inserted w.e.f. 01.04.2015 clarifying the term ‘substantially financed by
Govt.’. Consequently, CBDT had notified 50% threshold for the expression
'substantially financed by Govt.' vide insertion of Rule 2BB.
Text of Rule 2BBB
2BBB. Percentage of Government grant for
considering university, hospital, etc., as substantially financed by the
Government for the purposes of clause (23C) of section 10
For the purposes of sub-clauses (iiiab) and
(iiiac) of clause (23C) of section 10, 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 fifty per cent of the total
receipts including any voluntary contributions, of such university or other
educational institution, hospital or other institution, as the case may be,
during the relevant previous year.
Furnishing of Return of income is mandatory [With
effect from 2016-17]
By virtue of section 139(4C)(e), every educational institution
referred to in section 10(23C)(iiiab) or section 10(23C)(iiiad) or section
10(23C)(vi) whose total income in respect of which such institution is
assessable, without giving effect to the provisions of section 10, exceeds the
maximum amount which is not chargeable to income-tax, furnish a return of such
income of the previous year in the prescribed form.
Assessee, a Government-funded educational
institution, was allowed exemption under section 10(23C)(iiiab) based
on prevailing legal framework and facts of case, order of Assessing Officer
could not be termed as erroneous or prejudicial to interests of revenue and,
thus, same could not be set aside
The assessee university, established under the State Open
University Act, 1994, was a Government-funded educational Institution. The
assessee claimed exemption under section 10(23C)(iiiab). Same was allowed.
Subsequently, the Commissioner (Exemptions) invoked section
263 primarily contending that the assessee was not wholly or substantially
financed by the government for the relevant assessment year, thereby
questioning the assessee’s eligibility for the exemption under section
10(23C)(iiiab). He concluded that the Assessing Officer failed to properly
examine whether the assessee qualified as substantially financed by the
government. The Commissioner (Exemptions) believed that the Assessing Officer
had overlooked critical facts, making the order erroneous and prejudicial to
revenue interests. The Commissioner (Exemptions) highlighted that the
Government grant only constituted 13 per cent of the total income, a figure
significantly below the level required to classify the institution as
“substantially financed” by the government. Therefore, he believed that the
assessee did not qualify for exemption under section 10(23C)(iiiab), which
applies to institutions that are wholly or substantially financed by the government.
The Commissioner (Exemptions) referred to rule 2BBB which defines
“substantially financed” as institutions receiving 50 per cent or more of their
income from government grants which came into effect from assessment year
2015-16. The Commissioner (Exemptions) set aside the Assessing Officer’s
assessment order and directed the Assessing Officer to re-examine the case and
re-adjudicate the issue of the allowability of the exemption under section
10(23C)(iiiab), after proper verification of facts. On appeal:
Held : The assessee submitted that interest earned on
Government grants should be considered part of government financing, as per
Rule 230(8) of the General Financial Rules (GFR), which states that interest on
Government grants must be returned to the Consolidated Fund of India unless
otherwise stipulated. By including the interest income, the proportion of
Government financing would rise to 54 per cent of the total receipts, exceeding
the 50 per cent threshold required under rule 2BBB. The assessee contended that
Rule 2BBB, introduced from assessment year 2015-16, cannot be applied
retrospectively to assessment year 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 assessment year 2010-11 and assessment year 2012-13,
the Assessing Officer accepted the assessee’s claim for exemption under section
10(23C)(iiiab). The facts and circumstances had not changed, and the principle
of consistency should apply. The Assessing Officer accepted the assessee’s
claim for exemption under section 10(23C)(iiiab) 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 per cent of the total income, thereby meeting the threshold for
substantial financing. The Assessing Officer did not apply Rule 2BBB
retrospectively, as the rule was introduced only from assessment year 2015-16. There
was no legal requirement during assessment year 2014-15 to adhere to the 50 per
cent threshold outlined in Rule 2BBB. Moreover, the assessee relied on judicial
precedents, which support the inclusion of interest income in the calculation
of Government financing. The Assessing Officer’s decision to allow the
exemption based on the prevailing legal framework and facts of the case cannot
be termed as erroneous. For an order to be prejudicial to the interests of
revenue, it must result in a loss to the revenue. In this case, the Assessing
Officer 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 Assessing Officer correctly
determined that the university was substantially financed by the Government.
The Commissioner (Exemption) conclusion that the Assessing Officer’s order was
prejudicial to revenue is based on the incorrect exclusion of interest income
and an erroneous application of Rule 2BBB for assessment year 2014-15. As such,
the order passed by the Assessing Officer did not cause any loss to the
revenue.
In light of the submissions, judicial precedents, and factual
background, it is found that the order passed by the Assessing Officer was
neither erroneous nor prejudicial to the interests of revenue. The Assessing
Officer’s decision to allow the assessee’s exemption under section
10(23C)(iiiab) was based on a correct appreciation of the facts and applicable
law, and the principle of consistency must be upheld. The Commissioner
(Exemption) erred in excluding interest income from the government grants and
in attempting to apply rule 2BBB retrospectively. Accordingly, the Commissioner
(Exemption) order invoking section 263 is quashed, and the appeal of the
assessee is allowed. [In favour of assessee] (Related Assessment year :
2014-15) - [Dr. Babasaheb Ambedkar Open University v. CIT (Exemptions) [2025]
210 ITD 109 : (2024) 168 taxmann.com 92 (ITAT Ahmedabad)]
Assessee-university was established by State
Legislature Act and was substantially financed by Government to extent of 31.76
per cent, it was eligible for exemption under section 10(23C)(iiiab)
The assessee was established at Amritsar by State Legislature
Act No. 21 of 1969. The assessee was residential and an affiliated university.
The return of income as filed by the assessee was initially processed under
section 143(1) but the case was reopened to examine various issues.
During the assessment proceedings the assessee, inter-alia,
stated it was entitled for exemption under section 10(23C)(iiiab) and in
support, it tabulated a chart of receipts of grants. The percentage of
government grant as computed by the assessee vis-à-vis total receipts was
worked out to be 47 per cent. However, the Assessing Officer recomputed the
same to be 31.76 per cent. In other words, as per the findings of the Assessing
Officer, the percentage of financing by government was to the extent of 31.76 per
cent.
The Assessing Officer, in terms of rule 2BBB, held that the
expression 'substantially finance' would mean that government grant should be
more than 50 per cent of total receipts which was not the case here. It was
noted that though this criteria was applicable from assessment year 2015-16,
the amendment was clarificatory in nature as per CBDT Circular No. 01/2015,
dated 21.01.2015. Since the assessee did not fulfill the said criteria, the
deduction so claimed was denied and surplus of Rs. 61.57 crores was assessed to
tax and the assessment was framed.
On appeal, the Commissioner (Appeals) held that extent of
grant of 31.76 per cent was very low and it could not be said that the assessee
was wholly or substantially financed by the Government in terms of statutory
provisions. Accordingly, the assessment was confirmed. On appeal to the
Tribunal:
Held : The impugned issue qua amendment to section 10(23C) and
interpretation of 'substantially finance' prior to assessment year 2015-16
stood covered in assessee's favour by various judicial decisions of higher
forums, the copies of which have been placed on record. The High Court of
Punjab and Haryana in the case of CIT(Exemption) v. Swami
Ganga Giri Janta Girls College (2024) 466 ITR 393 : 162 taxmann.com
677 (Punjab & Haryana)concurred with the finding of Tribunal that Rule 2BBB
was not applicable for assessment year 2012-13 and the same was brought in
force from 12.12.2014. The same clearly negates the action of the Assessing
Officer. Even the CBDT Circular No. 01/2015 dated 21.01.2015 clearly state that
the amendment to section 10(23C) shall take effect from 01.04.2015 and
accordingly, apply in relation to assessment year 2015-16 and for subsequent
years. Therefore, quite clearly, the amendment prescribing higher ceiling of 50
per cent would not apply for this year.
The interpretation of expression ‘substantially finance’,
prior to amendment with effect from assessment year 2015-16, has been dealt in
various judicial decisions. The Karnataka High Court in the case of CIT
v. Indian Institute of Management (2010) 196 Taxman 276 : 8
taxmann.com 239 (Karn.) held that financing to the extent of 37.85 per cent
would constitute substantial financing. In subsequent decision, the Court in
the case of DIT (Exemptions) v. Dhamapakasha Rajakarya Prasakta B.M.
Sreenivasaiah Educational Trust (2015) 372 ITR 307 : 232 Taxman 575 :
59 taxmann.com 33 (Karn.) again held that government grant to the
extent of 25 per cent would constitute substantial financing.
Following the decision in Indian Institute of Management (supra), the High
Court of Punjab and Haryana concurred with the finding of Tribunal that
government financing to the extent of 44.52 per cent would constitute
substantial financing. The other decisions as placed on record well support
this proposition and no contrary decision having similar facts is shown.
Respectfully following all these decisions, it is held that the assessee was
substantially financed by the government in this year and it was eligible to
lay claim on impugned deduction as claimed by it under section 10(23C)(iiiab).
Consequently, the other grounds as urged in the appeal have been rendered mere
academic in nature and there is no fruitful reason to deal with the same. The
Assessing Officer is directed to grant impugned exemption to the assessee. The
appeal stand allowed in terms of above order. [In favour of assessee] – [Guru
Nanak Dev University v. DCIT (2025) 175 taxmann.com 810 (ITAT Chandigarh)]
Assessee claimed exemption under section 10(23C)(iiiab)
and Assessing Officer added entire cash deposits in bank account, interest
income and payment to hotel and restaurant bills to income of assessee without
allowing any expenditure, even if exemption under section 10(23C)(iiiab)
was not allowed, entire deposits could not have been added without considering
income on commercial basis and after allowing expenditure, therefore, order of
Assessing Officer was to be set aside and issue was to be remitted back to him
The assessee-university claimed that its income was exempt
under section 10(23C)(iiiab). Accordingly, it did not file return of income. As
no return of income was filed, a notice under section 148 was issued requiring
assessee to file return of income - However, no return of income was filed.
Thus, the Assessing Officer added the entire cash deposits in the bank account,
interest income and payment to hotel and restaurant bills to the income of the
assessee without allowing any expenditure. On appeal, the Commissioner
(Appeals) dismissed the appeal of the assessee on account of delay in filing
the appeal. On appeal to the Tribunal:
Held : The assessee sought adjournment but the same was
declined as there was no justification for seeking adjournment and no
representation had been made either before the Assessing Officer or before the
Commissioner (Appeals). The assessment order is ex parte and there was no
representation before the Commissioner (Appeals) and the appeal was dismissed
on account of delay. The Assessing Officer has added the entire cash deposits
in the bank account, the interest income and also the payment to hotel and restaurant
bills. No expenditure whatsoever has been allowed while the assessee claims to
be a university which is substantially financed by the Government and the
University Grants Commission and has claimed that its income is exempt under
section 10(23C)(iiiab). Even if the exemption under section 10(23C)(iiiab) was
not allowed; however, the entire deposits which were claimed to be out of the
fee received and grants from the Government could not have been added without
considering the income on commercial basis and after allowing the expenditure.
Thus, the Bench was of the view that in the interest of justice, another
opportunity may be granted to the assessee. Therefore, the order of the
Commissioner (Appeals) as well as the order of the Assessing Officer are hereby
set aside as the reasons for the delay are found to be justified and the
assessee had a sufficient cause for the delay and the submission made have not
been considered and the issue is remitted to the file of the Assessing Officer
for framing the assessment de novo after considering the submissions which may
be filed by the assessee in support of the claim and also in support of the
claim that the exemption under section 10(23C)(iiiab) is allowable. Hence, all
the grounds of appeal are allowed for statistical purposes. [Matter remanded]
(Related Assessment year : 2015-16) – [University of North Bengal v.
DCIT, Exemption (2025) 175 taxmann.com 680 (ITAT Kolkata)]
For claiming exemption under section 10(23C)(iiiab),
only two conditions are required i.e. university or other educational
institution should exist solely for education purposes and not for purposes of
profit, and second, university or other educational institution is wholly or
substantially financed by Government; filing of return of income by assessee
for claiming exemption under section 10(23C)(iiiab) is not mandatory
The assessee was a university established under the Haryana
and Punjab Agricultural University Act, 1970. As per the objects of the
university as stated in section 7, the university existed solely for
educational purposes and not for purposes of profit, and was claiming exemption
under section 10(23C)(iiiab).
For the year under consideration, no return of income was
filed by the assessee and thus, the Assessing Officer had reopened the case
under section 147. Notice under section 148 was issued to the assessee
requiring to furnish return of income. In response, the assessee filed return
of income declaring income Nil after claiming exemption under section
10(23C)(iiiab).
Thereafter, a show cause notice was issued to the assessee
asking that as to why exemption claimed under section 10(23C)(iiiab) may not be
disallowed. In response, the assessee filed reply stating that the accounts of
university were prepared which were further approved by Joint Director, Local
Audit, Chandigarh.
For the financial year 2017-18 the accounts of university was
not approved by Joint Director within the time limit of filing of return of
income as per section 139 and when the accounts were approved by Director,
Chandigarh the time of return as per 139 had been expired. Now the university
had filed its return of income in response to notice issued under section 148
and claimed exemption under section 10(23C)(iiiab).
However, the Assessing Officer made disallowance of exemption
claimed under section 10(23C)(iiiab) holding that claim of the assessee was not
allowable as it had not filed its return of income in compliance to provisions
under section 139(1). Therefore, claimed exemption was not allowable.
On appeal, the Commissioner (Appeals) confirmed the action of
the Assessing Officer by denying the exemption claimed by the assessee under
section 10(23C)(iiiab). On
appeal to the Tribunal:
The filing of return of income by the assessee for claiming
exemption under section 10(23C)(iiiab) is not mandatory. For claiming exemption
under section 10(23C)(iiiab) only two conditions are required i.e. the
university or the other educational institution should exist solely for
education purposes and not for purposes of profit, and the second, the
university or other educational institution is wholly or substantially financed
by the Government and in the case of the assessee both the above conditions are
satisfied.
Further, the assessee vide letter signed by the Comptroller of
the said university certified that entire funds received by the assessee was
from State Government, Indian Council of Agricultural Research (Ministry of
Culture) and other Ministries and government undertaking.
Therefore, the assessee satisfies both the twin conditions for
claiming the exception under section 10(23C)(iiiab). Moreover, the Assessing
Officer has not brought any fact on record that the assessee did not exist
solely for education purposes and or for purposes of profit, and that the
university or other educational institution was not wholly or substantially
financed by the Government. Further, it may be mentioned that there is a
specific provision under section 234F for the consequences for not filing of
return in the case of an assessee, which is required to file its return of
income as per the provision of section 139. Moreover, there are sections in the
Act, wherein, it is mentioned that the claim of the assessee shall not be
admissible, if certain requirements as per law are not filed along with the
return. For example, sub-section-7 of section 80IA for claiming deduction under
section 80IA(1) during the material period i.e. assessment year 2018-19 laid
down a condition that the deduction under sub-section (1) from profits and
gains derived from an undertaking shall not be admissible unless the accounts
of the undertaking for the previous year relevant to the assessment year for
which the deduction is claimed have been audited by an accountant, as defined
in the Explanation below sub-section (2) of section 288, and the assessee
furnishes, along with his return of income, the report of such audit in the
prescribed form duly signed and verified by such accountant.
There is no such mandate in the provisions of section
10(23C)(iiiab) and section 139(4C)(e) that filing of return under section
139(4C)(e) by the assessee was a mandatory condition for claiming exemption
under section 10(23C)(iiiab).
Moreover, on similar facts, in the case of the assessee,
wherein, on similar information, the assessment for 2019-20 was reopened by the
Assessing Officer vide notice under section 148 dated 28.03.2023, wherein, the
Assessing Officer had accepted the claim of the assessee vide assessment order
under section 147 read with section 144B dated 19.12.2023, and held that since,
the assessee was a university and was exempted from tax under section 10(23C)
and no other details/evidence was available on record through which the
contention of the assessee could be rejected and completed the assessment at
Nil income filed as filed by the assessee on 17.11.2023.
Therefore, in view of the above facts and discussion, it is
held that the assessee is eligible for exemption under section 10(23C)(iiiab)
and the Assessing Officer and the Commissioner(Appeals) were not correct in not
allowing the claim of exemption as claimed by the assessee. Therefore, this
addition is deleted. In the result, the appeal of the assessee is allowed. [In
favour of assessee] (Related Assessment year : 2018-19) -[Chaudhary Charan
Singh Haryana Agricultural University v. ITO(Exemption) [2025] 174
taxmann.com 917 (ITAT Delhi)]
Assessee, an educational institution, received
grant from Central Government which was utilized for purpose of institute as
per memorandum of association and rules and regulations of society, assessee
would be entitled for exemption under section 10(23C)(iiiab)
The assessee claiming to be an Educational Institution namely
Institute Management Committee Government Industrial Training Institute, Peth,
Nashik. It is also claimed that the assessee institute is funded by the Central
Government, Ministry of Labour and Employment. Return of income for the
assessment year 2022-23 was filed claiming exemption under section
10(23C)(iiiab). However, the CPC vide its Intimation order passed under section
143(1)(a) denied the exemption under section 10(23C)(iiiab) on the ground that
the assessee institution was not substantially financed by the Government and
therefore not eligible for the exemption claimed by it. Accordingly, the income
of the institute was assessed at Rs. 26.13 lakhs. On appeal, the Addl/Joint
Commissioner(Appeals) observed that the assessee was not recognized as a
university by the University Grants Commission and that the assessee had not
received any Government grant during the year and therefore not eligible for
the exemption under section 10(23C)(iiiab). On appeal to the Tribunal:
Held : The only issue that arises for consideration is whether
the Addl/Joint Commissioner(Appeals) was justified in confirming the action of
the CPC in denying exemption under section 10(23C)(iiiab). 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. The main aim of the institute is to assist in improvement of
standard of vocational training and skill development in the country as a whole
and it functions on the principle ‘no-profit no-loss’. It indicates under the
Public Private Partnership model assessee is working under the Ministry of
Labour and Employment. The said grant has been applied for the objects of the
institute by making Fixed Deposit during the year. The institute earned
interest of Rs. 19.32 lakhs on such Fixed Deposit and Savings Account and the
remaining amount is collected ‘Fees’ from the students.
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, it is noticed 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 lakhs the institute has received Rs.19.32 lakhs on account
of Interest from Fixed Deposit made from Govt. Grant and Saving Bank Account
and the same accounts for more than 50 per cent 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).
It is found that the Jodhpur Bench of the Tribunal in the case
of IMC of ITI v. ITO (2017) 82 taxmann.com 120 (ITAT Jodhpur)
had an occasion to decide an identical issue by holding that where the assessee
institute was financed by the Central Government; the amount granted by the
Government was deposited in nationalized bank and interest so received from
bank was utilised for the purpose of the institute as per memorandum of
association and rules and regulation of the society, the assessee was entitled
to exemption under section 10(23C)(iiiab
Since the facts of the above case are identical to that of the
instant case and also in view of observations made hereinabove, it is held that
the assessee institute is entitled for exemption under section 10(23C)(iiiab).
Thus, the Addl/Joint Commissioner(Appeals) erred in affirming the action of
CPC. The impugned order is therefore reversed. Effective grounds of appeal
raised by the assessee are allowed. [In favour of assessee] – [Institute
Management Committee of Government ITI Peth (2025) 171 taxmann.com 21 (ITAT
Pune)]
Denial of Section 10(23C)(iiiab) exemption where
University not ‘substantially funded’ by Government
Pune ITAT dismisses Assessee’s appeal, holds Assessee not
eligible for deduction where it was funded to the extent of 41% of total
receipts from Government grants; Relies on the Bombay High Court ruling
in CIT v. Tata Institute of Social Sciences (2019) 105 taxmann.com 128
(Bom.) and observes that the meaning of ‘substantially financed by
Government’ means cases where Government grants are more than 50% of total
receipts; Assessee, a university formed under Maharashtra Universities Act,
1994, was not registered under section 12AA and claimed exemption under Section
10(23C)(iiiab) for the Assessment year 2011-12; Revenue denied exemption under
Section 10(23C)(iiiab) on the grounds that Assessee did not apply Rs. 5.11 Cr.
towards the objects and made an addition of Rs. 52.92 Lakh; On appeal, CIT(A)
directed the Revenue to delete the additions but held that Assessee was not
eligible for exemption under Section 10(23C)(iiiab) on the grounds that it was
not substantially funded by the Government; ITAT finds Assessee received
Government grant for Rs.6.20 Cr, including the grant for salary and capital
grant during the year which is only 41% of the total receipt for the year;
Opines that the Assessee was not substantially financed by the Government since
the grants were less than 50%; Thus, holds that the Assessee is not eligible
for exemption under section 10(23C)((iiiab). [In favour of revenue] (Related
Assessment Year : 2011-12) - [The Punyashlok Ahilyadevi Holkar Solapur
University Solapur v. ACIT [TS-541-ITAT-2022(PUN)] - Date of
Judgement : 22.06.2022 (ITAT Pune)]
Assessee was conducting various skill training
programs for students to get placement, activities would fall within definition
of education under section 2(15), thus entitling it for exemption under section
10(23C)(iiiab)
The assessee society was engaged in imparting education and in
the same process trained students by sending them to sports industries etc. It
conducted various short duration training programs of computer training,
training in Computer Accounting System, cricket bat manufacturing, carom board
manufacturing, training in R/P workshop, wood workshop etc. The assessee got
raw material from industries and after manufacturing the goods through its
trainees, returned the finished goods after receiving its job charges. The
assessee claimed exemption under section 10(23C)(iiiab).
The Assessing Officer as well as the Commissioner (Appeals)
declined the exemption on the ground that the assessee did not exist solely for
educational purposes. The Commissioner (Appeals) had recorded further in his
order that the issue of charitable activities of the assessee society being of
charitable nature was not relevant in the instant case as assessee was yet to
be registered under section 12AA. On the assessee’s appeal to the Tribunal:
Assessee-society, substantially financed by Government of
India, was engaged in imparting education and in same process conducted various
skill training/Research based education programs for students in manufacturing
of sports goods and leisure equipments without any profit motive so as to
enable them to get placement. Activities of assessee fell within definition of
‘education’ under section 2(15); thus, entitling it to claim exemption under
section 10(23C)(iiiab). [In favour of assessee] (Related Assessment years :
2010-11 to 2013-14) – [Process - cum - Product Development Centre v. ACIT,
Meerut (2019) 175 ITD 517 : 103 taxmann.com 191 (ITAT Delhi)]
Exemption under section 10(23C)(iiiab)
is not relatable to individual institution run under common umbrella of a Trust
and, thus, if assessee trust satisfies statutory requirement of section 10(23C)(iiiab),
exemption provision would apply, irrespective of fact that in isolated cases of
a few institutions run by trust, said requirement is not fulfilled
The assessee was a registered Public Charitable Trust. It was
running a large number of educational institutions. For relevant assessment
year the assessee claimed exemption under section 10(23C)(iiiab). The Assessing
Officer noticed that there were three educational institutions run by the
assessee which did not receive grant from the Government and whose total
receipts exceeded Rs. One Crore during the relevant period. He was of the
opinion that qua those institutions, the assessee's claim of exemption was not
valid. The Commissioner (Appeals) upheld the order passed by Assessing Officer.
The Tribunal, however, held that the exemption under section 10(23C)(iiiab) was
in relation to the assessee and was not specific to the institutions
individually run by the Trust. Accordingly, the Tribunal concluded that
exemption under section 10(23C)(iiiab) was available to the society as a whole.
On revenue’s appeal:
Held : The central question is whether the exemption under
section 10(23C)(iiiab) is specific to the assessee trust or whether such
exemption can be examined by further bifurcating the position of different
institutions run by the assessee trust. The revenue's ground that the assessee
trust did not exist solely for the purpose of educational activity, needs to be
recorded for rejection. It is by now well settled through various series of
judgments of the Supreme Court that an educational institution is not precluded
from generating reasonable surplus. Merely because, in the process of running
an educational institution, the surplus funds are generated, would not
disqualify the institution from being an institution existing solely for the
educational purpose.
Section 10(23C)(iiiab)) grants exemption in relation to any
income received by any person on behalf of any university or other educational
institution existing solely for educational purposes and not for the purpose of
profit, and which is wholly or substantially financed by the Government. This
provision, thus, exempts the income received by a person on behalf of the
institutions specifying the requirements of the said clause. The exemption is
not relatable to the individual institution run under the common umbrella of a
Trust. Therefore, if the assessee trust satisfies the statutory requirement of
section 10(23C)(iiiab), exemption provision would apply, irrespective of the
fact that in isolated cases of a few institutions runs by Trust, said
requirement may not be seen to have been fulfilled. From the above, it is very
clear that it is the trust or the society that has to apply for registration
and claim exemption. Had it been the intention of the legislature to grant
exemption only to the institutions individually or independently and not to the
society as a whole, the language would have been different. The society or
trust may run more than one institutions. Therefore, the argument of the
revenue that it should be institution specific and not the society as a whole
is not correct. Thus, the view expressed by the Tribunal is correct. No
question of law arises. The revenue's appeal is dismissed. [In favour of
assessee] (Related Assessment year : 2008-09) - [CIT(Exemptions), Pune
v. Deccan Education Society (2019) 101 taxmann.com 310 (Bom.)]
Grants Section 10(23C) exemption to Tata Institute
applying subsequently inserted definition of ‘substantially financed’
Tata Institute of Social Science (assessee) is registered
under the Societies Registration Act and Bombay Public Trust Act, 1966.
It is also registered as a Trust under Section 12A of the Act for Assessment
year’s 2004-05 and 2006-07. For the subject Assessment years, the assessee had
filed its return of income, seeking exemption from tax under Section
10(23C)(iiiab) of the Act. The Assessing Officer called upon the assessee
to explain its claim for exemption on the issue of it being solely for
educational purposes and being wholly or substantially financed by the
Government. The assessee in its reply, pointed out that it was established
solely for educational purposes and the grants from the Government were in
excess of over 50% of the total expenditure incurred during year.
Further,the grants received from the Government were also in excess of
50% of the total receipts of the assessee. Thus, on both the above
yardsticks, the assessee claimed to be substantially financed by the
Government. Therefore, it argued that it was entitled to the benefit of Section
10(23C)(iiiab) of the Act.
Further, the Assessing Officer accepted the claim of the
assessee that it existed solely for educational purposes yet denied the benefit
of Section 10(23C)(iiiab) of the Act on the grounds of not being substantially
financed by the Government. The Assessing Officer held that the amount of
Government grant of Rs.12.79 Crores as received was less than 75% of the total
expenditure of Rs.16.87 Crores. The Assessing Officer applied the above measure
of 75% by taking aid of / referring to Section 14 of the Controller Auditor
General’s (Duties, Powers and Conditions of Service) Act, 1971 (“CAG Act” for
short). Thus, the Assessing Officer held that the assessee was not
substantially financed by the Government. On further appeal, CIT(A) allowed the
appeal of the assessee, by taking the view that the provisions of CAG Act would
not be applicable to the Income Tax Act in the absence of any reference to it.
On further appeal, ITAT upheld the order of CIT(A) and dismissed the appeal of
Revenue. Aggrieved, Revenue filed an appeal before Bombay High Court.
Bombay High Court upholds ITAT order allowing exemption under
section 10(23C)(iiiab) to Tata Institute of Social Science (assessee) for
Assessment years 2004-05 & 2006-07; Quashes Revenue's action in importing
the meaning of expression ‘substantially financed by the Govt.’ from the CAG
(Controller Auditor General) Act in absence of any definition in the Income-Tax
Act for the period pertaining pre- April 2015; Though High Court refrains from
holding the Finance (No. 2) Act, 2014 amendment to Section 10(23C)(iiiab)
[clarifying the expression ‘wholly or substantially financed by the Government’
by setting out 50% threshold] as retrospective, it uses the same as an aid in
construing the ambiguous provision”; Cites CBDT Circular No.1 of 2015 which
embodied the said Explanation by stating that the absence of the definition of
the phrase ‘substantially financed by the Government’ had led to uncertainty
and litigation, thereby inferring the said Explanation was clarificatory in
nature; High Court remarks that ‘if the Explanation is to be read
retrospectively, the orders of the Authorities under the Act would be required
to measure the satisfaction of the words ‘substantially financed’ in terms of
an explanation i.e. qua total receipts and not qua total expenditure’; Further
cites Supreme Court rulings in State of Bihar v. S.K. Roy AIR
1966 (SC) 1995 and Thirui Menickan & Co. v. State of Tamil
Nadu AIR 1977 SC 518. wherein it was held that a
subsequent legislation may be looked at in order to understand proper
interpretation of an earlier legislation; Observes that assessee in present
case had satisfied the 50% threshold in the context of total receipts as well
as expenditure as per the newly inserted Explanation even in the pre-amendment
period, thus grants Section 10(23C) benefit; Rejects Revenue’s reliance on the
CAG Act, holds that the scope and the purpose of the CAG Act and the Income Tax
Act are completely different and they cannot be said to be pari material.
(Related Assessment year : 2004-05) - [Director of Income Tax
(Exemptions) v. Tata Institute of Social Science [TS-152-HC-2019(BOM)] –
Date of Judgement : 26.03.2019 (Bom.)]
Assessee-society running a non-profit educational
institution claimed exemption under section 10(23C)(iiiab), merely because
assessee was simultaneously running profitable hotel, exemption under section
10(23C)(iiiab) could not be denied
The assessee was running an educational institution in the
name and stay of Chandigarh Institute of Hotel Management and Catering
Technology and assessee claimed exemption under section 10(23C)(iiiab).
The Assessing Officer observed that the assessee had been
running hotel management course, yet, simultaneously running profitable hotel
in the name of Chandigarh Hotel Beckons. The Assessing Officer held that
assessee was not existing solely for the purpose of education and without any
profit motive and thus, not eligible for deduction under section 10(23C)(iiiab)
and the same was accordingly disallowed.
On appeal, the Commissioner (Appeals) observed that even the
assessee institution was not substantially financed by the Government, which
means that the grant received from the Government should be more than of 50 per
cent of the total receipts during the relevant year. However, in the case of
the assessee, it was below 50 per cent. He, therefore, held that assessee even
otherwise did not satisfy the condition of section 10(23C)(iiiab) that it was
substantially financed by the Government during the year. The Commissioner
therefore, upheld the order of the Assessing Officer. On appeal to the
Tribunal:
Held : The assessee has relied upon the voluminous record to
submit that the activity of the assessee in respect of the running of
educational institute is separate and distinct from its activity of running of
a hotel and that both the activities cannot be clubbed together. That separate
books of account are being maintained in respect of both the activities.
Further, that educational institute run by the assessee is substantially
financed by the Government and that the grants received from the Government cannot
be quantified in respect of total receipts of the assessee i.e. from
educational institute as well as hotel, rather, the same have to be quantified
in respect of receipts of the educational institute as the same are received
for funding of the educational activity only of the assessee.
The provisions of section 10(23C)(iiiab) reveals that they are
not specific to the total income of a person, rather, they talk of exemption of
income received by a person on behalf of any university or educational
institute existing solely for educational purposes and not for the purpose of
profit which is wholly or substantially financed by the Government; meaning
thereby that part of the income of a person which is received on behalf of any
institute falling under the provisions of section 10(23C)(iiiab) will be
exempt, it does not mean that entire income of the 'Person' should be from the
institute solely existing for educational purposes and not for profit and
substantially financed by the Government or that the 'person' is barred from
entering into any business activity. Hence, as per the provisions of section
10(23C)(iiiab) that part of the income of the person will be exempt which is
received from an institution solely for educational purposes and not for profit
and is substantially financed by the Government. The claim of the assessee in
the case in hand is for exemption under section 10(23C)(iiiab) is relating to
the income received on behalf of educational institution being run by it solely
for educational purposes and not for profit and which is substantially financed
by the Government. However, the lower authorities have not examined this
aspect. It is the claim of the assessee that separate books of account are
being maintained in respect of educational institution run by it and that it is
substantially financed by the Government and is not run for profit. In view of
this, the matter requires to be remanded back to the file of the Assessing
Officer to correctly apply the provisions of section 10(23C)(iiiab) and to
examine and verify whether the educational institution run by the assessee,
irrespective of the other activity of running of the hotel of the assessee, is
run solely for educational purposes and not for profit and whether the said
institution is substantially financed by the Government. If the institute is
found to qualify the above conditions of section 10(23C)(iiiab), the assessee
will be entitled to claim exemption in respect of income received by it on
behalf of such educational institution accordingly the impugned order of the
Commissioner (Appeals) is set aside and matter to be remanded back to the
Assessing Officer and directing the Assessing Officer to decide the issue
afresh in the light of the observations made above and in accordance with law.
[In favour of assessee/Matter remanded] (Related Assessment year : 2013-14)
– [Chandigarh Institute of Hotel Management & Catering Technology
(CIHMCT) v. DCIT, Chandigarh (2018) 172 ITR 356 : 97 taxmann.com 280 (ITAT
Chandigarh)]
To consider a university as wholly or
substantially financed by Government as contemplated under section
10(23C)(iiiab), funds received from Government must be direct
grants/contributions from governmental source and not fees collected from
students under statute
The assessee-University had been constituted under the
Visveswaraiah Technological University Act, 1994. It discharged functions
earlier performed by the Department of Technical Education, Government of
Karnataka and exercised control over all Government and private engineering
colleges within Karnataka. For relevant assessment year, assessee declared nil
income claiming exemption under section 10(23C)(iiiab). The revenue authorities
negatived the assessee's claim of exemption. The High Court also took the same
view. On appeal to the Supreme Court:
Supreme Court by impugned order held that to consider a
University as wholly or substantially financed by Government as contemplated
under section 10(23C)(iiiab), funds received from Government must be direct
grants/contributions from governmental source and not fees collected from
students under Statute - Further, where grants/direct financing by Government
during six assessment years in question had never exceeded 1 per cent of total
receipts of assessee-University, assessee could not be considered as directly
or even substantially financed by Government so as to be entitled to exemption
from payment of tax under section 10(23C)(iiiab) and, accordingly, denied
exemption under section 10(23C)(iiiab). Review petition against above impugned
order was to be dismissed. [In favour of revenue] (Related Assessment years :
2004-05 to 2009-10) – [Visvesvaraya Technological University v. ACIT
(2016) 389 ITR 10 : 242 Taxman 247 : 73 taxmann.com 286 (SC)]
Assessee-society running educational institutions
filed its return claiming exemption under section 10(23C)(iiiab) in view of
fact that Government was substantially financing and interested in management
of assessee, its claim for exemption was to be allowed
The assessee-society filed its return claiming exemption under
section 10(23C)(iiiab). The revenue authorities rejected assessee’s claim. The
Tribunal, however, allowed assessee's claim holding held that the
institution/society run by the assessee had received substantial government aid
for the purpose of claiming exemption under section
10(23C)(iiiab). On revenue's appeal:
Held : A plain reading of section 10(23C) shows that any
university or other educational institution existing for educational purpose
and not for profit and is wholly or substantially financed by the Government is
entitled to claim exemption under the Act.
In the present case, there had been financing by the
Government when examined on individual institution basis to be ranging from 41
per cent to 82 per cent whereas when the percentage was taken for the society
as a whole then it came to 44.52 per cent and 45.15 per cent for the two years.
The Tribunal after appreciation of evidence held that the Government was
substantially financing and interested in the management of the assessee and,
therefore, were eligible for exemption under section 10(23C)(iiiab)
In view of the above, the Tribunal was right in holding that
the aid given by the Government to the assessee constitutes substantial finance
by the Government which had entitled the assessee to claim exemption under
section 10(23C)(iiiab). No infirmity or perversity could be pointed out by the
revenue in the findings recorded by the Tribunal. Consequently, finding no
merit in the appeal, the same is dismissed. [In favour of assessee] (Related
Assessment year : 2007-08) – [CIT v. Jat Education Society, Rohtak
(2016) 383 ITR 355 : (2015) 64 taxmann.com 312 (P&H)]
Words ‘wholly or substantially financed by
Government’ cannot be confined only to annual grants as apart from providing
annual grant, if Government grants land, invests money in building and
infrastructure and also running educational institution all that has to be
taken into consideration to decide whether institution is wholly or
substantially financed by Government in order to become eligible to claim
exemption under section 10(23C)(iiiab)
Assessee-institute was established in the year 1973. The
entire property and assets of assessee-institution had been created out of the
funds given by the Government of India. During relevant years, the assessee’s
claim for exemption under section 10(23C)(iiiab) was rejected on ground that
grant of the Central Government in those years was around 14.84 per cent and
6.84 per cent respectively and, therefore, assessee failed to satisfy
requirement of being wholly and substantially financed by the Government. The
Commissioner (Appeals) as well as the Tribunal allowed assessee’s claim. On
revenue’s appeal:
Held : In order to be eligible for exemption under section
10(23C) three conditions have to be satisfied:
(1) The University or Educational Institutions should be
existing solely for educational purposes;
(2) It should be existing not for the purposes of profit; and
(3) It is wholly or substantially financed by the Government.
The word “finance” has not been defined under the Act.
Therefore, one has to rely upon the dictionary meaning of the word ‘Finance’.
The word ‘Finance’ means money given for establishing an
Educational Institution or a University and not necessarily confined to the
money given every year to such an institution by way of grant. Of course, in
order to come to the said conclusion, one has to look into the nature of the
institution which is established, the object for which it is established and
how the said institution is financed, not only for establishing the same, even
for running of such an Institution.
The assessee is a public institution, the revenue generated by
the institution belongs to the consolidated fund of India. The Government after
a conscious decision has permitted the assessee to retain and spend the revenue
so generated for their maintenance/growth. In addition to that, the Government
is providing grants both for recurring and non-recurring expenditure. The
amount of such grant varies from year to year depending upon the short fall.
The assessee has been established entirely with the budgetary
support of the Government. It is an institution wholly or substantially
financed by the Government. The fact that this institution was granted land by
the Government of Karnataka to the extent of 100 acres and the Government of
India has funded initially 100 per cent and it has permitted them to retain and
spend the revenue so generated for the maintenance and growth and the
Government of India is also granting grant every year is not in dispute.
Under these circumstances, the contention of the revenue, that
the grant which is given by the Government of India in a particular year is to
be taken into consideration to decide whether the institution is wholly or
substantially financed by the Government is without any substance. The words
‘wholly or substantially financed by the Government’ cannot be confined only to
annual grants, apart from providing annual grant, if Government granted land,
invests money in building and infrastructure and also running the Educational
Institutions all that has to be taken into consideration to decide whether the
institution is wholly or substantially financed by the Government.
The facts of this case and the material on record clearly
established that the assessee was wholly or substantially financed by the
Government and therefore, the assessee is entitled to the benefit of exemption
under section 10(23C)(iiiab) of Act. Thus, there is no merit in these appeals
and accordingly dismissed. [In favour of assessee] (Related Assessment years:
2003-04 and 2004-05)- [CIT, Bangalore v. Indian Institute of Management
(2015) 370 ITR 81 : 275 CTR 424 : 226 Taxman 301 : (2014) 49 taxmann.com 136
(Karn.)]
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