2011 (2) TMI 1235 - HC - Income Tax

High Court upholds educational institution's tax exemption based on substantial Government Aid

The High Court dismissed the appeal challenging exemption under Section 10(23C)(iii)(ab) of the Income Tax Act. The Court upheld the Tribunal's decision ... Exemption under Section 10 (23C)(iii)(ab) of the Income Tax Act - assessing officer denied the exemption on the ground that, the assessee is not registered under Section 12A nor under Section 10(23C)(iv) of the Act, as such, the assessee cannot claim exemption – Commissioner was of the view that in order to get exemption, Government Aid should be more than 70%, in this case it is not more than 34%, he upheld the order of the assessing authority - assessee running 18 units, out of which, 12 units are not receiving any grants and only 6 institutions are receiving the Government Grant. If the percentage of Government Grant in respect of only 6 institutions is taken into consideration, this percentage would be 68.57%. If the Government Grant is considered as against all the 18 units, percentage would be 34.33% - Held that:- when 36.42% constitutes grant of the government aid to the educational institutions involved in the said case, it was held, it satisfies the requirement of Section 10(23C)(iii)(ab), government aid centers the status of Substantially Government Aided Institution and the assessee is entitled to the exemption, the order passed by the tribunal is in accordance with law and do not suffer from any legal infirmity, appeal is dismissed Issues:1. Condonation of delay in filing the appeal.2. Exemption under Section 10(23C)(iii)(ab) of the Income Tax Act, 1961.3. Interpretation of 'substantial interest' under the Income Tax Act for educational institutions.4. Percentage of Government Aid required for an institution to be considered substantially aided.Condonation of Delay:The judgment addresses a delay of 6 days in filing the appeal, which is condoned after considering the cause shown in the affidavit filed in support of the application for condonation of delay.Exemption under Section 10(23C)(iii)(ab):The appeal by the revenue challenges the order granting exemption under Section 10(23C)(iii)(ab) of the Income Tax Act. The assessing officer denied the exemption to the assessee, an education society, as it was not registered under Section 12A or Section 10(23C)(iv) of the Act. The Commissioner of Income Tax (Appeals) upheld the denial based on the percentage of Government Aid being less than 70%. However, the Karnataka Appellate Tribunal overturned this decision, stating that the assessee was substantially financed by the Government, qualifying it as a Government Aided Institution. The High Court affirmed the Tribunal's decision, emphasizing that the Government Aid constituted a substantial portion of the institution's finances, meeting the requirements of the Act.Interpretation of 'Substantial Interest' for Educational Institutions:The High Court discussed the interpretation of 'substantial interest' under the Income Tax Act for educational institutions. It referenced a previous judgment where the term was defined in various contexts, such as in the Banking Regulation Act, 1949, and Section 40(2)(a) of the Income Tax Act. The Court highlighted that a grant of 36.42% of government aid to educational institutions was considered substantial, satisfying the requirements of Section 10(23C)(iii)(ab).Percentage of Government Aid for Substantial Institution Status:The Court analyzed the percentage of Government Aid received by the educational institution in question. While 6 out of 18 units received Government Grants, the total percentage varied depending on the units considered. The Court determined that even if the Government Grant was considered only for the 6 institutions, the percentage exceeded 70%, qualifying the institution as substantially aided. Therefore, the order of the Tribunal granting exemption was upheld, as the institution met the criteria of being substantially Government Aided, and no substantial question of law arose for consideration.In conclusion, the appeal challenging the exemption under Section 10(23C)(iii)(ab) was dismissed by the High Court, affirming the decision of the Karnataka Appellate Tribunal based on the institution's substantial Government Aid status and compliance with the relevant provisions of the Income Tax Act.