2015 (12) TMI 1071 - HC - Income Tax

Educational institutions eligible for tax exemption under Income Tax Act criteria

The court ruled that the educational institutions in question were eligible for tax exemption under Section 10(23C)(iiiab) of the Income Tax Act as they ... Eligibility for exemption u/s 11 denied - CIT(A) held that the assessee was not eligible for exemption under Section 10(23C)(iiiab) - ITAT allowed assessee appeal holding that the institution/society run by the assessee had received substantial Government aid for the purpose of claiming exemption under Section 10(23C)(iiiab) - Held that:- In the present case, there has been financing by the Government when examined on individual institution basis to be ranging from 41% to 82% whereas when the percentage is taken for the society as a whole then it comes to 44.52% and 45.15% for the two years. The Tribunal after appreciation of evidence correctly held that the Government was substantially financing and interested in the management of the respondent-assessee and, therefore, were eligible for exemption under Section 10(23C)(iiiab) of the Act. Karnataka High Court in Indian Institute of Management's case (2010 (8) TMI 890 - KARNATAKA HIGH COURT) held where there was financing of 37.85% by the Government held the assessee to be entitled to eligible for exemption under Section 10(23C)(iiiab) - Decided against revenue. Issues:1. Interpretation of Section 10(23C)(iiiab) of the Income Tax Act, 1961.2. Eligibility of an educational institution for exemption under Section 10(23C)(iiiab) based on government financing.3. Application of the definition of 'substantially financed by the Government' in determining tax exemption.Issue 1: Interpretation of Section 10(23C)(iiiab) of the Income Tax Act, 1961The judgment addresses the interpretation of Section 10(23C)(iiiab) of the Income Tax Act, which provides for income tax exemption for educational institutions substantially financed by the Government. The court emphasizes that the provision allows for exemption for institutions existing solely for educational purposes and not for profit, and that are wholly or substantially financed by the Government.Issue 2: Eligibility of an educational institution for exemption under Section 10(23C)(iiiab) based on government financingThe case involves a dispute over whether the educational institutions run by the assessee were eligible for exemption under Section 10(23C)(iiiab) due to substantial financing by the Government. The court examines the percentage of government aid received by the institutions, ranging from 41% to 82% on an individual institution basis and 44.52% to 45.15% for the society as a whole. Relying on precedents and the definition of 'substantial financing,' the court concludes that the institutions were substantially financed by the Government, making them eligible for the tax exemption under the Act.Issue 3: Application of the definition of 'substantially financed by the Government' in determining tax exemptionThe judgment delves into the application of the term 'substantially financed by the Government' in the context of tax exemption eligibility under Section 10(23C)(iiiab). It references judgments from the Karnataka High Court to establish the criteria for determining substantial financing. The court finds that the aid provided by the Government to the assessee met the threshold of substantial finance as required by the Act, leading to the conclusion that the assessee was entitled to claim exemption under the relevant provision. The court dismisses the appeals, noting that no infirmity or perversity was found in the Tribunal's findings, and the substantial questions of law raised by the revenue were answered accordingly.This detailed analysis of the judgment highlights the key issues addressed by the court regarding the interpretation and application of Section 10(23C)(iiiab) of the Income Tax Act, 1961 in determining the eligibility of educational institutions for tax exemption based on substantial financing by the Government.