2022 (6) TMI 1459 - AT - Income Tax

University denied Section 10(23C) exemption as government grants only 3.50% of total receipts, fails substantial financing test

M/s. Barkatullah Vishwavidyalaya Versus DCIT (E) Bhopal

ITAT Indore denied exemption u/s 10(23C) to a university established under MP Vishwavidhalaya Adhiniyam, 1973. The AO found that government grants of Rs. ... Exemption u/s 10(23C) denied - AO observed that the total receipts of assessee were approximately Rs. 109 crores, out of which the grant received from Govt. was just Rs. 3.90 crores, thus exemption disallowed since the assessee does not meet the condition of “wholly or substantially financed by the Govt.” as prescribed in section 10(23C)(iiiab) - as submitted assessee is a University established under M.P. Vishwavidhalaya Adhiniyam,1973, an Act of the State Govt. of Madhya Pradesh, established to provide education, supervision and maintenance to various colleges and educational institutions as per regulations of the Govt. and to establish, maintain and manage colleges, teaching departments, school of studies, center of studies, to institute degree diplomas, certificates and other academic distinctions, etc. AO concluded that the receipts from government-grant are much less and therefore the assessee does not satisfy the requirement of “substantially financed by Govt.” - HELD THAT:- The component of government-grant received by the assessee is just 3.50% of the total receipts which is so less that by no stretch of understanding, the assessee can be said to be “substantially financed by the Govt”. Also looking at submission of Ld. AR that out of the total receipt of Rs. 109 crore, there is a receipt of examination fee of Rs. 58 crore from affiliated institutions and colleges who had in turn received grants from the Govt. as also from certain categories of students who have received grants and scholarships from the Govt. The Ld. AR submitted that the receipt of Rs. 58 crore should also be considered as receipt from Govt. We are afraid to accept this argument of Ld. AO. If the affiliated colleges / institutions / students have received grant or scholarship from Govt., it is those colleges / institutions / students who have been financed by the Govt. and not the assessee. Even otherwise although the Ld. AR has raised this point but there is no material or evidence produced before us to prove that such state of affairs actually exist. Therefore, we are not impressed by this argument of Ld. AR. Thus, assessee is not substantially financed by the Govt. and therefore not entitled to exemption u/s 10(23C)(iiiab). Alternative claim of exemption u/s 11 / 12 demanded by the assessee - can we entertain this new claim made by assessee for the first time before us? - HELD THAT:- A fresh claim before appellate authorities is not barred. It is constantly held in several decisions that a legal claim can be made by the assessee before appellate authorities even if the same was not claimed during assessment proceedings. We also observe that the provisions of section 11 / 12 grant exemption to the assessee and such exemption, if not allowed, would result in illegal collection of tax from the assessee, which is never an objective of the Income-tax Act, 1961. In view of this position of law, we do not find any difficulty in accepting the alternative claim of assessee to allow exemption u/s 11 / 12. However, the claim of exemption u/s 11 / 12 involves a different type of working based on application and accumulation of income. Therefore, we feel that it would be more appropriate to refer this matter back to Ld. AO who shall give an opportunity to the assessee to provide the necessary information for computation of exemption u/s 11 / 12. Appeal of assessee is allowed for statistical purpose. Issues Involved:1. Rejection of exemption under section 10(23C)(iiiab).2. Alternative claim for exemption under sections 11 and 12.Detailed Analysis:1. Rejection of Exemption under Section 10(23C)(iiiab):The primary grievance of the assessee was the disallowance of exemption under section 10(23C)(iiiab) by the Assessing Officer (AO). The AO observed that the total receipts of the assessee were approximately Rs. 109 crores, out of which the government grant was only Rs. 3.90 crores, which constituted a mere 3.50% of the total receipts. The AO concluded that the assessee did not meet the condition of being 'wholly or substantially financed by the Government' as required under section 10(23C)(iiiab) and defined in Rule 2BBB of the Income-tax Rules, 1962, which prescribes that the government grant must exceed 50% of the total receipts. The AO relied on the decision of the ITAT in M.P. Rajya Open School, Bhopal Vs. DCIT (2013) 141 ITD 721 and denied the exemption.During the appellate proceedings, the Commissioner of Income-Tax (Appeals) [CIT(A)] upheld the AO's decision, reiterating that the government grant constituted only 3.50% of the total receipts and the assessee earned a net profit of Rs. 24.68 crores. The CIT(A) also emphasized that each assessment year is independent, and the exemption granted in the previous year does not automatically apply to the current year.Before the tribunal, the assessee argued that the requirement of 'substantially financed by the Government' was not clearly defined in the section or rules before the introduction of Rule 2BBB, which is applicable from the assessment year 2015-16 onwards. The assessee contended that the examination fees received from affiliated institutions and colleges, which in turn received grants from the Government, should be considered as government-financed receipts. However, the tribunal found no merit in this argument, noting that the affiliated colleges or students receiving grants do not equate to the assessee being financed by the Government. The tribunal concluded that the assessee did not satisfy the requirement of being 'substantially financed by the Government' and upheld the disallowance of exemption under section 10(23C)(iiiab).2. Alternative Claim for Exemption under Sections 11 and 12:The assessee made an alternative claim for exemption under sections 11 and 12, citing that it had received registration under section 12A(1)(aa) read with section 12AA from the assessment year 2019-20 onwards. The assessee relied on the proviso to section 12A(2), which allows the provisions of sections 11 and 12 to apply to any preceding assessment year for which assessment proceedings are pending before the AO on the date of registration, provided the objects and activities of the trust or institution remain the same.The tribunal agreed with the assessee's interpretation, referencing the decision of the ITAT, Ahmedabad in Shri Bhanushali Mitra Mandal Trust Vs. ITO, ITA No. 2515/Ahd/2015, which held that the amendment to section 12A by Finance Act, 2014, intended to provide relief to genuine charitable organizations. The tribunal noted that the assessee's registration under section 12AA for the assessment year 2019-20 onwards, combined with the pending appeal for the assessment year 2014-15, satisfied the conditions of the proviso to section 12A(2). Consequently, the tribunal allowed the alternative claim for exemption under sections 11 and 12.However, the tribunal remanded the matter back to the AO to verify the necessary information for computation of exemption under sections 11 and 12, emphasizing the need for proper application and accumulation of income as per the provisions.Conclusion:The tribunal upheld the disallowance of exemption under section 10(23C)(iiiab) due to the assessee not being 'substantially financed by the Government.' However, it allowed the alternative claim for exemption under sections 11 and 12, directing the AO to verify the necessary details and compute the exemption accordingly.