2016 (7) TMI 27 - AT - Income Tax

Tribunal upholds CIT(A) decision granting tax exemption to government-funded educational institution

ITO (E) -I, Kolkata Versus National Council of Science Museum

The Tribunal upheld the CIT(A)'s decision to allow the exemption under Section 10(23C)(iiiab) of the IT Act, dismissing the Revenue's appeal. It was ... Entitlement to exemption u/s 10(23C)(iiiab) - need of approval u/s 35(1)(ii) - whether an approval is required under section 35(1)(ii) of the Act for the assessee to claim exemption under section 10(23C) of the Act or not? - Held that:- The assessee is not a university or college or any other institution incurring expenditure for any scientific research to claim exemption under section 10(23C)(iiiab) of the Act. It is only an educational institution established for the purpose of managing science museums and drawing funds from Government of India and Government of West Bengal for maintenance and achieve its objects as provided in the memorandum at page 121 of paper book. Therefore, in our opinion, an approval is not necessary under section 35(1)(ii) of the Act to claim exemption under section 10(23C)(iiiab) of the Act. The CIT(A) has rightly dealt with the issue involving approval under section 35(1)(ii) and finding thereon, stating in other words, pending approval, the assessee is entitled to claim exemption under section 10(23C) (iiiab) of the Act. Accordingly, we hold that in order to claim exemption under section 10(23C)(iiiab) of the Act, the approval under section 35(1)(ii) of the Act is not necessary in the present case. By applying the observation of Hon’ble HIGH COURT in DIRECTOR OF INCOME TAX vs. INDIAN NATIONAL SCIENCE ACADEMY [2010 (1) TMI 40 - DELHI HIGH COURT ] to the facts of the case on hand, we hold that the assessee is not liable to pay any tax. - Decided in favour of assessee Issues Involved:1. Acceptance of assessee's exemption claim under Section 10(23C)(iiiab) of the IT Act.2. Requirement of approval under Section 35(1)(ii) for claiming exemption.3. Linking the issue of exemption to the concept of surplus.4. Consideration of Section 10(21) provisions for exemption.5. Decision on fresh plea of claiming exemption under Section 10(23C)(iiiab) without opportunity to the Assessing Officer.Issue-wise Detailed Analysis:1. Acceptance of Assessee's Exemption Claim under Section 10(23C)(iiiab):The CIT(A) accepted the assessee's contention that the exemption under Section 10(23C)(iiiab) had been consistently allowed in past assessments. The assessee, a non-profit autonomous organization funded by the Government of India, claimed exemption under this section, which was initially denied by the AO due to the lack of approval under Section 35(1)(ii). However, the CIT(A) found that the assessee's activities and funding structure qualified it for exemption under Section 10(23C)(iiiab), leading to the deletion of the added income of Rs. 23,14,53,686.2. Requirement of Approval under Section 35(1)(ii) for Claiming Exemption:The AO denied the exemption on the grounds that the assessee did not have the required approval under Section 35(1)(ii) for the relevant assessment year. However, the CIT(A) and the Tribunal found that Section 35(1)(ii) pertains to deductions for scientific research expenditure and is not directly related to the exemption under Section 10(23C)(iiiab). The Tribunal held that the assessee, being an educational institution funded by the government, did not need approval under Section 35(1)(ii) to claim exemption under Section 10(23C)(iiiab).3. Linking the Issue of Exemption to the Concept of Surplus:The Revenue argued that the CIT(A) erred in linking the exemption issue to the concept of surplus. However, the Tribunal found that the assessee's income, primarily grants from the government, did not constitute surplus or profit, thus supporting the exemption claim under Section 10(23C)(iiiab).4. Consideration of Section 10(21) Provisions for Exemption:The AO contended that the income of a scientific research association is exempt only if approved under Section 35(1)(ii) as per Section 10(21). However, the Tribunal clarified that Section 10(23C)(iiiab) applies to educational institutions funded by the government, and the assessee's case fell under this category. Therefore, the provisions of Section 10(21) were not applicable.5. Decision on Fresh Plea of Claiming Exemption under Section 10(23C)(iiiab) without Opportunity to the Assessing Officer:The Revenue argued that the CIT(A) allowed the exemption without giving the AO an opportunity to examine the fresh claim under Rule 46A. The Tribunal found that the assessee had consistently claimed the exemption in previous years and no new evidence was presented before the CIT(A). The CIT(A) based the decision on the historical acceptance of the exemption claim, and thus, there was no violation of Rule 46A.Conclusion:The Tribunal upheld the CIT(A)'s decision to allow the exemption under Section 10(23C)(iiiab) of the IT Act, dismissing the Revenue's appeal. The Tribunal concluded that the assessee, being a fully government-funded educational institution, was entitled to the exemption without needing approval under Section 35(1)(ii). The Tribunal also found no procedural violations in the CIT(A)'s decision-making process.