2020 (11) TMI 309 - AT - Income Tax

Educational Institute Granted Tax Exemption and Allowed Expenses

The Tribunal upheld the CIT(A)'s decision that the educational institute was eligible for exemption under Section 10(23C)(iiiab) of the Income Tax Act as ... Exemption u/s 10(23C)(iiiab) - As per AO grants received during the year were not received wholly from Government but from other sources also - institutions receiving substantial grant less than 50% of the total contribution by the Government - HELD THAT:- From gross receipts if we deduct the receipt on account of interest, rent and sale of tender from which are not exactly in the shape of grant/fees the remaining amount will be ₹ 5,48,47,957/-. The Government grant for the year was ₹ 2,71,00,000/- which in percentage will be 49.40%. Thus the Government grant is almost (though not exact) 50% of the total receipt of fee and grant during the year. Undoubtedly the Government grant is substantial looking to the quantum of contribution as well as the control of the State Government in the functioning of the society as well as the movement of funds. We, therefore held that the assessee society has been rightly held by Ld. CIT(A) to be eligible for exemption u/s 10(23C)(iiiab) of the Act since almost 50% of the grants were given by Ministry of Human Resources Department of Madhya Pradesh and for the year under appeal this grant has been received for 20 poly technical colleges and thus the assessee educational institute running society solely for educational purposes and not for the purpose of earning profits and is substantially financed by the Government is therefore eligible for exemption u/s 10(23C)(iiiab) - Ground No.1 & 2 of revenue’s appeal are dismissed. Claim of incidental expenditure u/s 57(iii) - Allowability of the expenses claimed in the return of income - HELD THAT:- Assessee society is a registered under the Madhya Pradesh Society Registration Act 1959 since 26.06.1962 wth the sole purpose of establishing and running institution to impart technical education in Civil, Mechanical and Electrical and such other branches of Engineering. The assessee institute runs solely for educational purposes and not for the purpose of earning profits. Most of the grants are received from Government of Madhya Pradesh. Irrespective of the fact that the assessee is eligible for exemption u/s 10(23C)(iiiab) of the Act or not even if the revenue authorities wanted to tax receipts during the year as income under the head income from other sources, they were not justified in grossly denying the benefit of genuine claim of incidental expenditure u/s 57(iii) of the Act being the expenditure (not been in the nature of capital expenditure) laid out by the assessee institution wholly or exclusively for the purpose of making or earning such income. We thus confirm the finding of Ld. CIT(A) to this effect and allow the claim of expenses u/s 57(iii) of the Act and dismiss revenue’s Ground No.3. Issues Involved:1. Eligibility for exemption under Section 10(23C)(iiiab) of the Income Tax Act.2. Allowability of expenses under Section 57 of the Income Tax Act.Detailed Analysis:Issue 1: Eligibility for Exemption under Section 10(23C)(iiiab)The primary contention was whether the assessee, an educational institute, was eligible for exemption under Section 10(23C)(iiiab) of the Income Tax Act. The assessee had not claimed this exemption in the return of income, which led to the revenue's challenge. The assessee argued that it existed solely for educational purposes and was substantially financed by the Government of Madhya Pradesh.The Tribunal noted that the assessee's gross receipts for the year were Rs. 5,98,24,898, with Rs. 2,71,00,000 received as grants from the Government of Madhya Pradesh. This constituted approximately 49.40% of the total receipts. The Tribunal referred to various judicial precedents, including the Hon'ble Karnataka High Court's decision in the case of Indian Institute of Management, where government financing of 37.85% was deemed substantial.The Tribunal also considered the amendment effective from 01.04.2015, which set a threshold of 50% government financing for exemption under Section 10(23C)(iiiab). However, since the assessment year in question was 2014-15, this amendment was not applicable. The Tribunal concluded that before this amendment, institutions receiving substantial government grants, even if less than 50%, were eligible for exemption.The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was eligible for exemption under Section 10(23C)(iiiab), as it was substantially financed by the Government and existed solely for educational purposes.Issue 2: Allowability of Expenses under Section 57The second issue was whether the expenses claimed by the assessee could be allowed under Section 57 of the Income Tax Act. The assessee had claimed expenses amounting to Rs. 7,27,11,645, which were disallowed by the AO on the grounds that the assessee was not registered under Section 12A.The Tribunal observed that the assessee had filed its return showing a loss of Rs. 1,28,86,747 after accounting for these expenses. The return was processed under Section 143(1), and the expenses were disallowed without scrutiny of the books of accounts. The Tribunal noted that the expenses were genuine and incurred for the purpose of running the educational institution, which was substantially financed by the Government.The Tribunal referred to the Hon'ble Delhi High Court's decision in the case of Petroleum Sports Promotion Board, which allowed expenses under Section 57(iii) for institutions not registered under Section 12A, provided the expenses were incurred for earning income. The Tribunal concluded that even if the assessee was not eligible for exemption under Section 10(23C)(iiiab), the expenses were allowable under Section 57(iii) as they were incurred wholly and exclusively for the purpose of making or earning income.The Tribunal confirmed the CIT(A)'s decision to allow the expenses under Section 57(iii), dismissing the revenue's appeal on this ground.ConclusionThe Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision that the assessee was eligible for exemption under Section 10(23C)(iiiab) and that the expenses claimed were allowable under Section 57(iii). The Tribunal emphasized the importance of substantial government financing and the genuine nature of the expenses incurred by the assessee for educational purposes.