Substantial Government financing for exemption can include grant interest and institutional support beyond recurring grants.

Exemption under section 10(23C)(iiiac) depends on whether the institution is wholly or substantially financed by the Government. The threshold is determined under the relevant Explanation and Rule 2BBB, and interest earned on grant funds may be included in the financing computation. The analysis also treats Government support as broader than recurring grants alone, extending to land, infrastructure, construction, machinery, and related institutional funding. On that basis, the funding pattern described, including interest, is said to satisfy the prescribed percentage for substantial Government financing and to support exemption eligibility.

---

---

Issues: Whether the assessee was entitled to exemption under section 10(23C)(iiiac) of the Income-tax Act, 1961 on the footing that it was substantially financed by the Government, and whether interest earned on grant funds had to be included while computing the extent of Government financing.

Analysis: The exemption under section 10(23C)(iiiac) depended upon the institution being wholly or substantially financed by the Government. The relevant explanation and Rule 2BBB of the Income-tax Rules, 1962 prescribed the applicable threshold, and the General Financial Rules also supported inclusion of interest earned on grants-in-aid as part of the grant structure. On the facts, the funding received from the Government, including interest, crossed the prescribed percentage. The reasoning also recognized that Government financing is not confined to annual recurring grants alone and may include support for land, infrastructure, construction, machinery, and related institutional funding.

Conclusion: The assessee satisfied the requirement of being substantially financed by the Government and was entitled to exemption under section 10(23C)(iiiac); the Revenue's challenge failed.

---