AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 90
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....pellant university being governed by the Rajiv Gandhi Proudyougiki Vishwavidyalya Adhiniyam, 1998 and being eligible for exemption 10(23C)(iiiab) being an educational institute wholly or substantially financed by Govt. could not be assessed to tax by denying such an exemption through an intimation u/s 143(1). 3. That the ld. CIT(A) was not justified in upholding the disallowance of claim u/s 143(1) and ld. CIT(A) also failed to consider that the issue of exemption to the appellant university u/s 10(23C)(iiiab) is clearly a debatable one and could only be decided in the detailed assessment and not by way of intimation u/s 143(1). 4. That the ld. CIT(A) erred in law and on the facts in treating the appellant as an institution claiming exemption u/s 10(23C)(iiiad) while the appellant in its return had claimed exemption in column 13 of the return under all clauses of sec. 10 since there was no separate column in the return for claiming exemption u/s 10(23C)(iiiab). 5. That the ld. CIT(A) erred in law and on facts in failing to appreciate the settled principle that when a debatable question arises and when the issue is contentious, prima facie adjustment u/s 1....
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....tion u/s 10 in the returns of income. He pointed out that in Column No.13, the amount claimed was exempt u/s 10, by which it can be safely inferred that the assessee claimed exemption wherever he was entitled to. The Ld. Counsel for the assessee further submitted that the income of the assessee university was exempt u/s 10(23C)(iiiab) being income of an Educational Institution wholly or substantially financed by the State Government. Therefore, the assessee university being governed by the Rajiv Gandhi Proudyougiki Vishwavidyalya Adhiniyam, 1998 and eligible for exemption u/s 10(23C)(iiiab). He submitted that the Ld. CIT(A) failed to appreciate the fact that the issue of exemption is a debatable issue, which could only be decided by way of a detailed scrutiny and inquiry u/s 143(3) of the Income-tax Act, 1961. This cannot be made by way of mere processing of return u/s 143(1) of the Act. The Ld. Counsel for the assessee submitted that the authorities below have wrongly appreciated that the specific exemption claimed by the assessee was u/s 10(23C)(iiiad) of the Act. Despite the fact that in column 13 of the return, the assessee had claimed exemption u/s 10. It is further submitted ....
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....vant provisions of law. 6. We have considered the rival contentions, perused the material on record and the case laws as cited above. The short question that arises for consideration is whether declining the claim of exemption made in the return of income, while processing such return of income u/s 143(1) would ipso facto authorized and entitled the Revenue to treat the disallowance so made as a recoverable demand without making any further inquiry as provided under the Act, for the purpose of scrutiny assessment. 7. Before us, the Ld. Departmental Representative has made relentless efforts to defend the action of the authorities below. He submitted that the assessee is not entitled for exemption under any of the provisions of the Act. He further contended that the assessee was required to demonstrate under which provisions of law, he is entitled for exemption. Even if it is assumed for the sake of arguments that the assessee is entitled for exemption u/s 10(23C)(iiiab), the assessee was required to demonstrate the same by enclosing the supporting evidence. He contended that the requirement of law is that the Society should be financed by the Government. The Ld. Departmental ....
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.... 5. The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons." 2. Besides, five principles/tests laid down as above, one more test was laid down in the decision of Apex Court in the case of Surat Art Silk Cloth Manufacturers association and American Hotel and Lodging Assn. Educational Institution. The said principle is as under :- 2. " In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established." (Paragraph 37) In the decision of Queen's Society, above principle is reiterated at para 19 in the following words. 3. " The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall out of Section 10(23-C) is to ignore the language of the section and to ignore the tests laid down in Surat Art Silk Cloth case [CIT v. Surat Art Silk Cloth Manufactures' Assn....
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.... 5.1 The assessee University was established in the year 1998, by Madhya Pradesh Vidhan Sabha Act 13 of 1998 (The Rajeev Gandhi Proudyogiki Vishwavidyalaya Adhiniyam, 1998). As per the Chapter-II of the Rajeev Gandhi Proudyogiki Vishwavidyalaya Adhiniyam, 1998, the Vishwavidyalaya shall be a body corporate. Further, the Vishwavidyalaya shall have perpetual succession and a common seal and shall sue and be sued by its name. The Vishwavidyalaya shall be competent to acquire and hold property and enter into contract in its own name. Thus, the Vishwavidyalaya was established as a separate independent legal entity. It is found that the assessee had not been filing its return of income till AY 2013-14 despite the fact that it was required to file its return of income as per the provisions of the Income Tax Act, 1961. The assessee for the first time filed its return of income for AY 2014-15 and AY 2015-16, both belatedly on 30.03.2016 and 31.03.2016 respectively. The assessee claimed exemption of its income u/s 10 of the Act in row number 15 of part B-TI of the return of income, more specifically u/s 10(23C)(iiiad) of the Act, although it was not eligible for such exemption. The ret....
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....s and accumulated huge funds of almost one thousand crores and there is no liquidity crunch at all with the assessee for payment of outstanding demand. The assessee is neither eligible for exemption u/s 11/12 nor under section 10 of the Act and the income of the assessee is duly taxable as per the provisions of the Income Tax Act. The assessee also filed Writ petition before the Hon'ble MP High Court for Stay of the outstanding demand, which was rejected vide its order dated 14/03/2018. The Writ Petition was not admitted and the Hon'ble Court has given following observations: "It is observed that the petitioner has a remedy of filing an appeal before the Income Tax Appellate Tribunal and in such circumstances, the question of entertaining the present petition does not arise." 5.3 However, while disposing off the petition, the Hon'ble High Court has given interim relief of 6 weeks to the assessee with liberty to assail the impugned order before the appellate forum and directed the Department not to take any coercive action against the petitioner. Scope of Section 143(1) of Income Tax Act, 1961 6. According to the express provisions of section 143(....
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....ntary contribution received during the year in the return itself (Row No. 5 and Schedule VC). As such the return was correctly processed as per the provisions of section 143(1) of the Act. Accumulation of Huge Funds 7.1 It is seen from the latest accounts furnished by the assessee that as on 31.03.2017, it had liquid assets of approx. 900 crores which has been accumulated from the profits over the years and kept in Bank in form of Cash Balance and FDRs. From the accounts submitted. A copy of unaudited final balance sheet of University as on 31.03.2017 along with relevant schedule of FDRs is attached herewith as Annexure-A. This in itself shows that there are huge funds available with the assessee and by no stretch of imagination, it can be said that liquid funds are not available. It is also not out of place to mention here that the assessee has been earning huge profits and keeping the same in Cash or in FDRs and earning huge interest income. The same are not being ploughed back for the purposes of education. On the basis of accounts/financial statements submitted by the assessee from FY 2011- 12 to FY 2016-17, the gross income and expenses of the assessee and co....
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....rmed as State. On the contrary, if the assessee succeeds in appeal, the demand paid will be returned with interest which is almost parallel to the interest earned on FDRs. Thus, there is no logic in this ground and there is no reason of not paying the demand confirmed by the CIT(A). It is also important to mention here that the assessee argued before the ld. CIT(A) that it will apply before the Board (CBDT) for retrospective registration u/s 12AA of the I.T. Act. It is worthwhile to mention that the demand cannot be stayed in anticipation that the assessee will get retrospective benefit in future. Claim of appellant not admissible under any sub clause of section 10(23C) of Income Tax Act, 1961: 9.1 In view of the above claims made by the assessee, the eligibility of the exemption u/s 10(23C) of the Act of the assessee has also been examined. Considering the facts and circumstances of the case, the assessee is not found eligible for any exemption u/s 10 of the Act. As discussed in preceding Paras, the assessee in the return of income had claimed exemption u/s 10 of the Act in row number 15 of part B-TI of the return of income. The assessee before the Assessing Officer an....
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....he assessee itself in its submissions before the AO and the CIT has accepted that it has not received any donation/grant since inception. 9.5 It is also pertinent to mention here that the word 'substantially' was not defined earlier in the Income-tax Act or Rules. However, Explanation to section 10(23C)(iiiab) has been inserted w.e.f. 01.04.2015 i.e. AY 2015-16 and also accordingly the Rules 2BBB of the Income-tax Rules, 1962 have been inserted w.e.f. 12.12.2014 to clarify the position and percentage of Government Grants for considering any university as substantially financed by the Government for the purposes of section 10(23C) of the Act. The same rules are reproduced as under- Percentage of Government grant for considering university, hospital etc. as substantially financed by the Government for the purposes of clause (23C) of section 10. 2BBB. For the purposes of sub-clauses (iiiab) and (iiiac) of clause (23C) of section 10, any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such univers....
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....rly. Admittedly, there is no clear cut formula regarding percentage in the Act but some figure may be adopted under the facts and circumstances available on record." 9.7 It is also pertinent to mention here that the Hon'ble Supreme Court in the case of Visvesvaraya Technological University v. Assistant Commissioner of Income-tax reported in [2016] 384 ITR 37 (SC) has categorically held that to consider any university or institution as wholly or substantially financed by Government as contemplated under section 10(23C)(iiiab) of the Act, funds received from Government must be direct grants/contributions from governmental source and not fees collected from students under Statute. The Hon'ble Court has observed that the plain reading of the section implies that the phrase 'wholly and substantially financed by the Government' should only include grant received from the Government to meet the direct expenses of the University such as expenses incurred towards salary, infrastructure and for the purpose of other development activities of the University. The same order of the Hon'ble Court has further confirmed this decision in the order in review reported in [2016] 389 IT....
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....iversity Vs. CIT(E), Chandigarh vide its recent order dated 23/02/2018 in ITA No. 910/Chd/2017 has held that any University established by the Government is to be treated as existing for profit not for education if it has accumulated huge surpluses and earning interest income on the same instead of expending the same for the educational purposes. In the above referred case also, the assessee was a Technical University established by State Government. The assessee was not filing return of income and no audited balance sheet was filed. That Applicant- University had also been claiming itself to be covered under the provisions of section10(23C)(iiiab) of the Income-tax Act, 1961. The facts of the instant case are squarely applicable as the assessee has accumulated huge surpluses of almost one thousand crores of rupees over the years and earning interest income on the same through investment in FDRs. Even though the assessee has applied for exemption u/s 12AA, but the fact remains that it is carrying out activities with profit motive and exist for profit. It does not exist for charitable purposes. 10. In view of above detailed discussion, there remains no iota of doubt that th....
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.... (b) the tax ( and interest), if any, shall be computed on the basis of the total income computed under clause (a); (c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax (and interest , if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII any tax paid on self-assessment and any amount paid otherwise by way of tax (or interest) (d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and (e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee: Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax or interest is payable by, or no refund is due to, him: Provided f....
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....), where the return has been furnished u/s 139, or in response to a notice under sub-section (1) of section 142, the AO or the prescribed income-tax authority as the case may be, if, considers it necessary to expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the AO or to produce, or cause to be produced before the AO any evidence on which the assessee may rely in support of the return. Provided that no notice under this sub-section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is filed, as the Section 143(3) states that [on the day specified in the notice issued under] subsection (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the AO may require on specified points, and after taking into account all relevant material which he has gathered, the income or loss of the assessee, and determine the sum payable by him or refund of an....
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....t s has been made by relying upon the decision of Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra). 11. However, the Assessing Officer ignored the note made by the applicant in its computation of return, indicating that the basis of claim for bad debts is the decision in Gujarat High Court in Vithaldas H.Dhanjibhai Bardanwala (surpa). In the above case, even a provision debited to the profit and loss account was allowed as bad debts, where corresponding credit entries are posted in the bad debts reserve account. It held that is was not necessary to post credit entries in the ledger account of the concerned parties. It was on the basis of the aforesaid decision of the Gujarat High Court that the claim in respect of the provision for bad debts was made by the applicant assessee. Once, reliance is placed upon a decision of a Court and / or Tribunal to make a claim, then even if the Assessing Officer has a different view and does not accept the view, yet the claim itself becomes debatable. This is so laid down in Instruction No.1814 dated 4th April, 1989 issued by the CBDT in respect of the scope of prima facie disallowance under Section 143(1)(a) o....
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.... the Act. 14. We are conscious of the fact that Section 36(1)(vii) of the Act was amended by the Finance act, 2001 by insertion of Explanation to Section 36(1)(vii) of the Act w.e.f. Ist April, 1989. We are also conscious of the fact that while disposing of a Reference under Section 256(1) of the Act, the question proposed for our opinion shall be answered taking into account the subsequent amendment to the law with retrospective effect, as they are clarificatory in nature. 15. In the aforesaid background, we find that the insertion done by Explanation to Section 36(1)(vii) of the Act (w.e.f. 1989) would arise for consideration while answering the proposed question in respect of Assessment Year 1993-94. The above amendment by addition of Explanation to Section 36(1) (vii) of the Act was a subject matter of consideration by the Supreme Court in Vijaya Bank (supra). In the above decision, the Court while applying the amended law, held that mere debit of a provision to the profit and loss account will not by itself be sufficient to constitute bad debts (write off). This must be accompanied by simultaneously also reducing the loans and advances from the asset side of ....