TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 1275
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....eb Ambedkar Open University (BAOU), established under the State Open University Act, 1994, is a Government funded Educational Institution located in Ahmedabad (Gujarat), who had not filed its original return of income for the AY 2014-15. Subsequently, Notice under section 148 of the Act was issued to the assessee on 24/03/2021. This notice was issued as part of the reassessment process, indicating that the AO believed that income chargeable to tax had escaped assessment. The assessee filed its return of income u/s. 147 of the Act on 30/04/2021, in response to the notice. A subsequent notice under section 143(2) of the Act was issued on 15/06/2021 to conduct a scrutiny assessment, and the reasons for selection were communicated. The AO called for various details through statutory notices under section 142(1) of the Act, dated 09/12/2021, 22/12/2021, and 17/02/2022. The assessee responded by submitting the required details through the e-filing portal. The AO examined the details and submissions made by the assessee, which were placed on record. The AO passed order u/s 147 r.w.s. 144B of the Act accepting the assessee's claim for exemption under Section 10(23C)(iiiab) of the Act. ....
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....le 230(8) of the General Financial Rules (GFR), which stipulates that interest on Government grants, unless returned to the Consolidated Fund of India, is to be treated as part of the grant. The CIT(E) did not accept this reasoning and concluded that interest income should not be added to the total grants for the purposes of determining substantial financing. The CIT(E) referred to the Hon'ble Supreme Court ruling in Visvesvaraya Technological University v. Assistant Commissioner of Income Tax (384 ITR 37) to substantiate the view that the university was not substantially financed by the Government. In the Visvesvaraya case, the Hon'ble Supreme Court held that an institution receiving only 6% of its total income from Government grants could not be considered substantially financed. The CIT(E) set aside the AO's assessment order dated 29/03/2022 and directed the AO to re-examine the case and read-judicate the issue of the allowability of the exemption under Section 10(23C)(iiiab) of the Act, after proper verification of facts. 3. Aggrieved by the order of the CIT(E), the assessee is in appeal before us with following grounds of appeal: The main grounds of challenge to the said or....
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....y kindly be set aside. 4. During the course of hearing before us, the Authorised Representative (AR) of the assessee clarified that the assessee is a state-established university under the State Open University Act, 1994, and that all the funds, including fees charged to students, were regulated and approved by the State Government. The AR further clarified that the university exists solely for educational purposes and not for profit. The assessee contended that the entire financial structure of the university is governed by the State, and the fees charged from students are also part of the government-authorized financial ecosystem. The assessee argued that such financial control by the government should qualify as substantial financing by the Government under Section 10(23C)(iiiab) of the Act. The AR referred to Article 266 of the Constitution, emphasizing that all funds received by the university belong to the Consolidated Fund of the State. The AR further stated that the university is also subject to audits by the Comptroller and Auditor General (C&AG), further proving that its finances are under the complete control of the State Government. 4.1. The AR argued that the interes....
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....f the order passed by the AO is erroneous and prejudicial to the interests of Revenue. Both limbs must be fulfilled for the CIT(E) to validly invoke Section 263 of the Act. We will examine whether the order passed by the AO in this case met these criteria and, accordingly, determine the validity of the CIT(E)'s invocation of Section 263 of the Act. 6.1. The CIT(E) observed that the university received government grants of Rs. 3,28,91,722/-, which constituted 13% of its total income. He concluded that this did not meet the threshold of being "substantially financed by the government. The CIT(E) excluded interest income earned on Government grants (Rs.10,17,71,205/-), arguing that this should not be treated as part of the Government financing. The CIT(E) indirectly applied Rule 2BBB, which defines "substantially financed" as 50% or more of the institution's income being derived from Government grants. This rule was introduced prospectively from AY 2015-16, but the CIT(E) referenced it while evaluating AY 2014-15. 6.2. The assessee submitted that interest earned on Government grants should be considered part of government financing, as per Rule 230(8) of the General Financial Ru....