Income Tax Appellate Tribunal - Mumbai
Vivek Educatioin Society, Mumbai vs Department Of Income Tax on 29 November, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "F", MUMBAI
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND
SHRI VIJAY PAL RAO, JUDICIAL MEMBER
ITA No.5896/Mum/2011
Assessment Year : 2008-09
ADIT (Exemption) M/s. Vivek Education Society
Room No.507, Piramal S.S. Shankar Nagar
Chambers Goregaon(W)
Vs.
Lalbaug, Parel Mumbai-400 062.
Mumbai-400 012. PAN No. AAATY 0919 J
(Appellant) (Respondent)
Appellant by : Shri A.B. Koli
Respondent by : Shri Pankaj M. Parikh
Date of hearing : 29.11.2012
Date of Pronouncement : 07.12.2012
ORDER
PER RAJENDRA SINGH, AM:
This appeal by the revenue is directed against the order dated 8.6.2011 of CIT(A) for the assessment year 2008-09. The only dispute raised by the revenue is regarding the claim of exemption under section 10(23C)(iiiab) which was allowed by CIT(A).
2. Facts in brief are that the AO during the assessment proceedings noted that the assessee was not registered under section 12A of the Income tax Act, and therefore, provisions of section 11 were not 2 ITA No.5896/M/11 A.Y. 08-09 applicable. However, assessee had claimed exemption under section 10(23C)(iiiab) which was applicable in case of any university or other educational institution existing solely for education and which is wholly and substantially financed by government. The AO noted that the assessee had earned surplus of Rs.94,59,983/- which showed that the activities were being carried on for the purpose of earning profit. The AO further noted that the assessee was also running unaided educational institutions for which grants were not received from the government. The AO therefore asked the assessee as to why claim under section 10(23C)(iiiab) should not be rejected. The assessee submitted that gross receipts for the year ending 31.3.2008 were Rs.5,51,94,182/- out of which fees collected from unaided institutions was Rs.99,22,325/-. The assessee had received salary grant of Rs.3,17,17,305/-. Besides fee collection of Rs.17,90,884/- included in tuition fee was also part of salary grant. Thus grant received by the assessee was 61% of gross receipts. It was also pointed out that surplus generated was not profit. It was further submitted that in earlier years there were deficits. Therefore, surplus only covered the deficit of earlier years. The assessee also argued that it had been granted exemption u/s. 10(23C)(iiiab) in the past accepting the claim of the assessee that it had been substantially financed by government grants.
3 ITA No.5896/M/11
A.Y. 08-09 2.1 The AO however did not accept the contentions raised. It was observed by him that the phrase "substantially financed" meant that it should be almost fully financed. He referred to provisions of section 14(1) of Comptroller and Auditor General's (Duties, Powers and Conditions) of Service Act 1971, as per which any body or authority in which case 75% of total expenditure is met by government grant is deemed to be substantially financed by such grant for the purpose of audit of all receipts and expenditure of that body. The AO therefore held that the assessee could be considered as substantially financed by the government only when 75% of expenditure is met by government. It was not so in the present case. The AO therefore rejected the claim of exemption under section 10(23C)(iiiab). As regards exemption already granted in earlier years the AO observed that res-judicata was not applicable in income tax proceedings. He accordingly denied the claim of deduction.
3. The assessee disputed the decision of AO and submitted before CIT(A) that the AO had applied provisions of Section 14(1) of Comptroller and Auditor General's (Duties, Powers and Conditions) of Service Act, 1971 in which the phrase "substantially financed" had been defined which was not so in case of section 10(23C)(iiiab) and, therefore, the said section was not applicable in case of the assessee. 4 ITA No.5896/M/11
A.Y. 08-09 The assessee placed reliance on the judgment of Hon'ble High Court of Bombay in case of CIT, Panaji-Goa vs. Parle Plastics Ltd. (196 Taxman
62) in which in the context of the word "substantial" used in section 2(22)(e)(ii), it was held that the expression 'substantial part' did not connote an idea of being a major part. The assessee also referred to the judgment of Hon'ble High Court of Karnataka in the case of CIT vs. Indian institute of Management (196 Taxmann 276) in which the High Court referred to provisions of Banking Regulations Act 1949 as per which a person who had beneficial interest of more that 10% of total capital subscribed has been held to have substantial interest in the company. Similarly, it was pointed out that substantial interest had also been defined in Explanation 40A(2)(a) where a person having voting power of not less than 20% is deemed to have substantial interest in the business of the company. It was accordingly requested that the claim of the assessee in which more than 50% of the expenditure has been made through government grant should be eligible for deduction under section 10(23C)(iiiab). CIT(A) was satisfied by the explanation given in view of the judgment cited and held that the claim of the assessee was allowable as in this case grant received by the assessee was Rs.57.46% on gross receipts. He also observed that in the earlier years in which similar grants were received, the assessee had been allowed exemption. CIT(A), therefore, set aside the 5 ITA No.5896/M/11 A.Y. 08-09 order of AO and allowed the grant of exemption. Aggrieved by said decision, the revenue is in appeal before the Tribunal.
4. The ld. DR appearing for the revenue supported the order of AO and placed reliance on the findings given in the assessment order whereas the ld. AR for the assessee argued that the case of the assessee was supported by the judgment of Hon'ble Jurisdictional High Court and, therefore, order of CIT(A) should be upheld.
5. We have perused the records and considered the matter carefully. The dispute is regarding allowability of exemption of income from tax under section 10(23C)(iiiab). Under the said section, income of any industrial or other educational institution existing solely for education which is wholly or substantially financed by the government is exempted from tax. The assessee in this case for the relevant year had earned gross receipts of Rs.5,51,94,182/- out of which a sum of Rs.3,17,17,305/- was financed from government grant. Thus 57.46% of gross receipts was financed by the government. The AO took the view that only when at least 75% of expenditure is met by government grant it can be considered as substantially financed by the government. The AO followed the provisions of Comptroller and Auditor General's (Duties, Powers and Conditions) of Service Act 1971, as per which any body or authority in which case 75% of total 6 ITA No.5896/M/11 A.Y. 08-09 expenditure is met by government is deemed to be substantially financed by the government. In our view CIT(A) has rightly held that provisions of Comptroller and Auditor General's (Duties, Powers and Conditions) of Service Act 1971, are not applicable as in that case what constitutes substantially financed was defined which is not so in the present case. CIT(A) has followed the judgment of Hon'ble High Court of Bombay in case of CIT, Panaji-Goa vs. Parle Plastics Ltd. (supra) in which it was held that the substantial part did not connote an idea of being a major part i.e. more than 50%, in which in the context of section 2(22)(e)(ii)) it was held that in case 40% of assets were deployed by way of loans and advances then the business of money lending has to be considered as substantial part of the business of the assessee. CIT(A) also relied on the judgment of Hon'ble High Court of Karnataka in the case of Indian Institute of Management (supra), in which it was held that when 37.85% of total income was financed by Central Government it had to be considered as substantially financed by the government. In case of the assessee 57.46% of gross receipts is financed by the government. Further in the earlier orders similar financing by the government had been considered as substantially financed and exemption allowed to the assessee. We, therefore see no infirmity in the order of CIT(A) in allowing the claim of the assessee which is based on the judgment of 7 ITA No.5896/M/11 A.Y. 08-09 Hon'ble High Court of Bombay and Hon'ble High Court of Karnataka. Order of CIT(A) is, therefore, upheld.
6. In the result appeal of the revenue is dismissed. Order pronounced in the open court on 07.12.2012.
Sd/- Sd/-
(VIJAY PAL RAO ) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 07.12.2012.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "F" Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.