ITO, Shimoga V. National Education Society, Shimoga

ITA 473/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9420 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-08-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 15-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREETI GARG
• Assessee Lawyers: S KRISHNA SWAMY
• Keywords: Question of law; Difference of opinion; Capital expenditure
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI A. MOHAN ALANKAMONY, AM ITA NOS.472 & 473(BANG.)/2009 (ASSESSMENT YEARS : 2001-02 & 2002-03) THE INCOME-TAX OFFICER, WARD-2, SHIMOGA APPELLANT VS M/S NATIONAL EDUCATION SOCIETY, BALRAJ URS ROAD, SHIMOGA RESPONDENT REVENUE BY SMT. PREETI GARG ASSESSEE BY : SHRI S. KRISHNASWAMY O R D E R PER SHAILENDRA KUMAR YADAV,JM: THESE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINS T THE ORDERS OF THE CIT(A), HUBLI DATED 20-02-2009 ON THE ISSUE OF EXEMPTION GRANTED U/S 10(23)(IIIAB) OF THE IT ACT ON THE GOVERNMENT G RANTS RECEIVED BY THE ASSESSEE SOCIETY. 2. AT THE OUTSET OF HEARING, LEARNED AR POINTED OU T THAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ITA N OS.809, 915 & 916(B)/2007 FOR THE ASSESSMENT YEARS 2004-05, 200-0 1 & 1999-2000 IN ASSESSEES OWN CASE, WHEREIN A SIMILAR ISSUE WAS DE CIDED IN FAVOUR OF ASSESSEE. ITA NOS.472 & 473(B)/09 2 3. SECTION 10(23C)(IIIAB) READS AS UNDER: ANY UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION EXISTING SOLELY FOR THE EDUCATIONAL PURPOSES AND NO T FOR THE PURPOSE OF PROFIT AND WHICH IS WHOLLY AND SUBSTANTIALLY FINANCED BY THE GOVERNMENT. 4. THE SECTION 10(23C)(IIIAB) PROVIDES THAT WHERE THE AGGREGATE RECEIPTS OF THE UNIVERSITY OR OTHER EDUCA TIONAL INSTITUTION ARE MORE THAN RS.1.00 CRORE AND SUCH EDUCATIONAL INSTITUTION IS WHOLLY AND SUBSTANTIALLY FINANCED BY THE GOVERNMENT, IT WOULD BE EXEMPT UNDE R THIS SECTION. 5. THE WORD WHOLE OR SUBSTANTIAL IS NOWHERE DEFINE D IN THE INCOME-TAX, 1961. GENERALLY, IT MAY BE P RESUMED THAT WHOLE IS 100% AND SUBSTANTIAL IS NEARER TO 100 % I.E. 90% AND ABOVE. 6. IN ASSESSMENT YEARS 1999-2000 AND 2000-01, THE GRANT RECEIVED BY THE ABOVE INSTITUTION WAS AS UNDE R: SL.NO GOVERNMENT GRANT RECEIVED RECEIPTS FROM STUDENTS AND OTHERS (AS REFLECTED IN INCOME & EXP.ACCOUNT) RS. TOTAL RS. 99-00 2,45,25,948 67,17,238 3,12,42,186 78.5% 00-01 2,99,78,751 88,05,365 3,87,84116 72.3% ITA NOS.472 & 473(B)/09 3 FROM THE ABOVE, IT WAS FOUND THAT THE PERCENTAG E OF GRANT RECEIVED FROM THE GOVERNMENT IS LESS THAN 90% FOR BOTH THE ASSESSMENT YEARS AND THUS, THE VIEW TAKEN BY THE CIT(A), DAVANAGERE THAT 2/3 RD OF THE RECEIPT FROM THE GOVERNMENT WOULD COVER THE ASSESSEE TO CLAIM EXEMPT ION U/S 10(23C)(IIIAB) WAS NOT ACCEPTABLE TO AO. THE IS SUE BEFORE THE BENCH WAS TO DECIDE AS TO WHETHER THE WO RD SUBSTANTIALLY FINANCED BY THE GOVERNMENT IN TERMS O F SECTION 10(23C)(IIIAB) WILL MEAN THAT FINANCING TO THE EXTENT OF 90% SHOULD BE PROVIDED BY THE GOVERNMENT AS CONTENDED BY THE REVENUE OR IF 2/3 RD OF THE EXPENDITURE FINANCED BY THE GOVERNMENT THEN IT WILL BE TREATED AS SUBSTANTIALLY FINANCED AS HELD BY THE LEARNED CIT(A ). THE WORD SUBSTANTIAL HAS NOT BEEN DEFINED IN THE INC OME-TAX ACT. THE DICTIONARY MEANING OF THE WORD SUBSTANTI AL IS CONSIDERABLE, FOR MOST PART AND MAINLY. HENCE, IF CONSIDERABLE FINANCE IS PROVIDED BY THE GOVERNMENT THEN SUCH A SITUATION WILL BE COVERED BY SECTION 10(23C) (IIIAB) THE IT ACT. THE WORTHY SUPREME COURT IN THE CASE O F SANTOSH HAZARI VS PURUSHOTHAM TIWARI REPORTED IN 2 5 ITR 84 HAD AN OCCASION TO CONSIDER THE MEANING OF T HE WORD SUBSTANTIAL AS MENTIONED IN SEC.260A OF THE IT ACT. ITA NOS.472 & 473(B)/09 4 THE WORTHY SUPREME COURT HELD THAT THE WORD SUBSTANTIAL AS QUALIFYING QUESTION OF LAW MEANS H AVING SUBSTANCE, ESSENTIAL, REAL, OF SOUND WORTHY, IMPORT ANT OR CONSIDERABLE. THE HONBLE SUPREME COURT HELD THAT THE QUESTION OF LAW WILL BE A SUBSTANTIAL QUESTION OF L AW WHERE THERE IS A ROOM FOR DIFFERENCE OF OPINION. HENCE, I F THE CHANCES OF INTERPRETATION OF A SPECIFIC SECTION ARE 50% ON EITHER SIDE THEN THE QUESTION OF LAW INVOLVING SUCH INTERPRETATION WILL BE A SUBSTANTIAL QUESTION OF LA W. THE WORD SUBSTANTIAL IN THE BOOK OF LAW LEXICON BY VENKATARAMIAH HAS BEEN MENTIONED AS STANDING FOR S O FAR AS PRACTICABLE OR AS FAR AS POSSIBLE. 7. IN THE BANKING REGULATION ACT, 1949, SUBSTANTIAL INTEREST U/S 5(NE) HAS BEEN DEFINED TO MEAN A BENEFICIAL INT EREST OR MORE THAN 10% OF THE TOTAL CAPITAL SUBSCRIBED BY ALL THE PARTNERS OF THE FIRM. HENCE, A PARTNER WILL BE HAVING SUBSTANTIAL INTEREST IN CASE HE IS HAVING MORETHAN 10% INTEREST. SUBSTANTIAL INT EREST HAS ALSO BEEN DEFINED IN EXPLANATION TO SECTION.40A(2)(A) OF THE IT ACT. IF A PERSON IS HAVING VOTING POWER OF NOT LESS THAN 20% IN THE CASE OF COMPANY THEN SUCH PERSON IS DEEMED TO HAVE A SUBSTA NTIAL INTEREST IN THE BUSINESS OF THE COMPANY. THUS, SUB STANTIAL ITA NOS.472 & 473(B)/09 5 INTEREST MAY BE A SUBSTANTIAL INTEREST EVEN IF THE PERSON CONCERNED IS HAVING 10 TO 20% INTEREST, IN CASE SUCH DEFINITI ON OF SUBSTANTIAL INTEREST IS INCLUDED IN THE PROVISION. IN THE INSTA NT CASE, THE WORD SUBSTANTIAL FINANCING HAS NOT BEEN DEFINED. FINANC ING IS NEED EITHER TO MEET THE REVENUE DEFICIT OR TO MEET THE C OST OF CAPITAL EXPENDITURE. IN THE INSTANT CASE, THE REVENUE DEFI CIT IS CONSIDERABLY MET BY THE GOVERNMENT. FOR THE ASSESS MENT YEAR 1999-2000, RECEIPT FROM THE STUDENTS ACCOUNTED FOR ONLY RS.67.17 LAKHS WHILE GOVERNMENT GRANTS WERE TO THE EXTENT OF RS.24.25 LAKHS. THUS, THE REVENUE DEFICIT HAS BEEN CONSIDERA BLY MET BY THE GOVERNMENT LOOKING TO THE QUANTUM OF GOVERNMENT GRA NT RECEIVED IN THE INSTANT CASE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION, WE FEEL THAT THE LEARNED CIT(A) WAS JUSTIFIED IN HO LDING THAT THE EDUCATIONAL INSTITUTION UNDER CONSIDERATION HAS BEE N SUBSTANTIALLY FINANCED BY THE GOVERNMENT. THE LEAR NED CIT(A) HELD JUSTIFIED BY THE ITAT IN HOLDING THAT THE INCO ME IS EXEMPT U/S 10(23C)(IIIAB) OF THE IT ACT. THE AFORESAID DECISI ON HAS NOT BEEN INTERFERED BY THE HONBLE HIGH COURT IN ITA NOS.186 & 187/2007 DATED 29 TH NOVEMBER, 2007 AND 17 TH DECEMBER 2007 RESPECTIVELY. 8. FACTS AND ISSUE BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE CIT(A) WHO HAS ITA NOS.472 & 473(B)/09 6 HELD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/ S 10(23C)(IIIAB) OF THE IT ACT. THE SAME IS UPHELD. 9. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING. (A. MOHAN ALANKAMONY) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE DATED: AM * COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) 7. GF(DELHI AR, ITAT, BANGALORE