ADIT (E) II(2), MUMBAI V. VIVEK EDUCATIOIN SOCIETY, MUMBAI

ITA 5896/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9152 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 29-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 23-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: SHRI
• Section: 12; 11

Judgement Text

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) ROOM NO.507, PIRAMAL CHAMBERS LALBAUG, PAREL MUMBAI-400 012. VS. M/S. VIVEK EDUCATION SOCIETY S.S. SHANKAR NAGAR GOREGAON(W) MUMBAI-400 062. 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 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R 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 EXEMPT ION UNDER SECTION 10(23C)(IIIAB) WHICH WAS ALLOWED BY CIT(A). 2. FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT P ROCEEDINGS NOTED THAT THE ASSESSEE WAS NOT REGISTERED UNDER SECTION 12 A OF THE INCOME TAX ACT, AND THEREFORE, PROVISIONS OF SECTION 11 W ERE NOT ITA NO.5896/M/11 A.Y. 08-09 2 APPLICABLE. HOWEVER, ASSESSEE HAD CLAIMED EXEMPTION UNDER SECTION 10(23C)(IIIAB) WHICH WAS APPLICABLE IN CASE OF ANY UNIV ERSITY 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 SHO WED THAT THE ACTIVITIES WERE BEING CARRIED ON FOR THE PURPOSE O F EARNING PROFIT. THE AO FURTHER NOTED THAT THE ASSESSEE WAS ALSO RUNNING U NAIDED EDUCATIONAL INSTITUTIONS FOR WHICH GRANTS WERE NOT RECEIV ED FROM THE GOVERNMENT. THE AO THEREFORE ASKED THE ASSESSEE AS TO WHY CLAIM UNDER SECTION 10(23C)(IIIAB) SHOULD NOT BE REJECTED. T HE ASSESSEE SUBMITTED THAT GROSS RECEIPTS FOR THE YEAR ENDING 31.3.2 008 WERE RS.5,51,94,182/- OUT OF WHICH FEES COLLECTED FROM UNAIDE D 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 R ECEIVED BY THE ASSESSEE WAS 61% OF GROSS RECEIPTS. IT WAS ALSO POINTED OUT THAT SURPLUS GENERATED WAS NOT PROFIT. IT WAS FURTHER SUBMITT ED THAT IN EARLIER YEARS THERE WERE DEFICITS. THEREFORE, SURPLUS O NLY COVERED THE DEFICIT OF EARLIER YEARS. THE ASSESSEE ALSO ARGUED THAT I T HAD BEEN GRANTED EXEMPTION U/S. 10(23C)(IIIAB) IN THE PAST ACCEP TING THE CLAIM OF THE ASSESSEE THAT IT HAD BEEN SUBSTANTIALLY FINANCED B Y GOVERNMENT GRANTS. ITA NO.5896/M/11 A.Y. 08-09 3 2.1 THE AO HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISE D. IT WAS OBSERVED BY HIM THAT THE PHRASE SUBSTANTIALLY FINANCED MEANT THAT IT SHOULD BE ALMOST FULLY FINANCED. HE REFERRED TO PROVISI ONS OF SECTION 14(1) OF COMPTROLLER AND AUDITOR GENERALS (DUTIES, P OWERS AND CONDITIONS) OF SERVICE ACT 1971, AS PER WHICH ANY BODY OR AUTHORITY IN WHICH CASE 75% OF TOTAL EXPENDITURE IS MET BY GOVERNMEN T GRANT IS DEEMED TO BE SUBSTANTIALLY FINANCED BY SUCH GRANT FOR TH E 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 B Y GOVERNMENT. IT WAS NOT SO IN THE PRESENT CASE. THE AO THEREFORE REJE CTED THE CLAIM OF EXEMPTION UNDER SECTION 10(23C)(IIIAB). AS REGARDS E XEMPTION ALREADY GRANTED IN EARLIER YEARS THE AO OBSERVED THAT RES-JUDICATA WAS NOT APPLICABLE IN INCOME TAX PROCEEDINGS. HE ACCORDINGLY D ENIED THE CLAIM OF DEDUCTION. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED B EFORE CIT(A) THAT THE AO HAD APPLIED PROVISIONS OF SECTION 1 4(1) OF COMPTROLLER AND AUDITOR GENERALS (DUTIES, POWERS AND CONDITIONS) OF SERVICE ACT, 1971 IN WHICH THE PHRASE SUBSTANTIALLY FI NANCED 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. ITA NO.5896/M/11 A.Y. 08-09 4 THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HON'BLE HIG H 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 U SED IN SECTION 2(22)(E)(II), IT WAS HELD THAT THE EXPRESSION SUBSTANT IAL 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 TH E CASE OF CIT VS. INDIAN INSTITUTE OF MANAGEMENT (196 TAXMANN 276) IN WHICH THE HIGH COURT REFERRED TO PROVISIONS OF BANKING REGULATIONS AC T 1949 AS PER WHICH A PERSON WHO HAD BENEFICIAL INTEREST OF MORE THAT 10% OF TOTAL CAPITAL SUBSCRIBED HAS BEEN HELD TO HAVE SUBSTANTIAL INTER EST IN THE COMPANY. SIMILARLY, IT WAS POINTED OUT THAT SUBSTANTI AL 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 SUB STANTIAL 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 SH OULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10(23C)(IIIAB). CIT(A) WAS SATISFIED BY THE EXPLANATION GIVEN IN VIEW OF THE JUDGMENT CI TED AND HELD THAT THE CLAIM OF THE ASSESSEE WAS ALLOWABLE AS IN THIS CASE GRAN T RECEIVED BY THE ASSESSEE WAS RS.57.46% ON GROSS RECEIPTS. HE ALSO OBSERV ED THAT IN THE EARLIER YEARS IN WHICH SIMILAR GRANTS WERE RECEIVED, THE ASSESSEE HAD BEEN ALLOWED EXEMPTION. CIT(A), THEREFORE, SET ASIDE THE ITA NO.5896/M/11 A.Y. 08-09 5 ORDER OF AO AND ALLOWED THE GRANT OF EXEMPTION. AGG RIEVED BY SAID DECISION, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . 4. THE LD. DR APPEARING FOR THE REVENUE SUPPORTED T HE ORDER OF AO AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE ASSESSME NT ORDER WHEREAS THE LD. AR FOR THE ASSESSEE ARGUED THAT THE CASE O F THE ASSESSEE WAS SUPPORTED BY THE JUDGMENT OF HON'BLE JURISDICT IONAL HIGH COURT AND, THEREFORE, ORDER OF CIT(A) SHOULD BE UPHE LD. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EX EMPTION OF INCOME FROM TAX UNDER SECTION 10(23C)(IIIAB). UNDER THE SAI D SECTION, INCOME OF ANY INDUSTRIAL OR OTHER EDUCATIONAL INSTITUTION EXI STING SOLELY FOR EDUCATION WHICH IS WHOLLY OR SUBSTANTIALLY FINANCED BY T HE GOVERNMENT IS EXEMPTED FROM TAX. THE ASSESSEE IN THIS CASE FOR THE RE LEVANT YEAR HAD EARNED GROSS RECEIPTS OF RS.5,51,94,182/- OUT OF WHI CH 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 ME T BY GOVERNMENT GRANT IT CAN BE CONSIDERED AS SUBSTANTIALLY FI NANCED BY THE GOVERNMENT. THE AO FOLLOWED THE PROVISIONS OF COMPTR OLLER AND AUDITOR GENERALS (DUTIES, POWERS AND CONDITIONS) OF SE RVICE ACT 1971, AS PER WHICH ANY BODY OR AUTHORITY IN WHICH CASE 75% OF TOTAL ITA NO.5896/M/11 A.Y. 08-09 6 EXPENDITURE IS MET BY GOVERNMENT IS DEEMED TO BE SUBST ANTIALLY FINANCED BY THE GOVERNMENT. IN OUR VIEW CIT(A) HAS RI GHTLY HELD THAT PROVISIONS OF COMPTROLLER AND AUDITOR GENERALS (DUTIE S, POWERS AND CONDITIONS) OF SERVICE ACT 1971, ARE NOT APPLICABLE AS IN THAT CASE WHAT CONSTITUTES SUBSTANTIALLY FINANCED WAS DEFINED WHICH I S 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 P LASTICS LTD. (SUPRA) IN WHICH IT WAS HELD THAT THE SUBSTANTIAL PART D ID 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 BU SINESS OF MONEY LENDING HAS TO BE CONSIDERED AS SUBSTANTIAL PART OF THE BUSINESS OF THE ASSESSEE. CIT(A) ALSO RELIED ON THE JUDGMENT OF HO N'BLE HIGH COURT OF KARNATAKA IN THE CASE OF INDIAN INSTITUTE O F MANAGEMENT (SUPRA), IN WHICH IT WAS HELD THAT WHEN 37.85% OF TOTA L INCOME WAS FINANCED BY CENTRAL GOVERNMENT IT HAD TO BE CONSIDERE D AS SUBSTANTIALLY FINANCED BY THE GOVERNMENT. IN CASE OF TH E ASSESSEE 57.46% OF GROSS RECEIPTS IS FINANCED BY THE GOVERNMENT. F URTHER IN THE EARLIER ORDERS SIMILAR FINANCING BY THE GOVERNMENT HAD BEEN CONSIDERED AS SUBSTANTIALLY FINANCED AND EXEMPTION ALLOWE D TO THE ASSESSEE. WE, THEREFORE SEE NO INFIRMITY IN THE ORDER O F CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE WHICH IS BASED ON THE J UDGMENT OF ITA NO.5896/M/11 A.Y. 08-09 7 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 ) JUDICIAL MEMBER (RAJENDRA SINGH) 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.