ITA No. 133 of 2014 -1- IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 133 of 2014 (O&M) Date of Decision: 17.9.2015 Commissioner of Income Tax, Rohtak ....Appellant. Versus Jat Education Society, Rohtak ...Respondent. 1. Whether Reporters of local papers may be allowed to see judgment? 2. To be referred to Reporters or not? Yes 3. Whether judgment should be reported in Digest? CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Inderpreet Singh, Advocate for appellant. Mr. Pankaj Jain, Senior Advocate with Mr. Madhur Sharma, Advocate, Mr. Divya Suri, Advocate, Mr. Deepanshu Jain, Advocate and Mr. Sachin Bhardwaj, Advocate for respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 133 and 140 of 2014 as according to learned counsel for appellant, issue involved therein is identical. For brevity, facts are being taken from ITA No. 133 of 2014. 2. ITA No. 133 of 2014 has been preferred by revenue under Section 260A of Income Tax Act, 1961 (in short Act ) against order dated 19.7.2013 (Annexure A-III) passed by GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 133 of 2014 -2- Income Tax Appellate Tribunal, Delhi Bench 'D', New Delhi (hereinafter referred to as Tribunal ) in ITA No. 2543/Del/2011, relating to assessment year 2007-08, claiming following substantial questions of law:- a. Whether Hon'ble ITAT is justified in law in deleting addition of Rs.21,04,921/- made by Assessing Officer by taxing surplus as assessee society viz. Jat Education Society, which is parent body of all institutions, has not been granted registration u/s 12AA of Act and thus was not eligible for exemption u/s 11; Hon'ble ITAT on other hand did not specifically adjudicate on this issue and erroneously held that society is covered under provision of Section 10(23C)(iiiab) of Act? b. Whether Hon'ble ITAT is justified in law in deleting addition of Rs.72,20,522/- made by Assessing Officer by withdrawing exemption u/s 10(23C)(iiiab) of Act to one of institutes run by society viz. All India Jat Heroes Memorial College as this institute received grant of 45.95% of gross aggregate receipts which fell far short of 'substantially' financed by Government; Hon'ble ITAT allowed exemption u/s 10(23C)(iiiab) by relying upon judgment of Hon'ble Karnataka High Court in GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 133 of 2014 -3- ITA No. 1133 of 2008 wherein grant of 34.33% was considered 'substantial' but Revenue has not accepted this judgment and has filed appeal against order in Hon'ble Supreme Court? 3. application bearing CM No. 26348-CI of 2014 was filed by learned counsel for revenue for framing additional substantial question of law. This Court vide order dated 27.11.2014 allowed said application and additional substantial question of law was taken on record which is to following effect:- c. Whether Hon'ble ITAT is justified in law in deleting addition of Rs.7,16,023/- enhanced by Ld. CIT(A) by withdrawing exemption under Section 10(23C)(iiiab) of Act to All India Jat Heroes Memorial College, institution run by assessee, by relying on ispo facto erroneous non-contextual interpretation of definition of term 'Substantially financed by Government' of above section, by relying on unrelated statutory provisions of Banking Regulation Act, 1949 and Section 40A(2)(a) of Income Tax Act wherein interpretation is qua absolutely dis-similar fact of substantial interest of person in company or firm? 4. Put shortly, facts necessary for adjudication of present appeal as narrated therein are that assessee filed its return GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 133 of 2014 -4- on 31.10.2007 for assessment year 2007-08 declaring nil income. assessment was completed under Section 143(3) of Act by Assessing Officer vide order dated 29.12.2009 (Annexure A-I). assessee was granted registration under Section 12AA of Act from financial year 2008-09 and, therefore, for assessment year 2007- 08, exemption under Section 11 of Act was not applicable. assessee had claimed exemption under Section 10(23C)(iiiab) of Act on entire income as per return of income. Accordingly, assessee was assessed at income of ` 93,25,443/-. Feeling aggrieved, assessee filed appeal before Commissioner of Income Tax (Appeals) [for brevity CIT(A) ]. CIT(A) vide order dated 10.3.2011 (Annexure A-II) dismissed appeal holding that assessee was not eligible for exemption under Section 10(23C)(iiiab) of Act. Still dissatisfied, assessee filed appeal before Tribunal who vide order dated 19.7.2013 (Annexure A-III) allowed appeal by relying upon its earlier order in case of assessee for assessment years 2003-04 and 2004-05. Tribunal further, inter alia, held that institution/society run by assessee had received substantial Government aid for purpose of claiming exemption under Section 10(23C)(iiiab) of Act. Hence, present appeals. 5. We have heard learned counsel for parties and perused record. 6. After hearing learned counsel for parties, in our opinion, issue that arises for consideration in these two appeals is whether Institution/Society run by assessee received substantial contribution towards corpus of assessee or not so as to claim exemption under Section 10(23C)(iiiab) of Act? GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 133 of 2014 -5- 7. It would be expedient to reproduce clause (iiiab) of sub- section (23C) of Section 10 of Act which reads thus:- Income not included in total income. 10. In computing total income of previous year of any person, any income falling within any of following clauses shall not be included- (1) to (23BBC) XX XX XX (23C)(iiiab) Any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by Government. (23D) onwards XX XX XX 8. plain reading of said clause shows that any university or other educational institution existing for educational purposes and not for profit and is wholly or substantially financed by Government is entitled to claim exemption from income tax under Act. 9. Learned counsel for assessee has relied upon judgments of Karnataka High Court in Commissioner of Income Tax v. National Education Society, ITA No. 808 of 2009, Commissioner of Income Tax v. Indian Institute of Management (2011) 196 Taxman 276 (Kar.) against which Special Leave Petitions have been dismissed by Supreme Court and Commissioner of Income Tax v. Deshiya Vidya Shala Samithi, ITA No. 1133 of 2008 decided on 8.2.2011 to urge that assessee was substantially financed by Government and was, therefore, entitled to benefit under Section 10(23C)(iiiab) of Act. 10. Karnataka High Court in Indian Institute of GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 133 of 2014 -6- Management's case (supra) applying its earlier decision in National Education Society's case (supra) where there was financing of 37.85% by Government held assessee to be entitled to eligible for exemption under Section 10(23C)(iiiab) of Act with following observations:- 3. Learned counsel for appellant assailing impugned order contends that, admittedly, out of total receipt of ` 20.61 lakhs grant from Central Government is only ` 7.80 lakhs which works out to hardly 37.85 per cent. It does not exceed 50 per cent and, therefore, assessee is not entitled to exemption. Tribunal committed serious error in interfering with order of assessment and, therefore, he submits that case for interference is made out. 4. This Court had occasion to consider s. 10 (23C)(iiiab) in case of CIT vs. National Education Society (IT Appeal No. 808 of 2009), where it was held as under:- Para 4. word 'substantial' has not been defined under IT Act. However, it has been subject-matter of interpretation by various Courts in various contexts. authorities in deciding what constitutes 'substantial' portion of finance have taken note of statutory provisions contained in Banking Regulation Act, 1949, where person who has GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 133 of 2014 -7- beneficial interest of more than 10 per cent of total capital subscribed by all partners of firm has been held to be having substantial interest. Similarly, 'substantial interest' has also been defined in Explanation to s. 40A(2)(a) of IT Act, where person who is having voting power of not less than 20 per cent in case of company, is deemed to have substantial interest in business of company. Para 5. In case of assessee itself, when grant was more than 50 per cent, exemption has been extended to assessee. It is in this context, in absence of any definition for word 'substantial' in Act, what is to be seen is, what is total receipts and from what source. In that context, we have to find out whether grant of 36.42 per cent of total receipts constitutes substantial finance by Government. 5. Applying aforesaid law, in instant case, total income of assessee from all sources is Rs.20.61 lakhs. Out of which, sum of Rs.7.80 lakhs which represents only 37.85 per cent of total income is financed by Central Government, other source of income being tuition fee, donations, etc. In that context, it is clear that this amount of Rs.7,80,000/- given as grant by Central GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 133 of 2014 -8- Government to this assessee constitutes substantial finance by Government. Accordingly, as rightly held by authorities below assessee qualifies for exemption under aforesaid provision. 11. In present case, there has been financing by Government when examined on individual institution basis to be ranging from 41% to 82% whereas when percentage is taken for society as whole then it comes to 44.52% and 45.15% for two years. Tribunal after appreciation of evidence held that Government was substantially financing and interested in management of respondent-assessee and, therefore, were eligible for exemption under Section 10(23C)(iiiab) of Act. relevant findings of Tribunal are as under:- 9. In above decision, Hon'ble Court has considered 34.33% as substantial aid for purpose of eligibility under above said sections. In present case, percentage of grant if considered individually for each institution come out within range of 41% to 82% as noted in order of Ld. CIT (A) on pages 5 & 6. If percentage is considered for society as whole even then percentage comes out at 44.52% and 45.15% in two years. Therefore, from both angles, percentage of grants in aid with respect to total receipts are more than 34.33% considered by Hon'ble Karnataka High Court to be substantial. Therefore, following above judgment with respect to definition of GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh ITA No. 133 of 2014 -9- substantial interest, we hold that assessee/ institutions were substantially financed/aided by Government and hence are eligible for exemption u/s 10(23C)(iiiab). 12. In view of above, Tribunal was right in holding that aid given by Government to assessee constitutes substantial finance by Government which had entitled assessee to claim exemption under Section 10(23C)(iiiab) of Act. 13. No infirmity or perversity could be pointed out by learned counsel for revenue in findings recorded by Tribunal. substantial questions of law as claimed by revenue are answered accordingly and consequently, finding no merit in appeals, same are hereby dismissed. (AJAY KUMAR MITTAL) JUDGE September 17, 2015 (RAMENDRA JAIN) gbs JUDGE GURBACHAN SINGH 2015.11.18 14:16 I attest to accuracy and authenticity of this document High Court Chandigarh Commissioner of Income-tax, Rohtak v. Jat Education Society