Case Note & Summary
The case involves three appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961, challenging two orders of the Income Tax Appellate Tribunal (ITAT) dated 26 September 2012 and 16 September 2015. The appeals relate to Assessment Years 2004-05, 2006-07, and 2007-08. The respondent, Tata Institute of Social Sciences (TISS), is an educational institution that claimed exemption under Section 10(23C)(iiiab) of the Act, which exempts income of any university or other educational institution existing solely for educational purposes and not for purposes of profit, if it is wholly or substantially financed by the Government. The Assessing Officer (AO) denied the exemption on the ground that TISS was not wholly or substantially financed by the Government, as the government grant was less than 75% of total expenditure, relying on the Explanation to Section 14 of the Comptroller and Auditor General (Duties, Powers and Conditions of Services) Act, 1971. The AO also reopened the assessment under Section 147 for Assessment Year 2004-05. The Commissioner of Income Tax (Appeals) [CIT(A)] and the ITAT allowed the assessee's claim, holding that TISS was substantially financed by the Government and that the reopening was invalid. The Revenue appealed. The Bombay High Court framed two questions of law: (a) whether the Tribunal was justified in directing the AO to allow exemption under Section 10(23C)(iiiab) without appreciating that the assessee was not wholly or substantially financed by the Government, and (b) whether the Tribunal was correct in holding that the assessment under Section 147 was invalid. The court noted that the Tribunal had not examined the issue of whether the government grant constituted at least 75% of total expenditure, which is the test for 'substantially financed' as per the Explanation to Section 14 of the CAG Act. The court also found that the reopening under Section 147 was valid as the AO had reason to believe that income had escaped assessment. Consequently, the court allowed the appeals in part, set aside the impugned orders of the Tribunal, and remanded the matters to the Tribunal for fresh consideration on the question of exemption, while upholding the validity of the reopening.
Headnote
A) Income Tax - Exemption under Section 10(23C)(iiiab) - Educational Institution - Wholly or Substantially Financed by Government - The issue was whether the assessee, an educational institution, was wholly or substantially financed by the Government to claim exemption under Section 10(23C)(iiiab) of the Income Tax Act, 1961. The court held that the Tribunal erred in granting exemption without examining whether the government grant constituted at least 75% of total expenditure as per the Explanation to Section 14 of the Comptroller and Auditor General (Duties, Powers and Conditions of Services) Act, 1971. The matter was remanded to the Tribunal for fresh consideration. (Paras 2-10) B) Income Tax - Reopening of Assessment under Section 147 - Validity - The court examined whether the Assessing Officer had reason to believe that income had escaped assessment to reopen the assessment under Section 147 of the Income Tax Act, 1961. The court held that the reopening was valid as the Assessing Officer had material to form a belief that the assessee was not entitled to exemption, and the Tribunal's finding to the contrary was set aside. (Paras 2-10)
Issue of Consideration
Whether the assessee, Tata Institute of Social Sciences, is entitled to exemption under Section 10(23C)(iiiab) of the Income Tax Act, 1961, and whether the reopening of assessment under Section 147 was valid.
Final Decision
The appeals are allowed in part. The impugned orders of the Tribunal are set aside. The matters are remanded to the Tribunal for fresh consideration on the question of exemption under Section 10(23C)(iiiab) of the Income Tax Act, 1961. The reopening of assessment under Section 147 is held to be valid.
Law Points
- Exemption under Section 10(23C)(iiiab) of Income Tax Act
- 1961 requires the educational institution to be wholly or substantially financed by the Government
- meaning government grant must be at least 75% of total expenditure as per Explanation to Section 14 of CAG Act
- 1971
- Reopening of assessment under Section 147 is valid if there is reason to believe income has escaped assessment based on material on record.
