Section 10(23C)(iiiab) — Where the Government legislates law to provide for compulsory contribution by the member societies to an ‘education fund’ which was set apart to be the source of finance for educational institution engaged in the co-operative movement in India, which constitutes indirect financing by the Government, are entitled for exemption u/s.10(23C)(iiiab) of the Act.
Facts:
The assessee was a co-operative society registered under the Maharashtra State Co-operative Societies Act, 1960. By virtue of section 68 of the Maharashtra Co-operative Societies Act, every other membersociety was to mandatorily contribute annually towards the education fund of the assessee as per the sums prescribed in the Notification issued by the State Government. The assessee filed his return of income for A.Y. 2003-04 claiming exemption u/s.10(23C)(iiiab) of the Act. The Assessing Officer, while assessing the total income rejected the assessee’s claim holding that it failed to fulfil conditions prescribed u/s.10(23C) (iiiab) with regard to expression ‘financed by the Government’.
On appeal, it was submitted that such supply of finance indirectly by way of mandatory contributions by member co-operative societies met requirement of expression ‘financed by the Government’ used in section 10(23C)(iiiab). The CIT(A) however rejected the claim of the assessee.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
Before the Tribunal, the assessee relied on the following case laws:
(1) Small Business Corpn., In re (2008) 173 Taxman 452 (AAR — New Delhi)
(2) Dy. DIT (Exemptions) v. Indian Institute of Management, (2009) 120 ITD 351 (Bang.)
The Tribunal noted that in the provisions of section 10(23C)(iiiab), the Legislature has not used the words such as ‘directly or indirectly’ anywhere, meaning thereby the indirect financing by the Government is also a possibility not ruled out by the Legislature.
Further, the decision of the Department to reject the benefits of tax exemption u/s.10(23C)(iiiab) to the institution merely in view of the absence of inflow of the finance directly from the funds of the Government and ignoring the alternate financing mechanisms provided by the Government by legislative enactment, tantamount to narrow interpretation of the expression in the said clause.
In such circumstances and considering the peculiarity of the co-operative movement, governmental role in financing such educational institution rightly should stop with the role as a facilitator by providing requisite legislation for enabling the member societies to contribute to the assessee and contribute mandatorily. Therefore, it is the case of indirect financing of the educational institution of the co-operative movement by the Government and it is evolved in order to promote participation of the members and respect the financial independence of the movement in general and institution in particular.
In the light of the above discussion, the Tribunal set aside the impugned order of the CIT(A) and allowed the claim by the assessee of being entitled to exemption u/s.10(23C)(iiiab) of the Act.
