24 DIT (Exemption) vs. Tata Institute of Social Sciences; 413 ITR 305
(Bom) Date of order: 26th
March, 2019 A.Y.s: 2004-05, 2006-07 and
2007-08
Section 10(23C)(iiiab) of ITA, 1961 – Educational
institution – Exemption u/s. 10(23C)(iiiab) – Condition precedent – Assessee
must be wholly or substantially financed by Government – Meaning of
“substantially financed” – Subsequent amendment to effect that if grants
constitute more than specified percentage of receipts, assessee will be deemed
“substantially financed” by Government – Can be taken as indicative of
Legislative intent – Assessee receiving grant from Government in excess of 50%
of its total receipts – Assessee entitled to benefit of exemption for years
even prior to amendment
The
assessee was a trust registered u/s. 12A of the Income-tax Act, 1961. For the
A.Y.s 2004-05, 2006-07 and 2007-08, it sought exemption u/s. 10(23C)(iiiab) on
the ground that it was substantially financed by the government. It was
submitted by the assessee before the AO that it was an institution solely for
educational purposes and that the grants received from the government were in
excess of 50% of the total expenditure incurred and the total receipts during
the years. The AO denied the benefit u/s. 10(23C)(iiiab) on the grounds that
the assessee was not substantially financed by the government and that the
grant received was less than 75% of the total expenditure. He referred to
section 14 of the Controller and Auditor General (Duties, Powers and Conditions
of Service) Act, 1971 and applied the measure of 75%.
The
Commissioner (Appeals) held that the 1971 Act was not applicable in the absence
of any reference to it and allowed the assessee’s appeal. The Tribunal found
that the grant from the government was approximately 56% of the total receipts
and upheld the order of the Commissioner (Appeals).
On
appeal by the Revenue, the Bombay High Court upheld the decision of the
Tribunal and held as under:
“i) Subsequent legislation might be looked at in
order to see what was the proper interpretation to be put upon the earlier
legislation, where the earlier Act was obscure or ambiguous or readily capable
of more than one interpretation. The same principle would apply to an amendment
made to an Act to understand the meaning of an ambiguous provision, even when
the amendment was not held to be retrospective. The Explanation to section
10(23C)(iiiab) inserted w.e.f. 1st April, 2015 which provides that
where the grant from the government was in excess of 50% of the assessee’s
total receipts, it would be treated as substantially financed by the
government, could be taken as the exposition of Parliamentary intent of the
unamended section 10(23C)(iiiab). The assessee was entitled to the benefits of
exemption u/s. 10(23C)(iiiab) for the assessment years prior to the
introduction of the Explanation.
ii) The vagueness attributable to the meaning of
the words ‘substantially financed’ was removed by the addition of the
Explanation to section 10(23C)(iiiab) read with rule 2BBB of the Income-tax
Rules, 1962. The Explanation to section 10(23C)(iiiab) was introduced by the Finance
(No. 2) Act, 2014 w.e.f. 1st April, 2015 to clarify the meaning of
the words ‘substantially financed by the government’. It stated that the grant
of the government should be in excess of the prescribed receipts in the context
of total receipts (including voluntary donations). Rule 2BBB provided that the
government grant should be 50% of the total receipts. The assessee admittedly
satisfied the test of ‘substantially financed’ for the A.Y.s. 2006-07 and
2007-08 as the AO had recorded a finding in his order which was not disputed.
If the Explanation was to be read retrospectively, the orders of the
authorities would be required to measure the satisfaction of the words
‘substantially financed’ in terms of Explanation, i.e., qua total
receipts and not qua total expenditure.”
