Visvesvraya Technological University vs. ACIT (2016) 384 ITR 37 (SC)
The appellant University, namely, Visvesvaraya Technological University (VTU) had been constituted under the Visvesvaraya Technological University Act, 1994. It discharged functions earlier performed by the Department of Technical Education, Government of Karnataka. The University exercised control over all Government and Private Engineering Colleges within Karnataka.
For the assessment year 2004-05 to 2009-10 notices u/s. 148 of the Income-tax Act, 1961 were issued to the appellant-University assessee. Eventually returns were filed for the assessment years in question declaring “nil” income and claiming exemption u/s. 10(23C)(iiiab) of the Act. The aforesaid claim of exemption was negated by the Assessing Officer who proceeded to make the assessments. The same view has been by all the authorities under the Act and also by the High Court.
The question, therefore, that arose before the Supreme Court in the present appeals was the entitlement of the appellant-University-assessee to exemption from payment of tax under the provisions of section 10(23C) (iiiab) of the Act.
The Supreme Court observed that the entitlement for exemption u/s. 10(23C)(iiiab) was subject to two conditions. Firstly the educational institution or the university must be solely for the purpose of education and without any profit motive. Secondly, it must be wholly or substantially financed by the Government. Both conditions would have to be satisfied before exemption could be granted under the aforesaid provision of the Act.
The Supreme Court noted that the relevant principles of law which governed the first issue, i.e., whether an educational institution or a university, as may be, exists only for educational purpose and not for profit was no longer res integra and was decided by it in Queen’s Educational Society vs. CIT(372 ITR 699).
The Supreme Court, in the present case, found that during a short period of a decade, i.e., from the year 1999 to 2010 the appellant University had generated a surplus of about Rs.500 crore. There was no doubt that the huge surplus had been collected/accumulated by realising fees under different heads in consonance with the powers vested in the University u/s. 23 of the VTU Act. The difference between the fees collected and the actual expenditure incurred for the purposes for which fees were collected is significant. In fact the expenditure incurred represented only a minuscule part of the fees collected. No remission, rebate or concession in the amount of fees charged under the different heads for the next academic year(s) had been granted to the students.
As against the above, the amount of direct grant from the Government has been meagre. The University nevertheless had grown and the number of private engineering colleges affiliated to it had increased from about 64 to presently about 194. The infrastructure of the University has also increased offering educational avenues to an increasing number of students in different and varied subjects.
Between 1994 and 2009 the University had actually spent about Rs.504 crore on infrastructure and the available surplus in the year 2010 which was in the range of Rs. 440 crore was also intended to be applied for different infrastructural work.
Even in a situation where direct Government grants had not been forthcoming and allocation against permissible heads like salary, etc. had not been made the University had thrived and prospered. There could, however, be no manner of doubt that the surplus accumulated over the years had been ploughed back for educational purpose. In such a situation, following the principles laid down in Queen’s Educational Society (supra), the Supreme Court held that the first requirement of section 10(23C)(iiiab), namely, that the appellant University existed “solely for educational purposes and not for purposes of profits” was satisfied.
As to the further question as to whether the appellant University was wholly or substantially financed by the Government which was an additional requirement for claiming benefit u/s. 10(23C)(iiiab) of the Act, it was not in dispute that grants/direct financing by the Governtment during the six (06) assessment years in question, i.e., 2004-05 to 2009-10 had never exceeded 1 per cent of the total receipts of the appellantuniversity assessee.
The argument advanced before the Supreme Court by the University that fees of all kinds collected within the four corners of the provisions of section 23 of the VTU Act must be taken to be receipts from sources of finance provided by the Government. The rates of such fees are fixed by the Fee Committee of the University or by authorized Government Agencies (in case of Common Entrance Test). It was , therefore, contended that such receipts must be understood to be funds made available by the Government as contemplated by the provisions of section 10(23C)(iiiab) of the Act.
The Supreme Court held that receipts by way of fee collection of different kinds continued to be a major source of income for all universities including private universities. Levy and collection of fees was invariably an exercise under the provisions of the statute constituting the University. In such a situation, if collection of fees was to be understood to be amounting to funding by the Government merely because collection of such fees was empowered by the statue, all such receipts by way of fees may become eligible to claim exemption u/s. 10(23C) (iiiab). Such a result would virtually render the provisions of the other two sub-sections, namely, 10(23c)(iiiad) and 10(23c)(vi) nugatory and could not be understood to have been intended by the Legislature and must, therefore, be avoided.
According to the Supreme Court, it would therefore, be more appropriate to hold that funds received from the Government contemplated u/s. 10(23C)(iiiab) of the Act must be direct grants/contributions from government sources and not fees collected under the statute.
Before the Supreme Court , reliance had been placed on the judgment of the High Court of Karnataka in CIT vs. Indian Institute of Management [370 ITR 81], particularly, the view expressed that the expression “wholly or substantially financed by the Government” as appearing in section 10(23C) could not be confined to annual grants and must include the value of the land made available by the Government. The Supreme Court noted that in the present case, the High Court in paragraph 53 of the impugned judgment has recorded that even if the value of the land allotted to the University (114 acres) was taken into account the total funding of the University by the Government would be around 4 per cent to 5 per cent of its total receipt. That apart what was held by the High Court in the above case, while repelling the contention of the Revenue that the exemption u/s. 10(23C)(iiiab) of the Act for a particular assessment year must be judged in the context of receipt of annual grants from the Government in that particular year, is that apart from annual grants the value of the land made available; the investment by the Government in the buildings and other infrastructure and the expenses incurred in running the institution must all be taken together while deciding whether the institution is wholly or substantially financed by the Government. The Supreme Court held that situation before it, on facts, was different leading to the irresistible conclusion that the appellant university did not satisfy the second requirement spelt out by section 10(23C)(iiiab) of the Act. The appellants University was neither directly nor even substantially financed by the Government so as to be entitled to exemption from payment of tax under the Act.
The Supreme Court for the aforesaid reasons dismissed the appeals.
