IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 17 TH DAY OF JUNE 2014 :PRESENT: THE HON BLE MR. JUSTICE N. KUMAR :AND: THE HON BLE MR. JUSTICE B. MANOHAR IN I.T.A. NO.26/2008 BETWEEN: I.T.A. NO.26/2008 C/W. I.T.A. NO.918/2008 1. The Commissioner of Income Tax, C.R. Building, Queens Road, Bangalore. 2. The Asst. Director Income Tax (Exemption), Circle-17(1), C.R. Building, Queens Road, Bangalore.. APPELLANTS (BY SRI K.V. ARAVIND, ADV.) AND: Indian Institute of Management, Bannerghatta Road, Bangalore-560 076..RESPONDENT (BY SRI CHYTHANYA, K.K. ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER
2 DATED 3.8.2007 PASSED IN ITA NO.870/BANG/2006, FOR THE ASSESSMENT YEAR 2003-04, PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN (2) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.870/BANG/2006, DATED 3.8.2007 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE 17(1), BANGALORE AND ETC., IN I.T.A. NO.918/2008 BETWEEN: ******** 1. The Commissioner of Income Tax, C.R. Building, Queens Road, Bangalore. 2. The Asst. Director Income Tax (Exemption), Circle-17(1), C.R. Building, Queens Road, Bangalore.. APPELLANTS (BY SRI K.V. ARAVIND, ADV.) AND: Indian Institute of Management, Bannerghatta Road, Bangalore-560 076..RESPONDENT (BY SRI CHYTHANYA, K.K. ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 9.5.2008 PASSED IN ITA NO.818/BANG/2007, FOR THE ASSESSMENT YEAR 2004-05, PRAYING TO:
3 (1) FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN (2) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.818/BANG/2007, DATED 9.5.2008 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX (EXEM), CIRCLE 17(1), BANGALORE AND ETC., THESE ITA.S. COMING ON FOR HEARING, THIS DAY, N. KUMAR J. DELIVERED THE FOLLOWING: J U D G M E N T The Revenue has preferred these two appeals challenging the order passed by the Income Tax Appellate Tribunal (hereinafter referred to as Tribunal for short), which has up-held the order of the Commissioner of Income Tax (Appeals)-V, Bangalore, holding that the assessee is entitled to the exemption u/s.10(23c)(iiiab) of the Income Tax Act, 1961. 2. The assessee Indian Institute Management, Bangalore, was established in the year 1973. The Government of Karnataka offered 100 acres of land free
4 of cost and a contribution to the corpus was Rs.30 lakhs. It was registered on 27.3.1972 under the Registrar of Societies in Mysore State. It was established by the Ministry of Human Resource Development, Government of India. The Board of Governors was appointed by the Ministry of HRD to control the affairs of the society. The entire property and assets have been created out of the funds given by the Government of India. Starting from 1972-73 till 2004-05, the Institute has received Rs.4785.14 lakhs for the plan and Rs.8077.61 lakhs for the Non-plan expenditure. Besides, the Government of Karnataka has donated Rs.400 lakhs towards the centre for Public Policy, Rs.100 lakhs was received in the year 2000-01, Rs.196 lakhs in the year 2004-05 and the balance of Rs.104 lakhs in 2005-06. Thus, the entire property and assets were created by the Government of India. In the year 2003-04, a sum of Rs.457 lakhs was received as a grant from the Government of India and the income
5 generated was Rs.26,12,15,380/- out of the total extent of Rs.30,80,15,380/- which works out to Rs.14.85%. Similarly for the year 2004-05, 6.84% of the income was financed by the Central Government. The assessee is enjoying exemption u/s.10(23c)(iiiab) of the Act. When it was denied, the matter reached this Court in the case of Commissioner of Income Tax Vs. Indian Institute of Management reported in (2011) 196 TAXMAN 276(KAR), wherein the order of the appellate authorities was upheld by this court granting exemption for the year 1999-2000. In spite of it, for the aforesaid assessment years, as the grant of the Central Government was around 14.84% and 6.84%, the assessing officer was of the view, it does not satisfy the requirement of Section 10(23C)(iiiab) of the Act as it was not wholly and substantially financed by the Government. In the appeal, the appellate authority as well as the Tribunal have set aside the said order and
6 restored exemption granted. It is against the said orders, these appeals have filed. 3. The substantial question of law that arises for our consideration as framed in ITA No.918/20008 on 8.7.2009 is as under: Whether the Appellate Authorities were correct in holding that the term wholly or substantially financed by the Government contemplated in 10(23C)(iiiab) of the Act would include finances given to the institution i.e. from 1972-73 till 2004-05 and not as per the finance provided during the current assessment year i.e. 6.84% of its total income which would disentitle the assessee to claim exemption under the said section as held by the Assessing Officer? 4. The answer to this question revolves around the interpretation to be placed on the words wholly or substantially financed by the Government. Chapter III of the Income Tax Act deals with Incomes which do not
7 form part of total income. Section 10 of the Income Tax Act provides - incomes not included in total income. Section 10(23C) of the Income Tax Act with which we are concerned, reads as under: 10(23C) Any income received by any person on behalf of (i) Xxxxxx (iiiab) Any University or other educational institutions existing solely for educational purposes and not for purposes of profit and which is wholly or substantially financed by the Government. Therefore, to be eligible for exemption under this provision, three conditions have to be satisfied. (1) The University or Educational Institutions should be existing solely for educational purposes; (2) It should be existing not for the purposes of profit and;
8 (3) It is wholly or substantially financed by the Government. The word finance has not been defined under the Act. Therefore, we have to rely upon the dictionary meaning of the word Finance, Blacks Law Dictionary gives the meaning of the term finance is - to provide with capital or loan money as needed to carry on business. In the Dictionary of Advanced Law Lexicon, the meaning given is The pecuniary resources of a Government or a company; to provide with necessary funds. In Collins Cobuild English Dictionary, the meaning is given as - When some one finances something such as a project or a purchase, they provide the money that is needed to pay for them. In Merriam Webster s Collegiate Dictionary, the meaning is given as - the obtaining of funds or Capital. In the Oxford Advanced Learner s Dictionary, the meaning is given as money used to run a business, an activity or a project. Therefore, the word finance means money given for establishing an Educational
9 Institution or an University and not necessarily confined to the money given every year to such an institution by way of grant. Of course, in order to come to the said conclusion, one has to look into the nature of the institution which is established, the object for which it is established and how the said institution is financed, not only for establishing the same, even for running of such an Institution. 5. In the instant case, when dispute arose about the taxability of the income, the Ministry of Human Resources and Development by its letter dated 24.8.2006 have made their position very clear. The letter dated 24.8.2006 reads thus: F.No.3-14/2006 TS V Ministry of Human Resource Development Department of Higher Education Technical Education Bureau To Shastri Bhawan, New Delhi, Dated 24 th August 2006
10 Prof. Prakash G. Apte, Director, Indian Institute of Management, Bangalore, Bannerghatta Road, Bangalore-560 076. Sub: IIM, Bangalore whether it is wholly or substantially financed by the Government u/s.10(23c) (iiiab) of the Income Tax Act clarification regarding. Sir, I am directed to refer to your letter dated nil (received in this Ministry on 14.6.2006) on the subject mentioned above and to say that your request for confirming the position that IIM, Bangalore is an Educational Institutions Financed wholly or substantially financed by the Government has been examined in this Ministry. This Ministry, after careful examination of the matter, would like to state that 1. The IIMs. Are the public institutions and these do not cease to be so by virtue of some of them not receiving Government grants, both recurring and non-recurring for a couple of years. 2. As a matter of fact, the revenue generated by the institutions belong to the Consolidated Fund of India and the Government after a conscious decision has permitted the IIMs. To retain and spend the revenue so generated for their maintenance/growth. In view of above and the position that the IIMs. have been established entirely with the budgetary support of Government, this Ministry disagrees with the
11 contention of the Income Tax Authorities that the IIMs. are not the institution wholly or substantially financed by the Government. Clarifying the positions as above to the Income Tax Authorities it may be impressed upon them that they need to take into account the above cited facts while interpreting the relevant provisions of the Income Tax Act. Yours faithfully, ********* Sd/- (Puran Singh) Director (T) 6. From the aforesaid letter, it is clear, the assessee is a public institution, the Revenue generated by the institution belongs to the consolidated fund of India. The Government after a conscious decision has permitted the assessee to retain and spend the revenue so generated for their maintenance/growth. In addition to that, the Government is providing grants both for recurring and non-recurring expenditure. The amount of such grant varies from year to year depending upon the short fall. The assessee has been established entirely with the budgetary support of the Government.
12 It is an institution wholly or substantially financed by the Government. The fact that this institution was granted land by the Government of Karnataka to the extent of 100 acres and the Government of India has funded initially 100% and it has permitted them to retain and spend the Revenue so generated for the maintenance and growth and the Government of India is also granting grant every year is not in dispute. Under these circumstances, the contention of the Revenue, that the grant which is given by the Government of India in a particular year is to be taken into consideration to decide whether the institution is wholly or substantially financed by the Government is without any substance. The word wholly or substantially financed by the Government cannot be confined only to the annual grants. Apart from providing annual grant, if the Government grants land, invests money in building and infrastructure and also running the Educational Institutions all that has to be
13 taken into consideration to decide whether the institution is wholly or substantially Government by the Government. 7. The facts of this case and the material on record clearly establishes that the assessee is wholly or substantially financed by the Government and therefore, the assessee is entitled to the benefit of exemption under Section 10(23C)(iiiab) of the Income Tax Act. In that view of the matter, the substantial question of law which was framed is answered in favour of the assessee. dismissed. There is no merit in these appeals and accordingly Sd/- JUDGE PL Sd/- JUDGE