Income Tax Exemption u/s 10(23C)(iiiac) allowable When 50% of Total Receipts of Grant Received by Institute of Liver and Biliary Sciences from Govt: Delhi HC [Read Order]

The Delhi High Court has held that the Income Tax exemption under section 10(23C)(iiiac) of the Income Tax Act, 1961 is allowable only when 50% of total receipts of grants are received by the Institute of Liver and Biliary Sciences from Government.

The revenue challenged the order passed by the Income Tax Appellate Tribunal [Tribunal].  The issue which arose for consideration, both before the Commissioner of Income Tax (Appeals) [“CIT(A)”] as well as the Tribunal was: whether the petitioner was wholly or substantially financed by the government.

During the period under consideration, M/s Institute of Liver and  Biliary Sciences, the respondent/assessee had received a grant from the Government of National Capital Territory of Delhi(GNCTD) amounting to Rs.66 crores, whereas the total receipts earned were Rs.1,57,93,89,043/-, which in percentage terms was 41.78% of the total receipts. 

The Assessing Officer (AO) viewed that the grant was only 41.78% of the total receipts of the respondent/assessee, and the AO concluded that the respondent/assessee could not seek the benefit of the provisions of Section 10(23C)(iiiac) as also Sections 11, 12 & 13 of the Act. 

The CIT(A), however, via order dated 30.03.2018 reversed the view of the AO and held that the respondent/assessee was entitled to the benefit of the exemption claimed under Section 10(23C)(iiiac) of the Act,

On appeal, the Tribunal held that if the interest was not factored in while taking a decision about grant-in-aid to be given to the respondent/assessee, then, under Rule 230(8) of the General Financial Rules, 2017, the interest would have to be remitted for being credited to the Consolidated Fund of India.

Exemption under the provisions of Section 10(23C)(iiiac) of the Act provided is extended to a hospital or other institution, which receives and treats persons suffering from illness or mental defectiveness or receives and treats persons during convalescence or those requiring medical attention or rehabilitation, and exist solely for philanthropic purposes and not for purposes of profit and is wholly or substantially financed by the Government.

The exemption makes it clear that the grant should exceed such percentage of total receipts (and not total income) including voluntary contribution as may be prescribed. The explanation appended to Section 10(23C)(iiiac) was inserted via Finance Act 25 of 2014, with effect from 01.04.2015. The threshold has been pegged at 50%.

A division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia held that “If interest is included, then, grant-in-aid provided to the respondent/assessee is more than 50% of the total receipts.” 

To Read the full text of the Order CLICK HERE

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