Registered Society's Revenue belonging to Consolidated Fund of Govt, Eligible for 10(23C) (iiiab) Exemption: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, has recently, in an appeal filed before it, held that registered society’s revenue which belongs to the consolidated fund of Govt., is eligible for 10(23C) (iiiab)exemption.

The aforesaid observation was made by the Tribunal when an appeal filed was filed before it by the assesse, Baba Hira Singh Bhattal Institute of Engineering & Technology, as against the order of the CIT(A), Patiala dt. 26/12/2019, wherein the assessee had taken various grounds of appeal, effectively challenging the action of the CIT(A) in sustaining the disallowance of exemption claimed under section 10(23C) (iiiab) of the Act.

The brief facts of the case being that the assessee society was registered under the Societies Registration Act and was engaged in imparting education and running an institute by the name of Baba Hira Singh Bhattal Institute of Engineering and Technology, Lehragaga since 2004-05, for the financial year relevant to the impugned Assessment Year, it had filed its return of income claiming exemption under section 10(23C)(iiiab) of the Act.

During the course of assessment proceedings, it was so observed by the AO that as per the assessee’s society audit report right from A.Y. 2008-09 to 2013-14, it had not received any money from the Government except for A.Y. 2006-07 where Rs. 50 lacs had been received and in A.Y 2007-08 where Rs. 1 Crore had been received.

And with the AO accordingly observing that the assessee society was not being wholly or substantially financed by the Government, being one of the essential conditions for claiming exemption under section 10(23C)(iiiab) of the Act , a show cause was issued to the assessee society as to why the exemption so claimed should not be denied to it for the year under consideration.

And in response to the same, it was submitted by the assessee society that it had been established by the Government of Punjab with the objective of imparting technical education both under degree and certificate level courses, as a literary, scientific and charitable institution without any profit motive, and further that it works under the control of the Government of Punjab ,being 100% financed by the Government of Punjab in terms of providing infrastructure i.e. land and buildings, machinery and equipments, furniture and fixtures, library books, vehicles and other assets, and also that it has received grants on various occasions by the Government of Punjab as and when required.

It was further submitted by the assessee society that being under the control of Punjab Government, the assessee society’s accounts were regularly subject to audit by the controller and Auditor General of Punjab, and that though the excess of revenue generated over expenditures by way of fees received from the students etc. belongs to the Consolidated funds of the Government, the same has been permitted to be retained by the assessee society for its maintenance and growth on year to year basis by the Government.

However,the submissions so filed by the assessee though considered but not found acceptable to the AO on the ground that it was the Government Polytechnic College Lehragaga which was transferred to the society M/s Baba Hira Singh Bhattal Institute of Engineering & Technology in 2005, due to financial constraints faced by the Government of Punjab &  that it was proposed that this college will be run by an independent, self-sustainable autonomous society , which shall be deemed as a self- sustainable Institution and further that the Government will pay one time grant of Rs. 1.10 Crores to kick start the project, holding the view that the income of this institute which is self- financed cannot fall within in the ambit of section 10(23C)(iiiab) as the institute is not being wholly or substantially financed by the Government, it was accordingly held by the AO that the assessee society is not eligible for exemption under section 10(23C) (iiiab) of the Act and that the excess of income over expenditure amounting to Rs. 2,06,02,804/- was to be brought to tax.

And being aggrieved by this, the assessee had carried the matter in appeal before the CIT(A) and reiterated the submissions made before the AO, but as the CIT (A) also held against the assessee’s claim, the assessee is presently in appeal before the Tribunal.

While it was submitted by Shri Aman Parti, the advocate for the assessee, that there being no change in the facts and circumstances of the case, the contents of the  letter issued by the Government of Punjab stand as of today as the letter has not been withdrawn and that for the year under consideration the revenue generated by Institute belongs to the Consolidated fund of the Government of Punjab and further that the same has been permitted to be retained by the institute for achieving the objectives of the Society as yearly grant, it was accordingly contended by him that the decision of the Coordinate Bench for earlier assessment years squarely applies for the year under consideration and that the same may be followed and relief be provided to the assessee society.

On the contrary, with Smt. Priyanka Dhar, Sr. DR relyingupon the findings of the lower authorities, the Tribunal consisting of Aakash Deep Jain, the Vice- President and  Vikram Singh Yadav , the Accountant Member , observed as follows :

“In the said letter, we find that there is no limit specified on the quantum of revenues generated by the institute, the period during which such revenues are generated and the period for which the revenues are allowed to be retained by the institute.Therefore, irrespective of the quantum of revenues which the institute generate in respective financial years, the revenues so generated belongs to the Consolidated fund of the Government and it continues to remain as permitted to be retained by the institute.”

“The Coordinate Bench has therefore taking into consideration the aforesaid contents of the said letter ,decided the matter for all the years starting from A.Y 2006-07 to A.Y 2012-13 and for the year under consideration, we therefore donot see any basis to deviate from the decision of the Coordinate Bench as undisputedly, for the year under consideration, there is no change in the facts and circumstances of the case as regard to the retention of revenues by the assessee society, as grant in aid by the Government of Punjab and the assessee society thus continues to remain wholly funded by the Government of Punjab . Thus the assessee is held eligible for exemption under section 10(23C)(iiiab) of the Act.”, allowing the assessee’s appeal they ruled.

To Read the full text of the Order CLICK HERE

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