Relief to ITI IMC: ITAT Rules Government Grants Received Years Ago Still Qualify as Funding if FD Interest is Used for Education [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) held that government grants received years ago still qualify as funding if the fixed deposit (FD) interest is used for educational purposes. The tribunal granted exemption under Section 10(23C)(iiiab) of the Income Tax Act, 1961.

The Institute Management Committee of Government ITI Peth, the assessee, is an educational institution funded under the "Upgradation of 1396 Government ITIs through Public-Private Partnership (PPP)" scheme by the Ministry of Labour and Employment, Government of India. The assessee filed its income tax return for Assessment Year 2022-23, claiming exemption under Section 10(23C)(iiiab), with a total gross receipt of Rs. 26,13,473.

The exemption claim was denied by the CPC on the grounds that the institute was not substantially financed by the government, as it had not received any fresh government grants in the relevant financial year.

The CIT(A) ruled that the institution did not qualify for exemption under Section 10(23C)(iiiab), upholding the CPC’s decision.

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On appeal before the ITAT, the assessee argued that past government grants, even if received years ago, should still be considered government funding since the interest earned from the fixed deposit (Rs. 19,32,473) was used solely for educational purposes. The assessee’s counsel relied on the Jodhpur ITAT decision in IMC of ITI vs. ITO (2017), where a similar institution was granted exemption on identical grounds.

The single-member bench Manish Borad, Accountant Member observed that the government grant of Rs. 2.50 crore received between 2008-09 and 2011-12 was a substantial source of funding for the institute. The interest earned from this grant accounted for more than 50% of the total receipts, satisfying the "substantially financed by the Government" requirement under Section 10(23C)(iiiab).

The tribunal rejected the revenue’s argument that government funding should only be recognized in the year of receipt and ruled that the exemption cannot be denied simply because the institute did not receive a fresh grant in the relevant year. The tribunal reversed the CIT(A)'s order, held that the assessee qualifies for exemption under Section 10(23C)(iiiab), and directed the revenue authorities to allow the exemption. The tribunal allowed the appeal.

To Read the full text of the Order CLICK HERE

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