TMI Blog2019 (3) TMI 1619X X X X Extracts X X X X X X X X Extracts X X X X ..... which were 56% of the total receipts of the institution i.e. in excess of 50%. Besides, it was also found that the Institution received grants from the Government of ₹ 12.79 crores out of the total expenditure of ₹ 22.49 crores. This was undisputedly in excess of 50% but less that 75% of the total expenditure. Therefore, on both tests i.e. percentage of Government grant in context of total receipts was in excess of 50% and percentage of Government grant in the context of total expenditure was also in excess of 50%. Thus, the respondent satisfies the requirement now introduced by the explanation. Explanatory Notes to the provisions of Finance (No.2) Act, 2014 and the Circular No.1 of 2015 dated 21st July, 2015 issued by the Central Board of Direct Taxes, the raison detre to introduce the Explanation to Section 10(23C)(iiiab) was that in the absence of definition of the phrase 'substantially financed by the Government' therein has led to litigation and varying decision of various judicial fora, leading to uncertainty in this regard. Thus, it is clear that the Explanation to Section 10(23C)(iiiab) of the Act was to clarify the position/meaning of the words ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total Govt. grant during the year is less that 75% of the total expenditure of the assessee? (b) Whether on the facts and circumstances of the case, the Tribunal was correct in holding Assessment under Section 147 of the Act in law? 3. At that time, it was pointed out to us that, identical question of law had been raised by the Revenue in Income Tax Appeal No.1321 of 2016 relating to Assessment Year 2006- 07, arising out of the common impugned order dated 16th September,2015, urging identical question of law for our consideration. We were also informed that an identical question as referred in (a) above on merits, was a subject matter of Income Tax Appeal No. 1179 of 2013 and admitted on 3rd April, 2013. 4. It was submitted on behalf of the respondent that the issue (a) raised herein above being the major issue in all the these appeals, would now stand concluded in view of amendment made to Section 10(23C) (iiiab) of the Act by an addition of Explanation thereto. This amendment has clarified / explained the expression substantially financed in Section 10(23C) (iiiab) of the Act and was brought into the Act by the Finance No.2 Act of 2014 w.e.f. 1st April. 2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year is less that 75% of the total expenditure of the assessee? (b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that A.O. erred in importing the provision of another legislation in deciding whether the Assessee is substantially financed or not when the provision of the Income Tax Act is silent on the issue? It would be noticed that question (b) herein above is a mere facet of/ submission urged in support of question (a). Therefore, both the questions are subsumed in question (a) above. Therefore, our consideration of question (a) would include the submissions urged as question(b). (ii) Briefly, the facts leading this Appeal, are as under: (a) Respondent is registered under the Societies Registration Act and Bombay Public Trust Act, 1966. It is also registered as a Trust under Section 12 A of the Act. (b) For the subject Assessment year, Respondent -Trust has filed its return of income, seeking exemption from tax under Section 10(23C)(iiiab) of the Act. The Assessing Officer called upon the Respondent to explain its claim for exemption under Section 10(23C)(iiiab) of the Act on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment out of the total receipts was held to satisfy the meaning of the words 'substantially financed' by the Government. (e) Being aggrieved with the order dated 4th January, 2012 of the CIT(A) on the above issue, the Revenue filed an appeal to the Tribunal. The impugned order of Tribunal records the fact that the Assessing Officer held that the Respondent was not an institution wholly or substantially financed by the Government by relying upon the meaning of the words 'substantially financed' by the Government under Section 14(1) of the CAG Act. It held that, reliance upon the provisions of CAG Act, was not appropriate as for the purposes of the Act, the institutions had to be approved by the prescribed authority i.e. Commissioner of Income Tax or Director General of Income Tax before an exemption under Section 10(23C)(iiiab) of the Act can even be claimed. The impugned order further noted that reliance upon another legislation to negate the exemption under Section 10(23C)(iiiab) of the Act, is not permissible. It also noted that, the Karnataka High Court had in the case of National Education Society (supra) and Indian Institute of Management (supra) had tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government. (b) The absence of any definition of the words 'substantially financed' in the Act will not permit the Revenue to import meaning given to the words 'substantially financed' as provided in the CAG Act. This in the absence of any incorporation or reference to the CAG Act in the Act. It is to be note that, the Karnataka High Court in National Education Society (supra) had made reference to the Banking Regulation Act which provides that having more than 10% of the total capital, would mean to have substantial interest. (c) In fact, internal guidance of the meaning of the word 'substantial' is found in the explanation to Section 40A(2) of the Act, having 20% voting power or 20% share in profits. This could be used as the benchmark meaning of the words 'substantial'; and (d) In any case, after addition of Explanation to Section 10(23C)(iii ab) of the Act w.e.f. 1st April, 2015, the percentage of contribution by the Government as prescribed being 50% of the total receipts to qualify as 'substantially financed' would relate back even to period prior to 1st April, 2015 i.e. the subject Assessment Year 2007 08. (v) We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, in the absence of the words 'substantially financed' being defined in the Act at the relevant time, different methods / modes were being adopted by the Authorities under the Act to determine the manner in which the words 'substantially financed' have to be measured. It is to be noted that, the Karnataka High Court in National Education Society (supra) has observed that in the Banking Regulation Act, 1949 a person having more than 10% of the total subscribed capital, is a person who has substantial interest. However, that provision has not been invoked by the Assessing Officer. For that matter internal guidance to the meaning of the words 'substantial' can be found in Section 40A (2) of the Act as person having more than 20% of voting power or 20% share in profits. Nevertheless, the Revenue has not resorted to any of the above provisions and have invoked the provisions of the CAG Act. This in our view is not permissible in the present facts. (vii) Prior to the Explanation to Section 10(23C)(iiiab) of the Act being introduced, the method employed by the Officers of the Revenue was either to determine the percentage of grant received from the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that the Explanation to Section 10(23C)(iiiab) of the Act was to clarify the position/meaning of the words 'substantially financed by the Government'. (x) Thus, the vagueness attributable to the meaning of the words 'substantially financed' is removed by the addition of the Explanation to Section 10(23C)(iiiab) of the Act read with Rule 2BBB of the Rule. The above Explanation states that grant from the Government should be in excess of the prescribed receipts in context of total receipts (including voluntary donations). Rule 2BBB of the Rules provides that the Government grant should be at 50% of the total receipts. This requirement, the respondent admittedly satisfies the test of substantially financed for the subject assessment year as the Assessing Officer records a finding of fact in his order and the same is not disputed before us. Therefore, with effect from 1st April, 2015, there can be no dispute about what is meant by 'substantially financed' by the Government in Section 10(23C)(iiiab) of the Act. (xi) However, the issue is whether the above Explanation which is introduced w.e.f. 1st April, 2015 could be read to be retrospective. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruing the ambiguous provision. Therefore, in the present facts the Revenue's appeal is required to be dismissed. (xii) In the above view, the admitted substantial question of law is answered in the affirmative i.e. in favour of the respondent assessee and against the Revenue. (xiii) Thus, the Revenue's appeal is dismissed. 8. Income Tax Appeal No.1321 of 2016 (A.Y. 2006 07): (i) This appeal was admitted today on the following two substantial questions of law, for our consideration: (a) Whether on the facts and in the circumstances of the case and in law, the Tribunal justified in confirming the order of the CIT(A) and directing the AO to allow exemption u/s. 10(23C) (iiiab) of the Act without appreciating the fact that the assessee is not wholly or substantially financed by the Govt. in view of explanation to sub section (1) of section 14 of the Comptroller and Auditor General (Duties, Powers and Conditions of Services) Act, 1971 as the total Govt. grant during the year is less that 75% of the total expenditure of the assessee? (b) Whether on the facts and circumstances of the case, the Tribunal was correct in holding Assessment under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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