TMI Blog2008 (5) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... cable. From the figures as appearing in the balance sheet, it is clear that the finance has been provided by the Government and it cannot be said that the institute is not substantially financed by the Government. Therefore, we have no hesitation to hold that the institute is substantially financed by the Government. On Perusal of the letter from the Ministry of HRMD to the Director, IIM. It is clear that the revenue generated by the institute belongs 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 and growth. Thus, the fees which are being received and credited in the Consolidated Fund of India are made available to the institute by the Government as per power conferred to the Government under Art. 266(3) of the Constitution. This makes it abundantly clear that finances are provided by the Government. Income of an educational institution is exempt if it is existing solely for educational purposes and wholly and substantially financed by Government u/s 10(23C)(iiiab). In other cases, i.e., if it is not wholly and substantially financed by Government, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of proceedings required the assessee to explain as to how the income is exempt Under Section 10(23C)(iiib) when the grants received from the Government is not substantial because income of University or educational institution is exempt Under Section 10(23C)(iiib) in case University or educational institution is wholly and substantially financed by Government. Before the Assessing Officer, the assessee filed a copy of letter written by HRD Ministry to Director of Indian Institute of Management dated 25th October, 2006 in which it was stated as under:- 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. 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. As per Assessing Officer, the clarification given by the HRO Ministry is not binding on the Income Tax Department and hence, claim of the assessee is not acceptable that its income is exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to go to the I.T.O. time and again to avail the tax exemption. In view of such representation, the Finance Minister w stated in his speech that all educational and medical institutions which are financed and managed by Government will enjoy the benefit of exemption and in respect of other institutions, the exemption was made available if the receipts do not exceed Rs. 1 crore. (b) Exemption in 10(23C)(iiiab) is on finance and not on receipts. The meaning of finance is that after meeting the expenditure from its own income, the balance requirement of funds is met by the Government. Hence; the institute can be said to be substantially financed by Government. (c) The Government exercises fairly good control over the affairs of the institute. Many of the members of the Board of Governors are appointed by the Central and State Government. The Central Government has 42.9% voting right while the State Government has 10.7% voting right. Thus, the Government has more than 50% voting rights which means that institute is being managed by the Government. This is clear from Clause 5, 6, 7 of the Memorandum of Association and these were reproduced as under: Clause-5 The Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 3.8.2007 observed as under: The Assessing Officer himself found that it is an educational institution, which is existing solely for education purpose and not for the purpose of profit. Therefore, the main criteria for the purpose of allowing exemption Under Section 10(23C) have been satisfied and accepted by the Assessing Officer. The Assessing Officer appears to have been confused the other criteria that the institute is only partly financed by the Government; therefore, exemption cannot be granted. The word wholly and substantially has not been explained in the Income-tax Act in relation to exemption Under Section 10(23C) of the Act. In common parlance, it would mean that the educational institution should receive substantial grant from the Government for the purpose of availing benefit Under Section 10(23C) of the I.T. Act. In the present case, we have noticed that substantial grants are being received every year by the institution. It is not required under law that the entire funds required to run the institution has to be granted by the Government. If that is so, the institution cannot charge any fees for the students, that is not the object of the institution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y financed by Government. It does not mean that we have to see the financing in each year. Financed here means that the institute was set with the finances made available by the Government. Such requirement is met in this case. After setting up infrastructure, the institute started imparting education and charged fees as prescribed by Government. The Assessing Officer has taken a very narrow meaning of the word 'financed'. When we say that a particular industry has been financed by a bank, then it means that industry was set up with the finance made available by the Bank. 2.10 Section 14(1) of the CAG's Act, 1971 refers that where a body or authority is substantially financed by grants or loans from the Consolidated Fund of India or of any State or of any Union Territory having a Legislative Assembly, the Comptroller and Auditor General shall, subject to the provisions of any law for the time being in, force applicable to the body or authority, as the case may be, audit all receipts and expenditure audited by hum. In the instant case, audit is done by the office of the Comptroller General of India and this means that the institute is treated as substantially financed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of current liability and provisions. The details have been given in Schedule-VI. Such liabilities represent the earnest money deposit, security deposit, caution money, library deposit refundable and accrued liabilities. From the figures as appearing in the balance sheet, it is clear that the finance has been provided by the Government and it cannot be said that the institute is not substantially financed by the Government. Therefore, we have no hesitation to hold that the institute is substantially financed by the Government. 2.14 We have also perused the letter from the Ministry of Human Resource Development to the Director, Indian Institute of Management dated 24th August, 2006. It is mentioned in this letter that the revenue generated by the Institute 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 and growth. As per Article 266(3) of the Constitution, no moneys out of the Consolidated Fund of India or the Consolidated Fund of State can be appropriated except in accordance with law and for the purpose and the manner provided in the Constitution. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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