TMI Blog2010 (4) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... r. (1) The learned Commissioner of Income-tax (Appeals)-I, Pune, erred in confirming reopening of the assessment under section 147 of the Income-tax Act. (2) The learned Commissioner of Income-tax (Appeals)-I, Pune, erred in denying the exemption under section 10(23)(iiiab) as claimed by the appellant in the return of income. (3) The learned Commissioner of Income-tax (Appeals)-I, Pune, erred in denying the exemption under section 11 of the Income-tax Act, as the appellant fulfils the condition laid down by that section. (4) The learned Commissioner of Income-tax (Appeals)-I, Pune, erred in denying the exemption on the ground of mutual benefit association to the assessee." Briefly stated about the back ground of the appellant, the assessee is a co-operative society registered under the Maharashtra State Co-operative Societies Act, 1960 and filed its return of income on September 30, 2003. On finding that this is a fit case for issue of notice under section 147, the Assessing Officer reopened the assessment after recording the reasons, which are as under: "The assessee has filed return of income for the said assessment year on September 30, 2003 disclosing income of nil. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative movement during the period of the father of the nation and, therefore, the main object of the assessee is to educate the people of India on the co-operative movement. Regarding finances to the trust, the assessee submitted that by virtue of section 68 of the Maharashtra Co-operative Societies Act, every other member-society should mandatorily contribute annually towards the education fund of the assessee as per the sums prescribed in the notification issued by the State Government. Such contributions to the education fund of the assessee are the sources of finance for the assessee-Sangh. Admittedly, the Sangh does not receive any funds or grants from the Government directly. As per the assessee, in brief, such supply of finance indirectly by way of mandatory contributions by the member co-operative societies by virtue of legislation, i.e., section 68 of the Maharashtra Co-operative Societies Act, meets the requirement of the said expression "financed by the Government" used in section 10(23C)(iiiab) of the Income-tax Act. The Commissioner of Income-tax (Appeals) did not approve of the said submission of the assessee for the reasons mentioned in paragraph 3.3 of the impugned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, its claim for exemption under section 10(23C)(iiiab) is not justified on the facts and is not in accordance with the law. This ground of appeal, therefore, fails." Aggrieved with the same, the assessee filed an appeal before the Tribunal. At the outset, learned counsel for the assessee did not press ground No. 1 relating to the jurisdiction of the Assessing Officer in invoking the provisions of section 147 of the Act and, therefore, ground No. 1 is dismissed as not pressed. In connection with grounds Nos. 2 and 3 relating to the denial of the exemption under section 10(23C)(iiiab) to the trust, learned counsel substantially relied on the submissions made by the assessee before the Revenue authorities. Relying on the paper book filed before us, learned counsel for the assessee stated that the assessee is not only registered under Maharashtra State Co-operative Societies Act, but also notified by the State Government to receive the funds through the other members of the cooperative societies. Further, counsel relied on the provisions of section 68 of the Maharashtra State Co-operative Societies Act and stated that it is compulsory for co-operative society to contribute edu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession in the decision of the Bangalore Bench of the Incometax Appellate Tribunal in the case of Deputy Director of Income-tax (Exemptions) v. Indian Institute of Management reported in [2009] 313 ITR (AT) 79 ; [2009] 120 ITD 351, learned counsel is of the opinion that the same is inapplicable to the facts of the case. However, the learned Departmental representative filed a written note and the relevant paragraph 2 of the said note reads as under : "The definition of the word `financed' has been explained with the help of the definition provided in Law Lexicon and Webster's New International Dictionary wherein meaning has been mentioned as `pecuniary resources of Government'. However, the hon'ble Incometax Appellate Tribunal, Bangalore has understood the `financed' as the management of larger amounts of money by the Government. The word `financed' has been related to balance-sheet and not to the profit and loss account The hon'ble Income-tax Appellate Tribunal Bangalore has decided the case in favour of IIM Bangalore on the following points. (1) The balance-sheet shows the receipts of government finance ; (2) The education institution charged fees as approved by the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute on the fact that the assessee did not receive any finance directly from the Government in the form of loans or advances or funds or grants or subsidy or otherwise. The annual accounts do not indicate any such entries in the assessee's books of account. Further it is an admitted position that the source of the finance is the member co-operative societies and a few individuals too. Further, it is also an admitted fact that (i) the assessee has not received any direct finance from the Government ; and (ii) however, the Government provided the finance to the assessee by way of making of a legislation, which cast statutory responsibility on the member societies by way of compulsory contributions to the education fund of the assessee. Thus, the dispute essentially revolves around the issue, if such indirect financing meets the requirements of the expression "financed by the Government". In the background of the above, we have examined the relevant provisions of the clause 10(23C)(iiiab) of the Act. The said clause (iiiab) reads as follows : "any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dispute and the same read as under : "As per Directive Principles of the State Policy mentioned in article 41 of the Constitution, it is the duty of the Government not only to establish educational institutions but also to effectively secure the right to education, by admitting students to the seats available in such institutions. Such obligation may be discharged through the Stateowned institutions or the State recognized institutions. The IIMs are the institutes established by the Centre and are commonly known as Central institutions. Such institutions are necessary so that higher education is made available to persons who are not able to afford the cost of higher education as charged by the private or unaided institutions. (para 2.7) It was clear from the facts as stated by the Commissioner Appeals) in his order that the assessee had been set-up and managed by the Government. There was excess of expenditure over income. The educational institution charged fee as approved by the Government and deficit, if any, was to be met through grants. This was sufficient to conclude that the institute was substantially financed by the Government. (para 2.8) The requirement under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in holding that income of the assessee was exempt under section 10(23C)(iiiab) and, therefore, the appeal of the Revenue was to be dismissed. (para 2.17)" On perusal of the above, we find that the issue in the said case revolves around the fact if the IMM is wholly or substantially financed by the Government or not on the facts that the IMM is built by the finances of the Government in the beginning and maintained and operated by the self generated resources like fees, etc., raised from the students in subsequent years. After examining the facts, the Bangalore Bench of the Tribunal decided the issue in favour of the IMM and held the expression finance used in the said clause relates to the balance-sheet. Whereas in the instant case, where the Government has not given any finance directly either in the beginning and latter years, the core issue is if the finances received by the assessee from the member co-operative societies by way of compulsory subscriptions in accordance with a State legislation tantamount to `financed by the Government or not'. Thus, the issues are different and the facts of these cases are also different. However, in the case of IMM, the Government undisp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such failure to the Registrar, the Registrar shall, after making such inquiry as he deems fit, grant a certificate for recovery of the amount due as an arrear of land revenue." The above section predominantly aimed at financing the funds to the assessee the federal society annually and in accordance with sub-section (1), every other society is under statutory obligation to contribute to notified education fund of the State federal society as per the rates prescribed. Sub-section (2) provides for the time limitation for such contributions by the member societies. Finally, sub-section (3) specifies the recovery procedure in case of failures by the member contributing societies and accordingly, the Registrar, Co-operative Department is empowered to recover the contributions as `an arrear of land revenue' by issuing a certificate of recovery. It is also relevant to mention that there is need for understanding the ingredients of the co-operative movement and the need for autonomy both in matters of finance as well as in day to day running of the connected institutions of this movement. Rules of the co-operative movements are different and they include that the movement must be ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight of the above, in the factual context of the indirect payment met out of the allocated funds and also on the liberal interpretation of the expression "payment by a Contracting State", we have also perused the decision of the Authority for Advance Rulings (Income-tax) New Delhi, in the case of Small Business Corporation, Liaison Office in India, In re [2008] 305 ITR 381 and find held as under (page 385):" The fundamental requirement of article 20(1)(a) is that the remuneration should be paid by the Contracting State. Even if it is paid out of funds allocated by the Government to the applicant specifically towards personnel expenses, the requirement of article 20(1) is, in our view, satisfied. It is as good as payment by the State itself. The expression `payment by a Contracting State' ought not to be given a rigid or literal interpretation so as to cover the payments made directly by Government or a Department of the Government. Even if the payment is made out of the State's funds set apart for that purpose, the requirement of article 20(1)(a) will be attracted and the Indian income-tax cannot be levied in such a case." Thus, the expression "financed by the Government" invol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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