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Visvesvaraya Technological University Versus Assistant Commissioner of Income Tax

2016 (4) TMI 874 - SUPREME COURT

Exemption from payment of tax under the provisions of Section 10(23C)(iiiab) - direct grant from the Government - Purpose of University – Held that:- Having regard to the text and the context of the provisions of Section 10 (23c) (iiiab), 10 (23c) (iiiad) and 10 (23c) (vi) it will be reasonable to reach a conclusion that while Section 10 (23c) (iiiab) deals with Government Universities, Section 10 (23c) (iiiad) deals with small Universities having an annual “turnover” of less than Rupees One Cro .....

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ection of fees is to be understood to be amounting to funding by the Government merely because collection of such fees is empowered by the Statute, all such receipts by way of fees may become eligible to claim exemption under Section 10 (23c) (iiiab). Such a result which would virtually render the provisions of the other two Sub-sections nugatory cannot be understood to have been intended by the Legislature and must, therefore, be avoided. - It will, therefore, be more appropriate to hold th .....

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nt so as to be entitled to exemption from payment of tax under the Act. - Decided against assessee - Civil Appeal Nos. 4361-4366 of 2016 ( Arising out of S. L. P. (C) Nos. 5354-5359 of 2014 ) - Dated:- 22-4-2016 - Ranjan Gogoi And Prafulla C. Pant, JJ. JUDGMENT Ranjan Gogoi, J. 1. Leave granted. 2. The appellant - University, namely, Visvesvraya Technological University (VTU) has been constituted under the Visveswaraiah Technological University Act, 1994 (for short VTU Act ). It discharges funct .....

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Section 10(23C)(iiiab) of the Act. The aforesaid claim of exemption was negatived by the Assessing Officer who proceeded to make the assessments. The same view has been taken by all the Authorities under the Act and also by the High Court in the order under challenge in the present proceedings. 4. The question, therefore, that arises in the present appeals is the entitlement of the appellant - University - Assessee to exemption from payment of tax under the provisions of Section 10(23C)(iiiab) .....

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exemption under Section 10(23C) (iiiab) is subject to two conditions. Firstly the educational institution or the university must be solely for the purpose of education and without any profit motive. Secondly, it must be wholly or substantially financed by the government. Both conditions will have to be satisfied before exemption can be granted under the aforesaid provision of the Act. 6. The relevant principles of law which will govern the first issue i.e. whether an educational institution or a .....

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. Thus, the law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied - the purpose of education should not be submerged by a profit making motiv .....

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er in the concerned assessment year the object is to make profit as opposed to educating persons. 7. To the above principles, one further test as laid down in CIT vs. Surat Art Silk Cloth Manufacturers' Assn. (1980) 2 SCC 31 and culled out in American Hotel and Lodging Association Educational Institute vs. Central Board of Direct Taxes and Others (2008)10 SCC 509 may be added which is as follows: In order to ascertain whether the institute is carried on with the object of making profit or no .....

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is to ignore the language of the section and to ignore the tests laid down in Surat Art Silk Cloth case [CIT v. Surat Art Silk Cloth Manufacturers' Assn.(1980) 2 SCC 31], Aditanar case [Aditanar Educational Institution v. CIT [(1997) 3 SCC 346] and American Hotel & Lodging case [American Hotel & Lodging Assn. Educational Institute v. CBDT [(2008) 10 SCC 509]. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educa .....

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urred for the purposes for which fees were collected is significant. In fact the expenditure incurred represents only a minuscule part of the fees collected. No remission, rebate or concession in the amount of fees charged under the different heads for the next Academic Year(s) had been granted to the students. The surplus generated is far in excess of what has been held by this Court to be permissible (6 to 15%) in Islamic Academy of Education and another vs. State of Karnataka and others (2003 .....

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64 to presently about 194. The infrastructure of the University has also increased offering educational avenues to an increasing number of students in different and varied subjects. Materials have been brought on record before the High Court as well as before this Court to show the several number of work orders/tenders issued by the University for infrastructure expansion. It is emphatically contended by the appellant in the written submissions filed that between 1994 and 2009 the University ha .....

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ds like salary, etc. had not been made the University has thrived and prospered. There can, however, be no manner of doubt that the surplus accumulated over the years has been ploughed back for educational purposes. In such a situation, following the consistent principles laid down by this Court referred to earlier and specifically what has been said in paragraph 19 in Queen's Educational Society (supra), extracted above, it must be held that the first requirement of Section 10(23C) (iiiab), .....

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ity is wholly or substantially financed by the Government which is an additional requirement for claiming benefit under Section 10(23C)(iiiab) of the Act. It is not in dispute that grants/direct financing by the Government during the six (06) Assessment Years in question i.e. 2004-2005 to 2009-2010 had never exceeded 1% of the total receipts of the appellant - University- Assessee. In such a situation, the argument advanced is that fees of all kinds collected within the four corners of the provi .....

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b) of the Act. 11. Universities and Educational Institutions entitled to exemption under the Act have been categorized under three different heads, namely, those covered by Section 10(23C) (iiiab); Section 10(23C)(iiiad) and 10(23C)(vi) of the Act. The requirement of the University or the educational institution existing solely for educational purposes and not for purposes of profit is the consistent requirement under Section 10(23C) (iiiab), 10(23C)(iiiad) and 10(23C)(vi). However, in cases of .....

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the provisions of Section 10 (23c) (iiiab), 10 (23c) (iiiad) and 10 (23c) (vi) it will be reasonable to reach a conclusion that while Section 10 (23c) (iiiab) deals with Government Universities, Section 10 (23c) (iiiad) deals with small Universities having an annual turnover of less than Rupees One Crore (as prescribed by Rule 2 (BC) of the Income Tax Rules). On a similar note, it is possible to read Section 10 (23c) (vi) to be dealing with Private Universities whose gross receipts exceeds Rupe .....

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ible to claim exemption under Section 10 (23c) (iiiab). Such a result which would virtually render the provisions of the other two Sub-sections nugatory cannot be understood to have been intended by the Legislature and must, therefore, be avoided. 13. It will, therefore, be more appropriate to hold that funds received from the Government contemplated under Section 10(23c)(iiiab) of the Act must be direct grants/contributions from governmental sources and not fees collected under the statute. The .....

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...... (b) .................. …..................... (d) by notification issued or order made by the appropriate Government, and includes any (i) …......... (ii) non-Government Organization substantially financed, directly or indirectly by funds provided by the appropriate Government. 14. Reliance has been placed on the judgment of the High Court of Karnataka in Commissioner of Income-tax, Bangalore vs. Indian Institute of Management (2014) 49 Taxmann.com 136 (Karnataka) , particul .....

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