TMI Blog2016 (4) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, if collection 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 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 situation before us, on facts, is different leading to the irresistible conclusion that the appellant University does not satisfy the second requirement spelt out by Section 10 (23c) (iiiab) of the Act. The appellant University is neither directly nor even substantially financed by the Government 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 ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only for educational purpose and not for profit are no longer res integra, having been dealt with by a long line of decisions of this Court which have been elaborately noticed and extracted in a recent pronouncement i.e. Queen's Educational Society vs. Commissioner of Income Tax (2015) 8 SCC 47. The principles that emanate from the views expressed by this Court are set out in paragraph 11 in Queen's Educational Society (supra), which are extracted below: 11. 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 motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act 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) 6 SCC 697 (paragraph 156) though the percentage of surplus in Islamic Academy of Education (supra) was in the context of the determination of the reasonable fees to be charged by private educational bodies. 9. As against the above, the amount of direct grant from the Government has been meagre, details of which are being noticed separately later in a different context. The University nevertheless has grown and the number of private engineering colleges affiliated to it had increased from about 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 Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utorily prescribed. The rates of such fees are fixed by the Fee Committee of the University or by authorized Government Agencies (in cases of Common Entrance Test). It is, therefore, contended that such receipts must be understood to be funds made available by the Government as contemplated by the provisions of Section 10 (23c) (iiiab) 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 Universities covered by Section 10(23C)(iiiab) funding must be wholly or substantially by the Government whereas in cases of universities covered by Section 10(23C)(iiiad) the aggregate annual receipts should not exceed the amount as may be prescribed. Universities covered by Section 10(23C)(vi) are those other than mentioned in sub-clause (iiiab) or sub-cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly 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) , particularly, the view expressed that the expression wholly or substantially financed by the Government' as appearing in Section 10(23C) cannot be confined to annual grants and must include the value of the land made available by the Government. In the present case the High Court in paragraph 53 of the impugned judgment has recorded that even if the value of the land allotted to the University (114 acres) is taken into account the total funding of the University by the Government would be around 4% - 5% of its total receipt. That apart what was held by the High Court in the above case, while repelling the contention of the Revenue that the exemption under Section 10(23c) (iiiab) of the Act for a particular assessment year must be judged in the context of receipt of annual grants from the Government in that particular year, is that apart from annual grants the value of the land made available; the investment by the G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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