Both these appeals have been filed by the assessee against two separate orders of the learned CIT(A)-2. Jodhpur dt. 1st Dec .. 2015 for the asst. yrs. 2009-10 and 2011-12 respectively.
2. The assessee has raised following grounds in its appeal for the asst. yr. 2009-10 in ITA No. 110/Jodh/2016:
"1. That interest receipt from bank amounting to Rs. 16.05.233 was wrongly assessed by the AO and again confirmed by the learned CIT(A) ignoring the fact that the appellant's case is covered under s. 1O(23C)(iiiab) as the appellant's society is totally financed by the Government and its object is not to earn profit.
2. That the first appellate authority has passed the order without considering the submission of the appellant that the reopening of assessment was illegal and without jurisdiction.
3. That the order passed by the learned CIT(A) is perverse and contrary to the existing facts. The learned CIT(A) has wrongly relied on certain case laws which have no relevancy.
4. That learned CIT(A) has wrongly observed in his order that registration under ss. 11 to 13 is necessary to get the benefit of exemption under s. 10(23C) whereas legal position is not so. The CBDT has categorically clarified in its Circular No. 712. dt. 25th July. 1995 wherein it is stated that if a society is eligible for exemption under s. 10(23C) then the provisions of ss. 11.12 and 13 do not apply. This will mean that the registration with the CIT under s. 12A is not necessary as is required in the case of public trust claiming exemption under s. 11. The learned CIT(A) has grossly erred in ignoring this settled legal position."
2.2 Brief facts as emerge from the assessment order are that the assessee AOP filed its return of income for the year under consideration on 9th Feb .. 2010 declaring income at Rs. Nil. It is observed by the AO from the returned income that. the assessee claimed interest income of Rs. 16,05,233 as exempt. The assessee had shown all the other columns, meant for balance sheet and P&L alc as nil. The AO observed that the learned CIT-II granted registration under s. 12A(2) only w.e.f. 3r'd March, 2011 and the assessee's application for grant of registration w.e.f. 1st June, 2007 was rejected. Accordingly, the AO observed that the assessee was not granted registration under s. 12A(2) of the Act for the assessment year under consideration. lience, the assessee is not entitled to claim exemption under ss. 11 and 10(23C) of the Act. The AO thus observed that income of Rs. 16,05,233 was wrongly claimed by the assessee as exempt income which escaped from assessment. The AO therefore, issued notice to the assessee on 29th March, 2012 under s. 148 of the Act for which reply was filed by the assessee. The AO after considering the submissions of the assessee disallowed the claim of interest income of Rs. 16,05,233 by observing as under:
'The assessee has earned interest Rs. 16,05,233 and has utilized nothing against this income. The assessee society is not enjoying benefit of s. 11 or s. 10 of the IT Act, 1961 during the year under consideration. So far as claim of exemption under s. 1O(23C)(iiiad) is concerned, it is noteable that the institute has not carried any activity of education during the year under consideration. It has been held in case of CIT us. Deui Educational Institution (1984) 43 CTR (Mad) 48: (1985) 153 ITR 571 (Mad) that institution must have carried on some educational activity during the relevant year; mere taking of steps for the establishment of the institution will not suffice for claiming exemption under s. 1O(23C). In this view, claim of the assessee, claiming the exemption of interest income Rs. 16,05,233 is hereby disallowed and assessed under the head income from other sources."
2.3 In appellate proceedings, the learned CIT(A) has confirmed the action of the AO by observing as under :
"6.1 I have gone through the facts of the case and submissions of the appellant and I find that the AO disallowed the claim of exemption of interest income of Rs. 16,05,233 by observing that the appellant was not granted registration under s. 12A nor the institution had carried out any activity of education during the year under consideration. The appellant has contested this action of the AO and stated that its income is fully exempt being society covered under s. 1O(23C)(iiiad). I find that in the written submission filed before me, the appellant has diverted the attention towards the fact that it is a society I institution which is imparting education without any profit motive and further stressed that since the institution is wholly and substantially financed by the Government it is eligible for exemption. I find that the appellant has neither touched nor highlighted the fact that why in the year under consideration, claim of exemption of interest income was denied to it. In order to analyze the submission made and issue under reference, it is necessary to look into the relevant provision of ss. 10(23C)(iiiab) and 1O(23C)(iiiad), which reads as below:
..... (iiiab) any university or pther educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially fmanced by the Government; or
(iiiad) any university or other ed1,.l,cational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or ... "
6.1.1..:
6.1.2 ...
6.1.3 It may be clarified that provisions of s. 10(22) are analogous to the provision of s. 1O(23C). Decision in the case of CIT VS. Saraswath Poor Students Fund (1985) 46 CTR (Kar) 107 : (1984) 150 ITR 142 (Kar), CIT VS. Maharqja Sawai Man Singhyi Musseum Trust (1987) 65 CTR (Raj) 46 : (1988) 169 ITR 379 (Raj), and Rao Bahadur A.K.P. Dharamraja Fdu.cation Charity Trust VS. CIT (1990) 182 ITR 80 (Mad) are also applicable to some extent to the facts of the present case. The ratio of these decisions stated that trust established with the aim of imparting education and where the educational institution was not yet established, the trust was not entitled to exemption under s. 10(22). In the instant case, the appellant failed to point out any educational activities carried out during the year under consideration.
6.1.4 The appellant's submission may have come into play or consideration, if it had satisfactorily explained or demonstrated that educational activities were carried out during the year under consideration and it was only due to technical reason that its claim or exemption of interest income is denied. To get benefit of ss. 11 to 13, the institution must be registered under s. 12A(a) but right now the foundation does not have any such registration. Thus, it is not eligible for benefits of ss. 11 to 13.
6.1.5 Though the appellant claimed that its activities' is wholly and exclusively for educational purpose, the AO after examining the issue concluded that during the year no educational activities were carried out by the appellant. I also find that the during the year under consideration, the appellant has shown receipt of Rs. 16,05,233 being interest income. No other receipt has been shown by the ,appellant which, irrefutably buttresses the conclusion drawn by the AO that during the year under consideration, no educational activities were carried out. In fact, the appellant totally failed to demonstrate that it had engaged in any activity that would render him eligible for exemption under this provision viz. provided education by charging less fees in comparison to other commercial institute. free admission/concession rate for economical weaker students, scholarship to the needy students, facility of providing books and other teaching material on lower rates, hostel facilities on concessional rates, special provisions for girls specially from weaker section, efforts to provide and spread education to rural areas, etc. etc.
6.1.6 It may be noted that learned CIT-2, Jaipur had also found that the activities of the appellant society were not of educational nature and denied the grant of registration w.e.f. 1st June, 2007 after detailed discussion and reasons assigning for not accepting the application. Further, it is admitted fact that no registration under s. 10(23C) has been granted to the appellant by prescribed authority.
In view of the above facts and discussion,' it is held that the AO rightly denied the claim of exemption of interest income to the tune of Rs. 16,05,233. The grounds raised in this regard arc dismissed."
2.4 During the course of hearing, the learned Authorised Representative prayed that the lower authorities have erred in denying the claim of exemption of interest income to the tune of Rs. 16,05,233. The case relied on by the assessee have been taken into consideration.
2.5 The learned Departmental Representative relied on the orders of the lower authorities.
2.6 I have heard the rival contentions and perused the materials available on record. It is noted from the assessment order wherein the AO observed that the assessee was not granted registration under s. 12A(2) of the Act for the year under consideration. Hence, the assessee was not entitled to claim exemption under S8. 11 and 10(23C) of the Act. The AO thus observed that the interest income of Rs. 16,05,233 was wrongly claimed by the assessee' as exempt income which escaped from assessment. In appellate proceedings, the learned CIT(A) confirmed the action of the AO. It is further noted from records available before me that this institution came into existence by memorandum of agreement signed by the Director/Joint Secretary for and on behalf of the President of India, Principal Secretary, Technical Education Deptt. of Government of Rajasthan, Chairman, IMC on behalf of the industrial partners. This agreement was executed on 20th Feb., 2008. This "Memorandum/ agreement" has a binding instruction which has to be followed by all the three pillars who had signed this agreement. It is further noted from the records that the assessee is not free to utilize the funds allotted by the Government, but it is mandatory to follow the terms and instructions as laid down in the memorandum of agreement. It is further noted that Rs. 2.50 crores was received from the Directorate General of Employment and training, Ministry of Labour and Employment, Government of India, New Delhi vide its letter dt. 12th March, 2008 and as per the terms of agreement the amount was deposited in the nationalized bank. This deposit earned inte&st from the bank and this amount was utilized for the purpose of utilization of fund as per memorandum of association and rules and regulations of the society. It is also noted from the records that the society is having no other fund except the grant by the Central Government and interest earned from that fund. The assessee also submitted it had neither received a single paise from any private entity nor in the form of donation. I have also taken into-consideration the case laws relied on by the learned Authorised Representative of the assessee in which the Hon'ble High Courts and Tribunal have given their verdicts relating to the issue in question in favour of the assessee which are reproduced as under:
(1) CIT vs. National Law School of India University (IT Appeal No. 483 of 2009, dt. 18th July, 2016) (Karnataka H.C.). The Hon'ble Karnataka High Court in this case observed as under:
"4. In that view of the matter, the findings of the Tribunal that the assessee is subsequently financed by the Government and therefore, the assessee is entitled to the benefit of exemption under s. 10(23C)(iiiab) of the IT Act, cannot be found fault with. Therefore, the substantial question of law is answered in favour of the assessee and against the Revenue."
(2) Akali Baba Phool Singh Educational Trust vs. Dy. Director of IT (Exemption) (2011) 43 SOT 700 (Del). The Tribunal Delhi Bench in this case observed as under:
"(6) We have considered the rival submi6sions, perused the material on record and have gone through the orders of authorities below. We find that penalty in the present case was imposed by the AD under s. 272A(e). As per'the provision of s. 273B, any penalty' imposed by the AD under sub-so (2) of s. 271A is not imposable if the assessee proves that there was reasonable cause for the said failure. Penalty under S. 272A(2)(e) is imposable if the assessee fails to furnish the return of income, which he is required to furnish under sub-so (4A) of s. 139. It is the submission by the learned Authorised Representative for the assessee that the assessee was under the bona fide belief that its income is exempt under s. 10(23C)(iiiab] and for this reason, the assessee was not required to file the return of income and the provisions of sub-so (4A) of s. 139 are not applicable to the assessee. When we examine the provisions of sub-so (4A) of S. 139, we find that there is no specific reference to those assessees who are covered by the provision of S. 1O(23C)(iiiab). In this section, reference has been made to ss. 11 and 12. In addition to this reference was made to those assessees also who have income from voluntary contributions referred to in sub-cl. (iia) of cl. (24) of S. 2 as has been pointed out by the learned Departmental Representative. When we examine the provisions of sub-so (iia) of sub-so (24) of s. 2, we find that reference has been made to various other clauses of sub-so (23C) of S. 10. Under this factual position, we are of the considered opinion that it has to be accepted that there was reasonable cause on which the assessee might be having a bona ftd.e belief that the provisions of S. 139 (4A) are applicable to it and hence the penalty imposed by the AD is not justified. We, therefore, delete the same in both the years."
(3) CIT vs. Indian Institute of Management, dt. 17th June, 2014 [reported at (2015) 275 CTR (Kar) 424: (2015) 115 DTR (Kar) 251-Ed.]. The Hon'ble High Court in this case observed as under :
"(7) The facts of this case and the material on record clearly establish that the assessee is wholly or substantially financed by the Government and therefore, the assessee is entitled to the benefit of exemption under S. 10(23C)(iiiab) of the Act. In that view of the matter, the substantial question of law which was framed is answered in favour of the assessee."
(4) Director of IT (Exemptions) & Anr. vs. Dhamapakasha Rqjakarya Prasakta B.M. Sreenivasaiah Educational Trust (2015) 372 ITR 307 (Kar), oider dt. 16th Jan., 2015. The Hon'ble High Court in this case observed as under:
"(5) Insofar as the claim of the assessee under S. 10(23C)(iiiab) of the Act is concerned, the material on record discloses that the Government has financed the institutions and their share is roughly about 25 per cent. It is not in dispute that the assessee is carrying on its activities of imparting education. It is not existing for the sake of profit-making. When 25 per cent, of the finance to the assessecinstitutions flows from the Government it constitutes the substantial finance and, therefore, it has satisfied all the legal requirements provided under s. 10(23C)(iiiab) of the Act. In fact, this Court had an occasion to consider the said question in the case of CIT vs. Indian Institute of Management (2015) 275 CTR (Kar) 424 : (2015) 115 DTR (Kar) 251 : (2015) 370 ITR 81 (Kar) and a finance to the extent of more than 10 per cent of the total finance would constitute substantial finance and, therefore, the finding recorded by the Tribunal that the assessee is entitled to the benefit exempted under S. 10(23C)(iiiab) of the Act cannot be found fault with
6. In the light of the aforesaid findings, in our view, it is unnecessary to go into the question whether the assessing authorities were justified in reopening the assessment and there was sufficient reasons and whether the assessee is entitled to the benefit under S. 11 of the Act also. Accordingly, we pass the following order:
Appeals are dismissed."
(5) Ganapathy Educational Trust us. Asstt. Director of IT (Exemption) (2013) (Chennai.)-order dt. 25th June, 2013. In this case, Tribunal ,Chennai Bench observed as under:
"(18) Since we have held that the assessee is eligible for daiming exemption under the provisions of s. 10(23C)(iiiab}, it is not mandatory for the assessee to seek registration under the provisions of s. 10(23C}(vi}. Be that as it may, the assessee had applied for registration in the year 2002. nothing was communicated to the assessee regarding the rejection or allowing application of the assessee for registration. The assessee cannot be held responsible for the inaction of the Department, if the Department is in slumber, the assessee cannot be faulted.
(19) Thus, in view of the aforesaid findings, the appeal of the assessee is partly allowed in the aforesaid terms."
(6) Sikkim Manipal University us. Asstt. CIT, ITA Nos. 1227 to 1238/Kol/2011. Asst. yrs. 2004-05 to 2007-08, order. dt. 29th Nov., 2011 [reported at (2012) 148 TTJ (Kol) 645 : (2012) 71 DTR (Kol)(Trib) 78Ed). In this case, Tribunal. Kolkata Bench observed as under:
"As the institution is substantially financed by the Government of Sikkim (Rs. 23.37 crores) and by the Deptt of North-Eastern Council of India to the extent of Rs. 4.78 crores, the case of the assessee is covered by the provisions of s. 1O(23C}(iiiab} of the IT Act. The application in Form No. 56D seeking approval under s. 10(23C)(vi} is misconceived as assessees "other than those mentioned in sub-d. (jiiab) or sub-d. (iiiad)" only can apply.
We find from the above order of Chief CIT, who has not granted approval under cl. (vi) only because he found that the assessee was substantially financed by the Government and therefore, its case was covered under cl. (jiiab). On one hand, Chief CIT could not granted approval under sub-d. (vi) because assessee was covered under sub-d. (jiiab). on the other hand, the AO and CIT(A} have held that assessee is not covered under sub-d. (jiiab). This has created a very anomalous situation. Revenue as a whole should not be permitted to blow hot and cold in the same breath"
(7) Senate of Serampore Collage us. Jt. CIT (ITA Nos. 1677 & 1678/Kol/2012 for the asst. yrs. 2009-10 and 2010-11), date of order 14th Oct., 2014. In this case, Tribunal, Kolkata Bench observed as under:
"7. As regards to the second issue, it was the contention of the learned counsel that the Serampore College exists solely for the purpose of education and not for the purpose of profit. Even if running of an institution leads to some surplus but the said profit is accumulated or ploughed back for the purpose and objects of the institution, its deemed as existing not for the purpose of profit. He argued that the Serampore College fulfils wholly, both these requirements as existing solely for the purpose of education and not for the purpose of profit. According to him therefore, the College is covered and entitled to exemption under s. 1O(23C)(iiiab) of the IT Act, 1961 as the provisions of s. 1O(23C)(iiiab) provides that any university or other institution education existing solely for educational purpose and not for the purpose of profit, and which is wholly or substantially financed by the Government. We are of the view that the argument of learned counsel that 'The Seryp-ore College" will fall under the category of 'other educational intuition ' under s. 10(23C) and will be exempt under cl. (iiiab) , since it exixts solely for educational purpose and not for the purpose of profit, as no part of the profit or surplus is diverted for private gain. But only, condition to be examine factually is that, whether, on consolidation of the income expenditure accounts of 4 units of the Serampore College for relevant assessment year, can it be held that the college was substantially financed by the Government during the year as per provisions of the Act or not. Thus only fact to be determined is that whether, the Serampore College is substantially financed by the Government or not? In case the finding comes that the college is financed substantially then it is covered by the s. 1O(23C)(iiiab) of the Act and is eligible for exemption. The Serampore College will then legally be governed by s. 10(23C)(iiiab) of the Act for its entire income including income of 'Senate of Serampore College'. The CIT(A) as well as the AO has not examined the claim as regards to the source of finance Le. substantii:Hly financing by the Government or riot, so as to eligibility' of the claim of exemption under s. 1O(23C)(iiiab) of the Act, even though Chief CIT rejected the application for registration under s. 1O(23C)(via) of the Act. The CIT(A) as well as the AO both, totally failed to consider whether the assessee is covered under s. 10(23C)(iiiab) of the Act or not, as is both were duty-bound to consider the claim and examine the same. The mere rejection of application 1O(23C)(via) of the Act cannot be reason to reject the'c1aim of exemption under s. 10 (23 C)(iiiab) of the Act. Learned counsel/ for the assessee relied on the proposition laid down by the Hon'ble Bombay High Court in the case of CIT us. Parle Plastic Ltd. & Anr. (2010) 236 CTR (Bom) 382: (2010) 48 DTR (Bom) 7: (2011) 332 ITR 63 (Bom)-Panaji Bench and referred the same for the meaning of 'Substantial' He also relied on the of Tribunal, Bangalore Berth in the case of ITO us. National Educational Society in ITA Nos. 472 and 472/Bang/2009, of Mumbai Bench 'E' in Senate of Serampore College asst. yrs. 2009-10 to 2010-11, Tribunal in the case of Asstt. Director Exemption) vs. Viue ducation Society in ITA No. 5896/Mum/2011, 17th Dec., 2012, of Delhi Bench of this Tribunal in the case of Vivek Education Society vs. ITO in ITA No. 2542 and 2543/Del/2011, dt. 19th July, 2013 and of Chennai 'B' Bench of this Tribunal in the case of Ganapathy Education Trust us. Asstt. Director of IT (Exemption) in ITA No. 159/Mad/2013, 25th June, 2013, wherein, in all orders, the meaning of substantion by financed by the Government' is discussed. The AO is directed to consider these case laws and also any other case law of Hon'ble Supreme Court or any High Court available at the point of decision, and decide the same, whether the assessee's case falls in the category of 'wholly or substantially financed by the Government'. In terms of the above, these two appeals of assessee are set aside to the file of the AO. Appeals of ass~ssee are allowed for statistical purposes."
2.7 Considering the entirety of the facts and circumstances of the case, it is noted that the assessee institute is financed by the Central Government and the amount granted by the Government is deposited in the nationalized bank. The interest so received by the institute from the bank is utilised for the purpose of institute as per memorandum of association and rules and regulation of the society. Taking into consideration of the above decisions as well as facts of the case, it is observed that the assessee institute is covered and entitled to exemption under s. 10(23C)(iiiab) of the IT Act, 1961 as the provisions of s. 1O(23C)(iiiab) provides that any income received by any university or other institution education existing solely for educational purpose and not for the purpose of profit. and which is wholly or substantially financed by the Government is not includable in the total income. In this view of the matter, the appeal of the assessee is allowed.
3.1 Now the grounds of the appeal of the assessee in ITA No. Jodh/2016 are taken for adjudication as under:
"1. That 'interest receipt from bank amounting to Rs. 22,87,182 was wrongly assessed by the AO and again confirmed by the learned CIT(A) ignoring the fact that the appellant's case is covered under s. 10(23C)(iiiab) as the appellant's society is totally financed by the Government and its object is not to earn profit.
2. That the first appellate authority has passed the order without considering the submission of the appellant that the reopening of assessment was illegal and without jurisdiction.
3. That the order passed by the learned CIT(A) is perverse and contrary to the existing facts. The learned CIT(A) has wrongly relied on certain case laws which have no relevancy.
4. That learned CIT(A) has wrongly observed in his order that registration under ss. 11 to 13 is necessary to get the benefit of exemption under s. 1O(23C) whereas legal position is not so. The CBDT has categorically clarified in its Circular No. 712, dt. 25th July, 1995 [(l995) 127 CTR (St) 21 wherein it is stated that if a society is eligible for exemption under s. 1O(23C) then the provisions of ss. 11,12 and 13 do not apply. This will mean that the registration with the CIT under s. 12A is not necessary as is required in the case of public trust claiming exemption under s. 11. The learned CIT(A) has grossly erred in ignoring this settled legal position."
3.2 I have heard the rival contentions and perused the materials available on record. It is noted that the appeal of the assessee for the asst. yr. 2009-10 in ITA No. 110/Jodh/2016 has been allowed. Since the grounds of appeal of the assessee for the asst. yr. 2010-11 are same, therefore, the decision as taken in the asst. yr. 2009-10 shall apply mutatis mutandis in the asst. yr. 2010-11 of the assessee's appeal. Hence, this appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed .