Sikkim Manipal University, Sikkim v. ACIT, Circle - Gangtok, Sikkim, Gangtok

ITA 1227/KOL/2011 | 2004-2005
Pronouncement Date: 29-11-2011 | Result: Allowed

Appeal Details

RSA Number 122723514 RSA 2011
Assessee PAN AAAJS1172K
Bench Kolkata
Appeal Number ITA 1227/KOL/2011
Duration Of Justice 2 month(s) 6 day(s)
Appellant Sikkim Manipal University, Sikkim
Respondent ACIT, Circle - Gangtok, Sikkim, Gangtok
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 29-11-2011
Assessment Year 2004-2005
Appeal Filed On 22-09-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE /AND . ! . '# ) [BEFORE HONBLE SRI MAHAVIR SINGH JM & HONBLE SHR I C. D. RAO AM] $ $ $ $ /IN I.T.A NOS. 1227 TO 1230/KOL/201 1 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEARS: 2004-05 TO 2007-08 SIKKIM MANIPAL UNIVERSITY VS. ASSISTANT COMMISSI ONER OF INCOME-TAX (PAN-AAAJS 1172 K) CIRCLE-GANGTOK SIKKIM (*+ /APPELLANT ) ( -*+/ RESPONDENT ) DATE OF HEARING: 03/11/2011 DATE OF PRONOUNCEMENT: 29/11/2011 *+ . / ' /FOR THE APPELLANT: SHRI S. K. TULSIYAN -*+ . / ' /FOR THE RESPONDENT: SHRI D. R. SINDHAL '0 / ORDER PER MAHAVIR SINGH JM/ : THESE FOUR APPEALS BY ASSESSEE ARE ARISING OUT OF C OMMON ORDER OF CIT(A) SILIGURI IN APPEAL NOS. 36 TO 39/CIT(A)/SLG/10-11 DATED 05.09.2 011. ASSESSMENTS WERE FRAMED BY ACIT CIRCLE-GANGTOK SIKKIM U/S.143(3)/147 OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 2004-05 TO 2007-08 VIDE HIS DIFFERENT ORDERS DATED 29.12.2010. SINCE FACTS ARE COMMON AND GROUNDS ARE EXACTLY IDENTICALLY WORDED FOR THE SAKE OF BREVITY WE DISPOSE OF ALL THESE APPEALS BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE UNIVERSITY HAS RAISED FOLLOWING COM MON GROUNDS IN ALL FOUR YEARS WHICH ARE COMMON HENCE GROUNDS FROM ONE APPEAL ARE BEING REPRODUCED:- I. THAT AS ALL THE CONDITIONS PRESCRIBED IN SECT ION 10(23C)(IIIAB) OF THE I.T. ACT WERE SATISFIED THE LD.CIT(A) ERRED IN NOT EXEMPTING THE INCOME OF THE APPELLANT IN TERMS OF THE SAID SECTION. 1(A). THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND SPECIALLY IN VIEW OF THE DIRECTION OF THE HONBLE TRIBUNAL TO THE LD. CIT S ILIGURI TO GRANT REGISTRATION TO THE APPELLANT U/S.I2AA OF THE I.T. ACT THE LD. CIT(A) ERRED IN HOLDING THAT THE APPELLANT- UNIVERSITY DID NOT EXIST SOLELY FOR EDUCATIONAL PUR POSES BUT FOR MAKING PROFIT. 1(B). THAT THE LD. CIT(A) ERRED IN HOLDING THAT TH E APPELLANT UNIVERSITY WAS NOT SUBSTANTIALLY FINANCED BY THE GOVERNMENT AS REQUIRE D U/S. 10(23C)(IIIAB) OF THE I.T. ACT. 1(C). THAT WHILE HOLDING THAT THE APPELLANT WAS NO T SUBSTANTIALLY FINANCED BY THE GOVERNMENT BOTH THE LD. A.O. AND THE CIT(A) ERRED IN COMPARING EACH YEARS GOVERNMENT GRANT WITH ITS GROSS RECEIPT FROM TUITIO N FEES ETC. INSTEAD OF TAKING INTO ACCOUNT THE TOTAL GOVERNMENT GRANT FROM THE BEGINNI NG TILL DATE. 2 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 1(D). THAT THE LD. CIT(A) ERRED IN OBSERVING THAT THE LAND PROVIDED BY THE STATE GOVERNMENT TO THE APPELLANT-UNIVERSITY DID NOT FORM PART OF SUBSTANTIAL FUND BY THE GOVERNMENT. 1(E). THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN OBS ERVING THAT SINCE THE RECEIPT AND APPLICATION OF THE SUM OF RS.3 0.00 CRS. GIVEN TO T HE APPELLANT-UNIVERSITY WERE NOT REFLECTED IN ITS ACCOUNTS THE SAME COULD NOT BE PA RT OF THE TOTAL FUNDING BY THE GOVERNMENT TO IT. 1(F). THAT WHILE REJECTING THE APPELLANTS CLAIM O F EXEMPTION OF ITS INCOME BOTH THE LD. A.O. AND THE CIT(A) ERRED IN IGNORING THE FINDINGS OF THE LD. CIT JALPAIGURI THAT THE APPELLANTS CASE IS COVERED BY SECTION 10(23C)(IIIA B) OF THE ACT. 3. THE BRIEF FACTS OF THIS CASE ARE THAT ASSESSEE IS A UNIVERSITY AND IT DID NOT FILE ITS RETURNS FOR ASSESSMENT YEARS 2004-05 TO 2007-08 VOLUNTARILY BUT FILED IN RESPONSE TO NOTICE U/S. 148 OF THE ACT ON 08.10.2009 AFTER CLAIMING INCOME AS EXEM PT U/S. 10(23C)(VI) OF THE ACT AS ACCRUING TO THE ASSESSEE FROM PRINCIPAL ACTIVITY OF EDUCATIO N. THE AO SUBSEQUENTLY ISSUED NOTICES U/S. 143(2) AND 142(1) OF THE ACT. THE UNIVERSITY HOWE VER FILED REVISED RETURNS OF INCOME FOR ALL THESE FOUR ASSESSMENT YEARS ON 17.08.2010 CLAIMING EXEMPTION U/S. 10(23C)(IIIAB) OF THE ACT IN VIEW OF THE REASON THAT THE THIS UNIVERSITY IS EXEM PT U/S. 10(23C)(IIIAB) OF THE ACT VIDE ORDER DATED 12.07.2010 ISSUED BY CCIT JALPAIGURI U/S. 10 (23C) OF THE ACT. THE AO AFTER CONSIDERING THE PROVISIONS OF SECTION 10(23C) OF THE ACT NOTED THAT ASSESSEES MOTIVE IS TO MAKE PROFIT FROM EDUCATIONAL ACTIVITIES FOR THE REASON THAT THE UNIV ERSITY HAS PLOUGHED IN HUGE AMOUNT OF FUND THROUGH SECURED LOANS AND LOANS FROM OTHER ORGANIZA TIONS WHICH STANDS AT A SHOPPING AMOUNT OF OVER 120 CRORE AS AGAINST GRANT-IN-AID OF JUST RS.2 .09 CRORE OF WHICH RS.2.06 CRORE WAS RECEIVED FROM THE STATE GOVERNMENT. THE AO ALSO NOT ED THAT EVEN THE INSTITUTION CANNOT BE ACCORDED ANY BENEFIT OF UNDERTAKING ANY CHARITABLE ACTIVITY AND CLAIMED TO BE AN INSTITUTION SOLELY EXISTING FOR CHARITABLE PURPOSES AND NOT FOR THE PURPOSE OF PROFIT AS REQUIRED UNDER SECTION 20(23C)(VI) OF THE ACT. THE AO NOTED THAT EVEN REGISTRATION U/S. 12AA OF THE ACT W.E.F. 19.10.2010 AND THE EFFECT OF REGISTRATION U/S. 12AA OF THE ACT CANNOT BE GIVEN RETROSPECTIVELY. ACCORDING TO HIM REGISTRATION GRANTED U/S. 12AA OF THE ACT VIDE DATED 19.10.2010 IS APPLICABLE ONLY FOR AND FROM F.Y. 2010-11 AND SUBSEQUENT FINAN CIAL YEARS. HE FURTHER NOTED THAT ASSESSEE UNIVERSITY DID NOT APPLY AND OBTAIN APPROVAL U/S. 1 0(23C) OF THE ACT AND ACCORDING TO HIM APPLICATION DATED 29.07.2009 TO CCIT SEEKING APPROV AL U/S. 10(23C)(VI) OF THE ACT WAS REJECTED VIDE ORDER U/S. 10(23C) OF THE ACT DATED 12.07.2010 . THE AO ALSO REJECTED THE CLAIM OF THE ASSESSEE U/S. 10(23C)(IIIAB) OF THE ACT BY HOLDING THAT THE ASSESSEE UNIVERSITY IS NOT WHOLLY OR 3 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 SUBSTANTIALLY FUNDED BY THE GOVERNMENT AND GRANT IN AIDS PROVIDED BY THE STATE GOVERNMENT OF SIKKIM FOR THE YEAR ENDING IS ONLY 2.06 CRORE. ACC ORDING TO HIM THIS IS SUPPLEMENTED BY GRANT OF RS.331 331/- BY ENTREPRENEURS DEV. FUND RS.28 9 04/- BY CSIR PROJECT FUND AND RS.90 248/- BY STUDENTS BENEVOLENT FUND. ACCORDIN G TO HIM TOTAL GRANT IN AIDS FROM THE STATE GOVERNMENT AND OTHER AGENCIES COME TO RS.2.10 CRORE WHICH IS A LOWLY 2% OF THE GROSS RECEIPTS RECORDED BY THE UNIVERSITY DURING THE FINA NCIAL YEAR UNDER SCRUTINY. ACCORDING TO AO THIS IS NOT A GOVERNMENT ORGANIZATION AND EVEN RECE IPTS COLLECTED BY INSTITUTION ARE NOT DEPOSITED OF STATE GOVERNMENT AND EVEN EXPENSES INC URRED IS ALSO NOT REGULATED BY STATE GOVERNMENT. HENCE ACCORDING TO AO THE ASSESSEE DO ES NOT SATISFY THE CONDITIONS EITHER OF SECTION 10(23C)(VI) OR 10(23C)(IIIAB) OF THE ACT. AND HE DISALLOWED THE EXEMPTION CLAIMED BY ASSESSEE IN ALL THESE YEARS ON THE SAME PREMISE. A GGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) ALSO CONFIRMED THE ACTION OF AO A ND CONCLUDED AS UNDER: CONCLUSION: A. THE FOREGOING DISCUSSION MADE IT CLEAR THAT THE ASS ESSEE UNIVERSITY IS NOT EXISTS SOLELY FOR THE PURPOSE OF EDUCATION. THE HOSPITAL AND THE OPE N UNIVERSITY OF THE ORGANIZATION ARE NOTHING BUT COMMERCIAL VENTURE. THE ASSESSEE IS CH ANGING NORMAL RATE FOR PROVIDING MEDICAL FACILITIES TO THE ORDINARY PATIENTS LIKE A PRIVATE HOSPITAL. THUS SOLE PURPOSE OF THE ORGANIZATION IS NOT ENGAGED ONLY TO PROVIDE EDUCATI ON BUT ALSO FOR THE PURPOSE OF PROFIT. B. SECONDLY THE AFORESAID DISCUSSION MADE IT CLEAR TH AT THE ORGANIZATION IS NOT SUBSTANTIALLY FINANCED BY GOVT. THE CONTRIBUTION MADE BY THE STA TE GOVT. AT THE BEGINNING WAS MEAGER IN COMPARISON TO THE TOTAL FUN DING TO RUN THE ORGA NIZATION. IT IS FOUND FROM THE DETAILS FILED BY THE LD. ARS THAT THE ANNUAL PAYMENT OF RS. 2.25 CRORE MADE BY THE GOVT. OF SIKKIM TO THE ORGANIZATION IS NOT BEING PAID REGULARLY FRO M FY 2008-09. THE AMOUNT WAS SHOWN UNDER THE HEAD AMOUNT RECEIVABLE. THE BASIC SOUR CE OF THE ASSESSEE IS LOAN FUND AND INCOME OVER THE EXPENDITURE WHICH IS INCREASING DAY BY DAY. IN VIEW OF THE ABOVE OBSERVATION IT IS HELD THAT T HE UNIVERSITY IS NOT WHOLLY OR SUBSTANTIALLY FUNDED BY THE GOVERNMENT AS CLAIMED BY THE LD. ARS. AS THE ASSESSEE DID NOT MAKE AN ARGUMENT REGARDING THE AMOUNT OF INCOME ASSESSED BY THE AO IN ALL FOUR ASSESSMENT YEARS THE INCOME DETERMI NED BY THE AO IS CONFIRMED. AGGRIEVED AGAINST THE ORDER OF CIT(A) THE ASSESSEE CAME IN APPEALS BEFORE US. 4. BEFORE US LD. COUNSEL SHRI S. K. TULSIYAN FIRST OF ALL ARGUED THAT THE ASSESSEE FILED ITS RETURNS OF INCOME FOR AYS 2004-05 TO 2007-08 CLAIMI NG EXEMPTION OF ITS INCOME U/S 10(23C)(VI) OF THE ACT IN RESPONSE TO NOTICES ISSUE D U/S. 148 OF THE ACT. SUBSEQUENTLY IT FILED REVISED RETURNS FOR ALL THESE AYS CLAIMING EXEMPTIO NS OF ITS INCOME U/S. 10(23C)(IIIAB) OF THE ACT. LD. COUNSEL STATED THAT THE ASSESSEE UNIVERSI TY WAS ESTABLISHED IN TERMS OF AN ENACTMENT 4 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 PASSED BY THE SIKKIM LEGISLATIVE ASSEMBLY FOR THE P URPOSE OF PROVIDING MEDICAL EDUCATION AND TRAINING IN THE STATE OF SIKKIM AND IT WAS SUBSTANT IALLY FINANCED BY THE SIKKIM GOVERNMENT AND CLAIMED THAT ALL THE CONDITIONS PRESCRIBED IN SEC. 10(23C)(IIIAB) WERE SATISFIED IN ITS CASE AND THEREFORE ITS INCOME FOR THESE AYS IS EXEMPT. LD. COUNSEL STATED THAT THE AO REJECTED THE ASSESSEES CLAIM OF EXEMPTION U/S. 10(23C)(VI) AND 10(23C)(IIIAB) OF THE ACT AND ASSESSED THE INCOME AS UNDER: ASSTT. YEAR RETURNED INCOME WHICH WAS CLAIMED EXEMPT ASSESSED INCOME AFTER REJECTING THE CLAIM OF EXEMPTION 2004-05 2005-06 2006-07 2007-08 RS.5 82 83 070 RS.2 34 26 883 RS.8 68 36 389 RS.12 70 13 367 RS.5 82 83 070 RS.2 34 26 883 RS.8 68 36 389 RS.12 70 13 367 LD. COUNSEL STATED THAT THE ASSESSEE UNIVERSITY WAS CREATED BY AN ACT OF SIKKIM LEGISLATIVE ASSEMBLY AND PLACED COPY OF SIKKIM MANIPAL UNIVERSI TY OF HEALTH MEDICAL AND TECHNICAL SCIENCES ACT 1995 IN THE PAPER BOOK AND REFERRED TO THE OBJECTS OF ASSESSEE UNIVERSITY WHICH ARE AS FOLLOWS: (A) TO CREATE A CENTRE OF EXCELLENCE FOR PROVIDING HEALTH MEDICAL CARE EDUCATIONAL AND RESEARCH FACILITIES OF A HIGH ORDER IN THE FIEL D OF MEDICAL SCIENCE AND TECHNOLOGY INCLUDING CONTINUING MEDICAL EDUCATION HOSPITAL ADMINISTRATION TECHNOLOGICAL EDUCATION AND EDUCATION IN FACILITIES LIKE DENTAL NURSING OR ANY OTHER SUBJECT TO BE STARTED FROM TIME TO TIME WITH THE PRIOR APPROVAL IN WRITING OF THE RESPECTIVE ACCREDITING BODIES IF ANY IN THE U NION OF INDIA; (B) TO DEVELOP PATTERNS OF TEACHING IN THE UNDER-G RADUATE POST-GRADUATE LEVELS AND SUPER-SPECIALITY OF A HIGH STANDARD OF MEDICAL EDUC ATION AND ALSO TO DEVELOP PATTERNS OF TEACHING IN UNDERGRADUATE AND POST-GRAD UATE LEVELS OF TECHNOLOGY; (C) TO PROVIDE FOR TRAINING IN PARA-MEDICAL AND AL LIED HEALTH SCIENCE; (D) TO PROVIDE FOR (TRAINING IN TECHNOLOGICAL SCIE NCES AND ALLIED FIELD; (E) TO FUNCTION AS REFERRAL HOSPITAL AND A SPECIAL IZED TECHNICAL INSTITUTION; (F) TO PROVIDE FOR UNDER-GRADUATE POST-GRADUATE A ND POST-DOCTORATE TEACHING AND CONDUCT OF RESEARCH IN THE RELEVANT DISCIPLINE MODE RN MEDICINE AND OTHER ALLIED 5 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 SCIENCES INCLUDING INTER-DISCIPLINARY FIELDS OF PHY SICAL BIOLOGICAL AND TECHNOLOGICAL SCIENCE; LD. COUNSEL STATED THAT THE UNIVERSITY HAS SEVEN CO NSTITUENT UNITS IMPARTING VARIOUS COURSES VIZ. INSTITUTE OF MEDICAL SCIENCE COLLEGE OF PHYSI OTHERAPY COLLEGE OF NURSING CENTRAL REFERRAL HOSPITAL INSTITUTE OF TECHNOLOGY DIRECTORATE OF D ISTANCE EDUCATION AND BASIC SCHOOL OF APPLIED SCIENCE AND THROUGH THESE ATTACHED INSTITUTIONS ALS O THE ASSESSEE UNIVERSITY IS ENGAGED IN PROVIDING MEDICAL DENTAL NURSING PHARMACY AND OT HER ALLIED TRAINING AT THE UNDERGRADUATE GRADUATE AND POSTGRADUATE LEVELS. LD. COUNSEL REFE RRED TO TRIBUNALS ORDER WHEREIN THE ASSESSEE UNIVERSITY WAS GRANTED REGISTRATION U/S. 1 2AA OF THE ACT BY ITAT VIDE ITS ORDER IN ITA NO. 633/KO112010 DT.20.08.10 DIRECTING CIT SILI GURI TO GRANT REGISTRATION U/S.12AA OF THE ACT. THE ASSESSEE FILED COPY OF THIS ORDER IN P APER BOOK. LD. COUNSEL ALSO ARGUED THAT THE ASSESSEE UNIVERSITY WAS SUBSTANTIALLY FINANCED BY T HE GOVERNMENT AND ALL CONDITIONS PRESCRIBED IN SEC. 10(23C)(IIIAB) OF THE ACT ARE SATISFIED AND ITS INCOME IS EXEMPT. 5. LD. COUNSEL FURTHER STATED IN VIEW OF THE DIREC TION OF TRIBUNALS DIRECTION TO THE CIT TO GRANT REGISTRATION TO ASSESSEE U/S. 12AA OF THE ACT BY STATING THAT CIT(A) ERRED IN HOLDING THAT THE UNIVERSITY DID NOT EXIST SOLELY FOR EDUCATIONAL PURPOSES BUT FOR MAKING PROFIT. LD. COUNSEL STATED THAT AS POINTED OUT BY THE AO AS WELL AS CIT (A) THAT ASSESSEE WAS CHARGING EXORBITANT FEES FOR THE 80% SEATS ALLOTTED TO NON-SIKKIMESE ST UDENTS HE ARGUED THAT A SIMILAR ALLEGATION WAS ALSO MADE BY THE CIT SILIGURI IN HIS ORDER DT. 29.01.10 WHILE REJECTING ASSESSEES APPLICATION FOR REGISTRATION U/S. 12AA OF THE ACT A ND ON ITS APPEAL AGAINST THE ORDERS OF THE CIT TRIBUNAL VIDE ITS ORDER IN ITA NO.633/KOL/2010 DT.2 0.8.10 TO GRANT REGISTRATION U/S. 12AA OF THE ACT AND OBSERVED AS FOLLOWS: REGARDING THE OTHER OBSERVATION RAISED BY THE CIT JUSTIFYING HIS ACTION OF REJECTING THE APPLICATION FOR REGISTRATION IS THAT THE FEES CHARG ED ARE VERY HIGH AND EXORBITANT AND ACCESSIBLE TO THOSE WHO CAN AFFORD THE EXISTING FEE S WHICH GOES TO PROVE THAT THE EDUCATIONAL FACILITIES ARE TO A PRIVILEGED FEW AND NOT TO THE PEOPLE AT LARGE XX XX XX XX XX IT IS AN ADMITTED FACT THAT FOR RUNNING AN INSTITUT ION A REASONABLE REVENUE GENERATION BY IT FOR THE PURPOSE OF DEVELOPMENT OF EDUCATION AND EXPANSION OF THE INSTITUTION DOES NOT MEAN AGAINST ITS CHARITABLE CHARACTER. THE FEE STR UCTURE MUST TAKE INTO CONSIDERATION THE NEED TO GENERATE FUNDS TO BE UTILIZED FOR THE S URVIVAL AND GROWTH OF THE EDUCATIONAL INSTITUTION THE BETTERMENT OF EDUCATION IN THAT IN STITUTION AND TO PROVIDE FACILITY NECESSARY FOR THE BENEFIT OF STUDENTS. XX XX XX XX XX XX XX XX THEREFORE THERE CANNOT BE ANY LIMIT ON THE FEES CHARGED IN ORDER TO FULFILL S UCH OBJECT. THEREFORE THE SCALE OF FEES PROVIDED WAS IN CONSONANCE WITH THE CLASS OF EDUCAT ION BEING IMPARTED TAKING INTO CONSIDERATION THE HIGH EXPENSES INCURRED FOR CONDUC TING AND BETTERMENT OF MEDICAL AND TECHNOLOGICAL EDUCATION AND RESEARCH. 6 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 LD. COUNSEL FURTHER STATED THAT OBJECTIONS OF THE A .O. & CIT(A) ARE THAT DURING THE ASSESSMENT YEARS UNDER APPEAL THERE WERE OPERATING SURPLUSES WHEREAS IN FACT ASSESSEE DISCLOSED SUBSTANTIAL INCOME IN ITS RETURNS FOR A.YS.2004-05 TO 2007-08 AND ON THAT BASIS IT WAS CONCLUDED THAT ASSESSEE. UNIVERSITY EXISTED NOT ON LY FOR EDUCATION BUT ALSO FOR MAKING PROFIT. LD. COUNSEL NARRATED THE FACT THAT THE UNIVERSITY S TARTED FUNCTIONING W.E.F. 01.04.1996 AND DURING EACH OF THE ASSESSMENT YEARS 1998-99 TO 2002 -03 THE ASSESSEE INCURRED HEAVY DEFICITS AND ALSO TAKEN SUBSTANTIAL LOANS FROM A CONSORTIUM OF BANKS AND OTHER INSTITUTIONS AS SHOWN IN SCHEDULE- 1 OF THE BALANCE SHEET OF THE RESPECTIVE ASSESSMENT YEARS PLACED IN THE PAPER BOOK FOR ADVANCING THE OBJECTS OF THE UNIVERSITY. HE STA TED THAT SINCE THESE ARE THE FORMATIVE YEARS OF THE UNIVERSITY IT HAD TO INCUR SUBSTANTIAL CAPITAL EXPENDITURE BY WAY OF COST OF CONSTRUCTIONS OF THE BUILDINGS PURCHASES OF VERY EXPENSIVE MEDICAL AND TECHNICAL EQUIPMENTS COMPUTERS ETC. IN ORDER TO MAKE THE MEDICAL COLLEGE AND OTHER EDUCATI ONAL INSTITUTIONS ATTACHED TO IT FUNCTIONAL. HE NARRATED THAT ALTHOUGH DURING THE A.YS.2004-05 T O 2007-08 WHICH ARE UNDER APPEALS THE APPELLANT HAD DISCLOSED OPERATING SURPLUSES A GLAN CE AT THE INCOME & EXPENDITURE ACCOUNT OF THESE ASSESSMENT YEARS WILL SHOW THAT IN EACH YEAR THE OPERATING EXPENSES WERE MORE THAN 85% OF THE GROSS RECEIPTS AND IT WOULD BE RELEVANT TO M ENTION HERE THAT EVEN THE CAPITAL EXPENSES INCURRED BY FOR ITS EXPANSION ARE ALSO CONSIDERED A S APPLICATION OF ITS INCOME. THE PROFIT GENERATED DURING EACH OF THE ASSESSMENT YEARS WAS L ESS THAN 15% OF ITS GROSS RECEIPTS WHICH IS PERMITTED EVEN TO A CHARITABLE INSTITUTION U/S.11 O F THE ACT. 6. LD. COUNSEL ARGUED THAT CIT(A) ERRED IN HOLDING THAT IT WAS NOT SUBSTANTIALLY FINANCED BY THE GOVERNMENT AS REQUIRED U/S.10(23C)(IIIAB) OF THE ACT AND FURTHER ERRED IN COMPARING EACH YEARS GOVERNMENT GRANTS WITH ITS GROSS RECEIP T FROM TUITION FEES ETC. INSTEAD OF TAKING INTO ACCOUNT THE TOTAL GOVERNMENT GRANT FROM THE BEGINNI NG TILL DATE. HE FURTHER POINTED OUT THAT THE CIT(A) ERRED IN OBSERVING THAT THE LAND PROVIDED BY THE STATE GOVERNMENT DID NOT FORM PART OF SUBSTANTIAL FUNDING BY THE GOVERNMENT AND FURTHER T HE GRANT OF RS.30 CRS. PAID BY THE SIKKIM STATE GOVERNMENT TO THE ASSESSEE WAS NOT PART OF TH E TOTAL FUNDING BY THE GOVERNMENT FINALLY IN SUPPORTING HE POINTED OUT THAT WHILE REJECTING I TS CLAIM OF EXEMPTION OF ITS INCOME BOTH A.O. AND CIT(A) ERRED IN IGNORING THE FINDINGS OF THE CC IT JALPAIGURI THAT ITS CASE IS COVERED BY SEC. 10(23C)(IIIAB) OF THE ACT. 7. ON THE OTHER HAND LD. CIT DR SHRI D. R. SINDHAL HEAVILY RELIED ON THE ORDER OF AO AND THAT OF CIT(A). 7 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 8. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE FIRST OBJECTION OF THE LOWER AUTHO RITIES WAS THAT THE ASSESSEE WAS NOT A GOVERNMENT ORGANIZATION AND STATE GOVERNMENT HAD NO CONTROL OVER ITS RECEIPT AND EXPENDITURE. WE FIND THAT THE ASSESSEE IS A UNIVE RSITY GOVERNED BY GOVERNING COUNCIL CONSISTING OF 10 MEMBERS INCLUDING THE CHANCELLOR WHO IS THE GOVERNOR OF THE STATE OF SIKKIM. A MAJORITY OF OTHER MEMBERS ARE ALSO OFFICE RS OF SIKKIM GOVERNMENT REPRESENTING ITS VARIOUS DEPTTS. FROM CLAUSES 23(2) & (3) AND 25(2) OF THE SIKKIM MANIPAL UNIVERSITY OF HEALTH MEDICAL AND TECHNOLOGICAL SCIENCES ACT 1995 (COPY FILED BY ASSESSEE IN ITS PAPER BOOK) IT IS SEEN THAT THE ACCOUNTS OF THE UNIVERSI TY ARE REQUIRED TO BE AUDITED BY AUDITORS APPOINTED BY THE EXECUTIVE COMMITTEE. BUT THE STATE GOVERNMENT SHALL HAVE POWERS TO DIRECT WHENEVER CONSIDERED NECESSARY AN AUDIT OF THE ACCO UNTS OF THE UNIVERSITY INCLUDING THE INSTITUTIONS MANAGED BY IT BY SUCH AUDITORS AS IT M AY SPECIFY. THE ACCOUNTS WHEN AUDITED SHALL BE PUBLISHED BY THE EXECUTIVE COMMITTEE AND A COPY OF THE ACCOUNTS TOGETHER WITH THE AUDIT REPORT SHALL BE PLACED BEFORE THE GOVERNING COUNCIL AND ALSO TO THE STATE GOVERNMENT. COPIES OF ANNUAL REPORT ALONG WITH THE RESOLUTION O F THE GOVERNING COUNCIL THEREON SHALL ALSO BE SUBMITTED TO THE STATE GOVERNMENT. THE STATE GOV ERNMENT SHALL LAY THE SAME BEFORE THE STATE LEGISLATURE FOR THEIR NEXT EARLIER SESSIONS. THESE PROVISIONS IN THE ACT CLEARLY SHOW THAT THE STATE GOVERNMENT HAS SUFFICIENT CONTROL OVER TH E RECEIPT AND EXPENDITURE OF THE UNIVERSITY. WE FURTHER FIND THAT THE ANOTHER OBJECTION OF LOWER AUTHORITIES REGARDING GRANT IN AID RECEIVED BY ASSESSEE THAT THE SAME WAS NEGLIGIBLE OF RECEIPT FROM TUITION FEE ETC. WE ARE OF THE VIEW THAT THE WORDS WHOLLY AND SUBSTANTIALLY FINANCED BY THE GOVERNMENT AS PROVIDED IN SECTION 10(23C)(IIIAB) OF THE ACT DOES NOT MEAN THAT WHILE MAKING A COMPARISON OF THE RECEIPTS PRESUMPTION HAS TO BE MADE BY COMPARING YEAR WISE A ND MISINTERPRETING THE MEANING OF THE ABOVE TERM WHOLLY AND SUBSTANTIALLY FINANCED BY THE GOVERNMENT . WE FIND THAT HONBLE DELHI HIGH COURT WHILE INTERPRETING THE PROVISIONS OF SECTION 13(3)(B) OF THE ACT IN THE CASE OF CIT VS. CHARAT RAM FOUNDATION (2001) 250 ITR 64 (D EL.) HAS HELD THAT THERE IS NO MENTION OF THE PREVIOUS YEAR IN THE PROVISIONS OF SECTION 1 3(3)(B) OF THE ACT BUT IT WOULD BE PROPER TO TAKE INTO ACCOUNT THE ACTUAL CONTRIBUTION MADE IN T HE ENTIRE PERIOD OF THE TRUST UPTO THE DATE WHICH HAS TO BE TAKEN INTO ACCOUNT. HONBLE DELHI HIGH COURT HAS INTERPRETED THE EXPRESSION SUBSTANTIAL CONTRIBUTION HAS TO BE UNDERSTOOD IN ITS ORDINARY OR POPULAR SEN SE AND THE LANGUAGE OF THE PROVISION IS CRYSTALLY CLEAR AND IT IS NOT PERMISSIBLE TO READ THE EXPRESSION DURING THE PREVIOUS YEAR INTO SECTION 13(3)(B) OF T HE ACT. HONBLE DELHI HIGH COURT HELD THAT 8 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 THE TRIBUNAL WAS JUSTIFIED IN REJECTING THE ASSESSE ES CONTENTION THAT ONLY CONTRIBUTION RECEIVED BY THE ASSESSEE TRUST DURING PREVIOUS YEARS RELEVAN T TO THE ASSESSMENT YEARS 1972-73 AND 1973- 74 COULD BE TAKEN INTO ACCOUNT IN DETERMINING WHETH ER ANY ONE OF THE PERSONS MENTIONED IN SECTION 13(3)(A) (B) AND (D) OF THE ACT HAD MADE S UBSTANTIAL CONTRIBUTION TO THE ASSESSEE TRUST FOR AYS 1972-73 AND 1973-74. THE HONBLE HIGH COUR TS EXACT FINDINGS ARE AS UNDER: SO FAR AS THE THIRD QUESTION IS CONCERNED THE ASS ESSEES STAND BEFORE THE TRIBUNAL WAS THAT THE CONTRIBUTIONS IN ORDER TO BECOME SUBSTANTI AL CONTRIBUTION HAVE TO BE INVESTED DURING A PARTICULAR PREVIOUS YEAR. THE LANGUAGE OF THE PROVISION IS CRYSTAL CLEAR AND IT IS NOT PERMISSIBLE TO READ THE EXPRESSION DURING T HE PREVIOUS YEAR INTO SECTION 13(3)(B). THAT BEING THE POSITION THE TRIBUNAL WA S JUSTIFIED IN ITS CONCLUSIONS. THE ANSWER TO THE QUESTION THEREFORE IS ANSWERED IN T HE AFFIRMATIVE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. WE FIND THAT THE DECISION OF HONBLE DELHI HIGH COU RT WILL BE OF HELP IN DECIDING THIS ISSUE WHETHER THE ASSESSEE UNIVERSITY WAS WHOLLY AND SUBSTANTIALLY FINANCED BY THE GOVERNMENT THE ENTIRE GOVERNMENT CONTRIBUTIONS UPTO THE DATE H AS TO BE TAKEN INTO ACCOUNT. WE ARE OF THE VIEW THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN MAKING A YEAR-WISE COMPARISON BETWEEN THE GROSS RECEIPT FROM TUITION FEES AND GOVERNMENT GRANTS-IN-AID. THE GOVERNMENT OF SIKKIM GRANTED LANDS TO THE UNIVERSITY MEASURING ABOUT 25 ACRES FOR MEDICAL COLLEGE AND ABOUT 7 ACRES OF LAND FOR AN ENGINEERING COLLEGE. THE GOVER NMENT ALSO CONTRIBUTED RS.30 CR. IN ASSESSMENT YEAR 1999-2000 AND RS.23.37 CR. BY WAY O F ANNUAL GRANT DURING THE FIN. YEARS 1997-98 TO 2009-10. A COPY OF VALUATION REPORT DT. 6. 1.2006 PREPARED BY SRI S. C. DEWAN A GOVERNMENT APPROVED REGISTERED VALUER IS PLACED IN ASSESSEES PAPER BOOK. AS PER THIS VALUATION REPORT THE MARKET VALUE OF THE PROPERTY INCLUDING THE BUILDING CONSTRUCTED BY UTILIZING THE GOVERNMENT GRANT IS AS FOLLOWS: SL. NO. PARTICULARS RUPEES IN CRORES 1. MARKET VALUE OF 21.48 ACRES FOR MEDICAL COLLEGE AND HOSPITAL BUILDING. 46.78 2. MARKET VALUE OF LAND FOR MEDICAL COLLEGE AND HOS PITAL BUILDING MEASURING 3.633 ACRES (PROPORTIONATE TO TH E ABOVE VALUATION). 7.91 3. MARKET VALUE OF LAND FOR AN ENGINEERING COLLEGE MEASURING 7 ACRES (PROPORTIONATE TO THE ABOVE VALUATION). 15.24 4. MARKET VALUE OF THE CENTRAL REFERRAL HOSPITAL BUILDING AS PER VALUATION REPORT DATED 6.1.2006. 46.95 5. MARKET VALUE OF THE DIET COMPLEX (UNIVERSITY COMPLEX) AS PER VALUATION REPORT DATED 6.1.2006 OF MR.SACHEN C.DEWAN GOVERNMENT APPROVED AND 1.42 9 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 REGISTERED VALUER. 6. SUB-TOTAL ANNUAL GRANTS RECEIVED FROM THE GOVERNMENT SIKKIM FROM THE FINANCIAL YEAR 1997-98 TO 2009-2010. 118.30 23.37 TOTAL 141.67 THE TOTAL CONTRIBUTION TO THE UNIVERSITY BY SIKKIM GOVERNMENT THUS WORKS OUT TO ABOUT RS.141.67 CR. THIS IS CERTAINLY A SUBSTANTIAL AMOUN T AND THEREFORE APPLYING THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CHARAT RAM FOUNDATI ON (SUPRA) ASSESSEE UNIVERSITY WAS SUBSTANTIALLY FINANCED BY THE GOVERNMENT AND THEREF ORE THE CONDITION PRESCRIBED IN SEC. 10(23C)(IIIAB) ARE SATISFIED. WE FIND THAT ONLY PR EMISE OF THE LOWER AUTHORITIES FOR REJECTING THE CLAIM OF ASSESSEE REGARDING CONTRIBUTION OF RS. 30 CRORE 25 ACRES OF LAND AND 7 ACRES OF LAND WAS THAT (I) THE LESSEE WILL HAND OVER THE ENT IRE PROPERTY AT THE TIME OF TERMINATION OF LEASE IN VIEW OF CLAUSE 5 OF LEASE DEED DATED 15.09.1998 AND ACCORDING TO CIT(A) THIS CANNOT BE CONSIDERED AS PART OF GOVERNMENT FUNDING. WE ARE O F THE VIEW THAT THE CIT(A) HAS NOT GONE INTO CLAUSE 4 OF THE SAID LEASE DEED WHICH PREVENT THE ASSESSEE FROM IMPROPER UTILIZATION OF LAND AND ACCORDING TO US THIS IS FAIR AND REASONA BLE RESTRICTION AND CIT(A) SHOULD NOT HAVE CONSIDERED CLAUSE 5 IN ISOLATION OF CLAUSE 4 OF SAI D LEASE DEED. EVEN WE FIND THAT THE ALLEGATION OF THE LOWER AUTHORITIES THAT THE CONTRIBUTION OF R S.30 CRORE IS NOT RECORDED IN ASSESSEES BOOKS OF ACCOUNT IS NOT CORRECT WHEREAS THE ASSESSEE HAS RECORDED IN SCHEDULE 15 OF AUDITED BALANCE SHEET FOR THE PERIOD ENDING AS ON 31.03.1999. 9. ANOTHER ASPECT IGNORED BY CIT(A) IN REJECTING TH E CLAIM OF EXEMPTION OF ASSESSEE BY IGNORING THE FINDINGS OF CCIT JALPAIGURI. THE ASS ESSEE FILED APPLICATION IN FORM NO. 56D BEFORE CCIT JALPAIGURI CLAIMING EXEMPTION OF ITS I NCOME U/S. 20(23C)(VI) OF THE ACT AND CCIT VIDE HIS ORDER DT.12.07.2010 (COPY PLACED IN A SSESSEES PAPER BOOK) REJECTED ITS APPLICATION WITH THE FOLLOWING OBSERVATIONS. AS THE INSTITUTION IS SUBSTANTIALLY FINANCED BY THE GOVERNMENT OF SIKKIM (RS.23.37 CRS.) AND BY THE DEPTT OF NORTH-EASTERN COUNCIL OF INDIA TO T HE EXTENT OF RS.4.78 CRS. THE CASE OF THE ASSESSEE IS COVERED BY THE PROVISIONS OF SEC. 10(23 C)(IIIAB) OF THE INCOME TAX ACT. THE APPLICATION IN FORM NO. 56D SEEKING APPROVAL U/S. 1 0(23C)(VI) IS MISCONCEIVED AS ASSESSEES OTHER THAN THOSE MENTIONED IN SUB-CLAUSE (IIIAB) O R SUB-CLAUSE (IIIAD) ONLY CAN APPLY. WE FIND FROM THE ABOVE ORDER OF CCIT WHO HAS NOT G RANTED APPROVAL UNDER CLAUSE (VI) ONLY BECAUSE HE FOUND THAT ASSESSEE WAS SUBSTANTIALLY FI NANCED BY THE GOVERNMENT AND THEREFORE ITS CASE WAS COVERED UNDER CLAUSE (IIIAB). ON ONE HAND CCIT COULD NOT GRANT APPROVAL UNDER SUB- 10 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 CLAUSE (VI) BECAUSE ASSESSEES CASE WAS COVERED UND ER SUB-CLAUSE (IIIAB) ON THE OTHER THE AO AND CIT(A) HAVE HELD THAT ASSESSEES CASE IS NOT C OVERED UNDER SUB-CLAUSE (IIIAB). THIS HAS CREATED A VERY ANOMALOUS SITUATION. REVENUE AS A WH OLE SHOULD NOT BE PERMITTED TO BLOW BOTH HOT AND COLD IN THE SAME BREATH. WE DRAW STRENGTH F ROM THE CASE OF ASSTT. COLLECTOR OF CENTRAL EXCISE VS. DUNLOP INDIA LTD. REPORTED IN 154 ITR 17 2 WHEREIN HONBLE SUPREME COURT HAS OBSERVED AS FOLLOWS: [EXTRACT FROM HEAD NOTES]. IN THE HIERARCHICAL SYSTEM OF COURTS WHICH EXISTS IN OUR COUNTRY IT IS NECESSARY FOR EACH LOWER TIER INCLUDING THE HIGH COURT TO ACCEPT LOYA LLY THE DECISIONS OF THE HIGHER TIERS. IT IS INEVITABLE IN A HIERARCHICAL SYSTEM OF COURTS TH AT THERE ARE DECISIONS OF THE SUPREME APPELLATE TRIBUNAL WHICH DO NOT ATTRACT THE UNANIMO US APPROVAL OF ALL MEMBERS OF THE JUDICIARY. BUT THE JUDICIAL SYSTEM WORKS ONLY IF SO MEONE IS ALLOWED TO HAVE THE LAST WORD AND THAT LAST WORD ONCE SPOKEN IS LOYALLY ACCEPTE D. THE BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE. THAT IS THE STRENGTH OF THE HIERARCHICAL JUDICIAL SYSTEM. FROM THE ABOVE OBSERVATION OF THE HONBLE SUPREME C OURT IT IS CLEAR THAT IN ANY HIERARCHICAL SYSTEM WHETHER IT IS JUDICIAL OR ADMINISTRATIVE I T IS IMPERATIVE THAT THE LOWER AUTHORITIES MUST ABIDE BY THE DECISION OF THE HIGHER AUTHORITIES. WE ARE OF THE VIEW THAT CCIT JALPAIGURI WAS EXERCISING QUASI JUDICIAL POWER VESTED IN HIM IN TE RMS OF SEC.10(23C) OF THE ACT AND MADE THESE OBSERVATIONS IN THE ORDER WHICH SEEMS AS COR RECT VIEW OF THE DEPTT IN GRANTING EXEMPTION TO ASSESSEE U/S.10(23C)(IIIAB) OF THE ACT . 10. IN VIEW OF THE ABOVE FACTS WE ARE OF THE VIEW THAT ASSESSEE UNIVERSITY IS GOVERNED BY A GOVERNING COUNCIL CONSISTING OF 10 MEMBERS INCLUDIN G THE CHANCELLOR WHO IS THE GOVERNOR OF THE STATE OF SIKKIM. THE UNIVERSITY WAS A CREATI ON OF SIKKIM LEGISLATIVE ASSEMBLY AND IT WAS CONTROLLED BY A GOVERNING COUNCIL IN WHICH MOST OF THE MEMBERS WERE SIKKIM STATE GOVERNMENT OFFICERS. THE JOINT SECRETARY OF SIKKIM STATE GOVERNMENT INTIMATED THE ASSESSEE THAT IT WAS BOUND TO FOLLOW SIKKIM INCOME TAX MANUA L AND PAY TAX ACCORDINGLY. A MAJORITY OF OTHER MEMBERS ARE ALSO OFFICERS OF SIKKIM GOVERNMEN T REPRESENTING ITS VARIOUS DEPTTS. FROM CLAUSES 23(2) & (3) AND 25(2) OF THE SIKKIM MANIPAL UNIVERSITY OF HEALTH MEDICAL AND TECHNOLOGICAL SCIENCES ACT 1995 IT IS CLEAR THAT A CCOUNTS OF THE UNIVERSITY ARE REQUIRED TO BE AUDITED BY AUDITORS APPOINTED BY THE EXECUTIVE COMM ITTEE. BUT THE STATE GOVERNMENT SHALL HAVE POWERS TO DIRECT WHENEVER CONSIDERED NECESSA RY AN AUDIT OF THE ACCOUNTS OF THE UNIVERSITY INCLUDING THE INSTITUTIONS MANAGED BY IT BY SUCH AUDITORS AS IT MAY SPECIFY. THE ACCOUNTS WHEN AUDITED SHALL BE PUBLISHED BY THE EXE CUTIVE COMMITTEE AND A COPY OF THE 11 ITA NOS.1227-1230/K/2011 SIKKIM MANIPAL UNIVERSITY . AY 04-05 TO 07-08 ACCOUNTS TOGETHER WITH THE AUDIT REPORT SHALL BE PL ACED BEFORE THE GOVERNING COUNCIL AND ALSO TO THE STATE GOVERNMENT. COPIES OF ANNUAL REPO RT ALONG WITH THE RESOLUTION OF THE GOVERNING COUNCIL THEREON SHALL ALSO BE SUBMITTED T O THE STATE GOVERNMENT. THE STATE GOVERNMENT SHALL LAY THE SAME BEFORE STATE LEGISLAT URE FOR THEIR NEXT EARLIER SESSIONS. THESE PROVISIONS IN THE ACT CLEARLY SHOW THAT THE STATE G OVERNMENT HAS SUFFICIENT CONTROL OVER THE RECEIPT AND EXPENDITURE OF THE UNIVERSITY. 11. FROM THE ABOVE DISCUSSION IT IS CLEAR THAT THE UNIVERSITY DOES EXIST SOLELY FOR EDUCATION BUT NOT FOR MAKING PROFIT AS WELL AS THE ASSESSEE I S SUBSTANTIALLY FINANCED BY THE GOVERNMENT. IN OUR VIEW SINCE ALL THE CONDITIONS PRESCRIBED U/ S. 10(23C)(IIIAB) OF THE ACT HAVE BEEN SATISFIED THE INCOME OF THE ASSESSEE FOR ALL ASSES SMENT YEARS IS EXEMPT. 12. IN THE RESULT ALL APPEALS OF ASSESSEE ARE ALLO WED. 13. ORDER PRONOUNCED IN THE OPEN COURT ON 29.11.201 1. SD/- SD/- . ! ! ! ! . '# (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( !# !# !# !#) )) ) DATED : 29TH NOVEMBER 2011 12 %34 5 JD.(SR.P.S.) '0 . 6 7'6'8- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT SIKKIM MANIPAL UNIVERSITY 5 TH MILE TADONG EAST SIKKIM PIN-737 102 2 -*+ / RESPONDENT ACIT CIRCLE- GANGTOK SIKKIM. 3 . 0% ( )/ THE CIT(A) SILIGURI. 4. 0% / CIT 5 . ?@ % / DR KOLKATA BENCHES KOLKATA -6 / TRUE COPY '0%A/ BY ORDER 4 /ASSTT. REGISTRAR .