ITAT Denies Section 10(23C)(iiiab) Exemption as Government Grants Were Below 50% Threshold

Hidayatullah National Law University Vs ACIT (ITAT Raipur)

The Income Tax Appellate Tribunal (ITAT), Raipur, dismissed the appeals filed by Hidayatullah National Law University for Assessment Years 2016-17 and 2017-18 and upheld the orders of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC) denying exemption under Section 10(23C)(iiiab) of the Income Tax Act, 1961. The dispute centered on whether the university satisfied the condition of being “wholly or substantially financed by the Government” for the relevant previous years.

The assessee is a university established under a State Government Act in 2003 for promoting legal education and related activities in Chhattisgarh. For Assessment Year 2016-17, it filed its return declaring nil income and claimed exemption under Section 10(23C)(iiiab). The Assessing Officer accepted that the university existed solely for educational purposes and not for profit, thereby satisfying the first statutory condition. However, the Assessing Officer found that Government grants received during the relevant previous year constituted only 47.85% of total receipts, which was below the prescribed threshold of 50%. Consequently, the exemption was denied and the surplus income was brought to tax.

The CIT(A)/NFAC upheld the assessment order after referring to Section 10(23C)(iiiab), the Explanation inserted by the Finance (No. 2) Act, 2014, Rule 2BBB of the Income Tax Rules, 1962, and CBDT Circular No. 1/2015. The appellate authority held that a university would be regarded as substantially financed by the Government only if Government grants exceeded 50% of total receipts, including voluntary contributions, during the relevant previous year. Since the grants received by the assessee amounted to only 47.85% of total receipts, the exemption claim was rejected.