Assessment And Exemption of Income of University, Educational Institution, Hospital or Medical Institution
The provision relating to the exemption of income of University educational institutions, Hospital or Medical Institution , was exempted under clause (22) and (22A) of section 10 of the Income tax Act 1961. The educational and medical institutions were enjoying the blanket exemption from Income tax if they exist solely for the education purpose and not for the purpose of profit. In absences of the monitoring mechanism for checking the genuineness of the activities these provisions have been misused .
In order to cover the misuse of the exception to the University, Educational Institution, Hospital or Medical institution this provision of clause (22) and (22A) of section 10 were removed by the Finance (No 2) Act 1998 (21 of 1998). For the purpose of giving exemption of Income of universities , educational, hospital or other medical institution which are WHOLLY OF SUBSTANTIALLY financed by Government under the new clause (23) (iiiab) (iiiac) of Section 10 (23) of the Income tax Act 1961was inserted. W.e.f. 1-4-1999
The main condition for the exemption of income of the University , educational institutes ,hospital other medical institutions is these should be Wholey or substantially financed by the Government. The provision of words WHOLLY or Substantially financed has not been defined in the Act. It creates a confusion regarding the University, Educational , Hospital or other medical institute run by the Government and which are self- sufficient and does not receive any grant whether will be considered as wholly or substantially financed by the Government. In case of any University or educational institution is set up by the Government and by passing of any Act or other notification and is wholly governed by the Government or its representatives at the time of set up of the infrastructure are financed by . By passing of time the university or educational institutional become self- sufficient and does not receive any Grant from the Government whether it is will be exempted under clause (23C) sub clause (iiiab) of Section 10 of the Income tax Act.
In absence of a definition of the phrase “substantially financed by the Government” had led to litigation and varying decisions of judicial authorities who had, for this purpose, relied upon various other provisions of the Income-tax Act and other Acts. Thus, there has been lack of certainty in this regard.
Therefore, clause (23C) of section 10 has been amended by inserting an Explanation below sub-clause (iiiac) of the said clause. It provides that if the Government grant to a university or other educational institution, hospital or other institution referred to in section 10(23C)(iiiab) or 10(23C)(iiiac) during any previous year exceeds a prescribed percentage of the total receipts (including any voluntary contributions), of such university or other educational institution, hospital or other institution, as the case may be, then such university or other educational institution, hospital or other institution shall be considered as being substantially financed by the Government for that previous year. Vide notification No. 79 /2014 dated 12.12.2014, Rule 2BBB has been inserted in the Income-tax Rules. The said Rule provides that any university or other educational institution, hospital or other institution referred to in sub-clauses (iiiab) and (iiiac) of clause (23C) of section 10 of the Income-tax Act shall be considered as being substantially financed by the Government for any previous year if the Government grant to such university, hospital, or institution exceeds 50 percent of its total receipts, including any voluntary contributions, during the said previous year which has been applies in relation to assessment year 2015-16.
For the clarification of this controversy the Rule 2 BBB was also inserted . For the removal doubt and to celerity this situation Rule 2 BBB was inserted in the Income tax Rules 1962. Under this rule percentage of Government grants for considering university , hospital etc as SUBSTANTIALLY financed by Government for the purpose clause (23C) of section 10 . Under Rule 2 BBB for the purpose of sub-clause (iiiab) and (iiiac) of clause (23C) of section 10 any (For the purposes of sub-clauses (iiiab) and (iiiac) of clause (23C) of section 10, any university or other educational institution, hospital or other institution referred therein, shall be considered as being SUBSTANTIALLY FINANCED BY THE GOVERNMENT for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds fifty per cent of the total receipts including any voluntary contributions, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year.
The department in case of where the university or other educational institution, hospital or other institution wholly financed by Government also disallow the exemption in case where the Ruel 2 BBB regarding the grant does not exceeds the 50% of the Gross receipts.
The Rule 2 BBB is only for the applies for the purpose of SUBSTANTIALLY Financed by Govt. .and not WHOLLY Financed by Government . Where the University Educational Institution, Hospital or other institution are run by the Government and the university or the institution is self-sufficient and no grants are received by them in any financial year the income of the that university , educational in statute or Hospital is exempted the rule 2BBB is not applicable because it is set up by the Government and is run and wholly financed by Government in such cases the whole income of the University, Educational Institute , Hospital of Medical Institute is exempted.
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