Hydro Engineering College Society Vs ITO (ITAT Chandigarh)
The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeals for Assessment Year 2019-20, holding that interest earned on unspent government grants retained the same character as the grants and directing the Assessing Officer (AO) to grant exemption under Section 10(23C)(iiiab) of the Income Tax Act. Consequently, the Tribunal also deleted the penalty under Section 270A.
The assessee, a society established to set up and run an engineering college at Bilaspur, did not file its return of income initially. The assessment was reopened under Section 148, following which the assessee filed a return declaring Nil income. During assessment proceedings, the assessee submitted its constitutional documents and explained that it was a government institution affiliated with AICTE and Himachal Pradesh Technical University. The land for the college had been allotted by the State Government, while funds for construction were received from the Government as well as NTPC and NHPC. During the relevant year, the college remained under construction and had not commenced generating income.
The assessee stated that grants received for establishing the college were temporarily invested in fixed deposits until their utilisation, resulting in interest income. It contended that such interest formed part of the grants and was required to be utilised for the same purpose. Accordingly, it claimed exemption under Section 10(23C)(iiiab), which exempts income of educational institutions existing solely for educational purposes and wholly or substantially financed by the Government. The assessee relied on Rule 2BBB, which provides that an institution is substantially financed if government grants exceed 50% of the total receipts during the previous year.
