Interest income to be excluded from gross receipts while computing percentage of Govt. finance for determining the exemption u/s 10(23C)(iiiab).
In a recent judgment, ITAT Ranchi has held that interest income is not to be included in gross receipts of the society while computing 50% of Govt. financing to the society for the purpose of determining the exemption u/s.10(23C)(iiiab) of the Income Tax Act, 1961 (the Act).
ABCAUS Case Law Citation:
4628 (2025) (07) abcaus.in ITAT
For claiming the exemption u/s 10(23C)(iiiab) of the Income Tax Act, 1961 (the Act) the society/trust should be any university or other educational institution existing solely for educational purposes and not for the purpose of profits, and which is wholly or substantially financed by the government.
The Finance Act 2014 inserted an explanation read with rule 2BBB of the Income Tax Rules stating that “any educational institution or university or hospital or other institution referred therein i.e. sub clause (iiiab) & (iiiac) of Clause 23C of Section 10 shall be considered as fund substantially financed by the Government for any previous year if the government grant to the university or other educational institution, hospital or other institution exceeds “50%” of the total receipts including any voluntarily contribution of such university or other educational institution, hospital or other institution as the case may be during the relevant previous year”.
However, before the said amendment, in the absence of any prescribed benchmark, various High Courts held the assessee to be eligible for exemption u/s 10(23C)(iiiab) of the Act where government financing was less than 50 % but in the range of 35%-45% of the total contribution received during the year
In the instant case, the appellant assessee had challenged the order of the CIT(A), National Faceless Appeal Centre (NFAC) confirming the denial of exemption u/s 10(23C)(iiiab) of the Act.
The assessee trust was running a school. While filing return, the assesse had, by mistake, claimed exemption u/s.10(23C)(iiiad) of the Act in place of section 10(23C)(iiiab) of the Act. The Assessing Officer (AO) denied the assesse the benefit of exemption as claimed in the return of income.
Before the Tribunal, the assessee submitted that the exemption under wrong provisions was claimed by mistake and even the audit report of the assesse was under the provisions of section 10(23C)(iiiab) of the Act.
It was also the prayer of the assessee that the total receipts of the assesse had been worked out by the AO by including the interest income in the total receipts to arrive at the prescribed percentage of 50 per cent of the government finance.
It was submitted that if the interest income was included in the total amount received by the assesse then, the percentage of the Govt. grants would be lower than the prescribed limit of 50 per cent. for claim of exemption u/s.10(23C)(iiiab) of the Act.
It was the submission that the interest income was not to be included as decided by the ITAT Indore Bench. It was submitted that if the interest income was excluded the Government grant would exceed 50% as required for the claim of exemption u/s.10(23C)(iiiab) of the Act.
The Tribunal noted that the ITAT Indore Bench had upheld the eligibility for exemption u/s 10(23C)(iiiab) observing that from gross receipts if the receipt on account of interest, rent and sale of tender from which are not exactly in the shape of grant/fees they are not to be considered for arriving at the amount of total gross receipts of the assessee.
In view of the above, the Tribunal restored the issue to the file of AO for readjudication and to consider the assessee’s claim for exemption u/s.10(23C)(iiiab) of the Act. It was directed that the AO shall also take into consideration the decision of the coordinate bench of the Indore ITAT wherein it had been held that that interest income is not to be included while computing 50% for the purpose of determining the exemption u/s.10(23C)(iiiab) of the Act.
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