The assessee was a registered society formed by Govt. of Madhya Pradesh for promotion and development of open school system in the State. It had claimed exemption under section 10(23C)(iiiab). During assessment proceedings, the AO opined that the assessee was systematically generating profits, thus, it couldn’t be regarding as existing for the benefit of public at large. Accordingly, the exemption was denied by AO for impugned assessment years. On appeal, the CIT(A) affirmed the stand of the AO.
On further appeal, the Tribunal held in favour of revenue as under:
1) Only the application of income as required under the Act and the predominant objects have to be kept in mind while granting or refusing exemption under section 10(23C);
2) Sec. 10(23C)(iiiab) speaks about any educational institution which is solely existing for educational purposes and not for profit and at the same time, which is wholly or substantially financed by the Government;
3) As per the data furnished, there was huge profit generated by the assessee which clearly established the profit motive of the assessee;
4) As regards the condition of wholly and substantially financed by the Govt., it was found that only in one year the Government had given some grant to assessee;
5) In respect to government grant, the word “wholly or substantially” used in the aforesaid section, means that, either it can be 100% or nearly to 100% but in any case may not be less than 75% because it has been used with the word wholly and not singularly; and
6) Moreover, the assessee’s case couldn’t be covered under Section 10(23C)(iiiad) as it was found that the surplus generated by the assessee was in crores which indicated that a huge abnormal profit had been earned by the assessee.
In view of the above, it was held that there was no infirmity in the conclusion drawn by the lower authorities to deny section 10(23C) exemption - m.p. rajya open school v. dcit [2012] 28 taxmann.com 29
On further appeal, the Tribunal held in favour of revenue as under:
1) Only the application of income as required under the Act and the predominant objects have to be kept in mind while granting or refusing exemption under section 10(23C);
2) Sec. 10(23C)(iiiab) speaks about any educational institution which is solely existing for educational purposes and not for profit and at the same time, which is wholly or substantially financed by the Government;
3) As per the data furnished, there was huge profit generated by the assessee which clearly established the profit motive of the assessee;
4) As regards the condition of wholly and substantially financed by the Govt., it was found that only in one year the Government had given some grant to assessee;
5) In respect to government grant, the word “wholly or substantially” used in the aforesaid section, means that, either it can be 100% or nearly to 100% but in any case may not be less than 75% because it has been used with the word wholly and not singularly; and
6) Moreover, the assessee’s case couldn’t be covered under Section 10(23C)(iiiad) as it was found that the surplus generated by the assessee was in crores which indicated that a huge abnormal profit had been earned by the assessee.
In view of the above, it was held that there was no infirmity in the conclusion drawn by the lower authorities to deny section 10(23C) exemption - m.p. rajya open school v. dcit [2012] 28 taxmann.com 29
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