VISVESVARAYA TECH.UNIVERSITY Vs ASSISTANT COMMISSIONER OF INCOME TAX
Bench: RANJAN GOGOI,PRAFULLA C. PANT
Case number: C.A. No.-004361-004366 / 2016
Diary number: 4391 / 2014
Advocates: ANIL KUMAR Vs
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REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 4361-4366 OF 2016 (Arising out of S.L.P. (C) Nos.5354-5359 of 2014)
VISVESVARAYA TECHNOLOGICAL UNIVERSITY ...APPELLANT
VERSUS
ASSISTANT COMMISSIONER OF INCOME TAX ...RESPONDENT
J U D G M E N T
RANJAN GOGOI, J.
1. Leave granted.
2. The appellant – University, namely, Visvesvraya
Technological University (VTU) has been constituted under the
Visveswaraiah Technological University Act, 1994 (for short
“VTU Act”). It discharges functions earlier performed by the
Department of Technical Education, Government of Karnataka.
The University exercises control over all Government and
Private Engineering Colleges within Karnataka.
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3. For the Assessment Years 2004-2005 to 2009-2010
notices under Section 148 of the Income Tax Act, 1961 (for
short “the Act”) were issued to the appellant – University –
Assessee. Eventually returns were filed for the Assessment
Years in question declaring 'Nil' income and claiming
exemption under Section 10(23C)(iiiab) of the Act. The
aforesaid claim of exemption was negatived by the Assessing
Officer who proceeded to make the assessments. The same
view has been taken by all the Authorities under the Act and
also by the High Court in the order under challenge in the
present proceedings.
4. The question, therefore, that arises in the present appeals
is the entitlement of the appellant – University – Assessee to
exemption from payment of tax under the provisions of Section
10(23C)(iiiab) of the Act which is in the following terms:
“10. Incomes not included in total income. -
In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-
(23C) any income received by
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any person on behalf of- (iiiab) any university or other
educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government”
5. The entitlement for exemption under Section 10(23C)
(iiiab) is subject to two conditions. Firstly the educational
institution or the university must be solely for the purpose of
education and without any profit motive. Secondly, it must be
wholly or substantially financed by the government. Both
conditions will have to be satisfied before exemption can be
granted under the aforesaid provision of the Act.
6. The relevant principles of law which will govern the first
issue i.e. whether an educational institution or a university, as
may be, exists only for educational purpose and not for profit
are no longer res integra, having been dealt with by a long line
of decisions of this Court which have been elaborately noticed
and extracted in a recent pronouncement i.e. Queen's
Educational Society vs. Commissioner of Income Tax 1 . The
1 (2015) 8 SCC 47
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principles that emanate from the views expressed by this Court
are set out in paragraph 11 in Queen's Educational Society
(supra), which are extracted below:
“11. Thus, the law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows:
(1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit.
(2) The predominant object test must be applied – the purpose of education should not be submerged by a profit making motive.
(3) A distinction must be drawn between the making of a surplus and an institution being carried on “for profit”. No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit.
(4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes.
(5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons.”
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7. To the above principles, one further test as laid down in
CIT vs. Surat Art Silk Cloth Manufacturers' Assn.2 and
culled out in American Hotel and Lodging Association
Educational Institute vs. Central Board of Direct Taxes
and Others 3 may be added which is as follows:
“In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established.” (Paragraph 37)
The above principle has been specifically reiterated in
paragraph 19 of the decision in Queen's Educational Society
(supra) in the following terms:
“The final conclusion that if a surplus is made by an educational society and ploughed back to construct its own premises would fall out of Section 10(23-C) is to ignore the language of the section and to ignore the tests laid down in Surat Art Silk Cloth case [CIT v. Surat Art Silk Cloth Manufacturers' Assn.(1980) 2 SCC 31], Aditanar case [Aditanar Educational Institution v. CIT [(1997) 3 SCC 346] and American Hotel & Lodging case [American Hotel & Lodging Assn. Educational Institute v. CBDT [(2008) 10 SCC 509]. It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit.”
2 (1980) 2 SCC 31 3 (2008)10 SCC 509
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8. In the present case, we find that during a short period of a
decade i.e. from the year 1999 to 2010 the appellant University
had generated a surplus of about Rs.500 crores. There is no
doubt that the huge surplus has been collected/accumulated
by realizing fees under different heads in consonance with the
powers vested in the University under Section 23 of the VTU
Act. The difference between the fees collected and the actual
expenditure incurred for the purposes for which fees were
collected is significant. In fact the expenditure incurred
represents only a minuscule part of the fees collected. No
remission, rebate or concession in the amount of fees charged
under the different heads for the next Academic Year(s) had
been granted to the students. The surplus generated is far in
excess of what has been held by this Court to be permissible (6
to 15%) in Islamic Academy of Education and another vs.
State of Karnataka and others 4 though the percentage of
surplus in Islamic Academy of Education (supra) was in the
context of the determination of the reasonable fees to be
charged by private educational bodies.
4 (2003) 6 SCC 697 (paragraph 156)
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9. As against the above, the amount of direct grant from the
Government has been meagre, details of which are being
noticed separately later in a different context. The University
nevertheless has grown and the number of private engineering
colleges affiliated to it had increased from about 64 to presently
about 194. The infrastructure of the University has also
increased offering educational avenues to an increasing
number of students in different and varied subjects. Materials
have been brought on record before the High Court as well as
before this Court to show the several number of work
orders/tenders issued by the University for infrastructure
expansion. It is emphatically contended by the appellant in the
written submissions filed that between 1994 and 2009 the
University had actually spent about Rs.504 crores on
infrastructure and the available surplus in the year 2010
which was in the range of Rs.440 crores was also intended to
be applied for different infrastructural work, details of which
have also been brought on record. However, the said amount
was attached by the Revenue pursuant to the demands raised
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in terms of the assessments made. Even in a situation where
direct government grants have not been forthcoming and
allocation against permissible heads like salary, etc. had not
been made the University has thrived and prospered. There
can, however, be no manner of doubt that the surplus
accumulated over the years has been ploughed back for
educational purposes. In such a situation, following the
consistent principles laid down by this Court referred to earlier
and specifically what has been said in paragraph 19 in
Queen's Educational Society (supra), extracted above, it
must be held that the first requirement of Section 10(23C)
(iiiab), namely, that the appellant University exists “solely for
educational purposes and not for purposes of profit” is
satisfied. The exemption granted in respect of the University
under Section 80G of the Act, qua the donations made to it
also cannot be ignored in view of an inbuilt recognition in such
exemption with regard to the charitable nature of the
institution i.e. the appellant University.
10. The above would require the Court to go into the further
question as to whether the appellant University is wholly or
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substantially financed by the Government which is an
additional requirement for claiming benefit under Section
10(23C)(iiiab) of the Act. It is not in dispute that grants/direct
financing by the Government during the six (06) Assessment
Years in question i.e. 2004-2005 to 2009-2010 had never
exceeded 1% of the total receipts of the appellant - University-
Assessee. In such a situation, the argument advanced is that
fees of all kinds collected within the four corners of the
provisions of Section 23 of the VTU Act must be taken to be
receipts from sources of finance provided by the Government.
Such receipts, it is urged, are from sources statutorily
prescribed. The rates of such fees are fixed by the Fee
Committee of the University or by authorized Government
Agencies (in cases of Common Entrance Test). It is, therefore,
contended that such receipts must be understood to be funds
made available by the Government as contemplated by the
provisions of Section 10 (23c) (iiiab) of the Act.
11. Universities and Educational Institutions entitled to
exemption under the Act have been categorized under three
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different heads, namely, those covered by Section 10(23C)
(iiiab); Section 10(23C)(iiiad) and 10(23C)(vi) of the Act. The
requirement of the University or the educational institution
existing “solely for educational purposes and not for purposes
of profit” is the consistent requirement under Section 10(23C)
(iiiab), 10(23C)(iiiad) and 10(23C)(vi). However, in cases of
Universities covered by Section 10(23C)(iiiab) funding must be
wholly or substantially by the Government whereas in cases of
universities covered by Section 10(23C)(iiiad) the aggregate
annual receipts should not exceed the amount as may be
prescribed. Universities covered by Section 10(23C)(vi) are
those other than mentioned in sub-clause (iiiab) or sub-clause
(iiiad) and which are required to be specifically approved by the
prescribed authority.
12. Having regard to the text and the context of the provisions
of Section 10 (23c) (iiiab), 10 (23c) (iiiad) and 10 (23c) (vi) it will
be reasonable to reach a conclusion that while Section 10 (23c)
(iiiab) deals with Government Universities, Section 10 (23c)
(iiiad) deals with small Universities having an annual
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“turnover” of less than Rupees One Crore (as prescribed by
Rule 2 (BC) of the Income Tax Rules). On a similar note, it is
possible to read Section 10 (23c) (vi) to be dealing with Private
Universities whose gross receipts exceeds Rupees One Crore.
Receipts by way of fee collection of different kinds continue to a
major source of income for all Universities including Private
Universities. Levy and collection of fees is invariably an
exercise under the provisions of the Statute constituting the
University. In such a situation, if collection of fees is to be
understood to be amounting to funding by the Government
merely because collection of such fees is empowered by the
Statute, all such receipts by way of fees may become eligible to
claim exemption under Section 10 (23c) (iiiab). Such a result
which would virtually render the provisions of the other two
Sub-sections nugatory cannot be understood to have been
intended by the Legislature and must, therefore, be avoided.
13. It will, therefore, be more appropriate to hold that funds
received from the Government contemplated under Section
10(23c)(iiiab) of the Act must be direct grants/contributions
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from governmental sources and not fees collected under the
statute. The view of the Delhi High Court in Mother Diary
Fruit & Vegetable Private Limited vs. Hatim Ali & Anr . 5
which had been brought to the notice of the Court has to be
understood in the context of the definition of 'public authority'
as specified in Section 2(h)(d)(ii) of the Right to Information Act,
2005 which is in the following terms:
(h) “public authority” means any authority or body or institution of self-government established or constituted,- (a) .................. (b) .................. …..................... (d) by notification issued or order made by the appropriate Government, and includes any (i) …......... (ii) non-Government Organization substantially financed, directly or indirectly by funds provided by the appropriate Government.”
14. Reliance has been placed on the judgment of the High
Court of Karnataka in Commissioner of Income-tax,
Bangalore vs. Indian Institute of Management 6 ,
particularly, the view expressed that the expression “wholly or
5 [(2015) 217 DLT 470] 6 (2014) 49 Taxmann.com 136 (Karnataka)
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substantially financed by the Government' as appearing in
Section 10(23C) cannot be confined to annual grants and must
include the value of the land made available by the
Government. In the present case the High Court in paragraph
53 of the impugned judgment has recorded that even if the
value of the land allotted to the University (114 acres) is taken
into account the total funding of the University by the
Government would be around 4% - 5% of its total receipt. That
apart what was held by the High Court in the above case, while
repelling the contention of the Revenue that the exemption
under Section 10(23c) (iiiab) of the Act for a particular
assessment year must be judged in the context of receipt of
annual grants from the Government in that particular year, is
that apart from annual grants the value of the land made
available; the investment by the Government in the buildings
and other infrastructure and the expenses incurred in running
the institution must all be taken together while deciding
whether the institution is wholly or substantially financed by
the Government. The situation before us, on facts, is different
leading to the irresistible conclusion that the appellant
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University does not satisfy the second requirement spelt out by
Section 10 (23c) (iiiab) of the Act. The appellant University is
neither directly nor even substantially financed by the
Government so as to be entitled to exemption from payment of
tax under the Act.
15. For the aforesaid reasons, we do not find the present to be
a fit case for interference. The appeals, consequently, are
dismissed however without any order as to costs.
………………..................,J. (RANJAN GOGOI)
………………..................,J. (PRAFULLA C. PANT)
NEW DELHI April 22, 2016.