LexVISVESVARAYA TECHNOLOGICAL UNIVERSITY versus ASSISTANT COMMISSIONER OF INCOME TAX
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[2016] 4 S.C.R. 362 A VISVESVARAYA TECHNOLOGICAL UNIVERSITY B c D E F G H v. ASSISTANT COMMISSIONER OF INCOME TAX (Civil Appeal Nos. 4361-4366 of2016) APRIL 22, 2016 [RANJAN GOGOi AND PRAFULLA C. PANT, JJ.] Income Tax Act, 1961 -- s.10(23C)(iiiab) - Exemption under - Entitlement to the assessee-University - Held: The entitlement for the exemption is subject to two conditions (i) The University is solely for the purpose of education without profit motive, and (ii) it must be wholly or substantially financed by the Government - In the present case, the first condition is fulfilled by the University, but not the second - Therefore, the assessee-University is not entitled to exemption from payment of tax - Visweswaraiah Technological University Act, 1994 - s.23. Government Grants - Fees collected uls. 23 of Visweswaraiah Technological University Act - Held: Cannot be considered as a Government Grants (financed by Government) as contemplated u! s. 10(23C)(iiiab) of Income Tax Act, 1961 - Visweswaraiah Technological University Act, 1994 - s.23 - Income Tax Act, 1961 ~ s. 10(23Cj(iiiabj. Dismissing the appeals, the Court HELD: 1. The entitlement for exemption under Section 10(23C)(iiiab) of the Income Tax Act, 1961 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. [Para 5] [366-A-B) 2.1 In the present case, 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. 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 Visweswaraiah Technological University Act, 1994. The differeirce between the fees collected and the actual expenditure incurred for the purposes for which fees were 362 VISVESVARAYA TECHNOLOGICAL UNIVERSITY v. ASSISTANT COMMISSIONER OF INCOME TAX collected is significant. In fact the expenditure incurred represents only a minuscule part of the fees collected. The surplus generated is far in excess of what has been held by this Court to be permissible (6 to 15%) in Islamic Academy case*. [Para 8] [367- F-G] 2.2 However, the amount of direct grant from the Government has been meagre. The University nevertheless has grown and the number of private engineering colleges affiliated to it had increased. The infrastructure of the University has also increased. 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, 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. [Para 9] (368-B, E- G] Queen :S Educational Society v. Co111111issio11er of Income Tax (2015) 8 SCC 47: 2015(3) SCR 838; CIT 1' Surat Art Silk Cloth Manufacturers' Assn. (1980) 2 SCC 31:1980 (2) SCR 77; American Hotel and Lodging Association Educational Institute v. Central Board of Direct Taxes and Ors. (2008) 10 SCC 509 : 2008 (8) SCR 117 - relied on. *Islamic Academy of Education and Anr. v. State of Karnataka and Ors. (2003) 6 SCC 697 : 2003 (2) Suppl. SCR 474 - referred to. 3. The appellant-University does not satisfy the second requirement spelt out by Section 10 (23C) (iiiab) of the Income Tax 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 .Income Tax Act. The grants/direct financing by the Government during the six 363 A B c D E F G H 364 A B c D E F G H SUPREME COURT REPORTS [2016] 4 S.C.R. Assessment Years in question i.e. 2004-2005 to 2009-2010 had never exceeded 1 % of the tota
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