The Supreme Court has held that Visvesvraya Technological University (VTU) , a University in Karnataka which exercises control over all Government and Private Engineering Colleges within the state, is not entitled to the benefit of exemption from Income Tax under Section 10(23C)(iiiab) of the Income Tax Act.
Assessing officer had rejected the claim of exemption by the University and the challenge against the Demand notice was also dismissed by the High Court. The University then approached the Apex Court.
For claiming exemption under Section 10(23C) (iiiab), the educational institution or the university must be solely for the purpose of education and without any profit motive and it must be wholly or substantially financed by the government. Division Bench comprising of Justices observed with reference to Queen's Educational Society vs. Commissioner of Income Tax, the first requirement of Section 10(23C) (iiiab), namely, that theUniversity exists “solely for educational purposes and not for purposes of profit” is satisfied.
However, the Court held that the University is not substantially financed by the government so as to meet the second requirement to claim exemption. The Court observed that collection of fees by University does not amount to funding from Government. “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”.
The Court said that the 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.
Read the Judgment here.