Mumbai: The University of Mumbai secured a major tax relief after the Income Tax Appellate Tribunal (ITAT), Mumbai bench, ruled that grants received from the University Grants Commission (UGC) and notional interest on govt-provided land can be counted while determining whether an educational institution is substantially financed by govt.The ITAT order allows the university to claim tax exemption under Section 10(23C)(iiiab) of the Income-Tax (I-T) Act for the financial year 2017-18. This recent order was pronounced by a bench comprising Saktijit Dey, vice-president, and Makarand Vasant Mahadeokar, accountant member.The dispute arose as the I-T department denied the university tax exemption on the ground that govt grants accounted for less than 50% of its total receipts. The university had reported total receipts of around Rs 250 crore during the year, including student fees, govt grants and other income.Under Rule 2BBB, an educational institution is treated as wholly or substantially financed by govt if govt grants exceed 50% of its total receipts, including voluntary contributions, during the relevant previous year.The I-T department had calculated the university’s govt grants at around Rs 52.3 crore and concluded that the prescribed threshold was not met. Consequently, it held that the university’s taxable income (receipts minus expenditure) was Rs 40.1 crore.The university argued that the calculation was incomplete. It submitted that grants received from the UGC should be treated as govt grants since the commission distributes funds received from the Centre to universities. It also contended that the value of land provided by govt should be recognised as govt assistance, with notional interest on the land included in the funding calculation.Accepting these arguments, the ITAT observed that the UGC acts as an intermediary between the Central govt and universities. Funds distributed by the UGC ultimately originate from the Consolidated Fund of India and are allocated through parliamentary budgetary provisions.On the land issue, the ITAT noted that the university’s Fort campus was situated on land granted by govt in 1918 on a long-term lease of 945 years, while another plot at Kalina was also provided by the state govt.After including the UGC grants and notional interest on the govt-provided land, the university’s govt funding worked out to 50.76% of its total receipts, marginally crossing the prescribed threshold.The tax tribunal also noted that the university was subject to substantial govt control under the Maharashtra Public Universities Act, 2016.The ITAT held that the conditions for tax exemption were met. It also deleted the penalty that had been imposed on the university for alleged misreporting of income.
