The main legal point established in the judgment is that the grant from the Central Government, even if it constitutes less than 50% of the total income, can still be considered substantial finance by the Government for the purpose of qualifying for exemption under Section 10(23C)(iiiab) of the Income-tax Act.

N. Kumar, J.— This appeal is by the revenue challenging the order passed by the Tribunal holding that the Assessee is entitled to exemption under Section 10(23C)(iiiab) of the Income-tax Act and accordingly, dismissing the appeal filed by the revenue.

2. The Assessee is an educational institution. It claimed exemption under Section 10(23C)(iiiab) of the Income-tax Act (for short, hereinafter referred to as, 'the Act'). The Assessee filed return of income for the assessment year 1999-2000, declaring 'nil' income and subsequently, filed revised return of income. Noticing the Assessee was entitled for exemption under Section 10(23C)(iv) or under Section 10(23C)(iiiab) of the Act, the assessment came to be reopened. The Assessing Officer found only 37.85 per cent of the total income was financed by the Government and the Assessee is not notified by the prescribed authority nor it is registered under Section 12A of the Act. It was also found that the Assessee is not approved under Section 10(23C)(iv) of the Act. Lastly, it was held that the income was not exempted under Section 11 of the Act. Therefore, the Assessing Officer held that the Assessee is not entitled to claim exemption. The Assessee preferred an appeal. The Commissioner (Appeals) took note of the contribution made by the Central Government from the years 1972-73 to 2004-05 and held that the Assessee is substantially financed by the Government and accordingly, set aside the assessment order and granted exemption claimed by the Assessee. Against the said order, the Revenue preferred the appeal before the Appellate Tribunal. The Appellate Tribunal taking note of the fact that the earlier years also such appeals by the Revenue was rejected, rejected the present appeal also. Aggrieved by the same, the Revenue is in appeal.

3. Learned Counsel for the Appellant assailing the impugned order contends that, admittedly, out of total receipt of 20.61 lakhs the grant from the Central Government is only Rs. 7.80 lakhs which works out to hardly 37.85 per cent. It does not exceed 50 per cent and, therefore, the Assessee is not entitled to exemption. The Appellate Tribunal committed serious error in interfering with the order of assessment and therefore, he submits that case for interference is made out.

4. This Court had an occasion to consider Section 10(23C)(iiiab) in the case of CIT v. National Education Society [IT Appeal No. 808 of 2009], where it was held as under :

Para-4. The word 'substantial' has not been defined under the Income-tax Act. However, it has been the subject-matter of interpretation by various Courts in various contexts. The authorities in deciding what constitutes a 'substantial' portion of the finance have taken note of the statutory provisions contained in the Banking Regulation Act, 1949, where a person who has the beneficial interest of more than 10 per cent of the total capital subscribed by all the partners of the firm has been held to be having substantial interest. Similarly, 'substantial interest' has also been defined in explanation to Section 40A(2)(a) of the Income-tax Act, where a person who is having voting power of not less than 20 per cent in the case of the Company, is deemed to have substantial interest in the business of the company.

Para 5. In the case of Assessee itself, when the grant was more than 50 per cent, exemption has been extended to the Assessee. It is in this context, in the absence of any definition for the word 'substantial' in the Act, what is to be seen is, what is the total receipts and from what source. In that context, we have to find out whether the grant of 36.42 per cent of total receipts constitutes substantial finance by the Government.

5. Applying the aforesaid law, in the instant case, the total income of the Assessee from all sources is 20.61 lakhs. Out of which, a sum of Rs. 7,80 lakhs which represents only 37.85 per cent of the total income is financed by the Central Government. The other source of income being