Indian Institute of Management-Bangalore (IIM-B) the name is enough to inspire awe. So, its hardly surprising that when it is taxed for the first time, it should be asked to cough up a whopping Rs 3.19 crore.
Reason: The income tax authorities have held that the institute is no longer substantially funded by the government. While considering the returns filed by the B-school for the assessment year 2003-04, the department has held that the institute cannot claim exemption under Section 10 (23c) (iiiab) and is liable to pay a tax of Rs 3,19,95,174.
This issue was raised during the recent Board of Governors meeting chaired by Reliance CMD Mukesh Ambani. IIM-B director Prakash Apte has now written to the HRD ministry asking it to notify IIM-B as an educational institution wholly or substantially financed by the government.
Up to 1998-99, IIM-B claimed exemption under Section 10 (22) of I-T Act which said any income of an university or educational institution existing solely for education purposes and not purposed for profit is exempted from tax. Section 10 (22) was omitted by Finance No. 2 Act 1998 w.e.f. April 1, 1999.
Subsequently, sub-clauses (iiiab) to (iiiae) were inserted into Section 10 (23c) in the same Act, which added an additional clause of wholly or substantially funded by the government for tax exemption.
In its petition to Ravi Mathur, joint secretary (technical), HRD ministry, copy of which is available with TOI,Apte has said: IIM-B is an education institution. It exists solely for educational purposes. Further, it is not an educational institution formed for the purpose of profit.
These conditions of section 10 (23c) (iiiab) have been satisfied by IIM-B. The other requirement for tax exemption is that the government wholly or substantially finances the educational institution. I-T authorities have argued that the funds from the government in the last five years have been less than 50%. But Apte has said: IIM-B was established with budgetary support from the government. IIM-B has been getting grants for various purposes from the central government every year.
There is no other body or institution from which IIM-B gets any grants. The assets of the IIM-B would belong to the central government on its liquidation.
Apte has argued that income from operations has to be excluded, in as much as it represents a consideration for services rendered. Fee received from clients cannot be said to constitute the finance for a lawyers office. Similarly, fee received for courses conducted by IIM-B cannot be said to be the source of finance.