CBDT issued a circular no. 14/2015 dated 17 August 2015 clarifying on certain issues related to grant of approval and claim of exemption u/s 10(23C)(vi) of the Income-tax Act, 1961.Full circular is as under.
Sub: Clarification on certain issues related to grant of
approval and claim of exemption u/s 10(23C)(vi) of the Income-tax Act, 1961.
Sub-clause (vi) of clause (23C) of Sec 10 of the Income-tax
Act, 1961 (`Act') prescribes that income of any university or other educational
institutions, existing solely for educational purposes and not for purposes of
profit, shall be exempt from tax if such entities are approved by the
prescribed authorities. Such approval is not required in cases of university
or educational institutions wholly or substantially financied by he
Goverment [sub-clause (iiiab)] or if their aggregate annual receipts do not
exceed Rs. 1 crore [sub-clause (iiiad) r.w. rule 2BC]. Thus, while granting
approval to entities covered under sub-clause (vi), the prescribed authority
has to ensure that the applicant institution must exist "solely for
educational purposes and not for purposes of profit". There are several
Provisos to clause (23C) of section 10 and prescribe, inter alia, various
monitoring conditions subject to fulfillment of which only, the exemption can
be availed.
These monitoring conditions include mode and manner of
application of funds, maintenance and audit of books of accounts in certain
situations etc. Some other Provisos prescribe the manner of making application
u/s 10(23C)(vi) and the circumstances when an approval granted earlier can be
withdrawn.
Representations have been received seeking clarification on
certain issues related to operation of section 10(23C)(vi). These have been
examined by the Board and following clarifications are made —
1. Scope of enquiry while granting apprital-
1.1 Clarification has been sought on the scope of enquiry
that can be made by the prescribed authority while granting approval u, s
10(23C)(vi), i.e., whether it would be sufficient for the prescribed authority
to consider the nature, existence for non-profit purposes and genuineness of
the applicant institution or the conditions prescribed under various Provisos are also
required to be considered at the stage of granting approval.
1.2 In this connection, attention is drawn to the decision
of Hon'ble Supreme Court in case of American Hotel and Lodging Association
Educational Institute vs. CBDT [301 ITR 86](2008) in which it has been held
that at the time of granting approval u/s 10(23C)(vi), the prescribed authority
is to be satisfied that the institution existed during the relevant year solely
for educational purposes and not for profit. Once the prescribed authority is
satisfied about fulfillment of this criteria i.e. the threshold pre-condition
of actual existence of an educational institution under section 10(23C)(vi), it
would not be justifiable, in denying approval on other grounds, especially
where the compliance depends on events that have not taken place on the date on
which the application for grant of approval has been made.
1.3 However, the prescribed authority is eligible to grant
approval u/s 10(23C)(vi), subject to such terms and conditions as deemed
necessary including those falling within the framework of various Provisos to
the said clause of section 10. It has also been clarified in the said judgment
that the compliance of prescribed conditions can be gauged while monitoring the
case and in case of any breach thereof, the approval can be withdrawn. It is,
therefore, clarified that the principle laid down by the Apex Court in American
Hotels case (supra) must be followed while considering the applications filed
seeking approval for exemption u/s 10(23 C)(vi).
2. Necessity for registration nits 12AA while seeking
approval /claiming exemption u/s 10(23C)(vi)
2.1 Section 10(23C)(vi) does not prescribe any stipulation
which makes registration u/s 12AA a mandatory pre or post condition. In fact,
provisions of section 11 and 10(23C) are two parallel regimes and operate
independently in their respective realms although some of the compliance
criteria may be common to both. Hence obtaining prior registration before
granting approval u/s 10(23 C) cannot be insisted upon.
2.2 However, in case of a trust or an institution having
obtained registration u/s 12AA as well as approval u/s 10(23C)(vi), if
registration is withdrawn at some point of time due to certain adverse
findings, the withdrawal of approval u/s 10(23C)(vi) shall not be automatic but
will depend upon whether these adverse findings also impact the conditions
necessary to keep approval u/s 10(23C)(vi) alive.
3. Generation of surplus out of gross receipts
A doubt has
been raised whether generation of surplus out of gross receipts would
necessarily 'breach' the threshold condition that the educational institution
should exist `solely for educational purpose and not for the purpose of
profit'. Perusal of prescribed provisions clearly reveal that mere generation
of surplus cannot be a basis for rejection of application u/s 10(23C)(vi) on
the ground that it amounts to an activity of the nature of profit making. In
fact, the third Proviso to tile said clause clearly provides that accumulation
of income is permissible subject to the manner prescribed therein provided such
accumulation is to be applied "wholly and exclusively to the objects for
which it is established". Hence, it is clarified that mere generation of
surplus by educational institution from year to year cannot be a basis for
rejection of application u/s 10(23 C)(vi) if it is used for educational
purposes unless the accumulation is contrary to the manner prescribed under
law.
4. Collection of amounts under different heads of fee
from students-
It has been brought to the notice that collection of small
amounts from students by way of application fee, examination fee, fee for
issuing transfer certificate, subscription fee for library etc. is being
treated by some Assessing Officers as profit making activity resulting in
denial of exemption u/s 10(23C)(vi). Collection of small and reasonable amounts
under different heads of fee, which are essentially in the nature of fee
connected with imparting education and do not violate any Central or Stat-z,.
regulation does not, in general, represent a profit making activity. Hence,
there is no justification for treating the charging of small amounts under
different heads of fee as Profit making activity unless the amount in the
nature of 'capitation fee is charged directly or indirectly.
5. Impact of extraordinary powers of the Managing Trustees to appoint remove or nominate other trustees.
5.1 Doubt has been expressed whetaer pcwers to the Managing
Trustees to appoint or remove other trustees and also to nominate their
successor affect the nature of charitable activity of the trust and whether in
such an eventually exemption can be denied.
5.2 There is no provision under the Act which calls for
denial of exemption merely on account of appointment or removal of trustees.
Although answer to such a situation would normally depend on the factual
implication of such arrangement, the same should generally not be a ground for
denying exemption unless the nature of activities of the trust or institution
get changed or modified or no longer remain to exist 'solely for educational purpose and not for
purposes of profit'. Hence denial of exemption would not be justifiable only on
the ground of induction of new trustees or removal of existing ones.
6. Field authorities are advised to keep the above position
in mind while dealing with the matters of approval /exemption u/s 10(23C)(vi).
Similar principles would also apply to cases covered u/s 10(23C)(via) of the
Act.
(Deepslikha Sharma) Director to the Government of India
