Eligibility of Educational Institutions to Claim Exemption Under Section 10(23C) of the Income-Tax Act – Part I

1.1    Section 10 of the Income-tax Act, 1961 (‘the Act’) excludes/exempts income falling within any of the clauses contained therein while computing the total income of a previous year of any person. The scope of this write-up is restricted to certain provisions contained in section 10(23C) of the Act which deals with the exemption of income earned by educational institutions existing solely for educational purposes. 1.2    Section 10(22) of the Act was a part of the statute right from the enactment of the Income-tax Act, 1961. The said section provided exemption for any income of a university or other educational institution existing ‘solely’ for educational purposes and not for purposes of profit. Section 10(22) was omitted by the Finance (No. 2) Act, 1998 w.e.f. 1st April, 1999. The CBDT, in its Circular No. 772 dated 23rd December, 1998 (235 ITR (St.) 35), stated that section 10(22) provided a blanket exemption from income-tax to educational institutions existing solely for educational purposes and in the absence of any monitoring mechanism for checking the genuineness of their activities, the said provision has been misused. Therefore, it was thought fit to omit section 10(22) from the Act and, in its place, insert certain sub-clauses in section 10(23C) as mentioned hereinafter. 1.3    Section 10(23C) of the Act was introduced by the Tax