January 2023
Eligibility of Educational Institutions to Claim Exemption Under Section 10(23C) of the Income-Tax Act – Part I
Kishor Karia, Chartered Accountant
Atul Jasani | Harsh Kothari, Advocates
Atul Jasani | Harsh Kothari, Advocates
INTRODUCTION
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 Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976 exempting income of certain specified funds/ institutions which are not relevant for the purpose of this write up. The Finance (No. 2) Act, 1998 while omitting section 10(22) of the Act, inter alia introduced clauses (iiiab), (iiiad) and (vi) in section 10(23C) of the Act granting exemption to certain universities or other educational institutions existing solely for educational purposes and not for purposes of profit and which satisfied the criteria stated in those clauses. Section 10(23C)(iiiab) of the Act covers any educational institution which is wholly or substantially financed by the Government.
Section 10(23C)(iiiad) of the Act as amended by the Finance Act, 2021 applies to any educational institution if the aggregate annual receipts of the person from such institution does not exceed R5 crores. Section 10(23C)(vi) exempts income of any educational institution other than those mentioned in sub-clauses (iiiab) or (iiiad) and which is approved by the specified authority. In this write-up, we are mainly considering section 10(23C) (vi).
1.4 Section 10(23C)(vi) contains several provisos which have been amended from time to time. Substantial amendments were made in the last three years. As such, at different points of time, proviso numbers have also undergone changes. These provisos (except the one dealing with anonymous donation referred to in section 115BB
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 Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976 exempting income of certain specified funds/ institutions which are not relevant for the purpose of this write up. The Finance (No. 2) Act, 1998 while omitting section 10(22) of the Act, inter alia introduced clauses (iiiab), (iiiad) and (vi) in section 10(23C) of the Act granting exemption to certain universities or other educational institutions existing solely for educational purposes and not for purposes of profit and which satisfied the criteria stated in those clauses. Section 10(23C)(iiiab) of the Act covers any educational institution which is wholly or substantially financed by the Government.
Section 10(23C)(iiiad) of the Act as amended by the Finance Act, 2021 applies to any educational institution if the aggregate annual receipts of the person from such institution does not exceed R5 crores. Section 10(23C)(vi) exempts income of any educational institution other than those mentioned in sub-clauses (iiiab) or (iiiad) and which is approved by the specified authority. In this write-up, we are mainly considering section 10(23C) (vi).
1.4 Section 10(23C)(vi) contains several provisos which have been amended from time to time. Substantial amendments were made in the last three years. As such, at different points of time, proviso numbers have also undergone changes. These provisos (except the one dealing with anonymous donation referred to in section 115BB
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