INCOME TAX AND EDUCATIONAL INSTITUTIONS AND UNIVERSITY
S. K. Mishra, Chief Commissioner of Income Tax, Indore
SYNOPSIS1. Introduction – Roll of Income tax Department, + Slide2. Educational activities 10(23C) (iiiab) (iiiad) (vi) 2(15)3. Charitable religious trust/society/InstitutionsSection 11, 12, 12A 12AA 13Section 11(5) 13(2) 13(3)4. Requirement of 10(23C)(vi)5. Case Study6. Comparison of 10(23C)(vi) with 2(15) read with Sec. 11 to 137. Some more case laws to explain - a) Education, b) Solely education purpose and not for profit c) Charitable purpose8. Cases study where 10(23C)(vi) Exemptions denied9. Whether benefit u/s 12A is available even if 10(23C)(vi) rejected 10 Anonymous donations11. TDS provisions.12. Section 80E Deduction for education loan13. Donations for approved research in science, social welfare and statistics.14. Proposed modification in Draft ‘Direct Tax Code’15. Impact on Wealth tax
Sec. 2(15) charitable purposeCharitable purpose is defined in Sec. 2(15) which includes -
relief of the poorEducation, medical relief Preservation of environment including water sheds, forests & wild life.
Preservation of Monuments,, place or objects of Artistic or historic interest.
Advancement of any other object of general public utility.
Provided , The advancement of any other object of general public utility
shall not be a charitable purpose, if it involves
the carrying of any activity in the nature of trade, commerce or business or any
activity rendering any service for CESS or Fee or
any other consideration in relation to any trade, commerce or business
provided gross total receipts is Rs. 25 lakhs or less.
Taxation of Charitable Trust/Institution
Section 11 provides the manner in which income is exempt from income-tax.
Section 12 provides the income of trust or institutions from contributions.
Section 12A provides the conditions as to registration of trusts, etc.
Section 12AA provides the procedure for registration and cancellation.
Section 13 provides that section 11 & 12 not to apply in certain cases i.e. forfeiture of exemption.
Educational Institution can be run by
i.Trust ii. A limited company registered u/s 25 of the Companies Act, 1956.(These companies are for charitable purposes).iii. A society registered u/s.20 of the Societies Registration Act, 1860. These societies are for charitable purposes.iv. A Hindu Endowment for a public religious purpose v. iv. A Muslim Wakf.
Can the objects of the trust be charitable as well as non
charitableSakthi Charities, 149 ITR 624, and in many other cases, courts opined that for claiming exemption u/s 11 to 13, The trust should exist exclusively for charitable purposes.
Education The Supreme Court in Sole Trustee, Loka Shikshana Trusts v. CIT (1975) 101 ITR 234 held that education’ connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling. Gujarat High Court held that the element of imparting education to the students or element of normal schooling where there are teachers and taught must be present so as to fall within the meaning of education.
Not educational activityproviding scholarships and financial assistance to students without keeping any control over such students.
coaching classes run on pure commercial principles
Printing Press for Publication Books / News Paper
Providing transport, Canteen or Hostels as Business activity
Provisions Of The Act Relevant For Educational Institution
Sec. 10(23C)
Exemption as an Educational Institution
Sec. 11/12/1
2A
Exemption as a Charitable
Institution
Sec. 35
Expenditure on Scientific Research
Exemption u/s. 10(23C)As per Sec. 10(23C), income of following educational institutions is fully exempt from income tax :
Requirements Of Approval U/S. 10(23C)(vi)Any University or other
Educational Institution whose aggregate annual receipt exceeds Rs. 1 Crore is
required ….
….to file an application in Form No. 56D to the Chief Commissioner or Director General
of Income Tax. [First proviso to section 10( 23C), Rule 2CA ].
Approval u/s. 10(23)(c )(vi)
Chief Commissioner or Director General of Income Tax ..may call for
such documents (including audited annual accounts) or information, to satisfy itself about the
genuineness of the activities
and may also make such enquires as it deems necessary [Second proviso to section 10( 23C)].
Approval u/s. 10(23)(c )(vi)Any university or other educational institution
under section 10(23C)(vi), shall….
apply its income or accumulate wholly and exclusively for the objects for which it is
established
and in case more than 15% of income is accumulated, the period of accumulation of the amount exceeding 15% of its Income, in no case shall exceed 5 years. [Third Proviso to section
10(23C)]
Investment of fundsThe university or other
educational institution under section 10(23C)(vi)
can not invest or deposit its funds otherwise than in any one or more of the forms or modes specified in sub-section
(5) of section 11.
Business Income If the Educational Institution as
specified u/s 10(23C)(vi) carries on any business then…
……exemption shall be available in respect of business income only if the business is incidental to the attainment of its objectives and
…separate books of accounts are maintained by it in respect of such
business . [Seventh Proviso to section 10(23C)].
Other requirements in form 56DThe form is to be submitted in 4 copies alongwith a enclosure and be sent to the authorized CCIT/DGIT
Copies of the following documents should be annexed:- Deed of Trust/ Memorandum and Articles of Association or other documents showing legal status of the Enterprises.
List of the major office bearers including settler and members of the Governing Body.
Photocopies of the registration u/s 12A if any. Photocopy of the latest certificate u/s 80G. True copies of the Assessment Orders passed in last 3 years.
Copies of Audited Accounts and Balance Sheets for the last 3 years alongwith note on examination of accounts.
Note on the activities as reflected in the accounts and annual reports with special reference to the appropriation income towards the object clause:
Any donation from the foreign country under foreign contribution regulation act, 1976.
The other information required in form no. 56D include
information about total income, voluntary contribution received, amount of income utilized wholly and exclusively for education, amount accumulated for the objects for future,
details of modes in which funds are invested/deposited showing nature, value and income from the investments:
details of funds not invested in prescribed mode u/s 11(5)
whether any business is being carried out- give details
other details include any shares/securities, other properties purchase by the institute from any interested persons as specified in sec. 13(2)
whether any part of the income or property of the institute used or applied, directly or indirectly to confer any benefit, amenity, perquisite to any interested person as specified in sec.13(3)
The taxable income if benefit denied u/s 10(23C)(vi).
Sec. 11(5) of I.T. Act :- Forms and modes of investing / depositing the money
1.Investment in saving certificates or Govt. Securities
2.Any account post office savings Banks 3.Any account with Scheduled / Co-opperative Bank 4.Units of UTI5.Any security for money created / issued by Central / State Govt.
6.Investments in Debenture of a company or corporation where of unconditional guaranty given by Central / State Govt. for both Principal and Interest.
7.Investment or deposit in any Public sector company8.Deposit / Investments in any bonds issued by financial corporation, viz industrial development etc.
Continue…..
9.Deposit / Investment in bonds issued by Indian Public Company with the main object of providing Long Term finance for construction or purchase of houses.
10. Deposit / Investment in Indian Public Company meant for finance of Urban Infrastructure in India.
11. Investment in immovable Property 12. Deposit with Industrial Development Bank Of
India. 13. Any other from or mode of Investment or Deposit
as may be prescribed. [Rule 17C provides following modes- Mutual fund scheme u/s 10(23D) : Town planning Authority / Bodies of Central / State Govt. : Acquiring equity shares of depository : in shares of National Silk Development Corporation etc. ]
Sec. 13(1) of I.T. Act :- Exemption u/s 11 not available if
Property is held for Pvt. religious purpose & not for general Public
Income for benefit of any particular religious community or caste.
Any part of Income used for giving direct / indirect benefit to a person referred in sec. 13(3)
Any funds are invested/deposited in a manner not specified 11(5)
Any share other than share in a Public sector company/shares prescribed in sec. 11(5)
Exceptions :- Any assets forming part of corpus as on 01.01.1973Any accretion to the shares forming part of corpus,(i) above. Any bonus shares Any debentures of a company or corporation required before 01.01.1983
Sec. 13(3) of IT Act- persons denied benefits u/s 13(2)
Author of the trust / Founder of the Institution Person who has made substantial contribution A member of HUF when HUF is the Author / Founder
Any trustee or manager Any relative of such Author, Founder, Person, Member, Trustee, Manager
Any concern in which any of the person referred above have substantial interest
Note: Relative means spouse, brother or sister of self or spouse, any lineal ascendant or descendant of the individual or spouse, spouses of the person included in this list or their lineal ascendant or descendant.
Audit & ReturnIf the income of Educational Institution
exceeds maximum amount which is not chargeable to tax in any previous year
then
it shall get its accounts audited in respect of that year and furnish the audit report in form 10BB along with the return of income.
[Tenth Proviso to section 10(23C)].
Power of WithdrawalIf the activities of such Educational Institution are not found genuine or are not being carried out
in accordance with all or any of the conditions subject to which it was approved….
…. then the CCIT may at any time after giving reasonable opportunity of being heard withdraw the approval. [Thirteenth
Proviso to section 10(23C)].
Exemption u/s. 11
An educational institute can also get exemption u/s. 11 of the act.
For this, it needs to get itself registered u/s. 12A of the act with the commissioner of Income tax.
Exemption u/s. 11 is available on the same lines as has been discussed for Sec. 10(23C)(vi).
Anonymous DonationAny anonymous donation received by any university or other educational institution referred to in section 10(23C) (iiiad) and (vi) is not eligible for any exemption.
These donations are taxable @ 30%. Anonymous donation means any voluntary contribution
where the person receiving such contribution does not maintain a record consisting of the identity of the person making such contribution indicating the name and address of the person and other prescribed particulars.
Education Loan
Interest on education loan is deductible u/s 80E, if –
◦ Loan taken by individual, spouse or children
◦ Loan taken from Bank, Financial or charitable institution
◦ No tax benefit on Principal re-payment
◦ Regular full time course or vocational / professional course after Higher Secondary
◦ Deduction allowed upto 08 years
OTHER IMPORTANT ISSUES
CCIT/DGIT have no power to condone delay Order refusing u/s 10(23C)(vi) is non- appealable
If exemption is denied to a institution / trust / fund etc. , then in W.T. , their status is individual for W.T. Computation.
While approving u/s 10(23C)(vi), only essential & reasonable conditions can be imposed, and un- warranted conditions viz not to charge any fee to beneficiary or not to collect exam fee to conduct talent exam etc.
The case laws u/s 10(22) may not be binding u/s 10(23C)(vi) on account of change in legal provisions
If exemption denied u/s 2(15) read with 11-13 for education activity, then no exemption is possible u/s 10(23C).
If exemption under 1st proviso to sec. 2(15) is denied then income become would taxable even when approval u/s 10(23C)(vi) not withdrawn
ReturnsFollowing educational institutes are mandatorily required to file return of their income :
• Claiming exemption u/s. 10(23C)(iiiad)- annual receipt does not exceed Rs. 1 crore
• Approved u/s. 10(23C)(vi)
The due date of filing of return is 30th September.
In case return has not been filed upto the due date, a penalty of Rs. 100 per day may be levied. [Sec. 272A(2)(e)]
T.D.S provisions
Even if income of an educational institute is exempt from tax, they are not automatically exempt from TD.S..
As such any person paying any money to them , which is covered by the T.D.S. provisions, shall make TDS from such payment.
E.g., Bank paying interest on FD to these institutes shall deduct tax from such interest.
To gain exemption from T.D.S., educational institutes need to apply to Assessing Officer u/s. 197.
T.D.S. from Payments made
If educational institutes make such payments, which are liable for TDS, they need to deduct tax from such at the appropriate rate.
• Salary• Contract- Construction, Security, Catering etc.• Rent• Consultancy and other professional services fees
Following are some of the payments, typically made by the educational institutes which require TDS to be made :
Direct Tax Code Bill 2010Non Profit Organization defined as
i)Established for the benefit of general public. ii)Actually carries on charitable activity during the F.Y.
iii)Actual beneficiary are general Public.
No distinction between any charitable institute or education / Medical
Tax on NPO 15%Tax on NPO refusal 30%
Method of Accountancy Cash System
Accumulation of surplus in excess of 15% (Allowed for 10 years with conditions)
Registration of NPO u/s 93 of Code
BY REARCH FOUNDATION, 175% ON SCIENTIFIC, RESEARCH, UNIVERSITY, OR COLLEGE
125% ON OTHER AREAS
PROVIDED
CERTAIN CONDITIONS ARE FULFILLED, AND RESEARCH PROJECTS ARE APPROVED BY THE PRESCRIBED AUTHORITY
Expenditure on scientific/ social/ statistics research - sec 35
Approval u/s. 35For the purpose of giving benefit to the donors, the university/ college is required to get itself approved under this section.
Application in form 3CF-II is to be filed for this purpose with commissioner of Income tax.
A copy of application is to be sent to Member (IT), Central Board of Direct Taxes.
Approval u/s. 35
On the application form, CIT may make enquiry
to examinegenuineness of the activity of the association, university, college or other institution.
CIT, within 3 months forward his recommendation to the member (IT), CBDT for approval / rejection
Government identified
Sectors Finance Act Relevant SectionIndustry & Hotel in Backword areas
1974 80HH
Scientific research & rural development
1980 80GGA
Export Business 1085 80HHC
Infrastructure/tele- communication development
1991 80IA
Software 1991 80HHE
Housing projects 1998 8oHHBA
Health & medical care 1996, 1997 80DD, 80DDA
Government identified Sectors Finance Act Relevant Section
Export of film software 1999 80HHF
BPO & KPO 2000 10A & 10B
Real estate 2004 80IB
Multiplex theater 2002 80IB
Stock market 2004 10(38)
Telecommunication 2001 80IA
Scientific, University college or research foundation
1989 35
Donation for scientific research
1989 80GGA
Research in social& statistics
1912 35, 80GGA
Government knowsWhat needed Infrastructure, Power, hospitals, cold storage, ware houses, packed food, housing, research and development
Where neededBackward areas, developing states, historical places,
When neededTime of investment – decide period of exemptions
Accordingly frame laws & policies