amazingly no body dare to answer these questions

Tax queries 2485 views 4 replies

yoginder jain

74 Points Joined January 2009

EDUCATIONAL INSTITUTIONS U/S 10(23C)(iiiad) & 10(23C)(vi)

QUES: 1 Whether educational trust or similar body running an educational institution can be regarded as “other educational institution” for the purpose of section 10(23C) or be eligible for exemption u/s 11/12?

QUES: 2 Whether for the purpose of section 10(23C)(iiiad)/(vi), educational institution should be Indian or should exist in India or educational activity takes place in India?

QUES: 3 Whether a trust/society giving scholarships to students and promoting education but without setting up college or school can claim exemption u/s 10(23C)?

QUES: 4 What is the meaning of “other educational institutions” appearing in section 10(23C) (iiiad)/(vi)? Whether it covers formal education-giving institutions only or covers such institutions also which are for example conducting English speaking or vocational course(s)?

QUES: 5 What is the meaning of “aggregate annual receipts” for the purpose of section 10(23C) (iiiad)?

QUES: 6 Whether any application for grant of exemption is necessary for educational institution referred in 10(23C) (iiiad) or 10(23C)(vi) and if yes what are the formalities i.e. form, authority, time limit, period of validity of exemption?

QUES: 7 Whether there is any time limit for granting of exemption or rejection thereof for institutions mentioned in section 10(23C)(iiiad) or 10(23C)(vi) or 11/12?

QUES: 8 Whether requirements of section 11& 12 are applicable for institution u/s 10(23C)(iiiad) & (vi)? Whether institutions covered u/s 10(23C)(iiiad) or 10(23C)(vi) are required to obtain registration u/s 12AA also or vice versa?

QUES: 9 If a trust/society running educational institution seeks to claim exemption u/s 11/12, then what are the requirements?

QUES: 10 What are the conditions as to application or accumulation of income for these three types of educational institutions i.e. one covered u/s 10(23C)(iiiad), other covered u/s 10(23C)(vi) and other covered u/s 11/12?

QUES: 11 Whether and where such institutions are required to invest funds?

QUES: 12 What would happen if voluntary contributions are received in kind e.g. books, clothes for the students?

QUES: 13 What will happen if such institutions earn profits and gain of business?

QUES: 14 Whether educational institution can make profit?

QUES: 15 Whether educational institution covered u/s 10(23C)(vi) or section 12AA accumulating its income can give donation to other similar trust/institution and if yes its implications?

QUES: 16 Whether educational institution can receive anonymous donations and if yes what is the taxability? What precautions are necessary for avoiding the tag of “anonymous donations”?

QUES: 17 Can approval granted by competent authority u/s 10(23C) (vi) be withdrawn and if yes under what circumstances?

QUES: 18 Whether audit of accounts is compulsory for these institutions mentioned in section 10(23C)(iiiad) or 10(23C)(vi) or 11/12 and if yes what is the form?

QUES: 19 Whether tax audit u/s 44AB is necessary for the educational institutions covered u/s 10(23C) (iiiad) or (vi) or u/s 11 /12 ? If yes, under what circumstances?

QUES: 20 What is the requirement of filing of return for these institutions and which is the form, due date of filing and filing of annexures? In case of delay, how to respond?

QUES:- 21 What would happen if trust/Educational Institution receives donation and is not able to prove identity etc of the donor?

QUES:- 22 What would happen if DVO is appointed to find undisclosed investment in the construction of the building of charitable trust/educational institution?

QUES:- 23 What would be income in case society is not granted registration u/s 12AA or u/s 10(23C)? Whether entire receipts would be taxable?

Replies (4)

Ratan Deep Saxena

Asstt Manager (Accounts & Finance)

2998 Points Joined May 2009

ANS 19. THE Government proposes to tighten control over educational institutions and hospitals that are currently availing various income-tax exemptions for their charitable activities.

Educational and medical institutions operating as not-for-profit entities and with a total income of Rs 1 lakh or more in a year (before availing exemption under Section 10 (23C)) would now be required to get their accounts compulsorily audited by a chartered accountant.

This has been stipulated in the Taxation Laws Amendment Bill 2005 that was introduced in the Lok Sabha by the Finance Minister, Mr P. Chidambaram, here on Thursday.

"So far, there was no stipulation that medical and educational institutions availing tax exemptions under Section 10 (23C) should get their books audited. The Bill proposes to make audit mandatory for such institutions. They would also be required to file returns if their total income exceeds Rs 1 lakh in a year"

Ratan Deep Saxena

Asstt Manager (Accounts & Finance)

2998 Points Joined May 2009

ANS NO. 5:	AGGREGATE ANNUAL RECEIPTS
upto than Rs.1 crore	more than Rs.1 crore
- exemption u/s 10(23C)(iiiad)	- seek approval u/s 10(23C)(vi)
- AUTOMATIC	- Approval to be sought
( Exemption u/s 10 (23C) (iiiad) is automatic .but u/s 10(23C)(vi) is to be sough)t

Reasoning:

READS

Section 10 : Incomes not included in total income

In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included:

(23C)(iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed(one crore rupees under rule 2BC(1).

Separate approval is required only in cases where the annual receipts is more than 1 crore u/s 10(23C)(vi) as per guidelines for approval in Rule 2CA (as below).

GUIDELINES FOR APPROVAL UNDER SUB-CLAUSES (VI) AND (VIA) OF CLAUSE (23C) OF SECTION 10

(1) The prescribed authority under sub-clauses (vi) and (via) of clause (23C) of section 10 shall be the [Chief Commissioner] to whom the application shall be made as provided in sub-rule (2).

(2) An application for approval shall be made in form no. 56D by any university or other educational institution or any hospital or other medical institution referred to in sub-clause (vi) or sub-clause (via) of clause (23C) of section 10.

(3) The approval of the [Chief Commissioner] shall at any one time have effect for a period not exceeding three assessment years].

[EXPLANATION : for the purposes of this rule, the “Chief Commissioner” means the chief commissioner to whom the assessing officer having jurisdiction to assess the university or other educational institutions or any hospital or other medical institutions referred to in sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 of the act is subordinate.]

Ratan Deep Saxena

Asstt Manager (Accounts & Finance)

2998 Points Joined May 2009

Anonymous donation

There is, however, one rider to be considered. Finance Act, 2006 has inserted Section 115BBC to bring to tax income by way of any anonymous donation. Section 115BBC(3) defines anonymous donation to mean any voluntary contribution referred to in Section 2(24)(iia). There is no reference to Section 68.

It is public knowledge that quite a number of educational institutions will show cash credits, which could not be proved. The Delhi High Court ruling may help such institutions to claim exemption even in respect of such unproved credits. It will be difficult to treat cash credits on a par with anonymous donations. Capitation fees can easily be disguised as cash credits. The law may require amendment. All that is required will be to insert Section 68 also in Section 115BBC. One saving feature will be that exemption will be available subject to conditions for the application of such income wholly for the objects for which the institution is established. Section 10(23C) also requires approval from the prescribed authority about the genuineness of the activities of the institution.

All these safeguards built into Section 10(23C) may not suffice to nullify the Delhi High Court ruling conferring exemption even on amounts covered by Section 68. This is the first ruling of its kind and requires serious notice.

(The author is a former Chief Commissioner of Income-Tax.)