Section 10

Exemptions

General

Onus is on assessee to prove that income qualifies for exemption - The onus of showing that a particular class of income is exempt from taxation lies on the assessee. To earn the exemption, the assessee has to establish that his case clearly and squarely falls within the ambit of the said provisions of the Act - H.E.H. Nizam’s Religious Endowment Trust v. CIT [1966] 59 ITR 582 (SC)/CIT v. S.R.M. Ct. M. Thiruppani Trust [1982] 134 ITR 555 (Mad.)/Parimisetti Seetharamamma v. CIT [1963] 50 ITR 450 (AP).

The law is well-settled that it is for a person who claims exemption to establish it, and there is no reason why it should be otherwise when the exemption claimed is under the Income-tax Act. A person who claims the benefit of an exemption has to establish it - CIT v. Ramakrishna Deo [1959] 35 ITR 312 (SC).

Parliament has the competence to withdraw any exemption - If while legislating on a matter within its competence Parliament can grant an exemption, it is surely competent for it to withdraw that exemption in exercise of the self-same power - Madurai District Central Co-operative Bank Ltd. v. Third ITO [1975] 101 ITR 24 (SC).

Receipt by HUF members [Section 10(2)]

Amount must be received in position as member of HUF - If a person who is a member of a HUF receives an allowance not because he is such a member but wholly apart from that position, the exemption does not apply. It is only if the assessee has received the sum in question by virtue of his position as a member of the undivided family to which he claims to belong, that the application of section 14(1) of the 1922 [corresponding to section 10 (2) of the 1961 Act] Act is attracted - Maharaj Kumar of Vizianagaram, In re [1934] 2 ITR 186 (All.)/Vijayananda Galapati, Maharaj Kumar of Vizianagaram v. CIT 9 ITC 73 (All.).

Proper test is to see whether payment would cease on cessation of membership - The unfailing test for the applicability of section 14(1) of the 1922 Act [corresponding to section 10 (2) of the 1961 Act] is to determine whether the allowance would cease if the assessee ceased to be a member of the undivided family - CIT v. Smt. Chandramoni Pattamahadevi Rani Saheba [1946] 14 ITR 134 (Pat.).

Exemption is not related to assessment in HUF’s hands - The exemption is in absolute terms, not qualified in any manner and not dependent on any conditions. Legally, therefore, what is to be determined is whether the sum assessed in the hands of the assessee can be so assessed or not, irrespective of the fact whether this sum has already been assessed elsewhere or not - Smt. Chanan Devi, In re [1944] 12 ITR 153 (Lahore).

Member must be entitled to demand partition or maintenance - Only those members of a HUF can claim exemption who either on partition would be entitled to demand a share or are entitled to maintenance under the Hindu law and who, therefore, might be said to have an interest in the joint income of the family - Kedar Narain Singh v. CIT [1938] 6 ITR 157 (All.).

Assessee must prove entitlement to receive amount - All that was required to be proved by the assessee at the time of the assessment in order to claim exemption under the above section was that the assessee-lady was receiving the sum in question in her capacity as a widow of the deceased coparcener of a HUF. If she proved that she was receiving the sum in that capacity or status, then she would be entitled to exemption under the section. She need not prove anything more. The argument that because of the disruption of the joint family (in 1923) the assessee could no longer claim herself to be member of a HUF could not be accepted - CIT v. Musammat Bhagwati [1947] 15 ITR 409 (PC).

Share income from firm [Section 10(2A)]

Sub-partnership - A sub-partnership, which is in receipt of share of profit of a partner in main partnership, has to be deemed to be a partner in main partnership for limited purpose of section 10(2A) and will be entitled to exemption under section 10(2A) - Radha Krishna Jalan v. CIT  [2007] 294 ITR 28/165 Taxman 538 (Gauhati).

Interest income of non-residents [Section 10(4)]

‘Person resident outside India’ means ‘person not resident in India- ‘A person resident outside India’ would have to be understood as a person who was not a resident in India. Where a person is resident in India in view of provisions of section 2(p)(iii)(c) and section 2(q) of FERA, he is not entitled to exemption under section 10(4A) - CIT v. K. Ramullan [1997] 92 Taxman 122/226 ITR 264 (Ker.).

Interest on deposit of foreign currency not covered by declara­tion - The foreign currency, for which no declarations under section 13 of FEMA had been produced by the respondent-assessee but only exchange vouchers issued by the exchange centres outside the country were produced, even if deposited in the NRE account cannot be said to be moneys standing to the credit of the re­spondent in the NRE account in accordance with the FEMA and the rules made thereunder and the income by way of interest on such moneys would not be exempt from inclusion in the total income of the respondent under section 10(4)(ii) - CIT v. Purshottam Khatri [2006] 155 Taxman 399 (MP).

Interest on FDR - Interest earned on FDR made out of money deposited in NR(E) Account is exempt under section 10(4)(ii) - CIT v. Asandas Khatri [2006] 152 Taxman 635/283 ITR 346/201 CTR 160 (MP).

Leave travel concession [Section 10(5)]

Employer must preserve evidence about correctness of leave travel concession availed by employee - An employer, discharging his statutory obligation under section 192, is not only required to satisfy himself that payment made by him to his employees in respect of leave travel concession is not taxable, as envisaged under section 10(5), but also has to preserve evidence in relation thereto so as to demonstrate and establish to the satisfaction of officer to whom return prescribed under section 206 has been filed that he has not neglected to discharge his statutory obligation of deducting tax at source - C.E.S.C. Ltd. v. ITO [2004] 134 Taxman 511 (Cal.).

Validity of rule 2B - Provisions of rule 2B(a) making difference between air travel charges and railway first class AC charges exigible to tax under the Act, are not ultra vires provision of section 10(5) - K.P. Harihara Kumar v. Union of India [2004] 270 ITR 194/[2005] 142 Taxman 64 (Ker.).

Gratuity [Section 10(10)]

Provision is not discriminatory - Section 10(10) and 10(10A) do not make a discrimination between Central and State Government employees on one hand and employees of statutory corporations and private sector, on other, and are, thus, not violative of article 14 - K. Gopalakrishnan v. CBDT [1994] 73 Taxman 220/206 ITR 183 (Mad.).

In cases not governed by section 10(10)(i) or 10(10)(ii), section 10(10)(iii) applies which excludes the gratu­ity amount up to rate of 15 days’ wages for every year of com­pleted service subject to a maximum in this regard. Therefore, the prescribed limit of gratuity which is to be ex­cluded under section 10(10) is the same irrespective of whether it is paid under the 1972 Act or any other scheme and, therefore, the limit of 15 days wages for completed services, as prescribed under section 10(10)(iii), is not discriminatory and violative of article 14 - Gwalior Rayons Staff Association v. UOI [2006] 152 Taxman 520 (Ker.).

‘Salary’ includes dearness allowance and special allowance - Dearness allowance and special allowance must be treated as ‘salary’ for computing exemption on gratuity - Addl. CIT v. P. Krishna Kamat [1975] 99 ITR 74 (Ker.).

‘Salary’ need not be given a wide meaning - The expression ‘salary’ found in section 10(10) and 10(10AA) cannot be given a wider meaning than found in clause (h) of Rule 2 of Part A of the Fourth Schedule - K. Gopalakrishnan v. CBDT [1994] 206 ITR 183/73 Taxman 220 (Mad.).

‘Completed years of service’ means total service including that under former employers - The words ‘each year of completed service’ used in section 10(10) are not confined to completed years of service under one employer and have to be interpreted to mean an employee’s total service under different employers including employers other than one from whose service he has retired, for purpose of calculation of period of years of his completed service, provided he was not paid gratuity by former employer - CIT v. P.M. Mehra [1993] 69 Taxman 110/201 ITR 930 (Bom.).

Re-employment under same employer under fresh contract will not militate against concept of gratuity - When an employee retires and earns gratuity and the same employer offers such employee a job under a fresh agreement and the new agreement provides for the payment of gratuity, that would, in no way, militate against the concept of gratuity if such gratuity is paid on the first retirement - CIT v. Smt. Savitaben N. Amin [1986] 157 ITR 135 (Guj.).

Gratuity received by LIC employees also qualifies for exemption - Gratuity received by an employee of the Life Insurance Corporation, in accordance with the Staff Regulations, is exempt - CIT v. B. Gopalakrishna Murthy [1971] 79 ITR 333 (AP).

Pension [Section 10(10A)]

Terminal benefit received on permanent absorption in public sector is also exempt - The terminal benefit received by a civil servant on his retirement from Government service and absorption in a public sector corporation under rule 37(1)(b) of the Central Civil Services (Pension) Rules, 1972, equal to twice the amount of the commuted value of one-third of his pension in addition to the lump sum amount under rule 37(1A) is exempt from tax under section 10(10A)(i) - C.K. Karunakaran v. Union of India [1981] 127 ITR 136 (Delhi).

Commuted pension - It cannot be said that entire commuted pension is not taxable; it is taxable subject to the provisions of section 10(10A)(iib) - CIT v. K.A. Narayan [2002] 124 Taxman 880/254 ITR 683 (Mad.).

Leave encashment [Section 10(10AA)]

‘Retirement’ includes resignation - What is relevant is ‘retirement’; how it took place is immaterial for the purpose of this clause. It is, therefore, clear that if on retirement, even on resignation, by the employee, an employee gets any amount by way of leave encashment, section 10(10AA) would apply and the assessee will be entitled to the benefit of the said clause to the extent mentioned therein - CIT v. D.P. Malhotra [1997] 142 CTR (Bom.) 325/CIT v. R.J. Shahney [1986] 159 ITR 160 (Mad.).

Leave encashment while in service is not exempt - The words ‘or otherwise’ in section 10(10AA) must draw the restricted meaning qua the immediately preceding word ‘superannuation which signi­fies an employee’s severance of relationship with his employer in terms of the contract of employment. Therefore, the words ‘or otherwise’ will not cover cases where the assessee continues to be under the employment of the same employer and receives leave encashment receipt. Such a receipt will not be exempt from tax - CIT v. Ram Rattan  Lal Verma [2005] 145 Taxman 256 (All.)/CIT v. Vijai Pal Singh [2005] 144 Taxman 504 (All.)/CIT v. Ashok Kumar Dixit [2005] 273 ITR 126 (All.).

Voluntary retirement, receipts on [Section 10(10C)]

Provision is not discriminatory - Under section 10(10C) there is no invidious distinction between public sector employees and private sector employees in the matter of taxation nor is it arbitrary and unintelligible amounting to hostile discrimination - Shashikant Laxman Kale v. Union of India [1990] 52 Taxman 352/185 ITR 104 (SC).

Terminal benefits - Terminal benefits cannot be brought within scope of ‘amount received’ under section 10(10C) - SAIL DSP VR Employees Association 1998 v. Union of India [2003] 128 Taxman 704/262 ITR 638 (Cal.).

Relief under section 89 - Assessee is eligible to claim simultaneous benefit under section 10(10C) as well as section 89(1) in respect of compensation received under voluntary retirement scheme - CIT v. G.V. Venugopal [2005] 193 CTR (Mad.) 661.

Emphasis is on amount receivable and not on manner/method/mode of payment - The emphasis in rule 2BA is on the amount receivable on account of voluntary scheme which should not exceed the limits prescribed therein. It is not the intention of the legislature that every VRS framed by the companies must provide that an employee availing benefit of VRS would be paid an amount either equivalent to (1) three months salary for each completed year of service; or (2) salary at the time of retirement multi­plied by the balance months of service left before the date of his retirement on superannuation. On construction of rule 2BA, it is difficult to hold that other manners/methods/modes of payment of amount in the VRS framed by the companies are forbidden.

Rule 2BA does not provide at all that the amount representing the lower of the two limits specified in clause (vi) of rule 2BA should be allowed under the VRS. The words ‘does not exceed the amount equivalent to’ preceding the two limits specified in rule 2BA(vi) do not suggest at all that the lower of the two limits specified therein, is allowable. The amount receivable by an employee on account of his voluntary retirement can be either of the aforesaid two amounts. However, the amount which will qualify for exemption under section 10(10C) will be up to Rs. 5,00,000 only - Arunkumar T. Makwana v. ITO [2006] 156 Taxman 429 (Guj.).

House rent allowance [Section 10(13A)]

Rule 2A is not ultra vires the Act - Rule 2A is in no way in conflict with the concept codified in section 15, 16 or 17. Section 17 specifically provides that the definition given for ‘salary’ and other concepts are limited for the purposes of sections 15 and 16. Therefore, there is no substance in the argument that rule 2A in any way runs counter to any provision of the Act - CIT v. H.V. Yazdi [1978] 114 ITR 14 (Cal.).

‘Salary’ does not include bonus - For purposes of section 10(13A) ‘salary’ does not include bonus - CIT v. B. Ghosal [1980] 125 ITR 744 (Ker.).

‘Salary’ does not include commission - ‘Commission’ is not salary for purpose of calculating extent of exemption - CIT v. H.V. Yazdi [1978] 114 ITR 14 (Cal.).

Allowance paid to employer in occupation own premises is not exempt - The house rent allowance paid to an assessee who is not in occupation of rented premises but his own, is not for reimbursing or meeting any amount paid or paid away or any amount that has gone out of his coffer as rent and, therefore, is not exempt from tax liability under section 10(13A) - Patil Vijaykumar v. Union of India [1985] 151 ITR 48 (Ker.), All India Lakshmi Commercial Bank Officers’ Union v. Union of India [1984] 150 ITR 1 (Delhi), M. Krishna Murthy v. CIT [1985] 152 ITR 163 (AP)/CIT v. P.D. Singhania [2006] 156 Taxman 504 (All.).

Allowance received by retired High Court Judge on reappointment is not exempt - A retired judge of a High Court who has been appointed by the State Government or the Central Government to any post cannot be brought under the purview of the High Court Judges (Conditions of Service) Act, and he cannot therefore claim exemption from income-tax in respect of the house rent allowance received by him as an appointee to such post. With the retirement, a Chief Justice or judge of a High Court ceases to be the Chief Justice or a judge of a High Court, as the case may be, and his reappointment by the Government for any purpose or to any post would not revive his status as Chief Justice or judge of a High Court - Justice Challa Kondaiah (Decd.) v. CIT [2001] 252 ITR 854 (AP).

Interest income [Section 10(15)]

Diagnostic centre is not ‘industrial undertaking’ - The purpose of relief under section 10(15)(iv)(c) is obviously to permit industrial undertakings to engage with relief in the activity of manufacture or processing of goods even when such activity requires purchase of foreign machinery. A diagnostic centre, is, by no ordinary meaning of the words, an industrial undertaking merely by purchase of a machinery. The purpose of the relief nowhere appears to be the grant of any benefit for the rendering of any professional service - J.M.D. Medicare Ltd. v. Union of India [1996] 218 ITR 184 (Cal.).

Approval granted by RBI under FERA cannot be equated with approv­al by Government of India - To claim tax exemption under section 10(15)(iv), the applicant must have in its possession, either the approval granted by the ECD Division, Department of Economic Affairs, Ministry of Finance, on the basis of which he is re­quired to approach the RBI for approval under the FERA or the approval granted by department of revenue depending upon the applicability of particular item of section 10(15)(iv). The approval granted by the RBI cannot be equated with the approval by the Government of India - Yu Bo Investment Co. (P.) Ltd. In re [2004] 139 Taxman 277/267 ITR 734 (AAR-New Delhi).

Interest on terminal benefits - Under the Income-tax Act, if any income is liable to be taxed, it is not open for High Court to issue a direction to employer (Government of India)/income-tax department not to levy income-tax on interest earned by assessees (employees) on their retirement/terminal benefits - R.K. Srivastava v. Union of India [2004] 141 Taxman 84 (Delhi).

Aircraft, payment to acquire aircraft on lease [Section 10(15A)]

Application for approval of lease agreement - Rejection of application for approval of agreement by Central Government without a speaking order is not justified - AFT Trust-Sub1 v. Chairman, CBDT [2004] 192 CTR (Delhi) 406.

Scholarship [Section 10(16)]

Recipient can be Indian or foreigner; the whole amount need not be spent on education - If scholarship is paid only for meeting the cost of education, the fact that the recipient does not spend the whole amount towards education or that he is able to save something out of it would not detract from the character of the payment being one for scholarship. Again if scholarships are given for such a purpose, it cannot matter whether the recipient is of Indian origin or is of a foreign origin - CIT v. V.K. Balachandran [1984] 147 ITR 4 (Mad.).

Scholarship, even though income, is exempt only if it is granted to meet cost of education - The proper view to take on section 10(16) of the Act would be that scholarship, even though income in the hands of the scholar-recipient, would not be included in the taxable total income, if it was a scholarship granted to meet the cost of education - Dr. V. Mahadev v. CIT [1990] 51 Taxman 411/184 ITR 533 (Mad.).

Scholarship granted to meet education cost of children of employee is exempt - Where the company of which the assessee was an employee granted scholarships to the children of its employees solely at its discretion without any reference to the terms of employment of the employees, and the assessee’s children had also received certain sum as scholarships from the company, even if the amounts were taken as having been paid to the assessee, they were amounts of scholarship and hence not liable to be included in the computation of the total income of the assessee within the meaning of section 10(16) - CIT v. M.N. Nadkarni [1986] 161 ITR 544 (Bom.).

Scholarship granted by employer to son of employee could not be treated as perquisite but would be exempt under section 10(16) - CIT v. B.L. Garg [2006] 155 Taxman 189 (All.).

Scholarship received abroad for study and research is exempt, even if it is taxable under foreign law - Where the assessee received a scholarship from a US hospital to aid his study and research and not for the services rendered, it was held that the scholarship would be exempt under section 10(16), even though it was partly taxable under the American law - A. Ratnakar Rao v. Addl. CIT [1981] 128 ITR 527 (Kar.).

Rewards [Section 10(17B)]

Reward to ITO - Reward received by assessee, an ITO, from Central Government in connection with Voluntary Disclosure Scheme for which separate approval by Central Government for exemption had not been given, would not be exempt under section 10(17B) - CIT v. J.C. Malhotra [1998] 230 ITR 361 (Delhi).

Local authority [Section 10(20)]

Major tests to be applied - The major tests for treating an authority as a ‘local authority’, which can be carved out from the decision in Union of India v. R.C. Jain AIR 1981 SC 951 and subsequent decisions are essentially as follows :

(i)  The authority must have separate legal existence as corporate body with autonomous status.

(ii) Must function in a defined area and must ordinarily, wholly or partly, directly or indirectly be elected by the inhabitants of the area.

(iii)      It performs governmental functions such as running a market, providing civic amenities, etc.

(iv) It must have power to raise funds for the furtherance of its activities and the fulfilment of its projects by levying taxes/fees; this may be in addition to money provided by Government. Control and management of the fund must vest with the authority - CIT v. Agricultural Marketing Produce Committee [2001] 250 ITR 369 (Delhi).

‘Jurisdictional area’ means the territorial limits- The expression ‘its jurisdictional area’ in section 4(3)(iii) of the 1922 Act [corresponding to section 10(20) of 1961 Act] means the territorial limits of a local authority and does not include the extended areas beyond those limits. Use of the words ‘its own’ is highly suggestive of the jurisdictional area being the same as the territorial limits - City Board v. CIT [1962] 46 ITR 1214 (All.).

State Transport Corporation is not a local authority - A State Transport Corporation is not a ‘local authority’ and is, therefore, not entitled to claim exemption of its income by virtue of section 10(20) - Calcutta State Transport Corpn. v. CIT [1996] 85 Taxman 402/219 ITR 515 (SC).

The status of the U.P. State Road Transport Corporation is not ‘local authority’ and as such the income derived by it from house property, capital gains, the business of supply of goods and services was not exempt to the extent provided in section 10(20) - U.P. State Road Transport Corpn. v. CIT [2006] 156 Taxman 501 (All.).

Income from melas and exhibition is also exempt - Income from melas and exhibition organised by the District Board through a committee constituted by it was exempt in the hands of the District Board under section 10(20) - CIT v. Krishi Udyog Evam Saurkusha Pradershini [1981] 128 ITR 214 (All.).

Market committee is a local authority - Market committee entrusted by Government with control and management of ‘local fund’ is a local authority - Budh Veerinaidu v. State of Andhra Pradesh [1983] 143 ITR 1021 (AP) (Appendix)/CIT v. Agricultural Market Committee [1983] 143 ITR 1020 (AP).

Agricultural Produce Marketing Committee is not a local authority for purposes of section 10(20) - Agricultural Produce Market Committee v. CIT [2006] 156 Taxman 286 (Delhi).

Forest Corporation - U.P. State Forest Corporation established for preservation of forest could not be treated as local authority merely because the Act which has created the Corporation has called it a local authority - CIT v. U.P. Forest Corpn. [1998] 97 Taxman 259/230 ITR 945 (SC).

Industrial Area Development Authority - Income of assessee-Industrial Area Development Authority constituted under Bihar Industrial Area Development Authority Act, 1974 to provide for planned development of industrial area, for promotion of industries and matters appurtenant thereto, is not exempt under section 10(20) - Adityapur Industrial Area Development Authority v. UOI [2006] 153 Taxman 107 (SC)

Scientific Research Associations [Section 10(21)]

Income need not be fully spent in relevant year - There is nothing in section 10(21) which requires that the income, to qualify for exemption, should be wholly spent in the relevant year itself without any accumulation - Dalmia Institute of Scientific & Industrial Research v. ITO [1979] 118 ITR 575 (Ori.).

University/Educational Institution [Section 10(22)]*

Conditions precedent for availing exemption - The conditions precedent for availing of exemption under section 10(22) are as follows :

(a) The educational institution must actually exist, and mere taking of steps would not be sufficient.

(b) The educational institution need not be affiliated to any university or Board; in fact a society need not itself be imparting education and it is enough if it runs some schools or colleges.

(c)  The educational institution must exist solely for educational purposes and not for purposes of profit. But merely because there is a surplus, it cannot be said that the educational institution exists for profit.

(d) If an educational institution makes profit incidentally, for example, by publishing and selling text books, and such profits are to be applied only for the spread of education, it is entitled to exemption - CIT v. Delhi Kannada Education Society [2000] 246 ITR 731 (Delhi).

Institution need not exist in India, but some educational activity must be carried on in India - The basic requirement of the section is the existence of “educational purpose” which, in other words, means the imparting of education which has to be in India. A university established in a foreign country is not excluded from the ambit of section 10(22) in case it is imparting education in India or has some educational activity in India. Where the assessee, though part of a foreign university, was merely running a printing press in India for printing of educational books and their sale, and there was no finding that the assessee was imparting any education or had any educational activity in India, the assessee is not entitled to claim exemption. Any other interpretation would be absurd and manifestly unjust. The absence of the word “India” in this provision is inconsequential. It has to be read into section 10(22) - Oxford University Press v. CIT [2001] 115 Taxman 69/247 ITR 658 (SC).

Eligibility must be evaluated every year - The availability of the exemption under section 10(22) should be evaluated each year, to find out whether the institution existed during the relevant year solely for educational purposes and not for the purposes of profit - Aditanar Educational Institution v. Addl. CIT [1997] 90 Taxman 528/224 ITR 310 (SC).

The question whether the educational institution existed solely for educational purposes and not for purposes of profit, is a question of fact and every year the Assessing Authority is enti­tled to examine the facts of the case as to whether during the assessment year in question the educational institution existed solely for educational purposes and not for the purposes of profit. Obviously, since the exemption from income-tax is granted only if such university or educational institution existed solely for education purposes and not otherwise, this enquiry independ­ently is necessary for every assessment year, before allowing such exemption - Cosmopolitan Education Society v. CIT [2007] 162 Taxman 416 (Raj.).

Society running schools, colleges, etc., is an ‘other educational institution’ - An educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit can be regarded as ‘other educational institution’ under section 10(22) - Aditanar Educational Institution v. Addl. CIT [1997] 90 Taxman 528/224 ITR 310 (SC).

An educational institution under section 10(22) is more than a body carrying on charitable activities in the field of education as contemplated by section 2(15) - The exemption is granted under section 10(22) to the income of a university or other ‘educational institution’. The expression, ‘educational institution’, would, therefore, take colour from the preceding word, ‘university’. Noscitur a sociis (a word is known by the company it keeps) is a well-settled rule of interpretation of a statute. A university is admittedly an educational institution set up for imparting formal education. Hence, applying the aforesaid rule of interpretation, the expression, ‘other educational institution’ would mean an institution imparting formal education in an organised and systematic training, where the institution would be accountable to some authority and where there would be teachers and the taught, the former having some degree of control over the latter. It is significant to note that while a trust holding property for the charitable purpose of education as defined by section 2(15) may also be an educational institution existing solely for the purpose of education, the two institutions cannot be treated as belonging to the same class. An institution may be carrying on educational activities as were being carried on by the assessee without imparting formal education and without being affiliated to or accountable to any authority. Such a trust can certainly be considered as qualifying for exemption under section 11(1)(a) read with section 2(15), but the term ‘the educational institution’ contemplated by section 10(22) is a narrower concept, though ‘educational institution’ and the educational activities are closely inter-connected. In section 11(1)(a) read with section 2(15) it is the activities which are in focus, whereas in section 10(22), both the institution and the activities are in focus. An educational institution under section 10(22) is, therefore, more than a body carrying on charitable activities in the field of education as contemplated by section 2(15) - Saurashtra Education Foundation v. CIT [2004] 141 Taxman 26 (Guj.).

Institutions must be accountable to some authority and must have control over taught - What section 10(22) contemplates is an institution imparting formal education, which institution is accountable to some authority and has control over the taught - Saurashtra Education Foundation v. CIT [2004] 141 Taxman 26 (Guj.).

Concept of education will encompass systematic dissemination of knowledge and training in specialised subject - Though in the context of the provision of section 10(22), the concept of education need not be given any wide or extended meaning, it surely would encompass systematic dissemination of knowledge and training in specialised subjects. It is not necessary to nail down the concept of education to a particular formula or to flow it only through a defined channel. Its progress lies in the acceptance of new ideas and development of appropriate means to reach them to the recipients - Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (Guj.).

Conditions as stipulated in sections 11 and 13 are irrelevant - CIT v. Lagan Kala Upvan [2003] 259 ITR 489/126 Taxman 205 (Delhi).

Elements of normal schooling must exist - Though the words ‘educational activities’ are words of very wide amplitude, the element of imparting education to the students or element of normal schooling where there are teachers and the taught must be present so as to fall within the sweep of section 10(22) of the Act. Such an institution may, incidentally, take other activities for the benefit of students or in furtherance of their education - CIT v. Sorabji Nusserwanji Parekh [1993] 201 ITR 939 (Guj.).

There must be imparting of education by way of teaching or training - The basic requirement of section 10(22) [or 10(23C)] is the existence of educational purposes—that is imparting of education by way of teaching or training, etc. In the absence of such training activities, the provision is not applicable to any firm or corporation. Where the assessee had been doing only the activ­ities of production, printing and publication and sale of books and other commercial activities, the assessee was not entitled to exemption - CIT v. Assam State Book Production and Publication Corporation Ltd. [2007] 288 ITR 352 (Gauhati).

Affiliation to any university/Board is not a pre-requisite - It is not necessary that an educational institution to be eligible for exemption under section 10(22) should be affiliated to any university or any Board. - CIT v. Doon Foundation [1985] 154 ITR 208 (Cal.)/Addl. CIT v. Aditanar Educational Institution [1979] 118 ITR 235 (Mad.)/CIT v. Academy of General Education [1984] 150 ITR 135 (Kar.).

Exemption cannot be denied merely because there is a surplus - After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes, since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity - Aditanar Educational Institution v. Addl. CIT [1997] 90 Taxman 528/224 ITR 310 (SC).

Merely taking steps for establishment of institution will not suffice - Since section 10(22) uses the expression ‘existing solely for educational purposes’, the actual existence of the educational institution is a pre-condition for the application of section 10(22) and the mere taking of steps for the establishment of the educational institution may not be sufficient to attract the exemption under section 10(22) - CIT v. Devi Educational Institution [1985] 153 ITR 571 (Mad.).

Person having multiple sources of income is entitled to exemption on any income from running an educational institution or university - A person may have income from different sources. But if a particular income is from an educational institution or a university which exists solely for educational purposes and not for purposes of profit, then that income would be entitled to exemption - Birla Vidhya Vihar Trust v. CIT [1982] 136 ITR 445 (Cal.).

Society extending financial assistance for educational purposes is not entitled to exemption – A society, which extended financial assistance to students for their educational purposes, would squarely and fairly fall under section 11 and not under section 10(22) - CIT v. Saraswath Poor Students Fund [1984] 150 ITR 142 (Ker.).

‘Museum’ is not an educational institution - Simply because certain persons may add something to their knowledge by visiting the museum, it cannot be said that the museum exists ‘solely’ for educational purposes. The emphasis in section 10(22) is on the word ‘solely’ - CIT v. Maharaja Sawai Mansinghji Museum Trust [1988] 169 ITR 379 (Raj.).

Income from any other source will also be exempt, if that income is used for educational purposes - If an institution exists solely for the purpose of education and it derives income from any other source and if that income is used only for the purpose of education, then it will come under section 10(22) - Brahmin Educational Society v. Asstt. CIT [1996] 89 Taxman 434 (Ker.).

Exemption for intervening assessment year cannot be denied merely because of minor discrepancies in the accounts of that year - Even if for assessment year in question there were minor contra­dictions or deviations in the accounts of the assessee, that by itself could not substantiate the allegation that the assessee did not exist solely for educational purposes or that it existed partly for a profit motive. The fact that the assessee had been granted exemption under section 10(22) since 1960 and even subse­quent to the assessment year in question, was a factor that could not be easily overlooked. It was not possible to accept the view, in the absence of any cogent reason, that for one particular year merely on the basis of some discrepancy in the accounts of the assessee, its objects changed from educational purposes to making a profit. Therefore, the assessee’s claim for exemption was to be allowed - Director of Income-tax [Exemption] v. Moti Bagh Mutual Aid Education [2007] 163 Taxman 490 (Delhi).

Hospitals/medical institutions [Section 10(22A)]*

Even if hospital is run on commercial lines, exemption is available if dominant purpose is philanthropic - Merely because the assessee is running the hospital on commercial lines, the assessee will not be disentitled to the exemption under section 10(22A). As long as the dominant purpose is a philanthropic one, the mere circumstance that the managing director or director got some advantage or exercised some patronage while running the institution, would not change the character of act being philanthropic - CIT v. Pulikkal Medical Foundation (P.) Ltd. [1994] 210 ITR 299/73 Taxman 402 (Ker.).

Admission of patients as in-patients is not a pre-requisite - The words ‘the reception and treatment of persons. .......’ used in section 10(22A) do not necessarily mean that the patients must be admitted and treated as in-patients in hospitals or there must be facilities for such treatment in the institution so as to claim the benefit of section 10(22A) - Mangilal Gotawat Charitable Trust v. CIT [1984] 150 ITR 682 (Kar.).

Some factors which do not affect exemption - The mere fact that (i) the activities are not restricted to free treatment of poor and needy only, (ii) the employees of the institution have not been guided by philanthropic motives, and (iii) the shares of the company running the hospitals are held by members of a single family, will not disentitle the hospital from the exemption under section 10(22A) - CIT v. Pulikkal Medical Foundation (P.) Ltd. [1994] 210 ITR 229 (Ker.).

Charitable trusts/institutions [Section 10(23C)]

Income must be applied only in India - application of the income is required to be applied in India for the purposes of section 10(23C)(vi) read with the third proviso thereof. The words ‘in India’ have necessarily to be read into the third proviso to make it workable and to keep it in conformity with the application of the Act. The revenue had rightly noted that the Act applies to the whole of India. It is not extra-territorial in operation. If a contrary view is taken, the revenue would be given powers to apply the provisions of the Act even outside India - something that is not even postulated by the Parliament. - American Hotel & Lodging Association Educational Institute v. CBDT  [2007] 158 Taxman 146 (Delhi).

Trade Unions [Section 10(24)]

Ancillary and incidental objects are not barred - Section 10(24) does not lay down that the association must be formed wholly and exclusively for the purposes enumerated in that provision. An association registered under the Trade Unions Act, having other ancillary and incidental objects apart from the primary object of regulation between its members and their employees, is also entitled to exemption - CIT v. Calcutta Hydraulic Press Association [1980] 121 ITR 414 (Cal.).

Non-incurring of expenditure on specified object will entail denial of exemption - Where the association had sixteen objects, one of which was regulation of relationship between its members and their employers, and it was found that the association had not spent any part of its income on that object despite having sizeable income, the association would not be entitled to exemption, even though it was registered under the Trade Unions Act. - Indian Jute Mills Association v. CIT [1991] 55 Taxman 492 (Cal.).

Truck Owners’ Union - Union of truck owners is not entitled to claim exemption of income as provided under section 10(24) even if it is duly registered under Trade Union Act, as the truck operators can neither be termed as employees nor can they be termed as employers, and as the union had been formed primarily to protect the interest of the truck owners - Sumerpur Truck Operators Union v. ITO [2002] 176 CTR (Raj.) 297.

Scheduled Tribes [Section 10(26)]

Provision is constitutionally valid - Section 10(26)(a) is constitutionally valid. The classification therein for the purpose of exemption from tax between income from a specified area and income from outside that specified area is not discriminatory and does not offend article 14 of the Constitution - ITO v. N. Takin Roy Rymbai [1976] 103 ITR 82 (SC).

Residing’ does not mean permanent residence relatable to concept of ‘domicile’ - The word ‘residing’ occurring in section 10(26) cannot be given restricted interpretation confining the benefit to exemption only to the local members of the Scheduled Tribes. It cannot be held that the word ‘residing’ connotes permanent residence relatable to the concept of ‘domicile’. The benefit of exemption is given to the members of the Scheduled Tribe for economic advancement of the tribal areas vis-a-vis financial benefit to the individuals. Therefore, a very casual or passing presence of a person would be incompatible with the legislative intent. A member of a Scheduled Tribe notified in any tribal areas as mentioned in the Table to paragraph 20 of the Sixth Schedule will be entitled to the bene­fit of exemption under section 10(26) provided - (a) he is resid­ing in any other tribal area as described in the Table to para­graph 20; (b) the income which accrues to him must arise from any source in such area; (c) the tribe to which he belongs is also recognised as a Scheduled tribe in the other tribal area where he is residing in connection with his avocation - Smt. Dipti Doley Basumatary v. Union of India [2007] 163 Taxman 246/290 ITR 498 (Gauhati).

Residence in specified area, as well as source of income being in that area, must be satisfied - It cannot be said that members of the Scheduled Tribes are entitled to the benefits of the exemption even when they are working outside the specified areas. Similarly, the exemption cannot be extend to income, the source of which lies outside the specified area - J. Lalhmingliana v. Union of India [1989] 44 Taxman 327/177 ITR 24 (Delhi).

Benefit is available even if income accrues to family - The benefit of exemption under section 10(26) would be available even in cases where the income accrues, not to an individual member of the Khasi Tribe, but to a family comprising such members - CIT v. Mahari & Sons [1992] 195 ITR 630 (Gauhati).

Income must originate from Sixth Schedule area - Income in respect of which exemption is claimed by virtue of section 10(26) must originate from a Sixth Schedule area - Utankamoni Chakma v. ITO [1989] 175 ITR 280/[1988] 41 Taxman 278 (Gauhati)/CIT v. A.M. Smt. Marbaniang [1993] 202 ITR 502/[1994] 73 Taxman 290 (Gauhati).

Regardless of the fact as to the place of payment in respect of timber sold or purchased out of a lease, such income must be held to have originated from the forest leased to the assessee, and if that forest is situated in a Sixth Schedule area, the assessee would be entitled to exemption on that income - Sing Killing v. ITO [2002] 255 ITR 444 (Gauhati).

Scheduled Tribes/Castes, Central/State financial bodies for promoting interests of [Section 10(26B)] - Income of assessee, State Forest Corporation, which was primarily formed with object to ameliorate suffering of tribal population of State of Aruna­chal Pradesh and for ushering concept of developmental activities in State, was entitled to exemption under section 10(26B) - Arunachal Pradesh Forest Corporation Ltd. v. Asstt. CIT [2007] 162 Taxman 277 (Gau.).

Spice/Tobacco Board [Section 10(29A)]

Retrospective effect of introduction of provisions of section 10(29A)(d) - In view of the provisions of section 10(29A)(d) introduced by the Finance Act, 1999, the assessee-Tobacco Board’s income would become exempt from income-tax for any assessment year with effect from 1-4-1975 or the previous year in which the Board was constituted and the assessments already made would stand set aside by virtue of section 10(29A)(d) with retrospective effect, and the assessee will also be entitled to refund consequent to the retrospective amendment passed by Parliament - Tobacco Board v. CIT [2000] 243 ITR 4 (SC).

Tea manufacturer, subsidy to [Section 10(30)]

Scope of deduction - Since expression ‘or for rejuvenation or consolidation of areas used for cultivation of tea’ was inserted in section 10(30) by Finance Act, 1984 with effect from 1-4-1985, benefit of deduction in respect of rejuvenation subsidy granted by Tea Board to assessee would be available only from assessment year 1985-86 and not for assessment year 1984-85 - Kil Kotagiri Tea & Coffee Estate Co. Ltd. v. CIT [2000] 108 Taxman 125 (Ker.).