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).
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
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
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 (
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) -
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.
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
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
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.).