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We all know that the Educational and Medical Institutions’ are getting 100% exemption of their income u/s 10(23C) of Income Tax Act 1961, since last 40 years. While other charitable institutions or religious trusts or N.G.O. have to follow sections 11 and 12 for their income. Income tax department is very much strict for applying section 11 and 12, on charitable institution and religious trust for assessments, while very liberal in making assessments u/s 10(23C) for schools-colleges, universities, big charitable hospitals. Everybody knows that medical colleges are charging big amount of capitalization fee and earn like anything. Sometimes they call it as management quotas and collecting huge amount from the students. With surprise these all income are exempt u/s 10(23C).

There are certain restriction u/s 11 and 12 that you have to spend 85% of the total income, if there is surplus, trust will have to pass a resolution for set a part an amount to be spent within 5 years and submit Form 10 with resolution, before submitting return of income. In other way we can say that trust registered u/s 12AA/12AB can save income up to 15% of gross total income, and saving amount is to be deposited, as mentioned in section 11(5) of the Act. These institutions or trusts have to maintain books of account and submit Form 10BB and audit repost with in time.

Educational And Medical Institutions

There are very harsh changes made during budget, for assessment year 2021-22 and 2022-23 and procedure as per section 11 and 12 will be applicable to institutions registered u/s 10(23C) also. Again the institutes or trusts which were enjoying deductions u/s 11, 12 and 10(23C) they have to select either section 11, 12 or 10(23C).

Normally u/s 10(23C) educational and medical charitable institutes are covered, whose annual gross receipts are below Rs. 5 crores are exempt, and whose annual gross income is more than Rs. 5 crores will have to take the permission of Chief Commissioner of Income Tax for getting exemption.

For the first time there was a change in section 2(15) of the Act, by Finance Act 2008, where in General Public Utility words were added. To fulfill the object of general public utility, any trust or institution are doing the activities, which involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless-

(i) such activity is under taken in the course of actual carrying out of such advancement of any other object og general public utility;

(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty percent of the total receipts, of the institution or trust undertaking such activity or activities, of that previous year.

This condition was not applicable to institution or trust registered u/s 10(23C).  The institution or trust, which are doing this types of activities in banquet hall, exhibition, coaching classes or any activities   in their campus and earn rent income which will considered as taxable income.

Due to the decision of Supreme Court in the case of New Noble Educational Society v/s The Chief Commissioner of Income Tax, dated 19th October, 2022 all the Educational and Medical Institutes will have to face difficulty.

The effect of this judgment will be as under:

01. In our country many charitable institutions are run by Government, but if they are doing activity of distributing goods for more than at cost it will considered as business and counting the cost within the limit u/s 2(15)

02. Export Promotion Council, Chamber of Commerce etc. will cover by this judgment.

03. Court has given an example of Mahatma Gandhi Foundation Trust that if they print book of Mahatma Gandhi in plain paper it will considered as charitable, but if they print book as Coffee table book it will consider as business. Even C. A. Institute or any other institute collect admission form fee of Rs. 5 it will consider as object of the trust but if they charge Rs. 100 for admission form it will consider as business income.

It seems that due to this judgment most of the trusts or institution will have to face the scrutiny of cases.

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