Thursday, 20 April 2017

Tax Exemption Under Section 10(23C)

Most NGOs in India claim exemption u/s 11 by registering u/s 12AA of the Income tax Act 1961. However, a few also claim tax exemption under the relatively less known Section 10(23C). Three questions are frequently asked:

Q. 1. What is the benefit of registration u/s 10(23C) over registration u/s 12AA?
A. 1. Earlier there were several benefits that organisations registered u/s 10(23C)(iv) & (v) enjoyed, including no requirement to file tax returns, no requirement to spend 85% of the income on objects, etc. However, with various amendments over the last 16 years, compliance for an organization registered u/s 10(23C) (iv) & (v) is now more or less on par with one resisted u/s 12AA

Q. 2. Can every NGO register u/s 10(23C) (iv) & (v)?
A. 2. Broadly speaking exemption u/s 10(23C) (iv) & (v) can be availed by universities, educational institutions, hospitals and medical institutions.

Q. 3) Can an NGO be registered under both?
A. 3. Yes. An institution registered under 10(23C) (iv) & (v) may also be registered u/s 12AA and the vice versa.

Application Process
Application in the prescribed form No 56 should be submitted to the Director General (Income tax – Exemptions), through the commissioner of income tax, having jurisdiction over the trust or institution.

Sections 11 & 10(23C) are mutually exclusive
Exemption u/s 10(23C) (iv) or (v) can be obtained by a charitable institution, in addition to the exemption granted u/s 11 which also deals generally with charitable or religious activities.
Notably Section 10(23C) does not prescribe any stipulation which makes registration u/s 12AA a mandatory condition. The provisions of section 11 and 10(23C) are two parallel regimes and operate independently in their respective realms.

Relevant Case laws
·       In Commissioner Of Income tax Vs. Mahasabha Gurukul Vidyapeeth Haryana (2010) 326 ITR 25 (Pun), it was held that Exemption u/s 11 was allowable to the assessee Society running an educational institution which was registered u/s 12A, once it is held that all requisite conditions for exemption u/s 11 have been met, even if conditions u/s 10(23C)(vi) have not been complied with, there will be no bar to seek exemption u/s  11. Conversely, while claiming the exemption u/s 10(23) (vi), it is not required to fulfill the conditions mentioned u/s 11 as also exemption u/s 10(23)(vi). Exemption u/s 10(23)(vi) can be claimed by the assessee without applying for registration us 12A.
·       In the case of Commissioner of Income tax Vs. Jeevan Deep Charitable Trust (2014) 361 ITR 0143 (All) the assessee was registered u/s. 12A as being a charitable institution. However, its claim for exemption u/s. 10(23C)(vi) was rejected on the ground that the institution was not solely established for the educational purposes. Relying on the same, assessee’s registration u/s. 12A was cancelled by CIT. The High Court held that exemption u/s. 10(23C)(vi) can be claimed by an assessee without applying for registration u/s. 12A as it is not required to fulfill the conditions mentioned u/s. 11 and hence the registration u/s 12A was restored.

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