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| « CBDT clarifies on issuance of PAN to FIIs ... | Indo-Mauritius tax treaty may still be on ... » |
SC riders on tax rebate for foreign institutes |
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| May, 27th 2008 |
The Supreme Court has said that non-profit foreign educational institutions having branch offices in India can claim tax exemption only if they impart education in India. The non-profit tag of such institutions has to be tested against India activities and not the calculation of income over expenditure to decide whether they are qualified to be such organisation for tax exemption, the apex court said in a ruling.
A bench comprising Justice SH Kapadia and Justice BS Reddy said: If the applicant wants exemption under Section 10(23C)(vi)(Income Tax Act, 1961) it has to impart education in India and only then it would be entitled to claim initial approval under that section.
The court said that the concept of non-profit of the such foreign controlled educational institutions has to be tested against the Indian activities. Our conclusion is that imparting of education must be in India if applicant desires exemption under Section 10 (23C)(vi) and that excess/deficit of income over expenditure will not decide whether the applicant exists for profit or not, said Justice Kapadia. The court further said: With the insertion of the provisos in section 10(23C)(vi) of the 1961 Act, it is open to the Prescribed Authority (CBDT) to stipulate, while granting approval, that the approval is being given subject to utilisation/application of certain percentage of income, in the accounting sense, towards imparting of education in India. Such exercise would be based on estimation... It is open to the PA, if it deems fit, to stipulate that certain percentage of accounting income would be utilised for imparting of education in India. Therefore, in our view, it is always open to the PA to impose such terms and conditions as it deems fit.
The court passed the verdict deciding an appeal of the American Hotel & Lodging Association Educational Institute. It was a non-profit organisation set up in USA and was granted tax exemption as an educational institute there. Appellant had a branch office in India, mainly to comply with its obligations under various agreements with the Government of India (Ministry of Tourism). Its branch provides a central focal point in India for Indian missions to avail of its educational courses. The branch office collects data from educational institutions/persons wishing to take the courses offered in the field of hospitality and fees for the required course material which was remitted to the USA.
After collection of data and fees, its head office sends course materials, examination papers etc. to the branch in India for onward transmission to the actual user. The costs of running the branch office was met by deducting the same from the amounts remitted to the head office.
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