Its a move that has the managements of private educational institutions,managed by non-profit and charitable societies,up in arms. The Income-Tax department has sent notices to hundreds of such institutes located in the northern and north-western region asking them to show-cause why the facility of tax exemption granted to them be not withdrawn.
In its notices,the I-T department has claimed that the move to start taxing institutions run by societies has been initiated following the recent judgment of a Bench of the Uttarakhand High Court. In its order,the HC had observed that if any institution has been earning systematic profits from its activities of imparting education,then it was not entitled to exemption under Section 10 (23C) (111ad)/(IV) of the IT Act,1961.
However,managements of such institutions assert that the income of the societies is channelised back into sprucing up infrastructure of the institutes. They say that the IT Departments move will force them to increase fees,which would put additional burden on the parents.
Not only this,the IT Department wants to tax us for adding fixed assets such as buildings and furniture to the institutes out of the money that the societies earn. Its contention that since these assets are purchased out of the income of the societies for the purpose of expanding the institutions and,thereby,earning more income,we have to pay tax in lieu of these is a strange logic, said the chairman of a society that runs educational institutions in many parts of north India. He disclosed that many societies have decided to legally challenge the IT Departments move.
However,sources in the IT Department said the High Court order strengthens its case for withdrawing exemption to such institutions. The order stresses that societies cant claim exemption even if the profits that the societies make are utilised only for charitable purposes,as schools that are run on commercial basis would seek exemption, said an officer. However,the officer said the case of each institutes would be dealt individually.