Exemption under section 10(22) and 10(22A). - Income Tax - 1112/CBDT

INSTRUCTION NO. 1112/CBDT Dated : October 29, 1977 Section(s) Referred: 10(22) ,22A Statute: Income - Tax Act, 1961 A number of instances have come to the notice of the Board where action to assess educational institutions and hospitals have been taken on the ground that they are making profit and therefore the exemption under section 10(22) and 10(22A) is not available to them. 2. Under section 10(22) income of an University or other educational institution existing solely for educational purposes and not for purposes of profit is exempt. Under section 10(22A) income of a hospital or other institution referred to therein which exists solely for philanthropic purposes and not for purposes of profit is also exempt. 3. The question for consideration is whether an educational institution existing solely for educational purposes but which shows some surplus at the end of the year is eligible for this exemption. If the profit of the educational institution can be diverted for the personal use of the proprietor thereof, then the income of the educational institution will be subject to tax. However, there may be cases where the educational institutions may be owned by trusts or societies to whom the provisions of section 11 may be applicable. Where all the objects of these trusts are educational, and the surplus if any from running the educational institution is used for educational purposes only, it can be held that the institution is existing solely for educational purposes and not for purposes of profit. However, if the surplus can be used for non educational purposes it cannot be said that the institution is existing solely for educational purposes and such institutions will not be liable for exemption under section 10(22). But in such cases the applicability of section 11 can be examined and if the conditions laid down therein are satisfied the income will be exempt under section 11. 4. What has been stated in respect of educational institutions will equally apply to hospitals and other institutions referred to in section 10(22A). In the case of hospitals and similar institutions, if the surplus is used for philanthropic purposes, the income of the institution will be eligible for exemption under section 10 (22A). It is not necessary that the surplus should be used for medical purposes only.