A foreign non-profit runs hospitality courses in India through a branch and charges licence fees and course fees to Indian institutes. Is that income exempt as an educational institution, and does a surplus destroy the exemption?
Yes, on the law as it then stood. The Authority ruled that the Educational Institute of American Hotel and Motel Association, a US non-profit working in India under a memorandum of understanding with the National Council of Hotel Management and Catering Technology, was entitled to exemption under s.10(22) on income from conducting courses and certification programmes, providing educational and training materials, conducting seminars and workshops, and training in-house faculty. Its objects barred any distribution of earnings to members or directors even on dissolution, and the activities under its licence agreements and memoranda were purely educational or ancillary to education. Because the first question was answered in the applicant's favour, the question on s.11 became academic. Section 10(22) has since been omitted from the Act.
Pronounced by the Authority for Advance Rulings (Authority for Advance Rulings - S. Ranganathan, Chairman, D. B. Lal and R. L. Meena, Members) on 1996-02-14, reported as [1996] 219 ITR 183 (AAR). It bears on section 10(22), section 11, section 245Q of the Income Tax Act 1961, in Capital Gains Exemptions and Charitable Trusts & Exemption matters.
The value of this ruling is in the four conditions the Authority set out for an educational-institution exemption and in what it refused to treat as fatal. A surplus of receipts over expenditure does not by itself make an institution one that exists for profit; the institution need not be affiliated to a university or board, and need not itself teach if it runs schools or colleges; but it must actually exist and be operating, not merely be taking steps towards it, and the income claimed must be directly relatable to the educational activity. The Authority also put the foreign tax status in its place: exemption under s.501(c)(3) of the US Internal Revenue Code was of persuasive value only, because eligibility is decided by the Indian Act alone. Those propositions still get argued, but the section they were decided under is gone, so cite the reasoning and not the section.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
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The applicant, the Educational Institute of American Hotel and Motel Association, is a non-resident wholly owned subsidiary of the American Hotel and Motel Association, set up in 1970 and enjoying tax-exempt status under s.501(c)(3) of the US Internal Revenue Code of 1954 as an educational institution. It is governed by an elected board of trustees. In 1993 the National Council of Hotel Management and Catering Technology, the apex Indian body overseeing hotel management and catering education under the Ministry of Tourism, signed a memorandum of understanding with it, with Government approval, to use its courses, resources and expertise. The applicant opened a liaison office in Bombay in July 1994 with Reserve Bank of India approval, and in February 1995 that office was upgraded to a branch office with the approval of the Ministry of Finance and the Reserve Bank. By the date of the application it had agreements with eighteen Indian institutions - Global Academic Program licence agreements with six and memoranda of understanding with twelve. Under the licence agreement it was paid USD 5,000 on execution and USD 5,000 as annual maintenance fee, both net of taxes, plus fees based on time and individuals involved; under the memoranda it sold courses at USD 60 or USD 65 over twelve months. It applied under s.245Q(1) on 27 June 1995 asking whether its income from conducting courses and certification programmes in hospitality management and operations, providing educational and training materials, conducting seminars and workshops, and providing training and instructional resources to in-house faculty was exempt under s.10(22), and whether it was entitled to exemption under s.11.
The applicant fulfils the conditions for exemption under s.10(22) and its income arising or accruing from the four sources mentioned in the first question is not taxable. The second question, on s.11, became academic and was not answered.
The Authority reproduced s.10(22) - 'any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit' - and drew four conditions out of it: the institution must actually exist, and taking steps towards existence is not enough; it need not be affiliated to any university or board, and need not itself impart education if it runs schools or colleges; it must exist solely for educational purposes and not for profit, but a surplus of receipts over expenditure does not by itself show a profit purpose; and where an entity has income from several sources, the particular income claimed must come from the educational institution and be directly relatable to the educational activity. It then applied those to the material before it. The statement of purposes showed the preparation and distribution of instructional material in hotel and motel ownership, maintenance and operation, the running of a licensed private occupational school, and rights to charge dues, royalties and fees - activities the Authority read as educational. The articles provided that net earnings should not enure to the benefit of any member, director or other individual, and that on dissolution no member, trustee, officer or private individual should take a share of the corporate assets, which the Authority treated as showing that profit was not the real purpose. The US tax-exempt status, though important, was said to have only persuasive value, since eligibility depends on the Indian Act. Turning to what was actually done in India, the Authority read clause 10 of the Global Academic Program licence agreement and the sample memorandum and found the activities either purely educational or related to the provision of educational facilities. It added that the Reserve Bank of India's letters permitting the liaison office and its upgrade restricted the applicant from new trading, commercial or industrial activity and gave the Bank a check on other activity, which strengthened the view that the applicant did not exist for purposes of profit.
the educational institution must exist solely for educational purposes and not for purposes of profit but merely because there is a surplus that is to say, a surplus of receipts over expenditure, it cannot be said that the educational institution exists for profit
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Handle my notice → Ask a CA on WhatsAppYes, on the law as it then stood. The Authority ruled that the Educational Institute of American Hotel and Motel Association, a US non-profit working in India under a memorandum of understanding with the National Council of Hotel Management and Catering Technology, was entitled to exemption under s.10(22) on income from conducting courses and certification programmes, providing educational and training materials, conducting seminars and workshops, and training in-house faculty. Its objects barred any distribution of earnings to members or directors even on dissolution, and the activities under its licence agreements and memoranda were purely educational or ancillary to education. Because the first question was answered in the applicant's favour, the question on s.11 became academic. Section 10(22) has since been omitted from the Act. This was decided by the Advance Ruling (Authority for Advance Rulings - S. Ranganathan, Chairman, D. B. Lal and R. L. Meena, Members) and bears on section 10(22), section 11, section 245Q of the Income Tax Act 1961. It is reported as [1996] 219 ITR 183 (AAR). The value of this ruling is in the four conditions the Authority set out for an educational-institution exemption and in what it refused to treat as fatal. A surplus of receipts over expenditure does not by itself make an institution one that exists for profit; the institution need not be affiliated to a university or board, and need not itself teach if it runs schools or colleges; but it must actually exist and be operating, not merely be taking steps towards it, and the income claimed must be directly relatable to the educational activity. The Authority also put the foreign tax status in its place: exemption under s.501(c)(3) of the US Internal Revenue Code was of persuasive value only, because eligibility is decided by the Indian Act alone. Those propositions still get argued, but the section they were decided under is gone, so cite the reasoning and not the section. If it applies to you, the first step is this: Put the objects clause and the dissolution clause in front of the officer: a bar on earnings enuring to any member, director or individual, including on winding up, is what carried this ruling.
The applicant, the Educational Institute of American Hotel and Motel Association, is a non-resident wholly owned subsidiary of the American Hotel and Motel Association, set up in 1970 and enjoying tax-exempt status under s.501(c)(3) of the US Internal Revenue Code of 1954 as an educational institution. It is governed by an elected board of trustees. In 1993 the National Council of Hotel Management and Catering Technology, the apex Indian body overseeing hotel management and catering education under the Ministry of Tourism, signed a memorandum of understanding with it, with Government approval, to use its courses, resources and expertise. The applicant opened a liaison office in Bombay in July 1994 with Reserve Bank of India approval, and in February 1995 that office was upgraded to a branch office with the approval of the Ministry of Finance and the Reserve Bank. By the date of the application it had agreements with eighteen Indian institutions - Global Academic Program licence agreements with six and memoranda of understanding with twelve. Under the licence agreement it was paid USD 5,000 on execution and USD 5,000 as annual maintenance fee, both net of taxes, plus fees based on time and individuals involved; under the memoranda it sold courses at USD 60 or USD 65 over twelve months. It applied under s.245Q(1) on 27 June 1995 asking whether its income from conducting courses and certification programmes in hospitality management and operations, providing educational and training materials, conducting seminars and workshops, and providing training and instructional resources to in-house faculty was exempt under s.10(22), and whether it was entitled to exemption under s.11. The matter was decided on 1996-02-14 by the Advance Ruling (Authority for Advance Rulings - S. Ranganathan, Chairman, D. B. Lal and R. L. Meena, Members). On those facts the Advance Ruling held as follows. The applicant fulfils the conditions for exemption under s.10(22) and its income arising or accruing from the four sources mentioned in the first question is not taxable. The second question, on s.11, became academic and was not answered.
The Authority reproduced s.10(22) - 'any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit' - and drew four conditions out of it: the institution must actually exist, and taking steps towards existence is not enough; it need not be affiliated to any university or board, and need not itself impart education if it runs schools or colleges; it must exist solely for educational purposes and not for profit, but a surplus of receipts over expenditure does not by itself show a profit purpose; and where an entity has income from several sources, the particular income claimed must come from the educational institution and be directly relatable to the educational activity. It then applied those to the material before it. The statement of purposes showed the preparation and distribution of instructional material in hotel and motel ownership, maintenance and operation, the running of a licensed private occupational school, and rights to charge dues, royalties and fees - activities the Authority read as educational. The articles provided that net earnings should not enure to the benefit of any member, director or other individual, and that on dissolution no member, trustee, officer or private individual should take a share of the corporate assets, which the Authority treated as showing that profit was not the real purpose. The US tax-exempt status, though important, was said to have only persuasive value, since eligibility depends on the Indian Act. Turning to what was actually done in India, the Authority read clause 10 of the Global Academic Program licence agreement and the sample memorandum and found the activities either purely educational or related to the provision of educational facilities. It added that the Reserve Bank of India's letters permitting the liaison office and its upgrade restricted the applicant from new trading, commercial or industrial activity and gave the Bank a check on other activity, which strengthened the view that the applicant did not exist for purposes of profit. In the words reproduced by the source cited on this page: "the educational institution must exist solely for educational purposes and not for purposes of profit but merely because there is a surplus that is to say, a surplus of receipts over expenditure, it cannot be said that the educational institution exists for profit"
It was decided by the Advance Ruling on 1996-02-14 and is reported as [1996] 219 ITR 183 (AAR). Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 10(22), section 11, section 245Q, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The applicant fulfils the conditions for exemption under s.10(22) and its income arising or accruing from the four sources mentioned in the first question is not taxable. The second question, on s.11, became academic and was not answered. It arises in Capital Gains Exemptions and Charitable Trusts & Exemption matters, on section 10(22), section 11, section 245Q of the Income Tax Act 1961, and was decided by Authority for Advance Rulings - S. Ranganathan, Chairman, D. B. Lal and R. L. Meena, Members. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that the income you claim is directly relatable to the educational activity, item by item; the Authority answered only on the four sources put to it and said so. Do not rest on a foreign tax-exempt status - it has persuasive value only and the Indian conditions have to be satisfied independently. Frame the claim under s.10(23C) or ss.11 and 12 as the case may be: s.10(22) was omitted with effect from assessment year 1999-2000 and is no longer available. Treat the ruling as persuasive only; under s.245S it binds this applicant and its own transaction alone.
Superseded by amendment. The exempting provision no longer exists. Section 10(22), together with s.10(22A), was omitted by the Finance (No. 2) Act 1998 with effect from assessment year 1999-2000; educational institutions of a charitable nature must now claim under ss.11 and 12, or under the sub-clauses of s.10(23C), which the same amendment substantially recast around government financing, an annual receipts threshold, and approval by the prescribed authority. The reasoning on what 'solely for educational purposes and not for purposes of profit' means has continued to be argued under s.10(23C), but this entry does not trace that line of authority, and the reader should not assume the four conditions set out in 1996 have survived intact - the Supreme Court has since spoken on the meaning of 'solely' under s.10(23C)(vi), and that decision was not read for this entry. No later decision following or doubting this particular ruling was found on any host reached. The Authority itself no longer exists: three Boards for Advance Rulings were constituted by Notification No. 96/2021 dated 1 September 2021 under the Finance Act 2021, and their orders are appealable to the High Court under s.245W. The Income-tax Act 2025 comes into force from 1 April 2026. That finding was checked against a published source, which is linked on this page, on 2026-08-23. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Authority expressly limited itself. It recorded that the applicant had asked about income from only four aspects of its activities and said that the ruling is confined to those four. It did not decide the s.11 question, holding it academic. It did not examine whether the applicant had a permanent establishment, nor any treaty question, nor how much income was involved. It also did not decide the beneficial-ownership or repatriation position of the fees. Its conclusion that there was no profit motive was reinforced by the restrictions in the Reserve Bank of India's letters permitting the liaison and branch offices, which is a regulatory fact that could change. No second source was found for this ruling; the entry rests on the full text of the ruling itself. Note what an advance ruling actually does: under s.245S it binds only the applicant who sought it, only in respect of the transaction the ruling was sought on, and the Commissioner and the income-tax authorities subordinate to him in relation to that applicant and that transaction - and only for so long as the law and the facts on which it was pronounced remain unchanged. It binds nobody else, though a considered ruling of the Authority is treated as persuasive. The entry does not tell the reader how the same activities would be treated under s.10(23C) or ss.11 and 12 today, and it deliberately does not state the current test of 'solely for educational purposes', which has been reconsidered by the Supreme Court in a decision not read for this entry. A 2008 Supreme Court matter captioned 'American Hotel & Lodging ... v. Central Board of Direct Taxes' appears in search results and may concern the same body under s.10(23C)(vi), but the page could not be opened and the connection has not been established - do not rely on it. The reported citation comes from the Indian Kanoon page and was not checked against the ITR volume. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The applicant fulfils the conditions for exemption under s.10(22) and its income arising or accruing from the four sources mentioned in the first question is not taxable. The second question, on s.11, became academic and was not answered.
TaxSphere, “Educational Institute of American Hotel and Motel Association v CIT”, https://taxnotice.vittsphere.com/caselaw/case/educational-institute-american-hotel-motel-aar-1996/
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