Section 10(23C)(vi)

Section 10(23C)(vi) — the law in short

What the courts have decided on section 10(23C)(vi), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• New Noble Educational Society v CCIT Supreme CourtHelps department
  Our society runs a college but also earns from hostels and events. Can we get 10(23C)(vi) approval?
  Only if education is your sole object. 'Solely' means to the exclusion of all others, and the older predominant object test was rejected. Business receipts stay exempt only where the business is incidental to the educational object and separate books are kept, so letting hostels to non-students or hosting outside conferences falls outside that.
• Queen's Educational Society v CIT Supreme CourtHelps taxpayerPartly overruled — read this first
  My school makes a surplus every year and puts it back into buildings and equipment. Does that mean it no longer exists solely for education?
  No. The Supreme Court held that a surplus ploughed back into the institution does not destroy the exemption. What matters is the predominant object: if the institution exists solely for education and not for profit, the fact that receipts exceed expenditure is beside the point. The Court set aside the Uttarakhand High Court's contrary judgment in Queen's Educational Society, approved the Punjab and Haryana, Delhi and Bombay High Court decisions, and restored the Tribunal's view. It reaffirmed Surat Art Silk Cloth, Aditanar and American Hotel and Lodging as the governing tests, while stressing that the thirteenth proviso requires the authorities to monitor actual application of income year by year. Read subject to a date, though: on 19 October 2022 the Supreme Court in New Noble Educational Society v Chief CIT disapproved the reasoning of this judgment and of American Hotel and Lodging so far as it pertains to the interpretation of 'solely', and held instead that all the objects of the institution must relate to imparting education, so the predominant-object test stated here is no longer the test for that word. New Noble para 78 directs that the law it declares operate prospectively.
• American Hotel & Lodging Association Educational Institute v CBDT Supreme CourtHelps taxpayerPartly overruled — read this first
  The prescribed authority has refused our s.10(23C)(vi) approval because we have not shown that income was applied the way the third proviso requires. Can it refuse on that ground at the approval stage?
  Not on that ground standing alone. The Supreme Court separated the threshold conditions in s.10(23C)(vi) — the actual existence of an educational institution existing solely for education and not for profit, plus approval by the prescribed authority — from the monitoring conditions in the provisos on application, accumulation and deployment of income, whose compliance depends on events that have not occurred when a first application is made. But this decision must now be read subject to New Noble Educational Society (SC, 19 October 2022), which overruled it on the meaning of 'solely' and held, at para 76(f), that its observations suggesting the Commissioner could not call for records apply only to newly set up charities, the proviso to s.10(23C) not being confined to newly set up trusts.
• CDO Jain Education Society v ACIT (CPC) ITATHelps taxpayerNo later treatment found
  My institution filed its audit report on time but in Form 10B when Form 10BB was the right form, and the CPC has denied the exemption and raised a demand on the gross receipts. Is filing the wrong audit form fatal?
  No. Where the accounts were in fact audited by a chartered accountant and an audit report was uploaded within time, the choice of the wrong form is a procedural lapse and not a failure of the substantive condition, and exemption cannot be denied on that ground alone. The Tribunal set aside the appellate order and directed the Assessing Officer to verify substantive compliance and, if satisfied, to condone the procedural lapse, allow the exemption and reduce the demand to nil.
• Himachal Pradesh Technical University v CIT (Exemption) ITATHelps taxpayerNo later treatment found
  Our s.10(23C)(vi) application was rejected because we generate surplus and park it in fixed deposits. Is surplus by itself a ground for refusal?
  No, but the answer is no longer the old one. The Chandigarh Bench set aside a rejection founded on surplus generation, parking of funds in fixed deposits and non-filing of returns, and remanded the application to the Commissioner (Exemption) to be decided afresh in accordance with law and with the precedents, including New Noble Educational Society. Generation of surplus year to year is not by itself a bar where the institution is established solely for educational purposes.
• Statutory position — s.12AC: a registered trust may merge into another without Chapter XII-EB, but only on three conditions, one of which is still to be prescribed CBDT Circulars & InstructionsCuts both waysNo later treatment found
  Our society wants to merge into a larger trust that does the same work. Both are registered. Will the merger trigger the exit tax on accreted income, and what do we have to get right?
  Section 12AC, inserted after section 12AB by the Finance (No. 2) Act, 2024 with effect from 1 April 2025, says that where a trust or institution registered under section 12AB, or approved under sub-clause (iv), (v), (vi) or (via) of clause (23C) of section 10, merges with another trust or institution, the provisions of Chapter XII-EB shall not apply if three conditions are met: the other trust or institution has same or similar objects; the other trust or institution is registered under section 12AA or section 12AB or approved under those same sub-clauses of section 10(23C); and the merger fulfils such conditions as may be prescribed. Chapter XII-EB is the exit tax — the charge on accreted income under section 115TD, the interest under section 115TE and the personal liability under section 115TF. Where any of the three conditions fails, the section simply does not apply and the Chapter is left in place.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.