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India gets strict with taxation of educational institutions

According to the Supreme Court, the institution must be solely for educational purposes and not for purposes of profit

Question: My family had set up an educational institution running a school and junior college in Jaipur. Exemption was claimed in respect of the income of the institution under the provisions of the Indian tax law. The tax department has raised certain issues and has denied the exemption on the ground that income was earned from non-educational sources. Is this legally justifiable?

ANSWER: Litigation has been arising on this issue during the past several years. The Supreme Court has recently considered this point taking into account the strict words of section 10(23-C) of the Income-tax Act. In this provision, it is stated that the institution must be solely for educational purposes and not for purposes of profit. The Supreme Court has clarified that under this provision a charitable trust or institution cannot have objects which are unrelated to education. Therefore, all objects of the trust or institution must relate to educational activities only. Further, if the object of the institution is profit oriented, it would not be entitled to claim the exemption under section 10(23-C). Therefore, if an institution lets out its premises or infrastructure to other entities for the purpose of conducting workshops or for social or religious functions, the benefit of the exemption would be denied though the income or profits may be used towards the objects of the educational trust.

Question: The taxi and cab aggregator industry has grown exponentially in India during the past few years. However, lack of proper regulation is likely to have an adverse impact on this business. Is the Government going to step in to bring some discipline in this business?

ANSWER: Recently the Competition Commission of India has undertaken a market study and obtained information on factors affecting pricing and perceptions of stakeholders. The findings of the study noted that there is a lack of transparency regarding base fare, total fare and surge pricing. Further, business practices of cab aggregators were also not up to the required standards. The Competition Commission has therefore recommended certain self regulatory measures which need to be adopted by cab aggregators in order to address the transparency concerns. These measures include setting out the components of the fare. Further, policies for surge pricing need to be transparent including sharing of additional revenue between drivers and cab aggregators.

Question: Due to the war in Ukraine, there is a surge in fertiliser prices all over the world apart from scarcity in availability. How will this affect the Indian farmer and output of agricultural products?

ANSWER: While the fertiliser scarcity and high prices are inevitable due to the geopolitical situation in Eastern Europe, India is likely to face this challenge effectively. The Indian Government has announced a scheme under which all fertiliser manufacturing and marketing companies will sell soil nutrients under a single brand ‘Bharat Urea’. These soil nutrients will make the country self reliant in fertilisers and do away with black marketing in imported urea which was taking place earlier. The introduction of liquid nano urea will bring down the cost of the fertiliser which is packaged in 500 ml. bottles. This urea is in the form of a nanoparticle. This soil nutrient in liquid form will provide nitrogen to plants as an alternative to conventional urea. The benefit of nano urea is that it enters easily in plants through stomata and other openings. The efficiency of the nano urea is such that it is expected to increase the yield of crops by at least 15 per cent. This will increase the income of farmers by Rs2,400 to Rs5,700 per acre. Further, this causes less soil, air and water pollution. Since August this year, around 32 million bottles of nano urea have been sold. Thus, import of conventional urea has dropped significantly in the last few months.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.