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Top education institutions denied I-T exemption

THE INCOME Tax department denied tax exemption to some premier educational institutions of the State capital, who made huge profits by taking undue advantage of their institutions? status as charitable. Upon scrutiny of documents of some educational institutions, the IT department was learnt to have found out that educational institutions were minting money this way.

india Updated: Jan 03, 2006 14:05 IST

THE INCOME Tax department denied tax exemption to some premier educational institutions of the State capital, who made huge profits by taking undue advantage of their institutions’ status as charitable. Upon scrutiny of documents of some educational institutions, the IT department was learnt to have found out that educational institutions were minting money this way.

The City-based institutions that took the advantage included People’s Group, RKDF, LNCT and others. According to sources, the department denied tax exemption available to these institutions on the plea that these institutions were making huge surplus and their infrastructure was not solely for education. They were denied exemption under Section 10 (23) of the IT Act.

One institution that was denied tax exemption was learnt to have encroached on the land of Water Resources Department and despite the best efforts of the owner of the institute, he could not get the land regularised in the name of institution.

Individuals wanting to take advantage in the field of medicine, dentistry, MBA and other courses floated societies and opened educational institutions to take advantage of tax exemption under the Income Tax Act.

Treating education as a charitable activity, the promoters claimed huge tax exemption. Within some years of setting institutions, some individuals amassed huge wealth.

“If it was so charitable why would societies take franchisee of institutions like the DPS or start courses of new fields every year rather than to consolidate in fields they had started,” said a senior tax consultant. It needs to seen how such huge infrastructures were created within a short span of time.

“This phenomenon is in the entire country and the Union Government should amend the existing laws and tax such institutions which are minting money,” said a senior Chartered Accountant.

Talking to the Hindustan Times, he said, majority of the institutions are engaged in making profits and the ‘free education’ has taken a back seat.

Taking a cue from the searches conduced recently by the Income Tax officials in Pune their Bhopal counterparts started investigating the personal investments and expenditure of trustees of educational institutions.

IT officials here reached the conclusion that many private educational institutions charged huge amounts as capitation fees and donations from students at the time of admission. A list of parents and students, who paid huge sums to educational trusts, was also prepared.

“The department denied tax exemptions to these institutions. Now they are left with no alternative but to pay taxes,” said IT officials. They disclosed that the department is closely monitoring activities of other educational institutions of the City and some of them are likely to face the music soon.


Who gets exemption
ALL CHARITABLE institutions have to take registration under Section 12 AA but societies having turnover of over Rs one crore and want to get their income fully exempt have to apply under Section 10 (23). The law recognises two kinds of institutions. One which make profits to meet the operational expenses and the ones run for profits. The I-T law allows tax exemption for the first category only.

First Published: Jan 03, 2006 14:05 IST