Bombay HC upholds I-T exemption for American school

MUMBAI: The American School of Bombay (ASB), a prominent international school catering largely to the needs of children from the expat community, is eligible for income-tax (I-T) exemption, the Bombay high court has held.
The ruling comes in response to a bunch of writ petitions filed by nine trustees against tax orders denying the school exemption for four years from fiscal 2001-02.
Porus Kaka, senior counsel representing the school, submitted that the main condition for claiming tax exemption under section 10(23C)(vi) of the I-T Act was that it exists only for providing education and not for profit, a fact that is clear from its trust deed. The school was set up after the US Embassy was granted specific permission by India's ministry of external affairs.
The main grounds for denying exemption was that the school was supported by a US-based not-for-profit organisation. South Asia International and Educational Services Foundation was subject to scrutiny by the US government and enjoyed a tax-exempt status in that country. It met various expenses of the school such as salaries of teachers and administrative expenses, education grant, etc. Any surplus from funds for ASB was repatriated to the school, which invested it in accordance with provisions of the I-T Act.
A division bench of Justices Dhiraj Singh Thakur and Kamal Khata observed that the American not-for-profit entity repatriated money into India, it did not receive any repatriation from India. "Thus, the money earned and expenses made by it in the US should not and ought not to concern the I-T department."
For other financial years that were subject to tax litigation, ASB had got favourable orders from the Delhi HC. In addition, Kaka submitted that the Central Board of Direct Taxes, in its circular, has clarified that mere generation of surplus by an educational institution cannot be a basis for rejection of tax exemption if it is used for educational purposes and the accumulation is not contrary to law. The bench also agreed with his contention that the Supreme Court decision, in the case of New Noble Education Society, issued last October cannot be applied, retrospectively.