Exemption from income-tax in the case of regimental funds, non-public funds, etc., set up by armed forces [Section 10(23AA)]

As per Section 10(23AA), any income received by any person on behalf of any Regimental Fund or Non Public Fund established by the armed forces of India for the welfare of the past and present members of such forces or their dependents shall be exempted from tax

There are several Regimental Funds and Non-Public Funds set up by the armed forces of India for the welfare of their present and past members and their dependents. These Funds include Benevolent Funds, Charitable Funds, Child Welfare Funds, Childrens School Funds, etc. The Funds set up by the Army are generally known as Regimental Funds and those by the Navy and Air Force are called Non-Public Funds.

By Finance (No. 2) Act, 1980, with retrospective effect from 1st April, 1962, i.e., from the commencement of the Income-tax Act, 1961 and is accordingly applicable in relation to the assessment year 1962-63 and subsequent years to provide for exemption from income-tax in respect of the income of the Regimental Funds or Non-Public Funds established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependents.

Text of Section 10(23AA)

^[1][(23AA) any income received by any person on behalf of any Regimental Fund or Non-Public Fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependants;]

KEY NOTE

1.  Inserted by the Finance (No. 2) Act, 1980, with retrospective effect from 01.04.1962.

Eligible Assessee

Any person

Nature of Income

Any income on behalf of any Regimental Fund or Non-Public Fund established by the Armed Forces

Amount Exempt

Entire amount

Conditions laid down for Tax Exemption

Income is received on behalf of Regimental fund or non Public fund, established by armed force for welfare of its member or his dependent.

FAQs on ITR-7

Question 2: While trying to file the ITR-7 claiming exemption under below sub-sections, I am not able to find the relevant dropdown in ITR 7 utility. What should I do in this regard? Section 10(20); Section 10(23AA); Section 10(23AAB); Section 10(23BB); Section 10(23BBA); Section 10(23BBC); Section 10(23BBE); Section 10(23BBG); Section 10(23BBH); Section 10(23C)(i); Section 10(23C)(ii); Section 10(23C)(iii); Section 10(23C)(iiia); Section 10(23C)(iiiaa); Section 10(23C)(iiiaaa); Section 10(23C)(iiiaaaa); Section 10(25)(i); Section 10(25)(ii); Section 10(25)(iii); Section 10(25)(iv); Section 10(25)(v); Section 10(25A); Section 10(26AAB); Section 10(26B); Section 10(26BB); Section 10(26BBB); Section 10(44)

Clarification: The persons claiming exemptions in any of the above-mentioned sub-sections are not required to file ITR7, They may use other ITR type as appropriate to file the return.

CBDT Circular No. 735, Dated 30.01.1996

Subject : Clarification regarding payment of income by way of interest on securities and rent made to regimental funds or non-public fund established by Armed Forces of Union for welfare of past and present members of such forces or their dependants, whose income is exempt under section 10(23AA)

1. The issue of deduction of income-tax at source under section 193 and section 194-I of the Income-tax Act from any income received by any person on behalf of any Regimental Fund or Non-public Fund established by the Armed Forces of Union for the welfare of past and present members of such forces or their dependants, has been brought to the notice of the Board. Representations have also been received on behalf of Regimental Funds and Non-public Fund established by the Armed Forces.

2. The matter with regard to regimental fund or non-public fund established by Armed Forces has been examined in the Board. Since the income of these organisations is exempt under section 10 (23AA) of the Income-tax Act, it has been decided that no tax may be deducted at source under sections 193 and 194-I from the income of such Funds.

State Army Wives Welfare Association, not being established by armed forces of union and income earned by it not being on behalf of any regimental fund or non-public fund established by armed forces of union, could not be allowed exemption under section 10(23AA)

No Section 10(23AA) relief to ‘State Army Wives Welfare Association’ as it was not established by armed forces of union.

Learned counsel for the revenue submits that exemption under section 10 (23AA) of the Act of 1961 is admissible only on receipt of fund from an establishment of the armed forces of the Union for the welfare of the past and present members of the such forces or their dependents. The assessee was not an establishment by the armed forces of the union but wives of the army personnels. They were not receiving income from any regimental fund or non-public fund from the establishment of armed forces of the Union. In view of the above, the exemption under section 10(23AA) of the Act was not available to the assessee. Ignoring the aforesaid, the tribunal allowed the benefit of exemption to the assessee without even considering aforesaid aspect. The order was passed only by referring to the orders of other ITAT’s and the judgment of Bombay High Court. It is despite the fact that issue aforesaid has not been decided there on the ground urged in this case. No finding has been recorded either by the CIT (Appeals) or by the tribunal that the assessee has received income from regimental fund or from non-public fund of an establishment by the armed forces of the Union. The establishment herein is by the wives of the army personnels and not established under the Union. It may be for the welfare of past and present members and their dependents. In view of the above, the prayer is to cause interference in the order of CIT (Appeals) as well as the tribunal for grant of exemption to the assessee under section 10(23AA) of the Act of 1961.

A challenge to the order was made before the tribunal but appeal preferred by the revenue was dismissed. Perusal of the order of the tribunal does not reflect a detailed discussion in reference to exemption under section 10(23AA). The issue aforesaid has been decided by referring certain orders passed by other ITAT’s and Bombay High Court. It is without considering section 10(23AA) and the facts of the case. Section 10(23AA) of the Act of 1961 is thus quoted hereunder for ready reference:

“(23AA) any income received by any person on behalf of any Regimental Fund or Non-Public Fund established by the armed forces of the Union for the welfare of the past and present members of such forces or their dependents;”

The provision quoted above shows that under what circumstances exemption can be claimed. It can be for the income received by any person on behalf of any regimental fund or non-public fund established by the armed forces of the Union for the welfare of the past and present members. In the instant case, the assessee has failed to prove income on behalf of regimental fund or non-public fund established by the armed forces of the Union. The establishment should be of armed forces of the Union with receipt of the fund of the nature given under the said provision. The issue aforesaid has been ignored by the tribunal so as by the CIT(Appeals). It seems to have been persuaded only by one issue which was initial denial of the exemption under section 10(23AA) as it was not claimed at the time of submission of return but during the course of assessment. It may be that assessee can claim the exemption under section 10(23AA) at the time of assessment but entitlement for it was required to be decided by CIT(Appeals) and the tribunal.

On the facts of the case, we do not find that the assessee was entitled for exemption under section 10(23AA) of the Act of 1961 when it failed to prove it case. Thus, the order of the CIT(Appeals) and the tribunal to allow the exemption under the aforesaid provision cannot sustained. [In favour of revenue] - [CIT(Exemption) v. Army Wives Welfare Association, Lucknow (2020) 312 CTR 375 : 271 Taxman 139 : 185 DTR 395 : 116 taxmann.com 215 (All.)]