ITAT Mumbai: Taxability Of Fees Regulating Authority Cannot Be Decided While Section 10(46) Exemption Application Is Pending Before CBDT

April 30, 2026 : The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the taxability of the Fees Regulating Authority cannot be conclusively determined while its application seeking notification under Section 10(46) of the Income Tax Act, 1961 remains pending before the Central Board of Direct Taxes (CBDT).

A Bench comprising Sandeep Singh Karhail and Bijayananda Pruseth observed that once notification under Section 10(46) is granted, the income of such statutory authority would become exempt from taxation and therefore any final adjudication on taxability before the CBDT decides the pending application would be premature.

The Tribunal observed:

“As per the provisions of section 10(46) of the Act, any income arising to a body or authority or Board of Trust or commission, established or constituted by or under the Central or State legislation, or constituted by the Central Government or the State Government, with the object of regulating or administering any activity for the benefit of the general public, is exempted from taxation, if such body or authority or Board of Trust or commission is not engaged in any commercial activity and is notified in the official Gazette.”

The appeal was filed by the Fees Regulating Authority against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for Assessment Year 2017-18. The authority was constituted under Section 11 of the Maharashtra Unaided Private Professional Educational Institutions (Regulation of Admission and Fees) Act, 2015 to regulate and determine the reasonableness of fees charged by unaided professional educational institutions.

For the relevant assessment year, the assessee filed its return declaring nil income and claimed exemption under Section 10(46) of the Income Tax Act. Alternatively, it claimed exemption under Section 11 on the basis of registration under Section 12AA as a charitable institution.

During assessment proceedings under Section 143(3), the Assessing Officer sought evidence regarding eligibility for exemption under Section 10(46). The assessee informed the department that it had already filed an application before the Principal Commissioner of Income Tax-23, Mumbai seeking notification under Section 10(46), which had been forwarded to the CBDT.

However, the Assessing Officer rejected the claim holding that notification in the Official Gazette by the Central Government is a mandatory pre-condition under Section 10(46) and since no such notification had been issued, the assessee could not claim exemption. The alternate claim under Section 11 was also rejected on the ground that statutory requirements under Section 11(2), including filing Form 10 within prescribed time and proper accumulation of income, were not fulfilled. Consequently, the surplus income was taxed as business income.

The CIT(A) upheld the assessment order and further observed that the Act under which the authority was constituted had not been notified in the State Government Gazette, which according to the appellate authority was a prime requirement for exemption under Section 10(46).

Before the Tribunal, the assessee pointed out that its application seeking notification under Section 10(46), originally filed on January 29, 2018, was still pending before the CBDT. It was submitted that even in January 2026, the CBDT had sought further clarifications and documents, which were furnished through letters dated January 23, 2026 and March 6, 2026.

The assessee also submitted that the CBDT had earlier sought clarification regarding whether it intended to continue registration under Section 12AA or opt for exemption under Section 10(46) in light of Section 11(7) of the Act. The authority responded that it had no objection to cancellation of registration under Section 12AA if notification under Section 10(46) was granted.

Additionally, the assessee argued that being an authority established under a State enactment, it was an instrumentality of the State and therefore its income was not taxable. The Tribunal noted that neither the Assessing Officer nor the CIT(A) had rendered any finding on this contention.

Taking note of the continuing correspondence between the assessee and the CBDT, the Tribunal held that if notification under Section 10(46) is ultimately granted, the assessee’s income would become exempt from taxation. Accordingly, the Bench restored the issue of taxability to the file of the Assessing Officer for fresh adjudication after considering the outcome of the pending application before the CBDT.

The Tribunal also clarified that all contentions of the assessee, including its alternate claim under Section 11 and the plea of non-taxability as an instrumentality of the State, were kept open. The appeal was allowed for statistical purposes.

Case Title: Fees Regulating Authority v. Assistant Commissioner of Income Tax (Exemption), Circle-1, Mumbai
Case No.: ITA No. 4865/Mum./2025