The Supreme Court of India, in a significant ruling, held that, where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval of exemption under the Section 10(23C) of the Income Tax Act,1961, notably only to be applied prospectively, through the Division Bench of Chief Justice of India Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice P S Narasimha.
Educational trusts, aggrieved by the order of the Andhra Pradesh High Court, approached the Supreme Court against the decision that the trusts which denied the claims for benefit of income tax exemption under the Section 10(23C) of the Income Tax Act on the ground that the appellant trusts were not created ‘solely’ for the purpose of education.
The Court examined the memorandum of association or the rules or the constitution of the concerned trusts to answer the said issue and perused the relevant provisions under the Income Tax Act.
The institution-appellant, New Noble Educational Society also raised the grievance that the trust was denied registration on the basis of not being registered under the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act. The Apex Court held in this regard that, wherever registration of trust or charities is obligatory under state or local laws, the concerned trust, society, other institution etc. seeking approval under Section 10(23C) should also comply with provisions of such state laws. This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc.
It was held that the requirement of the charitable institution, society or trust etc., to ‘solely’ engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education.
The judgments in American Hotel and Lodging Association v Central Board of Direct Taxes and Queen’s Education Society v Commissioner of Income Tax were also overruled as the reasoning and conclusions so far as they pertain to the interpretation of the expression ‘solely’, to such extent, by the Apex Court.
It was further clarified that the object of such institutions must be ‘wholly, solely and exclusively’ for the purpose of education, relying on the seventh proviso to Section 10(23C), as well as Section 11(4A) of the Income Tax Act, which refer to profits which may be ‘incidentally’ generated or earned by the charitable institution. In the present case, the same was held to be applicable only to those institutions which impart education or are engaged in activities connected to education.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to TaxscanPremium. Follow us on Telegram for quick updates.
