Educational Trust’s Earnings Applied to Education Entitles Registration u/s 12AA: SC Refuses to Interfere with P&H HC Ruling [Read Order]

In a recent case, the Supreme Court declined to interfere with the judgment of the Punjab & Haryana High Court that upheld the grant of registration under Section 12AA of the Income Tax Act, 1961, to an educational society. The Revenue’s Special Leave Petition (SLP), filed by the Commissioner of Income Tax, was dismissed.

The apex court’s order effectively affirms the High Court’s reasoning that the trust’s earnings, when applied to educational purposes, entitle it to registration under Section 12AA.

The dispute originated from the Commissioner of Income Tax’s refusal to grant registration under Section 12AA in 2009. The Commissioner had held that the society, Yadivindra Public School Association, was not engaged in charitable activity within the meaning of Section 2(15) of the Act, arguing that imparting education without an element of subsidy or alimony for the poor could not qualify as charity.

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Reliance was placed on the Supreme Court’s earlier ruling in Municipal Corporation of Delhi v. Children Book Trust (1992), which emphasised that charity must involve some element of relief for the needy. The Commissioner further noted that mere approval under Section 10(23C)(vi) did not automatically entitle the society to registration under Section 12AA.

On appeal, however, the Income Tax Appellate Tribunal (ITAT) set aside the Commissioner’s order, relying on precedents such as Baba Gandha Singh Education Trust v. CIT Patiala. The Tribunal observed that under the third proviso to Section 10(23C)(vi), educational institutions are permitted to retain up to 15 per cent of their income, provided 85 per cent is applied towards their objects.

Thus, the existence of surplus funds does not negate charitable purpose, so long as the funds are utilised for education. The Tribunal distinguished the Children Book Trust ruling, noting that it was decided under the Delhi Municipal Corporation Act and not the Income Tax Act.

The Punjab & Haryana High Court, in its decision, upheld the Tribunal’s view. It was observed that Section 12AA pertains tothe registration of trusts and requires examination of the objectives and genuineness of activities.

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Citing the Supreme Court’s ruling in Ananda Social and Educational Trust v. CIT (2020), the Court held that even proposed activities must be considered at the stage of registration.

Since Yadvindra Public School Association was already recognised under Section 10(23C)(vi) as an educational institution and its earnings were applied towards the advancement of education, the denial of Section 12AA registration was unjustified. The Court dismissed the Revenue’s appeal, directing compliance with the ITAT’s order.

When the matter reached the Supreme Court, the bench of Justice Aravind Kumar and Justice N.V. Anjaria refused to interfere. The Court’s brief order condoned the delay in filing but categorically stated that it was “not inclined to interfere with the impugned order.” Consequently, the apex court dismissed the SLP of the Revenue.

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