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Educational firms can’t claim tax relief on profit-seeking activities: SC

The reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) merely means that the profits of business which is ‘incidental’ to educational activity like sale of text books, providing school bus facilities, hostel facilities, etc, the top court said.

Educational firms can’t claim tax relief on profit-seeking activities: SC
It directed that the law declared in the present judgment shall operate prospectively.

The Supreme Court on Wednesday held that educational institutions or trusts can claim benefits of tax exemptions only if they ‘solely’ engage in education and not in any other activity of profit. For this, they cannot even have objects unrelated to education, the apex court ruled, adding that if the objective of the institution appeared to be profit-oriented, such institutions cannot get approval under Section 10(23C) of the Income Tax Act.

“At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities,” a bench comprising Chief Justice UU Lalit and justices S Ravindra Bhat and PS Narasimha in a batch of cases led by New Noble Educational Society vs The Chief Commissioner of Income Tax held.

It directed that the law declared in the present judgment shall operate prospectively.

The reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) merely means that the profits of business which is ‘incidental’ to educational activity like sale of text books, providing school bus facilities, hostel facilities, etc, the top court said.

Overruling the reasoning and conclusions given in earlier judgments of American Hotel and Queen’s Education Society that suggested that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment, the apex court said that the Commissioner or the concerned authority while considering applications for approval under Section 10(23C) is not bound to examine only the objects of the institution.

To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes.

According to the judges, 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 as this would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc.

“In a knowledge based, information driven society, true wealth is education – and access to it. Every social order accommodates, and even cherishes, charitable endeavour, since it is impelled by the desire to give back, what one has taken or benefited from society. Our Constitution reflects a value which equates education with charity. That it is to be treated as neither business, trade, nor commerce…,” the judgment said.

In this case, the Andhra Pradesh High Court had rejected various educational institutions’ claims for registration as a fund or trust or institution or any university or other educational institution set up for the charitable purpose of education under the 1961 Act on the grounds that the trusts which claimed benefit of exemption were not created ‘solely’ for the purpose of education. Additionally, the educational institutions were denied registration on the ground that they were not registered under the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987, a condition precedent for grant of approval.

Also Read: Let’s Eduvate plans to enter six more states, eyes net revenue of Rs 20 crore

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First published on: 20-10-2022 at 09:02 IST