NEW DELHI: Observing that our Constitution equated education with charity and not as business, trade or commerce, the Supreme Court on Wednesday held that educational institutions or trusts can claim benefits of tax exemptions only if they ‘solely’ engaged in education and not in any other activity of profit.
The apex court declared that if the objective of such educational institutions appeared to be profit-oriented, they cannot get approval under Section 10(23C) of the Income Tax Act.
In a judgement in New Noble Educational Society and others Vs the Chief Commissioner of Income Tax, a bench of Chief Justice U U Lalit and Justices S Ravindra Bhat and P S Narasimha, however, clarified that the law declared by it would operate prospectively.
“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 benefitted from society. Our Constitution reflects a value which equates education with charity. That it is to be treated as neither business, trade, nor commerce,” Justice Bhat said, writing the judgement on behalf of the bench.
The court noted that 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.
"However, where institutions provide their premises or infrastructure to other entities, trusts, societies etc, for the purposes of conducting workshops, seminars or even educational courses (which the concerned trust is not actually imparting) and outsiders are permitted to enrol in such seminars, workshops, courses etc then the income derived from such activity cannot be characterised as part of education or ‘incidental’ to the imparting education. Such income can properly fall under the other heads of income," the bench said.
The court also overruled the reasoning and conclusions given in earlier judgements in cases of 'American Hotel' and 'Queen’s Education Society' which suggested that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment.
"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," the bench said.
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