Educational charitable institutions/trusts cannot claim income tax exemption if their objects are unrelated to education.

Case: New Noble Education Society vs Chief Commissioner of IT

Bench: The bench of Chief Justice of India UU Lalit, Justices S Ravindra Bhat and PS Narasimha,

The Supreme Court has held that a charitable, educational institution, society, or trust is not entitled to claim income tax exemption under Section 10(23C) of the Income Tax Act if its objects are unrelated to education. The bench, however, clarified that if profits are gained by providing education or educational activities, it can gain an exemption under IT Act.

The Court also held that 'business' and 'profits' under the 10(23C) and 11(4A) sections of the Income Tax Act, 1961, "merely means that the profits of a business which is 'incidental' to educational activity – i.e., relating to education such as the sale of textbooks, school bus, hostel, etc."

Facts

The appellants' request for registration as a fund, trust, institution, university, or other educational institution for charitable purposes under the Income Tax Act, 1961, had been rejected by the Andhra Pradesh High Court. According to the High Court, the appellant trusts which sought exemption under Section 10 (23C) of the IT Act were not created exclusively for education, and their registration under the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987 was not a condition precedent for approving.

According to the parties, such a precondition was not stated in the provisos of Section 10(23C) (vi) of the IT Act, and since the tax statute was a complete code in itself, other laws such as the AP Charities Act could not affect approval.

HC bench rejected this argument and, thus, the present appeal.

Held

The SC held that the requirement of the charitable institution, trust, society, etc., to engage itself in education or educational activities and not in any activity of profit which are unrelated to education. If the objective of an institution appears to be profit-oriented, it would not be entitled to approval under Section 10(23C) of the IT Act.

The top Court dismissed the appeal.