The Supreme Court today observed that educational trusts and societies that apply for exemption under Section 10 (23C) of the Income Tax Act must only be involved in matters of education or activities closely related to education. The bench of CJI Uday Umesh Lalit, Justices S. Ravindra Bhat, and P S Narasimha further observed that Such institutions would not be eligible for approval if their goal appeared to be profit-oriented.

The court overturned its earlier rulings that read the word "solely" in Section 10(23C) as meaning the "dominant/prevailing/primary/main" object. It was made clear, nonetheless, that the law stated in the current ruling would only be applicable going forward. In response to the Andhra Pradesh High Court's ruling that the educational trusts that sought exemption under Section 10 (23C) of the IT Act were not established "solely" for the purpose of education, a number of educational trusts petitioned the Supreme Court, which denied their request to be registered as funds, trusts, institutions, universities, or other educational institutions established for the charitable purpose of education.

The court while dismissing the appeals held that charitable institutions, societies, trusts, etc. cannot have objectives unrelated to education because they are required "solely" to engage in education or educational activities and refrain from engaging in any profitable activity. In other words, all social objectives, such as trusts, must be related to educating people or involve educational pursuits as well as Institutions would not be eligible for approval under Section 10(23C) of the IT Act if their goal seemed to be profit-oriented. However, if a surplus is generated in the course of delivering education or engaging in educational activities, it is not a bar if it occurs in a particular year or series of years.

The bench observed that Both Section 11(4A) and the seventh proviso to Section 10(23C) mention profits that the charitable institution may "incidentally" create or earn. In the current situation, the same only applies to institutions that provide education or engage in activities related to education and any state or municipal legislation that require the registration of trusts or charities must also be followed by the relevant trust, society, other institution, etc. if they want to receive approval under Section 10(23C). This would make it possible for the Commissioner or other appropriate authority to confirm the legitimacy of the trust, society, etc. This justification is supported by the most recent addition of a new proviso to Section 10(23C), which will take effect on April 1, 2021.

Before concluding the judgment authored by Justice Narasimhait was held that "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, has been declared by one of the most authoritative pronouncements of this court in T.M.A Pai Foundation (supra). The interpretation of education being the 'sole' object of every trust or organization which seeks to propagate it, through this decision, accords with the constitutional understanding and, what is more, maintains its pristine and unsullied nature"

Case Details:-

CA 3795 OF 2014 

New Noble Educational Society

Vs

Chief Commissioner of Income Tax 1

Read the Complete Judgment on the following link:-

https://main.sci.gov.in/supremecourt/2012/25090/25090_2012_1_1502_39247_Judgement_19-Oct-2022.pdf