Supreme Court: Profit-oriented Educational Institutions not entitled to tax emption under Section 10(23C) of the Income Tax Act, 1961

 86. The conclusions of this court are summarized as follows:

a. It is held that the requirement of the charitable institution, society or trust etc., to ‘solely’ engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education. In other words, all objects of the society, trust etc., must relate to imparting education or be in relation to educational activities.

b. Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the IT 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.

c. The seventh proviso to Section 10(23C), as well as Section 11(4A) refer to profits which may be ‘incidentally’ generated or earned by the charitable institution. In the present case, the same is applicable only to those institutions which impart education or are engaged in activities connected to education.

d. 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 - as explained in the earlier part of the judgment i.e., relating to education such as sale of text books, providing school bus facilities, hostel facilities, etc.

e. The reasoning and conclusions in American Hotel (supra) and Queen's Education Society (supra) so far as they pertain to the interpretation of expression ‘solely’ are hereby disapproved. The judgments are accordingly overruled to that extent.

f. While considering applications for approval under Section 10(23C), the Commissioner or the concerned authority as the case may be under the second proviso 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. The observations made in American Hotel (supra) suggest that the Commissioner could not call for the records and that the examination of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts etc. the proviso under Section 10(23C) is not confined to newly set up trusts - it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure.

g. It is held that 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. This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021.

In the Supreme Court of India

(Before Uday U. Lalit, C.J. and S. Ravindra Bhat and P.S. Narasimha, JJ.)

Civil Appeal No. 3795 of 2014

New Noble Educational Society Vs Chief Commissioner of Income Tax 1

Decided on October 19, 2022

2022 SCC OnLine SC 1458

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Supreme Court: Income Tax Returns And Audit Reports Are Reliable Evidence To Determine Income Of Deceased in motor accident claim petition

  In contrast, the High Court set aside the same on the ground

that the income earned was out of capital assets and cannot be said to

have been earned out of personal skills of the deceased. It

consequently went on to determine the income of the Deceased on a

notional basis as per his educational qualification. Unfortunately,

such an approach, in our opinion, is erroneous in view of the

decisions of this court in Amrit Bhanu Shali v National Insurance

Co. Ltd.10 and Kalpanaraj v Tamil Nadu State Transport Corpn.11

wherein this court has held that documents such as income tax

returns and audit reports are reliable evidence to determine the

income of the deceased. Hence, we are obliged to modify the

compensation, especially when neither any additional evidence has been produced to showcase that the income of the Deceased was contrary to the amount mentioned in the audit reports nor it is the stand taken by the Insurance Company that the said reports inflated the income. {Para 14}

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7046 OF 2022

K. Ramya & Ors. Vs National Insurance Co. Ltd. & Anr.

Author: Surya Kant, J.

DATED: 30.09.2022

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